The Recession Specialist is no socialist, and hey, it’s just one blog with a sardonic sense of humor, but it doesn’t think that sitting back as wealth is concentrated in the hands of just one or two companies is cool, you know? Party foul, PepsiCo., party foul.
But that’s just one point of view. Others, perhaps including Steve Kaplan, an expert on corporate finance at the U of C, think that, as proven in the Monty Hall problem, more good things than not happen when you make a deal. Well, when you do it correctly. In an April 25th article in Newsweek, Kaplan seemed to say that, thanks to a spate of mergers that took place in the last week, the market will be fine.
“The activity is very positive,” he said. “More deals means we are no longer falling.”
Apparently, companies don’t make deals (read, “take over other companies”) if they don’t have faith in the economy. More deals means that more people in the thick of it think things are looking up. Daniel Gross, the article’s erudite author, explained the phenomenon thusly:
“Deals are like Viagra for the stock market, especially hostile unsolicited offers—like the one chip-designer Broadcom made for Emulex, which makes network gear, on April 21. Traders and longtime stockholders love them because they can ignite exciting, profitable bidding wars. Analysts view acquisitions as excellent barometers for the level of testosterone and optimism in the markets, a gauge of what economist John Maynard Keynes called “animal spirits.” Perhaps most important, deals throw off fees to all involved, from the investment banker (whose role consists largely of saying “Great idea, dude”) to the companies that make the little gewgaws distributed when transactions close.”
Ignoring the fact that the Specialist has no idea what a gewgaw is, this seems like the kind of logic that got the market into the mess it’s in now.
Then again, the Specialist, despite its name (which is derived from this, and not any real experience), is no expert; insightful or witty comments will be featured on the next post.