Paulsen on The "Revaluation" Year, and The "Mania of Pessimism"

Wells Capital’s James Paulsen says that this year will be about revaluation for the stock market, and that if inflation is kept under control, the market could have a slow and steady climb for some time.

“Last year we had a good gain in earnings, but the multiple on the market contracted because of two fears that were grossly overstated: that the U.S. was headed for imminent recession and that the European situation could blow up and take down the global recovery,” Paulsen tells Fortune. “This year the valuation could go higher again, to 15 times earnings, as people get more confident about the recovery. I have a target on the S&P of 1500. If we can keep inflation under control, then we have a buy-and-hold market for a long time with a slow and steady increase in prices.”

Paulson says he would underweight “safe haven”-type investments, like Treasury bonds, gold, and “safe” stocks. He likes manufacturing stocks in the U.S., saying  he thinks the country is going to have a manufacturing renaissance, and he also is high on emerging market stocks. In addition, Paulson talks about why changes in the labor market caused a “new normal” to actually start in the mid-1980s — not in 2008, as some have suggested. And he says that just as a mania of optimism made stocks become way overpriced around 2000, a “mania of pessimism” is making them very attractively priced right now.