Kass: A Critical Juncture

NEW YORK (Real Money) -- It is becoming increasingly clear that global easing (both in the U.S. and abroad) is losing its marginal benefit and that the onus of economic and corporate profit growth lies squarely on the shoulders of fiscal policy. The likelihood of fiscal inaction and the associated policy uncertainty (taxes, monetary and regulation) are about to weigh down corporate results (possibly for some time).

The stock market has been beholden to central bank credit creation for years. In the past few years, it is clear that QE and other central bank schemes are the biggest props under stocks and commodities. Gasoline and other fuel consumption have declined sharply over the past few years, yet prices have soared on QE and ZIRP. This dynamic has occurred in other commodities, and it prevents market forces from producing price equilibrium and a normalized economy.

Now, the winds of recession are increasing in intensity across the globe. The grand fight between central bank debt monetization and the natural order of economic cleansing is about to enter a deeper, darker circle of hell.

-- Bill King, The King Report

Over here (of course), dysfunctional politicians are unable to put their differences on the back burner in order to address the fiscal cliff and to implement thoughtful, outside-of-the-envelope fiscal pro-growth initiatives.

Over there in the eurozone, hard-hitting and sometimes painful fiscal initiatives are being delayed in favor of more Band-Aids (cowbell and easing). The overseas markets are starting to see through those temporary patches.

Already, the euro has given up all its gains since last Thursday's economic summit in Brussels. As well, yields on Spanish and Italian bonds are again backing down, with Spanish sovereign debt back close to 7% -- it peaked at 7.07% -- and up 13 basis points overnight. In Italy, the rise in yields is even more conspicuous, with yields up by 26 basis points, to 6%, this morning.