Tags: Kotok | US | default | stocks

David Kotok: Get Ready to Deploy Cash Into US Stocks

By    |   Thursday, 10 October 2013 07:46 AM EDT

David Kotok, chairman and chief investment officer at Cumberland Advisors, an investment manager with $2.2 billion in assets, is taking bets that the United States will not default and that the resolution of the Washington stalemate will be a reliable buying opportunity.

"In our view the US will not default. It has an absolute ability to pay," Kotok wrote in a note to clients.

"This is a political fight, not an economic one. The credit of the US is not the same as Detroit's or economically risky like Puerto Rico's."

Editor’s Note:
5 Reasons Stocks Will Collapse . . .

Kotok cautioned the United States could be out of cash by November if it cannot legally borrow, and he estimated that would cause an immediate government budgetary cutback of about 4 percent.

But will the worst happen? America's political leaders "may play the brinkmanship game, but in the end they will not permit default," Kotok predicted.

"That's our view. They never have defaulted in more than two centuries of American history."

Cumberland is taking its clients out of the market if they insist, and liquidating their positions. But it's definitely not a course of action he recommends.

"We are on the other side. We think the US does not default. We believe that any rocky period in markets will be temporary. So we want to take advantage of this period of weakness in order to reposition portfolios."

Kotok predicted that when the government shutdown is over and the spending battle is done, the Federal Reserve will taper its massive monthly bond-buying program in incremental steps over as much as two years, or about $5 billion per month.

In the meantime, he said U.S. stocks are "neither cheap nor rich," and he expects further earnings momentum.

"It is this simple: We either default, and our politicians do lasting damage to our country. Or we don't, and markets resume a trend higher, and we go on in our unique American political way.

"I'm betting on the latter. Right now we are holding a cash reserve and deploying it in periods of weakness," Kotok wrote.

Some investors do not share Kotok's optimism, according to CNNMoney's "Fear & Greed Index." The index, which is in beta testing, shows a reading in the red zone of "extreme fear" for financial markets.

CNBC said investment strategists and economists are beginning to warn clients the possibility of default is increasing.

The network quoted Wells Fargo strategists Paul Mangus and Darrell Cronk as saying in a report, "The likelihood of an amicable settlement of the looming debt ceiling deadline appears highly questionable."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

Related Stories:

Experts: Market Complacency Over Debt Ceiling Encourages Congress to Do Nothing

David Stockman: Washington Has Created 'Sundown in America'

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InvestingAnalysis
David Kotok, chairman and chief investment officer at Cumberland Advisors, an investment manager with $2.2 billion in assets, is taking bets that the United States will not default and that the resolution of the Washington stalemate will be a reliable buying opportunity.
Kotok,US,default,stocks
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2013-46-10
Thursday, 10 October 2013 07:46 AM
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