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 explained why he remains bearish on American Express, outlined the challenges that Apple faces and discussed the current struggle between inert fiscal policy and expansive monetary policy.

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Bearish on AmEx
Originally published on Friday, Oct. 12 at 3:20 p.m. EDT.
  • I continue to expect the company to disappoint, as European billings weigh down top and bottom line.
  • American Express ( AXP) has traded (relative to other financials) as if the company will report a reasonably large miss in third quarter 2012.

    I continue to expect the company to disappoint, as European billings weigh down top and bottom line.

    At the time of publication, Kass was short AXP.


    More Fast Times at 'Fast Money' High
    Originally published on Tuesday, Oct. 9 at 1:21 p.m. EDT.
  • Apple has market issues, technical issues and company-specific issues.
  • Brad Hamilton (Judge Reinhold) : Why don't you get a job, Spicoli?
    Jeff Spicoli
    (Sean Penn) : What for?
    Brad Hamilton: You need money.
    Jeff Spicoli: All I need are some tasty waves, a cool buzz, and I'm fine.
    -- Fast Times at Ridgemont High

    Here is what I discussed on CNBC's "Fast Money Halftime Report" a few minutes ago.

    I was asked by Judge what's up with Apple ( AAPL).

    I explained that the stock had market issues, technical issues and company-specific issues.

    Market Issues: Just when everyone got comfortable that the disconnect between weakening fundamentals and improving stock prices would continue -- in part based on the silly notion that the performance chase would buoy stocks and in part based on the blind belief that the global monetary easing put would trump the challenge to earnings -- investors became concerned as stock prices began to decline. Last week, despite the market's rally, breadth was poor and volume virtually nonexistent, except when provided by high-frequency traders who filled the volume gap a bit with their own financial weapons of mass destruction (those damn algorithms!).

    Technical Issues: When Apple's shares sat at $700 a few weeks ago, up by nearly 70% for the year and vulnerable to profit-taking, it became an institutional source of funds.

    Company-Specific Issues: In broad terms, innovation has a history of impacting every tech market. Ultimately, it results in product homogeneity and in the fullness of time degradation of profitability. Meanwhile, concerns have cropped up specifically at Apple. Its first-mover advantage seems to have narrowed or is in jeopardy, owing to supply chain issues and product quality issues. (Remember these factors become ever more problematic as the size of the company rises so dramatically.)

    Apple used to have market-defining products that were clearly better than its competition. Consumers were willing to pay more for Apple products, but there are numerous signs that the company is starting to protect its franchise as innovation falls and as competitors such as Samsung begin to catch up.

    In response to "Chaminade" Joe Terranova, I said the key fundamental issue to watch in the next two quarterly reports is whether the new iPhone 5 entices old users to upgrade -- in other words, does the upgrade cycle lengthen? That would not be the death knell for Apple's shares, but it would put in a big hurt to the long-term investment thesis.

    Given how oversold Apple's shares are, however,a rally at any point is now possible. For that reason, I have covered my PowerShares QQQ ( QQQ) short.

    Let's go to the tape at CNBC


    Tug of War
    Originally published on Tuesday, Oct. 9 at 9:01 a.m. EDT.
  • We have a struggle between inert fiscal policy and expansive monetary policy.
  • The September small-business confidence index (issued by the National Federation of Independent Businesses) came in at a disappointing 92.8 compared to expectations of about 1 point higher and to 92.9 in August.

    This is the fourth drop in the last five months as respondents cited the uncertainty of government policy and economic growth combined with the costly burden of health care.

    This report highlights that the policies of our leaders in Washington, D.C., are inhibiting employment growth. In turn, the domestic economic recovery is tepid, producing a serious challenge to corporate profit growth in this year's second half.

    Market participants are looking through this lethargy and relying on the global monetary policy put to protect the market's downside.

    This tug of war between borderline irresponsible fiscal inaction and weak fiscal policy and expansive monetary policy defines the current market condition.

    In the last few weeks, this tug of war has resulted in a draw with sideways market action.

    Where does this leave us?

    The upside can come from a combination of a Romney presidential win next month, an acceleration of domestic economic growth and/or progress on the fiscal front in late 2012/early 2013.

    The downside can come from a combination of the assertion of geopolitical risks (in the Middle East), which would elevate oil prices, a worsening domestic economy and/or an inability to address the fiscal cliff.

    Given the current level of stock prices, I am continuing to side to the downside argument.

    I start the day about 25% net short.

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

    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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