Kass: Uncertainty Prevails
This column originally appeared on Real Money Pro at 7:41 a.m. EST on Jan. 3.
NEW YORK (Real Money) -- Tuesday was another great example of how difficult (and even silly) short-term market forecasts can be.
I frankly know few who were emboldened to get long in the dark days of last Thursday and Friday.
Although I did expand my long exposure late last week, I experienced premature disaccumulation toward the end of the day on Monday, as it was my view that a favorable outcome was in the process of being discounted.Even though I almost perfectly forecast the timing and context of how the fiscal cliff would be resolved, I did not have the foresight to stay with many positions as I hedged out much of my long book. I start the day in a market-neutral mode, and I have no plans to chase the market now. Warren Buffett famously quipped, "Price is what you pay; value is what you get." And after a near-70-handle move in S&P futures since Friday's close I will take a pass on buying strength. In looking at Tuesday's rally and the uniformity of sector performance, it seemed to me that it likely reflected more of the fact that new money was coming in than a reaction to the deliberations in Washington, D.C. That said, buying this sort of strength is for momentum-based buyers, and I don't travel in those circles. The fiscal cliff resolution provided little certainty to the consumer and business for the time ahead. Indeed, one can argue that, although the tail risk of going off the cliff has been removed, there is much uncertainty created for the next two months and certainly a lot more heavy lifting. I am concerned that the multiplier being applied to the tax increases agreed to this week will be greater than many expect, serving to weigh on domestic economic growth. As well, it is also my view that the trajectory of economic growth in 2013 (and corporate profits) will also be adversely impacted by the manner in which businesses and consumers react to the tax hikes and the growing animosity and contentiousness in Washington, D.C. in the months ahead. Indeed, in the two months ahead, I fully expect the deliberations between the revenge-lusting Republicans in the House and the equally dogmatic and partisan incumbent President and Democratic Senate to have a direct and distinctly adverse impact on economic growth, confidence and profits. Bottom line: I view the market's strength this week not as a new bull market leg but rather as something far different. Regardless of view, these are uncertain times and the only thing certain to me is that 2013 follows 2012 and that there are 363 days left in the year. Of that, I am very certain.
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