Why Stocks Will Fall
By Doug Kass This was originally published on RealMoney on Jan. 9 at 10:15 a.m. ET. I didn't need Bob Dylan to remind me that you don't need a weatherman to know which way the market's wind has been blowing. Well, maybe I did during the last half of 2006, when I regularly got slapped around by the market as disbelief was suspended despite growing signs of escalating economic and geopolitical risks. Many argue in their recent emails to me -- and I am paraphrasing the author Gay Talese ( Honor Thy Father, Unto the Sons, etc.) -- that I am something of a restless voyeur who sees the warts on the world, the imperfections in companies and industries. They argue that gloom is my game, the spectacle my passion ... and that normality is my nemesis. It seems to appear to many, based on some of their more recent communiqués, that my market observations resemble an account of the traffic on I-95 from the point of view of the accidents. Not true. I actually yearn for normality. To this observer, normal would be mean reversion in 2007 for home prices, consumer spending, credit losses, corporate profit margins -- and in stock prices. Indeed, with an odd year here and there being the exception (2000-02), we have been in a bull market for the past 25 years. During that period -- and with perfect hindsight -- the best financial advice regarding equities and bonds was also the most concise: The interest rate analyst could have confined himself to saying down and the equity market analyst to saying up. The fact of the matter is that Wall Street investment strategists and analysts, commentators in the media, and portfolio managers (most of whom are mandated to be fully invested) are almost constitutionally incapable of an ursine market moment or criticizing the securities that they own. (I like to think The Edge has its own brand of truth telling and when the line between progress and fantasy appears to be increasingly blurred, I try to explain why and how I see it that way.) While three days of trading does not make a trend, the early signs for 2007 indicate that the times might be a-changin' (toward normality), and I am looking forward to the opportunity of profiting from a more normal two-sided stock market. Thus far in January volatility appears to be on the ascent, and the broad decline in commodities seems to be a statement of our economy's health. Although the notion of a more normal market is in the eyes of the beholder (in my case, an ursine one), we do know that normal is not ignoring disturbing signs; normal is not going without a 2% correction since July; normal is not going through a 10% correction in more than 900 trading days. The hedge fund crowd -- many of whom invest/trade at the altar of momentum -- are now much longer than at any time in the advance, and despite last week's modest correction, the remnants (i.e., short-sellers) have more or less folded their tents. From my perch, that is abnormal, as are the aforementioned positive skeins in share prices and the general notion that cash is trash!
Why Stocks Won't Fall
By Michael Comeau This was originally published on RealMoney on Jan. 9 at 2:01 p.m. ET. Although I'm no raging bull on the broader markets, I feel compelled to provide a counterpoint to Doug Kass' recent column, titled "