Over at RealMoney (sub req’d) Doug Kass — who nailed the bottom — is emphatically calling for a top. He’s gone bearish a few times during this rally, and he’s acknowledged that those times were wrong. He also notes that when he made the “generational low” call, he called a top of around 1050, which is pretty close to where he is now.
He’s decidedly not in the V-shaped recovery camp, and gives 10 reasons why, in his words, “it’s different this time”*:
From Real Money:
- 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 stabilised, 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 recognised. 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.
*That phrase “It’s different this time” tends to throw people off because it’s often used in a cliche, to explain how people were thinking during a bubble. But sometimes things actually are different, and the phrase doesn’t always connote naivete. This is a good example of that.
(via The Reformed Broker)
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