March 30, 2016

Bank paying interest on a customers loan | Negative interest rates

It's said that we are what we repeatedly do. And here we go again, as 2016-2018 is looking a lot like 2007-2009 to me. History has a delicious correlation to the past: It rarely repeats itself, but it often rhymes. What are the characteristics that "seem to rhyme" for the economy this time around? Let's run them down:

1. The proliferation of debt.
2. The broad ignorance of views.
3. The naysayers who get dismissed.

Although substantive signposts of an imminent crisis exist today, markets are ignoring them.

That's not surprising, as part of the reason why "ignorance is bliss" on Wall Street right now is that asset prices continue to rise and many of today's traders worship at that altar of price momentum.

Of course, that happened during the dot-com and housing booms -- and I believe it's happening again amid today's unprecedented expansion of government debt and acceptance of low or negative interest rates.

Recall that nine years ago, the Federal Reserve dismissed the notion that the subprime-mortgage problem would morph into a global weapon of financial destruction. Wall Street banks who marketed those crappy loans also certainly failed to warn investors (and ultimately paying almost $20 billion in fines over the next decade for their complacency).

Federal regulators likewise a blind eye to derivatives, while homebuilders (who benefited from the use of mortgage-backed securities) were clueless. Lastly, global financial institutions who packed their portfolios with derivatives clearly misunderstood the consequence of those instruments' proliferation.

Naysayers Get Dismissed

The final common denominator that exists with market meltdowns is that there are always a small group of observers who recognize the problem -- but who aren't heeded.

Alan Greenspan said in 2010 that when it came to the housing bubble, "everybody missed it: Academia, the Federal Reserve, all regulators."

But Scion Capital's Michael Burry, Emrys Partners' Steve Eisman, Paulson & Co.'s John Paulson, Shilling & Co.'s Gary Shilling and Euro Pacific Capital's Peter Schiff and others were naysayers during the housing boom. They were alarmed and generally positioned their portfolios accordingly, but Wall Street's consensus crowd dismissed them all.

From my perch, the emerging picture of accumulating government debt makes no sense and has to come to an end. The numbers simply don't lie.

"When you combine ignorance and leverage, you get some pretty interesting results." -- Warren Buffett

As I wrote in my opening missive, I fear that we'll soon see a repeat of the 2008-2009 financial crisis emerge in 2016-2018.

That's because I see a desperation of policy that rivals that of the Great Recession nearly a decade ago. Let's check things out:

Another House of Cards?

During the U.S. housing boom that sparked the 2008-2009 meltdown, Wall Street blithely sliced and diced no- and low- documentation home loans into mortgage-backed securities. Investors ignored teaser rates and no-money-down adjustable-rate loans that were "dead at birth" and based on notion that home prices could never fall.

In time, these financial "weapons of mass destruction" received global acceptance and nearly bankrupted the world's banking system. That's not an exaggeration, but a fact. The whole thing was virtually a house of cards.

But memories are apparently short, as what's going on today is little different than what was happening then. All we have to do to see that is substitute the toxic "subslime" loans that were given to undeserving home buyers a decade ago with the record loans that financiers are giving to unworthy sovereigns and governments today.

Lenders were underwriting mortgages with little or no money down back in those days. And today, they're loaning money to bankrupt governments who are being paid to borrow money at negative interest rates.

Japan is the best example this, although certainly not the only one. The Asian nation's national debt currently tops 210% of gross domestic product, while the interest on Japan's massive government debt exceeds one-quarter of its tax revenues.

But thanks to the same kind of stupidity that prompted investors to buy housing derivatives a decade ago, Japan is still able to sell 10-year bonds that carry negative interest rates. In fact, the current mess is even worse in some ways than the last one because negative interest rates virtually guarantee that those who hold Japanese government bonds will lose money.

The size of today's bubble is also even larger than it was the last time around. There are more than $7 trillion of government bonds with negative interest rates out there, which vastly exceeds the size of the derivatives that nearly bankrupted the world's financial system nearly a decade ago. And this bubble grows larger and larger every day.

Even in America, the situation is becoming ever more dangerous. Consider the fact that in 2008:

-A homeless man named Johnny Moon was reportedly able to get some $600,000 of mortgages to speculate in the U.S. housing market.

