This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Kass: Fair Market Value Update

Scenario No. 3 -- Below-Consensus Economic Growth (probability stays at 55%): The U.S. experiences a disappointing sub-1.5% real GDP growth rate, Europe experiences a medium-scale recession, and China's economic growth modestly disappoints relative to expectations. The Fed announces a plan to expand its buyback of U.S. Treasury bonds in addition to mortgage-backed securities -- the policy has a modestly favorable impact on aggregate growth. Either party wins in something less than a close election. The fiscal cliff is reduced by less than half (to $275 billion to $350 billion). The S&P 500 profit forecast for 2013 is reduced to levels slightly below 2012's results and to a below-consensus range of between $95.00 and $97.50 per share, as corporations' pricing power is limited and profit margins are pressured. Stocks, valued at 14x (up from previous 13x multiplier) under this outcome, have 5% downside risk over the next eight months. S&P target is 1345.

Scenario No. 4 -- Muddle Through (probability stays at 40%): The U.S. muddles through, with 1.5% to 2.5% real GDP growth, and the European economies suffer a modest (but contained) business downturn. China's and India's economies grow in line relative to consensus forecasts. The Fed announces a plan to expand its buyback of U.S. Treasury bonds in addition to mortgage-backed securities -- the policy has a modestly favorable impact on aggregate growth. My baseline case of a comfortable Obama presidential victory, Democrats keeping control of the Senate and the Republicans retaining control of the House comes to pass. The fiscal cliff is reduced by half (to $275 billion). S&P 500 profits for 2013 trend toward a range of between $100 and $103 per share as some modest margin slippage occurs (coincident with escalating inflationary pressures). Stocks, valued at 15x (up from previous of 14.25x multiplier and near 50-year historic average) under this outcome, have 8% upside over the next eight months. S&P target is 1520.

How Do I Use My Fair Market Value Exercise in Actual Practice?

I use this exercise as a guide to portfolio management.

The natural question to ask is, If I believe (as I currently do) that the market is fairly valued at 1411, why be 50% invested in equities in a long-only portfolio?

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free

Markets

Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs