kass가 맞으면 난리난다.

Doug Kass: Market Generating Definitive Sell Signal

Published: Wednesday, 2 Mar 2011 | 6:40 PM ET

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By: Lee Brodie
Producer

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We know why you like Fast Money; the desk brings you a wide range of trading ideas from some of the Street's most celebrated figures.

On Wednesday the Fast traders turned to strategic investor and CNBC contributor Doug Kass, president of Seabreeze Partners for his insights.

Kass is widely followed for his market timing. He correctly called a bottom last summer and also predicted the crisis lows in March 2009.

In a live interview we asked Kass about the sell-off, Yahoo! and a company that Warren Buffett may want to buy. As you can imagine he had lots of ideas. They all follow:

Market Generating Definitive Sell Signal

It’s no secret that Kass is bearish, he’s been skeptical of the rally for quite some time. And he remains convinced that the market is heading lower. He cites both fundamental and technical signals.

Looking at fundamentals, he thinks Street estimates are too high broadly because “energy prices will maintain at elevated levels and commodities prices are rising.”

In other words, he doesn’t think price targets take into account the ripple from higher oil. “Already we’re seeing sequential rate of growth and operating profits slowing.”

And Kass thinks technical signals are equally negative. Kass points to the Farrell Sentiment Index to support his thesis.

This technical measure “takes the number of bulls in the market (as reported by the American Assoc of Individual Investors) and divides by the bears plus half the neutrals,” explains Kass.

”When the ratio is under .50 and rising it’s a bullish signal. When it’s over 1.5 it’s bearish and the ratio rose to 1.50 on the week of January 14^th – a definitive sell signal,” says Kass.


Buffett Buying Spree

As you may remember Warren Buffett made headlines a few days back after he said in his widely read annual letter the conglomerate was looking to make "major acquisitions."

And with Berkshire Hathaway's cash holdings totaling $38 billion at the end of the year, how will he put that money to work?

It wouldn’t surprise Doug Kass if the Oracle of Omaha buys Colgate Palmolive [CL 77.30 -0.34 (-0.44%) ].

Because Kass believes the market is fragile he only thinks a few sectors are going to hold on. “Staples and necessities,” he says.

Kass thinks that's something Buffett will factor into his next move. “And with Buffett looking for another target, I suspect a large consumer products company is on his menu,” he says. "I wouldn't be surprised if he (buys) a company as large as Colgate Palmolive."

Shout Yahoo for Yahoo!

Shares of Yahoo [YHOO 16.63 0.53 (+3.29%) ] jumped Wednesday after a published report said the Internet company is in talks to sell its stake in the independently operated Yahoo Japan for up to $8 billion.

As you might remember, on December 6^th Kass told us that he expected Microsoft would acquire Yahoo at $24/ share.

Although he didn't say outright if he was still expecting a deal he did tell the desk, "Microsoft has related that the search integration with Yahoo is going better than expected."

In addition, he thinks it's positive that “Yahoo management has indicated that the company is exploring alternatives and the company’s core business is improving.”

Kass tells us that he’s still holding onto Yahoo.

Kass: It Ain't a Popularity Contest

By Doug Kass 03/01/11 - 03:41 PM EST

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This blog post originally appeared on RealMoney Silver on March 1 at 7:56 a.m. EST.

More from Doug Kass

• The Best of Kass

• Kass: My 'Fast Money' Recap

• Kass: Takeovers Could Take Us Under

The most popular investment places often yield the most disappointing returns.

In recent years, three examples come to mind -- money market funds, U.S. fixed income and emerging market equities.

• In the 2008-09 bull market in risk aversion -- leading into and coincident with the stock market crash -- money market funds rose to a record $4 trillion. Stocks proceeded to double from March 2009 to the present as a preference for cash was exactly the wrong strategy.
• Following 10 years of material outperformance of fixed income over equities, record inflows into bonds accumulated during 2009-10 as investors sought safety and yield following the Great Recession. Once again, the asset of choice -- bonds -- fared poorly even as inflows accumulated. Bond yields rose and bond prices fell, despite the Federal Reserve announcement and implementation of QE2.
• During 2009-10, when the investment outlook began to clear, all of the incremental retail inflows were committed into nondeveloping foreign markets. But beginning in early 2010, emerging markets began to underperform the U.S. stock market. And by November 2010, that underperformance grew more conspicuous as the most popular strategy again let investors down.

Over the past few months, retail inflows have begun to move into U.S. stocks (and have redeemed out of money market funds and municipal bonds) as investors have arguably been emboldened by the great performance of U.S. stocks. Indeed in January 2011, more than $11 billion flowed into domestic equity funds. January's investment in domestic stock funds represented the largest amount of retail inflows since mid-2009 and likely explains the consistency of the market's advance in 2011 (and the absence of any meaningful correction even in the face of some adverse geopolitical developments that have contributed to a large hike in energy prices).

Bulls argue -- and there is merit to the view -- that though stocks have doubled, it is early in the increased retail appetite and popularity for U.S. stocks. In support, they observe that in the four-year period ended December 2010, retail investors liquidated more than $300 billion in domestic stock funds while purchasing $750 billion of bonds, bringing retail exposure to equities to relatively low historical levels.

I have argued and continue to argue that the investment shock of 2008-09 runs deep and will serve to limit retail inflows. Moreover, unlike almost any other time in history, the non-upper-income investor class may not be positioned economically to invest in equities to the degree the bulls expect. That investor class faces unique economic challenges and conditions and lower confidence in the form of an unprecedented drop in home prices (which has damaged the consumer's balance sheet), still high (though improving) debt ratios, the insecurity brought on by structural unemployment (and an elevated jobless rate) and the screwflation of the middle class (as the cost of the necessities of life have risen during a period in which wages have stagnated, serving to depress disposable incomes).

In summary, the recent increased commitment to domestic stock funds may disappoint and may not prove durable, and -- as was the case of money market funds, emerging market equities and fixed income -- the renewed popularity of domestic equities may not pay off in the fullness of time.

Caveat emptor.