Tags: kass | liquidity | fed

Kass: Liquidity Rally Over, Investors Face Reality

Sunday, 08 Apr 2012 05:42 PM

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Investors high on easy money from the Fed are about to find out the real value of their holdings, says hedge fund manager Doug Kass, president of Seabreeze Partners.

Now that the Federal Reserve appears less likely to engage in a third round of quantitative easing, all assets are in jeopardy: stocks, bonds, even gold. Fed minutes released this week show tepid interest in more easing.

“From my perch, the liquidity rally, which has been in place for several years now and is responsible for some of the rally off of the generational bottom, is now over,” Kass writes for TheStreet.com

Add to that the head-on collision in Washington as the Bush era tax cuts expire and automatic spending cuts equal to $1.2 trillion are set to take place — unless Congress makes its own cuts first as the U.S. presidential election looms.

“Absent more easing, investors are about to experience natural price discovery in stock prices,” Kass says.

Kass is not alone. Jeffrey Hirsch, editor of the Stock Trader’s Almanac, is adding to the sell call for equities.

Often, but not always, stocks do worse from May to October, prompting a self-reinforcing cycle of “sell in May and go away” for stocks.

“I do believe that we’ve set ourselves up for another seasonal downturn,” Hirsch told MarketWatch.

Things are likely only complicated by an especially weak monthly jobs number. The economy added just 120,000 jobs this past month, after several months in a row of 200,000-plus numbers.

Economists believe that hiring that might have taken place normally in the spring was pushed backward by a warm winter, prompting the decline in March as a number of net new jobs were already filled.

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