As this thread is about the DOW and other markets, may I talk about the FTSE .
The market is being buoyed by bid speculation both real and unreal across nearly all sectors, this is good for the nimble and astute but in itself is not a good enough reason for the market to be at such lofty levels. Even when the DOW, S&P and NASDAQ fall, the FTSE at best gives up a few points which it promptly regains. There are many that feel the market is undervalued and use such absurd stats as – Earnings before Interest, tax, rent, wages, etc. Are these not business expenses which affect profitability? What is EBITDA? Surely when I buy a computer it loses value and I have to account for it; the depreciation/capital loss reduces my profits. Equally, when I borrow money to fund my business, it attracts interest which reduces profitability so what is the use of these funny terms?
Anyway, since it is the season of mega bids I am going to give you all the scoop of the century (remember where you first heard about it).
On Monday evening I had dinner with an elderly lady who has been around for what seems like an eternity, she still recounts tails of the British Empire; the steam engine and the creation of the United Nations. She has had enough of all this nonsense of customers phoning the bank and being routed to Bangalore or computers deciding on overdraft levels etc. So she has decided to mount a blockbuster bid of £12 a share for HSBC.
I nearly fell off my chair in shock and disbelief, here was a 93 year old great grandmother planning to launch a bid for HSBC; but she then went on to map out her strategy. Along with other colleagues, they intend to put up 10% of the equity; obtain another 10% from some Russian Oligarchs; 10% from the Bank Of China and raise the rest in a mixture of junk bonds and Private Equity Finance. They have a couple of chaps that used to work for Drexel Burnham Lambert lined up to raise the finance and an ex US Treasury Secretary as CEO designate.
I enquired about how they intended to make the deal pay and found the information quite revealing –
1. Close all non essential branches.
2. Retrench 40% of the employees.
3. Levy charges on all deposits and withdrawals.
4. Re incorporate in Bermuda.
5. Introduce charges on all accounts.
6. Sale and lease back of all premises.
7. Raise 50 billion US Dollars which is immediately converted into Euros and Yen; this will be re
converted once the US Dollar drops 10% and the loan repaid.
By now I could see an easy source of making money so I asked her when they intended to make a friendly approach to the Board of HSBC to which the old lady responded; “We are going to launch a hostile bid on Friday April 1 2005.” It is time to raise all the funds I can and go long HSBC.