As bad as all of that was, consider the facts today:
- U.S. government debt totals about $19 trillion, or some $11 trillion more than it was in 2008.
- The Fed's balance sheet is approaching $5 trillion vs. $800 billion in 2008.
- Short-term interest rates are 0.25% compared to 4.5% back in the day. With interest rates at near-record lows, there's little opportunity for the Fed to further expand its balance sheet.
- The derivatives market is currently larger than $500 trillion vs. $182 trillion in 2008.
- Central-bank capital has dropped to 0.8% of assets from 4.5%.
- The size of the subprime bubble was $1.3 trillion, but the size of sovereign borrowing is $7 trillion today.
- Our government has to borrow money to simply pay interest, and monetary policy is hamstrung by near-zero interest rates.
- There are no more homeless people getting mortgages to buy homes, but there's a Danish therapist whose bank is paying her interest (instead of the other way around) on a loan that's financing her matchmaking Web site.

These numbers don't lie, and they'll have negative consequences in the fullness of time. Today's crisis is a lot more visible and much bigger than the derivative and subprime threats of a decade ago -- but importantly, the available policy responses are now far more limited.

The Meltdown's Timing Is Uncertain

In 2006, the underlying belief was that U.S. home prices would never fall on a year-over-year basis -- a view that turned out to be wrong. A decade later, we're told that governments can simply print their way to prosperity and we can consume more than we produce because no amount of debt will deter economic growth. But I believe that's wrong, too.

When will today's potential crisis become a real one?

I believe it'll likely happen when global interest rates and inflationary expectations begin to move higher, or when currencies begin to behave like drunken college students on spring break in Ft. Lauderdale (causing global funding and servicing pressures).

Or perhaps it'll happen when:

- A totally unforeseen circumstance (or "black swan") suddenly produces a return to natural price discovery in our markets.
- Wealth and income inequality -- the byproduct of easy monetary policies -- cause social unrest.
- The quants bring this all to the end, just as they did in the October 1987 Wall Street crash.
- Confidence in our central bankers has a "Wizard of Oz" moment, in which the curtain gets pulled back and reveals that our monetary authorities aren't all-powerful gods, but regular human beings.

The Bottom Line

My concerns are no doubt early; they usually are. But I expect that rigging up the yellow flags will turn out to be a profitable endeavor.

My advice: Stay tuned and be forewarned, because what's happening now in global capital markets makes little sense to many -- just as we saw a decade ago. At the very best, I think stocks are overvalued. But at the very worse, I believe a new and debilitating crisis looms ahead.

via realclearmarkets

March 28, 2016

Strong indications that we are in a Bear Market Rally

I want to emphasize that rarely have I ever been so blunt and unequivocal in my market negativity. And rarely have I been so decisive in restructuring my portfolio in anticipation of market weakness and the belief that we're in a bear-market rally.

It's important to emphasize that I bought stocks during both of the recent market dives even as many on this site and elsewhere grew more bearish. Indeed, I also bought stocks during the two dips in 2015's second half.

But now, the S&P 500's move to about 2,040 earlier this week took the index to about 9% above my fair-market-value calculation of 1,860. I believe that radically altered stocks' upside/downside quotient.

I might be totally incorrect in view and action, but I've tried to spell out my ursine outlook with specific, well-reasoned and logical commentary. Because actions speak louder than words, I've also made wholesale portfolio adjustments as a clear manifestation of my cautious market view.

I believe the rising stock prices that we're seeing are just a "bear-market rally" rather than a new bull-market leg.

After ringing up their worst start ever for a new year, the major stock-market indices have recently enjoyed a breathtaking five-week rally that wiped out all of the previous losses.

Recession concerns have disappeared as the Federal Reserve delayed anticipated rate hikes, and outflows from risk-on assets have morphed into inflows into junk bonds, equity ETFs and even emerging-market funds.

As a result, many now believe that we're in a continuation of the third-longest bull market in history, rather than just seeing a temporary rally within a broader bear market -- but I disagree.

