Kass: Short on Logic

This blog post originally appeared on RealMoney Silver on Sept. 11 at 7:44 a.m. EDT.

Despite continued claims in the media that short sellers have a shared responsibility for the fundamental woes (and stock price swoons) at Lehman Brothers (LEH), Fannie Mae (FNM), Freddie Mac (FRE), Washington Mutual (WM) and so on, those views remain short on logic, as I expressed recently in an op-ed column for the Financial Times.

Rather, it is abundantly clear that deleveraging (of the balance sheets of our financial intermediaries and in the disintermediation surrounding the world's hedge fund community) is a rabid bitch and has contributed to the current bear market in stocks and bull market in risk-aversion.

I don't recommend stocks on TheStreet.com, but, over the last year, my message has been consistent -- that is, all but the most facile investors/traders should err on the side of conservatism by taking smaller than usual positions and by trading opportunistically. As well, I have emphasized that "convictions are for convicts" and that investors should especially avoid the most opinionated talking heads (and that includes yours truly!).

During today's period of stress and deleveraging, there is "nowhere to run to, baby, no place to hide." Investors/traders face the unenviable (and sometimes non-rigorous) task of gaming hedge fund activity rather than gaming fundamentals. It helps to explain a market without memory from day to day, and it helps to explain why the smartest hedge fund investors extant are sitting on their hands with plenty of liquidity, just waiting to capitalize on the aforementioned fear.

While over the year I have had alternating views of trading from the long and short side, I have been unwavering in the tactical mantra of erring on the side of conservatism in the market without memory from day to day.

If anything, the volatility of the last two months underscores my strategy.

Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass' daily trading diary, please click here.

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