The self-proclaimed "anti-Cramer," Doug Kass, anchors
"The Edge," a diary about stocks and investing. As a dedicated short-seller, Kass can seek out the bear market in any environment.
This week, he discussed
the latest mindless speculation
remaining a nonbeliever in the rally
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Mulling Over a Melange of Market Melodies
Originally published on April 17 at 8:37 a.m. EDT
I remarked near the close of Monday's trading that Mr. Market continued to play Jim Cramer's Symphony in B Flat Major ("Everything's Coming Up Booyahs") in yesterday's strong session.
With 11 out of the last 12 trading days moving positively, the market now appears next to invincible. As
on Monday, some (particularly of a
) are even beginning to posit the notion of another New Era!
My writings (perhaps stubbornly) continue to try to dispel the notion of anything resembling a New Era. Nor do I agree that the current rip is the beginning of "the mother of all short squeezes," because the dedicated short community is now next to nonexistent and certainly not anywhere as powerful as the bulls contend. In terms of long/short players, according to the "surveys," many
hedge funds have gotten increasingly longer in the last several months. Rather, this is quite simply a strong rally with an abundant amount of momentum behind it. (Emphasis on the word "abundant.")
I do agree with
Gary D. Smith that there are some short squeezes going on now (especially of a solar kind, such as with
). There always are. And precisely for that reason I avoid shorting stocks with high
short interest ratios.
I have been wrong in disagreeing with those who are participating in the buying (at seemingly elevated prices); price momentum has clearly trumped any concerns. Nevertheless, my fundamental economic and investment blueprints remain materially unchanged: At the core of my ursine market view lie a slow-motion downturn in consumer spending (abetted by subprime woes, another leg down in housing and a high volume of mortgage resets), a deceleration in the rate of business spending, stubbornly high (cost push) inflation, persistent wage pressures (in the service sector), lower productivity, expanding political risks (tax rates on capital gains and income) and rising geopolitical issues.
in B Flat Major.
As I have written previously, speculation takes many forms. Sometimes it is a bubble in Internet and technology stocks (daytrading in the late 1990s), a bubble in home prices (especially of a West or East Coast kind) or (in 2006 on) a bubble in the availability of
(and in private equity).
In 2007, I continue to be astonished by the blind, after-hours buying that follows Jim's "Mad Money" picks every night. It is something to behold, and unfortunately it continues apace even as Jim specifically cautions against it! It is yet another thin-reed sign of the sort of the mindless speculation last seen seven to eight years ago.
Not a Believer
Originally published on April 18 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) 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
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.
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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