Worldwide Bubble in Financial Assets

By on July 8, 2007

The private equity buyout frenzy hit home again when the Blackstone Group recently made a $47.50 per share offer for Hilton Hotels (NYSE: HLT; 45.71), a long-time holding in the aggressive portfolio (purchased February 15, 2000 @ 7.63 per share). Past experience has taught that occasionally these buyouts fall through. Therefore, on July 5th, 40% of the position in HLT was sold at $45.58 per share. The $47.50 offer seems awfully generous and if the economy suddenly swoons, it might be rescinded.

Portfolio.com has an interesting take on the absurd price Blackstone is paying for Hilton at http://www.portfolio.com/views/blogs/market-movers/2007/07/06/crazy-leverage-in-the-hilton-deal

Over the past 9 months, holdings in the aggressive portfolio have been acquired by outside entities left and right. Ace Cash Express, Symbol Technologies, and Outback Steakhouse have all been snapped up. Biomet has a $46 per share deal in the works with a buyout group. All of this activity has increased the liquidity of the aggressive portfolio, which I intend to deploy at some later date. I agree with Jeremy Grantham and Marc Faber that we’re experiencing a worldwide bubble in financial assets and it’s probably best to hold cash when it becomes available.

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