Kass: False Sense of Security
“It’s the American economic boom. The greatest story never told.”
In 2007 and early 2008, I warned that the impact of unregulated, unwieldy and unpriced derivatives plus a speculative blowoff in residential home prices around the world produced a toxic combination that would bring down stock markets and economies worldwide.
There were few of us (naysayers) with this view back then — in fact, you could count them on two hands, with Bill Fleckenstein, Nouriel Roubini, Barry Ritholtz, Josh Rosner, John Mauldin, Dave Rosenberg, Meredith Whitney and Gary Shilling among the only disbelievers who sounded the foreboding scream of skepticism and economic warning.
I remember being one of those standard-bearers of pessimism in multiple business media platforms — on “The Kudlow Report,” when guest hosting “Squawk Box” and when interviewed by Alan Abelson in Barron’s. At times, even to myself, I sounded like a didactic Cassandra — after all, stocks were marching ever higher in an orderly fashion, crushing the shorts who stuck out like the proverbial sore thumb.
Back then, on Sir Larry Kudlow’s “The Kudlow Report,” I debated the uber bulls, Don Luskin, Dr. Bob, Brian Wesbury, Jim Paulsen and many others. Good people and hardworking analysts/economists who were no doubt nice to their mothers and certain in their views.
During that period leading up to the Great Decession of 2008-2009, my friend/buddy/pal, Larry Kudlow, taking a cue from wordsmith Peggy Noonan, coined a wonderfully crafted phrase, calling the U.S. economy “the greatest story never told.”
To me, at that time, I saw a domestic economy that appeared healthy but with foundations that were cracking. At odds with Larry, I adopted the conflicting phrase “the greatest story ever sold.”
– Larry Kudlow, “The Kudlow Report” (2008)
Continued here . . .
~~~
Doug Kass runs Seabreeze Partners, a hedge fund, and writes daily for RealMoney Silver, a premium bundle service from TheStreet.com.
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April 26th, 2011 at 4:32 pm
Let’s not forget Calculated Risk and Tanta, who were very very clear in as early as 2005/2006 that the foundations were cracking.
April 26th, 2011 at 4:45 pm
Even after the false sense of security turned into a near meltdown, few people or institutions came forward to accept responsibility or show remorse, yet they never gulped when their losses were turned into profits via taxpayer-funded bailouts.
April 26th, 2011 at 4:49 pm
False sense of security indeed.
I don’t know how anyone could have a real sense of security in this situation. The stock market has been whistling past the graveyard for weeks now, imo. But not the bond market recently, I see. Hmmm, I wonder which one is the better indicator… Probably neither due to QE.
Oil over $100.
Gas at $4.
House prices slipping again.
QE soon to end.
China slowing.
Europe slowing.
Japan back on its knees.
Financial stocks lagging.
The G in GDP = C + I + G + (eX-i) about to be cut.
Unemployment claims back over 400k.
Yeah, that’s what I call secure.
Not!
But I’m probably wrong. I guess as long as Ben doesn’t run out of paper and ink, we are secure…
Who knew economics was so simple?
April 26th, 2011 at 4:58 pm
But for money mangers it just means a huge selling-or short selling- opportunity and then a once in a life time buying opportunity.
April 26th, 2011 at 5:32 pm
“don’t worry, be happy” our prayers will be answered and a supernatural savior will solve our problems, maybe an apocalypse will be required but we are the shining city on the hill and God loves us most of all.
Seriously, we are screwed.
April 26th, 2011 at 5:36 pm
So far as housing goes, I was in the business and saying it in 2005–that the insanity could not last. Nothing’s changed. Fundamentally nothing. As Bernie Madoff said, the whole economy is nothing but a Ponzi scheme.
Except, of course, Apple. Which is only the finest expression of all that mankind and civilization have ever had to offer–being cool and unique by everyone having the same ability to app through life.
2011 will be to 2012 what 2008 was to 2009. Get ready. Not even Apple will be spared.
