KUHN CAPITAL Wednesday, December 13, 2017
Dispatches from the front

Deal Markets in the Aftermath
(9/15/2001)

While our attention is still fixed on the tragedies of September 11th, remarkable things have been happening in the markets.

Mr. Greenspan appears to be making himself irrelevant. After quashing the "Wealth Effect" with progressively more severe interest rate hikes, he then reversed course and began a mincing progression of mini-rate cuts. The markets — once holding his actions in thrall — have become increasingly deaf to these signals, focusing instead on operating fundamentals like eps, p/e and revenue forecasts.

Now, on the heels of the recent horrific terrorist events, his abrupt cut of 50 basis points seems to have been virtually ignored. Perhaps this is all for the good: no one appointed him as American’s fiscal policymaker anyway. We may all be the healthier for it.

Nonetheless, Mr. Greenspan continues to operate as if he ran the American economy, most recently recommending to our lawmakers that they stay their hand on stimulative initiatives like tax cuts and selected spending programs — the usual rational response to a slowing economy, especially in our current circumstances — instead claiming that such actions may raise interest rates.

Meanwhile, the M&A markets are in turmoil as a direct result of public exchange volatility. It’s difficult to establish an effective relative valuation between two transaction partners when their values are gyrating widely.

But in the core of this turbulence lie the seeds of calmer times. As the markets’ average p/e’s continue to decline, more deals will close. That is, sellers will be compelled to become more "reasonable", while buyers will gain confidence that they are in fact buying at a good price.

As a result, we are confident that M&A transaction volumes will recover in the new year. And we are likewise confident that America’s response to the recent attacks will engender a rising sense of security and predictability — necessary conditions for the operation of the world’s greatest free market.

Ryan Kuhn


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