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KOTOK: Stocks Are Cheap, Economy Will Recover, Bernanke Did Right Thing

Stocks soared this morning after Ben Bernanke's Jackson Hole speech this morning.

Bernanke did exactly the right thing by not promising more stimulus, says our guest David Kotok, chief investment strategist at Cumberland Advisors. It's time the government began to wean Wall Street off perpetual market stimulus. And if some traders are disappointed by that, then that's their problem.

Although Kotok is quick to admit that he got bullish too early, he also thinks the market's recent "correction" may well have run its course.

The S&P 500 has fallen 20% from its peak in late April, Kotok says, and it has "tested" the 1100 level twice. If the 1100 level holds, and the economy does not go back into recession, Kotok thinks stocks will head higher from here.  He expects solid if unspectacular growth of about 2.5%-3% in Q4, and he thinks this will be enough to get stocks moving up again.

Kotok observes that the "equity risk premium"--the implied return of stocks over bonds--is now a startling 6%, which is historically very high. If one is willing to ride out near-term volatility and take a long-term view, therefore, one should be handsomely rewarded.  Kotok speculates that the S&P 500 could hit 2,500 or higher by the end of the decade.

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