Here's an excerpt from last night's Kudlow & Company with Joe Battipaglia. Joe is a frequent market guest on our show, and a market strategist for the private client group at Stifel Nicolaus. He's been bearish for some time now, but is beginning to see brighter days ahead in the stock market and economy.
Kudlow: Joe Battipaglia, what is happening here? Because sort of out of the blue…we have this bottom on January 22nd. This is important. Is this a strategic issue? Our friend [hedge fund manager] Barton Biggs talked about this the other day. He says this was an “important bottom.” [Warren] Buffett himself seems more optimistic. You’ve been very hard-minded. You’ve been very tough on this whole story. But you’re adding a little bit to your equity position. Will stocks overcome these credit problems? Because I think in some sense that is one of the biggest issues, maybe the biggest issue in Stockland.
Battipaglia: Yeah, well my headline for this is that risk has returned to the equation. Whether you look at high-yield spreads, or real estate investment trust spreads against Treasuries, or look at stocks performance against bonds. What you see is valuations now becoming much more attractive for the risk-taker. Which to me means, that at some point in time, as the economy mends itself, however many quarters it takes, the stock market will sniff that out, and start to advance ahead of that. And I put the risk/reward range right now at minus 5 for the stock market in terms of percentage points down, to 15 percent to the upside over the next 12 months. And suddenly it becomes a more interesting place to be. So with rates coming down, and the economy going through its corrective, healing phases – consumers have already, for over a year now, been contracting in their use of debt – you set yourself up for a better tomorrow. And that’s how you start positioning your equity portfolio, despite bad headline news.