Ex-Wall Street Trader: The $8 Trillion Bubble Ready to Burst | Jared Dillian

[@MauldinEconomicsYouTube]

Read Jared's special exposé here - www.jareddillianmoney.com/go/JD062YT0001/JDM

[@Justin-pu5pb]

This is one of the best conversations I heard on KZbin or anywhere on this private equity. I hope you have this guest on again.

[@Nonya969]

Work for a company owned by PE; will cosign a lot of this. Lean operation with prices going up up up, no new investments to improving the company, no customer focus at a senior management level, 12% interest rate on a LBO, PE leader (ie VP) under 40, pinching pennies at every turn, asset stripping when possible. Edit: In the chemicals industry

[@Slide61]

PE should be renamed EE - equity extraction.

[@RichardBassett-km4fn]

How do PE firms make money? It's not just capital gains and dividends; it's the fees that guarantee that the PE firm earns a return even when the limited partners lose money. Fees for closing a deal, fees for raising debt, management fees from LP's, fees from the company for governance and "management" and fees for exit. Fees drive more decision making and pricing decisions than the prospects of capital gains, which are uncertain.

[@PowerYAuthority]

This is true to an extent, a solid PE firm won't make decisions from fees alone. My firm makes decisions by mitigating downside. Basically, is there upside? does it match our investment thesis? What's the downside? Seen our investment committee shoot down several appealing deals cuz downside too big. Some PE firms are solid like us, many are just guys in their 20's / 30's with no clue what they are doing trying to make money and those should be avoided.

[@rafb145]

@@PowerYAuthorityI bet every PE says that - we’re good, it’s the other guys, they’re garbage

[@RWROW]

Private equity sounds like a disaster for the country long term.

[@twhelostl61]

It is just a polite way to label the non-bank sector. Corporate pirates who have almost no constraints. BlackRock is Larry Fink's ship, he has DC and BOA in his corner. TARP from 08-09 got handed off to these firms by the FED. PE owns and rents these single family homes. Some others are Air BNB. No wonder that buying a home is so hard for individuals.

[@deathlarsen7502]

you will own nothing and be happy! especially hussien obama/biden and kamel face voters

[@bpb5541]

we are in an everything bubble... why would private equity be excluded?

[@caryphillips4885]

Probably because they've got insurance in the form of taxes and the money printer.

[@RightTailAngst]

Super interesting. In my opinion caused by too low of rates for too long. Regardless you can see how poorly run everything PE touches from nursing homes to hospitals. One constant everyone from customer to employee feel screwed

[@actualfacts1055]

A big con in Australia is private companies raising capital to list on the stock exchange but never do.

[@Stephanerkt]

Interesting. Do you have any sources?

[@actualfacts1055]

​@@Stephanerkt An Australian company called AAIG raised capital to list on the ASX four years ago but still hasn't listed.

[@reallyso7093]

Biggest issue with PE is the leverage as much as possible so less equity is needed. If companies at some point have issues, they reduce costs, but there is only so much they can do. If things really go bad and the business shrinks, the lenders get the company and it either closes or gets sold. If there wasn't so much debt, the business many times could have survived because they wouldn't have to pay so much interest. This happened to Toys R US, which the CEO said could have remained in business if it didn't have so much debt.

[@robertdoell4321]

The Debt bubble is far larger than a measly 8 Trillion. He is dismissing the derivatives of at least 1 Quadrillion in debt that is used in OFF BOOKS transactions of gambling and those who correctly use derivatives to hedge their transactions.

[@PowerYAuthority]

I work in PE at a solid firm. Some people aren't as smart as you would think but they are extremely risk addverse and it's good for business. What I have learned working here tho is PE is full of underpreforming average intellectual people (this is when I look at some other firms in my building / people I meet at socials) My 2 cents, if a firm struggles to return 2x then they're constantly overpaying or buying shit. A good firm will average at least a 3x return

[@cooperrichard6]

Great interview, I thought this has been going on since the late 80's.

[@sbain844]

Sounds like private equity firms have come to resemble the conglomerates of old, and they'll no doubt fail for the same reasons.

