Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.
Twitter's Upside and Downside
Posted at 5:56 p.m. on Friday, Sept. 23, 2016
"One more thing."
-- Lt. Columbo
- Upside: $26 (up 15% from the $22.50 that the stock was trading at as of last check).
- Downside: $17 (down 24% from current prices).
I approach the markets and every stock I invest in (long or short) on the basis of reward (upside for longs) and risk (downside for longs).
In the case of Twitter, I sold my entire position at about the closing price of Friday, based on an unattractive reward-versus-risk ratio (above) of 3-5.
An Entry Point for Shorting Apple
Posted at 2:44 p.m., on Friday, Sept. 23, 2016
As I have posted in the last week, I have accelerated my shorting of Apple as it approached the top end of my $90-to-$115 12-month range.
Here is a case where the upside/downside calculation may have provided a very good entry point on the short side.
Position: Short AAPL
Moving to Medium-Size Net Short Exposure
Posted at 2:10 p.m. EDT on Friday, Sept. 23, 2016
I have moved to medium-size net short exposure.
Position: Long SDS, HIG; Short SPY, MS (small), GS (small), CAT (small)
More Lessons Learned
Posted on 12:55 p.m. EDT on Friday, Sept. 23, 2016
"I have a bunch of things I would like to short. ... There will be all sorts of trouble but it's not today's problems as there is no point focusing on it.
-- Bill Fleckenstein
Never forget this: In a market dominated by volatility-trending and risk-parity strategies, buyers live higher and sellers live lower.
What this should tell all of us is that charts and (recent) stock market action mean less than before quant funds dominated the market action. This means that we should not, as traders and investors, be complacent about worshipping at the altar of price momentum.
Rather, we should be distrustful of large and quick moves -- much like we have seen since the Fed made comments a few days ago. And we should use the exaggerated market moves served up by quant strategies -- as a gift from Mr. Market -- by buying what becomes cheap and selling/shorting what has become dear. In other words, even in our trading to act more like Warren Buffett (who is fearful when others are greedy and greedy when others are fearful).
On top of this, natural price discovery has been nonexistent in a central-bank-dominated, liquidity-driven market characterized by low interest rates. This is why I shy away from glib and self-confident views; they know not what uncertainties and artificiality in price discovery exists given the changing market structure and forces.
I am using the recent market strength, which I believe to be artificial and could be short lived, as an opportunity to raise my net short exposure (after being quite patient!). Since stocks are so stretched relative to GAAP earnings (and the spread between GAAP and non-GAAP has never been wider), I am willing to be more anticipatory after the magnitude of the rise in stocks.
Given the dominance of the aforementioned strategies, the beginning of a trend change could trigger a more meaningful move to the downside. It could occur for no reason; it may "just happen" as buyers are sated.
- It could occur because of continued weak global economic data.
- It could occur if European and U.S. bond yields move back higher.
- It could occur coincident with a Sears Holding (SHLD) bankruptcy filing or more problems associated with Deutsche Bank (DB) - Get Report
- It could happen if Donald Trump performs well in Monday night's presidential debate.
- It could happen for a host of others reasons.
- Or it may not happen at all.
Memo to my friend Bill Fleckenstein: Bill, from my perch you may not have to wait much longer to short the market.
"The Winter of our Discontent" may lie ahead.
Position: Long SDS; Short SPY
Peak Sneakers and a Pina Colada
Posted on 12:42 p.m. EDT on Friday, Sept. 23, 2016
At the time of publication, Kass and/or his funds were long/short XXX, 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.