TheStreet.com’s Doug Kass — whose early March bottom call continues to hold up — today offers a much more long-term outlook on the stock market.
According to Kass, history — namely that of the 1930s and 1970s — shows that we could see a continued big push in stocks until late summer, at which point we’ll see a sharp decline and then a period of several years of sideways action.
“Over the last century, 15- to 20-year bull markets are commonplace,” Kass writes. Thereafter, a vicious two-year bear market has typically been followed by a retracement rally that works off the deep oversold that was a byproduct of the bull-market correction. Following the retracement rally, the market usually falls back down (e.g., 1937-1938 and 1974). This makes sense, as the markets, the economy, individuals and corporations require time to liquefy after an economic contraction and/or debt crisis.
“My best guess,” Kass continues, “is that a similar pattern for the markets will develop after an explosive rally to 1,050 in the S&P 500 by late summer 2009 — namely, first a sharp drop and then a flat period extending for four or five years.”
Given the country’s deep debt-related economic problems, Kass says such a length of time “makes fundamental sense (and is logical)”. He thinks that during the period, bond yields will back up, giving “prime competition” to equities, and that tax increases will hamper growth and stocks.
Then, sometime during 2013-2015, a new secular bull market will begin, Kass predicts. “By that time, the consumer’s leverage levels will be reduced, the Asian consumer will be levering up, and we’ll likely see a decline in commodity prices, taxes and bond yields — all of which occurred in the 1940s and 1980s,” he says.