Kass: A Couple of Concerns

This blog post originally appeared on RealMoney Silver on Dec. 9 at 7:46 a.m. EST.

Despite the previously strong market price momentum and continued upward revisions in S&P 500 earnings estimates and price targets by several strategists, Tuesday's weak market appeared to have had several causes at it's core, signs of a more tentative economic recovery and new sovereign debt worries.

First, there were renewed signs of a tentative economic recovery. Specifically, the National Federation of Independent Business's (NFIB) survey of business optimism pulled back again to the lowest reading in four months. (I highlighted the weakening October reading of this important gauge of small businesses activity on CNBC's "Fast Money" recently.) The survey indicated that small businesses continue to see tepid sales growth and tight lending conditions. Historically, the NFIB has been an excellent measure of job creation, and it now signals a materially different outlook than last Friday's jobs report indicated. Small businesses are responsible for nearly all job growth, and this low reading is supportive of my view that the consumer and small business sectors will weigh down the overall growth in jobs, business expenditures and consumer confidence. It was also on reported on Tuesday that same-store sales dropped by 1.3%, down 0.2% year over year vs. expectations for a 1.5% to 2.0% increase.

Second, there was more negative country debt news announced yesterday as Fitch lowered its ratings for Greece and gave cautionary comments regarding England's credit ratings. I have recently written on RealMoney Silver that before we write Dubai off as a unique situation, there is never one cockroach as the egregious use of debt over the last decade has a long tail to it. I remain skeptical of the consensus view that Dubai is a one-off, unique situation that resembles nothing else in the world. Dubai is not sui generis. Last week I wrote that Austria's Credit Anstalt failed in 1931 and that it, too, was initially ignored. History steadily provides us with examples that contagions can begin in the most remote of places. When I wrote about the meaning of the Dubai credit mess last week, I specifically highlighted the problems in Greece: "Investors are ignoring some of those nasty critters in Spain and Greece, and don't forget the typical bedbugs in Latvia and in the Ukraine."