February 28, 2014

Doug Kass vs Warren Buffett Berkshire

Warren Buffett admitted that Berkshire won't grow as rapidly in the future as it has in the past but it will still generate a lot of incremental value. 

"We think we will do better than the giants of the past," he said. Charlie chimed in and said much of the same. Warren then exclaimed, "Doug, you haven't convinced me to sell the stock, but keep trying!"

February 27, 2014

Doug Kass has 'man crush' on Jim Cramer

Let me start off by saying I am a biased observer of the Cramer phenomenon.

Frankly, I have a "man crush" on the guy. I have written extensively about Jimmy in my diary on Real Money Pro. And at the end of every year, I write a heartfelt tribute to him entitled "Jim Cramer's Pool."

Jim is a whirlwind, a true force of nature. He embodies not only the strongest work ethic extant (something Omega Advisors' Lee Cooperman taught me is at the epicenter of investment success) but in my decades in the investment business I know of no other person that possesses the breadth of knowledge about individual stocks. He is a reservoir of information.

I might not always be in agreement with Jim's investment ideas -- I am, after all, the Anti-Cramer -- but, much to my chagrin, in the majority of our disagreements Jim turns out to be correct.

February 26, 2014

Doug Kass short Berkshire shares

I remain short Berkshire's shares. 

Last year Warren Buffett labeled me a "credentialed bear" and invited me to ask some hard-hitting questions at Berkshire Hathaway's annual shareholders meeting. I did quite a lot of research in preparation for that day, and I think that is what Warren expected of me and why he invited me.

It was important for me to balance my hard-hitting and pointed questions with a courteous and respectful delivery, considering the extraordinary accomplishments and the respect we all have of the men that I was addressing and the unique invitation to a short seller who was negative on their company. 


February 25, 2014

Investors should hold higher cash reserves

A trendless market without memory from day to day remains my best guess for the first half of 2014.

This is an ideal environment for opportunistic (and facile) traders but not a desirable backdrop for the buy-and-hold crowd.

Thus far, I have more actively traded in 2014 than at any time in recent years. My diary's strategy has been increasingly pointed toward more active trading in recent weeks. That will continue in the weeks and months ahead.

However, I recognize that active trading is not for everyone.

Most investors should hold on to above-average cash reserves in a market without memory from day to day.

February 24, 2014

Doug Kass shorts Tesla

I have taken a small short position in Tesla at $205 in trading. This goes directly against one of my short selling tenets -- namely, shorting high interest stocks. The more I think and write about it, the more I like my Tesla short,

I have been uncharacteristically positive on Tesla Motors (TSLA) particularly in my 15 Surprises for 2014. 

But I would note that the stock has had a monster run, and before anyone puts too much into Tesla, you should check out what Audi is doing with synthetic fuel.

February 21, 2014

Trading is better than investing

At this point of the year, we have witnessed an early-inning rout of consensus. As the lopsided market rout deepened [recently], a late-game recovery seems to be growing more unlikely.

That said, stocks now appear fairly priced, with reward and risk essentially in equilibrium. Reflecting this view, I am in a market-neutral position.

My investing mantra remains of the view that opportunistic trading will continue to trump investing. A further drop in equities towards fair market value would change my posture and lead me toward the search for investment opportunities.

via http://www.thestreet.com/story/12305464/2/kass-risk-happens-very-fast.html

February 20, 2014

Doug Kass: Short bonds trade of a decade

While the reward vs. risk of U.S. stocks might now be in equilibrium , the upside and downside for U.S. bonds are considerably different.

Even using my lower 2014 real GDP estimate of only about 2%, bonds appear to be a great short after the yield on the 10-year U.S. note has dropped by 40 basis points over the first five weeks of the year.

At a 2.6% yield now, bonds are now a short, and I have considerably added to my ProShares UltraShort 20+ Year Treasury (TBT) long in the last 24 hours.

The rule of thumb is that the 10-year U.S. note should yield roughly the nominal rate of U.S. GDP growth (real growth plus inflation).  With 2% real GDP growth (my estimate) and about 1.5% inflation, nominal growth should add up to about 3.5% this year, which is well above the current 10-year U.S. note yield of 2.6%.

