As the Dow hastens a retreat below 8,000, and credit markets remain
mostly frozen, a pall is setting in over the media's tone and outlook
on our economic climate. Coupled with the week's other news (Capitol
Hill hearings and the latest consumer price index figures, to name a few), the
Depression babble
that was chic in the weeks before the election is starting again to
drown out the post-election coverage of President-elect Barack Obama's
plans for the future. It certainly doesn't help that the chiefs of the
Big Three carmakers have spent the last two days looking for rescue funds
or that CPI saw its
steepest monthly drop in 61 years. Now, it seems even dealmakers are buying into the recession-or-maybe-depression theme.
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The latest dealmaker to jump on board that gloomy bandwagon is
veteran investment banker Joseph Perella, founder of boutique advisory
Perella Weinberg Partners, who recently discussed the topic
at a forum on business risk hosted by insurance market Lloyd's of
London on Tuesday. Reuters' DealZone blog notes he told the audience:
There is no overnight cure for the global economic crisis.
And if a deep recession sets in things could get worse before they get better.
"The question of the day remains where is the bottom," said Perella.
DealZone continued in regard to Perella, who's been in the business for over 40 years:
In the early 1970s he saw some companies valued as cheaply as
four times earnings. He does not predict valuations will hit that rock
bottom, but falling to a stock price of ten times earnings was feasible.
What is not realistic, he said, is average Wall Street expectations for 15 percent growth in earnings next year.
One more bit of "bah humbug." Corporate default rates have yet to
hit recession levels, said Perella, and he predicts more private equity
deals will have to be restructured.
And while we may not have recession-level defaults yet, there are
other signs of recession, including contracting GDP, rising unemployment
levels and lower CPI. So if defaults haven't caught up with other
factors, it implies we have yet to hit bottom, and comments like
Perella's confirm that thesis. - Matthew Wurtzel
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Matthew Wurtzel is the editor of Dealscape.
