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.
Last week, Kass wrote about the fall in King Digital shares and about short bonds.
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Candy Crushed: Another Lesson Learned
" Candy's IPO will get crushed like Zynga," (ZNGA) said Doug Kass, founder of investment shop Seabreeze Partners Management. "The games business is no different than the movie business," Kass said. "One great hit doesn't ensure that the next movie will be a hit."
-- New York Post interview with Kaja Whitehouse, "Wall Street Wary of Candy Crush Maker's IPO") Feb. 18, 2014
For over 15 years I have advised (in my diary on Real Money Pro and on TheStreet) that investors and traders should always adopt a healthy skepticism of fads (particularly ones that we play on our computer or smartphones).
Importantly, beware of false investment icons that embrace the current rage of popularity but, to paraphrase Gertrude Stein, have little there there. Case in point: Look at the share price decline of nearly everyone's retail favorite Macy's (M - Get Report) after its earnings miss this morning.
Those who worship at the altar of what is most admired and at the altar of price momentum often get burned.
This is true especially in the IPO market -- one of the most obvious bubbles extant these days.
As my buddy/friend/pal Jim Grant wrote in his masterful book Minding Mr. Market: Ten Years on Wall Street With Grant's Interest Rate Observer:
Wall Street exists for a purpose: not to produce disinterested research, not to provide "service," not to raise capital for a growing America, but to sell stocks and bonds. ... The higher the market, the easier it is to sell but the more disingenuous the sales pitch becomes. (In almost every other walk of commercial life, people buy more at lower prices: in the stock and bond markets, they seem to buy more at higher prices.)
For the sake of your investment well-being, never forget Jim's message.
At the time of publication, the author was long KING put options, although positions may change at any time.
Bond Short Update
The yield on the U.S. 10-year Treasury note closed at 3.03% on Dec. 31, 2013.
As mentioned in my "15 Surprises for 2014," I started the year with an outside-of-consensus view that the bond yields would decline for all of the year, trading in a range of between 2.50% and 3.00%. My view was predicated on my projection that domestic real GDP growth would be well below expectations, at about 1.75% (or almost half that of the consensus), and that global growth would only rise by about 3%.
The 10-year yield has steadily dropped throughout 2014 and now stands at 2.395%, slightly below the lower end of my anticipated range, as signs of slowing global economic growth continue to weigh on bond yields around the world.
I had previously expected the 10-year U.S. note to close the year at around 2.75% to 3.00%. I would now reduce that year-end 2014 forecast to approximately 2.75%. While I still expect rates to rise over the balance of the year and into 2015, the climb in yields will start from a lower level than I anticipated and could descend to a lower yield as well (relative to my previous expectations).
This changed expectation lessens the near-term appeal of my short bond thesis, and I have reduced my large exposure to ProShares Short 20+ Year Treasury (TBF) .
As a result of this conclusion, I plan to add to all of my closed-end municipal bond funds on any weakness.