The Best of Kass
NEW YORK (
) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with
RealMoney Silver
readers in "The Edge," his daily trading diary.
This week, he commented on the feds' insider trading investigation, the safety of Swiss banks and his favorite long and short stocks as the weekend approached.
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Inside Heist
Originally published on Nov. 22 at 7:59 a.m. EST.
- The weekend was filled with chatter regarding a vast insider-trading probe.
- This may very well be a big deal.
- I say lock 'em all up, as the playing field has been uneven for some time, from my perch.
Insider-trading charges expand. The SEC alleges, in a broad-ranging sting, the existence of extensive exchange of information that goes well beyond Galleon's Silicon Valley executive connections. Several well-known long-only mutual funds are implicated in the sting, which reveals that they have consistently received privileged information from some of the largest public companies over the past decade.-- Doug Kass, " 20 Surprises for 2010" (surprise No. 13)
It's that time of the year when I begin to formulate my surprise list (for 2011).
My bunny had a good nose, as this weekend was filled with chatter and a
Wall Street Journal
regarding a vast insider-trading probe -- something I suggested explicitly in
(for 2010).
Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation, according to people familiar with the matter. The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.-- Saturday's Wall Street Journal report
Based on my contacts, I believe that the soon-to-be-announced insider-trading indictments will be far-reaching and could even have the potential to be market-impactful, as the allegations will not only include some of the most prestigious hedge funds but will also allegations against some of the largest and most conservative mutual-fund companies, investment bankers and law firms.
In other words, this is may very well be a big deal.
Up till now, the SEC has been asleep on many counts. Here are a few obvious examples:
- The SEC dismissed multiple complaints and internal regularities in the Madoff case.
- Takeovers are routinely preceded by strength in the shares of target companies.
- High-frequency-trading strategies buy (and see) order flow before they get executed.
- Monthly, quarterly and yearly share price markups are common place and are generally ignored.
- There have been limited prosecutable actions by many of those companies/executives that sold stock with knowledge of deteriorating finances. (The most conspicuous example of this sort of abuse, at Countrywide Financial, was punished with a fine that was dwarfed by what the chairman took out of the company).
- Arguably, Sarbanes-Oxley was ignored by many financial institutions that obscured their true health through structured investment vehicles and other accounting devices -- yet there have been few indictments.
Stated simply, I say lock 'em all up, as the playing field has been uneven for some time, from my perch.
Is Switzerland Safe?
Originally published on Nov. 26 at 6:49 a.m. EST.
- As of year-end 2008, the banking industry in Switzerland had an average leverage ratio of almost 30-to-1.
- The industry's short-term liabilities were equal to 260% of the Swiss GDP.
- My concern is with the second- and third-tier banks.
You better stop, look around;
Here it comes, here it comes, here it comes, here it comes --
Here comes your nine-teenth nervous breakdown.
-- Rolling Stones, " 19th Nervous Breakdown"
I have argued recently that investors have been too dismissive of the European debt crisis, as fiscal imbalances are only resolved by austerity measures that slow aggregate growth. Today the issue is back on the front burner as Portugal's spreads have widened ever further.
Which gets me to Switzerland -- a country widely believed to be a safe haven financially and economically.
I have done little analysis of Switzerland's banking industry or on the country's economy. But we have learned from history that there is an inherent risk to any country when the financial services business is large relative to its GDP.
As of year-end 2008, the banking industry in Switzerland had an average leverage ratio (assets/net worth) of almost 30-to-1, while the industry's short-term liabilities were equal to 260% of the Swiss GDP, or 1,275% of the Swiss national debt.
There are about 330 authorized banks and securities dealers in Switzerland ranging from the "Two Big Banks" down to small banks serving the needs of a single community or a few special clients.
UBS
(UBS) - Get Report
and
Credit Suisse
(CS) - Get Report
are the largest and second largest Swiss banks, respectively¸ accounting for more than 50% of all deposits in Switzerland. Each has extensive branch networks throughout the country and most international centers. They are sound.
But my concern would be with the second- and third-tier banks.
More to come on this potential outlier event soon.
At the time of publication, Kass had no position in stocks mentioned.
Favorite Long and Short
Originally published on Nov. 26 at 9:39 a.m. EST.
- Favorite long: Yahoo! (YHOO)
- Favorite short: iShares Barclays 20+ Year Treasury Bond Fund (TLT) - Get Report
At the time of publication, Kass was long YHOO and short TLT
.
Doug Kass is the general partner Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.
