Kass: Fair Market Value Update

NEW YORK (Real Money) -- As I look toward the balance of the year, uncertainty seems to be the operative word.

Second-quarter reported EPS mostly met expectations, while top-line growth began to disappoint. Forward guidance, however, was conservative. I expect more pressure on corporate profits in the quarters ahead, as sales continue to slip relative to consensus amid the challenges mentioned in today's opening missive.

U.S. real GDP expanded at about a 1.8% rate in this year's first half. Domestic economic growth in July seemed to reaccelerate somewhat, but, with rising gasoline (now at an all-time Labor Day high) and food prices, a weakening in refinancing activity, and political uncertainty and fears of a fiscal cliff, aggregate growth appeared to moderate in August. The current indication is for similar real GDP growth in third quarter 2012, reflecting weakening capital spending orders (lower in six of the last seven months) to be offset by some improvement in real incomes (up 3% year over year) and a steadily improving residential real estate market.

Away from the U.S., two important growth drivers, Europe and China, are likely to prove a drag on (consensus) growth.

I Am Cautiously Pessimistic

I am concerned that, come the fourth quarter of 2012, the emerging freeze in capital spending orders will reverberate through the production channel and become a freeze on job creation, creating a rippling and negative impact on domestic economic growth. And, while the Fed chairman "has our back," I am less optimistic that most that the Fed's actions will result in the intended benefits.