2000-03 Bear Market Rallies
My boychik Doug Kass has a good quote in Jack Healey’s NYT column today:
This month, after the stock market staged one of its biggest rallies since the Depression, optimists like Douglas A. Kass, a prominent hedge fund manager, buzzed that the worst was over. Finally, after a 401(k)-busting, 7,722-point plunge in the Dow Jones industrial average, the stock market seemed to be escaping bear territory, the bulls argued . . .
At the beginning of 2008, Mr. Kass, known as a short-seller, saw more trouble coming and bet against the stock market. But now, he says he thinks stocks have hit a definitive bottom, and he said he was buying.
“I’ve been a bear for three years,” said Mr. Kass, general partner of Seabreeze Partners Management in Palm Beach, Fla. “This is a big change for me.” Mr. Kass said the March lows would not just represent the lowest points of the year, but “possibly a generational low.”
Last week, he wrote a note, “Why the Bears Are Wrong,” that tallied a host of hopeful conditions in the economy and the financial system. He saw potential in the Obama administration’s plan to buy $500 billion to $1 trillion in troubled assets from banks using a blend of public and private money. If it works, the move could take the strain off the banks’ struggling balance sheets and loosen credit markets, Mr. Kass said.
Nice looking chart:
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2000-03 Bear Market Rallies
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Source:
A Pitched Battle for Turf Between the Bears and the Bulls
JACK HEALY
NYT, March 30, 2009
http://www.nytimes.com/2009/03/31/business/31market.html
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March 31st, 2009 at 7:54 am
Barry,
I already wrote this post for you over the last few weeks. Big Kass fan here.
As for the statement in the article “hopeful conditions in the economy”, that’s a misrepresentation of what he’s been saying IMO. Kass included a check list with 10 or so factors many months ago that he would be watching for signs of improvement. He updated the checklist recently and most of the grades given were poor, just a little better than before.
Rather than saying he is hopeful about the economy I think a more appropriate way to describe his attitude is to assign what Buffett said in his SH letter to Kass (economy may be in shambles all of 09, but that doesn’t mean the stock market will be)
Also, he said to raise some cash last week and expects some back and fill action at this point.
On another note
Leftback,
I think somewhere yesterday you said that yesterday’s sell-off was pretty well telegraphed. Apparently Jimmy couldn’t figure out what happened.
http://www.thestreet.com/story/10479455/1/cramers-mad-money-recap-selloff-difficult-to-fathom.html
apparently the “risk model” points to a bull market, lol, and it’s amazing we could sell off some after a 20%+ rally in a couple of weeks.
March 31st, 2009 at 8:07 am
Barry,
I would like to see you post about the inflation/deflation debate. Maybe you think it’s too early to make a call on that? I’d love to know your opinion, sorry if this was already put up and I missed it.
~~~
BR: Tons — Circa 2003-08
http://www.ritholtz.com/blog/category/inflation/
March 31st, 2009 at 8:13 am
Trying to go for three in a row:
What is a boychik?
I have never heard of that before.
March 31st, 2009 at 8:23 am
“If it works, the move could take the strain off the banks’ struggling balance sheets and loosen credit markets, Mr. Kass said.”
Notice the use of the weasel words: If, could.
IF I had a gazillion dollars then I COULD finally quit my job and get out of my cube.
Kass will be carried out feet first, same as all the other bears-turned-bulls and generational-bottom callers we’ve had over the last year.
See you at SPX 150.
March 31st, 2009 at 8:24 am
“This month, after the stock market staged one of its biggest rallies since the Depression, optimists like Douglas A. Kass, a prominent hedge fund manager, buzzed that the worst was over.”
Actually, Kass called it before the rally. He actually called the low point before the rally to within a couple of days.
That said, I think he’s wrong, and we’ll see new lows within a month. But kudos to him for nailing this trade.
March 31st, 2009 at 8:26 am
OK, Dougie. Guess I’ll put it all on the long LEAPS, keep some spending cash and head for St. Bart’s, draw down what I need as the market rises from here on in. No worries, now.
