24/7 Wall St.

There are two problems with the game of musical chairs. The first is that someone is left without a seat after each turn. The other is that there is only one winner.

The communist Chinese government, decedents of Chairman Mao, has decided to put $3 billion into the huge US buy-out firm Blackstone. After the Blackstone IPO, the Chinese cannot hold more than 10% of the firm and will only have non-voting shares. But, they will get a slight discount on the price of their stock.

The investment is odd. The Chinese clearly have a lot of excess money, $1.2 trillion in foreign-exchange reserves. But, private equity is a strange place to put it. Blackstone and similar firms make most of their money by looking for discrepancies between the value that the public market puts on corporations and what they may be worth as private enterprises. Their work is based, in sum, on an assumption that shareholders in public companies do not understand the value of what they own.

The Chinese now enter a portion of the capitalist system that is based on the assumed superior intelligence and growing bankrolls of private equity interests. In doing so, one of the most closed economic systems is the world will profit from what is perhaps the most open investing system on the planet, a marriage of the best intellectual capital with the largest sums money.

As is true with all such systems over time, the last money in generally gets the worst deal, The earliest money in already has the best seats. Over time, a system like private equity becomes less efficient, due to a ever-increasing number of players and a shrinking pool of attractive takeover targets. The Chinese are making their investment at the tail end of the cycle. On the final day, there is only one winner that will have made money on all transactions–the firms, like Blackstone, that collect fees on every deal.

The Chinese have the last money in.

Douglas A. McIntyre

Everyday gas prices hit a new high record level the folks people love to blame are the oil companies (Exxon (XOM) is the main whipping boy), the Iraq war, a Bush / Cheney conspiracy or the local gas station. As a matter of fact they blame everyone except the real culprit, themselves.  Year to date gasoline demand is at a record 9.2 million barrels a day. Much had been said in the news about refinery outages and there have been a few but they have been able to keep up increasing production 3.1% which is ahead of the 2% increased in demand.  Note that it is ahead of the increase in demand, not usage. In fact, refiners have been able to meet 96% of our highest even demand. This compares to 93% of demand last year and is above the 5 year average of 95%.

This means that despite you and I demanding more gasoline than ever, refiners are doing their part keeping up production.  This demand and inventory depletion has lead to prices at the pump surging 43% this year past post Katrina levels to $3.13 a gallon nationally on Friday and seem to be heading past the inflation adjusted all time high of $3.22 set in March of 1981. For me, I cannot get too worked up about gas when I pay $3.40 a gallon for milk, $7 a gallon for coffee at Dunkin Donuts, almost 6 times that at Starbucks (SBUX) and $6 a gallon for water at a ball game.

Savvy investor will be buying refiner stocks like Chevron, Exxon, BP and Valero as prices and demand will not slow for at least the next 4 months, leading to plenty of profits.

So if refiners are doing their part, why have gasoline inventories dropped 15% between February and April to the lowest levels since 1956? The main culprit? A strike at a French port that has decreased gas exports to the US 9.6% or 109,000 barrels a day and is responsible for almost the entire shortfall.

This works out fine, it is much more fun to blame the French that ourselves anyway.

Todd Sullivan

The Telegraph newspaper in the UK is reporting the Yahoo! (YHOO) may pay $1 billion for social network operation Bebo.

Douglas A. McIntyre

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