Kass: The Return of Price Discovery

I like to read Doug Kass, who gives me great arguments from the other side of the trade.

Here are his factors that could affect markets and the economy into 2016:


12 key “big picture” factors

  1. Multiple and unpredictable outcomes: There have likely never been in history more numerous market and economic outcomes some of which are adverse and most of which are being ignored by market participants.
  2. Stuff happens: Black Swans appear to be happening with greater regularity.
  3. Weak growth ahead: Central bankers’ aggressive monetary antics have only produced subpar global economic growth.
  4. Borrowing from the future: Zero interest rate policy (ZIRP) has borrowed past and present sales from the future, underscoring the challenge of future economic growth.
  5. Unknown consequences of policy: No one knows the consequences of an extended period of ZIRP “punch bowls,” often resulting in aberrant behavior and hangovers.
  6. Making no sense: Indeed, if there were no consequences to zero interest rate policy, interest rates could have been held at zero forever — in the past, as well as in the future.
  7. Stop looking up, start looking down: Monetary overkill (in duration and in the level of interest rates) may produce the adverse consequences of malinvestment. It has resulted in the hoarding of cash and reduction in spending by the disadvantaged savings class.
  8. Uneven and less dependable growth: The “exclusive prosperity” of the haves (vs. the have-nots) is politically unstable, leads to more uncertainty (and unexpected outcomes) and will likely have a negative and more volatile impact on our social system, on the global economy and on our markets.
  9. Tom Friedman has the ticket: Our world has never been more flat, more networked and more interconnected. As such, the notion of an “oasis of prosperity” is not likely rooted in fact.
  10. Trouble ahead, trouble behind: Terrorism and religious radicalism (political and economic) will be more of a threat in the future than in the past.
  11. Treacherous technology: In a paperless (and “cloudy”) world, investors and citizens are not likely as safe as the markets assume.
  12. Lack of coordination: Geopolitical coordination is at an all-time low and isolationism seems likely to be a mainstay in the time ahead.


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  1. george lomost commented on May 12

    I’ve been puzzled that there is no public discussion of #6 – so damn obvious.

    The Middle East seems to be in the early stages of something like the 100 yrs war (approx. 1337-1453) fought on the European continent. The general acceptance of kidnapping of women to ‘reward’ fighters is a sure-fire recruitment tool to keep this going for quite a while.

    Poor Kass, nobody listens to him anymore.

    • rd commented on May 12

      I would add #13 that links to #10. Clean energy is beginning to be a real competitor to traditional oil, coal, and natural gas. Increased efficiency has taken the first chunk out of demand and we are slowly seeing alternatives come into the supply picture. Does anybody seriously think that China is going to put a gasoline-powered car in everybody’s parking spot as their population gains wealth and can afford vehicles instead of bicycles? They will want neither the dependence on foreign oil nor the air pollution. Think of the developing countries that skipped house-to-house landline telephones altogether and just went straight to cellular mobile phones with a few towers instead of miles of interim wiring infrastructure.

      Before oil, the Middle East was an interesting place that was in between Europe and Asia, so empire building countries had to cross it. It was also the birthplace of several of the world’s dominant religions. Otherwise, it had little to interest anybody and so it had little clout. Once oil goes into permanent decline, so will the Middle East as that is what fuels its economy. I think we will be watching this play out over the next 20-30 years. The Saudis are trying to push that date out another decade or two by pushing down oil prices today to reduce competition, but the day will come anyway.

    • Whammer commented on May 12

      I think you’re right about this, fortunately, because it helps with politics, global warming, etc.

      The fact that so many “conservatives” are hell-bent to have our fate tied to the Saudis and big oil companies is puzzling to me. But that is a topic for a different rant ;-)

  2. Whammer commented on May 12

    #1 and #2 seem like the same thing. 4, 5, 6, and 7 are either contradictory or could be condensed.

    8,9,10, and 11 are all very good points. I have a hard time believing “geopolitical coordination is at an all-time low”. That seems like a reach.

    • rd commented on May 12

      July 1914, October 1917, and August 1939 come to mind as previous lows of political coordination in the past century.

  3. Concerned Neighbour commented on May 12

    How can we have “return of price discovery” when ECB QE has just started, central banks around the world continue buying stocks (in addition to bonds), and with Fed QE4 looking increasingly likely in 2016?

    Or is Kass joining the Orwellian commentator/policy maker crowd here?

  4. Paul Mathis commented on May 12

    Numbers 3 through 7 are simply ludicrous

    ZIRP has been highly beneficial to the economy. QE was even better. Of course, we could have gained much more traction with a sustained fiscal stimulus, but I don’t see that on his list.

    Thanks for the Anti-Keynesian update. Always good to know what the nincompoops are saying.

  5. VennData commented on May 12

    The ultimate strawman “…Indeed, if there were no consequences to zero interest rate policy…”

    The REASON Central banks lower interest rates, sometimes to zero is to get “…consequences…”

    The Fed is going to raise, talking about raising and talking about talking about raising.

  6. VennData commented on May 12

    What metric does Doug Kass use to discount that in a cloud-based world we are not as safe as the “market assumes.”

    Yes I am on a mission to get the narrative nonsense out of sales pitches.

    • catclub commented on May 12

      I have a vivid memory of my grandfather, in the 60’s, insisting that he get his stock certificates from the broker and that they be in HIS name, not street name. I wonder if I can ask for that now?

    • Iamthe50percent commented on May 12

      There no longer are any certificates. Grandpa’s stock could be electronically registered in his name and he could get a piece of paper from his broker (possibly for a fee) that listed the registration number(s). That might or might not be useful in Court later.

  7. MarkKlose commented on May 12

    Doug Kass belongs to a very special group of commentators that includes Larry Kudlow, Joe Kernen and Dennis Gartman. They often find themselves sitting in a circle together sharing insights.

  8. gman commented on May 12

    The 10yr stayed below 3% from the early 30s until the late 50s. Knowing that removes much of concern or at least the breathlessness about the supposed “unprecedented” nature of our current rate environment.

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