Doug Kass, of Seabreeze Partners, provided a sanguine view of the stock market’s prospects on CNBC’s Futures Now program this week. Based on his view that traders are ignoring “conspicuous headwinds,” Kass sees the possibility the market is making its high for the year.
One of the most important negatives, according to Kass, is that fiscal and monetary policy is unsustainable and diminishing in strength. The country is running trillions of dollars in deficits while maintaining zero interest rates, he added.
The eventual reversal of these policies will result in slower growth, rising rates and less attractive valuations, Kass said. Monetary policy is effectively shooting blanks and fiscal policy, in reaction to the bulging deficits will become a drag, he added.
In addition, Kass said the consumer is “beaten up” with incomes not keeping up with the necessities of life. He also mentioned the housing market drop and the renewal of the payroll tax to bolster his thesis. This was manifested in the recent drop in consumer confidence, according to Kass.
Kass calculates the S&P 500′s fair value is 6-7% below where it is currently. The interview continued with Kass commenting on what would change his forecast, the cliffs he sees ahead (earnings), and his end of year target (S&P 500 at 1425).
Earlier this month, Kass shared his suprise predictions for the coming year [link].