Doug Kass: De-Risking in Markets Sets Up an Unexpectedly Strong Rally

Doug Kass, Seabreeze PartnersSeabreeze Partners President Douglas Kass on Bloomberg Radio

JUNE 09, 2010



(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)

MICHAEL HOLLAND, CHAIRMAN/CEO, HOLLAND & CO LLC: It's Bloomberg On the Economy. I'm Mike Holland of Holland & Company in New York in for Tom Keene. Tom is on his way back from Saudi Arabia where he hosted a Bloomberg panel.

But first, now joining us is Douglas Kass of Seabreeze Partners and many other places on Wall Street. Doug, welcome to the program.


HOLLAND: Well, old time friend, you've been writing recently and for the listeners, most of whom probably know who you are, but for the few who don't you've spent the better part of 35 years on Wall Street in various firms starting out I believe with Putnam as a money manager.

KASS: Right, right.

HOLLAND: And following up with his success after success, more recently the past several years, Doug, you've been writing about when markets get really frothy, how people should get out of them, and when they get really pessimistic - as they were a year and a half ago - that they should get back in. Something for the listeners to pay attention to right now since you've been leaning against the wind and are more often right than most other people. Where are we now?

KASS: Well, you know, I would say throughout the markets, Mike, the rally - through the markets rally over the last six months or so, I've warned that too many were intoxicated by the price momentum and disregarded the foundation of the world's economies, which were really shaky.

I thought it was different this time. I questioned the durability of the economic cycle, especially in the face of the due bills of fiscal stimulation and the long tail over the last credit cycle which we see emerging in Europe over the last month or two. Most over the last four or five months were complacent. Obviously that has changed. There was no fear.

And I did not - you know, I think that too many people, Mike, worship at the alter of price momentum and I did not think that the market's rise was necessarily the sign of a self sustaining cycle, which seemed to have been the cornerstone of the bullish market view that had many talking head strategists, money managers eyeing the 13000 level of the Dow.

But that was then. Stocks were elevated. And this is now. And I'm growing increasingly positive about the US stock market. I would say in summary that there are signs of steady sequential domestic economic improvement. Obviously we are seeing continued strength in corporate profits and corporate profit margins. And in light of the recent sharp decline in the US stock market, we started to expand in our hedge fund our long invested position.

Now I have to emphasize, Mike, as you know, that there are emerging rays of sunshine, but I take my raincoat to work every day. And while stocks have gone on sale and valuations might be growing more attractive than at any point in the last six to 12 months, I think I recognize and need to maintain a balance and to sort of curb my enthusiasm as there remains a more than usual amount of possible economic outcomes ahead.

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