The Bernanke uncertainty

After all the last week's turmoil, people are much more uncomfortable. We are like in a big nine meters sea, particularly if you look to the volatility: The Chicago Board Options Exchange Volatility Index stayed near the highest since 2003 after the Fed unexpectedly reduced the rate it charges banks for loans on Aug. 17 .

The Friday's comeback, probably was a technical rebound together with an emotional reaction to the FED's reduction. This confirms our vision: The Fed said it reduced the discount rate to 5.75 percent because risks to economic growth have risen ``appreciably.'' The statement was a departure from the previous week, when central bankers kept rates unchanged a ninth straight time and reiterated inflation was their ``predominant'' concern.

But after all, we will focus in these two main issues:

• Goldman Sachs Group Inc., whose hedge funds lost $3 billion in August after the S&P 500 declined 6.9 percent from a July 19 record, said in a letter to investors last week that a ``significant investment opportunity'' now exists.
• The Fed's actions have been less predictable for investors since Chairman Ben S. Bernanke took over in February 2006 after more than 18 years under Alan Greenspan's leadership.

New Year: more deals

In 2006, we have seen basically two major issues:

• The merger mania: Arcelor bought by Mittal; pendent acquisition of Corus by Tata or by CSN (Brasil); Euronext bought by NYSE; BAA bought by Ferrovial (Spain); pendent acquisition of Scania by MAN; pendent acquisition of London Stock Exchange by NASDAQ; etc.
• The definitive assumption of private equity investors, like Kohlberg Kravis Roberts, Texas Pacific, Permira, or Blackstone.

In other aspects, we have witnessed to this:

1. an unprecedented rise in hostility. Never before have so many institutions and investors been prepared to go hostile in pursuit of their targets.
2. 2006 worldwide M&A activity reached a record $3,760 billion compared with $3,400 billion in 2000.
3. Most venture capitalists and major banks such as Goldman Sachs once avoided hostile bids, wanting managements’ approval for any offer they made. Not any more. With billions raised in takeover funds and their rivals all pursuing the same deals, they can no longer afford to be so scrupulous.
4. “For better or worse it’s one of the business practices that the US seems to have exported,” said Pierce (MORTON PIERCE has chaired the M and A group at the New York law firm of Dewey Ballantine since 1991).

The globalisation and the venture capital will help to increase this trend.

New wave

We have used to ear about mergers and acquisitions, particularly from: raiders, big investment companies (like Goldman or Merrill Lynch) or the typical hostile or friendly take-over.

Now we have a new wave and a new type of take-overs. We are used to ear almost everyday names like, KKR, Blackstone or Carlyle Group.

These new raiders are very aggressive, read this:

• Kohlberg Kravis Roberts proposes buying Vivendi for $50 billion, a record-sized deal that would have been unthinkable just a year ago.
• Blackstone Group announces that it's raising a $20 billion fund, the biggest ever.

Probably, after the boom, the bust will come!