Kass: Current Fears Are Overblown

This column originally appeared on Real Money Pro on Nov. 12.

NEW YORK ( Real Money) -- In my writings over the past six months, I have expressed concern that the fiscal, economic, geopolitical and earnings cliffs would be in attendance over the balance of the year and into early 2013, serving to weigh down the U.S. stock market.

This summer, owing to economic and profit concerns, I took a contrarian view and opined on these pages (and expressed in my " Fast Money" appearances on CNBC) that stocks were fully priced and would likely hit a yearly high in the range of 1420-1425. The markets ignored my concerns and continued to move higher, as the S&P 500 rose to nearly 1480, fueled by a view that the data don't matter while those who worship at the altar of price momentum held court and seemed to dominate and control the markets.

I still remain deeply concerned about the earnings cliff, but recent signposts suggest a somewhat more reduced concern over the other cliffs and over the market risks served up by a rising tax rate on dividends and capital gains.

These signals, when combined with central bank easing around the world and the recent stock market slide, suggest that the current fears are overblown, that the rationale behind a meaningful market downside has been removed and that the market's risk/reward has improved.

I am more upbeat than I have been for quite some time, and, while not "over my skis" long, I have increased my net long exposure as a manifestation of that increased optimism.

If the economic, geopolitical and political backdrop continues in line with my expectations, I plan to expand my net long exposure on any further market weakness.

My fair market value calculation of the S&P 500 remains at 1415 -- it has been around this level since May -- compared to a cash close of 1380 as of Friday night. While stocks are about 3% cheap, many stocks are substantially more undervalued. Moreover, if I am correct about my observations in dismissing some of the concerns over the steepness of the fiscal cliff and of an economic slowdown (as well on tax rate changes on dividends and capital gains), there is likely to be an upside to my fair market value calculation in the months ahead.

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