Kass: Recession Will Run Deep
These blog posts originally appeared on RealMoney Silver on April 4.
Will Technicals and Sentiment Continue to Trump Fundamentals?
7:38 a.m. EDT
Thus far, the market's internals are better than after the two previous one-day wonders.
Specifically breadth has remained positive, and volume has subsided into the two-day aftermath since Tuesday's soaring stock market. Sentiment remains another constructive element to the investment mosaic, gauging by the 10-day CBOE put/call ratio -- though lower than the recent peak, it still seems elevated and at levels that have typically been associated with market strength. Moreover, ISI's survey of hedge fund exposure is unchanged over the last four weeks.
Beyond the financials' dead-cat bounce (my view), the prior market leader -- namely, the materials sector -- seems to be the current and possibly future market leadership group.
With the technicals and sentiment, thus far, in relatively sound condition, here are some critical questions for your consideration:
- 1. To what degree has the market's decline discounted the current economic weakness?
2. How long will the domestic economy remain shaky?
3. And to what degree will it contribute to disappointing corporate profit growth?
I am still mildly bearish on the near-term prospects of the market and a little more bearish on medium intermediate-term outlook.
We Are in a Recession
8:46 a.m. EDT
Even more important than the weakness in the last month's jobs reports were the steep revisions in the previous months.
Stated simply, the job data are getting worse.
No doubt, many of the previously bullish (prior to the release) commentators in the media will (disingenuously) reject or rationalize the jobs report.
Beware of their spin.
From my perch, however, general expectations of a second-half recovery are being dispelled by the facts.
More importantly, we are now wading toward the deep end of a prolonged recession, and it portends a much weaker corporate profits setting than is generally assumed.
While I am respectful of the market's relatively good technicals this week and the bubble in negativity, in the end, I believe that fundamentals will trump the other factors.
The short-term component of my market outlook just got a little more bearish.
Doug Kass is the author of The Edge, a blog on RealMoney Silver that features real-time shorting opportunities on the market.
Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.