Short Seller Doug Kass on Malinvestment, Permanent QE, the Global Economy

Aaron Task did a nice video interview of famed short seller Doug Kass on Yahoo! Finance. I am waiting to pull the trigger, says Kass.

Kass’s contrarian views are well known on Wall Street. Last December, he predicted that global economic growth would be subpar, even as much as 50% less than the consensus and that, as a result, bonds would outperform stocks and the 10 year yield would fall to around 2.5%. “Nobody thought that,” says Kass.

[Mish note: Lacy Hunt at Hoisington made that call, and so did I and a few fellow bloggers. But as for mainstream predictions, Kass is essentially correct]

“My view is the Fed has made a mockery of fundamentals, that there is no real natural price discovery," he says. Kass believes, "Every asset class in the world is being tied relative to the U.S. 10-year yield which is artificially depressed and even more depressed because of the recessionary conditions and the sovereign debt yields in Europe... It's leading toward malinvestment."

With the economies of Japan, Russia and Brazil in a recession and Europe on the brink, many including Kass believe the U.S. stock market will be brought back down to earth. Kass says "25% of the world is basically flatlining or in a recession...We might be the cleanest shirt in dirty laundry, but it’s going to get soiled."  Kass expects corporate profit expectations to come down as a result.

So how is the short-seller Kass positioned now? “One of the important tenets and the most simple tenet I have learned over four decades is to let your profits run and stop and cut your losses. It’s easier to write and say… than implement sometimes,” he says, “Right now I have a small net short position, and I am waiting to pull the trigger.”