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 past week, Kass wrote about why the market's trust in the Fed chairman is misplaced, why he shorted shares of Microsoft and some recent good news on the housing market.

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Blind Faith in Bernanke Is Misplaced
Originally published on Friday, Aug. 31 at 2:07 p.m. EDT.
  • Ben Bernanke has lost his way home, and a U.S. stock market buoyed by the promise or notion of a monetary put is misguided.
  • Come down off your throne, and leave your body alone. Somebody must change. You are the reason I've been waiting so long. Somebody holds the key.

    But I'm near the end, and I just ain't got the time. And I'm wasted, and I can't find my way home.

    Come down on your own, and leave your body alone. Somebody must change. You are the reason I've been waiting all these years. Somebody holds the key.

    -- Blind Faith, Can't Find My Way Home

    I find it hysterical and almost ludicrous that market commentators, investment strategists and investors continue to voice blind faith in the Fed chairman.

    Ben Bernanke's poor forecasting capabilities rival those of his predecessor Alan Greenspan, and that is not a good thing for investors who hold onto the premise of a self-sustaining domestic recovery.

    As I have written repeatedly over time, Bernanke got the housing bubble wrong, he failed to anticipate the recession in 2008 and the role and systemic risk of derivatives (which Buffett calls financial weapons of mass destruction), and he didn't recognize until 2010 that the U.S. unemployment problem was nearly as much structural as cyclical.

    And he is now wrong on the benefits of further quantitative easing. Three years after the Great Recession and after the implementation of QE1, QE2, Operation Twist (and its extension), U.S. real GDP is growing at only about a 1.7% rate.

    In reality, more cowbell may actually be counterproductive in penalizing the savings class, creating a disincentive for banks to lend and by putting more pressure (as commodities rise) on the middle class (which I call screwflation).

    Low interest rates have become a blunt instrument for generating growth, but the growth problem lies not in the level of interest rates -- rather, the problems have been long in the making and are structural (in the categories of employment, education, etc.).

    I am not being a skeptic; I am being a realist. What ails the U.S. economy is not liquidity; it is confidence.

    We don't need any more bond buying or quantitative easing, which is no longer positively impacting the real economy; we need progrowth fiscal policy that addresses fundamental economic issues that have been several decades in the making.

    This week I listened to J.P. Morgan Funds' Chief Global Strategist and Head of the Global Market Insights Strategy Team David Kelly with Tom Keene on Bloomberg. Kelly described further easing as toxic. He recommended raising interest rates to more normalized levels.

    And I agree.

    From my perch, Ben Bernanke has lost his way home, and a U.S. stock market buoyed by the promise or notion of a monetary put is misguided.

    At the time of publication, Kass had no positions in stocks mentioned.


    Shorting Mister Softee for a Trade
    Originally published on Wednesday, Aug. 29 at 9:59 a.m. EDT.
  • I shorted some shares at $30.60.
  • I am taking a short rental in Microsoft ( MSFT) now at $30.60.

    This morning, Wells Fargo makes a possibly actionable move in cutting its personal computer industry forecast from +3.7% to flat for this year and from +6% to +5.8% in 2013. Wells is lowering Microsoft's first-quarter earnings estimate from 65 cents a share to 59 cents a share and sales estimate from $17.3 billion to $16.9 billion.

    For these reasons and others, I expect that Intel's ( INTC) numbers will be lowered as well.

    At the time of publication, Kass was short Microsoft.


    Home Prices Keep Climbing
    Originally published on Tuesday, Aug. 28 at 2:09 p.m. EDT.
  • I expect national home prices to rise by 2.5% to 3.0% this year and 3.0% to 5.0% next year.
  • For some time I have written that the U.S. housing market would be the primary bright spot in the domestic economy.

    Previously, the CoreLogic and National Association of Realtors indices exhibited home price rises.

    This morning, the June 2012 S&P/Case-Shiller Home Price Index rose by 0.5% (20-city composite) year over year vs. the expectation for a decline of 0.3% and 2.3% vs. May 2012 (0.9% seasonally adjusted).

    This is the sixth straight month of increases, and the year-over-year rise is the first since 2010.

    Importantly, the price increase was broad-based, with 20 of 20 cities posting monthly gains and 18 of 20 cities showing annual improvement (13 showing positive gains).

    I expect national home prices to rise by 2.5% to 3.0% this year and 3.0% to 5.0% next year.

    With mortgage rates low, home prices cheap relative to income and rents and an eventual easing up in lending standards, the residential real estate market has commenced a durable and long-lived recovery that could continue through most of this decade and provide an important catalyst to better economic growth in 2014-2017.

    A surprisingly vibrant U.S. home market forms one of the reasons for my investment view that the U.S. bond market is a major-league short.

    I have been long Lowe's ( LOW) and Home Depot ( HD) since the generational bottom. They are reasonably priced plays to invest in continued strength in the housing markets, but I want to emphasize that my entry points are low relative to current share prices.

    I haven't done work on Weyerhaeuser ( WY), but the lynx-eyed Stephanie Link continues to mention the name on TheStreet and in her appearances on CNBC. Her rationale seems strong.

    At the time of publication, Kass was long LOW, HD and TBT common stock; long TBT calls; and short TLT common.

    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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