Monday, September 12, 2011

Doug Kass Stands Somewhat Bullish

Anybody following this blog knows that I've been a big follower of Doug Kass for years now. Not only is he normally bearish so he provides a counter view to mine for a sounding board, but he is impeccable at calling bottoms in the market. He isn't a perma-bear like most shorts though. In a way he is the flip side of Jim Cramer known as a perma-bull. Cramer has a history of calling tops, but he typically turns bearish too long similar to March 2009 when he missed the generation low that Kass called.

Kass published a good article where he highlighted the reasons a recession is all but impossible currently. He lists numerous reasons why the market might be unable to rally, but expecting a major recession and a massive selloff just doesn't appear in the cards.

Doug's reasons that a recession seems unlikely:


  • large private payroll drops in excess of 175,000 a month (adjusting for nonrecurring issues, payrolls are still averaging about 95,000 growth over last four months);
  • an inverted yield curve (it is positively sloped);
  • acceleration in inflation (inflation is contained and so are expectations);
  • an increase in real interest rates (anything but!);
  • bloated corporate inventories (low inventories to sales in place now);
  • retreating retail sales (they are expanding);
  • negative year-over-year leading economic indicators (advancing now);
  • a drop in factory orders (also rising) and;
  • outsized durable spending relative to GDP (housing and autos remain at or near cyclical lows).

Read the rest of the article for some other good analysis of the market potential for a recession or a major rally. Don't always agree with his points, but his opinions are very sound and researched. 



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