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2009 Financial Crisis - Sequoia RIP Good Times
2009 Financial Crisis - Sequoia RIP Good Times
2009 Financial Crisis - Sequoia RIP Good Times
GOOD
TIMES
NOW WHAT?
1
WALL STREET
HOW DID WE GET HERE?
ERIC UPIN
3
MULTIPLE PROBLEMS
10,000 10
5,000 5
0
1970 1980 1990 2000 2008
4B 150 10%
8
3
2 125
1
2
0 100 0
1980 1990 2000 2008 1996 2002 2006 1990 1995 2000 2005 Sep 2008
U.S. inflation (annual year/year CPI change) Yield on 10-year U.S. treasuries
25% 16%
12
15
Average
5
Average
4
-5 0
1950 1960 1970 1980 1990 2000 2007 1960 1970 1980 1990 2000 June 2008
2%
-2
-4
-6
-8
1985 1990 1995 2000 2005
DEMAND
KEEPS U.S.
LONGER- BUYS
TERM FOREIGN
RATES GOODS
LOW
Source: Bridgewater
DEPENDENT ON THE KINDNESS OF STRANGERS
Source: Bridgewater
LIQUIDITY AND EASING SPREAD TO HOUSING
2M 100% Government
Prime-
Jumbo
80
Prime-
60 Conforming
Average
1
40
Alt-A
20
Subprime
0 0
2002 2006
1980 1985 1990 1995 2000 2005 2008E
250
1998-2006
8.0% annualized
150 1900-1929
-1.2% annualized
100
50
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2007
REPEAL OF GLASS-STEAGALL
$525T
350
35x
U.S.
GDP
175
U.S. GDP
0
1995 1998 2001 2004 2007
Note: Outstanding amount is not a pure measure of risk as some positions are netted and have collateral; U.S. GDP was $13.8T in 2007
Source: Bank for International Settlements
SIGNIFICANT EXCESS CAPACITY
Source: Bridgewater
VERY TIGHT CREDIT
High yield spreads (basis points) Investment grade spreads (basis points)
1,250 500
1,000 400
750 300
500 200
250 100
0 0
1998 2000 2002 2004 2006 2008 1998 2000 2002 2004 2006 2008
Nikkei Index 1988 - present Japanese discount rate Annual real GDP growth
40,000 8% 6%
30,000 6 3
Average
20,000 4 0
10,000 2 -3
0 0 -6
1990 1995 2000 2005 Oct 2008 1990 1995 2000 2005 Jul-08 1990 1995 2000 2005
GLOBAL
SECULAR
FOCUS ON QUALITY
LOWER RISK
REDUCE DEBT
MAIN STREET
WHERE ARE WE NOW?
MICHAEL BECKWITH
21
THE U.S.: A NATION OF CONSUMERS
LONG-TERM AVERAGE
Source: Current Population Survey/Housing Vacancy Survey, Series H-111 Reports, Bureau of the Census, Washington, DC 20233.
WAGE GROWTH & PERSONAL SAVINGS
PERSONAL SAVINGS RATE FALLING REAL WAGES ERODING PCE
Source: Bureau of Economic Analysis, Federal Reserve, Haver, Bureau of Labor Statistics, Census Bureau, Factset, Morgan Stanley Research.
CONSUMERS BUCKLING UNDER DEBT
Source: Haver, BEA, NAHB, Conference Board, EIA, Morgan Stanley Research.
FROM VIRTUOUS TO VISCIOUS CYCLE
DELINQUENCIES/FORECLOSURES
PRICES FALL
MEWS DECREASE
RECESSION
Source: Federal Reserve, Haver, Bureau of Labor Statistics, Census Bureau, Factset, Morgan
Stanley Research, Case-Shiller & DB Global Market Research.
ON THE BRINK OF A RECESSION
CONSUMER CONFIDENCE AT MULTI-DECADE LOWS
Source: Haver, NAHB, Conference Board, NFIB, Morgan Stanley Research, DoL & DB Global Markets Research.
EARNINGS BEGINNING TO ROLL
S&P 500
IT
MEDIA
TELECOM SVCS
Y/Y
Current S&P 500 Consensus Actual and Expected Operating Earnings Growth (Weighted-Avg. % / Y/Y)
CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08E CY09E
Financials 5% -10% 18% 25% 11% 5% 23% -37% -46% 109%
Consumer Discretionary 0% -24% 33% 11% 28% 2% 9% -10% -16% 41%
Media -1% -6% 34% 12% 33% 28% 27% 15% 11% 11%
Information Technology 28% -63% 0% 46% 43% 20% 12% 21% 10% 17%
Telecom Services 6% -24% -8% 0% -8% 14% 17% 5% -1% 10%
S&P 500 17% -17% 5% 18% 20% 15% 16% -4% 1% 23%
ADVERTISING MARKETS ARE CRACKING
Y/Y
20%
10%
0%
-10%
-20%
-30%
Jun 08E
Jun-95
Jun-96
Jun-97
Jun-98
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
S&P 500 EPS Growth Tech Spending Growth
Source: Gartner Personal Computer Quarterly Statistics Worldwide Database, 5/08. JPMorgan estimates for 2008-2009
AMAZON.COM & BUY.COM
Amazon.com Financial Performance '99‐'05 Buy.com Financial Performance '99‐'05
$9,000 80% $900 40%
60%
20%
$7,000 $700
10%
$6,000 40% $600
0%
$5,000 $500
$ Mil
$ Mil
20% ‐10%
$4,000 $400
‐20%
$3,000 0% $300
‐30%
$2,000 $200
‐40%
‐20%
$1,000 $100 ‐50%
$0 ‐40% $0 ‐60%
1999 2000 2001 2002 2003 2004 2005 1999 2000 2001 2002 2003 2004 2005
300% 20%
$300
250% $2,000 15%
150% $1,500 5%
$200
$ Mil
$ Mil
100% 0%
$150
50% $1,000 ‐5%
$100 0% ‐10%
$0 ‐150% $0 ‐25%
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005
DOUG LEONE
38
UPS AND DOWNS ALWAYS OCCUR
IT IS DIFFERENT THIS TIME
RECOVERY WILL BE LONG
TIME
CHANGES IN FINANCING ENVIRONMENT
“If you are a venture capitalist looking for a new limited partner, don't stop in here.
Don't try and sell me on a new fund, and good luck trying with everyone else."
“If you’re a second or third-tier venture firm trying to raise another fund, forget about it.”
“It will start first in private equity funds where there will be a substantial miss on capital
calls. Then we'll see it next in venture capital."
"If you are start-up that is not cash-flow positive you are in a tough spot right now. If you
haven't figured out your business model yet you are in trouble.”
“It's going to be hard to get another round. You aren't going to get a second life this time."
NEW REALITIES
PRESERVE GRAB
CAPITAL SHARE
✔ MUST-HAVE PRODUCT
✔ CASH IS KING
✔ FINANCE
CASHBURN WHERE CAN PAYMENTS BE DEFERRED?
G&A WHAT DEPARTMENTS ARE ESSENTIAL?
DEATH SPIRAL
SURVIVAL OF THE QUICKEST
DEATH SPIRAL
EXPENSES
COMPANY A
COMPANY B
10/08
TIME
NO ONE MOVES FAST ENOUGH
ADAPT QUICKLY
MAKE CUTS
REVIEW SALARIES
54