China + Private Equity

A few of my favorite things (NOT.) According to the Wall Street Journal, the Chinese government has decided to enter the private equity bubble, which it is largely responsible for creating. "The key thing to take away from the Chinese government's plan to take a $3 billion stake in private-equity firm Blackstone Group: If you're paying for the fuel, you might as well get some of the heat. China's huge trade surplus with the U.S. and other countries has given it plenty of cash -- and a problem figuring out what to do with it. Because China lets its currency, the yuan, fluctuate only in a narrow band against a basket of foreign currencies, it can't easily convert all the money it makes overseas into yuan; to do so would send the yuan higher. So China has been sticking its money into overseas assets... The 10-year Treasury note yields just 4.79%, less than the rate of 5.25% that the Federal Reserve has set on overnight bank loans. Mortgage-backed securities and agencies don't yield much more. A key factor behind those low yields has been that Chinese demand has kept prices propped up. (Prices and yields move in opposite directions.) Those low yields are part of what has driven demand for riskier investments such as junk bonds, emerging-market debt and, yes, private-equity firms. That's driven up prices and driven down yields on these securities, making it cheaper for private-equity firms to borrow and invest."

More on China

The news about tainted imported goods from China just keeps getting scarier and scarier.

SEIU on Private Equity

SEIU (Service Employees International Union) issued a cautionary and sobering report on private equity this week. "The private equity buyout industry, armed with more than a half-trillion dollars of capital, is today engineering financial deals that together are larger than the annual budgets of most of the world’s countries. This financial juggernaut is generating hefty returns to its investors, extraordinary riches for its executives, and newly relevant questions about the impact of its business practices on American workers, businesses, communities, and the nation. "

Canary in the Coal Mine

Gopher Girl isn't normally predisposed to isolationism, but the lack of basic safety standards and inspections on food imported from China is terrifying.

More on the Private Equity Bubble

When private equity firms like the Blackstone Group start marking plans to “go public”, it’s a sure sign we’re at the top of that market. Even the firms themselves acknowledge it, as this memo penned by Bill Conway, one of the founders of private equity juggernaut the Carlyle Group, demonstrates.

The Housing Bubble - Act 1

Like all speculative bubbles, fraud appears have been a bigger part of the housing boom than any casual observer imagined. The Washington Post reports on that sham mortgages appear to have been an epidemic in recent year, particularly in the high-end market. One frightening statistic cited: Mortgage fraud is up 10-fold since 2000. “Many experts have concluded that the nation's real estate boom of recent years was fueled in part by weakened lending standards that sparked excessive demand and drove up prices. Now, some are worried that the looser standards may have permitted a boom of another kind -- a big expansion of mortgage fraud… As more of these cases come to light around the nation, the question is: How much did an epidemic of fraud contribute to the frenzied housing market of recent years?”

USA: A Banana Republic?

The New York Times reports this morning that the “income gap” in the United States continues to grow. According to a study of IRS data conducted by Emmanuel Saez of the University of California, Berkeley and Thomas Piketty of the Paris School of Economics, the top 10% of Americans now enjoy a greater share of the nation’s wealth than at any time since the eve of the Great Depression: “The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.”