Here's why:
-    Previous bear-market rallies have seen the same sort of conditions that we have today -- short covering, a change in sentiment from bearishness to bullishness and a fear of "missing out" on the market's apparent rise.

-    The recent rally's five- to seven-week time-frame is consistent with previous rebounds from very deeply oversold conditions. Personally, I believe the market has simply moved to an overbought extreme from January's oversold one. 

-    Peter Boockvar's take on the rising bullish sentiment: "The rally off the Feb. 10 low continues to bring out the bulls. According to Investors Intelligence, the number of bulls rose three points to to 47.4% -- the highest reading in nine months -- while bears fell 2.5 points to 27.8%, the lowest since December. The spread between bulls and bears is now at its widest level since August, before you-know-what. ... We have a VIX down to 14, the most overbought market in 1-1/2 years according to the seven-day RSI, and now the widest bull/bear spread in seven months. Be careful chasing here."

-    Although the recent advance has had some of the best breadth since mid-2009, it's also coincided with clear weakness in the number of stocks hitting new 52-week highs. The low levels of new highs are mostly due to the fact that many of the market's recent big gainers are in depressed market segments like gold, energy, materials and industrials.

-    The rebounding sectors are also quite extended and overbought now, and are beginning to show some signs of momentum loss.

-    Other sectors like utilities and consumer staples also look like they're extended and overbought. Both of those are trading well above their 200-day moving averages, and might no longer represent "defensive" investments.

-    The rebounding groups have benefited from a weakening U.S. dollar, but the greenback is approaching an important support level that the currency has historically rebounded from in recent years.

-    As I've consistently written, leadership changes typically occur in bear markets rather than bull markets.

-    The 10-day put/call ratio is down to 0.89, a level that was consistent with market tops during late 2014 and late 2015's rallies.

My pal Tony Dwyer also pointed out that:

"One additional historical data point that reinforces a correction view over the near-term comes from Dow Jones Industrial Average. As of yesterday's close, every Dow component stock was over its respective 10-, 20- and 50-day moving average. Since 2000, the only other time that happened was Oct. 27, 2011. The market topped out a day later and was followed by a 8.17% correction.

In hindsight, the November 2011 drop was the successful retest of the low, which led to the next major leg higher (+18% in four months). But similar to every other overbought correction, [it] was only considered 'natural, normal and healthy' until it happened.

Although we doubt the tragic events in Brussels are the excuse, the derivative effect of the terrorist attack on anti-immigration chatter as we approach the Republican nomination process and 'Brexit' vote in June may be enough to generate the 'pause that refreshes."


March 23, 2016

Some voters approve of Donald Trump and Bernie Sanders

It Looks Like Trump vs. Clinton

To begin with, it's increasingly likely that Trump will win the Republican nomination. One of the leading British/Irish bookies has The Donald's odds of winning the GOP nod at 2-to-7 as of today vs. 6-to-1 for Texas Sen. Ted Cruz and Ohio Gov. John Kasich. (I trust bookies because they have millions of dollars riding on the election's outcome.)

As for the Democrats, former First Lady Hillary Clinton is currently a 1-to-20 favorite, while Vermont Sen. Bernie Sanders is a 10-to-1 longshot.

In terms of who will win in November, Clinton is a 4-to-9 favorite, but Trump is catching up. His odds of victory are at 5-to-2 today vs. around 50-to-1 six months ago and roughly 10-to-1 back in January.

Why Some People like Trump (and Sanders)

I believe the success of Trump and to a lesser degree Sanders is a byproduct of the Average Jane or Joe's diminished future economic expectations. Many Americans have gotten hit by a failure of their incomes to rise even as the costs of many necessities of life increase rapidly.

Monetary policy has been aggressive for more than six years now and we still have basically 0% interest rates, but the benefits haven't "trickled down."

Instead, they've trickled up to the wealthy who have large balance sheets filled with real estate and stocks. I call this the "Screwflation of the Middle Class" (a subject I discussed in an 2011 Barron's column that I wrote). Our mostly frustrated electorate fears the status quo, so many have moved to either the Right or the Left.

People See What They Want in Trump

To some degree, Trump is a political blank slate. He presents himself as all things to all people, without substantive details about which road he's going to take in his policies.