[@gmb858]

Financial engineering coupled with an attitude that the P/E investor "doesn't care" with the stated objective of stripping the company of cash are at the heart of the problem. Handing equity to outsiders is letting the wolves into the chicken house. In my 38 year career I was an asset based lender providing revolving lines of credit with advances against percentages of eligible accounts receivable and inventory. Equity in smaller, private companies, is centered in current assets with an underlying value in fixed assets. The objective of asset based lending is to smooth out the flow of funds in the company in collecting receivables and paying suppliers. Leveraged buyouts have to bring added value to the company through the expansion of the core business (examples manufacturing, adding product lines for selling to existing and expanded customer lists). The idea is to take out the majority owners to replace them with (hopefully) better management that can maintain and expand the business. The added cash to the balance sheet is not there to strip it out in fees and carving out the needed liquidity to maintain credit ratings and to satisfy suppliers. That is where the private equity firms come in with their flim-flam and blue sky promises. A bunch of wet-behind-the-ears MBA's working their jacked up appetite to do "big deals" is a poison to the economy. These jake-legs have never had to liquidate a company that goes bankrupt; real value is the fire sale price that bottom feeders will pay for inventories and machinery. Traditional business brokers help owners to cash out by essentially selling assets in a property transaction. The departing owner retains his outstanding accounts receivables to collect and hopefully give a favorable reference in the hand off to the new owner. The new owner has the inventory, and fixed assets to continue the business as a going concern. A few sharp guys like Henry Kravis made the transition to private equity; he really created the current model. But Kravis was grounded in basic business principles, knew how to evaluate assets and operations. But his acumen can't be "stamped out" on a metal pressing machine. Only knowing the top level of how it's done is tantamount to handing a loaded gun to a child. So the day is coming when all the "headline" front end deals will come due and many people are going to be hurt by the rash actions of crooks that fleeced companies.

[@MauldinEconomicsYouTube]

Well said and agreed - thank you for the thoughtful and informed comments. -Ed

[@auwz66]

If you want to see how this can all go wrong have a look at what happened to the Woodford Fund in the UK a few years ago.

[@George-d9l]

Great video Gents. Calm and insightful. May I ask what happens when credit speads widen on the leverage used to buy these private equity companies? Presumably the private equiquity company assest strip the firm and allows it to fail?

[@divotor147]

Did you mention loading up newly acquired companies with debt......

[@lak1294]

Very true about IPOs. I don't think I've heard of a significant one since Saudi Aramco.

[@KENTUCKYUSA1]

"Vulture capitalism." Yeah. Nailed it!

[@blakejech6846]

It's called capitalism..inherently it is greedy and evil.

[@KarelBeelaertsvanBlokland]

Private Equity must sell holdings regularly. But that's not always possible. Without exits, Private Equity becomes an illiquid investment.

[@ukpitts]

Simple: Raise fresh money into a new fund & buy ‘PE’ assets from another pool of money or fund. Pass the parcel - it goes on.

[@rakeshlakhotia6069]

Two Private Equity leaders are KKR and BX. I have been generating big profits over the years. No need to go for remaining players.

[@Canadian_Eh_I]

Phenomenal interview. Jared really shining here.

[@Slide61]

Please....PE primarily targets companies with owned assets they can sell or lease back, have the ability to service massive debts (equity extraction) over the long term, and can be dressed up (like lipstick on a pig) for resale. The only 'improvement' they bring is a massive reduction in fixed cost by layoffs and squeezed benefits. Those margin increases are their pitch when they go to sell. Worked really well in the nursing home industry if you ignored the lawsuits around the lack of care to the elderly. Similar story in emergency rooms around America.

[@MetallurgyMonday]

The layoff folks and raise prices was done at Thermal Process Holdings and the impact was seen immediately not in 3-5 years. PE is driving it into the ground since you have those "33 year old B school VP's" who know nothing. I expect bankruptcy for them.

[@sebastianbucur5135]

Private equity also sells (steal) any assets the business might have.

[@randyosborne3971]

Congress is for sale. On the take. BOTH PARTIES. And Congress mandates the Federal Reserve. What could go wrong?

[@mlbull2000]

For a bust you need a major catalyst. Unlike the real estate bubble, for private equity to collapse you need a major depression like event so lots of small to mid companies go out of business together. Otherwise market can go sideways without a major collapse to correct itself. Market can stay irrational a lot longer than you can stay solvent, or your prediction is so early that by the time IF it happens your call is irrelevant. It’s very good to educate people but it’s bad to call for doom and gloom.

[@MrPatrickslovell]

You guys are funny. This was helpful. Thank you.

[@davecohn6407]

The perception is that the FED will bail out the market and the most speculative of stocks will have only a relatively small correction . With the top 3stocks combined market cap exceeding 10t, huge monies will be lost in a small number of stocks far before private equity is affected

[@henrymason1011]

Presently private equity is gagging on real estate.

[@Slide61]

Make it better??? Please. Houdaille Industries ring a bell? Sensata? Sears? Pacific Lumber? Sell everything that isn't bolted down is the philosophy.

