Kass: My 'Fast Money' Recap
This content originally appeared on RealMoney Silver.
Last night was another fun segment with the "Fast Money" gang -- Melissa Lee, Guy Adami, Joe Terranova, Brian Kelly and Karen Finerman -- during which I discussed surprises No. 7 and No. 8 for 2011.
Surprise No. 7:
Partisan politics cuts into business and consumer confidence and economic growth in the last half of 2011.
"The first thing we do, let's kill all the lawyers." -- William Shakespeare, Henry VI, Part 2
Increased hostilities between the Republicans and Democrats become a challenge to the market and to the economic recovery next year. As the 2012 election moves closer, President Obama reverses his seemingly newly minted centrist views, as newly appointed Vice President Hillary Clinton becomes the administration's pit bull against the Republican opposition.
"The day the Fed came into being in 1913 may have been the beginning of the end, but the powers it caused took a long time to become a serious issue and a concern for the average Americans." -- Ron Paul, "End of the Fed"
On the other side of the pew, as Chairman of the Subcommittee on Domestic Monetary Policy, Congressman Ron Paul's fervent criticism of monetary policy and the lack of transparency of the
Fed
leads to further friction between the parties.
"'Refudiate,' 'misunderestimate,' 'wee-wee'd up.' English is a living language. Shakespeare liked to coin new words, too. Got to celebrate it!'" -- Sarah Palin
Sarah Palin, who can see the 2012 Presidential election from her home in Alaska, continues her barbs against the opposition party and holds a large lead to be her party's Presidential candidate in early 2011, but continued verbal and nonverbal blunders and policy errors coupled with an announcement that she has separated from her husband causes Palin to announce that she will not run on the Republican ticket. Massachusetts' Mitt Romney, Wisconsin's Paul Ryan and South Dakota's John Thune emerge as the leading Republican Presidential candidates by year-end 2011.
The resulting bickering yields little progress on deficit reduction. Nor does the rancor allow for an advancement of much-needed and focused legislation geared toward reversing the continued weak jobs market.
The yield on the 10-year U.S. note, despite a stuttering economic recovery visible by third quarter 2011, rises to over 4.25%, as the bond vigilantes take control of the markets. The rate rise serves to put a further dent in the U.S. housing market, which continues to be plagued by an avalanche of unsold home inventory into the market as the mortgage putback issue is slowly resolved.
During the second half of the year, housing stocks crater and the financial sector's shares erase the (sector-leading) gains made in late 2010 and early 2011.
Surprise No. 8:
The market moves sideways during 2011.
While the general consensus forecast is for a rise of about 10% to 15% for the
S&P 500
in 2011, the index ends up exactly where it closes the year in 2010. A flat year is a fairly rare occurrence. Since 1900, there have only been six times when the averages recorded a year-over-year price change of less than 3% (plus or minus); 2011 will mark the seventh time.
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.-- William Shakespeare, Hamlet
With a return profile reminiscent of the sideways markets of 1953 (-0.80%), 1960 (-0.74%) and 1994 (+1.19%), the senior averages also exhibit one of the least volatile and narrow price ranges ever. The S&P 500 never falls below 1150 and never rises above 1300, as the tension between the cyclical tailwind of monetary ease (and the cyclical economic recovery it brings) are offset by numerous nontraditional secular challenges (e.g., fiscal imbalances in the U.S. and Europe; a persistently high unemployment rate that fails to decline much, as
structural domestic unemployment issues
plague the jobs market), and the continued low level of business confidence (reinforced by increased animosity between the Republicans and Democrats) exacerbates an already weak jobs market and retards capital-spending plans.
Despite the current unambiguous signs of an improving domestic economy, as the year progresses the
of consistently improving economic growth and a self-sustaining recovery is adversely influenced by continued blows to confidence from Washington, D.C., serving to contribute to a more uneven path of economic growth than the bulls envision.
With traditional economic analysis again failing to accurately predict the path of economic growth (as it did in 2008-2009), behavioral economic analysis, linking psychology to the business cycle, gains popularity. Yale's Dr. Robert Shiller and former Fed Chairman Dr. Alan Greenspan write books on behavioral economics that become the No. 1 and No. 2 books on the
New York Times
nonfiction best-seller list.
The sideways market of 2011 will prove to be a good year for opportunistic traders but a poor one for the buy-and-hold crowd as neither the bulls nor the bears will be rejoicing next Christmas.
Doug Kass writes daily for
RealMoney Silver
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Doug Kass is the general partner Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.