Did Anybody Get it Right in 2011? Perhaps Doug Kass Came Closest

We wrote a fairly comprehensive review of 2011 market predictions back in late December 2010 and found the average major financial institution strategists almost uniformly calling for a bullish year, with the average going-in prediction for the S&P around 1425. Of course, it would have been hard for anyone to totally predict the issues with the Japan crisis, the street unrest in the MidEast, the depth of the European crisis and the absolute futility of the political gridlock in Washington. (Hmm, funny, as I write that perhaps Japan was the only “unknowable”.)

Doug Kass, frequent market commentator and President of Seabreeze Partners, annually puts out a wide-ranging forecast for the upcoming year, acknowledging that some of the calls are a bit out there but all within the realm of possibility. We find Kass to be one of the more clued-in, thoughtful and provocative thinkers on economic, market and macro issues.

Just for fun let’s take a look at his 2011 “Fifteen Surprises” and see how they fared:

1) In line with consensus, the domestic economy experiences a strong first half, but several factors conspire to produce a weakening second half, which jeopardizes corporate profit growth forecasts. (Seems pretty much right on the money).

2) Partisan politics cuts into business and consumer confidence and economic growth in the last half of 2011. (Bingo)

3) Rising commodities prices becomes the single greatest concern for the U.S. stock market and the economy. (Rising commodity prices, yes, on the #1 concern would have to argue that point)

4) The market moves sideways during 2011. (Sideways, no... but flat on the year, a resounding yes and one of the few who made this call going-in).

5) Food and restaurant companies are among the worst performers in the S&P 500. (Will give this one some credit as “some” food and restaurant companies are among the worst performers in 2011 but some others such as MCD and CMG have had great years. Certainly the thought was right in that consumers generally still scrimping on meals eaten and taken out of restaurants and deal-hunting for all sorts of grocery shopping. We looked at 3 related ETFS: MOO (-14%), FUD (-11%) and PBJ (+5.5%))

6) The shares of asset managers suffer. (Absolutely correct and three he recommended specifically to short all down on the year: BEN, TRO, AND WDR)

7) Vice President Joe Biden and Secretary of State Hillary Clinton switch jobs by midyear 2011, 18 months before the 2012 Presidential election. (NOPE)

8) Speaker of the House John Boehner is replaced by Congressman Paul Ryan during the summer. (NOPE)

9) A new political party emerges. (Will give some credit here as 3rd party talk is up again, the rise of the ‘Tea Party’ and the OWS movement emerging).

10)The price of gold plummets by more than $250 an ounce in a four-week period in 2011 and is among the worst asset classes of the new year. (WOW!)

11) Among the most notable takeover deals in 2011, Microsoft launches a tender offer for Yahoo! at $21.50 a share. (There have been several stories saying that MSFT and a private equity firm considering an offer for YHOO but nothing firm yet)

12) The Internet becomes the tactical nuke of the digital age. (Referring directly to hacking attacks and cyber crime and would have to give this 75% credit).

13) The SEC's insider trading case expands dramatically, reaching much further into the canyons of some of the largest hedge funds and mutual funds and to several West Coast-based technology companies. (In general, this is right on the mark as the SEC has stepped it up this year).

14) There is a peaceful regime change in Iran. (Certainly something that world leaders would like and could happen sometime in next few years, but not 2011).

15) China overplays its economic hand by implementing multiple tightening and by its unwillingness to allow its currency to appreciate. (Essentially correct on policy actions but “overplaying its hand” a bit questionable.)

Separate from these “Fifteen Surprises”, Kass was also negative on the housing market, which also turned out to be an essentially correct call. Aside from his “out there” political speculation, Kass did a remarkable job of “calling the year”, we think. We’ll take a quick look at his 2012 “Surprises” sometime soon.

Good Trading!
David W.

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