The Best of Kass

NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among his posts this week, Kass discussed the implications of the latest inflation data, revealed a change in his strategy on bank stocks and wrote that the bull market in gold is over, at least for a while.

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If You Don't Eat or Drive, Inflation Is Low
Originally published on Friday, March 16 at 9:30 a.m. EDT.
  • With the core CPI rising at a slower rate than core PPI, a headwind to corporate profit margins lies ahead this year.
  • The core CPI came in slightly below expectations this morning at +0.1% (month over month) vs. expectations of +0.2%.

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    By contrast, the headline CPI was +0.4%, matching consensus. With the core CPI rising at a slower rate than core PPI, a headwind to corporate profit margins lies ahead this year.

    And, with unit labor costs rising by +3.0% in the fourth quarter 2011, up from +2.0% in third quarter 2011 and only +0.1% in second quarter 2011, the consensus view that margins could be flat to slightly better (incorporated in most strategists' 2012 S&P profit forecast) is in jeopardy.

    Position: None


    Ludicrous Forecast
    Originally published on Friday, March 16 at 12:43 p.m. EDT.
  • I sold my XLF long and shorted JPMorgan Chase, thinking that the banks need a rest.
  • Gun to my head, the banks need to rest now -- too much too fast.

    I am now out of my long Financial Select Sector SPDR ( XLF) position, and I took at small short rental in JPMorgan Chase ( JPM) at $44.75 early today.

    At the time of publication, Kass was short JPMorgan.


    Fool's Gold
    Originally published on Friday, March 16 at 7:39 a.m. EST.
  • Gold doesn't produce profits and, as such, fails to provide a stream of income.
  • The second major category of investments involves assets that will never produce anything but that are purchased in the buyer's hope that someone else, who also knows that the assets will be forever unproductive, will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century....
    This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce -- it will remain lifeless forever -- but rather by the belief that others will desire it even more avidly in the future....
    The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative.

    -- Warren Buffett, 2012 Berkshire Hathaway Letter

    The revival in animal spirits has lifted most risk markets this month, with the exception of the gold market.

    Gold continued its free-fall overnight and is down another $12 per ounce.

    In theory, gold is a great asset class in a world of too much cowbell, where fear is a constant and the integrity of most currencies is waning (as an outgrowth of addressing fiscal imbalances with monetary solutions).

    As I once wrote about gold, however, there is no way to calculate intrinsic value. When it drops by $100 or $200 per ounce, an investor has little bearing as to whether the precious metal is cheap and at what price level it provides intrinsic value.

    As Oaktree Capital Management's Howard Marks has written, gold is a lot like religion. In religion, you either believe in god or you don't. In the gold market, you either believe in gold or you don't.

    In essence, the gold market is a state of mind. It neither represents a corporate franchise that increases over time as profits are earned and retained -- such as, say, Procter & Gamble ( PG), with a protected moat -- nor is it a productive asset.

    On the latter point, gold doesn't produce profits and, as such, fails to provide a stream of income.

    Its future price is simply dependent upon someone willing to pay more for the asset class compared to its price today.

    The bull market in gold has stalled, and it might not return for a while.

    At the time of publication, Kass was long shares of Procter & Gamble

    Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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