“I am less confident as a decade of hocus-pocus borrowing and lending and 35-to-1 leverage at almost every level in both private and public sectors cannot likely be relieved in the great debt unwind over the course of only 12 months.”
-Doug Kass, August 26th 2009
Doug Kass has made some tremendous calls over the past few years from his The Edge column on TheStreet.com. Not least of which is his “Generational Lows” call, in which he picked the stock market’s bottom 2 days in advance back in early March.
He has gotten more bearish of late and this morning, he’s made another big call that should not be ignored.
His opinion is that the optimism over a recovery has gotten way ahead of itself in light of what the mechanics that have driven the rally actually are.
Below are ten items that he thinks will weigh on the economy and Wall Street for the balance of the year:
My view remains that it is different this time. Again (now for emphasis), the typical self-sustaining economic recovery of the past will not be repeated in the immediate future for 10 important reasons that will weigh on the economy and markets like the governor that controlled the speed of the Good Humor truck I drove when I was in my teens during the summer:
- Cost cuts are a corporate lifeline and so is fiscal stimulus, but both have a defined and limited life.
- Cost cuts (exacerbated by wage deflation) pose an enduring threat to the consumer, which is still the most significant contributor to domestic growth.
- The consumer entered the current downcycle exposed and levered to the hilt, and net worths have been damaged and will need to be repaired through higher savings and lower consumption.
- The credit aftershock will continue to haunt the economy.
- The effect of the Fed’s monetarist experiment and its impact on investing and spending still remain uncertain.
- While the housing market has stabilized, its recovery will be muted, and there are few growth drivers to replace the important role taken by the real estate markets in the prior upturn.
- Commercial real estate has only begun to enter a cyclical downturn.
- While the public works component of public policy is a stimulant, the impact might be more muted than is generally recognized. There may be less than meets the eye as most of the current fiscal policy initiatives represent transfer payments that have a negative multiplier and create work disincentives.
- Municipalities have historically provided economic stability — no more.
- Federal, state and local taxes will be rising as the deficit must eventually be funded, and high-tax health and energy bills also loom.
I do not make market calls of my own on this site and I also make it a point never to subscribe whole hog to any one pundit’s views (keeping in mind that Kass is bar none my fave in the game). I should also note that his cautious outlook is not yet another growl from a perma-bear, as he’s been consistently flexible throughout this period.
And he’s been a hell of a lot more right than he’s been wrong.
Even as you play both the long side and the short side of this market, ignore these factors at your own risk.
And if you’re not reading Kass on RealMoney Silver (TheStreet.com’s pay site), what are you waiting for?
Guys, here’s the free link (no sub req): Kass Market Peak Call
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