This Day On The Street
Continue to site
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

All in all, I continue to see potential economic risks to the downside, providing still another hurdle for corporate profits (the mother's milk of the stock market) to meet rosy expectations.

My baseline expectation (of slightly below $100 a share) envisions first half 2013 coming in slightly below the range of the last five quarters, as the fiscal drag begins to take hold at a time when corporate pricing power is imperiled. Margins have held up relatively well, but we must continue to be vigilant in monitoring prices paid, labor costs, inflationary and raw materials pressures and interest rates, among other factors influencing margins.

The bottom line is that while 2013 consensus S&P profits (top-down) are about $107 a share, I expect a more challenging earnings landscape in the year ahead, with $100 a share or even less more likely to be closer to actual results.

Should $100 a share turn out to be actual 2013 S&P profits, down from $101-$102 projected in 2012 and consensus of $107 a share, the expectations of higher stock prices over the balance of the year will rest chiefly on a revaluation upward in P/E multiples (from nearly 15x today).

I continue to argue (so far incorrectly, at least measured by the market performance) that while 15x is in line with the last five decades of valuations, it is not undemanding given the secular headwinds to growth around the world described recently in " A Wolf in Sheep's Clothing." These include:

  • an aging market and economic advance;
  • unsustainable fiscal policy;
  • the earnings cliff that is upon us;
  • the interest rate cliff that may lie ahead;
  • the uncertainty of a reallocation out of bonds into stocks;
  • Washington does not instill confidence;
  • a spent-up, not pent-up, consumer;
  • diminishing policy alternatives; and
  • volatile valuation.

In summary, despite money flows providing a continued and persistent rise in stock prices since year-end (let's call this The Tepper Liquidity Argument), the earnings and revenue cliffs are growing more visible, at least to this observer.
At the time of publication, Kass and/or his funds were short SPY, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

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
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Real Money
Try it NOW

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


Chart of I:DJI
DOW 17,084.49 +33.74 0.20%
S&P 500 2,013.43 +15.91 0.80%
NASDAQ 4,830.47 +19.6820 0.41%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs