Fresh Signs of Recovery Or Just Opportunism?
Thursday, September 25, 2008
In a market largely paralyzed by a credit crunch and a crisis in confidence, there are stirrings of activity by deep-pocketed investors.
In the past week, Warren E. Buffett put up nearly $10 billion to acquire Constellation Energy Group and a stake in Goldman Sachs. Japan's largest bank company has agreed to invest billions of dollars in Morgan Stanley. Private-equity firms, meanwhile, are lining up funds so they can pounce on assets that are priced to move quickly.
The renewed dealmaking suggests that a few big investors are ready to brave the markets again.
"When history is written, this could be seen as the turning point," said David Rubenstein, co-founder of the Carlyle Group, a Washington private-equity firm with $40 billion in cash that it would like to put to work.
With the markets searching for direction, investors are debating whether the recent crop of deals should be viewed as bellwethers for a recovery or as opportunistic exploits by select buyers who can wrangle good terms in exchange for taking on risk.
"Nobody is smart enough to call the absolute bottom, but when you see a lot of smart money like this coming in, it's a pretty good indication that you are near that bottom," said Frederic V. Malek of Thayer Capital Partners, a private-equity firm that buys and operates hotels.
Keith Trauner, a portfolio manager at Fairholme Capital Management, said the latest batch of deals is probably more reflective of the sharp drop in asset values than of a surge in optimism about the markets.
"When you see Buffett do a deal for Constellation and Goldman Sachs, it's not so much a bet that things are about to turn on a dime. It's simply saying that a couple things that he understands and that make sense have popped onto the radar screen," said Trauner, whose firm holds shares of Berkshire Hathaway, Buffet's company.
Donald Marron, founder of Lightyear Capital, a New York investment firm specializing in the financial sector, said he expects to see more such investments in coming weeks.
"There is a lot of capital throughout the world in many more hands than it used to be, and they are looking for opportunities," said Marron, who is a former chairman of Paine Webber Group.
Whatever the motives, the intentions of Buffett and other buyers may not matter as much as the market's interpretation of them.
"Maybe even more than the federal bailout program, it could help as a sort of self-fulfilling prophecy," said Lawrence Cunningham, a George Washington University law and accounting professor who has written several books about Buffett.