March 31, 2014

Doug Kass vs Larry Kudlow & CNBC

Sir Larry Kudlow's retirement from "The Kudlow Report" and the actions taken by CNBC to deny my appearance on his last show, however, have precipitated the writing of today's opening missive.

Having had a close personal and business relationship with Larry and having appeared so many times on "The Kudlow Report" over the years (particularly leading up to and during the crisis in 2006-2009), I offered to appear on Larry's last show, as I wanted to pay tribute to his years of contributions on CNBC.

Larry was enthusiastic to have me on but I have been informed that CNBC's upper management has pushed back and does not want me to appear on Larry's final show.

To be sure, the absence of my appearances on CNBC over the past six months is not the end of the world for CNBC nor for me.

CNBC will continue to thrive as the most important business television network extant, and I certainly have numerous public media platforms in which I regularly appear or am quoted.

This morning I am reaching out to CNBC to put my comments in the New York Post in the proper perspective, to discontinue the Dougie Kass CNBC embargo and to reconsider its decision not to invite me onto Larry's final show.

It would give me great pleasure in honoring a great American and good friend this week on CNBC.

As I have written today, respectful disagreement should be encouraged not discouraged.

Invite me on CNBC based on the merits of my analysis, the originality of my views and my ability to communicate an opinion clearly and succinctly. 

The olive branch has been offered to CNBC.


March 27, 2014

Doug Kass talks on Japan Nikkei

The Nikkei (Japanese market) is among the worst-performing indexes in the world in 2014.

The market is either losing patience with Haruhiko Kuroda, the governor of the Bank of Japan, or saying that the country's structural issues will deny success to an aggressive monetary policy.

For now, I remain on the sidelines on the topic.

The Nikkei's poor performance, as described in my "15 Surprises for 2014," has not been expected, and the bullish hedge fund community has been dead wrong.

The bulls suggest that the recent dive in Japanese stocks is simply a correction within a bull market. For the last nine months (incorporating 2014's weak performance), the Topix is flat, similar to the U.S. stock market's flat performance from May 2011 to November 2012. The Topix is now 10% below its May 22, 2013, high.

The next key data point is April 30, when there will be not only a Bank of Japan policy meeting but also the release of the central bank's twice-a-year outlook report. If the Bank of Japan fails to awaken investor risk appetite into and after the April 30 meeting/outlook report, I suspect that many will revisit their bullish views.

At this time, the Bank of Japan doesn't necessarily have to announce another big stimulus -- rather it has to show its resolve and must convince the market that it will do whatever it takes (i.e., to print as much money as necessary to lift financial conditions, confidence and asset prices).

Separately, Kuroda gave an encouraging speech on Tuesday night. Below are some major points that he made:

"We are only halfway there" in meeting the 2% inflation target. He conveyed strong resolve that QE won't stop until the inflation target is met.
The consumption tax hike will not have nearly the negative impact on the economy that the 1997 sales tax increase had. The economy in 1997 was "affected substantially by a series of failures of Japanese major financial institutions and by the Asian currency crisis that took place just when the economy showed nascent recovery." By contrast, today the banking system is healthy.

Policy will be adjusted as needed to meet the inflation target (i.e., more monetary stimulus to come, if inflation fails to keep rising to the 2% target).
In the Q&A, Kuroda commented on the yen, saying that last year the yen "didn't correct perfectly, completely."

Article via

March 26, 2014

Critical thinking important for Investing

The investment mosaic is a complicated one, and no one rule always works. How-to books may sell copies and make money for the authors, but they don't usually make the readers much money. There is no substitute for hard work in delivering superior investment returns. There are 86,400 seconds in a day, and it's up to you to decide what to do with them. As I have repeatedly written, there is no secret sauce, magical elixir or special stock chart that provides clarity to our investment decisions -- rather it is a byproduct of hard-hitting research.

A variant view and second-level thinking are necessary reagents to good investment returns. In The Most Important Thing: Uncommon Sense for the Thoughtful Investor, author Howard Marks addresses these two subjects.

In investing you must find an edge by often thinking of factors/ideas that others haven't thought. Importantly, you must also avoid being too early -- especially if your investor base has a different time frame than yours.

Second-level thinking trumps first-level thinking in delivering returns. 

As Howard puts it, first-level thinking says, "It's a good company. Let's buy the stock." 

Second-level thinking says, "It's a good company, but everyone thinks it's a great company and it's not. So the stock's overrated and overpriced. Let's sell." First-level thinking says, "The outlook calls for low growth and rising inflation. Let's dump our stocks." Second-level thinking says, "The outlook stinks, but everyone else is selling in panic. Buy!"


March 25, 2014

Doug Kass on Jim Valvano the Basketball coach

You gotta believe in yourself. You gotta know yourself, too. Wall Street is not a great place to "find yourself." (There is a reason why there is a cemetery on one side and a church on the other side of the New York Stock Exchange building.) Psychology can be important; it often trumps cause-and-effect relationships that have been in place historically. Above all, have confidence in your own analysis (as long as it is thorough), even if your view is at variance with the consensus.

