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Private Equity, That's Hot

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Private equity goes public? That's rich, that's hot.

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So who, pray tell, was buying all the calls on Hilton (HLT) over the last week, as John "Dr. J" Najarian alerted us to in Buzz and Banter last week? Who was responsible for the large-range extension and surge in volume on HLT on Tuesday?

Cooper, why are you such a cynic– it was probably just happenstance, a few lucky strokes by some fellows with some big oars to float. Perhaps one of the janitors with an ear to the ground at one of the investment banks gamed HLT.

Whatever the case, the essence of the whole Magilla (that's a technical term) was best summed up by Paris Hilton, who exclaimed, "Private equity, that's hot."

And as CNBC's David Faber reports, "there's no slicing and dicing in the Hilton deal: they're going to have to make the deal work over time."

So why is Blackstone (BX) willing to pay such a sweet premium? Perhaps for the same reason some of these hedge fund and private equity fund managers are willing to pay such hefty premiums recently for art– because they can. And because this is the way they keep score. In a word, hubris. Now that's hot.

So Paris, the point may be not that private equity is hot, but why it is so hot right now.



Does it reflect a rush to get things done before a crunch, as in credit crunch? Just askin'. It's a question worth asking as a look at 10-year yields show they were hot as well on Thursday. Let's take a look at the situation this way – a chart is a chart is a chart – so what's the difference in the charts of Apple (AAPL), Research in Motion (RIMM), Baidu.com (BIDU) and TNX (10-year yield chart)? 10-year yields broke out above 4.90% in June and soared to 5.30%. Since then yields have pulled back, briefly undercutting 5.00%.







The first pullback in strongly trending markets is almost always a good risk to reward buy setup. Certainly this was the case with the above mentioned momentum stocks and all of their brethren. That's the way it always is.

Such was the case with TNX on Tuesday when it left a V-Thrust Buy Signal and an outside day up.



On Thursday, yields gapped higher and kept on going as the 10-year yield recaptured its 20-day moving average.

I believe the important thing to observe is that the "relief" rally in the S&P during the pullback in bonds did not score a new high. Although the S&P began to move back up on June 27 when the 10-year yields were poised to test and break back below 5.00%, the promise of the 5% solution for the bulls was short-lived– very short-lived. The TNX closed above a yield of 5.14% on Thursday.

Does the rush to the public market by private equity reflect nervousness by these big dogs about the position of the market? Will market participants look back on this time and say – "Private equity goes public? That's rich, that's hot." Will market participants look back at the scorching moves in names like AAPL, BIDU, RIMM, and First Solar (FSLR) and say that that's hot and that's what climaxes look like?
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No positions in stocks mentioned.

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