'Fast Money' Recap - 03/09/10

	I now see a series of challenges that threaten the asset-management industry's business model.
	I am planning to scale into shorts on strength.
	Franklin Resources remains my favorite short name in the group.

On Friday night, I rejoined joined my pal Melissa Lee and my other buddies on CNBC's "Fast Money" team.

Given the staccato-like pace of the show, I did my best to construct a logical and well-reasoned argument for why the market was fully priced -- "price is what you pay; value is what you get" -- and why the asset manager group seemed among the most vulnerable sectors extantt.

Let's go to the tape..

I pretty much covered my market view in Monday's opening missive, so there is no need to regurgitate it!

As to the asset managers, I remarked that in my short book, I search for companies or industries with diminished growth prospects vs. past performance and future consensus projections. The asset-management industry has traditionally been seen as a leveraged play on the stock market -- if equities in general rise, then asset managers typically rise more quickly and vice versa.

I now see a series of challenges that threaten the industry's business model.

While the momentum of the broader stock market suggests that the group should be given a wider berth, I am planning to short into strength, but on a scale.

There is a secular demographic headwind as the baby boomers are maturing, and as they grow older, they are less likely to invest in stocks.

On the populism front -- something to I often refer to on "Fast Money" and on RealMoolah -- it is clear that the administration, spearheaded by SEC Chairman Mary Schapiro, is targeting 12b-1 fees, which are the annual distribution and marketing fees that mutual fund investors reimburse to the mutual fund management companies. By some estimates, nearly $200 billion in fees have been paid over the past two decades. Any ruling that reduces or eliminates reimbursement of these fees will harm the sector big time.

The consumer, after decades of being aspirational in both his consumption and investing, is likely to be less so in the years to come. This helps to explain why flows have been so weak while the markets have climbed over the past year. The average Joe has had a number of financial body blows, and his confidence is shaken. The shock of losing so much money in 2008 is still fresh in consumers' minds. We also have had an unprecedented drop in home prices over the past three years, and homes are the consumers' most important assets. As well, the American worker has seen deflation in his wages and a crunch in disposable income. A record number of jobs have been lost, and it's increasingly hard for young adults to find jobs, a demographic that historically has had a strong propensity to invest. This is not likely to be the case in the future as the consumer is going to cut back his expenditures and investing in equities will continue to be put on the back burner.

A component of the aggressive cost-cutting at major corporations has been the reduction or elimination of matching 401(k) contributions. Many wholesalers I speak with underscore that this is a negative secular development as 401(k) contributions are the lifeblood of the asset-management business.

With a market cap of nearly $25 billion and with a forward P/E of around 18 times at the upper end of its historic range, which has peaked consistently at about 20 to 21 times in every cycle, Franklin Resources (BEN) remains my favorite short name in the asset-management group. About 13% of the company's assets under management were in global fixed income at the end of the latest quarter, and that percentage in fixed income is much higher if you include the portion of the firm's hybrid total-return funds and its domestic bond funds. Also, Friedman Billings re-emphasized its market-perform rating this morning with a $118 price target.

Franklin Resources can be viewed as a good short against an emerging bubble in the world's fixed-income market as well as a play on the possibility of a continued recovery in the U.S. dollar. I have a Franklin short against a State Street (STT) long as a paired trade.

Position: Long STT; short BEN