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Doug Kass: Sell Banks, Short Bonds

Tuesday, 13 Mar 2012 | 6:20 PM ET

With the market reeling from the early release of the stress test results, the Fast Money pros turned to Doug Kass for his latest insights.

Widely followed for his ability to time the market, Kass is president of Seabreeze Partners, a CNBC Contributor and a contributor to the Street.com, Jim Cramer’s Real Money Pro web site.

And essentially he tells the gang to sell banks and short bonds.

Banks

Although at least 15 big banks passed the Fed’s stress test, Kass’ outlook is far from optimistic. He tells us rather succinctly, “I’d be inclined to sell out of the entire group – done.

With the XLF over 20% higher over the past 3 months, Kass just doesn’t see a whole lot more upside. In fact he thinks the next catalyst for the sector could be negative.

“My concern with banks over the next couple of months is economics,” he says. “There’s increasing economic ambiguity both domestically and abroad.”

Doug Kass: Sell Banks, Short Bonds
Reacting to today's late rally for the financials, CNBC Contributor Doug Kass tells Fast Money the banks have hit their highs for the year and should be sold. Separately, he lists five reasons to short Treasury bonds.

Bonds

Looking at the bond market, Kass thinks the long end of the curve is about to make a major move.

“I think there’s 100 basis points to the upside in the yields in the 10-year and 30-year,” he says.

Ahead of the broadcast, Kass cited the following catalysts to support his thesis.

- Flight to safety is going to diminish
- Flows out of stock funds & into bonds seem to be at a tipping point
- Confidence is recovering
- Inflation remains an issue
- Fiscal imbalances to come back and bite the bond market

Source: Doug Kass, Seabreeze Partners

And Kass thinks technicals are starting to confirm his thesis. “The 10-year note is now yielding 2.1%, it’s just broke out of a 6 month range," he says.

Tethered to this trade is Kass’ concern about the nation’s fiscal imbalance. The US said the deficit would swell to $1.2 trillion this year, $93 billion more than projected largely due to the payroll tax cut. “The failure to address fiscal imbalance is likely to come back and bit the bond market.”

Markets

Of course a decline in banks could drag down the entire market. And that begs the question – can bonds go down while stocks also go down. Kass thinks it can. “There’s ample precedent that both can go down,” he says.




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Trader disclosure: On March13, 2012 , the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Finerman is short AAPL calls; Finerman is long JPM; Finerman is long WMT; Finerman is long TGT; Finerman is long HPQ; Finerman’s firm is long BAC; Finerman’s firm is long JPM; Finerman’s firm is long HPQ; Kelly is long GLD puts; Kelly is long SMH; Kelly is long SPY calls; Kelly is long IWM; Kelly is long KRE; Kelly is long USG; Kelly is long MHK; Kelly is long XHB; Kelly is short EWA; Kelly is short EWY; Kelly is short Aussie dollar; Kelly is short Yen; Adami is long C; Adami is long GS; Adami is long INTC; Adami is long AGU; Adami is long NUE; Adami is long BTU; Stutland is long IBM and short calls; Stutland is long GE and short calls; Stutland is long KO and short calls; Stutland is long LQD; Stutland is long DIA puts; Stutland is long SFT and short calls; Stutland is short NLY put spread; Stutland is short TLT puts; Stutland is long TIPS
Stutland is long T and short calls; Stutland is long EFR floating rate treasury ETF; Market maker holding hedged positions in VIX futures and options

For Doug Kass
Kass is long TBT common and calls

For Mary Gilbert
No disclosure

For Jens Nordvig
No disclosures

For Fred Cannon
KBW expects to receive or intends to seek compensation for investment banking services from Bank of America Corp. in the next three months. KBW currently makes a market and/or acts as a liquidity provider in Bank of America Corp. securities.

KBW expects to receive or intends to seek compensation for investment banking services from BB&T Corporation in the next three months. KBW currently makes a market and/or acts as a liquidity provider in BB&T Corporation securities.

KBW expects to receive or intends to seek compensation for investment banking services from Bank of New York Mellon in the next three months. KBW currently makes a market and/or acts as a liquidity provider in Bank of New York Mellon securities.

KBW expects to receive or intends to seek compensation for investment banking services from Citigroup in the next three months. KBW currently makes a market and/or acts as a liquidity provider in Citigroup securities.

KBW expects to receive or intends to seek compensation for investment banking services from Fifth Third Bancorp in the next three months. KBW has received compensation for investment banking services from Fifth Third Bancorp in the past 12 months.

KBW currently makes a market and/or acts as a liquidity provider in Fifth Third Bancorp securities. Fifth Third Bancorp currently is, or was during the 12-month period preceding the date of distribution of this report, a client of KBW.

KBW expects to receive or intends to seek compensation for investment banking services from Goldman Sachs Group, Inc. in the next three months. KBW has received compensation for investment banking services from Goldman Sachs Group, Inc. in the past 12 months. KBW currently makes a market and/or acts as a liquidity provider in Goldman Sachs Group, Inc. securities. Goldman Sachs Group, Inc. currently is, or was during the 12-month period preceding the date of distribution of this report, a client of KBW.

KBW expects to receive or intends to seek compensation for investment banking services from JPMorgan Chase & Co in the next three months. KBW currently makes a market and/or acts as a liquidity provider in JPMorgan Chase & Co securities.

KBW expects to receive or intends to seek compensation for investment banking services from MetLife in the next three months. KBW currently makes a market and/or acts as a liquidity provider in MetLife securities.

KBW expects to receive or intends to seek compensation for investment banking services from Morgan Stanley in the next three months. KBW currently makes a market and/or acts as a liquidity provider in Morgan Stanley securities.

KBW expects to receive or intends to seek compensation for investment banking services from PNC Financial Services Group in the next three months. KBW currently makes a market and/or acts as a liquidity provider in PNC Financial Services Group securities.

KBW expects to receive or intends to seek compensation for investment banking services from U.S. Bancorp in the next three months. KBW currently makes a market and/or acts as a liquidity provider in U.S. Bancorp securities.

KBW expects to receive or intends to seek compensation for investment banking services from Wells Fargo & Company in the next three months. KBW currently makes a market and/or acts as a liquidity provider in Wells Fargo & Company securities.

For Scott Nations
Nations is long BAC
Nations is long C

For Mike Kirby
No disclosures


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