Monday, March 10, 2008

Blackstone Revisited

November 12, 2007
Blackstone vs. Romancing the Stone
One hell of a morning has turned into a bitch of a day! - Jack Colton, Romancing the Stone, 1984

March 10, 2008
UPDATE 5-Blackstone earnings fall 86pct in tough market
On a basis of generally accepted accounting principles, Blackstone posted a net loss of $170 million, compared with net income of $1.18 billion a year earlier.

Blackstone is down 32% since I heckled it in November and it is down ~60% since going public. It is almost like this firm which specializes in taking companies private suddenly felt the need to go public (financial hypocrites?) and cash out at the top. Yeah, almost exactly like that. Go figure.

March 23, 2007
The logic and timing of taking Blackstone public
Make no mistake: Many other elements are at work here, including greed, ego, opportunism and hypocrisy almost too rich to be true.

Indeed.

Investors in general fear that if Blackstone is sticking its toe into treacherous public markets, then we must be at the top of the market.

Way to go investors in general! I guess that brings me to a point. The herd is not always wrong. Sometimes the stench is so foul that most everyone can agree it stinks. I'm really starting to think some contrarian investors are seriously underestimating the herd. In my opinion, the herd thinks the economy stinks. I happen to agree with the herd. If I am right and the herd is right, heaven help the "catch the falling knife" optimistic bottom fishers.

I am going to argue one more point. What if the herd is wrong but wrong in the wrong direction? What if the herd simply isn't pessimistic enough? What if the herd thinks this is just one more typical recession and we'll be back to smelling the roses and living the good life once we're through it? I've argued recently that I was too optmistic. I've been running a site called Illusion of Prosperity and I was clearly not bearish enough. Had I been more bearish I would have done even better with my investments in the last three years.

I bring this up because I think the herd has somewhat moved to the sidelines. I'm not so sure the sidelines is a great place to be. I'm not sure earning 1.3% on short-term treasury bills offers great wealth protection. What if things don't improve? How can 1.3% offset $108 oil and rear view mirror looking 4.3% inflation? Just a theory. Perhaps a deflationary crash is coming. What if it doesn't though? What if we get an inflationary spiral instead? If so, the optimistic contrarians will be right that the herd was wrong. Unfortunately, the optimistic contrarians will be even MORE wrong.

5 comments:

Anonymous said...

Stag,

I'm not so sure the sidelines is a great place to be. I'm not sure earning 1.3% on short-term treasury bills offers great wealth protection.

I AM sure that the sidelines offer NO wealth protection. It's a slow bleed rather than a serious wound. I just don't see any better options.

It seems that Buffett is also seeing a scarity of investment opportunities. Berkshire has been sitting on 40 plus billion of cash for years. Per Buffet: Rule #1 - don't lose money. Rule #2, don't forget rule number 1. Bad deals are just that, bad deals. Stretching for yield makes little sense. Stretching for capital gains makes less sense.

Note too, at 6%, that 40 billion throws off a very significant part of Bershire's earnings.

As bad as the sidelines seem, stocks and real estate have been much worse. Just like 1974. For years I've thought that our national net worth has been overstated based on stock and real estate values. It's now declining. At some point, I'll start legging in again. If I miss the boat, so what. It won't be because I overpaid (rules 1 & 2). Patience.

Sure wish I had listened to that tip about tips though. Hindsight may be 20/20, but foresight is the key.

Stagflationary Mark said...

MAB,

Sure wish I had listened to that tip about tips though.

TIPS had a bad day. The monetary orgy was centered on stocks today.

Ever see Of Unknown Origin? It is a great movie for those with a dark and twisted sense of humor. Today might be a good day to see it, lol.

http://www.imdb.com/title/tt0086036/usercomments

Smug, anal, successful and ambitious detail-oriented Wall Street yuppie businessman Bart Hughes (exceptionally well played by Peter Weller in his first lead role) has his cozy and comfortable life thrown out of whack when a large and crafty rat invades his fancy brownstone apartment. When conventional methods of extermination prove fruitless, the increasingly primal, obsessive and paranoid Bart resorts to more drastic vicious and barbarous measures in order to rid himself of this loathsome pest.

Anonymous said...

Stag,

I've never seen "Of Unknown Origin." But somehow rats and wall streeters just go together.

The way food & energy prices have been soaring makes me think of another movie from the 1970s (Soylent Green).

http://en.wikipedia.org/wiki/Soylent_green

Lets just hope this isn't the "green" bubble wall street is forecasting.

Stagflationary Mark said...

MAB,

There's a line from the movie that goes something like this (paraphrased from memory).

You spend maybe 10% of your time thinking about the rat. He's spending 100% of his time thinking about you.

It always helps to have a concerned neighbor offering advice and commentary, lol. The movie is one of my favorites.

I'm spending about 20% of my time thinking about stagflation these days. Something tells me I should have been spending 100% of my time thinking about it.

Anonymous said...

Stag,

I'm spending about 20% of my time thinking about stagflation these days. Something tells me I should have been spending 100% of my time thinking about it.

I not sure of the proper amount of time that should be devoted to ones financial well being, but I DO know its higher than ZERO. Sadly, we have too many zero bound Americans. Zero income gains, Zero savings, Zero home equity, Zero chance of a new heloc, Zero chance of paying off that 72 month car loan, Zero chance against wall street and inflation.

Then again, I guess most don't need to think for themselves. They have Jim Cramer and Dennis Kneale think for them.