Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.
Judgment Day for Financials Is at Hand
Originally published April 13 at 9:11 a.m. EST
"Don't wait for the last judgment -- it takes place every day."
Like Sonny the Cuckoo Bird, throughout the last three months business commentators, money managers and strategists have been "cuckoo for Cocoa Puffs" when it comes to bank stocks. Indeed, if you do a Google search you will see that the banking industry has been the most touted sector since the election. That consistent endorsement has been a self-confident one and remains so despite the 8% fall in the sector from the March highs.
I believe the consensus optimism on banks is misplaced. And I also believe that if I prove to be correct, we predictably will hear crickets from the "carpet sweepers" who confidently have endorsed the group.
Thus far bank stocks have had a modest reaction to relatively good and above-consensus earnings reports.
But first-quarter profit reports are simply rearview mirror influences; I prefer to look forward as the market is a discounting mechanism.
We now are approaching judgment day for the financial sector and I expect the stocks to continue to roll over in the weeks and months ahead, as described extensively in a recent column I wrote about financials. (I would note that MetLife (MET - Get Report) , Lincoln National (LNC - Get Report) , Goldman Sachs (GS - Get Report) and Morgan Stanley (MS - Get Report) are on my Best Ideas List as shorts.)
Slowing economic growth relative to expectations, moderate gains in commercial and industrial loan demand, a peaking in autos and housing activity, lower-than-consensus implied interest rates, a flattening yield curve, limited regulatory changes to Dodd-Frank and other factors lie on top of elevated valuations, which are back to pre-crisis levels.
The bottom line is that those in the banking industry barely will earn their cost of capital in the years ahead, and price/earnings ratios will reflect that state.
I am a seller of financial stocks on strength.
The Good, the Bad and the Ugly
Originally published April 12 at 3:12 p.m. EST
* Gold continues its rally (+$3).
* Big Pharma better--especially of a Johnson & Johnson (JNJ - Get Report) kind.
* Speculative biotech improving--especially of a Sage Therapeutics (SAGE) kind (a Bobby Lang pick!). ZIOPHARM Oncology (ZIOP) +10%.
*Chipotle Mexican Grill (CMG - Get Report) continues its impressive advance.
* Incyte (INCY - Get Report) +!
* Campbell Soup (CPB - Get Report) in face of a strong consumer staples look.