Kass: Bullish on the Short Term

This blog post originally appeared on RealMoney Silver on June 5 at 7:46 a.m. EDT.

I am growing increasingly short-term optimistic as systemic financial fear is palpable, investor disinterest and apathy is growing, and, as recognition sinks in of housing's past woes, a spent-up consumer and the negative ramifications from the aftershock of the unprecedented credit cycle are now almost universally accepted.

I could be early in my "farsightedness." I usually am.

Contrarian bets that ignore the short-term trend, the poor stock charts and the prevailing negative bias often yield uncommon returns over time. We must recognize, however, that investors who expect the unexpected typically face the challenge of underperformance in an investment community that is generally inhabited by shortsighted and trigger-happy hedge fund managers who seek immediate satisfaction of a continuing trend.

Nevertheless, I am beginning to see a visible and widening disconnect between known (but stabilizing) fundamentals and price.

My cynical and permabear friends (who prefer my role as a Cassandra) are critical when I utter anything that resembles a positive take, as are the financial bloggers (who no doubt see me as an easy target of criticism in part because of my visibility), but my sole professional raison d'être remains the delivery of superior investment returns to my Limited Partners.

At times, a contrarian view is the ticket. I believe that such a time is approaching.

Yesterday on The Edge, with the good help of one of the best strategists that has ever graced Wall Street, Sir Steve of Watertown (name made up to protect the innocent!), I suggested that the financial sector weakness was materially overdone based on reduced credit market strains. I cited that a number of improving credit market indicators (TED spread, two-year and 10-year swap spreads, mortgage 10-year yield spread, low bid-to-cover ratio on recent Fed liquidity auctions, etc.) are being ignored and are seemingly inconsistent with the current market malaise and with a new low in bank stocks.

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