Kass: Ben Stein Blames You

The same observation is true with regard to the economy or to the credit markets.

More broadly, the subprime problem (originally expected to be contained) has metastasized into a global credit crisis that neither Ben (Stein or Bernanke) nor any of us mere mortals have ever experienced. With it has come hundreds of billions of dollars of permanently lost capital that has disappeared into "money heaven."

What concerns investors is that it has occurred at the time that the financial system (and the U.S. consumer) have never been more levered. The multiplier effect is unknown, though they have been accompanied by massive writedowns at the world's largest financial institutions, and markets hate the unknown.

Stein continues to dismiss the all-too-obvious economic and stock market problems that litter the world, many of which I have detailed ad nauseum. Rather than recognizing those risks, Mr. Stein prefers to simply place the blame on the body of avaricious and self-motivated traders who control and overwhelm the markets over the very short term.

I respectfully suggest to Ben that he listen to the Coach (COH Quote) and Target (TGT Quote) conference calls -- they are still available on replay -- and read the MBIA (MBI Quote), Countrywide Financial (CFC Quote) and Merrill Lynch 10Qs in order to get out of the fourth estate's ivory tower.

Moreover, who are these "traders" that Stein blames? (Honestly, he is beginning to sound like Senator Clinton in 1998, with her "Vast Right-Wing Conspiracy" argument.) The traders I know are getting killed these days -- sometimes on both their long and short positions.

The dedicated short community manages less than $5 billion in total -- that's under 10% of the size of the Fidelity Magellan Fund -- and most long/short managers, an asset class that dominates today's investment landscape, are substantially long-biased. (According to Ed Hyman's ISI surveys, they are about 55% net long.)

For Stein to be correct that the market's drop is simply a conspiracy of traders, test his hypothesis in reverse. Is the market ever dear? When it goes up, is it only a conspiracy of buyers as most traders are long-biased?

My conclusion? Stein is simply suffering from a conformational bias of the worst order.

Not surprisingly, I prefer the more substantive economic reality portrayed in other pieces in Sunday's New York Times-- those written by Gretchen Morgenson, Dr. Robert Shiller and Jim Grant -- to Stein's nonrigorous assertions regarding the power and culpability of the trading community.

In summary, one thing is certain to me: Ben continues to fiddle in The New York Times while the world's equity markets burn.

The answer to the investment mosaic is always complicated. (I certainly don't possess the answer!) Market prices are based on numerous influences, generally grounded in market psychology, corporate profit expectations and the term structure of interest rates.

Investors are staring into a financial abyss caused by real world problems, yet Stein pooh-poohs it all, almost dismissing the issues out of hand by blaming the whole thing on "traders" -- the definition of which I don't really understand, and Ben has not explained who exactly they are.

If Stein has only influenced one single investor to ignore today's market and economic headwinds, he is doing a disservice to that reader and to the New York Times.

I expect more.