Another bonehead makes another overly optimistic prediction

David Kotok, Chairman & Chief Investment Officer of Cumberland Advisors told CNBC on Wednesday that he expects the S&P 500 to end the year at 1450.  His flawed reasoning is that he believes now that we have a deal on raising the debt ceiling, that somehow this translates to a peak in the national debt, and that the focus will now turn to other things, such as corporate profits.  Wrong!  Even the rosy expectations of the architects of the debt ceiling deal in Congress are only predicting a reduction in the budget deficit of about $2 trillion or so over the coming ten years.  This means that every year of that ten years, and very likely well beyond that time-frame, we will be adding hundreds of billions if not trillions of dollars to the national debt.  This is in addition to all of the interest expense we incur each year to service the debt, which we have to issue additional bonds to cover, since we don’t have the money to pay a penny of the principal or a penny of the interest.  Why on earth would Kotok believe that the national debt has peaked??  Far from it.  

I will admit that the investing public has a very short attention span, so after we get past this period of uncertainty surrounding the debt ceiling, they will likely forget about that one problem.  However, the real issue we are struggling with now, and the real reason the market got ht today, has nothing to do with debt, and everything to do with the economy and specifically unemployment.  The ADP report and more importantly the Commerce Department report on Friday on unemployment are the key points of uncertainty which are weighing on the markets.  

Don’t be fooled by these so-called experts that don’t seem to be able to comprehend the bigger picture issues that appear glaring, serious, and difficult to deal with under our current economy conditions.  We saw the spending report today that showed that consumers are not spending and are saving more already.  The more concerned they become with their job and with the state of the economy, the less they will spend.  This is the risk of a double-dip recession, and it is real, pressing, and comes with a lot of baggage.

As I have written, I do not believe we will see 1,450 by year end.  Keep in mind we are in a down trend right now and it is already August.  I see the markets headed lower in the short-run, but believe we will get a bounce of some magnitude.  I will be buying this week, especially if the market goes lower.  I feel comfortable putting cash to work at current levels or below.  A rally back to 1,350 would be an 8% run from here, and maybe 10% from where I think we are headed. Certain sectors within the overall market will do much better than that, if we get that move to 1,350.  I will be more than satisfied with that!


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