Jeff Saut: Here's The Key Reason The S&P Will Surge To 1300


The political situation offers a reason to get very bullish according to Jeff Saut.

The Raymond James strategist is firmly aboard the “Gridlock is Good” bandwagon.

He lays that out in his latest letter:

Remember, “No man’s life, liberty, or property is safe while Congress sits.” That old “saw” is particularly poignant this year as Congress passed a 2,100-page financial reform bill that didn’t address the two serial financial offenders – Fannie Mae and Freddie Mac. Next was the 2,700-page healthcare bill, which nobody read, that didn’t cover healthcare’s biggest cost – frivolous law suits (read: tort reform). Speaking of not reading, the Senate has passed a bill with no title. H.R. 1586 sailed through the Senate with the title “The ______ Act of ______” – oops! Meanwhile, contract law has been absolved, along with constitutional law (read: GM bond holders and the Healthcare Bill), causing one old Wall Street wag to exclaim, “Who’s driving this boat?” The upcoming mid-term elections therefore become monstrously important. Whether it happens, I can make the argument that the Republicans “take” the House, and come close to retaking the Senate, causing politician President Obama to pull a President Clinton and move to the “centre.” If that happens, I think the SPX could be at 1300 quickly!

He also has a good section on how people make money in the financial markets:

If correct, participants need to know how to position themselves into year-end. My friends at the sagacious GaveKal organisation frequently say there are three ways to make money in the financial markets: “return to the mean trades,” “momentum trades,” and “carry trades.” To wit:

1-    “Through Return to the Mean Strategies: The first way to make money in the financial markets is to buy what is undervalued/oversold and to sell what is overvalued/overbought and wait for the asset price in question to return to its historical mean. This is the strategy adopted by most ‘value’ managers, but also frequently a number of ‘macro-funds’, ‘distressed-debt’, ‘special-situations’, etc.

2-    Through Momentum-Based Strategies: The second way to make money in the financial markets is to identify a trend and get in (and out) at the right time. Most money managers do try to invest following momentum, but it is especially prevalent amongst ‘growth’ investors, ‘macro-funds’, and ‘long/short’ hedge funds.

3-    Through Carry Trade Strategies: The third and final way to make money in the financial markets is to play intelligently the yield curve (i.e., borrow at low rates and lend at higher rates . . . and hope that the markets remain continuous). Most of the ‘arbitrage’ types of hedge funds run some kind of ‘carry trade’.”

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