FINANCIAL ADVISOR INSIGHTS: Doug Kass Says Investors Are Exhibiting 'Magical Thinking'

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Doug Kass Thinks Investors Are Not Being Realistic In Their Expectations (The Wall Street Journal)

After the 108 point decline in the Dow yesterday, the Wall Street Journal quotes hedge fund manager Doug Kass saying he is “as bearish on stocks as I have been in some time”:

“At the core of my concern is that a global economy built on a foundation of excessive monetary easing is one of low quality, decaying fundamentals and not likely to be effective or self-sustaining.

“To me investors are not being realistic in their expectations (and almost magical thinking) that an aggressive printing press can relieve and trump the profound challenges and headwinds to global growth without any negative consequences.

“I remain concerned that much of the current investor optimism expressed in a rising stock market is not consistent with the underlying economic and profit data.”

Trend Followers Will Take The Biggest Hit (Price Action Lab Blog)

The market has been moving sideways for several weeks, according to Michael Harris, and the Dow Jones ETF has been in a 1.5 per cent band for the past 17 days which has never occurred before. Whenever there has been a similar confinement it has been followed by “four month of sideways and volatile motion”.

While there isn’t clear causality it is important to be aware of this. “If the market goes into an extended period of volatile and sideways action, the first victims will be trend followers who have made most of their gains this year from trends in stock indices,” writes Harris. “But systematic trend followers are an easy prey.”

How Advisors Can Better Work With Widows (Advisor Perspectives)

There are currently 12 million widows in the U.S. and some 800,000 are expected to become widows each year according to Kathleen Reh, CFP. She writes that 70 per cent of widows change advisors once their spouse dies. With that in mind Rehl has some pointers for advisors on how to work with widows.

1. Be a good listener 2. Become her “thinking partner” and give her written summaries of meetings 3. Tell her to take her time on decisions that don’t need immediate attention 4. Make her feel secure, remember she is not usually “interested in beating the market” 5. Help her with tasks that could overwhelm her like going to attorneys to figure out how to settle the estate 6. Show compassion by urging her to take part in grief support services. 

Rehl also warns advisors about using platitudes in dealing with widows and urges advisors not overwhelm them with charts and quarterly reports.

Hedge Funds Are Dumping Gold (Goldman Sachs)

Hedge funds have been lowering their holdings of long-time favourites like gold, according to Goldman Sachs’ Hedge Fund Trend Monitor report. 

“Holdings in GLD were also lower than they have been in at least four years, equaling just 0.6% of long positions as the ETF fell 6% in price…”

hedge fund gld positions

Goldman Sachs

Dennis Gartman Is Exiting All His Bullish Positions (The Gartman Letter)

In the latest Gartman Letter, Dennis Gartman says there has been a “tectonic shift” in capital markets. He thinks stock markets have ended their bull run and that both the broader indices and individual stocks have reversed.

“We have been openly bullish of equities unerringly since late last year and became even more so on the first day of this year when the indices all ‘gapped’ higher on huge volume. We had no choice but to be bullish; the markets were powering higher and they had the fuel from the monetary authorities to do so. 

“Now, however, that fuel is thought to be pushed a bit away; the “punch bowl” has been moved nearly out of reach and that alone would be sufficient to force us to change our bullish posture. But with the technical in the markets breaking down as badly as they have we’ve no choice but to exit any and all bullish constructed positions and rush to the sidelines.”

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