US Economy thread

[JWags85]

Yeah, PE that focuses on turnarounds of distressed businesses operate very differently than PE companies that are upleveling a company with growth capital. People remember/focus on the horrors of PE turnarounds instead of growth stories, but I think that's human nature.

Yep.  I have a former customer who sold the majority stake (80%) in his family business to a PE firm for around $15MM about 5 years ago.  I believe at the time they held like 70%.  Everyone else was bought out and he retained the final 20%.   The PE firm sold the company to another mega PE firm last year...for $80MM.

You're not wrong, but also many people just hear "PE" and lump it all together and remember the gnarly stripping of companies for parts.

[The Sultan]

Yeah, PE that focuses on turnarounds of distressed businesses operate very differently than PE companies that are upleveling a company with growth capital. People remember/focus on the horrors of PE turnarounds instead of growth stories, but I think that's human nature.

Oftentimes family owned companies where just a couple of people remain engaged in the business, the rest are no longer satisfied with their dividends and want their payout and/or they just need some new ideas.

[Dr. Blackheart]

Yep.  I have a former customer who sold the majority stake (80%) in his family business to a PE firm for around $15MM about 5 years ago.  I believe at the time they held like 70%.  Everyone else was bought out and he retained the final 20%.   The PE firm sold the company to another mega PE firm last year...for $80MM.

You're not wrong, but also many people just hear "PE" and lump it all together and remember the gnarly stripping of companies for parts.

Exactly. The asset strippers like Eddie Lampert, 3G, Alden, Sam Zell are a different breed.

[jesmu84]

Oftentimes family owned companies where just a couple of people remain engaged in the business, the rest are no longer satisfied with their dividends and want their payout and/or they just need some new ideas.

I've seen this a LOT amongst friends/family in the self-owners of a dental/healthcare practice. Especially moving on to retirement, they value their practice super high because it's personal to them. The highest offers tend to come from PE. Then those practices get commercialized rather than selling for a bit less to a younger dentist/doctor.

[4everwarriors]

Huh, this is too much, aina?

https://news.yahoo.com/biden-tells-crowd-recently-met-234625101.html?

[rocky_warrior]

Huh, this is too much, aina?

https://news.yahoo.com/biden-tells-crowd-recently-met-234625101.html?

Needed to inject random politics to match MU82?  You both need to watch it.

[MU82]

Needed to inject random politics to match MU82?  You both need to watch it.

I've been guilty in the past, but my most recent post in the Israel thread that resulted in Officer Sultan pulling me over was relevant to the topic. And it was in a thread that has been pretty much only about politics.

Unlike this post by 4Qver in this thread, which is supposed to be about the economy.

But I accept your warning and will comply, rocky. Have a good one.

[The Sultan]

I've been guilty in the past, but my most recent post in the Israel thread that resulted in Officer Sultan pulling me over was relevant to the topic.

Everyone knows what you are doing. You're not that clever.

[dgies9156]

Anecdotally, I also think the turnaround variety has been too large a proportion of PE activity over the past couple decades because money has been historically cheap.  When you can go out and find loans for 1-2%, there just isn't much reason for healthy privately-held companies to hand their baby over to a PE firm.  Add to that juiced valuations due to the hunger for alternative investments in a low interest rate environment, and you've got a recipe for PE firms overbidding on companies that don't have obvious high margin off ramps.  Or they are bidding on companies that don't really belong in a PE environment when there is no "there" there (e.g. all the PE activity in journalism - they can be good little businesses, but not if you're looking for PE returns).  Its another example of the downstream toxicity of too low interest rates.

Brother Burrow:

A couple of thoughts:

  A) I don't know of any P/E firms that were able to borrow on unsecured debt at 1 percent to 2 percent. About the only case where I've seen that is in extremely distressed situations where the lender is trying to get something back on an investment. I think Prime to Prime plus 2 percent with a personal guarantee is about as cheap as any commercial debt got.

