His thesis is so intriguing that we invited him to join us on Fast Money where he explained that private equity firms accumulated huge amounts of debt to purchase companies. They borrowed not only from banks but also from hedge funds. And remember that money comes from institutions like colleges, municipalities and pension funds.
Kass thinks the deals they made were essentially “a promise of turning waste into gold” based on unattractive corporate takeovers. He sees the deals as a new generation of "dirty bombs" as if to suggest they will explode, kind of like the subprime slime.
As it plays out he expects creditors will end up with the company, the equity in the private equity firms will get wiped out and that the investors in the private equity firms will take the loss.
What’s the bottom line? "I hate to tell you but the casualty count in the world of finance is about to expand. And no one is paying attention,” Kass concludes.
To hear a full explanation from Doug Kass himself please watch the video.
> Kass: Private Equity Is The Next Shoe To Drop
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Trader disclosure: On Oct.30, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Pete Najarian Owns (MS) Calls; Pete Najarian Owns (MSFT) And Is Short (MSFT) Calls; Pete Najarian Owns (PBR); Pete Najarian Owns (TSO) Call Spread; Pete Najarian Owns (YHOO) And Is Short (YHOO) Calls; Pete Najarian Owns (BNI) Put Spread; Finerman's Firm Owns (RIG), (MSFT), (SUN), (TSO), (VLO); Finerman's Firm Is Short (IYR); Finerman's Firm Owns (OIH) Puts; Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM), (USO), (COF), (BBT); Seymour Owns (AAPL), (BAC), (BX), (F), (MER), (TSO), (CHL); Seygem Asset Management Owns (PBR), (EEM)