Doug Kass: Technically Speaking, It's Hitting the Fan
Technicians are now almost universally turning negative as equities and bitcoin fall in tandem. Here's what Kass has been saying all along.
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You don't find out who's been swimming naked until the tide goes out.
- Warren Buffett
When the market was making new highs and share price momentum was positive, I cautioned that technicians looking at the rear-view mirror were universally bullish — and that market and fundamental caution were in order.
The emerging poor fundamentals (slowing economic growth and slugflation) were ignored by investors as fear of missing out and elevated animal spirits were in full force with the tide rolling in.
Meanwhile Warren Buffett was criticized (as he was in 1999) for accumulating record amounts of cash at Berkshire Hathaway BRK.A BRK.B and ignoring the amazing run in Magnificent Seven equities.
I was one of the only ursine voices around. After all, the tide was moving in as price momentum -- in part the byproduct of equity inflows and company buybacks -- was uber positive. This thrilled the cockles of the heart of CNBC "talking heads" and at other business news outlets in which contributors seemed to know everything about price but know nothing about value.
Hubris became the watchword, while risk discipline and extended valuations were materially ignored. Strategists fell over themselves by raising S&P 500 price targets.
Fundstrat's Tom Lee was lionized as a market seer -- becoming a modern day Joe Granville.
In mid-January, our Comments Section, Twitter and Fin TV were crowded by a universal enthusiasm with regard to large-cap technology, mainly the Magnificent Seven. Meta Platform's META shares rose by a consecutive and record three weeks in a row.
At that time I cautioned that the tide may be about to roll out. I argued that:
* The Mag7 and other "generational compounders" were extremely overvalued (68 columns on Nvidia NVDA supported my view of the world's leading equity).
* Investors/traders were disregarding reward vs. risk, particularly in AI hyperscalers (MSFT, GOOGL, META et al) and that there was no "margin of safety".
* January 2025 should be compared to January 1973 -- a possible peak of Mag7 to the end of the "Nifty Fifty" era.
* Despite the protestations of the bullish cabal, the market was not broadening out and the Russell Index was not crowing.
* The PT Barnum of cyrpto (at the time bitcoin was the trading community's favorite asset class making new highs in price), Michael Saylor, was being praised in the business media (who through softballs in interviews as they did with Sam Bankman-Fried one month before FTX was declared bankrupt) - just when MSTR's shares from falling from $550 to under $300. At the same time I was critical of the hot lava of love by the Administration's new found discovery of crypto - replete with grift and conflicts of interest.
* The S&P (at the time +4%), may be at the top end of my +5% to -10% to -15% expected 2025 range.
Now, after the Gold Rush, technicians are almost universally turning negative as equities and bitcoin fall in tandem.
Lessons Learned
Keep the above observations in mind when evaluating the value of technical input (and others) at market and key asset inflection points (both at tops and bottoms!).
Always stay disciplined, consider reward vs. risk, seek a "margin of safety" and do your own analysis and homework.
Above all keep your portfolios and children away from those without investment process, who makes decision on gut/feel and have a knowledge base miles long but only inches deep.
Buy low, sell high.
