Tuesday, February 24, 2009
It turns out that the Zell-Blackstone deal, as well as the Blackstone IPO, marked the exact top of their respective markets:
As a general rule, mega M&A deals always tend to mark the top of a market. We saw this in the 1980s with Merger Mania, culminating in the historic $30 billion RJR Nabisco LBO – right in front of the early 1990s recession.
We saw it in early 2000, with the $164 billion AOL-Time Warner deal, one of the greatest value-destroying transactions of all time. The merger agreement was filed in February of 2000, the market's apex. By 2002, the value of AOL was written down by $100 billion.
And, of course, the financials: MBNA and Bank of America in 2006; Bank of New York and Mellon in summer of 2007; and Bank of America buying Countrywide Financial in early 2008, to name a few.
However, the worst may be RBS and Fortis' colossal $100 billion acquisition of ABN AMRO in October of 2007 – again the exact top of the market. Fortis is now defunct and RBS is being propped up by the British government.
By contrast, heavy bankruptcies are a positive sign. And sharply-reduced capacity and inventories, especially when they have been depressed for long periods of time and appear to be improving, are signs of a market bottom.
This is probably where agriculture markets are right now. It continues to appear that agriculture may well enter a bull market over the next few years.