If my economic forecast is too conservative (which is possible) and there is risk to the upside, the bond short should prove to be even more attractive as an investment short.

While in the initial stage of a rally in bond yields (and drop in bond prices), stocks will likely rally. As the yields rise further, stocks might face considerable competition from bonds.

For this reason and others, I prefer being short bonds over being long equities later this year.

I have characterized a bond short as the "trade of the decade" in the past.

We are now at an attractive entry point for the trade of the decade.

via http://www.thestreet.com/story/12321438/2/not-so-tweet-trade-of-the-decade-best-of-kass.html

February 19, 2014

Market could still have a big correction

I suspect that a correction far greater than those experienced in recent years is in the offing sometime this year.

Typically stock market oversold rallies last about five to eight days. A healthy recovery off of lows is usually characterized by put buying (persistent skepticism), expanding volume (indicating that the real buyers are back) and good breadth.

That said, I continue to see a trend change in the markets -- and not for the better.

The technical damage in 2014 has been more significant than in any previous corrections.  The percentage of S&P stocks that were above their 200-day moving averages has also declined from 90% to 65% and has broken a trend line. The decline of stocks above their 200-day moving averages in small-caps (S&P 600) has been even more pronounced (from 88% to 57%). Historically, such a drop in relative performance in small-caps is a signpost of a maturing bull market.

February 18, 2014

Why Apple stock is standing strong

Since Jan. 31, 2014, following Apple's (AAPL) disappointing quarterly earnings report and guidance, the company's shares have risen by $40. The recent strength in Apple's shares (even after Carl Icahn withdrew his share repurchase program) hints that Tim Cook might know something that we don't know.

While Apple's salad days are over and the company's growth trajectory is maturing, with $75 of upside vs. only $50 downside (a positive ratio of 1.5:1), I am attracted to the shares both absolutely and relative to the body of alternative large-cap technology stocks.

Stated simply, in an unexciting U.S. stock market, Apple's shares represent reasonable fundamental value.

February 17, 2014

S&P500 to be down in 2014

With the global economic recovery and the bull market maturing, I don't expect stocks to rise for the sixth consecutive year. 

Rather, it remains my view that the S&P 500 will be down between 5% and 15% in 2014. P/E ratios could contract this year -- in marked contrast to the expectations of most Wall Street strategists. 

(Note: The consensus forecast is for about a 10% rise in stocks this year.)

February 13, 2014

Doug Kass praises Warren Buffett philosophy of value

I have learned over a few decades that holding onto dogma (bullish or bearish) is not a way to deliver superior investment returns. Rather, one should listen to The Oracle of Omaha's words above. Indeed, one should listen to all of The Oracle's words! 

Warren Buffett's lesson is that while optimism is the enemy of the rational buyer, there is always a price that an investor and/or trader can pay to acquire value.

I always think in terms of reward vs. risk on the stock market and for specific equities. I create a fair market value based on a scenario analysis of economic, profit and interest rate assumptions. At present, my calculation leads me to believe that fair market value resides around 1645 for the S&P 500, but my process is a guideline and not meant to be hardened or precise in forecast.

There is simply no special sauce and no calculation of fair market value that is right - again, the formula is a signpost and an exercise in determining where stocks should be valued given a set of dependent variables.

During the last week, I have written that I expect the S&P 500 will be in a range of between 1625 on the downside and 1925 on the upside for 2014. The reward (+11%) vs. risk (-7%) in the U.S. stock market, for the first time in months, has now turned more favorable. (Note: The U.S. stock market, using my fair market valuation is still not yet statistically attractive, as reward and risk seems to be more or less in balance.)

via http://www.thestreet.com/story/12305464/1/kass-risk-happens-very-fast.html

February 12, 2014

Doug Kass breaks his own rule on short selling

"In shorting the shares, I paid no attention to one of my basic short-selling tenets -- namely, never short a stock (it is OK to buy puts, however) in which the short interest exceeds over 5%-7% of the outstanding float or when the short position represents a large multiple to average daily volume."