And of course, Coach Valvano's most recognized quote: "Don't give up, don't ever give up."

Learn to survive under adverse market conditions by avoiding large losses, and learn how to prosper during good times. Generally speaking, by maintaining discipline and stopping out your losses, you can live another day in your investing life. It is not batting averages or on-base percentages that count in this game; it is how you control the risk in your portfolio. As an example, short positions can be hedged by owning cheap out-of-the-money calls, and long positions can be hedged by owning cheap out-of-the-money puts -- especially in a low-volatility setting.

Additional Quotes-

"No matter what business you're in, you can't run in place, or someone will pass you by. It doesn't matter how many games you've won. ... How do you go from where you are to where you want to be? I think you have to have an enthusiasm for life. You have to have a dream, a goal, and you have to be willing to work for it." -- Jim Valvano

"Be a dreamer. If you don't know how to dream, you're dead."

"My father gave me the greatest gift anyone could give another person; he believed in me."  -- Jim Valvano

Article originally published on

March 24, 2014

Doug Kass praises Warren Buffett as greatest living investor

As we all know, Warren Buffett is the greatest living investor in history -- and Warren gets better with age.

Unlike most billionaire octogenarians, who spend months on their yachts in the Mediterranean or winter in their oceanside mansions in Palm Beach, Florida, and Summer on Lily Pond Lane in East Hampton, Warren (at 83 years of age) has not lost a step.

Warren Buffett, the man who General Electric (GE), Goldman Sachs (GS) and Bank of America (BAC) go to when they need $5 billion to $10 billion of extra capital during economic crises, recently appeared on CNBC to advertise that his Berkshire Hathaway (BRK.A)/ (BRK.B) is insuring the Quicken Loans $1 Billion Bracket Challenge With Yahoo! Sports.

The contestant who selects a perfect bracket will receive a top prize of $1 billion. Entries will be restricted to 15 million entries. The top 20 most accurate brackets will receive $100,000 each.

As was the case with Berkshire Hathaway's rescue of General Electric, Bank of America and Goldman Sachs several years ago (at the economic and stock market nadir), by insuring the contest, Warren is the big winner here as he bets with the odds stacked immensely in his favor (and so do Quicken Loans and Yahoo! Sports win).

Originally Published on The Street

March 19, 2014

Could the Market be experiencing a blow off top now ?

Finally Mr. Market is beginning to show signs of aging. 

There have been clear-cut signs of loss of share price and impetus in certain leading market sectors, while momentum in corporate profit and sales growth has been slowing. Moreover, the short-selling community has been shattered and worn out, and now officially represents -- like the dodo bird -- an endangered species. Many hedge funds have totally abandoned the notion of hedging. Even some of the most stalwart bears -- like my friend/buddy/pal Bill Fleckenstein -- were reluctant to short.

Perhaps the proximate cause of this week's weakness was geopolitical, involving the Ukraine crisis -- an unexpected event that was outside the radar screens of most investors only two months ago. 

Or perhaps, as I observed last week in the Russell 2000's 3% move in one day, coupled with parabolic moves in a host of speculative stocks, there was a classic blow-off top. 

Regardless of the reasons, many of the sign posts of a concern and downturn have been posted in my Diary.

Article originally published on 

March 18, 2014

Doug Kass on Bon Ton shares

Bon Ton Stores is a retailer based in York, Penn. The company operates 270 department stores, principally in the Midwest and Northeast. It offers brand-name fashion apparel and accessories for women, men and children, as well as cosmetics, home furnishings, footwear and other goods. Bon Ton operates under Bon-Ton, Bergner's, Boston Store, Carson's, Elder-Beerman, Herberger's, and Younkers nameplates. 

[Recently] Bon Ton Stores' shares sold off by 10%, reflecting the departure of company CEO Brendan Hoffman (for personal reasons). The decline was not due to the unexpected drop in results, as most of its stores are in areas of the country that were exposed to the bitter weather over the last two months.

I have initiated a buy of Bon Ton at $9.85 per share. 

I will have a more extensive analysis on Bon Ton early next week, but the following factors attract me to this name: 

The departure of the company's CEO likely occurred because of his desire to return to his family in New York. There was nothing untoward about the announcement.

Given Bon Ton's store locations, the disappointing results announced yesterday should not come as a surprise.

Bon Ton's shares now possess an attractive reward-risk ratio given yesterday's 10% share-price drop. 

While Bon Ton is debt-laden, the shares trade at only about 4x earnings before interest, taxes, depreciation and amortization, and the company is generating free cash flow. Importantly, the company has mentioned inventories well in the recent sales downturn.

Thomas Grumbacher, the company's chairman, is 75 years old and owns nearly 900,000 shares. Given his age and the recent management announcement, he might be incented to look at exit strategies in the period ahead.

