All right, that's Doug Kass of Seabreeze Partners coming up. Stay with us and we'll continue with Doug in a second. I'm Mike Holland in for Tom Keene today. It's Bloomberg On the Economy.
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HOLLAND: 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 was hosting a Bloomberg panel.
Still with us is Doug Kass of Seabreeze Partners, a long time friend and one of the most successful hedge fund investors of our time. And I would actually advise the listeners to pay attention now because we're going to move into when Doug synthesizes all of his thoughts, including how his annual surprises have worked out and where we are today, we're going to find out right now, Doug, what you are doing with your money and your clients' money and also what you would suggest the listeners do who aren't with you.
KASS: Sure, Mike. When I weigh the positives, the negatives and the uncertainties, my best guess is that the S&P index will basically be stuck in a relatively tight trading range for the balance of the year. Let's say between 1025 and 1200.
So let's see, where are we now? We're at about -
HOLLAND: We're kind of in the middle of all that.
KASS: - (inaudible)
HOLLAND: Yes, yes.
KASS: That's towards the lower end. So obviously if this expectation is realized we're going to have opportunities both on the long and short side and since the market now seems to reside near the lower end of my expectations the opportunities are more substantial on the long side.
So let's split up how I look at a long book and a short book. On the long book, I look for companies that you have been attracted to historically as well, companies with very strong global franchises, are large cash flow generators, are inexpensive in a historical context. So that will include companies like Bank of America, Chubb, Freeport McMoRan, Exxon, IBM, Hewlett, Home Depot, JP Morgan, Lowe's, Microsoft, and PepsiCo.
Reflecting my view of housing, that sales activity and home prices are putting in a multi-year bottom, we have been producing way under the rate of household formations and demographic growth as you know. I've recently initiated some substantial long positions in the Mortgage Insurance group, a group that I think has the potential for doubling over the next 12 months.
HOLLAND: The insurers and not the builders.
KASS: No.
HOLLAND: Okay.
KASS: I think that that PMI, MGIC and Radian are good examples. I've also increased my exposure in consumer non-durables like Anheuser-Busch and Clorox and Procter and PepsiCo. And I've been adding exposure into the financial sector with particular emphasis on non-banks, the insurance companies like MetLife, Lincoln National, Prudential and AFLAC.
