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: At the Crossroads

The proximate cause of Friday's market rally was likely short-covering -- many traders and investors didn't want to go home short in fear of a weekend agreement in Washington, D.C.

There was no agreement over the weekend.

At Friday's close, the S&P 500 stood within 2% of the old high, and the 30-day Treasury bill yield has spiked to 0.21% -- which compares with its recent zero-interest-rate-policy (ZIRP) range of between zero and 6 basis points. This is something of a contradiction in terms and in markets. (I typically favor the predictive value of the fixed-income markets over that of equity markets.)

One can only conclude that Mr. Market is not meaningfully worried about the dysfunction in Washington.

This weekend's impasse, however, suggests that the odds of missing the Oct. 17 deadline have grown somewhat larger. How much, I don't know, nor does anyone else. It also should be emphasized that the Oct. 17 date is a political issue and largely symbolic, as the Treasury will have $50 billion in payment capacity on that date.

While a technical default is still possible, a debt default is as close to zero possibility as one can get without it actually being zero.

Though the Treasury's payment capacity will not run out of cash until the end of October, the Treasury does have a $67 billion payment to make on Social Security, defense and Medicare due Nov. 1

My base-case expectation of a late compromise -- that is, sometime on Wednesday or Thursday -- remains odds on.

"Profits are the 'mother's milk' of stock prices."

-- Larry Kudlow, "The Kudlow Report"

The economic damage to business and to consumer confidence, grows with every passing day. That's a dangerous state, considering the domestic economy has not reached escape velocity and is not yet self-sustaining after four years of ZIRP and quantitative easing.

Profit forecasts for the fourth quarter and for the first half of 2014 are too optimistic (again), and revisions are heading lower in the months ahead.

Confidence is falling at the fastest rate since the Lehman Brothers collapse (see here and here). Domestic economic growth is faltering as well, and top-line sales are nothing to write home about. Outside the financial sector, earnings were lower in the second quarter and not much better in the third quarter. Profit margins are near a 58-year high and 70% above the five-decade mean. The S&P P/E ratio is up 2 points from 2012's year-end, and we still have questions about the global economic growth trajectory, particularly after China's big exports miss (reported Saturday). Given all that, I believe the rally late last week should be sold and, absent a reasonable sized correction, dips should not be aggressively purchased.

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


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