I value Bon Ton at around $15 to $16 in a private transaction -- about 50% higher than Tuesday's close of $9.80 -- which I consider likely in 2014. Given's Bon Ton's geography, Dillard's  (DDS) is the most obvious buyer of the company.

At the time of original publication, Kass was long BONT and TZA.

Article originally published on March 12 on

March 17, 2014

Doug Kass on Russia controversy

Similar to many of the previous international crises, the Ukraine situation will likely pass, should not dent worldwide economic growth and will not be a material risk to the capital markets.

While Russia has clearly violated international law (raising the ire of the world community) and the Ukraine/Russia issue is a near-term challenge to risk assets (and our relationship with Russia), below is a list of reasons why the impact will be transitory:

Crimea has already been annexed by Russia. Sunday's referendum will give formal approval to something already done. (Note: Russia has always thought of Crimea as part of Russia. Thus annexation is not seen by Russians as an expansionary move but rather to defend access to the port on the Black Sea).
Any sanctions (asset freezing, visa restrictions, etc.) by Europe or the U.S. against Russia is toothless.

Russia is not likely to annex other parts of the Ukraine, as the country is financially unstable and Russia can't afford to prop up the rest of Ukraine. Moreover, a further incursion into other parts of the Ukraine would bring more substantive sanctions.

The referendum could be ratified on Sunday, but Russia might effect a "soft annexation" that permits Crimea integration with Kiev.

Article originally published on

March 11, 2014

Doug Kass on Tesla Accounting EBBS

Tesla's accounting has long been controversial. In a prior post, I characterized Tesla's reported profits as EBBS (earnings before B.S.).

In essence the question comes down to whether Tesla's warranty reserve release was used as a cookie jar to boost profits in the latest quarter, or did the company simply miscalculate its warranty calculations.

What got my attention this time at Tesla was the release of warranty reserves that provided a non-operating, one-time $10.2 million boost to Tesla's most recent quarterly earnings. 

You must record a warranty expense in the accounting period during which you sold the items and create a liability for the same amount. You can reduce or draw down your warranty liability account in the future when you perform warranty service.

Regardless of the interpretation of the warranty reversal, Tesla got a consequential and one-time boost from an accounting change. Without this change, Tesla would have missed consensus earnings forecasts right before a $2 billion capital raise was deployed.

This morning's critical view of Tesla's quality of earnings doesn't change the broader debate on Tesla as an investment, but Tesla's nosebleed valuation and share price have such a high P/E multiplier attached that these should not be impervious or not influenced by the aforementioned accounting hieroglyphics.

I remain short Tesla.


March 5, 2014

Doug Kass praises Joe Kernen, Becky Quick, Tom Keene

I would characterize a lot of the pabulum in the business media as instantaneous entertainment and not as rigorous analysis.

Of course, there are exceptions. Consider as an example, the preparation that Jim "El Capitan" Cramer goes through when he interviews a corporate executive on "Mad Money." Another example is CNBC's "Squawk Box" with Joe Kernen, Becky Quick and Andrew Sorkin, which provides a guest host with one to three hours to do a deeper dive in analysis (e.g., just watch Jim Grant's appearance yesterday, which was solid and thoughtful in analysis). Or Bloomberg's "Market Surveillance" in which Tom Keene shares the spotlight with an interviewee for almost a half an hour, digging into the analysis that forms the foundation of view.

story via

March 4, 2014

Wish to be invited to 2014 Berkshire Hathaway shareholders meeting

Last year's appearance in Omaha was one of the most exciting experiences of my investment career. Warren, Charlie and the rest of the Board of Directors couldn't have been nicer to me last year.

I have more questions to be addressed toward The Oracle of Omaha and to Charlie Munger, and regardless of my view on Berkshire's shares, I am hopeful that I will be invited back to the 2014 Berkshire Hathaway annual shareholders meeting to ask some more penetrating questions.


March 3, 2014

Sometimes no explanation for market movement

Not every move in the markets is explainable, though far too many observers attach a reason for every wiggle and move. (Consider the 5% correction that was recently erased. Why? I have no clue, though many express a strong understanding in the moves.)

To some, the projection of confidence of view is seen as a validation of an intense and rigorous decision-making process. Increasingly, however, many are fooled by the abbreviated, simplistic, staccato- like explanations and conclusions, because, more often than not, the snark is shown to be wrong in short order as the curtain disclosing a mere human (not the Wizard of Oz) is revealed.

In a market that has many feeling uber smart, there are too many Good Will Huntings (i.e., geniuses) and not enough Jeff Spicolis out there these days who say "I don't know."

My experience is that the most valuable views are based on intensity of hard-hitting and time-consumptive analysis less valuable (though self-confident) views that are three miles long but only a few inches deep in knowledge can get viewers/listeners in a lot of investment "hot water" and are not healthy for your financial well-being.