Through The Fly's Eyes: Private Equity
Buyout Boom "Only In The Fifth Inning"
Francois Trahan, Bear Stearns' investment strategist, wrote yesterday that the private equity boom is only in the fifth inning.
Trahan analyzed total liquid assets as a percentage of market cap relative to short-term interest rates. He then used that ratio and matched it against other manic phases in stock market history such as the 1980s LBO craze and the 1990s tech bubble.
His conclusion: there is plenty of liquidity to drive the private equity boom for quite a while. In past boom cycles, the frenzy continued until liquidity ran out. With the Fed likely to lower rates during 2007 and US corporate balance sheets still underleveraged, there is plenty of cash to feed this boom.