Shorter in 2 Banks; Volatility Near Rock-Bottom: Doug Kass' Views

Here are Doug Kass' top thoughts on some of the biggest stories of the week.


I've Gone Shorter in 2 Banks; Here's Why

I have been waiting patiently for an opportunity to expand my financial shorts.
 
For some time I have had small financial shorts coupled with a very large Wells Fargo  ( WFC) long; I was very slightly net long banks.
 
I have moved from small shorts in JPMorgan Chase  ( JPM) (at about $97.40) and Citigroup ( C) (at about $75.20) to medium in size in premarket trading after slight earnings and revenues beats by the money-center banks. This action is based on the following:
 
* The yield on the 10-year U.S. note has risen from a recent low of 2.03% back to resistance at 2.32%-2.33%. Given my economic views, I expect the rate rise to stop at around these levels.
* The 2s/10s curve has not rallied. At 83 basis points, it is down from 135 basis points following the Trump election. It is only seven basis points away from a decade low. This, too, signals a deceleration in the rate of domestic economic growth.
* Loan growth remains tepid and capital markets activity is growing ever more competititve and will deteriorate in a market retracement.
* Bank stocks have risen by nearly 10% in the last five weeks. According to the data, they have gone from under-owned to over-owned in the last six months. Profit taking might be in order.
* Based on my analysis, reward vs. risk is now unattractive. At current prices, I see about 2 times more downside than upside in most bank stocks (save Wells Fargo).
 
Position: Long WFC large; short TLT, JPM, C, GS small, MS small, BAC small.
 
 


Volatility Is Near Rock-Bottom

Regular readers of my diary know I sometimes post things that replicate the theme of the "Tell Me Something I Don't Know" segment on MSNBC's "Hardball With Chris Matthews."
 
So... "Tell me something I don't know, Dougie."
 
OK, here it goes:
 
Yesterday, in " Tell Me Something" and in my opening missive, I wrote about the lack of volatility.
 
Today, the Dow Jones Industrial Average has had a 26-point range -- the lowest daily range in eight months and among the lowest (percentage-wise) in history.
 
Position: None.
 
Originally published Oct. 11 at 12:15 p.m. EDT
 
Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings. This week he blogged on:
  • How Allergan is doing
  • How there's a fix for fixed income

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