This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Kass: A Deeper Dive Unearths the Ugly

A slowly growing domestic economy is now exposed to the cruel blows of fiscal restraint. The resolution of the U.S. cliff will provide about $700 billion of fiscal drag in the next decade. With the payroll tax holiday expiring on Dec. 31, 2012, about $100 billion-$125 billion will be deducted from aggregate disposable income in 2013. Some states (notably California) instituted a large retroactive income tax increase (let's call it the Phil Mickelson Tax).

Finally, tax increases to finance the Affordable Care Act also went into effect on Jan. 1, 2013. All of these amounts to a fiscal drag of more than 2% of GDP spread over the next 12 to 18 months. Unfortunately, there is more drag ahead, reflecting the Budget Control Act of 2011, which dictates about $110 billion a year of sequestration over the next decade if Congress cannot agree on spending restraints.

Of course, there is a chance that addressing the budget will again be kicked down the road. In theory, policymakers could relieve the aforementioned fiscal drag by repealing or ignoring the Budget Control Act, but this would have other, unintended consequences to the fixed-income markets. As well, entitlement reform (which is long-term in nature) could be agreed to, eliminating the need for a sequester, but the growing animosity in Washington will likely preclude this from occurring.

There is also the chance that the private sector will recover rapidly enough to offset the fiscal drag. On that score I remain skeptical, as the recent regional PMIs indicate 2013 started with a manufacturing slowdown. Meanwhile, macro deleveraging is still incomplete. Moreover, the consumer, facing tax headwinds, appears spent-up, not pent-up. Check out cautionary remarks by Coach ( COH) in Women's Wear Daily ("a transtion year"), which suggests this morning's earnings release from the company could disappoint. And even the much-heralded housing recovery, despite its broad multiplier impact, seems too small a percentage of GDP (3%) to offset the other constrictive factors.

Expansive monetary policy, too, is likely no longer going to provide a tailwind to growth based on the recent distribution of the Fed minutes that the four-year asset purchase program could be coming to an end over the next 12 months.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free

Markets

Chart of I:DJI
DOW 17,740.63 +79.92 0.45%
S&P 500 2,057.14 +6.51 0.32%
NASDAQ 4,736.1550 +19.0610 0.40%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs