Tags: Kass | Stock | Selloff

Doug Kass: Strong Stock Selloff Looms Ahead

Thursday, 23 February 2012 10:53 AM

The bulls might be in charge at the moment but a strong stock selloff is in the cards, says hedge fund manager Doug Kass, president of Seabreeze Partners.

A 5 percent drop is possible, Kass told CNBC. “It rarely pays to buy stock when 85 percent of the S&P trades above its 50-day moving average,” Kass said.

He sees little to back up the recent rise in stocks. The S&P 500 is up by about 8 percent year to date. “The advance is becoming more selective and it’s maturing,” he said.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Long-term investors seem to be getting back on board after skipping the market for most of 2011, a year in which the S&P finished flat.

The week ending Feb. 15 marked the sixth consecutive week of mutual fund inflows, including into bond funds, according to the Investment Company Institute.

Meanwhile, cash is flowing out of money market mutual funds at a rapid clip.
Despite the apparent newfound love for equities — and in the face of significant interest rate risk — investors remain smitten with bonds. Bond fund inflows were at the highest level since May 2010.

During the period, investors put $8.2 billion into bond funds and just $1.04 billion into stock funds, ICI said. Hybrid funds, which hold both asset classes, took on $2.66 billion.

As Europe totters into its second recession in three years, all eyes are on the U.S. Federal Reserve. A potential third round of quantitative easing, known as QE3, would likely help stock prices rise higher while punishing the U.S. dollar.

Dallas Fed Chief Richard Fisher, an inflation hawk, threw cold water on that idea. He told CNBC in an interview Thursday not to expect much more from the central bank, adding that the U.S. recovery was stronger than it appeared.

“Our job is not to prop up the Street,” Fisher said.

Fisher isn't currently a voting member of the rate-setting committee of the Fed.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Thursday, 23 February 2012 10:53 AM
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