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After opening lower, stocks quickly found their footing and registered solid gains for the day, with the S&P 500 (SNPINDEX: ^GSPC ) and the narrower, price-weighted Dow Jones Industrial Average (DJINDICES: ^DJI ) both rising by half a percentage point. The steady rise suited the VIX (VOLATILITYINDICES: ^VIX ) well, pushing it down by 1.9%, to close at 13.31. The VIX is derived from S&P 500 option prices and reflects investors' expectations for stock market volatility over the next 30 days.
Is that all there is?
Speaking on CNBC today, hedge fund manager Doug Kass said:
"The market probably has a fair value 80 or 90 S&P 500 points lower than where it is now, so that would imply a decline of 6% or 7%, but I think the more important statement I'm making is that we are likely to be in the process of making a yearly high for the year."
He had that the wrong way around: The more important statement concerns the market's fair value, not what it will or won't do over the next 12 months. Why? Because it's possible to make a useful statement about market valuation and stocks' long-term returns. (In other words, you can make a statement with a fair degree of confidence.) On the other hand, a statement about the market's behavior over the next 12 months is basically useless -- the degree of randomness that will affect the outcome over such a short time period is much too high to make any sort of credible prediction.
Kass is perhaps best known for calling the market bottom in March 2009, but I think that was mainly a fluke. While it was possible to say the market was cheap on March 9, 2009, it was impossible to know whether it would recover or become still cheaper from that point on.
In fact, in "15 Surprises for 2013," published on Jan. 9, Kass wrote:
"I believe that the U.S. stock market will make its 2013 high in the first two weeks of January, be in a yearlong range of 1275-1480 and close the year at 1425, and that the 10-year U.S. note will be below 2.00% in the first six months of 2013."
We know the high did not occur in the first two weeks of the month. Today's update of that prediction reminds me a bit of the Doomsday cults that repeatedly push forward their predicted date for the Apocalypse in the face Earth's continued existence. Why bother making worthless predictions in the first place?
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