Doug Kass, usually bearish, turns Bullish!!

Kass: Market Has Made Low For Year

Published: Tuesday, 6 Jul 2010 | 6:15 PM ET

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By: Drew Sandholm
Web Producer

He's a celebrated bear, so when Doug Kass of Seabreeze says the market has made it's low for the year, we listen.

After travelling a "path of fear" markets have dramatically disconnected from fundamentals, Kass says on Tuesday's Fast Money.

Kass thinks investors are missing a slew of signs all of which suggest the economy isn't nearly as bad as the price action in the S&P suggests.

S&P 500 INDEX (.SPX) 1028.06     5.48  (+0.54%%) INDEX

When you go beneath the surface of employment data and manufacturing numbers Kass sees strength.

"If you look at the June ISM non-manufacturing index," he says, "the employment component  dropped only marginally and is consistent with respectable payroll growth.And the employment trend index was up for the 11th straight month in a row and it always leads payroll growth. The index is up 5 points above it's long term average."

On top of that, "high yield bond rates were down, 2-year swap spreads were down, 3-month LIBOR was down and the euro was up."

All positive signs, Kass says.

In fact, Kass is so positive he predicts GDP in the second half of the year will likely be up over 1%.

And to top it all off, he says market indicators are off the charts in terms of stocks being oversold.

What's the trade?
In anticipation of a snap-back in the second-half, Kass recommends taking a look at the technology sector [XLK  20.49    0.20  (+0.99%)   ]. Always go with technology for beta, he says.

What's the bottom line?

"We have reached a yearly low for the market for the year," he concludes. "This business is going to be fun again and it's going to happen sooner than most people think."

You can find our complete interview with Doug Kass in the Word On The Street video clip above or click here. 

Delinquencies Rise

The May Mortgage Monitor report released today by Lender Processing Services, Inc. ... shows a 2.3 percent month-over-month increase in the nation's home loan delinquency rate to 9.2 percent in May 2010, and that early-stage delinquencies are increasing as normal seasonal improvements taper off. This report includes data as of May 31, 2010.

According to the Mortgage Monitor report, the percentage of mortgage loans in default beyond 90 days increased slightly, while both delinquency and foreclosure rates continue to remain relatively stable at historically high levels. There are currently more than 7.3 million loans currently in some stage of delinquency or REO. 

The report also shows that the average number of days for a loan to move from 30-days delinquent to foreclosure sale continues to increase, and is now at an all-time high of 449 days, resulting in an increase in "shadow" foreclosure inventory.

Debt Daze

Comparing Changes In Quarterly US Debt And Deficits

T. Durden

Now that America is on record spending autopilot and nobody cares or knows just what the 2010 deficit pattern of the government will look like, and, more importantly, the debt issuance, we have compiled historical quarterly data comparing the change in US deficit and debt data. As the chart below demonstrates, over the past 10 quarters, on average the US had added $400 billion in debt each quarter, while increasing its deficit by about $275 billion, with debt issuance surpassing any given period's deficit by almost 50%. To be sure, the data in the debt change is skewed by the outliers of Q3 and Q4, which were not so much an increase in term debt, but a massive issuance in short-term debt holdings, as the entire world scrambled to place their money into ultra-secure 30 Day and other Bill securities. As a result of these two debt outlier points, the US is now stuck with rolling over half a trillion in short-term debt on a monthly basis. Either way, it is obvious that it will likely be impossible for the US to trim it quarterly debt issuance materially below $400 billion per quarter, and will likely see this number increasing as tax receipts continue declining. Additionally as quarterly deficits are unable to drop below $300 billion (note the Q2 '10 data excludes June deficit data), once interest rates start climbing, look for these numbers to surge once ever greater portions of the US deficit go to simply pay the interest on the federal debt. Bottom line, with the US expected to generate a deficit of about $1.5 trillion in the next fiscal year, the napkin estimate says that the US will likely incur between $2 and $2.5 trillion in debt over the next year. And now you know even better why the administration is now spending money with no blueprint whatsoever.

