How To Play Fortress? Goldman, Sears Holdings, Supply and Demand

Much ado about Fortress...

This little hedgie (FIG) came public yesterday and closed at $31, a 60-something-percent increase over its offering price. This is not the time to get me started about how offering prices are set ridiculously low in so many cases to give a lot of money to i-banks' best clients at the expense of the company going public, but I promise to explore that tangent one of these days.

I hear a lot about how to play Fortress.

One idea: Fortress' P/E ratio can be used to determine a proper P/E for Sears Holdings (SHLD). Eddie Lampert, former king of the hedgies, has pretty much admitted he runs this thing like a hedge, hasn't he? I mean, who the hell wants to go from top of the world to managing a bunch of Sears and Kmarts? I haven't even set foot in either of those stores in years, but from the outside they sure look like hell. So Lampert puts all the revenue from Weatherbeater paint or whatever into credit-default swaps, and people like Jim Cramer crow that SHLD is the next Berkshire Hathaway. Um, don't get me started on Berkshire either; why the hell would Buffett want to buy a NEWSPAPER? Anyway, FIG's P/E = SHLD's P/E in Cramer's playbook, so buy SHLD as its current P/E is below that.

Sounds good, but the biggest flaw in that plan is that Cramer also expects Eddie Lampert to continue returning 30%/year -- what he did at the hedge funds. Do you have that much confidence in Ed?

Alternately, you could just take this as a sign of health in the investment sector as a whole and load up on its crown prince, GS, which has been golden the last couple years (yes, I sold too early).

Or, you could just buy Fortress itself in the near-term. Think of the ethanol sector last year; supply and demand. When there were comparatively few ethanol stocks, share prices went through the roof. Enter a wave of new ethanol company IPOs and down the prices went. Right now, there's not many private equity or hedgie companies to buy up, but those IPOs are sure to follow the spectacular performance of this one. If you buy FIG now, monitor circumstances carefully and when you see the wave of hedge-fund IPOs, get the hell out.