Kass: Revenge of the Longs
05/22/09 - 11:51 AM EDT
Doug Kass
This blog post originally appeared on RealMoney Silver on May 22 at 7:27 a.m. EDT.
More from Doug Kass Kass: The Sideways CorrectionKass: Leave the Bonds; Take the EquitiesKass: Chase Value, Not PriceKass Nailed It on Wells Fargo!Kass: Party's Over for FinancialsKass: What a Piece of Work Is Buffett!Buffett Watch: The Oracle Gets a Free PassKass: A Rare, Long-Term OutlookKass: Risks Associated With Second Derivative RallyKass: Are We Overbought? Yesterday was the type of day in which the shorts and the underinvested rip their hair out as the S&P downgrade to negative of England's credit rating raised concerns that the U.S. credit rating will have a similar fate. U.S. government bonds and notes fell precipitously, and the U.S. stock market briefly looked like it would go into a mid-afternoon free-fall. (Note: The notion of a crowding out and higher interest rates was an integral part of my correction call over the past two weeks.)
Instead, equities halved their losses late in the day, and in this morning's trading, futures are solidly in the black.
Trust me, I have been there on the short side, and I have felt the pain of days like this.
I continue to surmise that there are so many hedge funds that failed to believe in the recent market surge and that are underinvested and underperforming as a consequence. They recognize that they missed the bottom, and after their dismal performance in 2008, they cannot afford to continue do that path. Stated simply, their businesses are at risk. The only question is when to enter for many, as they simply can't afford to continue to trail the market averages.
Then there is the issue of the large U.S. pension funds that are markedly skewed toward fixed income exposure - after the material outperformance of bonds vs. equities - over the course of the last 18 months. With bonds tanking and stocks rallying, a reallocation by these funds out of bonds and into stocks is almost inevitable as these pension plans become the important marginal buyer, ultimately providing classical fuel to a march higher in stocks during the summer, even despite the wall of worries.
It's the revenge of the longs. |
