Doug Kass has a level-headed piece on The Street.com. Doug argues the market is behaving too optimistically about “second derivative green shoots”:
“On a valuation basis, equities are no longer on sale. On a fundamental basis, we have not distanced ourselves and perhaps are too readily dismissing the substantive nontraditional headwinds that will frame the lumpy and inconsistent economic recovery I envision in 2009-11.
Some of those nontraditional headwinds include the following:
- the broad geographic reach of the current recession;
- the increased burden and cost of regulation;
- the economic impact of the obliterated (but previously important) shadow banking system and the associated reduction in securitized lending market capacity;
- the more important role of government in the private sector;
- the possible impact of protectionism and trade barriers;
- the degree to which individual and institutional investors have become risk-averse and have been “turned off” to equities; and
- most important, the unusual causes of the current economic downturn and uncertainty of business confidence that follows from the deleveraging of debt on bank and consumer balance sheets.
I am growing increasingly concerned that the same investors/traders that panicked in January to early March are now panicking in the opposite direction in a market that too often worships at the altar of price momentum and that the aforementioned challenges to economic recovery are being ignored.”