Among his posts this past week, Kass explained why he's holding on to his short bond position and why he remains cautious on stocks.
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Talk of TBT
Originally published on Friday, April 5 at 10:28 a.m. EDT.
I am holding onto my ProShares UltraShort 20+ Year Treasury long.
The Fed has artificially inflated both bond and stock prices, and I continue to believe that, in the fullness of time, natural discovery will return to the markets.
A good case in point is the Japanese bond market discussed in today's opening missive. This market got schmeissed overnight.
As discussed in the previous column, I expect real GDP to grow at about a 1.5% to 2.0% rate over the next three quarters. With inflation expected to be expanding at +1.5% to +2.0 during the same time frame, nominal GDP will be rising at a +3% to +4% quarterly rate.
As I discussed in my Value Investing Congress presentation last May in Omaha, historically the yield on the 10-year approximates the projected nominal GDP growth rate.
In other words, the 10-year U.S. note (which now yields less than 1.70%) should theoretically gradually rise toward 3.5% -- again, in the fullness of time.
At the time of publication, Kass was long TBT.
Proceed With Caution
Originally published on Thursday, April 4 at 12:43 p.m. EDT.
Europe's closing was weak, with most exchanges down a tad under 1%.
The standouts to the downside were European bank stocks, which generally closed at their lowest levels since mid-December.
European interbank lending markets closed a bit better, and financial credit default spreads were unchanged.
Italian and Spanish bond yields trended lower.
Over here attention will quickly move to tomorrow's payroll release, with expectations for a headline gain of 190,000 jobs. (Private sector results should be 5,000 to 10,000 higher.)
After yesterday's weak ADP release and today's jobless claims report, some economists have lowered their numbers to the 160,000-170,000 range.
Meanwhile, a series I watch closely, the Citi U.S. Economic Surprise Index is down to the lowest level since early March.
In the weeks ahead, earnings reports and second-quarter guidance should frame the markets.
I continue to approach the U.S. stock market with caution.
In all likelihood, the aforementioned EPS reports will determine how deep the current correction might be.
At the time of publication, Kass had no positions in securities mentioned.