Two of my favorite market pundits are Scott Rothbort and Doug Kass. They both write for the professional (and more expensive section) of TheStreet.com, and get some air time on CNBC and mentions in other places as well. I like Rothbort’s analytic approach and maybe the fact that he still teaches a college class on investing. I like Kass’s out-of-the-box thinking and constant scrutiny of his conclusions.
Today they had a discussion that was more than the usual bull-bear debate on the market’s next leg. Rothbort has an interesting analysis that we have really been in a bear market for five years. (I’ll try to find a pointer to a public paper by him). It is interesting and pretty persuasive in approach. He noted today, promising to expand on the theme, that there were both technical and fundamental reasons to think this might be a significant market bottom. One point was the rebound back above the 200-day moving average. This is the most important technical indicator. Those who have access to my client commentaries know that we have been following it closely. Rothbort’s other point is that earnings have been excellent, with the exception of a few outliers like UPS, COF, and MMM.
Kass responds with a laundry list of stocks that have missed earnings estimates for various reasons. He asserts that the market is foolish for not seeing how the underlying factors will eventually be felt by all companies since we have "lumpy and uneven economic growth" with the worst yet to come.
I’m going to look at the UPS case more carefully in a separate post, but for now, let’s note a few things:
Kass’s arguments are invariable anecdotal, not based on broad data. In fact, he dismisses virtually every form of data looked at by others, saying that there is something wrong with it. He has a thesis that the economy cannot expand "without stimuli." This position is not accurate either empirically or theoretically. He also mis-understands what is stimulative in both fiscal and monetary policy. Finally, he has a thesis that consumer spending is about to collapse. Let me quote:
"There is now ample evidence that the economy, in general, and the
consumer, in particular, is transitioning to a period of slowing growth
in a world without stimuli."
He cites a number of stocks that are trading in a way that supports his view, and a few other indicators of the moment.
The problem? He wrote those words more than two years ago!
Now anyone as prolific as Kass will have some incorrect predictions. But this is his major economic thesis, held through two years of excellent economic growth and record corporate profits, achieved as the Fed gradually tightened rates and oil prices climbed higher.
I suppose that some day there will once again be a recession, but there should be some statute of limitations on this sort of prediction!
The real answer to this debate relates to what is already priced into the market. If stocks already reflect substantial expectations of a recession, then we may be in for a big rally if/when it does not happen. The end of the Fed tightening might be the catalyst.
At "A Dash" we try to be eclectic, finding the best insights and ideas from many sources. We do not pretend to have all of the answers, but we are pretty good at determining who has which answers, and then paying attention.