My 'Fast Money' Recap
By Doug Kass 05/09/12 - 12:00 PM EDT
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This column originally appeared on Real Money Pro at 8:12 a.m. EDT on May 9.
NEW YORK (Real Money) -- I talked both bonds (sell) and stocks (buy) in last night's segment. Let's go directly to the tape! I continue to view the short bond trade as having a very favorable risk/reward yield. The herd is buying bonds. And, as we have learned from history (and certainly in 2008-2009), the herd's instincts can take a dive. By contrast, I would buy (stocks) in May and go away. My view is that the equity market is approaching a point at which it's getting far too negative on U.S. economic and corporate profit growth. And the bond market, with a 1.85% 10-year yield, is also too convinced that U.S. growth will falter. Risk/reward has shifted to an attractive area for the S& 500 and to a most unattractive level for bonds. I have been raising my invested positions in stocks further into the last four days of market weakness, and I have increased my short bond trade exposure. Good news is being ignored; bad news is being emphasized. Monday's Jolts report is an example. March job openings reached their best level in four years. The most important feature to the report was how broad based the release was. Every private sector industry looked to expand employment, and the manufacturing sector was especially strong in job openings. Also, the drop in crude oil prices and in gasoline prices over the last month is being ignored -- it's a tax cut to the consumer -- and so is the Ford (F) news that it plans to curtail planned factory shutdowns this summer. I am looking for stability in Europe and for the flight-to-safety trade to abate. Historically, bond yields exceeded nominal GDP growth. Nominal GDP growth is the sum total of real GDP (running 2%-plus) and inflation (also running 2%-plus). So, today's 10-year U.S. note yields 1.85%, well under nominal GDP growth of around 4.5%. Brian Kelly compared Japan to the U.S., arguing that bond yields can go much lower than most expect. While some of the seeds of weakness in the two countries are similar, I responded that the comparison between the two countries is not a valid one -- Our population is not aging, debt/GDP is better here vis-à-vis Japan, and we face a more vibrant economy.