Tags: Doug Kass | investing | market | stocks

Kass: 'There's Limited Margin of Safety Left in Stock Market'

Friday, 08 May 2015 08:01 AM

The 34-year-old bull market for bonds may soon come to an end, and that's not good news for stocks, says star hedge fund manager Doug Kass, president of Seabreeze Partners Management.

Low interest rates have played a major role in the six-year stock rally that has seen the S&P 500 index triple.

"I can say with a high level of certainty that interest rates will normalize sometime in the next 10 years, perhaps sooner than later," Kass writes on his blog.

Indeed, the bond party may end this year, he says. Already, the 10-year Treasury yield has risen 30 basis points in the last month, to 2.19 percent

"As a consequence, I can say with a high level of certainty that there is limited margin of safety left in the U.S. stock market. That is, reward vs. risk is likely skewed negatively," Kass says.

"I can also say with a high level of certainty [as has Warren Buffett] that bonds are more overvalued than stocks."

USA Today writer Matt Krantz points to another risk for stocks. Five years after the flash crash that sent the Dow Jones Industrial Average down 9 percent in several minutes, the government must have implemented changes to make sure the market is safe, right?

Not exactly, he says. Krantz identifies three risks:

  • "'Painting the tape' with bogus orders," he writes."A related technique is now better known as 'spoofing—and it’s the core of what regulators are investigating." Spoofing consists of a trader placing massive orders to buy or sell a security only to withdraw the order before it is executed. The trader profits on the move created in the market with his/her fake order.
  • "Flooding the market with trades." As the phrase suggests, this consists of traders overwhelming the market with large trades. That can obviously lead to extreme volatility and a market meltdown.
  • Volatility from futures and options trading. "Prices of investments that get their value from other investments — or derivatives — can be pushed around with smaller amounts of cash." The e-mini S&P 500 futures contract allows traders to control $50,000 worth of stock with just $500 in cash.

The S&P 500 closed at about 2,088 Thursday, 1.7 percent below its record high.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
StreetTalk
The 34-year-old bull market for bonds may soon come to an end, and that's not good news for stocks, says star hedge fund manager Doug Kass, president of Seabreeze Partners Management.
Doug Kass, investing, market, stocks
369
2015-01-08
Friday, 08 May 2015 08:01 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved