Kass: Where Have the Fundamentals Gone?

This blog post originally appeared on RealMoney Silver on Nov. 1 at 7:44 a.m. EDT.

"We are set up for a big surge here. Everybody going into year-end has been cautious, set up for protection with out-of-the-money puts. The prime brokers say that the hedge fund universe has the lowest net long it's had in four years. As we go into year-end, we are going to get a stampede."
--Barton Biggs, Traxis Partners

As someone who has admired Barton Biggs over the years, I was frankly flabbergasted by his interview on "Fast Money" last evening. Stated simply, Biggs is looking for a dramatic melt-up in the market into year-end based on his belief that hedge funds are poorly positioned for such an advance -- this, despite a contrary picture painted by ISI's hedge fund surveys.

From my perch, Biggs painted the picture of a negativity bubble that is not supported by any real concrete data. A five-year advance in the market does not suggest a negativity bubble. A drop in short interest, an increase in margin debt, near total unanimity regarding a favorable outlook for the tech sector, record low mutual fund cash positions, etc., etc., do not suggest a negativity bubble.

Instead, the facts, to me, seem to support a positivity bubble.

From my perch, there is always a role for the contrarian -- I play it often -- for fading sentiment, and I am certain that, behind the scenes, Biggs has cogitated over all the fundamental considerations I write about daily. Nevertheless, his conversation on "Fast Money" was so matter-of-fact, so devoid of anything remotely related to fundamentals, that I was actually in shock.

To seemingly dismiss the backdrop of near-$100 oil; a depression in housing; the bleak outlook for mortgage paper held throughout the world and the likelihood of many more writedowns; the ongoing threat of a rise in inflation, as the Fed said on Wednesday; the increasingly speculative bubble in some emerging markets, in which IPOs (similar to 1999) move up several hundred percentage points on their exchange openings; the sharp deceleration in U.S. corporate profit growth; and numerous other headwinds seems almost reckless.

Further on in the interview, Biggs, showing that he is an equal opportunity investor, went on to suggest buying not only the most speculative stocks (of a Chinese kind) but also the money center banks like Citigroup (C), which is "just too cheap," with a 5.2% yield. Again, I disagree on both counts. What is the most astonishing thing is that the sort of glib view he presented -- it should be put into context that Biggs always comes across matter-of-fact in his investment beliefs on television -- is working successfully. Momentum investing and dip-buying have been profitable strategies in a market that seems to have suspended disbelief and skepticism.

Biggs, who has a reputation as a cynic, has never been greatly appreciated by many of the bullish ilk. But let Biggs talk bullishly as he did on "Fast Money," and that bullish set will embrace him as one of their own. Were he bearish last night, I fully expect his interview would have been either disregarded or rejected by the bulls as a view from a permabear. Is this the essence of conformational analysis?

All this said, Biggs is wealthy, brilliant and practical. He has probably forgotten more than I know about investing. Perhaps he will end up being correct in his market view. No one knows for sure what tomorrow holds in this market, and Biggs could probably change his mind on a dime.