Private equity’s losing streak is coming for your 401(k)



One of the late comedian George Carlin’s most famous rants gave us the line, "It's a big club ... and you ain't in it.” That sentiment rings especially true when it comes to the financial services industry, where wealthy investors and insiders gatekeep the most lucrative opportunities for themselves and their friends.

So what should you think when they suddenly want to let you in?

The private equity party is a bit dim right now, and that’s why they are sending out more invitations. Be careful before you RSVP.

There's no red flag bigger than when someone wants to let you in on something very exclusive — especially if it’s from people who’ve spent decades keeping you out of the club.

Case in point: the private equity industry’s latest push to open its funds to everyday retail investors.

The private equity world is one I know well, as a recovering investment banker who works with a firm to evaluate deals. My husband also worked in the sector. Like any other industry, it has both good and bad players.

Private equity involves deploying capital to buy ownership stakes in private companies, distinct from equity invested through the public markets in publicly traded companies. These firms are often actively involved with the company, as opposed to the more passive investing in public market companies. Their stakes are typically substantial, often including majority ownership.

The good players in private equity provide capital, professionalization of businesses, governance, business insights, and capital for growth. They may reward employees with an ownership stake to align incentives.

Some private equity players, however, focus on financialization — that is, playing around with the capital structure of a company and not adding a lot of value otherwise. Private equity is rife with examples of firms that have ruined businesses with too much leverage and engaged in a variety of greedy — and often, outright abhorrent — behaviors.

But this latest trend isn’t about good firms versus bad firms. It’s about the broader industry’s poor performance — and desperation.

The returns are drying up

Private equity has a problem. Too much money has flooded the space in recent years, driving up valuations and pushing down returns. Funds are struggling to find new investors to cover their high management fees. So now they’re turning to you.

They aren’t suddenly being generous. They’re just trying to survive.

According to the Financial Times, a major private market index has underperformed the S&P 500 over the past one-, three-, five-, and 10-year periods. Any outperformance was skewed toward earlier years — and even then, it came with significantly higher fees and far less liquidity.

  

This underperformance comes with heavy fees and a lack of liquidity for your investment. It's not a coincidence that you are seeing private equity opening up to retail now when it is struggling from deal competition, higher valuations, higher capital costs, and slower deal exits.

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Speaking of slower exits, the Wall Street Journal noted that “private equity remains the biggest fee generator for the broader Wall Street ecosystem of banks and advisers” and that private equity firms are sitting on a record number of companies that they are waiting to exit — that is, sell and record a profit ... or a loss. Longer hold times for private equity firms mean they are not returning capital to their investors, and, in turn, the investors are not reinvesting in the latest and greatest fund.

  

Whether it’s the new push to allow private investments into your 401(k) or your financial planner calling you with “new, exciting alternative investment opportunities,” please be appropriately skeptical. Always probe a fund’s track record (especially over the past several years), fee structure, and whether it is a fit for your objectives and goals.

The private equity party is a bit dim right now, and that’s why they are sending out more invitations. Be careful before you RSVP.

S&P 500 hits new record high following months of Trump tariff doom and gloom



Just weeks into President Donald Trump's second term, the S&P 500 — which had risen over 20% in the previous two years — rocketed to record highs, driven up in part by a substantive increase in corporate earnings as well as the "Trump bump."

After marking its all-time high of 6,144.15 on Feb. 19, the index soon began to slide, prompting anxiety among some investors and doom-saying from various analysts, especially over the potential impact of the president's tariff proposals.

For instance, Andrew Brenner, head of international fixed income at National Alliance Securities, told the New York Times a month ahead of Trump's "Liberation Day" tariff announcements, "The tariff rhetoric has become daily and extreme, sentiment is awful and trading is on edge."

In the days immediately following Trump's April 2 announcements, the S&P 500 had its worst day since COVID-19 crashed the economy in 2020, then shed many trillions in market value, prompting more of the concerns and shirt-rending that would become customary over subsequent weeks.

After months of doom and gloom, the S&P 500 hit a new record on Friday, marking a stunning comeback from April. At market open, the S&P 500 went north of 6,154.79.

CNBC suggested that the comeback — what Bloomberg indicated is "shooting toward the second-biggest percentage-point recovery in history" — was driven in part by strong corporate earnings, a stable labor market, and new energy in the AI trade. It certainly doesn't hurt that trepidation over tariffs has largely given way to optimism over Trump's trade deals.

The possibility that Trump might not ultimately implement his Liberation Day tariffs may also have been factored into investors' optimism. After all, the rise came on the heels of White House press secretary Karoline Leavitt noting that Trump's July tariff deal deadline "is not critical" and "could be extended."

There's also the matter of Commerce Secretary Howard Lutnick's recent revelations to Bloomberg News that the U.S. and China finalized its trade deal this week and that the Trump administration has imminent plans to reach trade deals with 10 other major trading partners.

"We're going to do top 10 deals, put them in the right category, and then these other countries will fit behind," said Lutnick.

RELATED: Trump’s tariffs take a flamethrower to the free trade lie

  Photo by Kent Nishimura/Bloomberg via Getty Images

"The markets are looking forward, seeing lower interest rates, less regulation in the banking sector, a shift from austerity to stimulus in Europe, and a less biting inflation and tariff environment," Jamie Cox, managing partner at Harris Financial Group, told CNBC. "This sure isn’t the stagflation story we've been told to brace for."