This is perfect for voters' current zeitgeist. Trump is riding a rising tide of discontent among those who are sick of the way things are, but less concerned about how someone plans to change them.

What Wall Street Wants

The Donald's positions are unpredictable and still somewhat unformed -- his proposed 45% tariff on Chinese imports is but one example.

Wall Street doesn't like such uncertainty, so a volatile stock market seems likely to continue throughout the spring and summer.

On the other hand, Trump's major attribute is that few people (especially politicians) have the ability to make a deal or match The Donald's business acumen and background. So, voters willing to take the leap of faith might be satisfied with Trump as president despite his political blank slate.

As for Wall Street, investors will likely feel less uncertainty if The Donald follows up his broad ideas on trade, immigration, etc., with a blueprint that demonstrates a real, affordable way to achieve his policies. It'd also help if he surrounds himself with strong advisers.

Both of those things would make stocks less volatile than they are today, and markets could prosper in the months ahead. So, I think it's important for Trump to outline more-explicit proposals and disclose which advisers will serve as the foundation for his "team." If and when he does that, stocks might settle down.

The Bottom Line

For now, Trump has contributed to the market's volatility but hasn't dented the major averages.

We remain in a "forgiving" market; investor sentiment is still very bullish even though economic growth is wobbly, geopolitical risk is high and valuations are a bit stretched.

Despite the fact that The Donald's policies are still vague and many uncertainties surround a possible Trump presidency, investors are -- for now -- mostly looking through this lack of predictability. However, that patience could prove to be short-lived.

March 21, 2016

Buy Low and Sell High

I believe a broadening and important market top is in place, and that a relatively meaningful portion of stocks' daily moves are exaggerated by gamma hedging, risk parity and other quant strategies. If I'm correct, buying on strength in an attempt to sell on more strength isn't advisable -- and it's certainly not the route that I'm taking in today's market. Let's look at why:

I remain cautious on a market that's characterized by:
- Wobbly fundamentals (tepid top line growth and an accelerating rate of downward earnings revisions)
- Elevated profit margins that are beginning to regress to a mean
- A dependence on low interest rates and central-bank largesse that's losing its potency
- High valuations relative to historic standards
- Political and geopolitical uncertainties
- A general global economic vulnerability to exogenous and "black swans"

We live in a flat, interconnected and networked world, so the notion of the United States as an "oasis of prosperity" has lost its credibility. Instead, the BRIC countries (Brazil, Russia, India and China) have "exported" lower economic activity, disappointing sales and profit growth, and they continue to weigh on the world's economies. Deflation is also still very much a problem, as seen in the negative interest rates that are prevalent among non-U.S. sovereign bonds.

Malinvestment -- the byproduct of 0% interest rates and the "search for yield" -- has produced a series of valuation and fundamental potholes for both credit markets and stocks' overpriced "unicorns." These will weigh on the markets for some time to come.

And as I mentioned in my Move over 'Peak Autos'; Here Comes 'Peak Housing' missive, such mal-investment can even damage U.S. economic growth's core foundations.


The technicals have been eroding since late November 2014 -- and from a supply-and-demand standpoint, the only buyer keeping the market alive seems to be corporations that are doing stock buybacks.

But buyback strategies have historically backfired and generally had poor timing. Just ask Caterpillar. Meanwhile, the retail investor continues to withdraw from the market at a record pace, in part because the "screwflation of the middle class" has left many people with little to invest after paying their living costs.

On The Flip Wilson Show, parishioners going to Rev. LeRoy's Church of What's Happening Now were justifiably wary that he was a con artist. Similarly, the market's almost religious obsession with price "action" and technical trends might be somewhat misplaced in a market dominated by machines and algorithms.

Loss of Confidence in Central Bankers

With economists cutting global growth forecasts for a fourth year in a row, investors are losing confidence in central bankers' ability to catalyze expansion. And with governments around the world unwilling or too partisan to provide a fiscal blueprint for growth, I believe the "ah-ha moment" lies ahead.

Seven years of 0% or near 0% U.S. interest rates have pulled forward economic activity and profits for some time. (Think peak housing and peak autos.) Combined with structural headwinds, this raises the likelihood of more downward adjustments to consensus economic forecasts over the next three to five years.

