This blog post originally appeared on RealMoney Silver on Dec. 4 at 7:59 a.m. EST.
"It is like a grain of mustard seed, which a man took, and cast into his garden; and it grew, and waxed a great tree; and the fowls of the air lodged in the branches of it." -- The Bible, Luke 13:18-9On CNBC's "Kudlow & Company," Larry Kudlow is fond of bringing the financial world's attention to the mustard seed parable, which, in a religious context, is often interpreted as being a prediction of Christianity's growth around the world. Jesus compares the kingdom of heaven to a mustard seed. The parable is that mustard is the least among seed, yet grows to become a huge mustard plant that provides shelter for many birds. In an economic context, Larry believes the mustard seed parable has some merit, as the "shock and awe" from the recent policy moves geared toward stimulating the economy could sow some good economic results in 2009. Given the painful market action over the past six months and the extremely negative sentiment, which seems almost antithetical to investors' enthusiasm a year ago, Larry feels a rich investment harvest might be reaped. While Larry's optimism has some virtue, I have argued that we are not in a "garden variety" business/market cycle, as the wealth destruction of lower home and stock prices will retard growth -- similar to the notion held by some religious scholars that the birds in the mustard seed parable represent an undesirable presence capable of eating up any new seeds the farmer sows in his field and preventing the trees (Christianity and the stock market) from bearing fruit. Moreover, I have opined that it is hard to have conviction until:
- stability returns to the hedge fund community, as redemptions slow down, some large hedge funds fail, and the money is re-circulated to other investment managers;
- the slope of the domestic economy's downturn is better understood, as the possible recovery is seen with better clarity;
- credit improves;
- stocks react more positively to poor news; and
- the volatility in the capital market diminishes.
- 1. Investments that are deemed to be safe (e.g., 10-year notes, 30-year bonds) are increasingly unsafe, and I am shorting. 2. Investments that are deemed to be risky (e.g., selected equities) are becoming safer, and I am buying them (gingerly, for now).
Know What You Own: Doug Kass is currently short the iShares 20+ Year Treasury Bond ( TLT), which operates long government ETF category, and some of the other ETFs in its field include the iShares 7-10 Year Treasury Bond ( IEF), UltraShort 20+ Year Treasury ProShares ( TBT), iShares 10-20 Year Treasury Bond ( TLH), UltraShort 7-10 Year Treasury ProShares ( PST), PowerShares 1-30 Year Laddered Treasury ( PLW) and SPDR Lehman Long Term Treasury ( TLO). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.