“Despite apparent good news on several fronts, the U.S. equities market is overvalued by 5 percent from Friday’s close above 1,400 on the S&P, says hedge fund manager Doug Kass, and faces a tough climb to improve in the year ahead.
A better jobs outlook, apparently fewer problems in Europe and the likelihood that investors will enter the equity market late could help stocks, of course, but Kass has a more jaundiced perspective of the entire scenario.
“I view both the more optimistic economic and profit forecasts as well as the outgrowth of elevated price targets with some skepticism — just as I suggested that Wall Street’s dour outlook of three months ago was too pessimistic,” he writes on TheStreet.com.
Among the obstacles ahead, Kass finds the United States driving off a “monetary cliff” when the Fed ends its current easing program, then again at the end of 2012 when tax rates rise and spending is necessarily cut.
Kass doesn’t see the job market puffing itself up much more, and corporate earnings should level off, too, he says.
Add to that election uncertainties and any number of “black swans,” including the oil price, and you end up with a market that is, in his view, overvalued now.
A recession is out of the question, but the growth to come won’t enough to hold up stock prices, he predicts.
In the meantime, China appears to be hitting the brakes hard, which has implications for the global economy. Australian mining giant BHP Billiton Chairman Jacques Nasser told investors that the company is reviewing major spending plans, reports The Australian Financial Review.
China is a large buyer of commodity metals, particularly iron ore. BHP is reconsidering a $20 billion mine and ports project in Western Australia in light of slowing Chinese demand.”
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oil price going higher is bullish until it isn’t