February 02, 2008

Microsoft - Yahoo: Does this deal herald The Great 2008 Fire Sale?

Watch now as smart investors, companies and countries swoop in to buy distressed real estate and institutions for pennies on the dollar, deploying their mountains of accumulated cash and low-interest loans.

The Great 2008 Fire Sale is on.

So, is it time for you to start wisely deploying your cash?

I think it is. But be careful. Some knives fall all the way. (In other words, don't rush out to buy a condo in Miami or pets.com stock)


the real peyton manning said...

C'mon Kiethmeister don't get all bullish now, the party's just startin.


Anonymous said...


WHAT the 'Hell' is wrong with my pets.com stock?


Anonymous said...

With all due respect Keither, Yahoo is being bought at a premium.

This is no falling knife, this is an intentional shock across the bow of google.

33% to 40% of peak value is the knife catcher special when it comes to real estate. Buying before is a fools game.

Frank@Scottsdale-Sucks.com said...

All the Microsoft-Yahoo deal really heralds is Microsoft's admission that their software is garbage, people are catching on to their game and buying Macs instead, and if they want to continue huge growth the only way for them to accomplish it is by buying out fast-growing companies.

Mitesh Damania said...

No!!!!! M$'s gonna screw up my yahoo mail!!!!! Please God, don't let this deal go through!

the real peyton manning said...

Listen to the champ Kiethster SELL!SELL!SELL!


Go Eli!

the real peyton manning said...

One last thing Kieth, seriously, your calls have been pretty good, but you're almost always early.
Remember how long it took for housing price declines to really pick up or that home depot stock to tank after you made your calls.
There will be a good time to start accumulating assets but I don't think 2008 is it.
Anyhow, here's my Superbowl prediction: Patriots 42, G men 10.

keith said...

I'm saying SELECTIVELY and CAREFULLY start using some of your accumulated cash.

Bernanke told you what he's going to do, and he's doing it. Don't fight him.

The dollar is being intentionally destroyed. Savings accounts and t-bills are paying 2% - 4% max. Some companies have gotten thrown out with the bath water. And somewhere in the world, there's a house or plot of land that would make sense to buy today if you can get your price.

Let's take yahoo though - it'd fallen 47% from $34 to $18 in the past few months. That was overdone. And now MSFT comes in and takes it out, smartly.

There's more, many more companies out there ripe to be picked off. Financials, energy, retailers, etc. Good companies with beaten down stock prices.

There's also other companies that are just great companies and if you're a buy and hold investor look like good entry points now.

And then there's companies that will simply go bankrupt. Just like dot-com days. They have no value, or significant negative value. Countrywide is one of those, as BofA will find out, either before they finish the transaction or a year from now when they take the writedown.

And remember, stocks are NOT houses. Homes and land will continue to plummet until we're back to pre-bubble prices, until the fundamentals make sense, and until rental income is greater than ownership costs.

Stocks will go up and down and there's some nasty surprises ahead. But you've accumulated cash smartly, and it's time to take a look around.

The real peyton manning said...

What you're saying makes sense but I just feel it's too early in the game. January was a rocky month for stocks, but I didn't see anything that looked like capitulation. There are so many pitfalls lying ahead, it feels like March of 2000


eric in vegas said...

"All the Microsoft-Yahoo deal really heralds is Microsoft's admission that their software is garbage, people are catching on to their game and buying Macs instead, and if they want to continue huge growth the only way for them to accomplish it is by buying out fast-growing companies."

Microsoft fucked up so bad with Vista and now they're overpaying for a failing Yahoo in a desperate attempt to stay in the same galaxy as Google. If they would have let Yahoo continue their downward slide they would have been able to buy them for at worst half what they're paying now.

happy homeowner in the stix said...

It's always a good time to deploy your cash wisely, Keith. ;)

Anonymous said...

hmm, i thought maybe the purchase had something to do with yahoo owning some viable technologies that threaten the ms empire, like the mighty groupware/e-mail beast, zimbra. and that maybe the purchase gives them another rung on the catch-google ladder.

Stuck in So Pa said...

I think that you are calling it too early keith. Some bargains are popping up here and there, but the sheeple arn't bleeding enough yet! Oh, but they will!

Lately,I,ve seen a lot of goodies at the weekly auction house. Huge crowds now, more dealers(who know what things sell for)than ever, but hammered down prices are low.

People are getting desparate to unload all that BLING, but nobodys paying much attention, YET!

keith said...

I am early.

I was early with the housing crash, and anyone who took my advice is much better off.

And now I'm early saying there are bargains to be had with some stocks and other fire sale assets.

That said, keep pets.com (or worldcom, or enron, or ...) in mind. Some stocks are going to zero. Others will be just fine, and are on sale.

And I'd like any of our realtor friends to post ONE HOUSE, just ONE HOUSE, that I could buy today with 5% or 10% down and rent out for positive cash flow.

When they can do that, then it's time to start looking at housing again. 2010 and beyond though I'd say.

A lot of you have saved up a lot of money (declining US dollars mainly) these past few years. Cash is king. Or "was" king - it's time to use some of it where it makes sense.

Most people don't have cash - they were all in when the market tanked, they're in debt up to their eyeballs, and they can't buy anything.

But no matter what, be patient, be careful, run the numbers, look at the fundamentals, and be smart.

It's still dangerous out there. REALLY dangerous.

But I'm out there buying. Selectively. Carefully. And expecting to take a haircut here and there along the way.

LauraVella said...

We live in the bay area, and the knife falling has only just begun.

Nothing for sale in the neighborhoods we like here in Alameda, and frankly,I really dont want to own for another 3-4 years, because I want to buy as close to the trough as possible with the most selection of homes. Right now, there's zero to chose from.

I must say though- home sales did pick up here since the feds knocked 3/4 off the rate two weeks ago.

Springtime should be interesting here on the island.

LauraVella said...

Anon said:"No!!!!! M$'s gonna screw up my yahoo mail!!!!! Please God, don't let this deal go through!"

Oh no, you're right. Microsoft better not mess with yahoo mail- it superior to MSN's hotmail in every way.

LauraVella said...

The real PM said:" January was a rocky month for stocks, but I didn't see anything that looked like capitulation."

I agree with you, January was the one of the worst months for the stock market. They say if Jan. is a lousy month, it doesnt fair well for the rest of the year...I dont trust it, seems like its a ticking time bomb ready to go off.

I will add though - with master Ben pulling the levers I can see why people want to dive in.

I just don't know.

Bob said...

How about gold???

Anonymous said...

There are positive cash flow houses in the Midwest. I have a co-worker who buy homes in distress and rents them out. The houses are 3-2 and all cost under $90,000. The area is near the new Dallas Cowboys stadium.

Anonymous said...

Dead cats........

Look for distressed small biz ops.

Anonymous said...

Take advantage of the next great bubble!!



Mark in San Diego said...

I have moved cash out of 2% money markets at Fidelity to 6% or better dividends in companies that have paid dividends (and raised them) for the past 25 years. . .just bought Chevron during the crash for $78. . .ok they only pay 3%, but they have raised their dividend yearly for the past 25 years!!. . .also bought some nice pipeline companies SXL, APL, and a few other infastructure stocks. . .I agree - NEVER fight the Fed. . .

Buzz Saw said...

The foreigners will buy the best ocean front properties, the Americans can live in the shanty towns further inland and work for them. Justice is served.

SeattleMoose said...

RE crash is only in the late 2nd inning...a long way to go.

As far as MS/Yahoo. Yahoo is way behind Google and losing ground every day. MS is like the latter stages of any large empire...fat, lazy, living off past glory, and looking for the "easy route" to keeping the party going.

I believe that no matter what MS does, it is a slowly sinking ship. Its latest offerings Vista and Zune only confirm this. They do not innovate at MS, they imitate, buyout, and bully. The game is almost up.

Anonymous said...

"The foreigners will buy the best ocean front properties"

And what become landlords? Or are you suggesting they might move here and, god forbid, consume?

Anonymous said...

Most companies make a critical (if not fatal) mistakes.

Home Builders bought too much land at peak prices.

Banks lent out money to subprime borrowers.

Rating Agencies rate junk as AAA.

Investment banks buy AAA rated subprime junk.

J6P overpays for his home.

Ebay overpays for skype.

Microsoft overpays for Facebook and Yahoo!!

Anonymous said...

And yes, Bofa decides to inject itself with CFC's toxic mortgages!!

Anonymous said...

Mish says banks are loaning from reserves they borrow from the Fed window. Banks are in the red for capital, non-borrowed reserves. In other words they are broke and the Fed is printing money so the banks can fund daily business.

Rolled over the 401K in its entirety to EuroPacific. Oil, natural gas, mining and foreign currency. Threw in a few commodities in sugar, coffee and grain. Will get my dividend or yield plus the gain of the falling dollar since all is in foreign currency. They even have a money market fund to hold cash in Aussie Dollar.

Feeling a little better. The days of the bubble are gone. Is about safe haven now.

Anonymous said...

Microsoft fucked up so bad with Vista and now they're overpaying for a failing Yahoo in a desperate attempt to stay in the same galaxy as Google

Ballmer should have been fired the day Gates quit.

This is the next HP/Compaq AOL/TimeWarner.

Well, Microsoft has sure lived up to its argument during the anti-trust trial that it didn't need to be broken up because competition would come.

Except that it was its own incompetence that ruined it.

Microsoft would have been much stronger today if they had voluntarily broken themselves up. If they believed their own capitalist arguments they would have done it.

Today, working at MSFT is like working for a Stalinist tractor factory. Drudgery in the service of maintaining the corrupt empire.

That's why all their best people bailed to Google.

Rich said...

