Presentation on theme: "Rage with the Machine Originally appeared February 27, 2007."— Presentation transcript:
Rage with the Machine Originally appeared February 27, 2007
Rage with the Machine I’ve always been told that rage is not a good thing. Actually, when it comes to investing and amassing your wealth, all emotions are bad, except perhaps “greed”, but that whole topic was adequately covered by that spokesreptile (or is it spokesamphibian) for that car insurance company. The name of that company escapes me, but it’s probably not relevant. Anyway, that soliloquy about greed was probably the last truly great role that gecko had, and whatever happened to that gorgeous mane of hair? So why is rage a good thing. Because we’re in a raging bull market. Rage with the Machine. Not against it. Now the streets are littered with pundits that were diehard bulls, their carcasses devoured by those diehard bears, so what makes me so sure? By the way, the road is also littered with futurists. Have you ever read through a 2 or 3 year old issue of Newsweek? Man do these guys have a bad track record with their predictions. If futurists are so good, why can’t we find a single one to go on record and predict that they will be wrong about nearly everything. I would have respect for that guy. Me? I’m a pasturist. My post-dictions are good until the date stamped on top. Before that, you’re at your own peril. But I’d stake my 20/20 hindsight against their 20/800 foresight any day.
The easy answer, but not the key metric, is just look at all of that private equity money. Can you believe $45 billion for Texas Utilities (NYSE – TXU)? The guys at Kohlberg et al. aren’t newbies at this. They know a money maker when they raid it. But they didn’t need to take on the barbarian personna for this one. Companies are being taken over by private equity on the cheap. These companies want to be taken over. This is a different era. We’re not talking about under-valued companies, or those being poorly run. We’re talking about solid companies that will spew forth even greater riches when relieved of the burden of public ownership. If you think the salaries of CEO’s are obscene in the public sector, wait until you see the private sector salary packages. Oh, that’s right, they won’t have to disclose. And that’s just the point. Don’t mess with my ability to negotiate a salary package. Get congress involved? What are you crazy? Why in the world would we want congressional oversight of salaries in a free market? Do you hear anyone at Goldman Sachs complaining? Control my right to an obscene salary, will you. Well then, I’ll just go public – not!!!. Private. That’s here the real money is waiting to be made. No Sarbanes-Oxley for me, thank you. Szelhamos Rules The Blogs
First Harrahs, and then today, Station Casinos. When a sector senses private equity, it gets hot. And what’s next, a rumored private equity offer for Dow Chemical (NYSE – DOW) for $54 billion. But don’t get suckered into this sector, it’s probably already too late. Or is it? Have you seen the run in Lyondell since early January 2007? It up about 35%, including a 2.8% dividend rate (ex-dividend February 22, 2007). Dow is up about 13% in that same time frame and sports a 3.5% dividend. How about Eastman Chemical, what has it done recently? Nothing. It’s up about 1.6% in that same period, and also has a 2.9% dividend. If there’s a time, it’s now. And you know the conventional wisdom. All of this money invested in TXU and other late great public companies, has to go somewhere. So it goes to the rest of those dinosaurs – publicly traded companies. Assuming that investors are rational, they’ll follow the hot sectors. Of course, the two key assumptions here are rationality and the inherent wisdom of the crowd. Too bad I don’t know how to use emoticons, so just imagine an upside down smiley face. So what is the key metric. Why rage with the machine? Very simple. Szelhamos Rules The Blogs
First a question for you. Who is, the single greatest fed chairman to take office immediately after Paul Volcker? Of course, it’s Alan Greenspan. Do you remember when the world’s markets trembled at every nuanced word? I loved watching the stock ticker gyrations when Chairman Greenspan gave oblique statements and cryptics responses during his congressional testimony. No one understood a word he said, but that never stopped the gyrations. So what happened today that makes me so certain about the near term future, even with today's 416 point drop in the Dow? The venerable ex-chairman of the Federal Reserve Bank of the United States of America was quite clear and direct. We are going to have a recession by the end of 2007. You couldn’t get more clear than that. And the market? How did it react. Well, I’m embarrassed to say that the market was very rude to Dr. Greenspan. They ignored him. Completely. Words that would have otherwise caused blood in the streets just came and went. This is the key metric. There is too much momentum. Greenspan may turn out to be correct, but the time is now. We’ll know the froth after we’ve seen it. See, I told you I was a pasturist. Now go and find those remaining good buys out there. Me? I bought some Goldman Sachs today. Szelhamos Rules The Blogs