I believe rallies from market corrections are losing their force and will continue to become more and more feeble over the next year. As the global economy ebbs, investors will become ever more unresponsive to central bankers' attempts to take on market risk.

The Bottom Line

"Price is what you pay, value is what you get." - Warren Buffett

These days, there are more possible economic and profit outcomes (many of them adverse) than I can remember seeing at any other time in my decades of investing. As a result, buying high and selling higher -- the advice from business-TV "storytellers" who always seem to shift their market views with stock-price changes -- might be an unsuitable strategy for 2016.

Instead, I'd recommend heeding Warren Buffett's recommendation above. Beware of storytellers who were bearish two weeks ago but are now bullish after the S&P 500's 200-handle advance.

TV pundits often change with the winds of stock prices, but quants who are agnostic to private-market values, income statements and balance sheets could be artificially influencing those prices. These traders could also be ruining some portion of the charts that technical analysts have historically relied on.

Personally, my S&P 500 fair-market value remains at 1,860. And I calculate that America faces a 35% chance of a "garden-variety" recession in 2016-17, as well as about a 15% chance of a "deeper recession." As such, I remain "all-in short." (Click here to see my top 10 reasons to sell now.)

My advice: Don't worship at The Church of What's Happening Now. Rather, intelligently examine risk vs. reward and recognize that the higher stock prices rise, the less attractive the market's opportunities become.

In other words, buy low and sell high!

Position: Long SDS, PSQ, QID, SQQQ; Short SPY, IWM, QQQ, CAT


March 16, 2016

Bank Stocks appear to be cheap

Banks are probably among the cheapest stocks to buy right now -- especially if you don't share my global economic concerns, have a more optimistic view of world stock markets or are just looking for long "hedges."

The reasons I say that:

-    Global interest rates have likely bottomed, so net interest margins have probably troughed.

-    Fears of the Federal Reserve dropping U.S. interest rates into negative territory seem dramatically overdone.

-    Global gross domestic product should see a slow but gradual recovery, providing banks with a reasonable backdrop for profit gains as credit demand rises and compliance-and-regulatory expenses' drag moderates. As I've repeatedly written, banks have done a fine job of cutting overhead to offset the lost income from falling interest rates, a flattening yield curve and tepid capital-market activity.

-    U.S. credit-quality fears might be overstated. Importantly, I would note that the high-yield-credit market has begun to rebound and is seeing narrowing spreads relative to Treasuries.

-    CEO Jamie Dimon's recent decision to purchase 500,000 shares of JPMorgan Chase  (JPM) attracted the most attention, but other bank executives are also buying. (Check out Jim "El Capitan" Cramer's take on Dimon's move here.)

-    Any improvement in the market's sentiment towards bank stocks could result in a relatively pronounced move to higher valuations. Banks' price-to-earnings ratios have been muted for years despite markedly reduced leverage and the prospect of more-consistent future profits.

-    Bank valuations also arguably already discount a global recession, rising credit-quality concerns and the idea that lower interest rates will continue forever. As such, I believe bank-stock prices could rise even if firms only grow their 2016 profits modestly.

As for this week's European Central Bank moves, I believe investors can view the stimulus package that the ECB unveiled as a positive outcome relative to low expectations.

It's true that European loan demand remains weak, so ECB Chief Mario Draghi is "pushing on a string" to some degree. Moreover, European banks are also over-leveraged, as well as burdened by poor credit quality and overpriced sovereign debt.

But these facts were already known, so I think European bank stocks are better positioned today (albeit from low levels) because of the policy announcements.

Significantly, Draghi emphasized that negative interest rates might not be permanent, or at least that further rate cuts might not occur. Also remember that the ECB is now essentially paying banks to lend out money.

My advice: Let's keep an eye on Deutsche Bank (DB) as a proxy for eurozone financial institutions and a guidepost for where U.S. bank stocks could be heading.

In the meantime, to paraphrase Pat Benatar, Draghi has apparently "hit banks with his best shot," so it's likely time to "fire away" and buy. I currently have eight banks on my "Best Long Ideas" list.

