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Not a Believer
Originally published at 8:24 a.m. EDT
This week the market has ostensibly rallied on the heels of evidence that (1) inflation will be contained, and (2) that the U.S. economy is slowing down to a sustainable level of growth.
On both counts -- and others -- I remain a nonbeliever.
One of my core bearish arguments is the view that the rate of inflation in goods and services is being understated by the government's releases. In turn, pressures from rising costs will serve to reduce corporate profit margins, which today are at 50-year highs.
Instead, I prefer to use the median CPI as calculated by the Federal Reserve Bank of
, which includes
. As indicated in the Cleveland Fed's April 17
, the median Consumer Price Index rose by 0.3% (3.5% annualized) in March. This is well above the Fed's targets and probably represents a more accurate representation of inflation.
Meanwhile, on the business fixed-investment front, signs of weakening capital spending that were apparent in
quarterly report were also clear in
earnings conference call last night. (After the close of trading yesterday IBM indicated that its U.S. enterprise systems business weakened in March.)
As well, the U.S. dollar's drip is beginning to accelerate into a waterfall (see Barry Ritholtz's
). And signs of a worsening subprime mortgage
are casting a pall (and ever more housing supply) onto the residential real estate markets amid the hollow utterings from economists that housing has stabilized -- it has not.
Amid growing signs of stagflation, the world's equity markets make records day after day after day. I fully recognize the forces of liquidity that have buoyed stocks. However, increasingly, in a sign of the times, an unhealthy measure of conceit on the bulls is being coupled with the "give up" stage by the ursine crowd. (As evidence of this, today's Investors Intelligence survey -- a reading of 52.7% bulls and 25.2% bears -- indicates a growing extreme in positive sentiment.)
From my perch, the demarcation between economic and investment progress is getting increasingly blurred as doubt and fear have almost been driven from the Street of Dreams -- while a new era of investment utopianism is entering participants' thinking.
Automobile Loans Will Crash Next
Originally published at 12:32 p.m. EDT
The next economic shoe to drop? Automobile loans. The subprime lending penetration of total automobile loans (at around 60%) is more than twice the market share of subprime mortgage loans (at about 24%).
What does the consumer default on even before a home loan? An automobile loan -- right after the
I am searching for a way to play this now.
Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd. Until 1996, he was senior portfolio manager at Omega Advisors, a $4 billion investment partnership. Before that he was executive senior vice president and director of institutional equities of First Albany Corporation and JW Charles/CSG. He also was a General Partner of Glickenhaus & Co., and held various positions with Putnam Management and Kidder, Peabody. Kass received his bachelor's from Alfred University, and received a master's of business administration in finance from the University of Pennsylvania's Wharton School in 1972. He co-authored "Citibank: The Ralph Nader Report" with Nader and the Center for the Study of Responsive Law and currently serves as a guest host on CNBC's "Squawk Box."
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