March 31st, 2009 at 8:27 am
Barry, with all due respect, I expect better from you when it comes to Kass. Sure, he is a nice guy and a critical thinker, but RealMoney is LITTERED with Kass bottom calls since January 2008. He is only a hair more legit than Cramer. I give Kass most credit for figuring out how to ignore (read: erase) his crap calls from the memory of his acolytes. Why is everyone so scared to call out Kass?
http://www.thestreet.com/s/kass-katch-buy-the-financials-yes-buy/newsanalysis/investing/10398482.html
~~~
BR: I don’t disagree about his bottom calls — in fact Kass and I have debated bottoms in housing and in banks over the past year on the tube, and in these pages.
However, he is far more rigorous an analyst than Cramer. I see Cramer as a buybuybuy salesman, where as I see Doug as person with a viewpoint, sometimes right, sometimes wrong.
One oft he things I ALWAYS try to do is read people whose perspectives I disagree with just to overcome selective perception and confirmation bias. I was thrilled when Doug and I were on opposite sides of trades, cause I can read him and not get nauseous. Cant say the same for many other people.
Regardless, Doug us a friend who got a nice a quote in a big NYT piece, and this was my call out to him.
March 31st, 2009 at 8:28 am
ben22,
http://www.thefreedictionary.com/boychik
boy·chik or boy·chick (boichk)
n. Slang
A boy or young man.
——————————————————————————–
[boy + Eastern Yiddish -chik, diminutive suffix (from Slavic).]
The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2003. Published by Houghton Mifflin Company. All rights reserved.
in context, yon’ homey..
also, take the hint~ (:
March 31st, 2009 at 8:31 am
It is still a guess if u ask me. Would be better if market tests S&P 666 but does not breach.
The rationale for this is clearly that the downside risk is less than it has been.
I don’t see how anyone can point to any economic fundamentals.
The market internals and other valuation technicals are being used as the yardstick at this point.
None the less, any 201K investor should start dollar cost averaging in.
March 31st, 2009 at 8:36 am
benn22-
pick up the book “Boychicks in the Hood” by Robert Eisenberg- good little read and fairly funny- will definitely immerse you in Jewish culture.
March 31st, 2009 at 8:54 am
@ ahab, Mark
thanks for the tips. I had seriously never heard the term until today.
Bro’ is a little more common in my hood.
March 31st, 2009 at 8:56 am
A few minutes of sanity on CNBC. Leaving for NOLA this morning and flipped on the set to see what happened overnight.
There’s Ariana Huffington talking to Roubini. Followed by Taleb.
You can tell Joe and the others aren’t too happy with it.
March 31st, 2009 at 9:00 am
Barry,
How much faith do you put in previous trends? If the market behaved that way in 2000-2003, what is our confidence level that it will do the same in 2008-2011? Are there any past correlations?
-HK
March 31st, 2009 at 9:13 am
As I recall, last week I saw a chart of his at TheStreet that illustrated his speculation about the future. He imagines this bump will decline to about it’s X axis and repeat 2 more times. Then off to the moon. I’m only looking a few months ahead myself, and I think this dip will be faster than the last one, it will drop to around the last low point, +/-, and duplicate the rally we are now leaving. Unless good news comes out of nowhere, the rally won’t be until June. Then 1 or 1.5 more like this by 12/31.
There’s no reason for it to go up. This mean once the hedge fund circle jerk ends tomorrow, aggressive buyers will leave the market. No buyers OR excess sellers both = market decline. Shorts will probably return and scare everyone else out again. Since I’m cash at this time, Go Shorts! Bust it up. Then I will put another toe in the water and wait patiently for the next incline.
March 31st, 2009 at 9:16 am
things to consider with this mornings trade.
1. if market can add onto or hold the early gains by this afternoon – another high is more likely later in the week than a continuation of yesterdays market weakness.
2. if market gives back the early gains and closes down to flat – further weakness is more likely later in the week/month.
3. a close below 815 today would breach the weekly/monthly/and now quarterly 2002 support levels. the bulls have to give it one last college try.
March 31st, 2009 at 9:17 am
@dead hobo,
kass is using 1938 as his model. You can look at a chart of that year to get an idea of how he thinks it will basically play out, at least for now. Kass is always flexible, so he’ll change that view at some point I’m sure.
March 31st, 2009 at 9:20 am
ben22,
No, the chart was more like a freehand drawing that illustrated his speculation about the future market. Basically, a graphical representation of what I described. He just drew a picture.
March 31st, 2009 at 9:31 am
The recent rally was sparked by a “leaked” Citicorp memo, if folks recall, and climbed its wall-of-worry over a couple of other blips of apparently good news (or good enough). There are no fundamentals driving it, just crowd control. We may see a couple more retraces upwards in what looks to be a classic bear market rally.
Earnings are rolling out in the next few weeks and it doesn’t look good. Expect the market to retrace the lows and react upwards again with anecdotal positive earnings surprises. But this market overall is headed below 6550 by Summer. No doubt about it in this trader’s mind. Too much doom ‘n gloom on the horizon to prevent it.
March 31st, 2009 at 9:53 am
I invest my spare cash where it belongs: fantasy baseball. I’ve got my tabbed copy of Ron Shandler’s book and our draft is this week. Last year’s forward addressed the difficulties of factoring in steroid use in projecting future performance based on past results. Makes comparing players in different eras fairly meaningless… not knowing the actual, unadulterated baseline technical skills of the players (aka “reality”).
Word is bond, meshugoyim boychiks!
March 31st, 2009 at 9:54 am
I think I have mentioned this before, but what is Doug Kass’ MOTIVATION in calling a “generational” bottom? While I respect his analysis greatly, I question the need to be “right.” He has fortune, so does he want fame as the one guy who “nailed it”? Is he hoping for a huge rally because he want his main man Obama to get all the credit for fixing everything? Is he hoping for a huge rally to short into?
Frankly, I don’t know or care where the market is going, as long as I can figure it out before everyone else does…
HCF
March 31st, 2009 at 10:01 am
@ dead hobo,
Refer to this one:
http://www.thestreet.com/story/10472521/1/kass-it-aint-heavy-its-a-bottom.html
Not sure if you saw that, it outlines the 38 idea more.
March 31st, 2009 at 10:07 am
I watched Kudlow & Co. everyday from 2007 to mid 2008. Whenever Kass was on he tried in vain to make his short case and Kudlow just shouted over him.
March 31st, 2009 at 10:19 am
I am a big Kass fan, big BR fan, big Grantham fan, big Fleckenstein fan. They all have great thoughts and ideas about the market. Kass, Fleck and Grantham are early. Grantham self-admits it calling it career risk (a good call).
I think they are all “right” relative to the heights the market has come down from…the outsized gains are going to come from investing long now, while the tablescraps are in the short arena. Doesn’t mean buy and hold, it just means we are now looking at such small numbers on so many stocks, that the big hits are on the way up, not down. Plus these guys look at the general population psychology–which is depressed, not optimistic. So the surpise comes when things are “less worse”, “not so bad”, “better than expected” Their calls to be bullish are not for amateurs because it isn’t an easy road.
The good news is that these guys are like the first Robins of spring. And that is hope.
March 31st, 2009 at 10:21 am
I trust this means that when the stock market starts making new lows again later this year that we won’t have to hear Kass calling the bottom again? Yeah, right. BR, you should keep a running tally of all those who have called the bottom including those who have done it multiple times(Cramer).
~~~
BR: I hear ya, but its not what I want to spend my time doing . . .
March 31st, 2009 at 10:26 am
What?!? Uncle Larry shouting over and interrupting everyone???
Like I’ve never seen THAT before on the Kudlow show.
Wish I had a link to the day’s show (last summer?) when Larry had Diane Swonk on and another economist (don’t remember his name) and both had turned bearish, without allowing any room for optimism (or a ray of sunshine for Larry’s coveted goldilocks at the time.) After three minutes into a roundtable discussion with another couple of minutes to go, in a rare moment of candor, Larry becomes despondent and says “I’m getting bored…” Since then Larry has always had on someone to support his views.
March 31st, 2009 at 10:28 am
BR, after the Evel Knieval post from last Friday, you ought to wager a steak dinner with senor Kass about his bottom call.
March 31st, 2009 at 10:34 am
ben22,
Not to be rude, but I really don’t care much about historical charts when trying to figure out the near future based on current events. Unless one is interested in history for its own sake, it is an excellent way to lose money. It is just another form of astrology. If you want to predict the future, read some economics and psychology and statistical process control and accounting books. This is not a comprehensive list. Then apply what you learned and be prepared to make a lot of mistakes. Referring to ancient charts is just another form on entrail reading. Personally, I like the new method illustrated on South Park last week. It’s on the same level and takes much less education.
