Big US takeovers before a financial crash?

Now forgive my long memory but back in 1988-90 I recall a string of mega-takeovers in the US. These deals were supposed to mark the recovery from the 1987 stock market crash. But it all turned out to be a big mistake, and this was the death rite for some of the most adventurous takeover artists of the 1980s.

My mind particularly turns to a meeting with Briton Brian Beazer in Pittsburgh in 1989 after he had completed the $1 billion takeover of Koppers, a US building materials company. Interest rates soared and the all-cash nature of the deal forced a rapid sell-out to Hanson.

So it is with a profound sense of deja-vu that I see what is happening with the $41bn Cingular all-cash takeover of AT&T Wireless this week. Cingular assumes that this is the start of a new bull market on Wall Street and that now is the time to buy before prices rise.

And yet it is as plain as the nose on your face that interest rates are going to have to go up in the US very soon - the same thing that tripped up Brian Beazer all those years ago. Higher interest rates will not be good for Wall Street, and presently highly valued share prices will slump.

Now falling share prices are one thing; what about if you have just gone $30 billion into debt when interest rates rise? You, and the banks, have a problem; back to Mr. Beazer's sad fate.

Caveat emptor: beware of false dawns in the US stock market. The brokers love to tempt buyers, and make their money on the commissions paid on buying and selling, not on the direction of share prices.

History shows that stock market crashes emerge suddenly after periods of wild, and in retrospect, completely unjustified optimism. What we are seeing in the US now is a sham to get George W. Bush back into the White House.

Then interest rates and taxes will have to go up and stocks will fall and the US dollar rise. Investors need to see through this propaganda smokescreen, and realize the reality of democracy and what it means for their net worth.

Just because investment bankers are having a ball does not mean that this is the time to invest on Wall Street, quite the contrary.