  B) Activity in Journalism is what I call "salvage" value or, in some cases, the PE firm acts as an undertaker. The thought is that the publications have parts that are greater than the sum of the whole. For example, the real estate, broadcast licenses, equipment, customer lists, trade name and even technology may be more valuable in a liquidation mode than as an ongoing, stand-alone business. Alternatively, the PE firm does what a former publisher is loathe to do -- right-size the cost structure to match the revenue generated by the business entity.

Airlines are sometimes like media outlets. The value of airplanes, gates, slots at restricted airports, trade names and customer lists is greater than the market capitalization of the airline.

For a lot of people in media (particularly reporters and editors), there's a huge disconnect between what a media outlet does and what it's perceived to do. What a media outlet's mission is to make a market-based, risk-adjusted return on investment for its ownership (be it a local family, media conglomerate or a PE firm). Most J-School grads, reporters and editors perceive that a media outlet is designed to report news and watch government. If the Publisher makes money, that's a nice after-thought.

With apologies to Professor John Vivian as well as most of the J-School professors when I was at Marquette, the world doesn't work that way!!!!

[jesmu84]

https://youtu.be/z1h8I6A2dH4?si=yAOcYxNWZ-QDa77k

WaPo economics reporter tries to explain why the economy looks great, but might not feel great for everyone.

His recent article: https://www.washingtonpost.com/business/2024/02/02/grocery-price-inflation-biden/

[Jockey]

https://youtu.be/z1h8I6A2dH4?si=yAOcYxNWZ-QDa77k

WaPo economics reporter tries to explain why the economy looks great, but might not feel great for everyone.

His recent article: https://www.washingtonpost.com/business/2024/02/02/grocery-price-inflation-biden/

It will never, ever feel great for everyone.

[jesmu84]

It will never, ever feel great for everyone.

True. Just providing context on different opinions. Especially when there's a clear class divide.

Also, those opinions will play a big role in November

[Jockey]

True. Just providing context on different opinions. Especially when there's a clear class divide.

Also, those opinions will play a big role in November

FYI, even though I challenge some of your posts, I tend to agree with what you say. I may be just a bit positive, though.

[SoCalEagle]

As a very wise man once said "the poor you will always have with you." 

[Not all scoop users are created equal apparently]

Interesting re: deficit management. Seems like that's a major pain point for many fixated on our economic growth not being organic.

https://apnews.com/article/irs-tax-gap-audits-inflation-reduction-act-e0dcb9bc52cfcdd8fc40caa2c04e8011

[The Sultan]

Glad we are building some law and order around our tax laws.

[Uncle Rico]

Glad we are building some law and order around our tax laws.

About time the protected classes paid their fair share

[TSmith34, Inc.]

Glad we are building some law and order around our tax laws.

One would think that taking the position that "we want to make it easier for people to cheat on their taxes and get away with it while increasing the budget deficit" would be a non-starter, yet here we are.

[WellsstreetWanderer]

One would think that taking the position that "we want to make it easier for people to cheat on their taxes and get away with it while increasing the budget deficit" would be a non-starter, yet here we are.

  Driven by the big donors who call the shots 

[Jockey]

  Driven by the big donors who call the shots

But it's only one party's donors.

[Hards Alumni]

But it's only one party's donors.

That's rich.

[Jockey]

That's rich.

And mostly true. Dems support this which means their donors are OK. Don't forget that Ds need money just as much as Rs do.

[jesmu84]

And mostly true. Dems support this which means their donors are OK. Don't forget that Ds need money just as much as Rs do.

Beginning with Clinton and exploding with Obama, the Dems have gobbled up all the dark/corporate/super pac money they can get their hands on

At this point it's probably 50/50 with most orgs donating to politicians on both sides

Either way, this country is a plutocracy/oligarchy/corporatocracy

[rocky_warrior]

Just because I only warned MU82 & 4eva doesn't give the rest of you a free pass. 

KNOCK. IT. OFF.

[SoCalEagle]

Back to the economy.  S&P 500 now at 5,000 +.  By my calculation that's a 5.38% gain already this year and we're just in the first full week of Feb.  I hope the market is not getting ahead of itself, but so far earnings seem to be supporting.  I guess it's just a waiting game for now to see how things pan out, but for 2024 so far so good.