"Convictions are more dangerous enemies of truth than lies." -- Friedrich Nietzsche
Back in April, I wrote the following:
I continue to be fascinated by the renewed optimism and conviction, particularly from those talking heads who had it dead wrong into the entire market decline. They are shameless -- and know nothing. Or they are revisionists who have no sense of history. The unrelenting and sometimes non-rigorous conviction and authority of opinion (of both the bullish and bearish cabals these days) is nonsensical -- particularly within the context of rapidly changing credit market and economic conditions.
" and through my sparring with bulls over other media platforms, I have consistently played the role of the market skeptic. I call it fighting the good fight.
Recently, I have observed an increased disassociation or decoupling between stock prices (up until recently) and fundamentals (down for the last year), which has been met with ignorance for the most part by generally sober observers of the stock market scene, who surprisingly boast a renewed conviction that they are authors of certainty.
While there will always be a positive case to be made, all is never totally rosy -- and all is never a complete calamity -- and the conviction of many of the bulls is baffling to me in the face of the fundamental realities of the summer of 2008. (I will not name names in order to protect the innocent.)
Quite frankly, it is these bullish folks who have become the New Millennium's dogmatic types, replacing the Cassandras and ursine pundits of the past. To be sure, there remains a cadre of permabears, but they usually don't manage money -- they would not have survived the bullish move -- rather these talking heads, similar to the Sunshine Boys and Girls whom we call Wall Street strategists, merely have their fearful pitches to communicate through hell and high waters.
I don't know about you, but I am getting sick of the incessant bullish diatribe that lacks rigor and clarity of analysis in the face of a growing list of headwinds and mitigating factors. I, for one, don't have the answers and, under the circumstances, can't have a strong conviction (unlike others).
I do recognize that the reality of today's trying economic conditions presents challenges to the markets. I do recognize that higher oil prices, a pressured middle class, a levered and weakening consumer and a number of intermediate-term
(lower U.S. dollar, increased industry regulatory burden, higher inflation and taxes, trade protectionism, etc.) pose serious market threats.
My advice is to take the permabulls short-term and long-term optimism with a grain of salt. Do your own homework and make your own conclusions, only after weighing the positives and negatives.
To summarize, being convicted (on an overall bullish or bearish outlook) seems too aggressive in this period of uncertainty. By contrast, above-average cash reserves and an opportunistic trading approach make a lot of sense until we see more clarity.
After all, a strong conviction that something must be done is often the parent of many bad actions.
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.