Tuesday, September 01, 2009

Dougie Kass's Kudlow Report Recap

Here's my great pal Dougie Kass's recap of last night's stock market and economic discussion with Alison Deans of Deans Wealth Management. You'll recall Kass's brilliant call last winter when he correctly called the March bottom. Turned out well for Dougie. Stocks are up over 50 percent since then.

With My Fav'rite Host
9/1/2009 7:53 AM EDT

I was back with my fav'rite host, Sir Larry Kudlow, on Monday night. By my record, I have been on CNBC's "The Kudlow Report" (or the old "Kudlow and Company") on approximately 45 occasions. While Larry and I typically don't agree on the political issues or even on economic forecasts, I admire him greatly. He is a dear friend, and our volleys are always fun and stimulating. Last night was no exception!

This time we were with the lynx-eyed Alison Deans, former chief investment officer for Neuberger Berman's private asset management group and who is now running her own firm (Deans Wealth Management). I have admired Alison for years, ever since she followed brokerage stocks and frequently appeared on "Wall Street Week" with Louis Rukeyser. She is rigorous, practical and an excellent communicator.

My points were:

• The economic recovery in the U.S. seems unlikely to be self-sustained. I see more of a square-root recovery or an uneven and lumpy caterpillar-like economic setting that fizzles out and succumbs to nontraditional threats such as higher interest rates, higher inflation and higher marginal tax rates.

• The consumer remains the core of my investment concern. As one who is anti Say's Law of Production, it is my view that the consumer is the driver of business activity, not the other way around.

• With meaningful erosion in household net worths, weak demographic trends, poor disposable income and other headwinds, the aspirational character of the consumer, which has been in place for decades, seems to be reverting back to the legacy of the post-Depression -- that is, many simply want to maintain their financial status quo.

• Policy decisions and higher marginal tax rates are a huge threat and undermine growth and reduce output.

• Avoid retail and consumer-related stocks, own basic industrial and energy-related stocks. And while I am committed to banks, particularly Bank of America (BAC), I have pared back my financial exposure.

Alison Deans, similar to many, sees a shallow but self-sustaining economy (the consensus view), abetted by a revived consumer (improving equities), and she is of the view that the earnings cycle will continue to dominate my secular fears. She does fear a correction over the short term, however. After that short period of weakness, Alison contemplates a 1,100 S&P 500 target. Emerging markets remain attractive, according to her. In terms of specific stock ideas, she favors JPMorgan Chase (JPM) and would avoid Citigroup (C).

Position: Long BAC