How common investors can get in on Private Equity

For yet another year, Private Equity buyouts are expected to set a new record on Wall Street. Although the "rich get richer" theory applies, investors of all levels and experience have seen the benefits of leveraged buyouts. Rumors and announcements of LBOs stemming from Private Equity capital has driven stock prices dramatically higher, making these firms pay more for each acquisition or considered target. Although investors have little control over the situation and some may not want to lose ownership of the company they are part of, these Private Equity deals provide payouts of premiums that more then make up for these feelings.

Private Equity has remained an elitist group over time, with high barriers of entry. Until now. Presently, PE firms either trade sections of their firm publicly or have planned IPOs set to unveil before the end of this fiscal year. If you are looking for an immediate venture into ownership of a PE firm, you can try Fortress Investment Group (FIG), Apollo Group or KKR, the noteworthy firm that recently announced a bid for TXU. Investors with patience may want to wait for IPOs expected from the two most powerful and well-known firms in the PE world, Carlyle Group and Blackstone Group.

To some, it may seem confusing as to the reasoning behind Private Equity firms going public, especially because of their namesake. Thinking critically about how these firms derived their name, they still possess the ability to keep restructure and overhaul acquisitions in private. Disclosures in financial statements are a specific concern to some analysts, but the numbers will never fully display how the firms turnaround or fail with individual acqusitions. In addition, the acquisitions acquired by these financial barrons are likely to benefit because they are allowed to operate like a separate entity without the pressure of growing an artificial number such as a stock price.

Buyer beware though, as this article explains, PE firms stock growth after three years of their IPO is only 39% compared with normal growth of 45% for other companies. Also, as Adam Lashinsky writes, these PE firms are forced to cater to those pesky investors which they try to avoid so adamantly in the process of their business. Another possible red flag of the firms center around the use of stockholder's equity instead of debt. While the practice is generally seen as favorable and may be the case in some of these IPOs, the possibility of maxed-out debt could be extremely detrimental to the overall growth in earnings and health of the firm.

Protectionism is a double-edged sword

Sen. Hilary Clinton continues to lead the protectionist rampage on the political front, she has yet to provide any hints as to her solutions to the various problems that are certain to arise should she win and enact her regulations. Protectionism has both positive and negative effects, the later of which Clinton ignores.

I doubt anyone questions the concern over the amount of outsourcing that has taken place since the early 1990s. Something needs to be done to revitalize the US economy, that isn't debatable. The methods for achieving the end means is where politicians and economists seem to differ.

Clinton tends to suggest that Protectionism will help keep jobs inside of US borders, lower the trade deficit and ultimately act beneficial to the overall economic well-being. She doesn't seem to realize that the trade deficit has no net affect on the United States. Entities and people trade, not countries. She should be more focused on U.S. GDP Growth rates because various factors influence trade, including tariffs, tax rates in respective countries and currency conversion rates.

If you look at Hilary's plan, implementing policies to force companies and Americans to buy home-grown products will certainly result in significant spikes in inflation. She doesn't seem to have any grasp of this concept. If strong tariffs or other protective measures are enacted, those goods that will be then produced by workers in America will most definitely be higher in price due to the wage and benefits difference.

Another key consequence on protectionism is a stronger US Dollar. Although some argue that would be beneficial for the United States and her citizens, this would only hold true when trading or converting currency or wealth with other countries. An inflated currency has proven to be part of the problem with outsourcing because a higher USD makes foreign imports cost less and become more attractive. This is a central factor in the massive import problem the US faces. Should the USD fall relative to the Asian currencies, which it still has yet to do, demand for US exports will rise dramatically.

The double edge sword comes into affect if the US Dollar were to fall too quickly, lowering the value of personal wealth and ultimately creating inflation simultaneously. By any means, the situation is complex and fragile, something Sen. Clinton needs to realize soon.

Good numbers for the U.S. Economy

More good numbers came out today, suggesting a recession is not likely in the near term for the United States economy like some economists such as Paul Krugman and Barry Ritholz. Let's start with the bad numbers.

Pending Home Sales came in at -4.9% against projections of 0.4% increase due to spring buying habits. Part of this number may be due to the cold snaps felt throughout the early part of the spring. I wouldn't be surprised to see that number rally this month.

Now on to the good news. The ISM Manufacturing Index rose to 54.7%, a new 52-week high. With the good manufacturing numbers came a sharp decline in bond rates, a move that will help support the stock market's rally.
Source: Marketwatch

Yesterday several strong numbers came out including personal income and DPI, each rose by 0.7%. Improvement in income leads to higher consumer spending and eventually GDP growth, corporate profits and a bullish stock market. The PCE inflation measure was flat, signaling slowing inflation. This is key considering inflationary worries and concern over the FED hiking rates if inflation maintains high levels. Gold prices also dipped, strengthening the dollar and lowering commodity prices.