Doug Kass, CNBC, and the Dog Whisperer
Doug Kass got a prime spot on CNBC yesterday, just after the market opening. That is good for the mass audience, but many of us had to use TIVO and watch later.
Like many who read his popular feature, The Edge, on TheStreet.com ‘s premium site, Street Insight, I am a fan. His columns are full of thoughtful lists of things that might happen, observations about news, a few rumors from his well-placed sources, and some interesting and timely trading calls. As they say, "What’s not to like?"
When I watched the recorded CNBC segment I was disappointed that they gave Doug so little time, and also that Mark Haines did not do his normal interview. We got an abbreviated version of why the economy and stock market are about to collapse. There was not much challenge from Mark and Erin Burnett and little time to elaborate the basic thesis.
I was reminded of The Dog Whisperer, the wonderful show on National Geographic TV where Cesar Millan steps into difficult situations and straightens them out. At some crucial point, Cesar always does something impossibly clever and dangerous with a dog. A little warning flashes up on the screen suggesting that you might not want to try this at home!
I suspect that Doug Kass needs a similar warning. He may be sufficiently adept to trade against his short position, but my guess is that the average investor, or the relatively inexperienced hedge fund managers who follow him, will have trouble following his lead. If you like him, you should just invest with him.
Here is my concern with the Kass message. I do not think that he has edge by being contrarian on the economy. He has forecasts about the consumer and the housing market. Since he cannot figure out where the next push will be in the economy, his logical conclusion is a recession and a stock market collapse. Compare this with the results of the latest WSJ poll of economists.
There are thirty economists here with pretty good credentials, not incidentally including the formal study of economics. The comments quoted show that they are looking at the same evidence that Doug Kass sees. They just draw different conclusions, seeing some slowing of housing and the economy. In fact, the slowing is to a slightly below trend level, just what the Fed is seeking.
Doug seems to think that normal economic growth requires "stimuli" (although he never defines that). Why? In addition, he has been maintaining that the economy lacked "stimuli" since the Fed started raising rates from 1%. If he does not think that a Fed funds rate below the rate of inflation and a federal budget deficit constitute stimuli, then he lacks credibility as a pundit on the economy.
I believe that many young hedge fund managers closely follow Doug Kass. It is possible that many individual investors do as well. They are selling their long positions, but they do not have his skill at using "long rentals" to buy the rallies.
Being a fund manager requires method and courage. One must have confidence, yet always accept the evidence that a decision might be wrong. The current crop of hedge fund managers is heavy on the confidence and light on the error-checking.
It is fine to be confident, but the Old Prof comes from a different intellectual tradition. Here at "A Dash" we try to discover the best in all sources. The hedge fund guys writing at Cramer’s site (including Cramer) all think that they know more about running a company than the top executives. They are happy to tell them (in writing, not face-to-face) exactly what needs to be done. They know more about measuring inflation than top government and university economists who have spent careers studying the subject. They know more about labor economics by reading a journalist’s piece in the New York Times, than do the leading experts in the field. And they know more about forecasting the economy than the WSJ panel.
It is only human to dismiss the need for knowledge that one does not have. A couple of the younger writers on TheStreet.com, not as savvy or informative as Doug Kass, have recently been critical of the Fed. One called them "confused." The other said the members were incompetent and were now "led by a professor." Well that one really stung!!
I have read everything written by those two contributors. If they actually were sitting in the room
with the Open Market Committee and the staff, they might learn a great deal. My guess is that they would be unable to speak a single word. Since so many of those controlling the hot money dismiss all of the real experts, there is a wonderful opportunity to be contrarian by listening to those who know what they are doing.