July 22, 2014

Doug Kass advice for market moves right now

Unlike others, I am not recommending stocks.

That is your job, and it's your homework every day to distill all of the input (perhaps including mine and certainly some of the goodies on this site from people such as Jim "El Capitan" Cramer, Helene "The Divine Ms. M." Meisler, Rev Shark, Tim Collins, Paul "The" Price "Is Right" and others) so that you can to make sensible investment decisions relative to your risk profile and time frame. 

I will, however, suggest one investment this morning that I encourage you to consider.

As I warned multiple warning signs portend that the U.S. stock market possesses an unattractive reward vs. risk -- importantly, this includes the notion that geopolitical risks all around the world are rising geometrically -- and those signs are being ignored.

Again, some of these caution flags include rising valuations (adjusted for a normalization in corporate profit margins), climbing geopolitical risks, technical breakdowns (including but not isolated to a lagging Russell 2000), an imbalanced and exclusive domestic economic recovery and subpar U.S. and global economic recoveries.

These conditions provide a cocktail of market uncertainty that is likely to provide a market hangover. This is particularly true after a near-trebling in the S&P 500 since the generational bottom of 2009.

My investment suggestions this morning are simple and direct.

   - Step back and err on the side of conservatism now.
   - Maintain larger-than-normal cash positions.
   - Be more diversified across company/sector lines than is typical for you.
   - Trade opportunistically (with less frequency), and unless your time frame is measured in years, avoid investing for now.

Mr. Market will always be there for us, and when you feel it is a bit safer to return, do so.

Moving to a more specific strategy, recent events underscore a favorable reward vs. risk in closed-end municipal bond funds. The performance of the group this year is up by better than 10%, proving again that the tortoise can outrun the hare.

I own 14 closed-end municipal bond funds, and I have six of these names on my Best Ideas list. These funds are still at a larger-than-historic discount to net asset value and generate excellent (pre-tax equivalent) yields. As I have noted (and in support of the evident value), Nuveen recently announced a partial tender (10%) at 98% of net asset value for four of its funds. This asset class, highlighted in January in my "15 Surprises for 2014," could provide investors with not only a great risk-adjusted return but also a potentially large absolute return. 

VIA - http://www.thestreet.com/story/12779256/1/yellens-testimony-tanks-trade-dont-invest-best-of-kass.html