More Noises about Private Equity and Debt.

So now it’s time for everyone’s favorite time of day again – that time when I try to sound intelligent and well-versed in all things investing. I was ‘reading some interesting information’ (aka doing my job and editing boring investment reports) when I started thinking about some stuff the common man might not know about private equity, and I thought I would share my thoughts with him.

First of all, private equity is all that investment action that you, the common man, can’t get in on. It involves trading of stocks not on the public market, usually involving company takeovers and large-scale investments that even the upper middle class will never be able to afford. So. Why do any of us really care, unless we become billionaires? Debt.

I’ve written a bit before about my own skewed view of the current debt and mortgage system, but private equity is a part of that system in a big big way. Basically, a private equity investment company works to develop existing or start-up companies and corporations.  This doesn’t always involve debt, or buying out an entire company, but it can.  A private equity company usually researches a particular market – say, software – with a specific target in mind. Let’s give an example. Let’s say Geronimo is an investment management company in the home appliance market that is targeting undervalued and underperforming companies. That means they look at all the cheapest private companies that make home appliances and try to figure out why those few companies are doing so badly. Then, if they think they can improve the company and generate some money from it, they buy it out, change it around, and sell it for a profit. Of course, sometimes it doesn’t work out like it’s supposed to. Even in a strong market, there could be so many companies that no amount of improvement in one is going to lead to large profits. Or, the market could take a sudden dip, leaving our sad Geronimo with no profit for all its hard work.

The buyout system usually works because the investment companies like Geronimo make enough in one investment to fund months of research and bargaining for another. Plus, once a company like this gets known for its successful work, it gets easier to make attractive buyout proposals to private companies.

The problems we’re facing right now due to a slumping economy increase pressures for private equity – there’s less of a guarantee that an investment will post significant gains. Research becomes even more important. In addition, since the majority of these takeover involve large infusions of capital, many of these private equity companies use debt to make the initial purchase. Which means, of course, if they don’t make good on their investment, they’re actually short of cash due to interest on those loans. Which means, in times of scarcity, the normal private equity players may be more reluctant to taake on a questionable investment, meaning that more corporations may be run inefficiently, which certainly doesn’t improve market conditions. One great big circle yet again. Yay!

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And Now I’ve found the Answer…

To all my job-time blues.  Since E’bess was kind enough to post the link to the Glarkware site, I have discovered this shirt, which seems to indicate that giant things do not fit well in your garden.  While it is a quaint and humorous little thing, it has led me to a solution which will solve all of my financial troubles for the rest of my life.  It capitalizes both on the Texan and American love for things bigger, and the stupid people love for kitsch.  The answer: GIANT gnomes.

Now I know some of you are thinking who would buy a GIANT gnome?  I wouldn’t.  At least not for purposes other than investing in the gnome market and reaping a hefty profit.  But then, you, my reader, are smarter than the average bear.  Or American.  And therefore, you cannot be taken as a true indicator of the market system.  These things are going to bigger than beanie babies and Tickle Me Elmo put together.  Literally.  And what better way to show the awesome driving power of your new behemoth SUV than by loading it up with a GIANT gnome that completely takes over your tiny yard?

If anyone is looking to make a timely investment in GIANT gnomes, please let me know.

Why I have the best boss in the world.

Does anyone remember the live-action movie of that children’s classic, The Little Prince by Antoine de Saint-Exupery? Besides being a wonderful story, it had great songs with extreme choreography such as “A Snake in the Grass” and “I’m on Your Side”. The one brought to mind today though is “Why Am I Happy? I’m Dying of Thirst,” or, in this case, ‘Why am I happy? My Job is the Most Boring On Earth.’
Granted, the job is not boring and stressful at the same time, like working in a bank or hospital where you can screw up someone’s finances or health. But still, it wears on me, the day after day slog of pointless activity – answering the phone, opening the mail, making some copies, scheduling some meetings and finally going home. It hurts my soul a little. However, every once and awhile there’s a little light that comes in. usually it’s in the form of actual research projects my boss gives me, data that I can be proud to find and quickly organize, getting to use that rotting organ, my brain.

Recently in my ceaseless mail opening there’s been quite a few holiday gifts to my boss from various companies and organizations he works with. Sometimes these will be food or tasty beverage items that he shares. Other times these will be more practical items, like office gadgets or a finance or investment related book. One of my favorites this year was Genghis Khan and the Making of the Modern World. What does this book have to do with investing? My co-workers could not decide, and my boss playfully announced our office would now follow the Mongol model and proceed to take over the world. I was ready, just as soon as he gave us our ponies – Mongolian horde ponies, of course.

So he gave me my next research project – what is the proper weaponry of the Mongol Horde? What, exactly, would we need to advance our mission of taking over the world? Wikipedia, here I come!

In the end it’s not the fact that my boss is such a relaxed manager, or that he feels comfortable joking around with his staff that keeps me feeling good about my job. True, I work at a large institution where people might tend to be lost. But at the basic level, in the small moments like this, it’s when I really know that this institution truly values education and learning. It’s in one person saying to another ‘let’s find out’, that curiosity in our own history and the world around us that gives me a renewed sense of purpose. True, my phone answering and mail opening are very small in the scale of life, but at least I know they are menial tasks that support something meaningful, that are in some small way contributing to the larger world.