Dancing on Bubbles In a Takeover Stampede

Blackstone, of course, is one of the leading private equity firms in the country. And private equity, as you know, is the new hot investment vehicle for big players such as public pension funds that got burned when the stock bubble burst in 2000 and are trying to figure out where to put their dough to avoid getting burned again.

Private equity firms use loads of borrowed cash in addition to what their investors put in. So much money is flowing into private equity funds this year that they'll have to make about $1.5 trillion of acquisitions to use it.

According to the latest count by Bloomberg News, private equity firms have announced $616 billion of acquisitions so far this year, almost triple last year's level. That's a telling statistic.

The fact that you can see froth -- if not actual bubbles -- in the commercial real estate and private-equity businesses and in a segment of the stock market doesn't mean that all of this is going to blow up tomorrow. Things may go merrily along for several years, until economic reality catches up and weeds out the weak players. Which it always does.

And none of this means that the overall U.S. stock market is necessarily overpriced, even though it's clearly benefited from the takeover stampede, which has reached a record $3.46 trillion, according to Dealogic, with six weeks left in the year.

But while I don't hear the bell ringing for the stock market, if I were a private-equity investor or a commercial property player, I'd make sure to get my hearing checked.

Sloan is Newsweek's Wall Street editor. His e-mail address issloan@panix.com.