Kass: Ben Stein Blames You

This blog post originally appeared on RealMoney Silver on Jan. 28 at 8:10 a.m. EST.

"These traders, not economists or securities analysts, can turn the world upside down, make governments tremble, give central bankers colitis and ruin the lives of ordinary men and women saving for their children's college education or their own retirement. In America today, it is the traders, not the politicians or the generals or the corporate bosses, who have the power."

-- Ben Stein, New York Times "Can Their Wish Be the Market's Command?"

My Sunday morning routine is usually cast in stone. I typically wake up at around 5 a.m. EST and spend an hour or so writing my opening missive for Monday. Then, I read the obituaries -- I am, after all, still a short- seller! -- and then the Sports, Week in Review and Business sections in the New York Times. Thereafter, I work on solving Sunday's New York Times crossword puzzle. (I am proud to say that I have completed the last five in a row.) Next, I watch NBC's "Meet The Press," ESPN's "Sports Reporters" and ABC's "This Week With George Stephanopoulos."

Finally, my regular day starts, and these days, it is filled with thoughts about the stock market, cogitating over the week that was and what to do next and why, in addition to calls or emails between other hedge hoggers.

Yesterday morning, I was prepared to write a column preliminarily entitled "The Case for a Bull Market: What Could Go Right and How." I was going to emphasize the latent buying power of sovereign wealth funds and make the case that the equity market might be discounting a far deeper recession than might occur. I had planned to underscore that interest rates remain subdued, that the curative process of restoring capital bases at leading financial institutions continues apace and that a negative sentiment bubble seems to be emerging coincident with lower share prices. I was even going to highlight that there might be some light at the end to the tunnel of housing as fiscal and monetary stimulation is moving into overdrive.

That is, until I read Stein's column -- "Can Their Wish Be the Market's Command?" -- in Sunday's New York Times business section. No one has the concession on the truth, especially as it relates to investing. But rigorous analysis, logic of argument, power of dissection, weighing sentiment and modeling remain good ways to try to find that truth.

I have chronicled Stein's general lack of realism in his series of New York Times articles, in communicating and recognizing growing economic problems and in improperly isolating and laying blame on the stock market's poor showing to his list of imaginary ne'er-do-wells.

• Six months ago, Mr. Stein blamed the market's weakness on the media's hysteria.
• Seven weeks ago, he blamed the market's weakness on Goldman Sachs GS and its economist, Dr. Jan Hatzius. (Note: Not even the Dr. Evils at Goldman Sachs benefited in the aggregate from the subprime meltdown (as suggested by Stein). Sure, Goldman shorted mortgage debt, but, in the main, the broker/dealer is long the economy/markets. Proof positive is Goldman's weak performing common stock, the source of how most Goldman principals make their incomes.)
• Yesterday, Stein blamed the market's weakness on traders.

From my perch, Stein's assertions have been consistently wrong and continue to be poorly reasoned.

I even submitted one of my columns to the New York Times' editorial staff as a rebuttal to Stein's articles. Rejected!

My Grandma Koufax taught me to be nice, though she was a killer in her children's wear business (and in her stock market trading). She used to regularly say, "Dougie, he is a nice boy, and he is good to his mother." And I am sure Ben is and was.

I have tried to respond to Mr. Stein's words in a professional and respectful manner -- I even share my columns with him via email -- and I have avoided anything that resembled an ad hominem attack on him by addressing, point by point, his misguided observations and underlying assumptions of economic causality and his views regarding the stock market's outlook. (Note to Stein: My real view on your column is best answered by looking at 67 Across in yesterday's New York Times crossword puzzle.)

"In the short run, the market is a voting machine. In the long run, it's a weighing machine."

--Benjamin Graham

Stein and I both agree that statistics show, in the long run, stocks rise and economies prosper -- though that was not the subject of yesterday's column. And, yes, daily market volatility of 2% to 3% is occurring because of trigger-happy hedge fund traders' buying and selling. But it is a broad list of economic uncertainties (and daily headline risks) that generate indecision and lack of confidence in their trading actions that seem to be producing this volatility.