Kass: Why the Bears Are Wrong

Discussion in 'Wall St. News' started by aresky, Mar 24, 2009.

  1. aresky


    On Feb. 17, I presented a watch list of conditions that, if in an improving trend, would likely indicate that a sustainable up move is possible for equities.
    It is time to review this checklist (and add one more factor) to determine the market's standing. Our new grades and those of two weeks ago are in parentheses and will be updated in the weeks and months ahead.

    Bank balance sheets must be recapitalized. Yesterday a comprehensive bank rescue package was introduced. It is obviously too early to consider its full impact, but the details of the program suggest to this observer that it will likely be effective in clearing toxic bank assets. (We grade the package a B+, up from a D+ only two weeks ago.)

    Bank lending must be restored. While bank lending standards remain tight, my view is that yesterday's announcement of ring-fencing toxic bank assets will almost unquestionably succeed in unclogging the transmission of credit. (Grade B, up from a C previously.)

    Financial stocks' performance must improve.
    Emerging markets must improve. China's economy (PMI and retail sales) and the performance of its year-to-date stock market have turned decidedly more constructive, but other emerging markets remain moribund. (Grade B up from a C.)

    In summary, 10 out of 12 factors (including our newest, market internals) on my watch list are in an improving mode. Though many variables are currently accorded relatively low grades and the outlook remains debatable, the delta (rate of change) in almost my entire watch list is improving and flashing a green light for the U.S. stock market.

    A classic "wall of worry" is being reinforced by an overwhelming consensus that the recent advance was a bear market rally. Moreover, the negative chatter appears loosely constructed and fails to credibly argue against the salutary effect that $4 trillion of stimulus will have on the domestic economy.

    Based on the 12 considerations comprising my watch list, I respectfully disagree with the prevailing negative consensus, most of whose members failed to properly analyze the cracks in the foundation of credit, in the economy and in equities two years ago. Indeed, it remains my view that the fear of further investment losses and possible investor redemptions are clouding many managers' objectivity in assessing the markets.

    In the fullness of time, public policy aimed at stimulating the economy (in general) and in housing (in particular) should bear fruit, as will the ring-fencing of toxic bank assets serve to unclog the transmission of credit.

    While it is unrealistic to expect a straight up move, I am growing increasingly confident in my variant and optimistic view that the early March low was not only a yearly low but, quite possibly, a generational low.

  2. Don't get why consumer spending will rebound on account of more lending. More unemployed people, more people with wrecked credit, and more foreclosures on the way [mortgage resets.] If spending doesn't increase, it doesn't matter that the financial sector is back to normal. Don't forget commercial real-estate. They will get socked during the poor-spending cycle.
  3. Kass made an incredible call around the end of February. Whether or not it was a fluke remains to be seen. I am optimistic though.
  4. Kass could be right about it being the yearly low, but only because the next wave of negativity may not play out until 2010.

    As far as the recent low being a "generational low", I don't think he has the proverbial "snowball's chance" of being right.

    1. Housing prices still very much too high vs. incomes.

    2. Labor wage competition from Asia will stifle wage growth here.

    3. Structural spending shift towards conservatism/savings.
  5. Well, FWIW, on 2/17 he said he felt the 4th Q '08 lows would hold, and of course, they didn't. So, his crystal ball is a little clouded, as all gurus' are.
  6. Calls are a dime a dozen. He made numerous bottom calls last year.

    As the market goes against him, Doug Kass has a tendancy to become more vocal and his writings become more elaborate.

    Eventually when the market turns, many perceive him as calling the bottom and remember only his latest missive.

    How are his clients doing?
  7. Commercial real estate, it's all about commercial real estate. They are going to get wacked and get wacked hard.
  8. pretty hard to predict. it does appear that way with the current mood, but no way to tell how long it will last. the masses have a short memory, who knows how soon they could start spending again.
  9. Kass made bottom calls last year? What are you smoking? I've read Kass for years and any bottom calls he made last year were very short term trades, or what he calls "rentals" -- he was right on the market calling the bear market back in 2007, he's one of the best in the biz
  10. An entire echelon of consumers were "borrow and spend to the hilt"... they are gone. Lenders won't give them the chance to default AGAIN... unless of course the Gummint mandates banks lend to them again.'

    The rest of us won't be "motivated" to become borrow-and-spenders regardless of interest rates or Gummint pleas for expanding credit.

    Boomers are getting into retirement age, but are not financially prepared. They'll be spending what they can, of course... but it will be on utility bills and Raisin Bran.

    If we ended up with a real and structural unemployment rate of 20%, I wouldn't be surprised.
    #10     Mar 24, 2009