Doug Kass of Seabreeze Partners Short L.P. Kass Katch of the Week (subscription required) wrote a compelling article at Street Insight on why he is bearish on retailers. Because Kass's comments were given on a subscription site, I will not provide a thorough recap of his arguments. However, I must tell you that his arguments are compelling. If you are not a subscriber, I encourage you to become one. Kass's comments alone are worth the subscription price.
Earlier this month, I described about researchers who conducted a set of lab experiments in which mice were daily given a discrete choice between cocaine and food. If the mice pressed Bar A, they got food pellets for the day and if they pressed Bar B, they got cocaine-infused water for the day. Over time, these hedonic rodents repeatedly binged on the cocaine and actually slowly starved themselves to death by choosing to feed their addiction over sustenance. Over the last several years, the mortgage brokers were the cocaine dealers and teaser, interest-only and adjustable-rate mortgages were the crack, leading to an epidemic of consumption which belied the underlying income levels.
Fearing that the end of the housing ATM will slow retail sales is nothing new. But I like how Kass expressed his viewpoint.
My cautious outlook is less severe than Doug's. I continue have a few defensive stocks—namely, GLD and PAAS—that have certainly helped the portfolio's performance recently. And I do have some higher octane stocks should the market surprise everyone.
Leave a comment