By: Margie Brown, CIRI president and CEO
“The only thing we have to fear is fear itself.”
Franklin D. Roosevelt, First Inaugural Address, 1933
It has been an unsettling experience, both on personal and professional levels, to watch the stock market plummet during the past two months. As CIRI’s president and CEO, I am keenly attuned to drastic market fluctuations because CIRI, like many other large corporations, has significant assets invested in marketable securities.
Beginning on Sept. 16, failures of large financial institutions in the United States, due primarily to exposure to securities of packaged subprime loans and credit default swaps, rapidly evolved into a global crisis that has resulted in bank failures and sharp reductions in the value of equities worldwide.
For months, financial experts flirted with the term “recession.” Now even the most optimistic pundits acknowledge that our nation has entered a recession. We have moved to the point where the length and impact of the recession are the topics of debate, not its existence. And the uncertainty surrounding these questions is driving a wildly fluctuating stock market.
It is unrealistic to think CIRI will be unaffected by this recession. Here are two ways CIRI is impacted right now.
- Our portfolio of marketable securities is hard hit and has significant unrealized losses. Some expert investors, including Berkshire Hathaway CEO Warren Buffett, say the stock market has been oversold because of overreaction to grim economic news. And like Berkshire Hathaway’s portfolio, CIRI’s smaller, but still sizable, portfolio of marketable securities is down sharply.
- Real estate developments throughout the country have slowed, but not uniformly. We are pacing our real estate developments in Texas to match the economic conditions we face there. San Antonio’s economy is currently faring better than most other Lower 48 communities, but the city will not totally escape the effects of the global recession.
Sometimes it is hard to find the silver lining in turmoil. But I believe there are at least three reasons to take heart.
First, Anchorage and Alaska tend to fare better during economic downturns than the rest of the country. Business Week recently ranked Anchorage among the U.S. cities best able to ride out a recession because its economy is supported by a combination of Alaska’s oil and gas industries, U.S. military and government spending and tourism. The successful opening of Tikahtnu Commons’ Target store in October indicates that consumer spending is still strong in Alaska and Anchorage, making this area one of the country’s brighter spots for retailers.
Second, CIRI stands by its long-term strategy of balancing its lumpy income streams by investing in businesses that produce steady operating income. This strategy will benefit from recent economic trends that drove up the valuations of good companies, in part because many potential buyers were chasing the same companies and driving up prices. The economic downturn and tight credit markets, which makes financing more difficult, have taken many buyers out of the market so that the valuations of strong companies are falling from their recent highs. 2009 and 2010 may be the ideal time to make significant acquisitions.
Third, in addition to operating companies, we will likely see good real estate opportunities, as credit-strapped owners put distressed properties up for sale. CIRI has deployed its considerable real estate expertise in several markets, and we are aggressively investigating opportunities to acquire distressed but healthy properties. Like operating companies, we expect good real estate acquisition opportunities to surface later in 2009.
These are indeed distressing economic times. However, viewed in the long term, today’s downcast markets represent growth opportunities. Throughout 2009, CIRI’s Board and management team will work together closely to find and seize investment opportunities.
As volatile financial news washes over us once again, we would be well served to remember President Franklin D. Roosevelt’s words. On the occasion of the president’s first Inaugural address, he faced his countrymen suffering in the depths of the Great Depression and solemnly assured them that “this great Nation will endure as it has endured, will revive and will prosper.” The nation did revive and prosper.
Our current economy will revive from this recession. And when it does, CIRI will have positioned itself to strategically capture the value inherent in that recovery.