This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Wall Street Plays Oldies

Editor's note: This column by Doug Kass is a special bonus for and RealMoney readers. It first appeared on Street Insight on Aug. 21 at 9:02 a.m. EDT. To sign up for Street Insight , where you can read Kass' commentary in real time, please click here .

A cooling economy -- along with lower interest rates and energy prices -- has served to buoy markets in a "Summer Love In" for stocks.

Arguably, the advance has now ushered in a sense of conformity. Of course, the ever-present risk of a contrarian (read: bear!) is that the past literally does repeat itself and that the crowd outsmarts the remnant. And while historical relationships almost always hold true as a prologue to tomorrow, it does not say which lesson to apply and when.

Rising geopolitical risks (and Middle East instability) coupled with the likely broad ramifications of a hard landing in housing have all but been ignored. The rise off the recent lows has been impressive, emboldening previously worried investors who have increasingly begun to worship at the "Altar of Momentum."

I have spent a lot of time on The Edge discussing the negative impact that a sharp decline in homebuilding activity and cash-out refinancings will have on the economy in general, and the consumer in particular. The following chart indicates -- with a reasonably high probability (an R squared of 0.64) -- that when the index of homebuilders drops, a broader decline in the major indices is not far behind.

With fear and doubt all but driven from Wall Street, a marked correction in stocks can happen at any time. The market's behavior during this summer is starting to look technically similar to the advance of August-October 1973 -- which also started off an unimpressive bottom -- that fizzled rather quickly as equities entered a bear market in 1974.

Conformity often pays off in markets -- as New York Times Op Ed editor David Brooks points out regarding cultural issues of the 1950s in his references to Grace Metalious' Peyton Place. That novel produced a message -- to engage in high-risk searches for unpleasant truths -- that speaks not only about the repressive bourgeois a half-century ago but also volumes to investors during the summer of 2006.

From my perch, that search could produce a panoply of negative outcomes (sharply lower corporate profit margins, an adjustment downward of consumer expenditures and stubbornly high inflation). And it might produce, to paraphrase another lyric from "Grease": "Summer dreams are (about to be) ripped at the seams ... but oh, those summer nights!"

As Brooks recounts in Sunday's Times (though on a far different subject), the market's line between bulls and bears is now clearly drawn. And perhaps he is correct in the notion "that there's actually more conformity and complacency (today) than even in the 1950s," though not at Peyton Place, but at the corner of Broad and Wall.

Doug Kass is general partner for two investment partnerships, Seabreeze Partners L.P. and Seabreeze Partners Short L.P. Until 1996, he was senior portfolio manager at Omega Advisors, a $4 billion investment partnership. Before that he was executive senior vice president and director of institutional equities of First Albany Corporation and JW Charles/CSG. He also was a General Partner of Glickenhaus & Co., and held various positions with Putnam Management and Kidder, Peabody. Kass received his bachelor's from Alfred University, and received a master's of business administration in finance from the University of Pennsylvania's Wharton School in 1972. He co-authored "Citibank: The Ralph Nader Report" with Nader and the Center for the Study of Responsive Law and currently serves as a guest host on CNBC's "Squawk Box." Kass appreciates your feedback; click here to send him an email.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs