"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

04 December 2006

Bubble, Bubble, Toil and Trouble

Bubbles - Bubbles are not the nice frothy things you enjoyed in your bathtub as a child. Now, BUBBLES are signs of financial excess, exploitation, greed, and INCREASINGLY FREQUENTLY ignorance. Today's justification for a 40 point NAZ jam was the Street's great reception to the absurd deal by BONY to buy Mellon for $17.6B on the grounds that "SCALE" is an advantage in the asset management business.

But look at Station Casinos, Agere, and other deals today? Consolidation leads to #1) job cuts, #2) lack of choice, #3 concentration of corporate power and..let's leave it there.

But the bubble part is even more scary. Respected analysts at BCA Research understand that the writing is on the wall- aggressive leveraging of corporate balance sheets going into a recession is a HUGE MISTAKE. Like that of the manual laborer who borrows all $500K on an ARM to buy that trophy home....

What happens when former government officials undermine the functioning of the public sector regulators? See this..

Corporate Bond Investors: Complacent?
12:00:00, November 30, 2006
The leveraging of corporate balance sheets is slowly unfolding via a host of investment vehicles. Speculative activity, while not yet frothy, is on the rise and will eventually undermine corporate bonds. Merger & acquisition activity is booming. Meanwhile, private equity deals are mushrooming with no end in sight. Reportedly, there are hundreds of billions of dollars of uninvested private equity capital available for deals. Perhaps equity investors have decided that corporations are now under-leveraged and that CEOs are acting too cautiously. Thus, investors are using private equity as a way of re-leveraging balance sheets to "maximize shareholder value." Our indicators do not signal that the scramble for “beta” and yield has reached the irrational stage. Nonetheless, it is troubling that speculation is on the rise and investors are aggressively squeezing down corporate spreads, at a time when leverage is rising.

Sadly, this movie ends badly. No hero makes it out of the burning vehicle. No one gets a trophy for the winning touchdown. And these firms pay themselves UP FRONT for doing these deals so they only have residual exposure to the outcome.

But there is fallout in other realms as others less experienced or 'plugged in' attempt to employ leverage... Read the following article about what goes on in the real world when people overreach. And this isn't even in Iraq....

And the striking chart pointing to absurdly low volatility and thereby perceived risk shows how "managed" the stock market has become by FED and Treasury actions.


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