The definitive users of leverage over the last 3-5 years have been the private equity funds; Blackstone (BX), Fortress (FIG), APAX partners, KKR (KFN) and the Carlyle Group to name a few. They have raised billions for leveraged buyouts, far beyond the scale of anything ever seen before. They acquired companies they felt had too much fat, trimmed them down to size - increasing profitability. This then allowed them to resell, IPO or otherwise exit within a 3-5 year period with fabulous profits.

I expect many of these Private Equity Funds including Fortress, KKR and Blackstone to start to unravel within the coming months, as their short term loans (used to purchase the companies) come due. Fortress Investment Group had a very public issue with Intrawest (IDR) last Fall when they had to refinance a $1.7Bn loan and struggled immensely. When your facilities' terms get worse you have to pay more money for the same service which is a direct hit to bottom line. They will also be impacted as they will not be able to service the increased costs of the debt as a result of their reduced revenues caused by the global depression, furthermore they will not be able to raise the capital needed refinance, cover shortfalls or to fuel any further growth. Thus they will be unable to hide red spots buried within their balance sheets and we will see the beginning of a bankruptcy season that will last throughout 2009 and well into 2010. The Private Equity funds are very well run and managed though so you can guarantee the assets are so well ring fenced that they are unaffected (bar some loss of principle) when each layer of the onion is peeled back. They will rise again to prominence in them middle of the next decade as the few assets they maintain become valuable and they are able to sell them off for a good profit. I think RailAmerica, Inc (RRA) and FECI should be a great performers long term as they are cash flow businesses with incredibly high barriers to entry.

This article could have so many titles:

Who's to Blame?

Why are the wrong people being blames?

The current financial crisis we are in is escalating out of control. I question whether the current administration has anyone who understands what is happening, why it is happening, and is operating without some vested interest; never mind whether they have the correct answers as to how to solve it. The creation of a new entity "The Public-Private Investment Corporation" to purchase toxic debt funded by some $1 Trillion of taxpayer money is going to buy up mortgages, car loans, credit cards loans and other toxic debt off balance sheets for banks and other lenders... If these assets are sold to large investor groups, hedge funds and other such entities at 5 cents on the dollar, then it is an open admission that the tax payer will never see any return on his investment and those in power will have scratched the backs of many who put us in this position in the first place. This is the definitive version of the AIG bonuses being paid and we will unwittingly agree to this, not that we have any say, because of the language and structures used to deceive us.

We are talking about a quarter of the total bail out funds which will never even be attempted to be recouped, it would be impossible for it ever to be returned and it will be a small component of the $10 Trillion of additional debt that will be created by the Obama plan. The question is will the repayment of this money be handled as cavalierly? At least in Europe the governments have taken shares and stakes in the banks they bailed out, so they will get share growth and dividends. The lack of commercialism and understanding in the US government is a strong indicator of how we got ourselves into this mess in the first place. If our representatives can sign the patriot act without reading it and give away our civil liberties, why would we expect them to have read how the money will be used and where it will come from.

There are several areas of the US and Global economy that should experience significant growth in the next several years, making them great investments with strong potential returns. Looking to these areas will pinpoint key technologies and individual companies that should outperform the market and will make great entrepreneurial opportunities. These areas are Energy, Healthcare, Bonds/ Guilts/ Treasuries, Computing, affordable rentals and Green Enterprise. Here is a breakdown of each area of growth in more detail:

1) Energy