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 offered a good investment choice if you believe in a self-sustaining global recovery, provided details on why the U.S. economy is not as rosy as some think and showed how he viewed the market ahead of Friday's action.

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Playing China
Originally published on Thursday, March 14 at 10:57 a.m. EST.
  • If you believe in a strong, self-sustaining global economic recovery, the lagging FXI is a good long.

For those who believe in a strong global economic recovery that is self-sustaining in 2013-2015, the lagging China market makes sense on the long side.

The iShares FTSE/Xinhua China 25 Index Fund ( FXI) is a good proxy for China, and it has been a significant laggard vis-a-vis the developed world markets.

I am passing, as I don't subscribe to that outlook, which, thus far, is a view that has been embraced by many these days.

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


Weaker Foundation
Originally published on Friday, March 15 at 10:09 a.m. EST.

Interestingly, bond yields are not rising in the face of a better industrial producction number for February.

I am not surprised, though, as I have been writing that the recent strength in the domestic economy should not be extrapolated.

February production rose by nearly twice the expected +0.4%, and January was revised to flat from -0.2%.

As I have been emphasizing, fourth-quarter 2012 real GDP was understated due to inventory disaccumulation.

This disaccumulation has reveresed in first quarter 2013, and we are seeing an inventory/production bounceback.

Fourth-quarter 2012 real GDP was negative. First-quarter 2013 real GDP should be about +2.5% -- link the two together and we get punk growth of only about 1.25%. And since the inflation number input by the government is phony, real economic growth in the domestic economy is probably even lower -- perhaps under 1%.

I continue to believe that the recovery in GDP will be short-lived (as inventory growth is normalized), and apparently, the bond market agrees with me.

Thus, the foundation for corporate profit growth and stocks is weaker than most assume.

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


Early-Morning Market Look
Originally published on Friday, March 15 at 8:00 a.m. EST.
  • Let's take a peek at the overnight and early market movements.

Overnight the beat goes on:
  • S&P futures flat;
  • European markets down;
  • euro up;
  • gold flat;
  • crude flat; and
  • 10-year U.S. note yields 2.03%.

The second stage of the stress test was good for Citigroup ( C) and Bank of America ( BAC) and bad for Goldman Sachs ( GS) and JPMorgan Chase ( JPM), but I thought even more significant were the findings against JPMorgan Chase.

In other news, the certainty of the trajectory of the U.S. housing recovery is challenged by a spate of new foreclosures and by rising mortgage rates.

And then there was the introduction of the new Samsung Galaxy S4.

Today is expiration day. (Note: SPDR S&P 500 ETF Trust ( SPY) is ex-dividend about $0.70.)

Now, back to the markets.

Mr. Market goes for the 11th consecutive rise today.

I don't want to sound like I am nitpicking, but the low-volume rise has raised some other questions to me.

First, look at the diminishing number of new highs on the NYSE -- all the while, the market moved steadily higher:
  • Last Friday, March 8 -- new highs = 351
  • Monday, March 11 -- new highs = 315
  • Tuesday, March 12 -- new highs = 220
  • Wednesday, March 13 -- new highs = 104
  • Thursday, March 12 -- new highs = not yet available on Bloomberg

Second, the Dow Jones Transportation Average is now about 19% above its 200-day moving average. The last time this occurred was in early May 2010 -- the market proceeded to drop by 18% over the next two months. And in January 2010 the Dow Jones Transportation Average stood 19% above its moving average -- it fell by 12% over the next month. Finally, in May 2006, the Dow Jones Transportation Average (this time) was 21% over its moving average -- it fell by 11% over the next two months.

At the time of publication, Kass was short BAC, GS and SPY.

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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