Tuesday, August 11, 2009

Cramer vs Kass, Part Deux

In my previous article on that matter (this one), I sided with Kass, thinking that we are in sideways/slightly downwards correction. I was wrong, at least for three weeks. We had such a wonderful rally!

Doug wrote a piece today which almost matches my thoughts. Almost.

Now we are talking long term. Which in our brave new world means about 18 months. I'm thinking about positioning and every decision now can bring big gains or losses.

So, who to follow? Cramer, who is all "buy, buy, buy", but lately prudently recommended to sell something into the rally? Or Kass, who doesn't see any long term upside?

Funny enough, I can't take either side now. I think that Dougie is closer to the truth in his analysis of economy and the way recovery is going to progress. We are going to have slow recovery, harmed from time to time by bad decisions, such as tax hikes (already going on and more coming), big stupid government programs, like medical welfare for everyone, biofuels and God only know what else.

But I don't agree with the conclusion. I think that we are going to have a huge bull market next several years. And there is only one reason for my optimism: history of the previous Great Depression. That one started in 1929 and ended in 1939 (or, as some would argue, in 1943). You'd think that stock market was down the drain all those years. Wrong! Dow Jones fell 89% from 1929 peak to 1932 low. But after that, Dow rallied. Rallied huge. Anybody who invested in stocks any year between 1932 and 1943 won huge.

Was 1932 bottom related to any improvement in economy? Just kidding. New Deal and other stuff were still ahead. Economy didn't even think to recover and unemployment was at around 25%. The reason for the rally was simple: stocks were dirt cheap and paid huge dividends.

Fast forward to now. Stocks were sold way too much. Many of them are dirt cheap and pay huge dividends. Lots of REITs, bond ETFs and CEFs pay more than 10%. Not all of them are going to be destroyed. Banks are cheap. Bank preferreds are cheap. Again, most of the banks will survive. Tech is still dirt cheap.

I am bullish long term. We are going to have volatility, which should be used to trade. But I an going to use current pullback to increase my long position. Economy might suffer in the nearest future, but it doesn't mean that stocks can't rally.

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