1. Wildly bullish sentiment readings. The latest Investors Intelligence survey is now up to 53.3% for the bulls (versus 51.1% the prior reporting week) while the bear camp has dwindled further, to 17.4% (versus 18.9% a week ago). Bullish sentiment rose for the third consecutive week and bearish sentiment has not been this low since January 12. As Bob Farrell’s Rule number 9 stipulates, when all the forecasts and experts agree, something else is bound to happen.

2. Uncertainty over the coming U.S. midterm elections in November.

3. A more hawkish Fed (futures pricing in 40% odds of a rate hike by the November meeting).

4. Tougher profit comparisons in coming quarters.

5. The fading of the fiscal and monetary stimulus. The tax credits expire on Friday, the Fed has already stopped buying mortgage bonds and the pace of new trial modifications under the Treasury’s Home Affordable Modification Program has begun to slow.

6. Fresh uncertainty surrounding banking industry regulation. Goldman is likely the thin edge of the wedge. A proposal is gaining ground on Capitol Hill to force banks to spin off their derivatives-trading operations, which would represent a severe blow to one of Wall Street’s most profitable businesses.

7. Higher tax rates to pay for the massive $1.4 trillion federal budget deficit. The Bush cuts that lowered taxes on high-wage earners and capital gains and dividends are set to expire at the end of 2010. The top marginal tax rate will jump to 39.6% from 35.0%, and the current 15% rate on capital gains and dividends will go back to 20.0% and 39.6%, respectively,

8. Huge overhang of unsold houses. As of March, banks and investment trusts had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.

9. Sovereign debt problems in Greece and spillover to Portugal and possibly Spain.

10. Ongoing commercial real estate, which have resulted in 55 bank failures this year.

11. Underfunded state pension plans.

12. A property bubble in China — the government is now considering introducing new or higher taxes on real estate, possibly a property tax, in order to cool down a booming property market now widely being described as a bubble (prices up well over 10% from a year ago).

Category: Markets, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “DIRTY DOZEN: Things That Could Upset the Apple Cart”

  1. [...] up, bull market skeptic and Gluskin Sheff economist David Rosenberg gives us DIRTY DOZEN: Things That Could Upset the Apple Cart. I sometimes disagree with Rosie, but I always respect his intellectual acumen and [...]

  2. JustinTheSkeptic says:

    How about the fact that the FED is lying to us about, “things getting better on the employment front?” Why are the Democrates not yelling jobless recovery this time around? If you think post 2001 was bad? Yet, corporate profits obtained by low wages and government pump-primming are going to lead us into a New Golden Age. lol

  3. JTS,

    much like http://www.truthout.org/the-real-war-reporters58914 , all that was needed, to mute them, was some fresh stationery..


    nice analysis, a good thumb-nail sketch..remember, sometimes, right-thinking is reward, enough.

    keep up the Good Work.~!

  4. cognos says:

    I hope, as the man says — “right-thinking is reward enough” — because otherwise there are no rewards here.

    The recovery remains drastically UNDER-appreciated. The recovery is BUILDING. Its self-reinforcing! Low rates stimulate with a lag. Credit expansion is about to begin. Hiring is building and its about to accelerate. Profits are enormous… profits drive investment. I could pick apart each of these points… but the silliness to so thick it doesnt matter. DR was predicting “double dip” last summer at 900 on SPX. Saw new lows below 600.

    The basic mistake is simple — think FORWARD! What will things look like in 1-yr? Comm RE? – Better. Housing? – Better. Employment? – Better. Federal deficit? – Better. Banking regs? – Better. Etc, etc.

    But otherwise – thanks for being short.

  5. JusTryinTaMakeIt says:

    OK Cognos, I’m thinking forward one year: Public Debt? – Higher, leading to Interest rates? – Higher, leading to House Prices? – Lower, leading to Consumer Spending? – Lower, leading to Tax Receipts? – Lower, leading to forced efforts to reduce government deficits, leading to GDP? – Lower…..OUCH

  6. athreya says:

    How about oil prices? All the points listed above are already known, arguably some of them may be discounted by the markets. But oil prices which are creeping up can affect real purchasing power of US households. Could any move in oil prices towards $90-100 cause some pullback in US consumers’ discretionary spending?