The Jobs Report; the Twitter Effect: 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 the meaning of the payroll report and some Twitter nonsense.

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Parsing the Economic Data
Originally published on Friday, Nov. 8 at 10:17 a.m. EDT.

The October payroll report was much stronger than expected in terms of the establishment survey, up 204,000 vs. expectations of 120,000.

The household survey was weak, though, showing a drop of 735,000. This could have been distorted by the government shutdown.

The strong/stronger establishment payroll number for October has caused a selloff in Treasuries, a big lift in the U.S. dollar and, for a few minutes, a whoosh lower in S&P futures.

Though I still think the market could have a somewhat lower bias over the near term, I covered a lot of my market index shorts into that whoosh and have returned to a market-neutral mode.

If the consensus (before the numbers this a.m.) were for a March 2014 tapering, this report does slightly raise the idea of a January 2014 tapering.

But still the odds, to me for January are less than 50/50.

It is premature to draw any firm conclusions about growth from the October payroll report:

  1. The government shutdown could have distorted the data.
  2. One month's data should not importantly impact the Fed.
  3. The unemployment rate remains high/above Fed target.
  4. Inflation at 1.3% remains well below the Fed target.
  5. I think the Fed will need to see the November payroll report at a minimum, released in early December, before making any tapering decision, suggesting January as the soonest to start tapering.

The other reason I covered more index shorts is that the better numbers, if followed by improving economic data, would let the Fed exit quantitative easing without disturbing risk markets while keeping forward guidance dovish because of tame inflation.

As long as better economic growth means slightly better-than-2% real growth and not 3% or better, an improving economy will contain a market drop. That view is pushing me back to market-neutral.

So, we have some tentative signs of an improving domestic economy combined with a friendly Fed, occurring into a period of traditional seasonal market strength.

I still believe the Fed is in a tough spot and that is keeping me from moving to a net long position.

And I still hold to the view that fair market value is about 5% to 8% lower than current stock prices.

With this confusion, I expect a volatile market good for opportunistic traders, and that is my mantra through the rest of the year.


Twitter Explains Everything (Part Deux)
Originally published on Thursday, Nov. 7 at 7:36 a.m. EDT.

Good morning, Tweetnam!

Yesterday the media tried to make the case that mo-mo stocks were the source of selling to fund Twitter IPO purchases.

This is total hogwash, and unfortunately, we have grown accustomed to these sorts of banal observations from the ratings-hungry, obtuse and superficial business media.

Even our own Paul "The" Price "Is Right" wrote:

One theory holds that the $1.8 billion or so going into Twitter must be coming out of other momentum-type shares. Could that be the reason many were down big today?

Only the sellers know for sure. The money to pay for the IPO has to come from somewhere.

Respectfully, that is Silly Town, and the notion is nonsense.

Not only is Twitter only selling about $1.8 billion of new stock but most of the stock is going to institutions with large assets under management that have plenty of available cash reserves so that they need not sell a single share of another stock to fund their Twitter allocation.

Stated simply, selling Netflix , Tesla or Amazon to buy Twitter is not the way the game is played.

As I facetiously wrote last night:

Qualcomm's forward chip shipment guidance suffers as companies hold back orders so they can participate in the Twitter IPO.

Whole Foods Market's comps also suffer as consumers hold back grocery purchases in order to play the Twitter IPO as well (hat tip Zero Hedge).

Today the media will be all about the trading action of the Twitter offering.

We will hear the following song 40 times today via Bloomberg and CNBC:

He rocks in the tree tops all day long
Hoppin' and a-boppin' and singing his song
All the little birdies on Jaybird Street
Love to hear the robin go tweet tweet tweet!

-- Leon Rene under the pseudonym of Jimmie Thomas (popularized by Bobby Day and Michael Jackson), "Rockin' Robin"

Similar to the Facebook IPO fiasco, which was never expected by the media (though it was by us!), we will be inundated with this sideshow to the markets.

Me? I would rather watch/discuss the ECB's decision or the divergence of the lesser averages relative to the DJIA or how the New York Yankees will launch a 2014 comeback.

Anything but Twitter.

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

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