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Hedge Fund Manager Kass' List of Surprises for 2015

By    |   Tuesday, 30 December 2014 01:44 PM

Hedge fund star Doug Kass, president of Seabreeze Partners Management, has put together a list of surprises that he expects this year.

"I set out as a primary objective for my Surprise List to deliver a critical and variant view relative to consensus — that can provide alpha or excess returns," he writes in an article for TheStreet.com.

Among the surprises are:
  • "Faith in central bankers is tested (stocks sink and gold soars)," Kass notes. He thinks quantitative easing by the European Central Bank will "backfire," and the Bank of Japan stimulus also will fail. And after the Federal Reserve raises interest rates by 25 basis points in April, Kass expects "such global market turmoil that it is the only hike made all year."
  • "The U.S. stock market falters in 2015." Kass forecasts a 10 percent decline for the year. "While earnings expectations disappoint, the real source of the market decline in 2015 is a contraction in valuations," he writes. The S&P 500 had a trailing price-earnings ratio of 19.67 Friday, up from 18.98 a year ago, according to Birinyi Associates. "Investors begin to recognize that low interest rates, massive corporate buybacks, the suppression of wages, phony stock option accounting and other factors artificially goosed reported earnings," Kass says.
  • "The great three-decade bull market in bonds is over in 2015." As ECB easing fails, European yields will rise, pushing U.S. yields higher too, Kass says.
  • "The drop in oil prices fails to help the economy," he predicts. "Continued higher costs for food, rent, insurance, education, etc. eat up the benefit of lower oil prices. Some of the savings from lower oil is saved by the consumer who is frightened by slowing domestic growth, a slowdown in job creation and a deceleration in the rate of growth in wages and salaries."
Kass also predicts there will be a massive flash crash, Apple will become the first trillion-dollar company, tax reform is enacted allowing companies to repatriate their cash and home prices will fall in the second half of the year.

Another hedge fund luminary, David Tepper, founder of Appaloosa Management, is more optimistic on stocks, which he says are "fairly valued," CNBC reports.

And they can gain another 8 to 10 percent, next year, he maintains.

"I think we'll have a good year," Tepper says. He's also takes a different view on global central bank easing. "You have people responding to deflation all over the place. First thing that goes up when people try to fight deflation is asset prices."
 

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Hedge fund star Doug Kass, president of Seabreeze Partners Management, has put together a list of surprises that he expects this year.
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2014-44-30
Tuesday, 30 December 2014 01:44 PM
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