March 31st, 2009 at 10:37 am
I like Kass, but me-thinks he’s a bit early again just like his ’06 bearish call.
March 31st, 2009 at 10:54 am
@ dead hobo,
Not rude at all, and I agree, I do very little charting to determine any of my investment positions. They can help you form a thesis but shouldn’t be the determining factor in your ultimate picks. I’ve said that here many times. Seems to me that the best investors are more philosophers than chart pro’s.
I was just repeating what Kass was is all.
March 31st, 2009 at 11:07 am
At the beginning of 2008, Mr. Kass, known as a short-seller, saw more trouble coming and bet against the stock market. But now, he says he thinks stocks have hit a definitive bottom, and he said he was buying.
—————-
But let’s not forget the rest of this call. He turned bullish on financials like WFC, BAC, C and AB after the bet above, at much higher levels than today. He liked C when it was in the twenties, for example.
And whatever you made on C on his short bet, you would have coughed right back up again and then some on his subsequent long bet.
Kass definitely gets credit for recognizing some of the problems with the financials and his subsequent short calls. His error was not recognizing how big the problems were, ironically.
March 31st, 2009 at 11:18 am
James,
You are correct, Kass said himself, he underestimated how bad things would get, even though he was way ahead of this.
I think we should all remember, even Nouriel had to push his estimates even further into the negative as the crisis went along.
Also you said this:
And whatever you made on C on his short bet, you would have coughed right back up again and then some on his subsequent long bet.
I wish people would stop saying this sort of thing with so much confidence about managers like Kass.
He uses STOPS! You have no idea how quick he got stopped out of those trades or how it compared to the shorts so you have no idea if what you say is right or wrong. Seabreeze is not John Hancock Classic Value.
Seriously, this is my last attempt to defend the guy. Clearly I’m in the minority here.
March 31st, 2009 at 11:32 am
ben22,
Kass, his ownself, makes his methodologies clearly understandable..
post a link, and be done w/it.
let those, with eyes, see / the others are better left to a higher power..
it’s almost Biblical: “The Lazy, they shall always be with you..”
March 31st, 2009 at 1:15 pm
I was reading through my 2009 Stock Traders Almanac last night. Down Q1 often signals a flat or down year. It may be financial astrology, but I’ll be damned if TA or fundamentals seem to be doing much better, especially when you get multiple interpretations of the same data.
March 31st, 2009 at 1:35 pm
SWMOD52 @ 10:07
“Whenever Kass was on he tried in vain to make his short case and Kudlow just shouted over him”
How shocking. How out of character for Kudlow.
March 31st, 2009 at 2:01 pm
In August 2008 with the S&P around 1150, Doug Kass wrote on the RealMoney website that if you sold stocks at that time, you didn’t deserve to be in the business.
March 31st, 2009 at 2:26 pm
@Porshe,
I love the Almanac. That said, when that indicator didn’t work was when wars changed it.
Now, are you brave enough to make the call that no new war can start this year?
March 31st, 2009 at 8:37 pm
Kass deserves the respect BUT in my opinion he is , as a friend of mine suggested, a bull in bears clothing.
Some here mentions it and I read it too, Kass said in December of 07 that its too late to short the financials.
Yes dec 07, I respected that call and therefore now I am a skeptical about his calls.
Honestly I do not think anyone knows , Not Kass not Roubini and not even Taleb , These are extreme calls, we might land somewhere in between imho.
BTW on thestreet.com , where I first found BR, there seems to be a silent agreement about not taking on Kass for all his wrong calls and when he gets one right then they just line up to congratulate him.
I guess if no one can take on JJC then why would they take on Kass. If they leave JJC alone , then Kass is untouchable.
Only Farley and Rev ( among the regulars ) dare to speak up. Most there mind their own business.
Generational low , I wish he is right but sorry I am skeptical. Also I have seen a tendency of beating his own drum lately (” like I said the low would be this week and like i got it right”, please let others do the clapping )
Do not want to rub anyone here , but I should have known , he is a Yankees fan, should have known better.
Go RED-SOX.
April 1st, 2009 at 9:01 am
Barry,
Thanks for the response. Pre-ordered my book and can’t wait to read.