* Chicago Tribune reports: private equity firms looking to buyout United Airlines (UAUA)?
The company is considered attractive because of its routes, its hub at
O'Hare International Airport in Chicago and its frequent-flier program.
Tribune estimates a buyout at $4.3 billion. Ed sez: this can only be a marker of the vast excesses of private equity. Whatever happened to the old saw, "the quickest way to become a millionaire is to be a billionaire and buy an airline"?
* Of course, who am I to lecture to private equity? Check this one out: Average P.E. Pros' Pay Pushes Past $815k. Hard to argue with figures like that.
* On the subject of airline LBOs: "The chief losses to investors come from the purchase of low-quality
securities at times of favorable business conditions." - Benjamin
Graham
* On the subject of market excesses: the New York Sun recently picked up on Soifer Consulting's Harvard MBA Market Indicator (written about in a previous roundup here.)
This year, some 37% of Harvard Business School's graduate found work on Wall Street,
up from 30% a year ago and 26% for the Class of 2004. The trend
suggests that Wall Street is becoming bloated and the American economy
is ripe for a slowdown.
Mr. Soifer, who retired from Brown Brothers in 2000 and now runs
his own consulting firm, appears to be on to something. He advised his
friends and colleagues to sell back in 2000, when 30% of the HBS
graduating class took jobs on Wall Street. Before that, the last
long-term sell he sent was in 1987. Hmmm.
Mr. Soifer has kept the index for a quarter of a century, and while
it has some drawbacks, it has proven to be a fairly solid predictor of
how the markets will move over the long term.
* Barron's reports on China's pricing advantages. Here's an attempt to sum up the influences on its manufacturing advantages, from the UC Irvine "China Price Project":
39% - cheap labor
17% - export subsidies (tax rebates and covenant-free loans)
16% - "network clustering" - the entire supply chain is in close proximity
11% - undervalued currency
9% - piracy and counterfeiting (who needs R&D?)
5% - lax environmental, worker health/safety standards
3% - foriegn direct investment
* Some pre-election thoughts on how the US should navigate relations with China:
China.
The United States has a massive interest in integrating China into an
international system, in enabling China to emerge as a great power
without feeling the need to become a "revisionist" power. We failed in
this regard with Japan in the 1920s and 1930s, with consequences that
are well-known. If we fail with China, the consequences could be
considerably worse. [...] Right now, I fear our
foreign policy is achieving the worst of both worlds: making China
worried about our intentions and unimpressed with our abilities.
* The newest addition to my watchlist is Sears Holdings (as
of about a month ago). I am about 80% sure that Eddie Lampert will, in
fact, create the next Berkshire Hathaway. There was some news this week
that "investing" was driving profits at Sears, instead of its "core
retail business," but I don't know why I'm supposed to be concerned by
that. After all, Berkshire Hathaway is named for now-defunct textile
mills. At some point, Buffett wised up and bought GEICO, and the rest
is history. Ultimately, "Berkshire Hathaway" is just a name; "Sears
Holdings" is a name too, albeit a fairly crappy one. We'll know how
serious Eddie really is when he makes his first purchase of an
insurance company.
WSJ: [Sears] turned an investment
in derivatives in other companies' shares into a $101 million after-tax
profit during the quarter. [...] The financial derivatives used by
Sears, known as "total-return swaps," are agreements that take on the
big risks of highly leveraged investments in equities or other assets
without actually buying them or assuming debt to purchase them [...] Sears
has authorized Mr. Lampert, who plays an active role in overseeing the
company's operations from his chairman's perch, to throw excess cash
into investments that are unrelated to the retail operations...
* Speaking of Buffett...here's a website (Guru Focus) that looks at the latest adjustments to his portfolio. Seems like an interesting site for investing voyeurs.
* Finally, an update on coin values - seems the numbers in my previous post on the value of US coins were accurate - get live updates at coinflation.com.
