The US: the World’s Biggest Blue Light Special
The blowback that I repeatedly warned about from the monetary loosening and crony capitalist interventions has succeeded in transforming the United States into the world’s biggest Blue Light Special (BLS: new Winterism). The crackpot theories that got us here should be spelled out for the record: 1) Lack of transparency (causing total breakdown in trust) 2) Systemic faulty evaluation of credit (the credit rating process) 3) Credit insurance (underwriting with little/no reserves) 4) Tremendous leverage (consumer/business/financial debt) 5) Massive US dependence on foreign capital 6) Deliberate heavy handed attempts to manipulate and massage both economic data and markets. An excellent review of the credit and banking crisis can be read here.
The lethal add-on effects of a trashed currency, Mad Max inflation eCONomics in addition to the housing/credit rout has created a busted United States and left it open for a Blue Light Special liquidation. Meet your new financial colonial masters, America. We should see this BLS primarily conducted by foreign corporate and elitist interests, sovereign wealth funds (SWFs), and private equity firms. The criminals on Wall Street will also play a role accelerating the process, as there are fees and commissions to be collected. These will mostly be cash on the barrel head purchases paid for with US Dollars, which will be exchanged for American owned economic units and assets. For me it just don’t hold that USDs will just be continually dumped another 30-50% in a Panic or into non-income producing CUB assets like gold and oil. When prices for American held assets are cheap enough (already happened in many cases), your new masters will convert their to the moon piles of USDs into economic and financial assets. This is one of the greatest colonial opportunities in centuries.
As an example, this article explains how this operation was conducted in Tata Motor’s (disclosure, I own shares) of India steal of Ford’s Jaguar and Land Rover divisions. Ford’s attempts to sell Volvo will be another one to watch, and it will go for far, far below the $9 billion number tossed about. This is a good working model for other prospective distressed BLS transactions including the liquidation (under the guise of privatization) of America’s infrastructure to shore up failing state and local governments. I think the targeted companies involved will be solid American brands with global footprints. Inflation ravaged Coca Cola Enterprises, the world’s largest bottler comes to mind.
At the very worst of all scenarios, Tata paid $2.3 billion for facilities and equipment, access to (and ownership of) state-of-the-art automotive R&D, manufacturing and design secrets and other valuable know-how, which would otherwise take many years and billions of dollars to match. But the closing of this deal wasn’t valued based on what Tata stands to gain but rather how desperate Ford was for cash. Ford’s desperation, along with what appears to be a fairly uncompetitive bidding process enabled Tata to walk away with a sweet deal.
Now a little background on the key players, and I will develop more of this over time. Sovereign wealth funds currently control an estimated $3 trillion. Japan may be about to get into the game, as is India. Foreign financial assets of oil exporters is now $4.6 trillion. Russia, Algeria, Iran and Venezuela are among the new power players. Central banks are taking money away from traditional investment like US Treasuries and agencies, and further shoring up SWFs. It might be useful to follow the money paths, such as this one to UBS in Switzerland.
The Russian government is in negotiations with UBS and other Swiss banks over the management of its two oil wealth funds worth $163bn (€103.7bn), deputy finance minister Dmitry Pankin said on Tuesday, according to a Reuters report.
Some of the more successful and out of the box thinking private equity firms might be worth watching as well.
Mr. Ross has decided that high oil prices have hit bubble territory, a bubble that should pop in the next 12 months. “We’re looking at everything that has been hurt by fuel” for deals, he said in a phone interview. To that end, his firm, W.L. Ross & Company, which has an estimated $7.9 billion in assets under management, has bought stakes in railroad freight companies in Europe. It is looking at refineries, gas station chains and even the struggling United States airline industry.
For investment opportunities I am more interested in the successful BLS sweepstakes winners (such as Tata) than the targets. Premiums paid for targets remain to be seen, the evidence would seem to suggest distressed prices are coming. Whole new enterprises may be created from this new colonialism.
On occasion I do mention actionable trades and investments on this blog and especially in the podcasts. I did so last week on the bank stocks and preferreds. Readers of course had little idea of what I did in real time, but suffice to say it was both wild and ended up being a very rewarding 3-4 day trade. Other trades of mine are more intermediate term, I have no set criteria other than opportunistic.
To give my followers a better sense of what I am doing or have done I set up this tracking portfolio at Market Guru. It will record my activity in real time, and I will try as best I can to enter at about the same time I do my own trades. I am going to try incorporating this BLS theme into actionable trades. Keep in mind that I use option writing (selling, not buying) on high implied volatility stocks that might give a different result than just straight up stock trading, so individuals will need to incorporate that. In our next podcast I can get into this options topic more. So with the usual caveats that these can be risky and that we live in highly unstable times, feel free to track this, comment or add recommendations that go with this theme. Of course send me a tip if you do well.
Join Russ Winter's Actionables
Click here to access Russ Winter's Actionable
To discuss this, or any issues pertaining to the economy and the financial markets, visit our new forum.
Click here for a listing of all recent Wall Street Examiner blog postings.
