This blog post originally appeared on RealMoney Silver on Nov. 5 at 8:18 a.m. EST.
I continue to believe -- and the evidence is mounting (as is abundantly clear from my talks with widespread corporate management teams who almost universally underscore their unclear and weakening outlooks) -- in the grim reality that, despite massive policy intervention, the world's economies are dropping at a rapid pace, and, equally important, the corporate profit outlook lacks visibility into next year.
This characterization is emphasized by the magnitude of fiscal and monetary relief, which is historic in scope and seems to multiply daily/weekly. Those policy decisions reflect the broad and widening set of economic problems that run deeper than any given time in many decades. Our financial system nearly folded under the pressures of the egregious use of debt at almost every economic level in the public and private sectors, a lack of lending and borrowing discipline, uncensored consumer spending and a general disregard by regulatory authorities, especially toward the emerging shadow banking system.
Thus far, the credit markets have thawed in a consistent and sequential improvement in LIBOR, spreads and other measures over the last two weeks. That's a good thing, but it doesn't mean that the availability and cost of credit will readily improve. Indeed, tight loan conditions
as banks remain
The foundation of economic growth remains fragile, and I will continue to use the parallel that economy is akin to a patient who has suffered a massive coronary and doesn't recover like he has from prior colds and who doesn't go out and play three sets of tennis after that heart attack.
I remain of the view that the current recession, which was initially dismissed by the many, will have a shelf life unlike prior recessions in both scope and duration. It seems very unlikely to this observer that third-quarter economic statistics are a template for future growth and economic conditions. For these reasons and others, looking for similarities and comparing (length of convalescence, magnitude of recovery, etc.) the prospective 2008-2010 economy with prior recessions is not necessarily a valuable exercise.
I recognize that my view is slowly being embraced by the consensus, which is very unlike a year ago, or even six months ago, when I thought I had an edge in my view of the stock market (deteriorating) and the economy (worsening), and when I had a sense of impending doom and disaster regarding the dominant investor (hedge funds). I don't feel like I have that edge anymore.
As a consequence, the world's equity markets could be more appropriately priced today than at any time in the last 18 months, so excess returns might now be delivered not on a variant market/economic view but rather through careful and logical selection of superior asset classes, sectors or individual securities. (It is for these reasons that I recently wrote "
," which attempted to identify secular developments stemming from our economic woes and our likely political changes.)
From a political perspective, we have experienced a game changer for many industries, our people and for our economy.
I voted for President-elect Barack Obama, and his speech last night was inspirational, but with the widening power of the Democratic party in 2009, stock market investors must recognize that the election last night was a high-risk and high-reward event. Naturally, we all obviously hope for the latter.
As such, I don't expect the
to morph into the
In conclusion, it is different this time, both economically and politically. It is also more uncertain this time, both economically and politically. And, as such, P/E ratios have little upside, particularly when the the 'E' in the P/E equation has ever more uncertainty attached to it.
Doug Kass writes daily for
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Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.