What an Old Bull Looks Like; A Technological Tidal Wave: Best of Kass

In highlights from this week's trading diary and posts, Kass discusses why this bull market reminds him of himself, and why the tech transformation hitting retail is just the start.
By Doug Kass ,

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.

This past week, Kass talked about why this elderly bull market reminds him of his own aging body, and why the tech transformation hitting retail is destined to spread much further across the economy.

Signs of an Aging Bull Market

Originally published Nov. 12 at 8:12 a.m. EST

"In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."

-- John Maynard Keynes

Keynes' point in the above quote wasn't that the long term is unimportant -- in fact, it's crucial that a ship traveling through a storm eventually arrives and navigates to the correct port. But in the middle of the storm, an accomplished sailor needs to be able to say something useful about how to weather what's actually happening.

This week, I introduced a new feature in which I'll regularly analyze the near-term outlook for major market sectors. I decided to do this because of the wide, varied and conspicuous performance differences that have developed within individual sectors and stocks this year.

The recent breakdown in sector correlation is a classic sign of a narrowing and "aging" bull market, as I discussed in Monday's Does a 'Good News Retracement' Lie Ahead?

In recent months, the market has truly been a place of "haves" and "have nots," and we must be prepared to capitalize on the winners while avoiding the losers.

Mr. Market has been kind of like my 66-year-old body of late. I was in perfect health until 2013, but then:

  • I suffered cancer two years ago. (Click here to see the Caterpillar (CAT) - Get Report two-year price chart.)
  • I tore my meniscus a year ago playing tennis. (Click here to see the Valeant Pharmaceuticals (VRX) one-year price chart.)
  • I had acid reflux so badly a month ago that I had secondary burns from my throat to my sinus. (Click here to see the Macy's (M) - Get Report one-month price chart.)
  • I slipped while cutting trees in my backyard Saturday and punctured my left hand on a chain-link fence. (Click here to see the Mallinckrodt (MNK) - Get Report one-week price chart.)

To this 66-year-old observer, the market's breakdown in sector correlations and the rise in groups' share-price "potholes" are clear signs of an aging bull market. Caveat emptor!

Position: Short CAT (small)

Technology Will Cause Upheaval Well Beyond Retail

Originally published Nov. 11 at 4:43 p.m. EST

I previously wrote about the negative outlook for the traditional retail business -- and Macy's (M) - Get Report specifically -- this morning.

This afternoon, Jim "El Capitan" Cramer's "Macy's and the End of Shopping as We Know It" captures the clear and (changing) retail zeitgeist that exists today

The transformation of the delivery of retail goods began glacially but has quickened its pace dramatically in the last 12 to 18 months.

Amazon (AMZN) - Get Report initially began to transform the delivery system of retail products years ago, but many others have chimed in with strategies that emphasize quicker and less-expensive channels, particularly of an Internet kind.

The debris from this changing backdrop will be voluminous and scattered well beyond the traditional retail businesses. As an example, Whole Foods (WFM) -- a market-leading distributor of high-quality, gourmet food products -- was disintermediated weeks ago. There will be many more industries disrupted.

Moreover, this transition has important negative ramifications not only for the retail industry but also for the real estate industry (read: malls and shopping centers); it provided the bricks and mortar that served as a delivery point for goods and a prime source of jobs. These and other sectors will be damaged going forward.

As I mentioned in my morning column, "Macy's Performance Is No Miracle on 34th Street," we are now over-boxed in this Brave New Retailing World, which coalesced in one big thump and dumping in retail stocks after Macy's punk results today.

But Macy's won't be the last victim.

There will be more damage in numerous industries.

As I cited in my Barron's piece four years ago titled "The Threat of Screwflation," technological obsolescence is one of the root causes of the weak jobs market over the last decade.

Stated simply, the quantity of physical and labor capital required to operate a business has changed forever in the world.

No wonder Facebook (FB) - Get Report has nearly six times the market value of General Motors (GM) - Get Report .

Position: Short FB (small)

At the time of publication, Kass and/or his funds were short CAT and FB, 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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