What could go wrong?
by Doug Kass
1. Stacked or cumulative inflation will weigh on the U.S. consumer -- especially the lower income segment.
2. In part reflecting sticky inflation, interest rates will be higher for longer -- squeezing overleveraged borrowers (especially commercial real estate).
3. Quantitative tightening is about to kick in as RRP (Reverse Repurchase Agreement operations) drains to near zero.
4. Political and geopolitical headwinds are fierce and show no signs of abating.
5. Our growing annual deficit and nation's debt load has not and will not likely be addressed by an unprecedented political partisanship.
6. The unstable tribal mentality of the extremes on the political left and right (what Arthur Brooks calls the Dark Triad Paradigm) dominate our society: the loss of moderation spells more societal troubles.
7. Valuations, based on historical measures, are almost all above the 90%-tile. Rarely do bull markets start from current price-earnings levels.
8. Equity prices have decoupled from interest rates -- the equity risk premium is at a multi-decade low and the spread between the S&P 500 dividend yield and the yield on Treasuries has rarely been wider.
9. Investor sentiment is giddy and the Bull Market in Complacency is worrisome.
10. Like prior periods in history, a changing market structure, including casino-like ODTE options trading, the proliferation of leveraged quantitative strategies and products and a general dependence on price momentum (not value) as a short-term voting machine, represent bona fide threats on possible market instability.
Source: The Street
https://realmoney.thestreet.com/markets ... g=62795946
