Bargain-Hunting Hedgies and CEOs Poised to Bring Closure to Credit Woes

 |  Includes: DIA, SPY
by: Vinny Catalano

At my last hedge fund/alternative investments seminar in Austin on October 25th, I sought the views of my expert panelists regarding the current credit crunch and what they thought the severity of the damage would be. The responses of two of my panelists were most interesting, to say the least.

The two panelists, both credit experts, were nearly beside themselves with joyful anticipation. Why? Because they planned to exploit the situation by scooping up bargains from the chaos and fire sales unfolding.

So, when we hear stories regarding hedgies and private equity boys and girls working overtime to reallocate their assets to join the bargain hunters who seek to benefit from the pain caused by the credit squeeze, we should not be surprised. Thanks to abundant liquidity, the hedgies, private equity, and asset managers with similar interests and abilities as my two panelists are forming a floor under the current credit debris and, in the process, are helping to bring to it closure.

It is, therefore, reasonable to assume that as stated in Tuesday's blog posting, Sarbanes-Oxley and the cleaning up of the books before the year is out will likely result in some of the prime assets the bargain hunting hedgies and companies will be interested in. The CEOs get what they want – clean books and no personal lawsuits – and the hedgies and companies get what they want – great bargains. A win win. As for the investors in the affected companies, sub-prime and other credit borrowers, however, one can only say, “You’re din din.”

Investment Strategy Implications

Winston Churchill, a man well acquainted with times of stress, once said, “The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.” I think it is fair to say that, despite their unsavory reputation, vultures are opportunistic.

So, equity investors should rest assured that these scavengers will help facilitate the end of the current credit crunch thereby enabling all to rejoin the liquidity party.

Come and get it!