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Confidential Merrill Report says Spain May tap EU-IMF Support

"There is a serious risk that Spain have to make use of Europe's €750bn (£618bn) aid packet," said the document, obtained by Spanish newspaperExpansion. The bank declined to comment.

The report said it was not yet clear whether weaker states on the periphery of the eurozone will be able to raise money to fund their debt needs at viable rates on the global markets. Any request for a bail-out by Spain would be extremely controversial, potentially bringing down the government.

The bank said it was possible that Italy would also require a rescue or that there would be a total divorce between Germany and France, though these were viewed as "extremely unlikely" outcomes.

Spain's premier Jose Luis Rodriguez Zapatero yesterday proclaimed "his full confidence in the strength and solvency" of the country after Moody's threatened to downgrade Spanish debt by up to two notches on the grounds that fiscal austerity would undercut growth. Moody's then twisted the knife deeper, cutting ratings on five Spanish regions.

Spain's treasury sold €3.5bn of five-year debt successfully, but at a stiff rate of 6.6pc
.

Jobs & Factory Orders ..Jobs weakish, Factory very poor.

Summary
The underlying details of the employment report were mixed. The positives: the economy added 100 thousand payroll jobs ex-Census (still weak but better than in May), the unemployment rate decreased to 9.5%, the number of part time workers (for economic reasons) decreased slightly helping to push down U-6 to 16.5% (from 16.6%).

Negatives include the declines in the participation rate and employment-population rate, the slight decrease in hourly wages, the decline in average hours worked, and a record percent of workers unemployed for more than 26 weeks. The number of long term unemployed is one of the key stories of this recession, especially since many of them are now losing their unemployment benefits.
Overall this was a weak report.


MFG:
May factory orders are the latest casualty of the gradual stimulus withdrawal: the forecast decline of -0.5% was almost tripled, coming out at -1.4%. This compares to an April increase of 1.0%. From the release: "New orders for manufactured goods in May, down following eight consecutive monthly increases, decreased $5.8 billion or 1.4 percent to $413.2 billion, the U.S. Census Bureau reported today. This followed a 1.0 percent April increase. Excluding transportation, new orders decreased 0.6 percent."   "Inventories, down following four consecutive monthly increases, decreased $2.0 billion or 0.4 percent to $520.4 billion. This followed a 0.6 percent April increase. The inventories-to-shipments ratio was 1.25, up from 1.24 in April."

Autos

Auto sales came in at a SAAR of 11.1mm unit. Below the 11.4mm estimated, and below the lows of the 1991 recession.

It just keeps getting worse - ISM mfg & Home sales

ISM Mfg index shows slower expansion in June, Pending Home sales collapse

PMI at 56.2% in June down from 59.7% in May.

From the Institute for Supply Management: June 2010 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector expanded in June for the 11th consecutive month, and the overall economy grew for the 14th consecutive month, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The manufacturing sector continued to grow during June; however, the rate of growth as indicated by the PMI slowed when compared to May. The lower reading for the PMI came from a slowing in the New Orders and Production Indexes. We are now 11 months into the manufacturing recovery, and given the robust nature of recent growth, it is not surprising that we would see a slower rate of growth at this time. The sector appears to be solidly entrenched in the recovery. Comments from the respondents remain generally positive, but expectations have been that the second half of the year will not be as strong in terms of the rate of growth, and June appears to validate that forecast."
...
ISM's New Orders Index registered 58.5 percent in June, which is a decrease of 7.2 percentage points when compared to the 65.7 percent reported in May.
...
ISM's Employment Index registered 57.8 percent in June, which is 2 percentage points lower than the 59.8 percent reported in May.
emphasis added

And from the NAR: Pending Home Sales Drop as Expected

The Pending Home Sales Index, a forward-looking indicator, dropped 30.0 percent to 77.6 based on contracts signed in May from a reading of 110.9 in April ... NAR chief economist Lawrence Yun said, “The sharp decline in contract signings in May is a natural result with similar low levels of sales activity anticipated in June.”

Both the ISM index and pending home sales were below consensus.