TheStreet.com’s Doug Kass — a pretty hardened bear whose stance began to soften last month — is now standing firm in his call that we’ve reached a bottom.
“We live in a Land of Johnny-Come-Lately Chicken Littles, most of whom failed to identify the credit and economic risks 1½ years ago but who today hold with alacrity and great confidence a belief in a continued dire outcome for equities, as they all too often see the world from a rear view mirror,” Kass wrote. “By contrast, as I related [recently], the sky is not falling, and Mr. Market has dropped a ton of value on our investing doorstep — dinner is now being served.”
Kass first made his bottom call earlier this month, and in this TheStreet.com column he laid out some compelling reasons why, including his explanation for why 10-year P/E ratios — which many say are low but not low enough to signal a bottom — can mislead.
In his most recent post, though, he offers some more reasons: the hedge fund industry is at its lowest net long position in years and individual investors “have recently accelerated their account liquidations and redeemed their mutual funds,” meaning there “is plenty of buying power sitting on the sidelines to fuel a sustained market advance.”
If we get several days or weeks of strength, Kass says buyers could come back in force, adding, “there remains a huge asset allocation trade back into equities from cash-rich pension plans whose portfolios are now materially skewed toward fixed income.”
“My best guess,” Kass says, “is that we’ll rapidly move back up toward the typical bear-market trough valuation — 12 times normalized or trend-line S&P earnings of about $67 a share, or about 805 on the S&P 500 Index. In the fullness of time I expect the S&P index to test its 200-day moving average.”
And, Kass cautions, “Most will miss the rally — it’s not surprising since the pain has been so extreme in recent months.”