Paul Stanley, chief investment officer at Granite Bay Wealth Management, said to CNN regarding the S&P 500's $9.8 trillion roundtrip, "The market is betting on continued progress on trade and a de-escalation of tensions in the Middle East is giving investors confidence."

Entrepreneur and business expert Carol Roth told Blaze News that "it's important to remember that the market is not the economy, and that other factors, including the Federal Reserve and government policy, have impacted the market, particularly over the last couple of decades."

"The president's heavy-handed approach to tariffs was not expected by the market, but as there had been more certainty gained regarding tariff policy and a belief that further de-escalation is more likely than escalation, the market has moved past that hurdle," explained Roth. "In recent days, commentary from Fed members that suggests a Fed rate cut may be on the table for July has supported risk assets."

Roth noted, however, that "any long-tail effects from tariffs that show up later in the year, or challenges that arise from financing/refinancing our massive debt and deficit could shift the outlook and impact market returns."

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Why we're 'RUNNING OUT OF OPTIONS' to avoid economic collapse
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Why we're 'RUNNING OUT OF OPTIONS' to avoid economic collapse

 

The interest alone on America's debt is nearing $1 trillion — 'We're running out of options'



The stock markets may have had a good month in November — but that doesn’t mean it’s going to last.

After the United States has racked up $20 trillion in federal debt since 2008, Glenn Beck believes the next debt scare could be the real thing.

Glenn refers to an article titled “The Federal Reserve Broke the Budget. Buckle Up for What Comes Next” by Jed Graham of Investors.com, which details the undeniable reasons for the incoming crash.

“Exhibit A,” Glenn reads, “in the case of the broken federal budget is the deficit's surge in fiscal 2023, which ended Sept. 30. Unemployment was near a record low and GDP growth was strong.”

All that sounds great, but under those conditions, the budget deficit would be more likely to shrink. In this case, it doubled to $2 trillion.

“After the Fed sent more than $100 billion in interest on its bond portfolio to the Treasury in fiscal 2022,” Glenn continues, “it had to halt those payments last year as bond prices fell.”

“Having let inflation get out of the bag, an 8.7% cost-of-living adjustment stoked a $134 billion increase in Social Security checks.”

About $100 billion then went to FDIC bailouts to banks like Silicon Valley Bank.

“To top it off, the Fed hiking its key rate past 5% forced Uncle Sam to pony up an extra $177 billion in interest on the debt,” which Graham believes is a problem that will continue growing by “leaps and bounds.”

Glenn sees an end in sight.

“We’re going to have a surge. Enjoy it while it lasts,” he says.


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White House press secretary Jean-Pierre said the Biden administration is not monitoring the stock market amid Wall Street's longest losing streak in 99 years



White House press secretary Karine Jean-Pierre confirmed that the Biden administration is not monitoring the stock market on a regular basis as the Dow Jones Industrial Average suffered its longest losing streak in 99 years.

While speaking to reporters, Jean-Pierre said that “nothing has changed on how we see the stock market,” which is “not something we keep an eye on every day, so I’m not gonna comment on that from here,” the Epoch Times reported.

The Nasdaq Composite dropped nearly 5%, while the Dow Jones shrank by 4% last Wednesday. On Thursday, the Dow Jones dropped more than 440 points during the morning trading hours.

Earlier in 2022, former White House press secretary Jen Psaki said that President Joe Biden “does not look at the stock market as a means by which to judge the economy.”

The stock market’s historic plunge was triggered, in part, by selloffs of major corporate retailers like Target and Walmart. Target lost nearly 25% of its value after it reported earnings fell short of forecasts made by analysts largely due to shipping costs that high fuel prices and inflation have exacerbated. Other major retailers also saw significant losses in recent days.

Rising interest rates, spiraling inflation, the ongoing Russian invasion of Ukraine, and a slowdown in China’s economy have reportedly caused investors to reconsider the prices they’re willing to pay for a wide range of stocks.

The rampant selloffs lasted for eight consecutive days marking the longest weekly losing streak on Wallstreet since 1923, CNN reported.

The S&P 500 — a much broader index than the Dow Jones — posted its seventh-straight weekly loss marking the index’s longest slump since March 2001. The S&P 500 briefly entered a bear market on Friday after recording a 20% loss from the all-time high that it reached this past January.

The last bear market occurred two years ago during the COVID-19 pandemic, but the recent market conditions will mark the first time since then that new investors could experience true economic shrinkage.

LPL Financial’s Ryan Detrick said, “From inflation to a hawkish Fed, to war, to supply chain issues, to China on lockdown, to a slowing economy, there are many reasons stocks have done as poorly as they have recently.”

Detrick suggested that a “bounce back” is likely, however.

He said, “If we get any good news, a big bounce-back rally is likely.”

Social Media Users Track Stock Trading As Congress Considers Member Ban

Social Media Users Track Stock Trading As Congress Considers Member Ban
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Dow falls 150 points after Senate Republicans unveil coronavirus relief bill

Stocks were under pressure amid debate over the latest coronavirus aid proposal.