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 Apple's prospects in 2013, why he is temporarily abandoning his short position in Treasuries (for the time being, at least) and why he sold shares in a China ETF.

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Previewing a Surprise
Originally published on Friday, Jan. 4 at 9:23 a.m. EST.
  • This one is about Apple. Stayed tuned.
  • Surprise No. 10: Despite the advance in the U.S. stock market, high-beta stocks underperform. Though counterintuitive within the framework of a new bull-market leg, the market's lowfliers (low multiple, slower growth) become market highfliers, as their P/E ratios expand.
    With the exception of Apple (AAPL), the highfliers -- Priceline (PCLN), Baidu (BIDU), Google (GOOG), Amazon (AMZN) and the like -- disappoint. Apple's share price rises above $550, however, based on continued above-consensus volume growth in the iPhone and iPad. Profit forecasts for 2012 rise to $45 a share (up 60%). In the second quarter, Apple pays a $20-a-share special cash dividend, introduces a regular $1.25-a-share quarterly dividend and splits its shares 10-1. Apple becomes the AT&T (T) of a previous investing generation, a stock now owned by this generation's widows and orphans.
    -- Doug Kass, "15 Surprises for 2012"

    Last year I wrote that Apple would be a positive surprise in 2012, though I turned negative on the company's fundamentals and share price in late September.

    This year's surprise for Apple is distinctly negative -- that is, for the first six months of the year:

    Apple's share price and earnings continue to disappoint in the first half of 2013. A consistently low share price for Apple persists in the first half as earnings estimates are steadily reduced owing to lower production rates. Two important product releases lead to an improving share price for Apple in the second half.

    Apple's earnings disappoint under the pressure of a more competitive landscape, lessening demand for iPads and iPhones and emerging margin pressures -- estimates are cut and full-year 2013 results fall short of $40 a share.

    Microsoft's ( NOK) Surface sales start off poorly but gain traction by the end of 2013. Google Nexus, Kindle, Surface and Samsung all sell at lower price points throughout the year, as price competition becomes rampant in the tablet market.

    Apple's consensus 2014 profit estimates move toward an expected decline year over year. The stock spends most of 2013 below $550, but, in the last half of the year, two revolutionary product additions lift the share price to over $650 by year-end.

    In the third quarter Apple announces three new products in 2013 (iTV, iMed and iHomes). iTV is a yawner, but the later two are revolutionary product additions.

    With iMed, Apple enters the medical information market, providing a platform for the medical field to keep, store and transfer records real time. This expands the use of iPads exponentially.

    Also introduced is the iHomes program, an iTunes-like software to control all electrical (and some non-electrical, like plumbing) elements in a home remotely. The software receives rave reviews from Mossberg, after which Apple announces it will not license the software for use on Android devices. (Google shares drop 60 points on the announcement.)

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

    Out of Short Bond Position
    Originally published on Thursday, Jan. 3 at 11:58 a.m. EST.
  • My long-term bearish bond thesis remains intact, but I believe it will be delayed in the early part of 2013.
  • It is with great reluctance that I am reversing (at least for the next six months) my view on the bond market.

    That said, my long-term thesis in shorting the bond market remains intact, but I believe it will be delayed in the early part of 2013.

    So, as of now, I am no longer in my short bond position ProShares UltraShort 20+ Year Treasury ( TBT).

    I was going to comment on this in tomorrow's opening missive, but my friend/buddy/pal Gary Kaminsky is interviewing Double Line's Jeff Gunlach on CNBC now, and Jeff is commenting on the fixed-income market.

    This changed view will be (much) discussed further in Monday's 15 surprises for 2013 column.

    Suffice to write (as I will expand upon tomorrow morning), from my perch (and this is a contrarian view), U.S. economic growth is decelerating at a time in which the yield on the 10-year U.S. note has risen from 1.60% (a few weeks ago) to 1.87% today. (This view is similar to the view just expressed by Gundlach.)

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

    Buy the Rumor, Sell the News
    Originally published on Thursday, Jan. 3 at 10:26 a.m. EST.
  • I am out of my FXI long.
  • Over the past two months, the risk/reward on the Chinese market has moved from very favorable to neutral, as the concerns about a hard landing in China have been abandoned.

    We bought the weakness, and we will sell the strength, as we do not share the view that this is the start of a new bull market leg for the region.

    I am out of my iShares FTSE/Xinhua China 25 Index Fund ( FXI) long.

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