Private Equity Update

So far in 2006 there have been 660 takeovers in the U.S. by private equity firms, according to TrimTabs Investment Research in Santa Rosa, California, and Bloomberg data.

Uh, did that say 660? This poses an interesting dilemma. Is the stock market as we know it dead?

Every day I read about Private Equity and Hedge Funds. Hedge Funds now account for at least 25% of the daily volume on the stock exchanges. They often carry a heavy stick buying substantial stakes in companies then forcing boardroom shuffles and drastic actions by the companies they target. Then there are the Private Equity Funds raising billions of dollars at a time and looking for companies to buy out, leverage and soak for cash.

It seems the big money is getting directly in the game. Why buy stock in a company that has a 5-10% return on equity a year as a public firm when you can take it private, hack it to death and rape it for 30% up front then spit it back out later if you care to?

What does this mean for the average investor? Well, lets say for the past couple of years the stock market has been stagnate after a short recovery from the crash of 2000-2001. The average Joe is working his but off to make a few percentage points from the market and if he is not awake he can have losses on the books rapidly.

For the “special” money investor, they can play the Hedge Fund industry and pay unregulated managers to do whatever necessary to rake out a higher return than the average Joe. This means heavy trading, shorting and raiding companies or trading derivative products not understandable or accessible to the average Joe in efforts to make a profit.

Or they can dump a few million in a Private Equity Fund and go along for the ride leveraging balance sheets to buy out firms and raking them for cash to show high returns.

I am reminded of the late 1990’s when it became obvious that the US Legislative Branch Government had also become irrelevant. The congress and senate became tabloid news creators falling over themselves to “dirt out” one of their opponents while the world around them spun at ever faster speeds. All the engineers dumped on the street after the cold war ended fed the technological revolution and internet phenomena. Meanwhile, the international political vacuum created by the end of the cold war was completely ignored by the idiots, many of which would stand up and brag they did not own an passport, while the international business groups were going gangbusters in the newly created “markets” of eastern Europe and Asia.

By 2001 America had a wake up call on the international soup of shit that was being dumped on the developing world and to this day the impotent idiots that make up the government (X the right wing evangelical war lords of the White House) have not figured out a damn thing. They are hell bent to knee jerk reactions to every situation, cannot think beyond their noses and are bought hook line and sinker by industry. So the US is now being governed by paranoid idiots and right wing zealots.

Back to the stock market. If the stock market as we have known it since the early 20th century is truly becoming irrelevant to anyone with real money then are we seeing the internet trading companies and news junk blasted by dozens of info.net organizations as nothing more than a way to suck money from the suckers who have visions of 20th century stock traders that could make money in “the market”?

This is a real question to ponder and one to take very seriously as the “investment community” evolves.

As is true in the world of economics “bad money drives out good” could mean an end to the relevance of the “good’ol market” and a new dominance of “new money schemes” that I have said many times over are heading for a fall in the not to distant future. It will be not till then that our impotent government full of knee jerk idiots will wake up and realize the future of the average Joe has been stolen from him just like Daddy Bush had raided the treasury and stolen our citizens future security.