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May 21, 2007 - Issue #059
Private Equity Bubble!
Dow score card for the week ending 5/18/07.
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"?
Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!
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