Kass: New Headwinds Surfacing

This blog post originally appeared on RealMoney Silver on May 7 at 7:49 a.m. EDT.

"A fool and his money are soon parted."

-- Thomas Tusser

Yesterday's reversal in equities put a dagger in the heart of the ursine crowd as they scratched their heads and wondered "what can get 'em down."

But was the rally justified?

The ramp in crude oil -- Goldman Sachs is now forecasting that crude oil could increase to $150 to $200 a barrel in the next two years -- to unprecedented levels represents a challenge to any meaningful market rise from here, however, some other headwinds seem to be surfacing.

Bond Market Bruised by Bailouts

For one, bonds are breaking down, and yields have made a multi-month high. The culprit? Not an improving economy but rather the largest domestic financial bailout in history has caused dollar-denominated debt holders to liquidate. Should the pattern of rising interest rates continue, loans will be more expensive and stocks will face an increasing competitive threat.

Cisco's Big Slowdown

Secondly, Cisco Systems CSCO. At the time of Cisco's earnings release, the media heralded its results as a beat. Wrong again.

Cisco's reduced share count had a lot to do with the modest EPS beat (from previously lowered expectations). Going forward, the outlook is dimming as the company's domestic orders are up by only 5%, continuing the decelerating rate of growth of the last three quarters, buoyed by the "assistance" of the government sector (a dominant theme these days) as federal orders rose by almost 20%. If one took out government orders, I estimate that U.S. orders would have risen by about 3%.