Hertz IPO Shows Common Sense Is Gone

A lack of attention to detail is overlooked as momentum leads the day.
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Private Equity Relies on the Kindness of Strangers

11/15/2006 9:39 AM EST

Like Blanche DuBois in Tennessee Williams' "A Streetcar Named Desire," private equity relies on the kindness of strangers (hedge funds and mutual funds) in an exit strategy to bail them out of their leveraged deals.

Case in point: This week's

Hertz

IPO, which in a matter of less than 12 months, looks to give a multiple return on equity to the private equity firms that acquired it.

In a bull market, no one seems to dot their i's and cross their t's, nor is common sense a desired commodity as momentum leads the day.

But these types of occurrences are among the thin-reed indicators that should concern investors. For now, though, fear and doubt and common sense have been driven from Wall Street.

Disbelief Has Been Suspended

11/15/2006 7:50 AM EST

Equities surged yesterday as the

S&P

cash went through former resistance at the 1389 level (at which time more than 100,000 e-minis were executed on the buy side with a notional value well over $8 billion).

Shorts Scrambling for Dear Life

Follow-through in the swoosh up occurred as shorts scrambled for dear life (as they tried vainly to get off the cold linoleum floor drinking cheap tequila).

Drop in Bond Yields Added to Bulls' Fiery Advance

To be sure, a drop in intermediate and long-term bond yields following the salutary PPI reading earlier in the morning (when coupled with a further 5% drop in the price of crude oil over the last week) served to add fuel to the bulls' fiery advance.

Good and Bad News Remain Good News

It seems, to this observer, that in this bizarro investment world, good and bad news remain good news. Case in point: housing. The

long arm

of its developing hard landing is not being interpreted as a market negative. Rather, it is being interpreted by bulls as a positive and dampening effect on economic activity which will not require additional tightening measures!

Sailing Away on a Wave of Optimism

Nevertheless, as has been the case throughout the last several months, the burden of proof remains very much on the shoulders of the ursine crowd whose physical frames weaken daily under the pressure of a wave of optimism not seen in years.

Disbelief has been suspended.

More Works of Fiction, Brought to You by the BLS

11/15/2006 8:04 AM EST

The proximate cause for yesterday's market ramp was the very weak PPI reading. In a market characterized by the recent ebullience and performance anxiety, few ever look behind the numbers, often failing to dot their i's and cross their t's.

Case in point: The Bureau of Labor Statistics reported that "prices for light motor trucks fell 9.7% following a 3.5% gain in the preceding month. From October 2005 to October 2006, the index for light motor trucks dropped by 12.4% ... In accordance with usual practice, most new-model-year passenger cars and light motor trucks were introduced into the PPI in October."

Once again another

work of fiction

from the Bureau of Labor Statistics.

At time of publication, Kass and/or his funds had no positions in stock mentioned, although holdings can change at any time.

Doug Kass is general partner for two investment partnerships, Seabreeze Partners L.P. and Seabreeze Partners Short L.P. Until 1996, he was senior portfolio manager at Omega Advisors, a $4 billion investment partnership. Before that he was executive senior vice president and director of institutional equities of First Albany Corporation and JW Charles/CSG. He also was a General Partner of Glickenhaus & Co., and held various positions with Putnam Management and Kidder, Peabody. Kass received his bachelor's from Alfred University, and received a master's of business administration in finance from the University of Pennsylvania's Wharton School in 1972. He co-authored "Citibank: The Ralph Nader Report" with Nader and the Center for the Study of Responsive Law and currently serves as a guest host on CNBC's "Squawk Box." Kass appreciates your feedback;

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