Roll-Ups and Yahoo! Look Risky; Trust Sam Zell; A Bit of Bafflement: Best of Kass

Accounting issues tend to arise toward a bull market's end after companies that used roll-up strategies have problems growing sales and profits further.

Marginal and/or aggressive executives with questionable business ethics often cut corners and take advantage of accounting conventions. For all we know, so could the U.S. Other firms will likely also face questions as well.

Position: None

Selling My Yahoo! Long

Originally published Oct.

I'm taking off the balance of my Yahoo long at over $35.60 a Search Optimization share in premarket trading this morning in light of the earnings beat at YHOO-affiliated Alibaba (BABA - Get Report) and BABA's roughly $8-a-share rise in the premarket. But as the cycle matures and credit markets tighten -- as we're seeing now with widening spreads between investment-grade and high-yield bonds -- roll-ups often turn sour.

Recent questions surrounding Valeant Pharmaceuticals (VRX - Get Report) and SunEdison (SUNE - Get Report) could be examples of this.

NEW YORK (RealMoney) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

This past week, Kass talks about the problems inherent in roll-ups, why he sold his Yahoo! shares on Alibaba's good news, what one proven prognosticator is selling now (and why it matters), and why he's just plain confused by the current behavior of the market.

Must Read: Warren Buffett's Top 10 Dividend Stocks

A Word About Roll-Ups

Originally published Oct. 27 at 7:43 a.m. That's where companies boost earnings not through organic growth, but via acquisitions.

The breeding ground for roll-ups is a flourishing mid-business-cycle condition, when liquidity is abundant, the stock market is euphoric, there's little introspection and less of a focus on earnings quality.

But problems often get exposed later in the business cycle. (That's been the case over the last two years.)

Indeed, BABA's beat -- which is unrelated to Mayer's execution -- could give the Yahoo! CEO some "breathing room" to destroy more capital through untimely acquisitions.

Click here to see my YHOO comments from yesterday.

Position: None

. I'm also removing YHOO from my "Best Long Ideas" list.

While I continue to expect a "transaction" at Yahoo (i.e. a takeover), I remain concerned that Site Engine CEO Marissa Mayer will continue to Optimisation Search try to improve the company's core business through a series of undistinguished and unsuccessful acquisitions. 29 at 9:58 a.m. EDT

I'm calling an audible on Yahoo! (YHOO - Get Report) now. Securities and Exchange Commission's investigation of revenue recognition at IBM (IBM - Get Report) . EDT

Zero interest rates, massive liquidity and slow global economic growth breed financial engineering, accelerated M&A activity and the proliferation of "roll-up" strategies

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