That said, given my overall negative market view, I plan to short an equivalent amount of my favorite shorts any time that I buy more bank longs. That way, I won't alter my "all-in" net-short exposure.

Position: Long C, BAC, JPM, RF, BBT, FITB, WFC, SONA, CMA

via thestreet

March 14, 2016

This is a bear market rally

Like tennis star Maria Sharapova, there's less than meets the eye with the markets these days:

* Many investors and TV "talking heads" who saw us in a bear market a few weeks ago at S&P 500 1,812 have become bullish at roughly S&P 500 2,000 despite little change in expected fundamentals.

* Plenty of traders who think oil won't breach $45 a barrel to the upside any time soon are now long on crude and other commodities in spite of little change in supply and demand.

* Many players who despised the market's commodity and cyclical sectors in mid-February are now buying up energy and industrial stocks despite no change in profit projections.

If you worship at the altar of price and momentum, don't bother reading this column, nor yesterday's Why I'm 'All-In Short' or last week's Not-So-Super Tuesday. If you're chasing cyclical stocks because they've been moving higher while the market's previous leaders (i.e., the TFANGs) appear to be faltering amid a possible global economic slowdown or garden-variety recession, there's nothing for you here.

That's because if you buy high and sell low, you don't have to worry about the disproportionate role played by quant trading that's ruined the ability for the rest of us to utilize charts as a navigating tool. Forget gamma trading, risk-parity strategies and other high-frequency-trading strategies that exaggerate short-term market moves and are agnostic to income statements, balance sheets and private market value. All that you (and they) have to worry about is the next tick.

But for the rest of us, it's growing more and more clear that after years of monetary-policy largesse, central bankers can no longer create rising economic activity and burgeoning profits by simply printing money. Look at China, which is showing signs of a "hard landing" after figures released overnight showed that the Asian nation's export and import levels have crashed.

Stated simply, risk vs. reward has deteriorated markedly in the last several weeks. This "change in the air" has become especially apparent in the past month as:

* U.S. recession jitters have given way to expectations of a stronger economy.

* Projections of plunging commodity prices have yielded to forecasts of highercommodity prices.

* Interest rates expected to slide are now expected to rise.

* Deflationary fears have morphed into inflationary fears.

* "Talking heads" have revised $15-a-barrel oil forecasts to $50-a-barrel oil forecasts.

* Risk-off has been replaced by risk-on.

* Small-caps are now beating large-caps.

* Value is outpacing growth.

* Gold has gone from goat to hero.

Of course, none of us has a concession on the truth -- and that's particularly true when it comes to investment outlooks!

However, I believe that most of the above changes in view could prove artificially derived and merely temporary. At the minimum, their foundation is weak. The "green shoots" that many market participants seem to suddenly see could just represent the false promise of spring's blossoming flowers and growth.

It's my view that before the bear market runs its course, the TFANGs will become totally discredited and resurgent areas of the market that are now severely overbought could face a retest.

Personally, I think we've likely been seeing a "bear-market rally" rather than a new bull market. 

The S&P 500 closed at just under 2,000 yesterday, or roughly 7% above my fair-market-value calculation of 1,860. Given that fact, my advice to you is to stay skeptical.

Don't worship at the altar of price momentum. Instead, worship at the altar of fundamentals -- and the reality that we're likely facing slowing global economic growth and disappointing corporate profits relative to consensus expectations.

March 9, 2016

Owners of Berkshire stock should consider selling now because.....

Warren Buffett's annual letter to shareholders of Berkshire Hathaway came out over the weekend, and let me start my analysis of it with my standard disclaimer that Buffett is the single greatest investor of all time. No one will likely ever duplicate his investment performance, and his cult status among investors is not and will never be in jeopardy.

I, like the legions of The Oracle's fans, worship at his (and Berkshire vice chair Charlie Munger's) investment altar.

Over the roughly 50 years that Buffett has controlled Berkshire Hathaway (1965-2015), the company's share price has risen by an average 20.8% per year vs. just 9.7% for the S&P 500. The company's book value has also compounded at a 19.2% annual rate.

