'..What’s not appreciated is the amount of risk that must be accepted to continue playing this game.'<blockquote>'March 21 – Dealogic (Olga Tarabrina): “Global M&A volume has reached $705.0bn in 2017 YTD, surpassing $700bn in a YTD period for the first time since 2007 ($903.5bn). Of this, a total of 125 $1bn+ deals, worth $454.9bn, have been announced so far this year, compared to only 94 deals (totaling $260.3bn) 5 years ago. $10bn+ deals account for $167.2bn of the total this year… US-based companies are on top of the heap of cross-border deals, with $95.8 billion in announced acquisitions so far – “the highest YTD level on record.’ … For the first quarter, ‘14 times EBITDA is what the Dealogic figures show as the median EBITDA multiple,’ explained Dealogic’s head of M&A Research, Chunshek Chan. ‘That’s something we really haven’t seen over the course of the data that we have. Historically, we’ve been bouncing between 10 and 12 times, sometimes even 13 times. So 14 times EBITDA is certainly a premium to pay for acquisitions.’”
Various indicators of bullish market sentiment went to extremes. An incredible $124bn flooded into ETFs during the first two months of the year. Margin debt jumped to an all-time high ($528bn) in February, although this pales in comparison to the amount of leverage embedded in derivative trades.
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As a market analyst, I saw during Q1 the unprecedented Crowded Trade Phenomenon deepen further. Way too much “money” playing the securities market game – became only more so. And while a strong quarterly gain in the indexes is celebrated by the bullish Crowd, the undercurrents must be troubling to many.
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All the “money” slushing around in markets dominated by Deviant Market Dynamics continues to make it difficult for most active managers to perform. And the biggest consequence of this troubling market dilemma? Just more enormous self-reinforcing Bubble flows into ETF index products. For the most part, investors are pleased with Q1 returns. What’s not appreciated is the amount of risk that must be accepted to continue playing this game.
March 27 – Financial Times (Miles Johnson): “Hedge fund managers may be criticised for their recent returns but they have consistently displayed a razor sharp sense of timing when it comes to picking when to sell their own businesses. When Och-Ziff, the… hedge fund founded by the former Goldman Sachs trader Daniel Och, decided to sell equity to the public markets it did so near the top of the market in late 2007. Investors in that pre-crisis deal… have since lost more than 90% of their money… So what is to be made of the timing of last week’s news that Eric Mindich has decided to shut his $7bn Eton Park hedge fund and return money to investors from what he called a ‘position of relative strength’? The closure of Eton Park has a symbolic resonance on Wall Street. Once the youngest partner in the history of Goldman Sachs, Mr Mindich left the bank in 2004 to set up Eton Park. It became one of the largest launches in the history of the hedge fund industry and, emboldened by his and others’ success, a whole generation tried to follow him.” '
- Doug Noland,
Q1: Sure Bets That Weren’t, April 1, 2017</blockquote>
Context<blockquote>
Pension Anecdotes From Pension Tsunami, March 30, 2017
'..vastly underfunded its obligations .. It’s a .. global problem..''..the amount of leverage and excess that has accumulated in bond and Credit markets..'Margin Debt Hits Record High Coinciding With Extreme Consumer Confidence: Analysts Say “Don’t Worry”, March 30, 2017</blockquote>