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 shares his recent portfolio moves and looks at the earnings cliff.

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Munger & Me
Originally published on Friday, Feb. 8 at 11:54 a.m. EST.
  • Berkshire's Charlie Munger has also been critical of Dr. Jeremy Siegel's investment thesis.

A bunch of subscribers have suggested that I am a hater because I am critical of Dr. Siegel's investment thesis.

That is fine, as anyone is entitled to his/her view. And though I might strongly disagree with the assertion that I am making an ad hominem attack on the professor, I strongly believe in everyone's right to express their opinions.

That said, I am critically analyzing his investment thesis; I am not attacking him personally.

It should be noted that I am not alone in my criticism; I have very good company.

In a Q&A session at the 2006 Berkshire Hathaway ( BRK.A/BRK.B) annual meeting, Charlie Munger, Berkshire's vice chairman, was asked about Dr. Siegel's theories.

Munger said, "I think Jeremy Siegel is demented."

Buffett, clearly embarrassed, added "Well, he's a very nice guy."

Munger continued, "He may well be a very nice guy, but he's comparing apples to elephants in trying to make accurate projections about the future."

So, is Munger a hater, too?

Position: None


The Earnings Cliff Lies Ahead
Originally published on Friday, Feb. 8 at 8:21 a.m. EST.
  • With inflation running low, sales and profits will be challenged.
As evidenced by a flattening yield curve, a lower absolute yield on the 10-year U.S. note and an apparent rollover in credit risk, one of the major macroeconomic themes of the last week to 10 days is that expectations for domestic economic growth are likely to be reduced.

It remains my view that the 2013 real GDP in the U.S. will be (at best) +1.5% -- the CBO has just issued a forecast of +1.4%. That said, there are accumulating downside risks to economic growth in the form of the fiscal drag of policy and the über expansionary monetary policy of delivering zero interest rates (which is not likely to exist beyond year-end).

It also remains my view that the consumer remains particularly vulnerable to policy.

With inflation running low, sales and profits will be challenged. Business pricing power is limited, but costs are likely to trend higher (raw materials, interest rates, etc.). Meanwhile, productivity is starting to decline -- it was down -2% in fourth quarter 2012 -- and wage rates are rising. This spells a threat to unprecedented high profit margins, which are not likely to be stable (as many prognosticators expect) but are more likely to mean revert (over the many years ahead).

Bulls look at the slight beat from (modest) expectations in fourth quarter 2012 S&P 500 results thus far; I prefer to look forward rather than in the rearview mirror.

As I previously wrote, last month about 56 companies in the S&P 500 issued first-quarter 2013 earnings guidance: 45 were negative, and 11 were positive. That rate of negative guidance (80%) is the worst since FactSet started to keep these numbers (in 2006) and above the previous high established in last year's third quarter (74%).

I remain net short.

Position: Short SPY


Big Ones
Originally published on Friday, Feb. 5 at 11:40 a.m. EST.

My biggest long and short plays over the past week:
  • My largest equity long purchase in the last week -- Northwest Bancshares ( NWBI).
  • My largest new equity long purchase in the last week -- Apple ( AAPL).
  • My largest equity short sale in the last week -- Henry Schein ( HSIC).
  • My largest new equity short sale in the last week -- Herbalife ( HLF).
  • My largest index long purchase in the last week -- none.
  • My largest index short sale in the last week -- iShares Russell 2000 Index Fund ( IWM).

Position: Long NWBI, AAPL; short HSIC, HLF, IWM

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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