Doug Kass & Byron Wien: Stocks Will Hit Their High For The Year By The End Of This Week. S&P 500 Earnings Are Going To Be Down Year Over Year. Too Many People Making Too Much Stuff Out There. … The World Competitive Environment Is Too Intense.
In his “15 Surprises for 2013,” published today on TheStreet.com, Kass writes:
Once again, the bullish consensus is tightly grouped with the expectation that the S&P 500 will close the year at 1550-1615 (up from 1425 at the close of 2012) and that the 10 year U.S. note yield will trade at 2.50% or higher (up from 1.80% at the close of 2012).
These consensus views might prove too optimistic on stock prices and too pessimistic on bond prices. I believe that the U.S. stock market will make its 2013 high in the first two weeks of January, be in a yearlong range of 1275-1480 and close the year at 1425 and that the 10-year U.S. note will be below 2.00% in the first six months of 2013.
Kass cites the following reasons for his bearish outlook:
- No meaningful spending or entitlement cuts will be made;
- Unsustainable and diminished value of fiscal and monetary policy;
- An aging recovery and aging stock market;
- Investment narrative shifts to the earnings cliff and to the end of profit margin expansion;
- A market that starts the year at reasonable if not high valuations relative to headwinds;
- Full-year estimated S&P 500 range of 1275-1480 with a close of 1425; and
- Fade (sell/short) early January stock market strength.
US Stocks Could See a Correction: Wien
U.S. stocks may have closed at five year highs last week, but a long-time market watcher told CNBC on Wednesday that the S&P 500 Index could see a correction from current levels before recovering by year’s end.
“I have a bearish outlook,” said Byron Wien, Blackstone Advisory Partners vice chairman. “The market will have a swoon here — trade at 1,300, down 10 percent from where it is right now. … [But] it will end the year pretty flat.”
Stocks are poised to head lower because earnings are decelerating, he told “Squawk Box.”
“S&P 500 earnings are going to be down year over year,” he said, adding that they’ll be lower than tempered expectations. “Below $100 … maybe $95.”
Wien expects large-cap multinationals to come through, despite what he said are “too many people making too much stuff out there. … The world competitive environment is too intense.”
Many large U.S. corporations derive 50%-65% of their revenues overseas. As the U.S. dollar rises, the foreign-exchange boost to overseas profits of the past decade will reverse.
by Charles Hugh Smith, Of Two Minds:
One of the most glaring omissions in mainstream financial-media stock market commentary is the connection between the U.S. dollar’s relative value and corporate earnings. I have often commented on this bullish consequence of a weakening dollar. 50%-60%+ of global corporate earnings and profits are non-U.S., i.e. booked overseas in a currency other than the U.S. dollar (USD). As the dollar weakened, global corporate profits skyrocketed as earnings in euros, yen, etc. rose when stated in dollars.
In other words, overseas profits expand as if by magic when stated in dollars.
When the euro and the dollar were 1-to-1 back in the early 2000s, then 100 euros of profit converted to $100 when stated in dollars. When the euro rose to $1.60, then the same 100 euros of profit earned by the U.S. corporation in Europe converted to a stupendous $160 in profit when stated in dollars.
Eurozone meltdown ‘cannot be discarded’ in dangerous mix of global risks, warns World Economic Forum
A dangerous mix of fragile economies and extreme weather has increased global risks, with a meltdown in the eurozone still a threat, the World Economic Forum said.
Bloomberg is reporting 1600 job cuts at the bank next week as well.
None of this should come as a surprise. Morgan Stanley’s CEO James Gorman has always made it clear that Wall Street had to downsize and that he wasn’t afraid to have his own employees feel the pain.
That goes for compensation (down 9% since last year) and layoffs. The truly ugly year was 2011, when the firm was running layoff scenarios in the several thousands. At the beginning of last year, Gasparino (again) reported that by June 5,000 more people would be gone.
This falls in line with some dark predictions about what would happen all over the Street that we’ve been tracking for some time. When Detusche Bank announced 1900 layoffs this summer, Meredith Whitney swooped in and said it was just the beginning.
She predicted 50,000 job cuts and lower compensation across the board even though the financial meltdown was, at that point, 4 years in the past.
In the long run this is a good thing for the Street, according to Whitney. Banks simply aren’t making enough cash to support the staffs they used to have, and shareholders aren’t going to stand for banks that “over capitalized and sluggish.”
Experts: This Is A Time For Caution. Current Stock Market A Reminder of January 2000. U.S. Economy Will Enter A Severe Recession, The Economic Implosion Of Europe Will Continue To Accelerate, Stocks Will Collapse in 2013. This Time It May Never Be Possible To Exit From It Completely
Economic Forecaster: The US Has Gone Over The ‘Demographic Cliff’. Market Crash Will Start In Summer – That, Just Like The Last Crash, Lasts About A Year And A Half Or So, Goes Into Late 2014, Early 2015.