Doug Kass, a hedge-fund manager with Seabreeze Partners, said that most of the market's excesses have been purged as they have finally gotten rid of "undeserved optimism."
"From my perch, every day we appear to be much closer to resolving the conflict with Iraq," Kass said. "Resolution will have a broadly stimulative impact on the consumer, as plunging oil prices will serve as a tax cut."
He said that a quick and positive resolution to the Iraq situation "has the potential of unleashing a virtuous cycle." The cycle, Kass thinks, would include rising consumer confidence, a general easing in risk aversion, a lift to the U.S. dollar and a possible return to pricing power, which would generate a profit recovery that could be well in excess of current estimates.
Kass predicts that 12 months out, the S&P 500's forward earnings likely will stand around $60 a share -- representing a gain of about 8 percent and implying a target multiple of the S&P 500 Index of about 1,080.
What has made Kass, who, cautioned investors during the Internet craze, start to reach for the hand of optimism?
"Back in the bubble days of yesteryear, I often was asked what would change my negative viewpoint. My answer always has been time and price," Kass said. "To be sure, there remains plenty of risk, but over the course of time and in light of three years of sharply lower prices, those risks appear to be diminishing just as many are giving up hope."
