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Kass: Too Much Confidence


In 2013-2014, the global economy and the world's capital markets are not poised to experience a 2007-2009 collapse.

Focusing on our current issues (and ignoring, for the moment, the need for intermediate structural reform), valuations rising, social unrest increasing, the global economic recovery weak, rates on the ascent, risks of policy (monetary and fiscal) mistakes rising, the artificiality of policy (and lack of real price discovery), and so on have made the market's reward vs. risk unattractive.

Investing with blind faith is often a recipe for disaster.

Even Warren Buffett, the Oracle of Omaha, seems to be concerned that stocks are fairly valued (as expressed at his Thursday evening appearance at Georgetown University):

Humans, they all think they're Cinderella at the ball, and they think, as the night goes along, the music gets better and the drinks flow, they all think they're going to leave at two minutes to 12 and of course there's no clocks on the wall and they're still dancing, so it will happen again.

Dr. Minsky teaches us about warnings and to be wary when all seems certain and good. Minsky points out that in what appears to be a stable environment, our confidence is heightened and we are inclined to take increasingly risky positions in assets (such as stocks). Over modern financial history, the Big Bank (our Fed) consistently has intervened and gotten us quickly out of crisis, but it causes us not to learn much and we continue a path toward increased fragility. With increasing amplitude of crises (as seen in 1966, 1970, 1974, 1980, 1982, 1987, 1990-1991 and on to the 2000-2009 crisis), we are experiencing not a Minsky moment but a Minsky half century.

Somewhere above, Hyman Minsky might be looking upon Mr. Market and saying what we have learned from history is that we haven't learned from history.
At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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