This blog post originally appeared on RealMoney Silver on Dec. 9 at 7:46 a.m. EST.
Despite the previously strong market price momentum and continued upward revisions in
earnings estimates and price targets by several strategists, Tuesday's weak market appeared to have had several causes at it's core, signs of a more tentative economic recovery and new sovereign debt worries.
First, there were renewed signs of a tentative economic recovery. Specifically, the National Federation of Independent Business's (NFIB) survey of business optimism pulled back again to the lowest reading in four months. (I
the weakening October reading of this important gauge of small businesses activity on
"Fast Money" recently.) The survey indicated that small businesses continue to see tepid sales growth and tight lending conditions. Historically, the NFIB has been an excellent measure of job creation, and it now signals a materially different outlook than last Friday's jobs report indicated. Small businesses are responsible for nearly all job growth, and this low reading is supportive of my view that the consumer and small business sectors will weigh down the overall growth in jobs, business expenditures and consumer confidence. It was also on reported on Tuesday that same-store sales dropped by 1.3%, down 0.2% year over year vs. expectations for a 1.5% to 2.0%
Second, there was more negative country debt news announced yesterday as Fitch
for Greece and gave cautionary comments regarding England's credit ratings. I have recently written on
that before we write Dubai off as a unique situation, there is never one cockroach as the egregious use of debt over the last decade has a long tail to it. I remain skeptical of the consensus view that Dubai is a one-off, unique situation that resembles nothing else in the world. Dubai is not sui generis. Last week I wrote that Austria's
failed in 1931 and that it, too, was initially ignored. History steadily provides us with examples that contagions can begin in the most remote of places. When I wrote about the meaning of the Dubai credit mess last week, I specifically highlighted the problems in Greece: "Investors are ignoring some of those nasty critters in Spain and Greece, and don't forget the typical bedbugs in Latvia and in the Ukraine."
In summary, while we are now ending the year and are squarely in a period of seasonal market strength, I remain bearish in view. I remain net short, and if the animal spirits continue to elevate share prices, I will likely raise the size of my short book. At the core of my pessimism are more tentative signs of economic growth, the vulnerability of the small business and consumer sectors, the aftermath of the credit crisis that will continue to haunt the business cycle in availability and access to credit (e.g., Greece et al.), and generally too bullish market expectations. On the last score, the average year-end 2010 S&P price target and S&P profit forecasts by the top strategists now stand at about 1,225 and $72 to $73 a share, respectively. For some of the points contained in today's opening missive (and others), I believe they are being too optimistic.
Doug Kass writes daily for
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At the time of publication, Kass and/or his funds were short SPY shares and short SPY calls and puts, although holdings can change at any time.
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.