Private Equity Volcano: The Rumblings Before the Eruption

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Chris Markowski draws a sharp parallel between ancient civilizations that ignored volcanic warnings and today’s private equity bubble. From Santorini to Pompeii, history shows the cost of ignoring obvious danger. Now, with funds locked in unsold companies and zombie portfolios piling up, private equity faces its own eruption. Chris warns investors: don’t be the last one standing when the lava flows.

Episode Transcript

Speaker 1 (00:00):
The Watchdog on Wall Street podcast explaining the news coming
out of the complex worlds of finance, economics, and politics
and the impact it will have on everyday Americans. Author,
investment banker, consumer advocate, analyst, and trader Chris Markowski.

Speaker 2 (00:16):
Private equity volcano this past summer, and I've been here
plenty of times. One of the most beautiful places that
I've ever been in the entire world. And again, I
hope I get to go back there again someday. The
island of Santorini and Greece. I've been there countless times,

(00:38):
and basically the island is it's like a crescent with
a volcano sitting out in the area called the Caldera. Again,
you go there, it's just you sit at the top
of the top of a cliff and you're overlooking at it.
It's hard to explain. It's so up there and peaceful.

(01:01):
It's almost like a loud quiet You go down below,
there's like an old Venetian fort you can walk to,
but you can also walk to a part of the
island where they have a museum, museum of what was
once there. The theorems, some people thought that the island

(01:21):
of San Trini was Atlantis because guess what it wasn't
always a crescent. That volcano in the middle blew up
and the large they say, the largest volcanic explosion in history,
in history. And again it's interesting it happened, they said

(01:42):
at the same time that you know, the Moses was
crossing the Red Sea into Egypt. I mean, you're talking
about the culture that was there, and you go to
that museum, you're talking advanced. You know, over three thousand
years ago they over thirty thousand people living on the

(02:04):
island running water. I mean, it's amazing the archaeological digs there,
and I highly recommend if you go there, go check
it out. But I'm a bit of a nerd. And
this has happened other places too. You can go to Pompeii.
Go to Pompeii outside of Naples, Italy. Another amazing spot there.
What happened when Vesuvius blew up. The thing is about

(02:26):
volcanoes is they just don't blow that. There's signs, there's
signs that something's not right. Tremors, a myriad of things
that alert people that something is going on. Again, I
remember this, remember this when I was in third grade

(02:47):
when Mount Saint Helen's blew and again they they knew
that something was up. Now, society was so good, okay,
because there's no sign, no sign of the theere in
culture anywhere anywhere outside of Santorini. They were completely wiped

(03:10):
off the planet. They didn't go, they didn't pack up,
they didn't go, they didn't leave. Life was too good there.
They didn't. They chose to ignore. They chose to ignore

(03:32):
what was obvious, apparently obvious, which was happening right before.
They're very eyes. What's a big deal. It's a big deal.
There's a few eruptions there here there, Everything are fine,
just a little smoke and ash past the uzzo. These
very very smart people's very advanced culture decided to ignore

(03:52):
the warnings of their own demise. They decided to view
the situation not as it was, but rather how they
wanted it to be. I thought about this because I
wrote about the same thing during the financial crisis at
the time, and I wasn't the only one that people

(04:13):
were talking about as well. People choose to ignore what's obvious.
I've been warning everyone for some time about what's happening
in private equity all across country, and what is going
to happen here. You want some more rumblings. Private equity
firms are struggling to sell the companies they own, and

(04:33):
that's locking investors' money in aging funds. Managers are sitting
on a growing number of unsold companies with delayed exits.
The ratio of PE investments to exits has climbed to
three point one four times in twenty twenty five, the
highest in a decade. H Yeah, lots of lots of

(04:58):
deals wo deal activity you know, for a period of
time again, uh, PE companies try to sell their their
companies through various different exit routes. Strategic buyers. What have
we been telling you? Who's going to buy these companies

(05:18):
at absolutely ridiculous multiples? Because that's what they are. People
are complaining around the company a country, I one of
my my veterinarian's office got bought out. Now I'm paying
five times as much. Yeah. Yeah, they're trying to make
numbers work again. You've got a lot of these private

(05:45):
equity companies that have become zombies again right now, Why
do you think and I've explained this before, why do
you think they want to allow people in four o
one case to buy into these things. They're they're looking
for an exit man, They're looking for an exit ramp,

(06:08):
and they want that exit ramp to be you. Now again,
do we at Markowski Investments deal with a private equity
company and two four clients. Yeah, but you know what
they're giving money back because they're selling their businesses, because
we know what the hell we're doing when we pick

(06:29):
these things. It's amazing. Again, Wall Street will sell anything
if someone is buying. And I laugh because you know,
for agents to get these kids out there, right out
of college, Ivy League schools, work for some sort of
private and they think they're masters of you know, little
finance bros out there picking these companies. They don't know

(06:52):
their buttocks from a hole in the ground. They don't
paying multiples that are absolutely up scene going out later
to Kila shots, high five and look at what they've done. Oh,
look at we filled up our portfolio.

Speaker 3 (07:08):
You pulled up your portfolio with a bunch of companies
that you can't sell, and granted you're gonna be collecting
fat fees on those portfolios, but eventually, guess what investors
are going to want their money back?

Speaker 2 (07:25):
Rumble, rumble, rumble, lava starting to come down. You're seeing
what I'm seeing now. Are you starting to recognize what's
going on? You might maybe just throw it out there.
You might want to You might want to give us
a call. You might want to give us a call

(07:46):
and see, you know what you're holding on to and
what you may or may not be able to get
even to even get out of. At this point in time,
it's it's gonna get ugly. But again, I don't know
where you could choose to ignore it. You could be
like the Theorans or the people that lived in Pompeii

(08:07):
that worked out great for them. Watchdog on Wall Street
dot com