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May 21, 2007 - Issue #059

Private Equity Bubble!

DJ-30: 13556.53 +230.31 +1.73%. In the Real World: 55.61 +0.95 +1.73%.

UP: 22, Down: 8.

Trends (weekly): This is the subjective part.

Rising 24 (+6) 80%:

AA, AIG, AXP, +*BA, CAT, +*DD, DIS, GE, HON, HPQ, IBM, INTC, JPM, KO, MCD, MMM, MO, +*MRK, MSFT, +*PFE, +*T, UTX, VZ, +*XOM.

Consolidating 4 (-5) 13%:

C, +*GM, HD, WMT.

Declining 2 (-1) 7%:

JNJ, PG.

+/- denotes change of direction.

* denotes change of category.

Private Equity Bubble!

While the above score card indicates, by my estimate, that 80% of the Dow components are in rising trends a curious phenomenon is unfolding:

More than half of the current wave of private equity deals and leveraged buyouts are being financed by "junk" bonds!

Not only that, investors are accepting historically low yields for the risks they are taking. Not good. Always get paid for taking risk.

Just because the economy is stable and corporate profits are surging today is no reason to ignore risk. What happens when a lot of the deals being done with cheap money go bad? Can you say "sub-prime"?