Tags: Bove | fiscal | cliff | buy

Bove: Ignore the ‘Fiscal Cliff’ and Buy Stocks Now

Tuesday, 28 August 2012 09:03 AM

Investors should ignore fears that a sharp fiscal adjustment will strike early next year and send the economy tanking and buy stocks now, said Dick Bove, vice president of equity research at Rochdale Securities.

The Federal Reserve will stimulate the economy with monetary easing tools to prevent the economy from slowing, and when the Fed jolts the economy, stocks rise.

“The Fed provides seasonal easing this time of year,” Bove told CNBC. “And they do it because of the holidays.”

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

At the end of this year, tax breaks including the Bush-era tax cuts are scheduled to expire, while automatic cuts to public spending kick in, a combination known as a fiscal cliff that could send the country sliding back into recession next year.

Congress must steer the country away from the cliff, but lawmakers have resisted addressing tax and spending issues in an election year, though some have hinted they can convene after elections and deal with the problem or even early in 2013 on a retroactive basis.

Still, with such uncertainty, stocks are a good buy, he noted, not only because the Fed will save the day, but because other historical factors are encouraging.

“There’s a seasonality in the entire stock market this time of year. Since 1888 there has been a seasonal thrust,” Bove said.

“My price target on the S&P is 1,555,” he told CNBC.

The S&P 500 broad stock index is currently trading around 1,410.

Federal Reserve officials have said they cannot rule out rolling out a third round of quantitative easing (QE), under which the U.S. central bank would buy assets such as Treasury holdings or mortgage-backed securities from banks, pumping fresh liquidity into the economy to spur recovery.

Under QE, the dollar weakens, stocks rise and interest rates fall, yet investors worry that the Fed has done all it can with two past rounds of QE that have pumped a total $2.3 trillion into the economy.

A third round would spark a short stock-market rally, but also plant the seeds for inflation without really spurring meaningful economic recovery, experts say.

A CNNMoney survey of investment strategists finds that 93 percent said they don’t think the Federal Reserve should announce more stimulus at its next meeting, while 77 percent of economists surveyed agreed.

“Nobody likes it when the punch bowl is taken away, but the party has gone on too long,” said Doug Cote, chief market strategist at ING Investment Management, according to CNNMoney.

“It’s time to get back to a normal economic recovery.”

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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Tuesday, 28 August 2012 09:03 AM
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