Kass: On the Contrary
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This column originally appeared on Real Money Pro at 8:03 a.m. EST on Jan. 29.
- "There is no alternative to stocks; bond money will flee equities." (Many classes of investors may remain risk-averse, as there are numerous secular issues facing global economic growth. Moreover, rising interest rates might attract new fixed-income money from investors.)
- "Stocks are cheap relative to bonds." (This has been the case for three years; it's not a new observation. But monetary policy in the U.S. is in its final innings.)
- "Money markets yield near zero." (This has also been the case for over three years.)
- "The data don't matter." (Until they do.)
- "Washington's inertia in dealing with the budget deficit doesn't matter." (Really? If our leaders don't address the burgeoning deficit and kick the can down the road, a price will be paid. At the very least, this will prove to be valuation-deflating.)
- "The market wants to go higher." (Until it doesn't. Those who worship at the altar of price momentum will retreat from the markets in any meaningful market decline.)
- "Central banks are printing huge amounts of money; it has to go somewhere." (Monetary easing in the U.S. has still failed to create a self-sustaining recovery. Fourth-quarter 2012 real GDP will likely be only +1.5%. Secular issues continue to weigh on growth and will for some time. If printing money was the sine qua non, every recession would be patched up by monetary expansion. There is a price to pay for excessive monetary growth.)
- "Despite a relatively sluggish corporate profit outlook, valuations -- P/E multiples -- will expand." (We are at about the average multiple over the past five decades. Considering the aforementioned secular issues, why should valuations be above the historic average?)
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