The Smart Money Is Selling

Here are some quotes recently on what private-equity money managers (those firms with the most investable assets). "Private equity is selling everything that's not bolted down. With the robust valuations in today's market, they are accelerating monetizations of companies they own." -- Frank Maturo, UBS vice chairman of equity capital markets, quoted by Bloomberg News "It's clear that we are currently in an environment of frothy valuations...The insiders - those with the most knowledge - are finding this a very good time to take some money off the table." -- Lise Buyer, founder of IPO advisory firm Class V Group, in the same Bloomberg article. "The markets are open and the financial sponsors are pretty astute about timing their exits." -- Cully Davis, Credit Suisse, co-head of equity capital markets for the Americas, in the same Bloomberg piece. Quoting a recent Bloomberg News piece, the piece notes that "globally, private equity companies have conducted nearly 100 stock offerings in the just ended second quarter -- more than any other three month period ever." The article is a great read, not because it represents confirmational bias of my cautious market view -- but because the observations are robust and, as my father has said: "The numbers are the numbers." The column is filled with facts and offers some obvious conclusions and lessons that should at least give everyone some pause about the current market level. It turns out that private-equity investors -- the smartest people in the room -- are selling when they can, not when they have to. While their time frames are longer than the typical trader's, their assessment of intermediate-term reward vs. risk is crystal clear. By contrast, the business media and the talking heads paraded in front of us are upbeat and are mostly unconcerned about significant market risk. Unlike the billionaires who operate mega-sized private-equity firms, these "experts" are buying nearly every dip. But it can be argued that the talking heads' ranks are populated by too many "Texas Puddles" -- people whose knowledge is a mile long and an inch deep -- and who generally advise investors rather than actually manage money. They are in some cases rationalizing the irrational, at least in my opinion. That's why I recommend you think about who's buying and who's selling, adding that consideration to your investment equation (I of course have become cautious and am looking to take profits when the markets move up and get frothy). My concerns go well beyond the Greek chaos to the S&P 500's profitability, as well as to its valuation based to those earnings. As I wrote earlier this week, Goldman Sachs (GS) cut its 2015 S&P 500 profit forecast on Tuesday night to $114 a share from the previous $122. A year ago, the consensus forecast was about $135. As always, this is just my opinion and I certainly could be wrong (I often am). But all things being equal, I plan to continue to be cautious and I expect the markets to trade sideways if not slightly down....it is important to do ones own homework but I also like to put my ideas, opinions, and overall investment strategies out there for those interested to read.