Doug Kass: I'm Increasing Long Exposure to Stocks
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This column originally appeared on Real Money Pro at 9:05 a.m. EDT on Oct. 25.
- I continue to see fair market value of the S&P 500 at about 1390 (only 20 S&P points lower than Wednesday's close), but before then, many stocks have and will be moving back into buyable areas. This is the most important factor -- individual stocks are coming into my buying levels. Procter, Ford and AIG are good examples.
- I am laser focused on the yield on the 10-year U.S. note. At 1.84% (5 basis points over Wednesday's close, this morning), it is close to its recent high of 1.91%. Despite near-universal domestic growth concerns, yields are rising and bond prices are moving lower, sending a possible message that once we get through the fiscal cliff, a lot of pent-up demand will lift U.S. economic growth. The prospects for a recovery in automobiles -- the average vehicle on the road is a record 10.5 years old today -- and other durable spending comes to mind.
- The long-expected reallocation trade out of bonds and into stocks is inevitable, though its timing is uncertain.
- We have more empirical support over the past month for my long-standing and optimistic thesis that housing is embarking on a durable, multiyear recovery.
- Many, including myself, may have gotten too impatient with the ineffectiveness of QE3. While I still subscribe to the view that the marginal impact will be small, considering its recent introduction in September, I and others might be too impatient and too pessimistic.
- There is now an interesting dichotomy between consumer strength and weak business confidence (reflected in poor hiring rates and punk capital spending). Should there be some resolution of the fiscal cliff, business activity could come back strongly in early 2013. This would mean pent-up hirings and business fixed investment. On top of a surprisingly strong consumer, this could be a wonderful cocktail of growth. It is too early to tell, but this is the message in the recent ramping (in the last few days) in bond yields.
- We have better economic numbers out of China. I am now less fearful of a hard landing, and a soft landing is my baseline expectation.
- Skepticism is on the rise. You only have to watch the business media. Two 90% down days over the past week has warmed the cockles of Cassandras and those technical analysts that rely solely on levels. Many of those who worship at the altar of price momentum and were glibly confident and bullish with the S&P Index at 1470 (going to 1550!) are now bearish at 1410. Though singing the S&P tune of 1550 two weeks ago, they are now singing the tune of 1375, as if there is something mystical and a certain truth about the technical levels.
- As Raymond James' lynx-eyed strategist Jeff Saut reminds us this morning, the market has been a confusing temptress, "If there is a strong rebound from here, the bullish pattern can resume quickly. In fact, that is the way it has played at such critical levels for over three years."
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