Kass: Emotional Abuse
This blog post originally appeared on RealMoney Silver on July 1 at 8:18 a.m. EDT.
Yesterday, I made the case that the equity market was traveling the path of fear rather than the path of fundamentals.
Emotion continued to take over in Wednesday's trading and into the evening's trading in S&P futures.
Specifically, though well above the 50 reading that implies healthy expansion and a soft landing, the U.S. futures responded last night by trading down by eight handles on a weaker-than-expected China PMI.Importantly, what was even more surprising to me in terms of the market's immediate adverse reaction, was that the China PMI was in line with the whisper but down only slightly from consensus. I went to sleep with tears on my pillow and my laptop and Bloomberg next to my bed but awoke to a return to reason as futures were more or less flat after the evening's weakness. Unfortunately, the damage in the U.S. equity market over the past two months (and on the back of the 2008 investment shock) is very real, and as former Federal Reserve Chairman Alan Greenspan mentioned on CNBC's "Squawk Box" earlier this morning, the poor state of the stock market is likely to be a (self-fulfilling) force that will, at the margin, add to weakening economic conditions (especially of a consumer kind) and to the current soft patch. In other words, Mr. President, what is good for Wall Street (and our stock market) is good for Main Street. Yesterday, in " Something Good Is About to Happen," Jim "El Capitan" Cramer made these prescient points on RealMoney, which I paid attention to but few others did:
It's not so bad, it is just bad enough that maybe something good will happen. That's my feeling about the U.S. economy right now. It's not so bad because we have ever-so-slightly falling job claims, we have better balance sheets for companies and lots of profitability with some companies doing extremely well. But it is bad enough because we are not creating jobs and not seeing any loan demand that I think Washington will do something. We saw the beginning of that Tuesday, totally obscured by the selling of stocks. We saw a bank tax that went away, we saw the rumblings of cap-and-trade being put on hold and we saw the makings of a breakthrough in extending unemployment claims money. You know what these moves smell like to me? Self-preservation. Self-preservation on the part of the Democrats to get some jobs created, maybe even to stop the uncertainty about taxes and make statements that we will keep tax increases on hold. Why not?When we began 2010, I wrote that corporate profits growth would surprise to the upside in the first half of the year but that the U.S. stock market would be unresponsive and could trade lower. Among other issues, I highlighted populist policies that would ultimately dampen economic growth (higher taxes, more burdensome and costly regulation, etc.) and that would be seen as (equity) valuation-threatening. This has been the case. Now, as Jim writes, in order for "something good" to happen, our ( P/E-multiple-deflating) political leaders must step up and reconsider some of their actions for the sake of Main Street and Wall Street. It is not too late for some positive action on the jobs and tax front from our legislators and particularly from the Obama administration. If nothing else, as the economic data soften in the months ahead, survival and self-preservation could be an emotion taking over our politicians as the November elections loom. Doug Kass writes daily for RealMoney Silver , a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV