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June 21, 2007




1) Smart money is short debt
2) Caveat emptor and scarce money for the average investor
3) This too shall pass

I am happy to hear that you accept that the trade deficit is being fueled by money expansion and not mere profitable enterprise arbitrage, aka offshoring manufacturing. While the USA is not the only culprit, we are definitely the most savvy of the short debt party. Literally, the sophisticated money is saying that debt is too cheap and they have established short positions in debt by borrowing.

As far as the risk, caveat emptor. The PE and elite HF managers can charge the fees they do because their access to capital markets is scarce and they are the gatekeepers to big money. If PE and HF managers are the only ones that can access massive debt, by default PE/HFs are the only market participants that can compete for buying large corporations.

People participate in the securities market for the opportunity of financial reward. Money is the incentive, everything else takes a distant back seat. Leveraging cash flow is like any other investing strategy, it is great until it isn't. Velocity profited from ridiculous technology company valuations and you and Fred were smart enough to acknowledge that by shutting the doors and taking profits. The leveraged cash flow opportunity will go away too, but will eventually present itself again.

Money supply contraction is the greatest threat to the domestic and global economy right now, it will be interesting to watch what unfolds. Regardless, it will be laughable when all of these companies hit the public markets again in 3-5 years. Executive compensation needs to be refined if you don't want to PE/HF players making the big fees, but then the executives are getting the big payouts. Paying the executives the big money is probably less expensive due to lack of investment banking fees times two for a round-trip PE deal...but executives making big money upsets the company lemmings.

Best wishes, when do we get Velocity Health Care Fund?




I'm fearful that you are correct in your analysis. And if so, the slaughter that may ensue could do significant damage to the average investors retirement plans once again.

Most of the external concerns are on the obvious and usual suspects: Iraq, China, Oil prices, Global Warming, Presidential elections, SOX, etc. But the "gilded age" excess being displayed by PE/HF types is enough to raise concern about the top of this new bubble and they are cashing out, is this the end of this new financial era?



Andrew Horowitz

So, the private guys who make all of theor money doing privatizations are going public. As public has much more problems with requirements for transparency ala SarbOx. The rest are going private or thinking about relocating offshore. Hmmm... Interesting....

Eric Pennington

Brilliant insights...P.T. Barnum was right.


I agree with your comments. Our industry doesn't seem to have any institutional memory. The markets keep making the same mistakes over and over. I'm about finished with one of your books too. It was a good read.

James Ramos

As Andy pointed out in his book (yes the one about our prostates), there are still trends that will change our economy. Not that i am banking on our politians, but i am banking on (yes, us) scientists. Education, like healthcare, still needs more of that scale factor. the truth is that at my firm the best employees are not the ones with the best education, but the ones who want to advance the most (despite those who still cling on to thier useless CFA's CMT's, MBA'A). this is only possible in a society like ours where the education that we require is readily available in accesible formats. Things will change. Yes, slowly. But i'll tell you something, there is nothing like hiring someone with a fire burning in them, and there is nothing to stop them now when we can put the releveant information in front of them at zero cost.

all the best to us human beings,


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