Investing Opinion
Kass: Cut the Dead Weight
Doug Kass
02/14/08 - 11:57 AM EST
This blog post originally appeared on RealMoney Silver on Feb. 14 at 7:36 a.m. EST.
On Monday morning, I turned more optimistic about the equity markets, thinking that a 3% to 5% rally (within a bear market) was imminent.
This week's orderly advance of nearly 3% has us very quickly in the shooting range of my expectation, and equities now stand about 8% above the SocGen market bottom.
I expect, as we move to the top of a trading range, renewed optimism (e.g., Jim "El Capitan" Cramer) to percolate a bit and for stocks to leave oversold levels as a larger percentage of investors and traders seem too often to worship at the altar of momentum. Some might even confidently predict a new bull market leg, an assertion I would oppose.
Having said that, this rally remains an excellent opportunity to cull the losing positions and raise cash levels after an abysmal several months.
The S&P 500 is now down by 6.8% year to date and my expectation of a 5% to 10% decline for 2008 remains intact. But, between here and year-end, it is still likely to be a roller-coaster ride, with many opportunities on both the long and short sides. Having above-average cash positions is a necessary reagent to capitalizing on continued volatility.
Overnight, there was more news on what I believe to be the next shoe to drop -- the auction rate preferred market:
- There were more credit writedowns and share price losses at UBS (UBS);
- the largest rebound in Japan's market in six years (I highlighted the attraction of Japan in my surprise list for 2008);
- Ingram Micro (IM) guided down;
- growing evidence that the Fed is "pushing on a string"; and
- Credit Suisse suggests that the FHA help resolve the U.S. housing problem, something I previously recommended.