We probably have forgotten the excitements of multibillion PE buyout in the last 2 years(Buffet called it dumb money). They have helped to end misery of shareholders trapped with depressed valuation, beaten down by the bear for long three years. The two charts will help to refresh our memories.
By now, for those who are following the credit implosion closely will finally seeing more confirmations of a bust cycle. Inability of KKR Financial to repay loan is suggesting the business they bought out is unable to generate sufficient cash either due to business contraction or unrealistic growth has been build into the acquisition model. During the period of buying frenzies, if you want IRR or ROI of 15%, your team will come back to you with 15.1%, beating your target by 0.1%. These smart people can do thousands and one trick to achieve that(top line growth, cost cutting, cost of capital, potential upsides, etc). What happen in the 80s is going to be replayed again, except on a bigger scale.
Foreign investors have more troubles at home, so don't expect them come and invest for now(Wait a minute, are you sure?). We should feel lucky if they don't unwind emerging market aggressively. Wall Street rallied yesterday, bought by computers because program says it was way oversold already. Great, finally we are not talking about emotions.
Good news to us may not be good news to foreign fund managers. Malaysian January inflation rate of 2.3% that left interest rate unchanged by Bank Negara may slow down Ringgit depreciation against USD. Those disappointed with no interest increase may decide to take some money off the table.
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