Doug Kass, the Consumer, and my investor, Mark

At "A Dash" we have occasionally written about the work of Doug Kass, who writes the perceptive and helpful trading diary "The Edge" on TheStreet.com’s site for active investors.  Doug also is  frequently quoted in Barron’s and other publications, and is a regular guest on CNBC.  He is one of the most powerful advocates of the bearish viewpoint.  We have taken issue with some of his methods and argued that his conclusions on some topics, like housing, were directionally correct but overstated in magnitude.

We also again note that we find Doug’s work extremely valuable, by itself worth the subscription to RealMoney Silver.  We have profited from many of his ideas, particularly some specific trading calls.

A Communication from Doug

Recently we have had some email communications from Doug.  While not divulging any private email, the gist is that our analysis has been incorrect.  He believes that individual investors like my client, Mark, can read everything and make up their own minds.  Fair enough.

We have invited Doug to reply directly in a comment at "A Dash" citing anything he thinks is incorrect.  Our readers would be further educated by his response, and we would be honored by a visit.

Meanwhile, he might consider allowing comments on his own blog, so that he might enjoy the same reader feedback common in the blogosphere and that we encourage at "A Dash."

Some Help for Mark

Since Doug wants Mark to make up his own mind, it is important for him to have the facts.  Doug is famous for suggesting that the consumer is "spent up, not pent  up."  The following are some relevant quotes from Doug’s column.

"If interest rates move higher, refinancings would slow down. At worst,
disintermediation would occur and refinancings and cash-outs would
plummet.

In summary, the consumer holds the key to the economy and to the stock market. "

"And with the continued delays in the recovery of business fixed
investment, general economic expectations and forecasts of corporate
profit growth appear too optimistic.

Stated simply, the consumer is spent up, not pent up!

Consequently, I would expect overall consumer spending to grow at an annual rate of less than 1%…."

"…consumers have added to their debt levels — as measured by borrowings as a percentage of disposable income."

These are all very strong statements and specific predictions, the sort that grab the attention of an individual investor like Mark.

In analyzing the evidence Mark should know that all of the quotations are from Doug’s column of November 19, 2002.  The S&P 500 closed at 896.74 that day.

Investment Conclusion

Trying to call a top in investment, consumer spending, and the market is a difficult task.  This is the reason that we look to overall valuation models emphasizing future earnings and interest rates.  These two ingredients drive asset allocation and, most recently, private equity investment.

We do not believe that we are smarter or know more than the experts.  Instead, we try to find the best experts on each subject and make use of their insight.

If interest rates moved a lot higher or earnings forecasts moved a lot lower, our investment perspective would change, as it did in 2000.  We would be very interested in a column by Doug explaining what would change his perspective.  A decline in housing inventory?  An increase in GDP?  Continued strength in corporate profits?  Anything?