Editor's letter

“The reality is we've gone from a raging bull market in credit to a bear market. Now people are worrying about anything and everything.” So said David Brickman, director of credit strategy at Lehman Brothers, in the context of a Financial Times article referring to potential meltdown in the bond insurance (monoline) market. It was reported that the cost of protecting corporate debt against default had soared to its highest level since records began in 2003. In short, this does not reflect a confident outlook regarding companies' trading prospects.

Indeed, confidence is in decidedly short supply in the financial markets at the moment – and not without good reason. Merrill Lynch helped ensure that fallout from the securitised credit crunch stayed in the headlines a while longer by announcing a $14.1 billion fourth quarter write-down – contributing to a $12.8 billion pre-tax loss for the year (comparing unflatteringly with a $9.8 billion pre-tax profit the previous year). New chairman and CEO John Thain described the result as “clearly unacceptable”.

Then came the stock market meltdown. Amid fears of an imminent recession in the US, Monday 21 January saw red splashed across trading screens the world over (except ironically in America, where the markets were closed for Martin Luther King Day). Many Western exchanges saw their biggest falls since 9/11, while emerging markets proved far from immune. India's Sensex index, for example, saw the second-largest one-day decline in its history. The US Federal Reserve announced a dramatic three-quarter point interest rate cut in a bid to calm things down – but at the time of going to press, it appeared the markets were calling for even stronger medicine.

Against this turbulent backdrop, this month's edition of PEI includes our “Road Ahead” feature (p. 53), in which we take the temperature of the private equity market in the early stages of 2008 and explore the key issues that industry professionals will need to engage with in the months ahead. Among those GPs leading the charge will be the seemingly irrepressible Blackstone Group, armed with its new near-$22 billion fund. In an exclusive interview, Blackstone president Hamilton ‘Tony’ James talks with PEI about the firm's recent experiences and future plans (p. 46).

Enjoy the issue,

David Snowdavid.s@peimedia.com