Another China Worry; When Fed Doves Get Hawkish: Best of Kass

TheStreet.com

NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among the posts this past week were entries about China's credit growth, a hawkish turn by a Fed dove and Jeff Bezos' purchase of the Washington Post Company.

Please click here for information about subscribing to RealMoney Pro.


Goldman Sachs on China Credit Concerns
Originally published on Wednesday, Aug. 7 at 12:30 p.m. EDT.

Today Goldman Sachs published a focus piece on China credit concerns in the latest edition of Top of Mind.

The rapid pace of China credit growth, increasingly sourced from the more risky and less transparent "shadow banking" sector, has become Top of Mind.
In our view, corporate credit risk warrants concern but is unlikely to trigger an imminent banking crisis. But some seem more worried. We interview Charlene Chu, who covers Chinese banks for Fitch and believes there could "absolutely" be a negative surprise in 2013. We look at ripple effects beyond China (most negative for commodities and Emerging Market economies and assets) and demystify commodity financing deals -- a formerly unchecked credit channel -- and the crackdown on them, which exemplifies the fine line policymakers must walk between credit restraint and economic growth.

Tonight, on "Fast Money," I will spell out my "Top 10 Market Concerns."

Let me add an eleventh: China's credit growth relative to its GDP growth has been too rapid, so the country's leadership is committed to slowing credit. This raises the risk of a banking crisis and subpar economic growth. (Note: iShares China Large-Cap ETF hasn't rallied in the broad July-August global market advance.)

This strategy will likely result in sub-5% GDP growth, though the official economic data will not reveal such a slowdown.

This downturn in growth will likely have an impact on systemic financial risk in China's banking industry (which could feed into non-Chinese banks), global economic growth and on the pricing of risk assets.

Bottom line: China is another reason to expect weakness in the U.S. stock market.

At the time of publication, Kass had no positions in stocks mentioned.


Charles Evans Was Uncustomarily Hawkish
Originally published on Tuesday, Aug. 6 at 3:36 p.m. EDT.

Chicago Fed head Charles Evans, among the most dovish of Fed presidents, was uncustomarily hawkish today.

Though he did say that the federal funds rate could stay at zero even if the unemployment rate went to less than 6.5%, he also said that tapering could begin as early as September.

This is consistent with the consensus of most of the Fed folks -- they want out of QE and would prefer to start the tapering process sooner than later.

It seems to me that a September tapering is better than a 50/50 proposition.

That said tapering, though growing to be more expected by market participants, may introduce volatility, two-way action, higher interest rates and even a consolidation in the stock market -- things we have not seen in a while.

At the time of publication, Kass had no positions in securities mentioned.


My Take on the Bezos Buy of the Washington Post
Originally published on Tuesday, Aug. 6 at 11:19 a.m. EDT.

The $200 million-plus purchase price for the Washington Post Company is chump change for Bezos, as it represents about 1% of his net worth.

Bezos, who already was a part of the group that invested $5 million in Henry Blodget's Business Insider, had gotten, by virtue of that participation, his feet wet with media. And now he appears to want to move further into the field.

To me, this is a natural. With Bezos and his social media contacts, he will likely transform The Washington Post into the template for social news. I suspect it will happen swiftly.

To the Grahams, so aligned with The Washington Post over the years, the choice quality of the buyer was probably almost as important as the purchase price. So, I suspect Bezos has already shared his vision with the Graham family and they are on board with it.

It is interesting to me considering the history between Buffett and the Grahams/The Washington Post that the Oracle didn't buy the newspaper because there is probably little doubt that he had first dibs on the sale. My guess, at 83 years old (this month), Warren didn't want to undertake such a project and that he recognized that someone like Bezos is uniquely qualified to engage in it.

Another reason Warren might have taken a pass is the potential conflict of interest given Berkshire Hathaway's position as the largest individual owner of Washington Post Company shares. Given this, a lengthy shop period might have had to be conducted, a period in which someone less desirable to the Grahams (e.g., Rupert Murdoch) might have wanted to buy the newspaper.

At the time of publication, Kass was short BRK.B

EXCLUSIVE OFFER: See inside Jim Cramer’s multi-million dollar charitable trust portfolio to see the stocks he thinks could be potentially HUGE winners. Click here to see his holdings for FREE.

View Comments (5)