Professor Elam

Here is an interesting look at how merger mania occurs at the top of market indices.
I have mentioned in several of the classes that merger mania is typical of market tops.
It is inclusive which is a socionomic feature of the ‘good feelings’ generated by making money-let’s let everyone in!  Yet this is the exact opposite of what economists tell us in the ‘classic supply and demand curve’ which state that consumers want to buy low and sellers want to offer high.  Indeed, in merger mania Even more buyers want in at the top, as the graphs clearly show in past market tops.

And of course there is always someone to cater to this craze. Consider Dealmaker Magazine!  which is referred to in the first hyper link.  Note the bold black color of the website (remember DESIGN) indicating power (it is no accident that most Harley Davidsons are black). Even the name of the publisher suggest gambling-Doubledown Media, a name taken when one doubles down or doubles a bet in blackjack on two similar cards. 

Yesterday I got my latest copy of Forbes magazine, accompanied by Forbes Lifestyle magazine which is a sort of business person’s Town and Country-high priced toys and lifestyle for the jet set. Forbes is apparently making more money on selling lifestyle than business information.   Of course no one demonstrates this better than the recent fascination with Donald Trump.  The financial press is replete with stories about the collapsing real estate market-re read my 12/3 post on the Real Estate Bust Comes to Dallas.  Yet Trump has taken his overpriced (my opinion) and late to the market condo developments public-a smart move at the top of the real estate market.  No matter whether the condos (which according to his ads in the WSJ) sell which I guess they have, he will make out on the IPO for TRMP.  Donald is always good at making money for Donald.  Indeed, just yesterday the president of Toll Brothers TOLL , developers of high end houses, was lamenting the poor market for their product.

An article in the WSJ indicates that Morgan Stanley is expanding into casinos=-the ultimate bet from Wall Street on gambling of course.  One theory has it that stockbrokers are after all croupiers with in a Brooks Brothers Suit.  Indeed, the mania for takeovers is so high, that Station Casino owners, already possessing 30% of the company, have offered a 22% premium to Station themselves.

The better move would be to sell to greedy investors at the top, but that is not the psychology of market tops, everyone wants in at the top, which is why the buying pushes prices ever higher, until of course we run out of buyers.  The parallel is our observation that sub prime mortgages are accelerating in non payment.  Most of the condo sales in Vegas are no doubt simply bets on speculative real estate that the boom will continue long enough to ‘flip’ the property to the next buyer.  Take a look at the ‘Distincitive Property’ pages of the Thursday thru Saturday WSJ.  Do people really live in these things-of course not, they are toys for speculation.  Mushrooming sub prime mortgages, sagging stock prices of builders and the ongoing takeover mania all suggest this will not be the case as Scott Burns reported in his column on Dallas real estate.

DLE