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Private Equity's Boom celine micro luggage handbag Now Busting
1) PE firms are getting more and more short term lately. In the good old days, PE firms more http://www.celinehandbagse.com/ focused on improving the acquired firms long term. They took a long time to aim (improve) then fire (sell). These days, PE firms fire first before aiming, seeking a very quick cashout. In such short term, there is no way to improve the company materially, and what they do is basically to jack up both sides of the balance sheet, increasing asset and liability, then cashing out on the asset and dumping the liability to the public by IPO. The problem is during an unfriendly credit tightening market like now, the public is holding the bag of those low quality and risky bonds while the PE partners are cashing out with vast celine trapeze handbagwealth in hand.
2) There is a very wide disparity on tax rates. A normal business, such as real estate developer, they pay normal and full tax by buying and selling properties. However, according to the latest Fortune (August 6) article "More Sugar for Schwarzman", due celine trio to a tax loophole, PE partners are not even paying the 15% dividend tax rate as we thought, but 7% tax on their IPO cashout profit (by getting paid back on the tax deductible of 85% of goodwill which effectively lowers Blackstone partners from 15% to 7% on their taxes). No wonder we see in the US that income distribution has become more skewed toward the top few rich and shift more of the tax burdens to the middle class the poor (average taxpayers).
3) The current tax system encourages higher debt since interest on debt is tax deductible, which encourages PE firms to increase debt thus interest deductible until little or no corporate tax is paid. At the short term basis, this approach actually adds no value to the business and society overall but only risk to the public who is holding the debt. When many of these bonds are being downgraded from double A to double B recently, with widening of the credit spread and tightening of the PE funding, suddenly the public has celine classic box bag suffered a large paper loss and taken a lot more risk.
4) The recent PE boom reminds me about the junk bond boom in the 80s. With the junk bond market crashing, Savings Loans under crisis, liquidity suddenly drying up, refinancing becoming celine mini belta pipe dream, we saw major defaults on loans and lots of reorganization. Currently with the quick widening of credit spread (rating agencies from risk taking to risk averse), drying up of PE funding, lowering of corporate profit margin, possible declining P/E trend, we can see not only many potential highly leveraged deals going nowhere, but also more importantly many finished deals will suffer heavy losses in the future celine cabas tote due to the wrong assumptions in their models.
A few months ago every institution was lining up to buy those AA loans, but now they can't wait to flee to avoid the same loans rated BB now. It is noted that in the 80s one large bank (Drexel) along with its junk bond king failed and was being blamed on the whole S crisis while public and celine mini government were holding the bag and lost billions. This time, it is very interesting to see whether any major bank and PE firm will fail (Bear Stearns, Blackstone, KKR, Carlyle, any volunteer?).