All told, Berkshire shares cumulatively gained 1,598,284% (!!) between 1964 and 2015 vs. 11,355% for the S&P 500 (including dividends). All of that is a testimony to Buffett's unprecedented five decades of success.

But ...

While Buffett has certainly earned Berkshire investors' confidence, the company's recent returns (i.e., since the 2007-08 market meltdown) have been conspicuously disappointing -- falling far short of the company's historical outperformance. This forms the basis of my short thesis for the stock. 

March 7, 2016

Sell stocks on this rally

The recent relief rally has energized bulls, while pundits who worship at the altar of price momentum are now optimistic even though fundamentals have arguably changed little since these "talking heads" expressed fear when the S&P 500 hit 1,812.

But based on the market's two dips and subsequent rallies during January and February, it appears accurate to say that buyers live higher and sellers live lower.

Of course, when singular events threatened the global economy and markets in the past, forceful, responsible policy responses quickly silenced the growth scares. These provided a series of "buy-on-dip" opportunities over the past six or seven years that routinely took markets to or through their previous highs.

But as global growth weakens and monetary-policy limitations become more and more apparent these days, our fragile and interrelated global economy is becoming more vulnerable to tail-risk interruptions and "black swans."

The chances of policy mistakes grow ever more likely as monetary authorities try unconventional strategies like negative interest rates, while any sustained drop in stock prices will likely inflict a "negative wealth effect" on the U.S. economy.

Jim Cramer recently produced a great 14-point checklist of things to look for when deciding whether stocks have stabilized, writing:

"We had 14 boxes that needed to be checked before we want to hold on to stocks when they rally and buy them more aggressively when they come in. I make it so there are three boxes that are definitely vacant of checks. The others are full or half checks, eight and three, respectively.

You are never going to have all the planets align at once. But are there enough checks and half checks for me to say the dips must be bought and the rips? I wouldn't be so quick to sell them. They might be the real deal."

Of course, a key feature of Real Money Pro is that we provide opposing viewpoints. So, respectfully, I'd like to state that my analysis concludes that Jim's optimism might be premature. 

Below are my top 10 reasons to expect more volatility during 2016 -- and possibly even more market risk than at any time since the 2007-2009 Great Recession:

March 1, 2016

Bearish on the markets - S&P500

I fear that "ice"-- a spiraling of deflationary influences -- is now ahead for us. The signposts are everywhere. Yesterday, we saw them in:

*     the Japanese yen's strength;

*     the rise in U.S. car-payment delinquencies;

*     diminished U.S. consumer expectations;

*     more global easing, and a possible retreat from Federal Reserve rate increases this year;

*     a precipitous drop in agricultural prices;

*     the many fixed-income markets around the world where negative interest rates prevail.

So, I've now become bearish in both the short and intermediate term.

Reflecting this, I made the ProShares UltraShort S&P 500 ETF (SDS) -- an inverse play on the S&P 500 -- my Long Trade of the Week at $21.50 at midday Monday during the teeth of the rally. And I made Amazon (AMZN) my Short Trade of the Week at $554 yesterday afternoon.

Nonetheless, I sold half of my SDS long for a profit yesterday afternoon, as I base my market views on fundamentals. I simply establish a fair-market value for individual stocks and the S&P 500 and make investment and trading decisions accordingly.

I try to be consistent. I don't frequently change my market views based simply on price action, but always try to ground my analysis and investment management on fundamentals.

Moreover, I believe the disruptive impact of quant strategies has discredited stock charts and the ability to interpret them. So, I prefer to be anticipatory rather than reactive, opportunistically capitalizing on the random and exaggerated intra-week swings that we're seeing in the market.

At times I might be wrong (and will admit it), but I strenuously stick to the game plan that I outline in my daily diary.

In my view, the S&P 500 is going to spend most of 2016 in a broad trading range of 1,800 to about 2,000 -- with slight overshoots and undershoots to my fair-market-value calculation of 1,860.

And if I've erred in that FMV calculation, I believe there's more risk to the downside than to the upside, as I anticipate the market's main averages will drop by low double digits for 2016 as a whole.

But my view isn't fixed; it's a function of the developing global economic and profit-growth picture. So ... stay tuned!