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JL: Darn right I m not. Those jokers milked the liquidity bubble like nobody s business. Steve Schwarzman, Blackstone s CEO, went public and walked away with billions right at the top. They made headlines with a multi billion dollar investment from China, and then their stock tanked 50 or 60% over the next six months. How could you possibly think Blackstone is a good idea?

CASH: Just between you and me, I know I ve been wrong before. (Keep that under your hat.) But I sincerely believe the stars are lining up for this company. Despite the poor stock performance, Blackstone s management has really been building a solid franchise the last few months. The company has increased its assets under management (AUM) by steadily bringing in more investors, which increases fee based earnings for the company.

JL: Okay, but why is the stock so depressed? It s below fifteen bucks and the chart looks awful. Is there a lot more risk in the name, or do you think the market is getting it wrong?

CASH: There s still some risk in BX, but it s more sentiment risk than balance sheet risk. The perception in the market right now is that anything with financial exposure is crap. Since Blackstone clearly falls under the financial category, the stock has sold off relentlessly. Investors are worried about a catastrophic loss popping up out of nowhere, like we ve seen in so many other places week after week.

JL: I think I get it. You re seeing this as a case of mistaken identity. Investors are afraid that Blackstone s balance sheet could be loaded up with toxic waste, like a Citigroup or a Bear Sterns, but that s a misconception because Blackstone doesn t run those kinds of plays.

CASH: Exactly. The common perception simply doesn t reflect reality. As it stands, the company does not have a leveraged position and is not at all subject to the overnight redemptions that killed Bear Stearns. Even better, Blackstone s investment vehicles have plenty of cash to buy positions today, in what can only be described as a panic stricken market.

JL: So Blackstone is financially strong, they re free from dangerous leverage, and they re getting lumped in with the wrong crowd. I can see that. But what about earnings? If the company has a strong balance sheet and plenty of opportunity, why aren t the numbers telling the story?

CASH: To fully grasp the earnings picture for Blackstone, you have to understand the different types of earnings the company produces and how those are calculated.

JL: That sounds complicated.

CASH: Stick with me here. First, the company charges management fees for the assets that it invests. Similar to a traditional mutual fund, investors are willing to pay Blackstone a fixed fee for the privilege of parking their money under the company s control. This earnings stream is very stable, but at the same time very boring. It s not really what owners of Blackstone stock look for.