April 26th, 2011 at 7:07 pm
While there are signs the economy is improving
rail traffic
spending
declining unemployment
One must be concerned about the fragility of the recovery, considering
unprecedented Fed action
increase in inflation
impending budget cuts(firing at the local level)
consumer spending cut from rising food & energy
corporate profits cut from an inability to pass along costs
Stock market has rallied quite a bit. Seems all the good things are priced in…?
April 26th, 2011 at 7:21 pm
http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=screwflation
http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=debtflation
http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=Dollar+devaluation
http://search.yippy.com/search?input-form=clusty-simple&v%3Asources=webplus&v%3Aproject=clusty&query=decline+in+Standard+of+Living
it might? be interesting, if it wasn’t so obvious..
April 26th, 2011 at 7:21 pm
One must separate PERMA BEARS from smart people.
Roubini, Rosenberg, Mauldin, Whitney, etc are mainly perm bears. They are bad investors. They mainly lose money. For gods sake, Roubini was “calling subprime” back in the 90s. So was Ableson. Taleb only loses money for clients for 2 decade… Yet he still preaches “black swan is coming”.
There are many great investors who made it threw this period with excellent returns – Soros, Paulson, Tepper, Cohen, Gross, etc. Some of them were positive in 2008. Many of them were not. Most of them outperform in every up year.
If is FAR more important to capture upside in the boom, then it is to avoid 15-30% losses in the downturn.
April 26th, 2011 at 7:23 pm
This remains a classic recovery.
Earnings on S&P500 will exceed $100/shr this year, $115/shr next. China demand is huge. US payrolls growth is just starting. Equities do well into the early 100-300 bps of Fed tightening. It’s the business cycle.
April 26th, 2011 at 7:38 pm
Kassel said 10 days ago: “apocalypse now”., he has been wrong calling short for some time now. He cited as evidence the “underperformance of AAPL” (+10% since) and the “weak q1 earnings” (wow, so dumb. Earns look awesome!).
April 26th, 2011 at 8:47 pm
Will someone please connect the dots between the writers at “the street .com”, the MSBM, the hedge funds, Jim Cramer and the rest of the Wall St flunkies at CNBC…Pleazzzzzz
April 26th, 2011 at 9:11 pm
“False sense of security”?..everybody hates this market. 5% pull backs and all of the bullish sentiment is gone. Perma bulls have turned bearish like the dow 36k Hasset and Glassman.
The perma bears are getting shrill. Their schtick is getting old(more and more apocalyptic)…many still bearish from ’09 or ’99 in the case of Abelson.
That having been said, it is getting harder for me to deploy cash. My long term accounts are becoming more and more in the “under invested camp”…”Must be the feds fault” that the markets don’t come back to me. I am hoping “sell in may” works this year.
April 26th, 2011 at 10:42 pm
Kass approvingly quotes David Stockman’s NYT editorial, which was the subject of a separate Big Picture post:
It is obvious that the nation’s desperate fiscal condition requires higher taxes on the middle class, not just the richest 2%.
It’s equally obvious that Kass hasn’t seen this chart, which shows that the U.S. accounts for nearly HALF of global military spending, despite having less than 5 percent of global population, and living in a quite peaceful neighborhood.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/bernanke/radical.png
Taxing the middle class to its knees to feed the grotesquely hypertrophied U.S. military empire is insane. Smash the NATO clown posse and bring the troops home — every fricking one of them.
April 27th, 2011 at 1:24 am
This looks inflationary.
April 27th, 2011 at 8:16 am
Like anything engineered, the key is if the foundation and other supporting structures bearing the most weight will hold up. The ‘market’ (which is now the official proxy for the economy) is completely supported by the Fed and monetary policy. What we have now is an engineered product not organic. Can it transition from engineered to organic? Can the politicians make the correct decisions for the country as a whole and NOT for maintaining the existing status quo?