Barron's has a special interview with three hedge fund managers. One prediction that came up was that leveraged buyouts will continue. The inverted yield curve means intermediate money is cheap. Does the shape of the curve continue to facilitate cheap borrowing, muting the impact of the 937 previous rate hikes and force the Fed to hike further to quell excesses?
I don't actually think the Fed will hike more. The probability of the above scenario is quite low, IMO.
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4 comments:
You mentioned cheap borrowing costs. This is a point that was raised in several recent FT articles.
See the following post on credit and the recent wave of deals for more.
The banks will keep stuffing their pockets with fees until the market collapses and one (or more) of them is left holding the bag.
The WSJ Saturday edition had a good take on the comparison of one of the recent deals to the Federated Department Store deal that sank First Boston.
I feel that most of these leveraged buyouts are taking place because the buyers stock is overvalued and at such high evaluations price paid in real value is quite low. (Keep in mind most buyouts are paid for in stock.)
RE LBO's, wasn't part of the draw (and vulnerability) of the targets cash-laden balance sheets? So the buyer takes out muchisimo debt buys the stock raids the piggy bank thereby disbursing the cash. There you have it: no cash left, huge debt, pockets lined.
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