The Best of Kass
Among his posts this past week, Kass summarized his current bearish view of the market and economy, explained why he remains short shares of American Express, and opined that the tide may be turning for investors who are short the Treasury bond ETF.
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Summing It Up
Originally published on Friday, Sept. 14 at 12:26 p.m. EDT.
It is always a good idea to succinctly summarize one's views.
It is good for me, and I hope it helps subscribers.
The investment world is growing more dangerous, as the economy recedes (manufacturing activity; third-quarter 2012 EPS will be challenging), inflationary expectations rise and valuations expand, for a potentially toxic combination.
At the same time, the Fed continues to embark upon a policy that, in the world of financial assets, places equities as a potentially attractive relative investment at a time when many individual and institutional investors are underinvested.
Quantitative easing by the Fed (buying mortgage-backed securities) will not likely do too much to stimulate aggregate demand for housing or for the resuscitation of the jobs market -- all of which are weighed down by structural issues.
Although the Fed's actions will do little to change the tepid domestic economic recovery, the Fed can (and is likely to) disturb inflationary expectations in the near term.
Inflation is taxation without legislation; it is not market-valuation-friendly and could, if severe enough, choke off the consumer (at a point in time when this is the last thing the U.S. economy needs).
Nearly everyone I listen to is being swept up in the current euphoria and is explicit in their willingness to ignore the obvious risks that have not been cleaned up by Helicopter Ben -- namely, the fiscal cliff, diminished profit expectations, rising inflation and the growing likelihood of a business-unfriendly Democratic presidential win.
I am either stupid or disciplined. (Don't answer that!)
Time will tell.