Caterpillar, Banks, SPDR S&P 500 ETF : Doug Kass' Views

NEW YORK (Real Money Pro) -- Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.

 


 

 
My Bank-Stock Strategy
 
Originally published at 10:11 AM EDT on September 18, 2015
 

Thursday, I wrote that the Federal Reserve's decision not to raise interest rates could spell a 3% to 5% drop in the banking sector's price.

Well, based on premarket trading, it looks like most of this decline will have already taken place by this morning. So, I might have understated the Fed decision's near-term impact on the banking sector.

Still, my core case for banks isn't really based on a rapid improvement in net interest income and margins.

Rather, it's based more on very low price-to-earnings multiples, coupled with projected declining regulatory and compliance expenses and excellent control of other costs (producing operating leverage with only modest improvement in credit demand).

I believe that the sector's recent share-price declines have already incorporated and discounted the expectation of a slower pace in margin expansion. Rates will eventually rise, and to me that will be the cherry on top of the banking sector's "sundae" of investment appeal.

So, I'll be adding to the group this morning on a scale-order lower -- based not on short-term considerations, but on the sector's long-term appeal (which to me is among the best of any market segment).

Banks don't represent a short-time trade for me, but rather a multiyear investment opportunity. Lower prices will create very appetizing long-term entry points for banks over the near term.

In the early going today, I purchased Citigroup  (C) at $50.43, JPMorgan Chase  (JPM) at $61.03 and Bank of America  (BAC) at $15.58.

This thinking also applies to my recent buys of Goldman Sachs  (GS) and Morgan Stanley  (MS).

Position: Long GS, MS, BAC, WFC, FITB, FMER, RF, C, MSL, SONA, EFSC, STL, MBFI, JPM, BBT
 
 
 

 


Partly Covering My CAT

Originally published at 10:02 AM EDT on September 18, 2015
 
 
I'm covering some more of my short of Caterpillar  ( CAT) at under $72.50.
 
Position: Short CAT (small)
 


What to Do Now?

 
Originally published at 8:12 AM EDT on September 18, 2015

My opener this morning will paint a very negative view for our broken markets and examine the approach of the "aha moment" -- a point of time in which investors lose their confidence in the Federal Reserve and in the world's central bankers.

True, deferring an interest rate rise has the salutary impact of lowering the U.S. dollar's value (as expressed by Jim "El Capitan" Cramer this morning). But the modest benefit to corporate profits isn't enough to offset the continued weakness and vulnerability of the world's economies, the already-elevated price-to-earnings ratios and the continued and steady drop I expect in consensus S&P profit forecasts.

Most importantly, monetary policy has built up pockets of malinvestment and exaggerated a boom-and-bust domestic economy -- problems the Fed is ignoring.

Yesterday I aggressively shorted the post-Fed ramp. Here's what I tweeted: 

I shorted the bejesus out of the ramp following the Fed's no raise. $SPY

 

My overall message? Buckle up and sell stocks.

Position: Short SPY
 

At the time of publication, Kass and/or his funds were long GS, MS, BAC, WFC, FITB, FMER, RF, C, MSL, SONA, EFSC, STL, MBFI, JPM, BBT and short CAT and SPY, although holdings can change at any time.

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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