This blog post originally appeared on RealMoney Silver on Dec. 10 at 7:50 a.m. EST.
Last night's session on
"Kudlow & Company" was a treat for me, as we were joined by the always controversial and thoughtful Denny "the K" Kneale and the lynx-eyed chief cook at
Strategas Research Partners
, a firm that has been doing stellar economic analysis and research during the brief time of its existence, Jason Trennert.
On the automobile bailout, I suggested that some Band-Aid relief was economically necessary but also that, to use the title of a book from my former boss, Ralph Nader, the auto stocks are "unsafe at any speed."
managements are weak, and their business models are unsound relative to current and prospective automobile production. Both Jason and Denny agreed that now is not the time to take chances on letting the companies fail, with economic growth spiraling lower in fourth quarter 2008 and with job losses mounting. Sir Larry demurred.
We all agreed that the cost structure of corporations and the general health of the consumer (though facing other headwinds) will be positively impacted by a near-$400 billion year-over-year reduction in energy prices in 2009.
Jason remarked that the low level of interest rates -- "the risk-free returns have turned into the return-free risk" -- could produce a beneficial asset-allocation move toward stocks. I thought that the zero percent Treasury bill rate could simply be a function of year-end window dressing by financial institutions that "wanted to look pretty." Sir Larry disagreed, thinking that was an "Inside the Beltway" response. Denny the K said that the benefit of low government rates should inure to a positive carry trade.
I said that the root structure of the
are growing, though a hard downfall of rain disturbed it yesterday in a market recovery that will have continued detours and potholes. When all is said and done, however, neither Cassandras nor Polyannas are money makers; they are merely attention getters.
So, on the issue of the market, though I continue to believe that a two-way approach (long and short) appears more appropriate while times are difficult and challenging -- very similar to Woody Allen, who said that the benefit of bisexuality is that it doubles your chances of a date on Saturday night -- my view remains that stocks are growing cheaper as bonds are growing rich in price. Negative sentiment --
bulls on Treasuries are at 90%, and
bulls are at a multidecade low of 23% -- reasonable valuations and engaged public policy are likely to trump the lack of recovery in credit and (lagging) earnings woes.
I opined, as I did
on the show, that the housing market was moving closer to stabilization, reflecting improving affordability. I noted that the number of canceled units at a leading homebuilder is dropping, while the ASPs of those canceled units have moved dramatically higher, indicating to me a straw in the wind that the housing decline is not as a broad-based as it has been in the past but rather is presently being concentrated in higher-end communities/regions.
The shares of
, a large mortgage servicer with an expanding debt recovery subsidiary, and
Vornado Realty Trust
, the largest office REIT extant, looked especially timely to me. Strategas Research's Jason submitted a view that the market had bottomed but a sustainable advance requires further thawing in credit infrastructure. He favored consumer staples and selected financials, including
and the publicly traded exchanges. Denny, similar to many whom have grown tired of calling too many bottoms, held a positive market view.
I concluded by saying that business tax cuts and substantive tax incentives for home buyers, as suggested previously by
Bob Toll, could be the tickets to market and economic recovery.
Last night was a good show.
Doug Kass writes daily for
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At the time of publication, Kass and/or his funds were long Ocwen Financial and Vornado Realty Trust, although holdings can change at any time.
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.