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.