"The public have an insatiable curiosity to know everything. Except what is worth knowing. Journalism, conscious of this, and having tradesman-like habits, supplies their demands." -- Oscar Wilde, The Soul of Man Under Socialism (1891)
Far too often, the usual bullish suspects are marched on business television with the same bullish pablum, regardless of the economic and credit circumstances. Typically, the commentators nod in agreement, with limited questioning/testing and certainly little in the way of inquisitive delving of their interviewees.
As many are aware, I have been
of the media (especially of a
-kind), regarding what I believe to be:
- excessive optimism;
- bullish dogma;
- the limited amount of intelligent market debate; and
- a lack of rigor in some very convicted bullish analyses and an even weaker logic of argument.
One should recognize that these are just my opinions and I have no concession of the truth. While, at times, my criticism might appear too zealous, forceful and absolute, I certainly recognize that I am not the final arbiter of objectivity. Lord knows, I have my own agenda in talking my (short) book!
Nevertheless, I have attempted to be even-handed, and I have tried to document my criticisms, providing input/ideas that I believe would lead to a more balanced Fourth Estate debate on the large "
" that they inhabit. My criticism has, at times, infuriated members of the media (read: producers and commentators), but I have remained steadfast in my objections.
A Very Special 'Squawk Box'
Of all the media outlets, I have appeared mostly on
over the last decade. Unlike many that frequently appear on
, I am not a
contributor, and I do not get paid when I appear. As such, I can speak my mind without fear of retribution, though I can be denied (and no doubt have been denied) future invitations to be on specific shows and segments.
Unlike some permabear Cassandras, who are eternally critical of the bullish view (what they often describe as a subjective prism of media commentators, money managers, investment strategists and economists), when I see value-added content in the media, I am quick to admit so.
New York Times
columnist Ben Stein, when he produces non-biased content that admits to the challenges the economy and the markets face, I am quick to acknowledge it.
This morning I want to start my opening missive by acknowledging what I would describe as the most informative hour on
"Squawk Box" in months, which featured a discussion on short selling with Pershing Square's William Ackman and Greenlight Capital's David Einhorn. The 60 minutes or so was jam-packed with unique observations, sage advice and, importantly, well-thought-out questioning from Becky Quick, Joe Kernen et al. The roundtable contained an examination of a number of issues, including the value of short selling, the risk associated with going public with short ideas as well as a number of other tangential issues.
Stated simply, it was brilliant business television in that it made us think and taught us things we never knew before.
"When we play, we must realize, before anything else, that we are out to make money." -- David Sklansky
Near the end of "Squawk Box," David Einhorn compared his lessons learned playing Texas Hold 'Em poker with his trials and tribulations in the stock market -- he had finished eighteenth in the 2006 World Series of Poker -- which gets me to the second message of today's opener.
Bears Might Hold The Doyle Brunson Hand
"Poker reveals to the frank observer something else of import -- it will teach him about his own nature. Many bad players do not improve because they cannot bear self-knowledge." -- David Mamet
Today, many believe, like
, that the credit problems are almost over and that the economy is posed for growth in late 2008/early 2009. They argue that the stimulation and housing packages will jump start economic growth and that many of the financial institutions that have marked down billions of dollars of loans will likely "write up" the value of these loans in the quarters ahead. A reacceleration in corporate profits, it is opined, will follow and, with it, closely will come a rebound in the world's stock markets.
It's as if the bulls were dealt rockets (a pair of aces) in a Texas Hold 'Em poker match against the bears, who were dealt a weak 10 and deuce hand (one of the worst hands extant).
But strange things can happen (and usually do) in
"In 1976, the World Series of Poker was only in its seventh year but was growing in popularity. Doyle Brunson was in the prime of his poker playing career and was gunning for his first Main Event title. Down to heads-up play against a final-table fixture of the day in Jesse Alto, the Doyle Brunson Hand would make its first mark on the poker world. "Preflop, Alto raised with his unsuited A-J, an excellent heads-up hand. Doyle called with his 10-2 of spades. The flop was A-J-10, with two hearts and one spade. With the top two pair on a flop with lots of draws, Alto made a pot-sized bet. Almost certainly on an aggressive play intended to induce a fold from Alto, Brunson moved all-in with the chip lead! Alto naturally called and was a dominating favorite to double up. "A 2 on the turn improved Doyle's hand but still gave him two smaller pair. On the river, Doyle spiked another 10 for a runner-runner full house and the title. The first-place prize money was $220,000 that year." -- Beat the Fish
Amazingly, the same occurrence happened in 1977's World Series of Poker championship.
"In 1977, Doyle dominated the field again to make a run at back-to-back World Series of Poker championships. Down to heads-up play with the chip lead against Bones Berland, Doyle was dealt the 10-2 again. Unlike the previous year's final hand, he was up against another trash hand in Berland's 8-5. Neither hand was suited, and neither player showed any strength preflop. "The flop came 10-8-5 rainbow, giving Doyle top pair and Berland bottom two pair. Both players slowplayed their hand, and the turn gave Doyle the miracle 2 for a better two pair. This time, Doyle bet out, Berland raised him all-in and, of course, Doyle called. "Amazingly, the 10 on the river gave Doyle another full house on the river to win his second consecutive WSOP Main Event with this antithesis of a power hand. His prize for the win was $340,000. "Texas Dolly went on to poker immortality and the 10-2 was forever known as the Doyle Brunson Hand." -- Beat the Fish
I have a feeling that in the 2008-2010 period ahead (like during the 1976 and 1977 World Series of Poker tournament, which also was coincided with a period of weak stock prices in the aftermath of the 1973-74 "Nifty Fifty" market wipeout), the bears will prevail in the U.S stock market.
"It never hurts for potential opponents to think you're more than a little stupid and can hardly count all the money in your hip pocket, much less hold on to it." -- Amarillo Slim
Despite the view of an increasing amount of investors that the worst is behind the U.S. credit and economic markets, I expect the underdog bears' 10-2 deal (the Doyle Brunson Hand) will beat the favored bulls' pocket rockets (pair of aces) as a number of factors are seen as near- and intermediate-term headwinds.
Near term, a combination of generally
, a levered and spent-up consumer (vulnerable to the parabolic rise in energy prices), the dilution from an unprecedented amount of financial sector stock offerings, a still deteriorating housing market, and demand pull and cost push inflationary pressures (leading to
disappointing corporate profit margins
and profits) suggest that the 2008-09 forecasts are far too elevated and that P/E multiples are higher than is generally envisioned. Should these factors do sufficient damage by producing a stagnant economy during the second half of 2008, new stock market lows will be likely.
Intermediate term, a number of prosperity killers (and headwinds that used to be tailwinds to investors) are seen as legitimate threats to the stock market and will likely weigh on equities. These include high and rising inflation, a low dollar, higher tax rates, heavier regulation and trade protectionism, which could serve to produce an uneven and lumpy period of economic growth that will be difficult for corporate managers and investment managers to navigate.
"A man with no money is no match against a man on a mission." -- Doyle Brunson
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.