Tags: Kass | Fed | growth | markets

Doug Kass: Fed Easing, Weak Economic Growth Could Weigh on Markets

By    |   Thursday, 23 April 2015 07:00 AM

Hedge fund star Doug Kass, president of Seabreeze Partners Management, sees danger ahead for the stock and bond markets.

"For months I have suggested that a combination of fundamental and technical factors are conspiring to lend credence to the view that a broad and consequential topping process is being put in for both the stock and bond markets," he writes on TheStreet.com.

"Now, more than ever, I continue to believe this to be the case."

He cites 12 reasons for his view. They include:

"Weak growth ahead. Central bankers' aggressive monetary antics have only produced subpar global economic growth," Kass notes. In the United States, the economy has expanded only 2.2 percent annualized since the recession ended in 2009. And the Atlanta Federal Reserve's forecasting model puts first-quarter growth at just 0.1 percent.
"Unknown consequences of policy. No one knows the consequences of an extended period of ZIRP [zero interest rate policy] 'punch bowls,' which often result in aberrant behavior and hangovers." The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

"Zero, and even negative, interest rates tend to lengthen (and distort) acceptable investor time frames. The tsunami of global speculation has been engineered by the world's central bankers who have, in the simplest sense, bought time for self-sustaining growth to appear," he states.

Meanwhile, you can add former Treasury Secretary Robert Rubin to the list of those concerned that bubbles might be building in financial markets.

"I don't have a personal view on whether we now have [market] excesses or not," he said at a conference last week, MarketWatch reports.

"But it certainly is a realistic possibility when you look at the U.S. stock market, which is near all-time highs, when you look at covenant-light and now non-covenant lending, [and] a vast increase in fixed-income [exchange-traded funds]."

As for stocks, the S&P 500 index has tripled during the past six years and now stands less than 1 percent from its March 2 record high.

While the Fed is focused on inflation and the economy, it should keep an eye on financial markets too, Rubin said.

"I believe that the Fed should take systemic risk into consideration in monetary-policy decisions, even though excesses and bubbles are impossible to identify with confidence except ex-post."

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Hedge fund star Doug Kass, president of Seabreeze Partners Management, sees danger ahead for the stock and bond markets.
Kass, Fed, growth, markets
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2015-00-23
Thursday, 23 April 2015 07:00 AM
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