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This blog post originally appeared on RealMoney Silver on Nov. 19 at 8:37 a.m. EST.

From my perch, yesterday's market advance was more of a reaction to the strength in the Philadelphia Fed Manufacturing Index's sharp rise than any other factors, including the possible resolution of the Irish debt situation and/or the excitement surrounding

General Motors'


large IPO.

I learn from charts. And some of those charts are worrisome.

"Now you won't need reminding that it is the change in growth in inventories that counts towards GDP growth. So even if inventories rise another $110 billion in the fourth quarter, as they did in the third quarter, the contribution to GDP growth is zero. If inventories rise a still-strong $60 billion in the fourth quarter, for example, inventories will deduct 1.5% from annualized GDP growth. With final sales rising a sickly 0.75% annualized (!!) over the last two quarters, you don't have to be a genius at math to realize a recession is entirely possible, even without sharp declines in housing or consumer durables." -- SocGen Economist Albert Edwards

I cannot overstate the magnitude of the role of inventory accumulation in 2010 as it relates to domestic GDP growth. In the last three months, production has exceeded orders by the widest gap in nearly 20 years. Indeed, SocGen's Edwards believes that the inventory build will soon be complete and that U.S. GDP will suffer measurably. Below is a chart from Edwards that incorporates his view.

Rate of Inventory Build Set to Slow Sharply Source: Societe Generale

The ratio of ratio of coincident index to lagging index has had an excellent track record of forecasting future economic activity. As seen in the chart below, the ratio is starting to roll over.

Ratio of Coincident Index to Lagging Index -- Monthly Source: Bloomberg

Already rail traffic is


a greater-than-seasonal drop in activity.

Total Rail Traffic Weekly Loaded Units -- Four-Week Rolling Averages Source: ASI/Transmatch

Intermodal Traffic Weekly Loaded Units -- Four-Week Rolling Averages Source: ASI/Transmatch

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Over there, austerity measures,

massive debt restructurings


possible further contagion

in Europe coupled with the just-announced

more restrictive bank reserve policy in China


potential currency/trade issues

with that country are near-term economic- and valuation-deflating factors.

While the markets appear to be discounting smoother and self-sustaining growth ahead, I continue to see an uneven domestic economic recovery

Again, while the market roared yesterday on the Philly Fed Index's great reading (arguably cherry-picking the positive data by ignoring the Empire State's equally poor reading earlier in the week) and reversed the course of Tuesday's drubbing, the continued weakness in the important housing sector, relatively weak final sales, structural employment issues and several of the storm clouds I mentioned above create an uncertainty toward the trajectory of economic and corporate profit growth in 2011-2012.

Jim Cramer justifiably writes that we should ignore many of these macro variables and we, as investors, should emphasize micro achievements by numerous well-positioned companies in high-growth sectors. His view has much merit, as a portfolio of




F5 Networks







would attest to, but my position and his are not mutually exclusive, as I suspect something between the extremes of macro and micro might capture the market's essence and it's future direction. On that score, the tension between the cyclical tailwinds of stimulation (and the appearance of some modestly better economic signs) continue to contrast with some emerging near-term concerns and, intermediate term, the secular headwinds (of numerous non traditional influences) that will likely keep the U.S. stock market range-bound in the months ahead.

Doug Kass writes daily for

RealMoney Silver

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At the time of publication, Kass and/or his funds were long GM, 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.