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Kass: Three Summer Scenarios (where will the stock market turn?)
TheStreet ^ | 6/22/2009 | Doug Kass

Posted on 06/23/2009 5:28:59 AM PDT by SeekAndFind

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Scenario No. 1: The Sideways Correction (Probability of 40%)

I have previously suggested that a sideways correction remains the most likely market outcome this summer. As a metaphor, consider the market as a big bathtub with little new water (hedge fund and mutual fund inflows) being added into it. The bathtub market's water level remains stable, but the water swishes around from side to side as the bather moves. Industry rotation is the hallmark condition. The market, however, does not take a bath as, over the short term, extended sectors such as industrials, materials and energy will likely correct as more defensive sectors improve in their relative performance. A sideways correction would be intermediate-term healthy in the sense of correcting an overbought from the March lows and will likely presage a move higher in the autumn.

Scenario No. 2: The Deep Correction (Probability of 25%)

Fundamentally, a continued weakness in retail spending could precipitate lost confidence and a deeper dive. So could weakness in business spending (as a byproduct of ever lower capacity utilization rates). Technically, a reversal in the Coppock Curve indicator -- it gave a technical buy at the end of May and is now in a sell mode -- and weakening Lowry's buying power augur for a plunge. It is important to recognize that a deep correction, similar the sideways correction, would also be healthy for the market's back-end-of-the-year market prospects.

Scenario No. 3: The Continued Rally (Probability of 35%)

While giving the scenario only slightly better than a one-third chance, a new up leg is not out of the question. If the replenishment of depleted corporate inventories begins to occur in July, evidence of an impending production boom could be interpreted by market participants as a sustainable economic leg higher (an outcome with which I happen to disagree), which will carry expectations of improving corporate profits. With the appearance that the domestic economy is moving from "less worse" to "better," fixed-income yields would then rise. (The yield on the U.S. 10-year note could as high as 4.25% or 4.50%.) And, as I have emphasized, a large pension fund reallocation out of fixed income into equities could serve as a catalyst to energize stocks and take the averages through the upside of their recent trading range.

Looking beyond the near term, I would emphasize that I view the two correction scenarios as bolstering the market outlook during the fall-winter period. Both scenarios would serve to build up skepticism, shake up complacency and make it difficult for many investors to get back in. A sideways correction would frustrate the most and wear many investors out. A deep correction would again increase the fear of being "in" compared to the recent fear of being "out." A subsequent rally out of these two scenarios would be fueled by investors chasing strength as even in bear market rallies (1938-1939) there is typically more than one leg higher.

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TOPICS: Business/Economy; Editorial; News/Current Events
KEYWORDS: economy; recession; scenario; stockmarket
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1 posted on 06/23/2009 5:28:59 AM PDT by SeekAndFind
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To: SeekAndFind

Wow! The market might go up, down or stay the same!!?! THANKS for the insight!!!


2 posted on 06/23/2009 5:31:55 AM PDT by sam_paine (X .................................)
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To: SeekAndFind

The stock market will not recover so long as socialists continue to nationalize the economy. It will recover only when the socialist trend is reversed.


3 posted on 06/23/2009 5:32:31 AM PDT by Man50D (Fair Tax, you earn it, you keep it! FairTaxNation.com)
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To: sam_paine

Well, at least he gives probabilities to each scenario and seems to conclude that a deep correction is unlikely. That’s what I garner from the article.


4 posted on 06/23/2009 5:33:39 AM PDT by SeekAndFind
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To: sam_paine

Doug Kass called the bottmo in March when the whole thing looked like it was going over the cliff.

He called it a “Generational low”

Kass has credibility


5 posted on 06/23/2009 5:35:23 AM PDT by Former MSM Viewer
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To: sam_paine

Yeah, all with about a 33% probability. Who knew?!

:)


6 posted on 06/23/2009 5:35:49 AM PDT by maggief
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To: maggief

Kass says that the probability of the market trading sideways or higher is 75%.

He pegs the probability of a deep correction at just 25%.


7 posted on 06/23/2009 5:37:39 AM PDT by SeekAndFind
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To: SeekAndFind; Former MSM Viewer; maggief
Well, at least he gives probabilities to each scenario

Well, I wouldn't want a weatherman giving me this kind of 'report' in order to navigate a ship in open water.

8 posted on 06/23/2009 5:39:23 AM PDT by sam_paine (X .................................)
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To: maggief

I say that the market is now nothing but a big
“pump and dump” game with computer programed trading and big manipulators like Soros.

I do not see any fundamentals that would drive a normal market anything but down.