[@bro.radcliffe9453]

Like Powell at Carlisle

[@jking1343]

CLOs and PE trade loans back and forth a lot. OTM puts on CLO etfs are real cheap atm...

[@actualfacts1055]

You need to choose private equity firms very carefully, some are great, others are just a con.

[@FarleyMan151]

It's way worse than 2008 bro.

[@actualfacts1055]

Some private equity firms in Australia simple get investors to invest in other private equity firms.

[@thewayriderchronicles]

Valuation, or rather over valuation, in PE is a given here, only other than a super major stock market sell off (in which we are all dead anyway), it's not really like the MBS market back in 2007. There appears to be no direct OTC tradable instruments, such as CDO's etc., in the current private equity space. It was these instruments being finally marked to market that really got the MBS crash going. Someone mentions huge derivates in debt positions, only these derivatives cover many types of debt, not only PE. If anything, trouble could start in the massive Fed Repo and money markets space, only that market is so opaque and specialized, and watched like a hawk by the Fed, that I have trouble seeing it get out of hand right now.

[@timO67799]

Theres been 129 IPO's this yr, it's Sept 3rd

[@ukguitaryogi2888]

shorting even when your right is extremely risky .. be careful

[@robichard]

Very informative, but in the end, I felt like it was an infomercial. Anyone else feel this way ?

[@benmaxinm]

The bet should be pretty straight forward: short the big three Blackstone, KKR, Apollo no? Or start building the inverse short of going long SH and SDS? You could short high-yield bond ETFs (e.g., HYG or JNK) or buy put options on these ETFs to express a negative view on leveraged buyouts (LBOs) and the broader private equity market. What else? Disagree, agree? The most difficult variable on this is timing. That can run you over three times before things get in motion.

[@Hacktheplanet_]

Happens every cycle

[@MikesGarageRoute66]

Is it time to short the Canadian Banks again?

[@COOLARUL]

Is that what they call the widow maker trade?

[@MikesGarageRoute66]

@@COOLARUL Natural Gas is the widow maker

[@COOLARUL]

@@MikesGarageRoute66 This reply makes no sense.

[@thomassullivan6016]

In laymen's terms it's a hustle

[@mitchnauffts3939]

PE in 2024 hardly ever increases the efficiency of the companies it buys because it's too busy loading those companies with debt and firing workers. PE also is ludicrously lighty taxed. Time to end the boondoggle that is PE!

[@ld9044]

#4. You might find yourself a resident of a private equity nursing home. 😮

[@lak1294]

The toxicity of today's culure is truly breathtaking. Whether in finance, politics, the horrible current job market and work culture towards workers, basic interpersonal decency, wokism that harshly judges history and historical figures according to rules the wokists made up themselves based on nothing but a one-sided perspective utterly lacking in genuine experience, compassion, and the ability to "walk 100 miles in another person's shoes". So many negative, as opposed to positive, trends all around.

[@JM-gu3tx]

Jared needs to learn the grammar rule called subject-verb agreement.

[@iGuide_net]

right. right? right! right? ... right

[@winthorpe2560]

Who owns the debt?

[@alwaysthinking2175]

given how illiquid the market is, you won't see the crash. you'll need a more liquid market and people to crash it.

[@giantessmaria]

all these geniuses calling for crashes have cost you A LOT OF MONEY! There is no logical reason markets keep melting up, but they do. Almost feels like the collective world markets have mostly been nationalized with endless central bank liquidity. cant stop, wont stop!

[@mariondaniels2934]

Lol, as if private equity ever built a company up.

[@danielhutchinson6604]

Know Me by my Bookshelf? A load of paperbacks indicate a load of information, but less value from the content? Just a speculation from some Montana Cowboy with internet access.

[@elvispresley3234]

At 27:15 are you honestly going to make the statement that you didn't "see" i.e. "read" Burry's book!? How in the world can you tout yourself and discuss this PE topic and the market at large, and then tell your audience that you haven't read Burry's book?! That is just completely stupid. Read the book, don't continue to discredit yourself. Good grief.

[@syedkhizarmohsinshah8883]

It's not all that gloomy as projected here....

[@JJAviation]

Biggest amount of B.S. on 30+min, this guy doesn't understand at all about the private equity business..

[@blakejech6846]

"That's capitalism, that's a good thing". Yea, no. Capitalism is a terrible thing. And there are countless examples, including the ones you just gave.

[@bsbs-optionstradingrealiti4847]

Is it Manipulation of Markets when Economy is not attractive. Can I interact with. My Mail for more data

[@norvikgrigorian4518]

Don’t worry! China will buy it! 😂