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Kass: The Parable of the Mustard Seed

This blog post originally appeared on RealMoney Silver on Dec. 4 at 7:59 a.m. EST.

"It is like a grain of mustard seed, which a man took, and cast into his garden; and it grew, and waxed a great tree; and the fowls of the air lodged in the branches of it."

-- The Bible, Luke 13:18-9

On CNBC's "Kudlow & Company," Larry Kudlow is fond of bringing the financial world's attention to the mustard seed parable, which, in a religious context, is often interpreted as being a prediction of Christianity's growth around the world. Jesus compares the kingdom of heaven to a mustard seed. The parable is that mustard is the least among seed, yet grows to become a huge mustard plant that provides shelter for many birds.

In an economic context, Larry believes the mustard seed parable has some merit, as the "shock and awe" from the recent policy moves geared toward stimulating the economy could sow some good economic results in 2009. Given the painful market action over the past six months and the extremely negative sentiment, which seems almost antithetical to investors' enthusiasm a year ago, Larry feels a rich investment harvest might be reaped.

While Larry's optimism has some virtue, I have argued that we are not in a "garden variety" business/market cycle, as the wealth destruction of lower home and stock prices will retard growth -- similar to the notion held by some religious scholars that the birds in the mustard seed parable represent an undesirable presence capable of eating up any new seeds the farmer sows in his field and preventing the trees (Christianity and the stock market) from bearing fruit.

Moreover, I have opined that it is hard to have conviction until:

  • stability returns to the hedge fund community, as redemptions slow down, some large hedge funds fail, and the money is re-circulated to other investment managers;
  • the slope of the domestic economy's downturn is better understood, as the possible recovery is seen with better clarity;
  • credit improves;
  • stocks react more positively to poor news; and
  • the volatility in the capital market diminishes.

I now must recognize that my concerns, which are currently weighing on our credit and investment markets and on the world's real economies, have now been fully embraced by the media and by nearly every investor and strategist and that, to some degree, stocks have reflected the gross economic and credit realities. This is in marked contrast with conditions a year, six months or even three months ago, when I saw a plethora of short opportunities framed in a variant and negative view.

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