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The Best of Kass

NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among his posts this past week, Kass wrote about why more quantitative easing is a close call, fundamental reasons why the market has risen too high, and why Chinese stock valuations may be a harbinger of our own market.

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More Cowbell?
Originally published on Friday, Sept. 7 at 1:49 p.m. EDT.

As I expressed recently, I expect the Fed to change the language with regard to how long low rates will be in place from late 2014 to late 2015.

I think it is a close call, however, on more quantitative easing. The odds are probably 50/50, which is far less, I believe, than consensus now (particularly in light of the poor jobs report this morning). At any rate, I believe that more cowbell has been already discounted in the markets.

The case against more quantitative easing includes:
  • a four-and-a-half-year high in the S&P 500;
  • the steady rise in home prices;
  • contained inflation (and low unit labor costs); and
  • recognition by several Fed voting members that the impact of quantitative easing is waning and that it could do more harm than good (by raising gasoline prices and other commodities prices).
  • At the time of publication, Kass had no positions in securities mentioned.


    Too Far
    Originally published on Thursday, Sept. 6 at 11:47 a.m. EDT.
  • Several factors suggest to me that the bulk of the market's advance and upside is over.
  • I have held to the notion that the high of the S&P 500 over the balance of the year would be about 1420.

    We have now eclipsed that projection (we are at 1427 as I write).

    Despite today's overshoot to a four-and-a-half-year high in the S&P 500, let me pass on several brief bullet points that suggest to me that the bulk (if not all) of the market's advance and upside is over.
    • President Obama seems likely to win the November election. (He has risen to a multiyear high of 58.8% on Intrade). A Democrat win will be seen as business- and market-unfriendly.
    • Third-quarter 2012 earnings will be challenging -- guidance has been cautious -- and profits will likely decline for the first time (year over year) since third quarter 2009.
    • I remain uncertain about the U.S. fiscal cliff, debt ceiling, dividend, capital gains and tax policy.
    • I remain uncertain about the eurozone's economy, banking union and fiscal integration.
    • A Chinese economic slowdown not only threatens world economic growth and commodity prices but implies less demand for the purchase of U.S. treasuries.
    • A broad deceleration in global manufacturing activity will adversely impact U.S. export growth.

    At the time of publication, Kass was short SPY.


    As China Goes, so Goes the U.S.?
    Originally published on Thursday, Sept. 5 at 8:37 a.m. EDT.
  • The current valuation metrics for Chinese companies are quite cheap.
  • As written in today's opening missive, while China remains the growth driver of the world's economy, that region's economic engine is starting to falter.

    The Chinese stock market has already entered into a bear mode.

    Surprisingly, few have discussed how Chinese stocks are currently valued as an outgrowth of this Chinese bear market.

    Let's enter this discussion now, for it provides a possible guidepost of the potential risks to U.S. stocks.

    Though this observation is admittedly too simplistic -- I fully understand and have written why one should buy American over other areas of the world -- the current valuation metrics for Chinese companies are quite cheap, with forward price-to-earnings multiples of only 7.8, an average dividend yield 3.9% and with a lowly price-to-book of 1.3x.
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