For some companies, a default, or at least a whiff of it, is a terrible thing to waste. There are companies that are so itching to get their hands on their own stocks that any pending selloff might be a remarkable moment for them, as they know that their businesses won't be that badly impacted by even an actual default because they think they have seen the movie before when Lehman defaulted.
So, I think they will buy with both hands, knowing that eventually the government will cure the default, even if it's painful and while nothing saved us from Lehman and the money just vanished.
Now, let's understand each other. A default, an out-and-out default, is cataclysmic and I think the president will not risk being the only president to ever default on the national debt. When history looks back, they won't remember the Speaker of the House, they will remember the president. That's a weighty thing to be tabbed with. But as long as the interest on the debt keeps being paid, in some form or another, even if it means other services really are shut and other payouts really are curtailed, there will be no default. The economy will be crushed. Of that, there can be little doubt. You can't have the $60 billion a day that the government pays out, at least according to the Treasury Secretary, not spent and think the economy won't collapse. That's just a gigantic swath of checks that are no longer in the mail.
At that point, the economic pain will be too hard for even the most obstinate of those who refuse to vote in favor of a debt ceiling increase, so we have to figure things finally budge. Obviously, we hope that it never gets to that. But the idea that it is as unlikely as a meteor hitting Washington or a one in 10 million shot or whatever hyperbole we keep hearing, just flies in the face of the anger, bitterness and rancor that matches the level of partisanship at the time of the Civil War.
In fact, the amazing thing about this moment is how so few are worried about it, not how many are. And that's probably a mistake given the intense hatred that has basically thrown the playbook out the window. The playbook comes back into the window when the economy really gets hurt, though, although it will be really hard to tell without government data. Somehow, I think we will feel it.
Now many companies will claim they want to take a longer-term view and sit and wait. But some companies like to take a short-term view, which is why they will take action right into whatever occurs. I say "whatever," because we really don't know what will occur.
Who has that luxury?
There are a handful of companies that truly love a crisis and use it to get their stocks at phenomenal prices. The executives have faith in themselves. The executives have faith in their companies. We know their buybacks are backed by the full faith and credit of their enterprises.
First up? I think it has to be GameStop (GME). When everyone, including yours truly, was scared to death about a gaming business that had to be in secular decline and with Amazon (AMZN) picking up whatever's left of the sales, what did the world's largest gaming retailer do? How about pay down all of its debt and buy back about a third of the company. That's right, just when everyone was fretting, GameStop, run by Paul Raines, took a look at the world and declared it good. Paul knew that the hardware game cycle was about to kick in. He realized that he could take share from whoever was left. He understood that the new iterations of games were amazing. He anticipated all of this and bought back a ton of stock at much lower prices. Now that the new Microsoft (MSFT) and Sony (SNE) machines are almost in the stores and "Grand Theft Auto" is proving to be the greatest money-making game of all time, do you think he's going to sit on his hands as the stock comes in? I think he sits there and buys with both hands, especially given that he thinks 2014 is going to be good and 2015 is better.
Don't forget, this company has a substantial European business that has just started to get better. And GameStop is one of only 24 companies in the S&P 500 with no debt, although it is the only one I would not be worried about when it comes to a debt-related recession. Thirty-one million loyal gamers are not walking away from GameStop just when the getting's good.
Next up? How about these incredible media stocks? Take a look at the amount of stock that's been bought in at Viacom (VIA.B). About 716 million shares were outstanding just before the beginning of the great recession. Now? How about 491 million shares? This company, with fabulous cable brands, just prints money and then it uses the money to buy back stock. It particularly likes to buy on bad days and it seems like the buyback isn't on autopilot. I bet Sumner Redstone's Viacom will be bidding for every share that comes in. Will CBS (CBS), another company owned by Redstone, be any different? I see the share count dropping to 624 billion now from 771 million in 2006 and that's going to continue to shrink if this debt-related artificial calamity occurs.
There must be something in the water at these media companies. Seven years ago, Time Warner (TWX) had 1.4 billion shares outstanding. Now it has 950 million. There' a company willing to buy in everything that moves. AOL (AOL), once owned, disastrously I might add, by Time Warner, in two years has taken share count to 81 million from 106 million. You should be in there with Jeff Bewkes and Tim Armstrong, as they have faith in their cash generation and are deploying that capital in a smart way.
How about Wyndham Worldwide (WYN)? Under Steve Holmes, this hospitality company just seems addicted to doing right by shareholders. Four years ago there were 182 million shares of Wyndham outstanding. Now there are 136 million for this hotel and time-share exchange company. Every time we have had Steve on he, has said the same thing. He's giving back the money to shareholders that the company doesn't need to grow. And that's why this one's such a long-term winner.
Finally, there's a company that hasn't done that well lately because the economy's a little too strong for its business: Autozone (AZO). The market's convinced that a too-strong economy makes it less likely that we will fix our cars ourselves and more likely that we will just go buy a new one. Meanwhile, Autozone doesn't care. It just takes that cash and keeps buying and when the economy downshifts, you will be glad they did. In six years the company has literally bought half the shares outstanding. Don't you think it will have a field day as the food fight in Washington continues? I think it will.
Now, yesterday I talked about dividends as a way to protect yourself and I reiterate that those are terrific safety nets. But I think that when we look at the calendar, when we look at where we are in the year and how little time is left, it is reasonable to think that these large institutional buyers are well aware of the patterns I am talking about. They will be fighting with GameStop, Viacom, CBS, Time Warner, AOL, Wyndham Worldwide and Autozone for every share. Which is why these are natural places to be bidding on cataclysmic days. If the companies weren't worried and bought all through the Great Recession, which was real and lasting, don't you think they will be buying through the debt ceiling debacle, which is phony and not lasting?
Yeah, me too.