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: The Big Picture Remains Cloudy

This column originally appeared on Real Money Pro at 10:21 a.m. EST on Feb. 4.

NEW YORK ( Real Money) -- While fourth-quarter 2012 real GDP fell by -0.1%, reflecting lower exports, a decline in federal government spending and a large drop in inventory investment, if one takes out the contraction in inventories, final demand was +1.1% (annualized). The fourth-quarter annual rate of inflation was +0.6%.

For the full year of 2012, real GDP grew by +2.2%, and inflation rose by +1.8% -- nominal GDP increased by a tepid +4% (and those with plenty of juice from the Fed).

Growth remains slow, as the household sector continues to deleverage.

Despite market optimism, the consumer sector remains the Achilles' heel to growth, as I don't see the deleveraging ending anytime soon:

  • Household savings rates are well below historical averages.
  • Home values, though up by nearly 6% in 2012, are still close to 28% below the previous peak six years ago.
  • Higher interest rates are already taking a bite out of refinancing. (Refinancings liquefy the consumer and infuse cash, generally serving to raise personal consumption expenditures.)
  • Most importantly, consumers will absorb nearly $250 billion of tax increases, the Obamacare surcharge and possible government spending cuts (March sequester).

Given the fiscal headwinds, much lies on the shoulders of the corporate sector, which will need to take the growth baton from the consumer sector.

Business fixed investment was weak last year, reflecting weak global demand and the uncertainties of tax and regulatory policies.

As evidence of my conerns regarding a revival of business fixed investment, factory orders for December rose by a less-than-expected +1.9% (consensus was +2.3%), as the previously reported durable goods component was lowered. Significantly, core capital expenditures (non-defense capital goods, excluding aircraft) declined by -0.3% (the initial report was +0.2%). Durable goods orders also were revised lower by -0.3% (to a rise of +1.0%).

Given the economic and policy uncertainties (particularly the upcoming fractious Washington follies), I find the renewed belief in an improvement in corporate confidence (manifested in more hirings and enlarged capital spending) to be an unjustified leap of faith.

Over There

The U.S. will likely benefit from a slight acceleration in Asia's growth. (There was a small increase in the January China PMI services index, to 56.2, over the weekend.)

Contrary to most market observers, however, I don't see an all-clear sign yet in Europe. Though stabilizing from a low base of economic activity, the overall growth outlook in the EU still remains subpar and challenging.

Overnight there are emerging political and economic chinks in the armor, as Spain Prime Minister Rajoy has been accused of accepting illegal payments. Spain's 10-year note is yielding 5.38% (up almost 20 basis points), for a seven-week peak in yields. As well, the Spanish IBEX has fallen to a seven-week low (down by 2% after falling 6% last week).

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 17,829.36 +17.17 0.10%
S&P 500 2,090.93 +1.79 0.09%
NASDAQ 5,115.92 +13.1120 0.26%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs