Trash the Cash? Or take the money and run?

Monday, November 20, 2006 | 05:33 PM
in RR&A

NOTE:  This Market Commentary alert was originally emailed to subscribers at Ritholtz Research & Analytics on Mon 11/20/2006 5:33 PM;

This is posted here not as investing advice, but rather as an example of a trading call for potential subscribers. We expect to post future advisories in a similar manner -- after the call, but in the correct chronological location on the blog.


I am hard pressed to recall the last time a) there was so much money sloshing around; and 2) people seemed so hell bent on getting rid of it.

According to Dealogic, the total dollar amount of deals announced since early Friday until this morning was around $88.5 billion globally; half of that pile of dough were transactions in the U.S. The value of global mergers and acquisitions for 2006 had reached a record $3.368 trillion, beating the previous high set in 2000 of $3.332 trillion. Much of these transactions were for CASH. Its as if these dealmakers all decided they wanted to Trash the Cash.

The surge is being driven by companies which after years of big stock buybacks and dividend increases, still have large amounts of cash on their balance sheets. The flood of money into private equity funds also needs to be put to work. (Indeed, one of the reasons the short sellers have been carried out on their shields is the ongoing bids caused by expectations of private equity buy outs.

Dollar Hot Potato: There are obviously two (or more) very different valuation metrics being done by buyers and sellers – and they seem to be reaching rather opposite conclusions. It makes me wonder if these buyers have become negative on the US dollar, and are seeking to swap out of greenbacks into hard assets – at almost any price. Note that since 2001, as the dollar fell, hard assets (Real Estate, Gold, Oil, Timber, etc.) all rallied strongly.

Lots of very smart investors have made recent bets against the dollar – Buffet, Soros and Rubin to name three – and have lost. Perhaps this is a smarter variation on that same investment theme.  Don’t short the buck, but get rid of it before it devalues any further. Swap it out into hard assets (and dollar denominated ones at that) – Copper Mines, Chip Fabs, Office Buildings, Shopping Centers, Energy Reserves, Marine Tankers – ANYTHING but the dollar. It makes you think, doesn’t it?

Take the money and run? : Not everyone is dumping greenbacks for hard goods:  Well worth noting is what some of the savvy players – the smart money –  are doing. Some folks don’t seem to be too afraid of the dollar.

Take for example Real estate mogul Sam Zell: He has a reputation for being a very canny real estate market timer. He took his REIT company public in 1997, and now, less than 10 years later, he is a seller to Blackstone Group for $20 Billion dollars.

Selling commercial real estate interests at time when the Dow Reit Index (IYR) is hitting all time highs, the real estate market is softening, and investors are increasingly worried about a prolonged downturn sounds like the moves of a savvy player indeed.


Last week, many of you asked for several lower risk long trading and investing ideas. We have an opinion on 3 that are well worth considering: We posted these to the Technical Review section of the site. (In the future, you will get an email notifying you that a Technical Review was posted)

The three are:

1) Williams Cos  (WMB) a $15B natural gas producer pipeline  company

2) Mosiac Company (MOS) a $9B crop nutrient and animal feed firm that is expanding into bio-fuels;

3) eSpeed (ESPD) which creates “vertical electronic marketplaces,” and is an overlooked company in the very hot Markets sector. (ESPD was the Cantor Fitzgerald spinoff)

All three of these can be bought on pullbacks – investors can make partial buys (for entry levels and stop losses, see each report)

-Barry Ritholtz
November 20, 2006

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