9 posted on 06/23/2009 5:44:54 AM PDT by AlexW (Now in the Philippines . Happy not to be back in the USA for now.)
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To: sam_paine

when investing, its up to you to gather as much relevant info from sources you respect. Next, you interpret it.

Then, you have to make your decision.

You no longer want someone else to simply tell you what to do.

Kass is a good perspective.


10 posted on 06/23/2009 5:45:10 AM PDT by Former MSM Viewer
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To: Former MSM Viewer

From what I’ve read, I agree with Kass. Most investment CEO’s see the market ticking up through the end of the year, even though unemployment is lagging and may lag well into 2010. Many predict another leg up to S & P 1000.

I’m not all in yet, but might be soon once I see this correction leveling out.

You’re right. You have to read and watch a lot, then make your own decisions.

If you totally swallow the doom and gloom scenario, you’re going to miss out on some great opportunities.


11 posted on 06/23/2009 5:52:16 AM PDT by randita
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To: SeekAndFind

Scenario #4: Sucker rally ends. The sucker rally caused by businesses seling off inventory while not spending on resupply of goods or manpower ends. Those businesses will neither have enough money nor be able to borrow to refill the supply chain. Further, anti-business policies by the obama administration continue to ravage the small business sector. In late fall or early winter, these forces collide, and unemployment skyrockets further as GDP collapses. The stock market crashes. Meanwhile, the resulting massive deflationary pressure runs headlong into massive inflationary pressure from monetary policies and trillion dollar plus deficit spending. The two do not cancel out but rather cause wild swings in the value of the dollar and all other fiat currencies, rending those currencies meaningless. The Great Depression looks like the good old days, all in time for Christmas or maybe a bit later...

And obama and the donks get the mother of all “crisisses not to be wasted,” as planned.


12 posted on 06/23/2009 6:27:08 AM PDT by piytar (Take back the language: Obama axing Chrystler dealers based on political donations is REAL fascism!)
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To: piytar

The bear market rally is now over. Looking for the 2009 market lows to bottom out in Oct / Nov. It isn’t going to be pretty.


13 posted on 06/23/2009 8:16:39 AM PDT by RXSalesman
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To: sam_paine

I agree. The market will, in fact, do something. Hedging a predictive bet by saying that probabilites are equal in every direction is useless. If he has any guts he should pick a lane and stand on his choice. That’s what we have to do when we invest.


14 posted on 06/23/2009 8:33:38 AM PDT by Dr. Thorne (Buy Gold and Guns Now!)
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To: SeekAndFind
Scenario #4: war in the Mid-east and Korea simultaneously, Russia picks a fight with Georgia or one of the Baltic states, oil goes to $200 a barrel, Obama goes for burgers. Market drops to 5000.

NY Times blames it all on Bush.

15 posted on 06/23/2009 10:36:32 AM PDT by wny
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To: SeekAndFind; sam_paine; Man50D; Former MSM Viewer; maggief; AlexW; randita; piytar; RXSalesman; ...

Financial writers are useless now. Someone in hindsight will guess right, sure.

The concept that anyone with the best info can make the best prediction is no longer true.

The random interferences from the government and foreign manipulators drown out the functional market signals.

It’s like trying to play poker when someone has a 15000 lb backhoe clawing up the pot on the table.

It’s complete nonsense out there.


16 posted on 06/23/2009 10:47:50 AM PDT by sam_paine (X .................................)
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To: sam_paine

I’d put the odds at...20%, 78% and 2%. In that order.


17 posted on 06/23/2009 11:47:08 AM PDT by proudpapa (Obama - Worst One Ever!)
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To: randita
"From what I’ve read, I agree with Kass. Most investment CEO’s see the market ticking up through the end of the year, even though unemployment is lagging and may lag well into 2010."

I read recently that company owners, CEO's and other insiders are selling their company stock eight times more than they're buying it.

That's saying something about the expected state of business doesn't it?

18 posted on 06/23/2009 11:48:54 AM PDT by blam
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To: SeekAndFind

The economy will not recover so long as socialists continue to nationalize every sector. The economy can only improve by restoring businesses and business sectors to private enterprise.


19 posted on 06/23/2009 12:04:30 PM PDT by Man50D (Fair Tax, you earn it, you keep it! FairTaxNation.com)
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To: sam_paine

True to an extent, esp. for number crunchers. However certain facts and their consequences are true to the point of being economic laws. (1) This level of deficit spending is not sustainable. (2) An economy is which small business is being slaughtered is not sustainable. (3) A centrally planned/socialist economy is moribund compared to a self-directed free market one.

So, that tells us where we are headed...


20 posted on 06/23/2009 3:41:24 PM PDT by piytar (Take back the language: Obama axing Chrystler dealers based on political donations is REAL fascism!)
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