Kass: Point Your Finger at the Fundamentals

Anticipating problems, utilizing thorough and independent analysis, is far more constructive than playing the blame game.
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Updated from 11:59 a.m. EDT

These blog posts originally appeared on RealMoney Silver on April 3.

The Blame Game

7:23 a.m. EDT

"We have met the enemy and he is us." -- Walt Kelly

I have always thought that the blame game was a giant waste of time.

Anticipating problems, utilizing thorough and independent analysis, is a far more constructive process. If done successfully, it can aid government officials in making public policy, it can help investors avoid potholes, and, yes, it can also provide fertile opportunities for short sellers.

Unfortunately, in the latest credit/housing/business cycle, calls of concern about the following items fell on deaf ears until it was too late:

  • housing affordability and non-owner-occupied speculation;
  • subprime problems rising through the ladder of credit;
  • the abandonment of due diligence on the part of ratings agencies, borrowers and lenders;
  • reflections about an ever-growing and unregulated derivative market; and
  • analysis of leverage trends in the government, in corporations and in the consumer sectors.

Not surprisingly, the short-selling community has become the brunt of the blame game.

New York Times

Columnist

Ben Stein

and, more recently, Lehman Brothers

(LEH)

CFO

Erin Callan

have been some of the more vociferous critics of short sellers.

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This week's

Knowledge@Wharton

addresses this issue and more in

"Market Manipulation, or Just Business as Usual?"

; it even expands upon Ben Stein's notion of a disconnect between economic reality (and perception) and further dispels the perception that a small group of short sellers are responsible for the general drop in share prices.

This was a key argument that I discussed yesterday, when I attempted to debunk the myth that short sellers are responsible for Lehman's stock nosedive.

Holy FHA, Batman!

7:36 a.m. EDT

This morning, neither the

Wall Street Journal

nor any of the other major business publications mentioned that Barney Frank's important FHA

initiative

was not included in the bipartisan plan to spur the housing market.

While futures are more or less unchanged now, I suspect that the realization that the bipartisan housing effort is merely more of the same (read: timid and noncreative) will put near-term pressure on equities over the course of the next few days.

Moreover, an almost universal belief -- and I am one of the believers! -- that the market now has successfully tested January's

SocGen

bottom gives this contrarian reason to doubt whether the market might be more vulnerable than many observers think.

Adding to my near-term concern today is a UBS cut in

Cisco Systems

(CSCO) - Get Report

, and a general recognition that Tuesday was a 90% up day -- anyone can see the obvious! -- also gives me pause.

I am raising the size of my short book.

Doug Kass is the author of The Edge, a blog on RealMoney Silver that features real-time shorting opportunities on the market.

Know What You Own

: CSCO operates in the technology sector, and some of the other stocks in its field include

Alcatel-Lucent

(ALU)

,

Juniper Networks

(JNPR) - Get Report

,

Nortel Networks

(NT)

and

Intel

(INTC) - Get Report

. These stocks were recently trading at $6.13, +0.33%, $24.32, -0.98%, $7.80, -0.89% and $21.75, -0.46% respectively. For more on the value of knowing what you own, visit TheStreet.com's

Investing A-to-Z

section.

At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, 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.