S&P 500 in cheapest bull market since Reagan

‘Twice Shy’

“The No. 1 mistake that is being made is the old proverb, ‘Once bitten, twice shy’,” Kass said in a Nov. 14 Bloomberg Radio interview with Tom Keene. “Market participants today are incorrectly playing the last war, which took place during the budget deliberations in August of last year. Those fears are misplaced.”

Savita Subramanian of Bank of America Corp. says the index will rally to 1,600 on rising corporate profits and diminishing concerns about the global economy. John Stoltzfus, at Oppenheimer & Co., forecasts the gauge will climb to 1,585 and Goldman Sachs Group Inc.’s David Kostin estimates 1,575, based on support from the Federal Reserve’s third round of bond purchases. Fed Chairman Ben S. Bernanke pledged in September that the central bank will buy $40 billion of mortgage securities a month until the U.S. labor market recovers.

Optimism is misplaced unless Obama and Republican leaders are able to agree on measures to avoid the mandated cuts and tax increases, according to James Bianco, president of Bianco Research LLC in Chicago.

Fiscal Burden

The $607 billion burden could cause the world’s largest economy to shrink 0.5 percent next year, according to a Nov. 8 Congressional Budget Office report.

“Up until the election day no one had priced in a fiscal cliff because the thinking overwhelmingly on Wall Street was there wasn’t going to be one,” Bianco said in a Nov. 14 Bloomberg Television interview. “We’re only now starting to price it in and we’ve only been pricing it in for a week. If we continue to keep our pencils down, there’s going to be a lot more pain.”

The economy is recovering at the slowest post-recession rate since World War II, as the housing market stagnated until this year and unemployment stayed above 8 percent through August.

Lawmakers of both parties say they want to avoid the fiscal cliff’s economic shock while addressing the deficit. Boehner said Nov. 16 that Republicans are willing to consider revenue- raising measures in exchange for spending cuts. Obama said tax rates should rise without specifying that the top rate must return to the 39.6 percent stipulated.

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