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David Kotok: Market Turmoil a Result of Politics, Not “Finance and Economics”

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As the sovereign debt crisis in Europe continues to worsen and global stock markets go haywire, the question on everyone's minds is whether we're witnessing the Crash of 2008 all over again.

No way, says David Kotok, the Chief Investment Strategist at Cumberland Advisors. "Panic, fear, uncertainty certainly is in the cards," but this is not another crisis of massive proportions, Kotok argues in the accompanying clip.

Kotok is unnerved by the current turmoil but calls himself a "terrified optimist." "I don't think the world is coming to an end," he says.

In fact, says Kotok, the market's plummet over the past month has provided an amazing buying opportunity, just like the crash of 1987. The 2008 market crash, Kotok argues, was the result of a liquidity crunch, in which banks, consumers, and corporations suddenly lost access to cash. Today, the world is awash in cash--so much so that some banks are now charging customers for accepting deposits.

He argues the root of the sell-off is Washington dysfunction. "This is not about finance and economics. This is about politics," says Kotok. He believes the bungling of the debt-ceiling debate has created uncertainty and a lack of confidence in the markets. Ironically, as a result of putting re-election campaigns and party politics ahead of the national interests incumbents will face a voter revolt in 2012.

On a relative valuation basis, Kotok continues, stocks are extremely attractive. The PE multiple is low, and the earnings yield (earnings/price) is now higher than bond yields. This, Kotok argues, provides an extraordinary buying opportunity.

David Kotok's year-end target for the S&P 500 is 1,450, which is about 30% above today's level. This target looks aggressive in light of the past week's declines, but Kotok still thinks it's achievable.

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