Barron's had a quick reference to the upcoming First Data buyout, the amount of financing needed and whether or not the deal would get done.Rightly or wrongly some folks are placing a lot of importance on the deal as a proxy for accessing capital.
The Allison Transmission deal was completed last week with some concessions and that might have been viewed as a proxy for getting the First Data deal done.
The Allison deal required a tad of ingenuity to get done but it was done. The First Data deal may also require some fast thinking. It seems like there are some parallels to the UAL deal in 1989. For those who do not know an LBO of UAL fell through in October of 1989 which was a surprise to the market causing a one day 6.1% mini-crash on October 13. The market retraced that crash by January 2, 1990, a little less than three months later.
My hunch is that the First Data deal will get done but if not, the market has dealt with "important" deals falling through before. If it does not happen and if it is as important as some people think it could cause a something fast and nasty.
Something like this, even if this specific deal does go through, has the potential to blind side people.
The bigger threat here is access to capital. I wrote the other day that next week's rolling of commercial paper will not be the seminal event (obviously this is just my opinion) that some fear but this deal failing to happen becomes a symptom of a problem that would take a while to unfold, maybe it started unfolding in July, maybe it started in the spring when New Century went under. This sort of slow rolling over should be of more concern than any short term specific event.
If this has been a multi month rolling over it highlights a point I have made many times, but I am not the one to discover this; bear markets start slowly and give you plenty of time to get out.
Throughout the summer I have talked about the couple of tweaks I have made in keeping with my thoughts about how to get defensive and urged have readers not to get panicky. That is still the message.
The picture is from Sedona.
4 comments:
I find it a little surprising that the failure of UAL LBO so widely considered the cause of the 89 crash. Shiller persuasively argues (http://hir.harvard.edu/articles/print.php?article=1003) that it is due to the media and markets attributing the crash to UAL LBO for lack of other reasons.
Also, the argument seems highly likely as the market was definitely much less LBO driven than it is now.
From where I sat at the time, at Lehman Brothers in San Francisco, it was the UAL unraveling.
Perhaps with hindsight and more understanding; maybe not but it seemed pretty cause and effect at the time.
A significant concern may be how many bridge loans by banks to fund these deals turn into pier loans (the deal fails and the bank is stuck with the paper) or even if the deal does go through the workout still leads to too much paper winding up on the bank's ledger thus reducing the amount of future loans it can afford to make. Credit crunches have a nasty habit of spiraling down which leads me to think the Fed really is going to have to take significant action this Tuesday (note that still may not mean a big rate cut).
But speaking of portfolio tweaks I came across this article by Greg Newton at http://tinyurl.com/367626 that I thought you, OG and others might be interested in WRT the Rydex Managed Futures fund (RYMFX = no-load, H-shares). Some good details on structure and behavior (degree of non-correlation, etc). Still like to see a bit more seasoning on this one myself but will begin to track it.
Thanks RW, good reference for RYMFX
I think I'll try a small portion, and see how it works.
OG
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