February 27, 2015

Fed is causing markets to rise

I remain surprised that the market continues to be accepting and forgiving of disappointing top- and bottom-line corporate sales and profit growth, which has, as its lead, sub-par domestic and worldwide economic growth. Failed consensus expectations of self-sustaining growth has, arguably, still not reached "escape velocity," as real GDP growth in the U.S. has averaged only about 2.4% growth a year over each of the last three years.

"Outside influences" have replaced healthier nominal GDP growth as a catalyst to expansion of earnings a share. Per-share profits have been buoyed by "financial engineering" -- a continued reduction in companies' fixed-cost basis coupled with aggressive buybacks, fueled by a zero interest rate policy backdrop.

I had thought that corporate share buybacks and a lean management policy (ingredients for a lower quality of earnings) would be re-agents to lower price earnings multiples, not higher price-earnings ratios. The response by investors has almost been nonchalant. 

What shocks me is how readily most investors have accepted this sharp drop in expectations; judging by the steady rise in the U.S. stock market, they have barely blinked! 

It remains my view that central bankers' showering of liquidity has played a much more important role than many believe in the market, and valuation has climbed since the generational low in March 2009. 


February 18, 2015

Investors are still bullish

Interest rates are backing a bit lower, gold is up, the price of crude oil continues to recover. 

Optimism, expressed in investor sentiment, is buoyant -- the residual of the strong price momentum recently experienced.

No doubt it is a truism these days that the bullish crowd has outsmarted the ursine remnants.

Fear and doubt have left Wall Street as investors party on.

Short sellers' concerns, while seemingly on reasonable grounds -- increased profit guide-downs, weakening domestic economic data points relative to expectations, slowing global economic growth, currency debasement, elevated P/E ratios (against a more normalized profit margin forecast) and a world dependent upon more "cow bell" -- are ever more endangered and are scoffed at as fugazis and Cassandra's predictions.

Yesterday I increased my bank sector exposure - adding to Citigroup (C) and establishing positions in five small regional bank stocks. 

I also added to my GLD long.

I am slightly longer - and, as mentioned yesterday... uncomfortably so. 

Originally published Feb 14 2015 

February 16, 2015

Doug Kass on Elon Musk of Tesla

Elon Musk Reminds me of the Wright Brothers. Brilliant innovators. Poor businessmen. 

As mentioned yesterday by myself and Jim Cramer, it seems that many investors still are drinking the Tesla "Kool Aid."

There is a near total absence of fact-based research, and total confidence in Elon Musk's increasingly unsupportable claims. 

February 11, 2015

Doug Kass on Twitter earnings

Twitter has been a very successful investment for me over a brief period of time (of less than two months). 

I initially put TWTR on my Best Ideas List at $37.35 on Dec. 12, 2014 and I have twice added to my holdings at about the same price over the last several weeks. 

In response to the better-than-expected results, Twitter's shares are about 20% to 25% above where they were last week (when I added, for the third time). I have also observed a tendency, many times, in which the initial response to better results (especially of a social media kind) tends to be exaggerated and sometimes short-lived. There have been many examples of this in the social media space. GoPro, Yelp and others are coming to mind.

I think that while Twitter might be among the best in the space, given in part my cautious market view and my generally downbeat opinion on the valuations of social media stocks. I expect Twitter's shares to back and fill over the near term and to fall back into the low $40s from the after-hours high of $46.40 on Thursday night.

That said, in the fullness of time (perhaps as early as the second half of this year), I would not be surprised if the share price has a $5 in front of it.

I am now left with tag ends -- though given my upbeat intermediate term outlook for Twitter, the shares remain on my Best Ideas List. 


February 9, 2015

Cautious on the markets

Frankly, while I remain cautious on the markets, I have little confidence in the direction over the near term. Anyone who suggests, with confidence, that they know is a liar.

I prefer to maintain flexibility and trade opportunistically.

Several weeks ago I wrote about volatility, and we are seeing trouble and volatility in spades now. I'm taking my own advice and reducing my gross and net exposure, and I'm lowering my portfolio's Value at Risk.

These are uncertain times, with numerous possible economic and market outcomes. The daily market volatility is "insane in the membrane." Let those with self-confidence play.

Trade less, surf more. 

February 2, 2015

Doug Kass Super Bowl indicator 2015

Back in January 2000, I created a brand new stock market Super Bowl indicator as a contrary indicator, very similar to the cover of Time.

My indicator dictates that the more intense the Super Bowl TV advertising by a group of companies, particularly in a specific industry, the more likely the stocks of those companies will perform poorly in the year ahead. 

In summary, 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 technology companies (which represent more new entrants than any sector in 2015). 

On the other hand, the disappearance of a number of auto advertisers in 2015 could spell an upbeat outlook for automobile manufactures' stocks (it's a contrarian indicator).