Time running out for Wall Street's cowards
Most CEOs were too hesitant and pessimistic to ink any buyouts when they could get them on the cheap. Now the door is closing.
There should have been mergers and acquisitions. That's right, during this whole run-up, there should have been many more deals, more acquisitions to spur growth or to take market share. We can sit here and wonder why the heck there's been such a dearth of M&A since February. Or we can reach a very logical, inescapable conclusion: Most CEOs were too stupid and pessimistic to take the opportunity to do any buying.
Well, here's some real bad news. The time for transformative deals, unless we get a broad-market pullback, has probably passed. Harsh judgment?
I don't think so.
We spend a heck of a lot of time, much more than we should, talking about why stocks shouldn't be higher. Think about all of the admonitions we've heard: There's no real revenue growth, so don't pay up. Federal Reserve chief Ben Bernanke is about to change his mind; don't pay up. Tax rates are going higher; don't pay up. Sequester's coming; don't pay up. Fiscal cliff's here; don't pay up. Europe's burning; don't pay up. China's faltering; don't pay up. Valuations are stretched; don't pay up. Commodity prices are falling; don't pay up.
I mean, the fact that I have sat here and listened to these different objections at every single milestone is a pathetic reminder of how wrong people can be. It's an incredible thing, isn't it, that a good manager like David Tepper can come on CNBC's "Squawk Box" and just be unequivocally bullish and make news for doing so?
But most chief executives don't see it that way and didn't see it that way. Instead of looking for bargains when prices were lower, they sat on their hands and bought back their own stock instead of the stocks of others when they had the chance.
Most -- but not all. Think of the ones who did. Think of the people who did step up to the plate in this period. First there's the totally and correctly beloved Warren Buffett, who bought Heinz (HNZ) three months ago at the same price he would have to pay for it today, except he got the whole company. That's right, in retrospect, he stole Heinz, given how high Campbell Soup (CPB), General Mills (GIS), Hershey (HSY) and the likes have traded.
Or how about John Malone? At Europe's bottom he spent only $23 billion to buy Virgin Media (VMED). This one's pretty amusing. Everyone is always talking about going global, but when going global finally gets cheap, Malone is the only one who steps up. He's not afraid to make a mistake. He seizes the moment. I wonder what he would have had to pay if he had started the bidding now.
Or how about Sandy Cutler at Eaton (ETN)? Cutler knew that the economy could be in a period of lower growth, so what does he do? He goes and buys a principal competitor during a period when the antitrust department is pro-trust, or at least pro-trust in CEOs' ability to create entities that can be much more tough with their customers. Eaton and Cooper will make 2.5 times more money than Eaton and Cooper would collectively make otherwise.
Or how about Jeffrey Sprecher, the CEO of IntercontinentalExchange (ICE)? You ask anyone in the U.S. about the New York Stock Exchange and he will say it is the pinnacle of capitalism. You ask him about Intercontinental and he will tell you it is a hotel. But Sprecher had a vision, and now he will be running the largest exchange in the world.
Then there's Rich Kinder at Kinder Morgan (KMP). Rich bought not one but two companies: El Paso for pipe and Copano for oil and gas. He paid about $24 billion to get both. They were immediately additive.
Buffett, Malone, Cutler, Sprecher, Kinder. They weren't afraid. They were bold. The door is now closing, and all I can say is that, once again, the smartest guys acted. The others? They just sat on their hands when things were cheap, worried about everything instead of being bold and actually changing the fortunes of their companies to the positive.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long ETN and KMP.
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Doda...Along with your two points, I think ACCOUNTABILTY is a major problem...
And then a "Deservent Attitude, of Selfishness abounds" with many..Me,me,me.
Everyone gets a trophy or ribbon..Kids and people do not acknowledge wins and losses.
No one readily excepts blame anymore (damn few). For anything..
Either they point fingers in 10 different directions or drag everyone available into the melee.
People in Power, Officials, Politicos, Elite/Rich that buy the others off,want to keep anyone underneath them, on or near the bottom..
And the People on the bottom or halfway up are too goddamn stupid to realize it, or do anything to change the way it is playing out..imo.
We do not function as true Americans anymore, within our own founded belief systems.
The few left are fighting a losing battle...The others only have themselves to blame.
There have been lots of studies done on CEO compensation and it can get pretty tricky. If you pay someone a flat salary with no incentive, they don't have any skin in the game. But if you make the compensation package too incentive-based, some CEOs will do some crazy things to boost profit margins for a few years and then cash out, before the effects of the shady tactics are inevitably felt. Kinda like Pete Rose betting on baseball. On the surface, as long as he's betting on his own team, some might not see the harm. But inevitably, he'll start using up his bullpen in dumb spots, or being over aggressive with the baserunning calls, and it will hurt the team in the long run, just so he can win a bet.
As far as this article goes, is it possible that CEOs weren't stupid and didn't miss the boat with regards to M&A activity? Is it possible that they made absolutely the right call in this era of perpetual uncertainty? It's not a matter of possibly over-extending, it's a matter of there very well being no incentive to expand at all. Why risk the capital and possibly incur more debt if the reward doesn't justify the risk? Evaluating possible M&A isn't just about finding a bargain, it's about managing risk versus reward. If the reward is smaller than the risk, it's not worth it, no matter how small or insignificant that risk might be.
GOODO and SLG are handing in there and they are REITs, but commercial real estate only. No residential mortgages. Maybe the residential mortgages would perform better if we bundled them together. Just a thought.
We stick to what we said earlier, would be nice to end the day flat to a bit up....Hopefully nobody got suckered in this mornings bogus rally; yup, we were up about 80 some points, how about now.....For the umpteenth time, there are plenty of folks trying to bring these markets down every single day, that's what they live for....A little over 2 hours to go, hopefully we will hang in there...More after the close.
Gotta go count money and then it's nap time...zzzzz
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