This is the beginning of a massive unwinding. The tectonic plates are shifting and those who built on this ground with no respect to historical cycles will feel the pain.


the real peyton manning said...

That's right anon 6:13, and don't forget about Bill Gates buying home builder stocks about a year ago.

Lauravella, during the last interest rate cutting cycle led by Greenspan the stock market spiked after fft cuts but the trend was downward, for years.

area 51 said...

Speaking of fire sales:
More FB's resorting to arson.


Anonymous said...

It's exactly what Peter Schiff said on his book. Right on track, line by line.

Where's that dude to yell: ENJOY THE DIE OFF!


Anonymous said...

Another MS bad move. Buying that falling knife with a 63% premium.

Anonymous said...

Perhaps MSFT bought Yahoo afraid that Google would make a move first.

Frank@Scottsdale-Sucks.com said...

I had a one-hour call with Google last week to preview some up-and-coming stuff they're developing (I'm one of their biggest AdWords customers for almost 5 years now, hence the invitation and their request for my input).

Let me tell you, the stuff they're developing will BLOW AWAY anything MS and Yahoo can do. They made me sign an NDA before the call so I can't give specifics, but believe me, they're just BEGINNING their dominance!!

Anonymous said...

The reason people like Bill Gates and Bill Miller were buying homebuilder stocks is because they are out of touch with the middle class. They don't understand why J6P cannot afford a measly $500,000 house. If the Bills can afford $60,000,000 houses, why can't the average worker afford a regular house? So they buy buy buy, thinking that J6P has to live somewhere. They forgot that J6P can't rent for much cheaper.

its all rigged said...

MS took their cue from the PPT to spearhead a new M&A bubble.

Take it or Leave IT Says: said...

Nowhere near bottom.

Now NOT A GOOD TIME TO BUY anyhing, ANYTHING my Friends...

Wait until Summer and get back to me.

The As*hole FB will be living in the gutter where they belong with their Fat, Stupid, Greedy and incorrigable projeny.

F*ck Them.

When the car dealer says "$36,500 plus tax" your reply: $26, 900 out-the-door" plus Free Financing for 48 months, or

Keep it - You'll always have it...
How's your sales month going?


Anonymous said...

ETrade will let you invest in stocks, bonds and currencies in foreign denominations. Protect yourself and your famiglia.

Anonymous said...

Keith. Grazie. Bene fatto

Anonymous said...

A few weeks ago you were saying that cash will be king.
Now you are saying that cash was king.
I'm confused.

Стивен said...

Don't get sucked in by the "Fed cat bounce" last week, Keith.

Even if the fundamentals suggest a fire sale for some companies now, the markets have not yet priced in the severity of the recession.

I called the bubble way early (2003!), but my biggest mistake was thinking that the bubble's burst would be a normal real estate correction and not accepting extremely bearish views about how the bubble popping will poison the entire global economy.

Well, the biggest, baddest bears appear to have nailed it. BTW, Peter Schiff counts as a bull among this crowd because he's long foreign stocks and commodities.

Here's some very bearish cold water from Nouriel Roubini on the idea that we can start to catch some knives now:

The scary free fall in recent days of US and global stock markets is no surprise to the readers of this column as it has been analyzed and predicted for a while now. The collapse of global equity markets on Monday January 21st is not just an episode of financial contagion from the US stock market to other stock markets.

It rather signals that global stock markets are now beginning to price the following things.

First, the US recession is unavoidable and has already started; and this recession will be ugly, deep and severe, much more severe than the mild 8-month recessions in 1990-91 and 2001.

Second, the rest of the world will not decouple from the US since – as discussed in detail below – many trade, financial, currency, policy, confidence links – lead to a transmission of negative growth shocks in the US to the rest of the world that will lead to a sharp global growth slowdown: 2008 will be the year of recoupling rather than decoupling.

Third, the US stock market has already started to reflect in the last few weeks the consequences on earnings and corporate profitability of a severe US recession.

Стивен said...

Here's Bob Shiller expressing fears about a severe recession, "which is a very powerful anti-inflationary mechanism."

The investor decision tree looks like: recession or not? severe or not? inflation or not?

The severe recession/no inflation crowd (Roubini/Shiller) sounds a lot more convincing right now than the severe recession/inflation crowd (Schiff/Rogers/Paul).

There was just a $2 TRILLION hit to household wealth last year, with A LOT MORE to come if we're all right about the size (30-50%) of the correction.

This is an unprecented economic shock whose effects are impossible to predict. You've got big balls if you're bottom feeding "SELECTIVELY and CAREFULLY." I don't think that there's any rational way to do this now, and the vortex will suck the good down with the bad, as often happens in any recession, to say nothing of a severe one.

Conclusion: cash is king. Hold it tight.

Anonymous said...

Nice comments СТИВЕН.
We survived it in Russia and we'll survive it here. :)
In Russian:
В России пережили и здесь переживем.