NEW YORK (Real Money) -- 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.
This past week, Kass wrote that he's buying Twitter on a decline in shares that makes the company a more attractive takeover candidate. He also noted that the steep drop in oil prices will force oil production and exploration companies to reduce capital expenditures, which will hurt the U.S. and global economy.
Originally published on Dec. 9, 2014 at. 12:07 p.m. EST
I've taken a small long this morning.
Since Twitter's IPO, social media stocks have done well in the markets (though the sector has been weak in recent weeks).
At the current price of $36, down from $55 in mid-October, the shares likely have "economic value" to either Google (GOOG - Get Report) or Apple (AAPL - Get Report) , among others, in a takeover transaction.
As I have recently observed, call option activity has been conspicuous. Perhaps the recent management issues move up a possible "event."
Nevertheless, barring a "transaction," I have no illusion of strong relative performance through the balance of the year, but I am attracted to the developing reward vs. risk ratio and I have taken a small long this morning.
I plan to add to TWTR on any weakness.
Invest With Your Head
Originally published on Dec. 9, 2014 at 8:43 a.m. EST
Not over it. No man is an island, entire of itself; every man is a piece of the continent, a part of the main. If a cloud be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friend's or of thine own were: any man's death diminishes me, because I am involved in mankind, and therefore never send to know for whom the bells tolls; it tolls for thee. -- John Donne
When your broker tells you the U.S. is an oasis and bastion of prosperity, and that we are insulated from the goings-on around the world -- such as the recessions in Japan, Brazil, Italy and Russia -- please consider John Donne's quote above.
When your broker tells you to ignore global macroeconomic events, please consider the Great Recession of 2007-2009 and its causes.
When your broker tells you to rejoice at the rear-view mirror of the last quarter's "earnings" of your investments because there is more to come, please consider that this is a lagging indicator, not a leading one. Also consider that the bottom line has been importantly influenced by financial engineering, which typically has a finite life.
When your broker tells you to exult in the heightened mergers-and-acquisition activity, please consider whether you had owned any of those companies' stocks.
Above all, be objective and independent in your view. Avoid perma-anything. Always assess the reward-to-risk scenario, and consider your risk profile and time frames.
Invest with your head -- not over it.
Oil's Collateral Damage
Originally published on Dec. 10, 2014 at 9:05 a.m. EST.
- More potential ripple effects as oil prices continue their slide.
The decline in the price of energy products continues apace this morning: Crude oil is now down by $1.32 per barrel to $62.47.
I have an out-of-consensus view that this drop will be far less beneficial -- in aggregate terms -- than the analyst consensus expects it will be.
Indeed, the high-yield-bond market and other energy credits and loans could be the next Penn Square and have a contagious effect and impact.
Lower oil production means a reversal of the substantive job growth in the energy patch; lower oil profit (with a big weighting on the S&P 500); and a marked reduction in capital spending for energy-related products, which represent near 30% of all capital expenditure.
You are forewarned.
Note: Jim "El Capitan" Cramer has an excellent and thorough analysis of his view of the ramifications of the oil-price decline in his opening missive today.