Wednesday, November 14, 2007

Here Come the Vultures


At my last hedge fund/alternative investments seminar in Austin on October 25th, I sought the views of my expert panelists re the current credit crunch and what they thought the severity of the damage would be. The response by two of my panelists was most interesting, to say the least.

The two panelists, both credit experts, were nearly beside themselves with joyful anticipation. Why? Because they planned to exploit the situation by scooping up bargains from the chaos and fire sales unfolding.

So, when we hear stories re the hedgies and private equity boys and girls working overtime to reallocate their assets to join the bargain hunters seeking to benefit from the pain caused by the credit squeeze, we should not be surprised. Thanks to abundant liquidity, the hedgies, private equity, and asset managers with similar interests and abilities as my two panelists are forming a floor under the current credit debris and, in the process, are helping to bring to it to closure.

It is, therefore, reasonable to assume that the primary point made in yesterday blog posting re Sarbanes-Oxley and the cleaning up of the books before the year is out will likely become some of the prime assets the bargain hunting hedgies and company will be interested in. The CEOs get what they want – clean books and no personal lawsuits – and the hedgies and company get what they want – great bargains. A win win. As for the investors in the affected companies and the sub prime and other credit borrowers, however, one can only say, “You’re din din.”

Investment Strategy Implications

Winston Churchill, a man well acquainted with times of stress, once said, “The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.” I think it is fair to say that, despite their unsavory reputation, vultures are opportunistic.

So, equity investors should rest assured that these scavengers will help facilitate the end of the current credit crunch thereby enabling all to rejoin the liquidity party.

Come and get it!

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