"With short interest at 30% of the float and 9x average daily volume, Green Mountain Coffee Roasters should have been a nonstarter for me to short. Nonetheless, sometimes (but only in rare instances) one has to reject formula and move out of one's comfort zone. Such was the case with Green Mountain's share price move of almost $50 (or 55%), to $130 last night."

via - http://www.thestreet.com/story/12314090/1/kass-felliniesque-action-in-green-mountain.html

February 11, 2014

Kass smart trade in shorting Green Mountain Coffee Roasters

Doug Kass made a nice profit off of the furious after hours surge in Green Mountain Coffee Roasters shares on Wednesday Feb 5, 2014. The cause of the surge was attributed to news that Coca-Cola was taking a 10 percent stake in Green Mountain.

Kass then wrote in a note to clients on the next day Feb 6, "I shorted Green Mountain stock at $128 a share at around 6:00 p.m. EST last night". 

Kass said the high short interest compared with average daily volume meant that Green Mountain "should have been a nonstarter for me to short," because a sudden move would bring out lots of short-sellers scrambling to avoid more losses, pushing share even higher.

The stock is now trading around $107, much below where Kass shorted it at $128.

via http://www.reuters.com/article/2014/02/06/us-greenmountain-cocacola-shorts-idUSBREA151SC20140206

February 10, 2014

Doug Kass: Super Bowl Indicator results say this

In  January 2000, Doug Kass created a brand new stock market contrarian indicator, and named it the "Super Bowl indicator".

The summary the Super Bowl 2014 indicator

"We might conclude from the historic causality between my indicator and the industry composition of Super Bowl advertisers that headwinds could be facing the shares of both the consumer products (especially food and beverage) and auto manufacturing industries in 2014."

via http://www.thestreet.com/story/12300874/1/kass-stock-market-super-bowl-indicator.html

February 6, 2014

Kass on tapering

The baton handoff from Helicopter Ben to Whirlybird Janet has initialized an effective tapering, and monetary policy is in the process of being normalized.
In light of that tapering has already come a swift price discovery in the capital markets, a price discovery that had previously been sabotaged by the massive bouts of liquidity delivered by the world's central bankers.

February 5, 2014

Doug Kass on Risk and Contagion effects

Risk and contagion happen fast. Usually the crowd outsmarts the remnants, but we should always beware of turning points!

It is helpful, particularly in periods of complacency (and in aging bull markets) such as we faced late last year, to consider out-of-consensus surprises and events that could unexpectedly influence the markets.

Arguably, this whole global market downturn in January has been the outgrowth of complacency and that most were already in the pool -- in other words, progress was discounted in valuations (which rose an outsized 24% in 2013).

Consider the strong consensus views as we entered 2014:
-Japan, which is now down 8% year-to-date, is the best region in which to invest;
-stocks will outperform bonds;
-the rate of global economic growth will accelerate;
-interest rates will rise.

By contrast, the risk of contagion was an important theme in my surprise list for 2014 (see surprise No. 13 above); it was a risk that was ignored by many. Indeed, few risks were considered following the outsized market gains last year, a sentiment that is embodied in Adam Parker's quote below.

"The only thing people are worried about is that no one is worried about anything.... That isn't a real worry."
-- Adam Parker, chief U.S. strategist at Morgan Stanley

February 3, 2014

Africa could be in trouble

Doug Kass Prediction for 2014 on Africa including South Africa

Africa triggers an emerging-market crisis and becomes a flashpoint of geopolitical risk and political turmoil as the region's untapped oil wealth is recognized.

Not long ago, South Africa was meant to be the "S" in the BRICS, alongside fast-growing Brazil, Russia, India and China. The rand, however, is in steep decline, and the nation has growing budget and trade deficits and slowing growth, so it can hardly claim membership in that club right now.

At some point in 2014, the ratings agencies will downgrade South Africa, foreign money will flee, and the country will be in a full-blown financial crisis that will trigger a wider selloff in the emerging markets and could highlight problems at emerging-market central banks (which are already suffering from slowing economic growth, an acceleration in inflation, etc.).

Potentially changing regimes due to national elections in Brazil, India, Indonesia and Turkey cause those countries to join South Africa in the emerging markets' bumpy ride, which is further impacted by U.S. dollar strength caused by the Fed's tapering.

If the crisis intensifies and expands beyond South Africa, a contagion into the developed banks could raise additional concerns and pull down money center bank shares.