They've taken a backseat thus far—but corporate results will likely soak up the bulk of investors' attention in the weak ahead.» Read More
Doug Kass has long been bearish on the market—and that has long been the exact wrong call. But now, Kass says the market's moment of truth is finally upon us.
"I've certainly been wrong," Kass admitted. "But being wrong doesn't keep me from warning investors."
And warn investors he did, for Kass sees this as a particularly treacherous time. "I think when the searchlights of the investor are the dimmest, when the economic and market threats are the greatest, and when market participants are the most comfortable in their inattentiveness and ignorance, the risks are surging—and that's precisely where we are now."
So what exactly is making Kass so concerned about the market right now? The president of Seabreeze Partners Management laid out his reasons on Tuesday's "Futures Now."
1. Stagnating GDP will weigh on revenue
Kass noted that "projections for second-quarter GDP—real GDP—are now under 1 percent." Indeed, Barclays cut its Q2 GDP growth forecast to 0.5 percent on Monday, and Goldman Sachs reduced its estimate from 1.3 percent to 1 percent.
Kass believes this stagnant rate of growth will be a major constraint on corporate revenue. "You've got to see a sharp acceleration in the second half for companies to have any top-line growth whatsoever," Kass said.
2. UPS lowers expectations
On Friday, UPS gave Kass one reason why this "sharp acceleration" is unlikely to come to pass. "I can't see it," Kass said, "with UPS cautioning about domestic economic growth."
UPS shares dropped by 6 percent on Friday after the company reduced earnings guidance. And one of the reasons the global shipping company gave for cutting guidance was "a slowing U.S. industrial economy." This is in line with Kass' thinking about what the rest of the year will bring.
(Read more: Cramer: Has UPS called recovery into question?)
3. Coca-Cola's weak shipments
On Tuesday, Coca-Cola gave Kass another reason to be bearish. In an earnings report that CEO Muhtar Kent said he is "not happy" with, Coca-Cola reported that soda volume in North America fell 4 percent.
That said, Kent pointed to factors that were more meteorological than economic: "We experience an extremely wet and cold second quarter," he said on Tuesday's earnings call, and "this weather clearly impacted our industry's volume growth."
(Read more: Coca-Cola's earnings meet, but CEO's 'not happy')
Do the fundamentals matter for crude oil?
When you look at the crude oil markets Monday and compare them with the picture from just a few weeks ago, you will realize that fundamentals have taken a back seat to technicals. Sure, there has been a slight uptick in demand, geopolitical tensions have risen and the dollar has come off of its recent highs.
But does this justify a $10 move to the upside? I think not. The market is very well supplied, and while demand is stronger, it is still nowhere near where it was just a few years ago.
(Read more: Expect $50 oil, but not $2 gas, Gulf Oil CEO says)
So with that, let's take a look at the technical picture.
Oil has enjoyed a stellar run over the past three weeks. But if you buy now, you better exercise a great deal of caution.
Crude oil showed signs of continuing its surge into the close on Friday, recovering more than $1.50 from its lows to close at $106. However, the market was falling back once again Monday morning, after China reported its second-quarter GDP growth came in at a somewhat discouraging 7.5 percent. A solid retail sales number out of China—up 13.3 percent from the previous year—is tempering that bad news.
(Read More: China's economy slows for second straight quarter)
The dollar has been having a positive morning, and we are looking to see the Dollar Index cover the gap at 83.75. The major level to watch at the close will be 84, as a move up to here will put pressure on commodity prices.
Crude oil is once again showing strength. So what's behind this sudden demand for the black gold?
First of all, we have seen some positive economic numbers come out of Washington. Second, seasonal factors are keeping many oil products in high demand, especially gasoline. If fact, gas demand has increased to more than 9 million barrels a day, a number that we have not seen since last summer.
With fracking becoming increasingly widespread, we are seeing less in the way of imports, and demand for West Texas Intermediate crude oil has increased. We have seen two straight weeks of 10 million barrel draws, something I have rarely seen as a trader on this floor.
To a lesser extent, continuing tensions in the Middle East are helping to elevate the oil prices. And as we were reminded by Tropical Storm Chantal this week, we are in hurricane season, and that has to be on everyone's radar.
(Read More: Two Big Reasons Gas Could Spike)
After putting in a $35 range shortly after midnight, gold stayed quiet through the Thursday's day session. The market tested a low of $1,276.10, just below support, but was unable to follow through before closing at $1,280.
Late in the day on Thursday, the Dollar Index gave up some of its gains, which has allowed it to show green on Friday's session by recovering those late losses. We are seeing slight pressure on commodities priced in dollars, and gold has moved back through support—trading close to $1,275 with a low of $1,272.60 so far.
(Read More: The Secret Sign That Gold Has Bottomed)
Silver has suffered a gut-wrenching year, losing a third of its value. But the CFO of one of the biggest silver miners says possible production cuts could soon provide a floor for the battered precious metal.
According to Pan American Silver's most recent quarterly report, the company experienced a total cost of $17.29 per ounce of silver mined in the first quarter of 2013. With the silver price recently dipping down to $18.18 per ounce at the end of June before recovering, the company's margin on production is starting to look awfully thin. That, in turn, could have an impact on the company's operations.
"The recent drop that we've seen in precious metal prices has definitely been challenging the industry, and in our case we have a portfolio of mines, and some are lower cost and some our higher cost. And when we look across the industry, for sure, we see that the current price is challenging those higher-cost operations," Pan American Silver CFO Rob Doyle told "Futures Now" on Thursday.
"We are seeing some supply-side response to the recent drop in precious metal prices," Doyle said. "So I think fundamentally, at some point, there will be a floor that comes into play."
In other words, a lower silver price could cause miners like Pan American Silver to shut down some of their most expensive mines. This, in turn, could provide a floor for the silver price, because supply would eventually be reduced.
But what has caused the incredible silver sell-off? Doyle blames technical factors and lemming-like selling.
"The market is certainly dominated by some large technical players, and I certainly believe that the precipitous drop we saw in precious metals have somewhat fed on itself," he said. "As the market moved lower, the moves were so vicious that it fed on itself and created more selling."
(Watch full segment: Where Silver's Going: Silver CFO)
Not all energy futures are rocketing higher along with crude.
After an eight-day consolidation pattern, August natural gas futures have broken down and appear headed for another leg lower.
The fundamental story backs up the downward move. The Energy Information Administration reported a sixth consecutive week of above-average natural gas inventories, which is obviously bearish for the commodity. U.S. output has risen for six years straight, in what seems to be an enduring trend.
Crude oil is rising to a fresh 14-month high for a fifth straight day. This after inventory data showed a bigger-than-expected decline in crude oil stockpiles. Geopolitical tensions also continue to weigh on the market, as Egyptian concerns have elevated the "risk premium" that is priced into oil.
Interestingly, the spread between U.S. crude oil and the Brent benchmark used internationally has narrowed. Brent now costs just $3 more than WTI crude per barrel, which is the lowest spread since December of 2010.
Two recent developments could spike gasoline prices in the near future.
The first is Saturday's devastating derailment of a train carrying a load of crude to an Irving Oil refinery in Canada. The St. John's refinery has the capacity to process 300,000 barrels of crude a day, making it Canada's largest. And most of that refining capacity goes toward making gasoline. The tracks that run these trains were heavily damaged, and officials say it will take weeks or longer to fix them.
The second development is the formation of the season's first tropical storm, Chantal. This in itself has had little-to-no impact on refiner operations, but it does remind traders that it is hurricane season, and you don't want to be caught short when a disruptive storm is coming.
Earnings and the future of quantitative easing: the market's two biggest concerns. But they're one and the same to Doug Kass, president of Seabreeze Partners Management.
"I see a false economic dawn in the U.S. and around the world," Kass said on CNBC's "Futures Now," adding that the markets and economic data have been boosted by the Federal Reserve's monetary policies. "The bottom line is that interest rates are a very important raw material in the U.S. economy. As they rise, it affects everything—profits, capital spending, hiring."
Rolling back QE will have serious ramifications, he said, and for him there's no question that it's coming. "I think tapering is a given, probably in September," he said.
In the meantime, the earnings picture looks negative to Kass, because easing has obscured the truth about how weak corporate profits are.
"I don't expect earnings to meet consensus expectations," he said. "The singer Robert Palmer was 'Addicted to Love.' Unfortunately, our corporations, our consumer and even are government are addicted to lower interest rates."
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