While the market waits anxiously for the results of the China/U.S. trade negotiations, I want to emphasize that the unlikely resolution of our trade differences is only one of the many challenges facing investors.
Here are My Top 10 List of Market Concerns (in order of importance):
1.The Fed Is Pushing On A String: A mature, decade old economic recovery will not likely be revived by more rate cuts or by lower interest rates. The cost and availability of credit is not what is ailing the U.S. economy. Market participants are likely to lose confidence in the Fed's ability to offset economic weakness in the year ahead.
2. Untenable Debt Loads in the Private and Public Sectors: Katie Bar The Doors should rates rise and debt service increase. (As I noted all week, the corporate credit markets are already laboring and, in some cases, are freezing up).
3. A Deepening Trade War With China: This will produce a violent drop in world trade, a freeze in capital spending and a quick deterioration in business and consumer sentiment.
4. The Global Manufacturing Recession Is Seeping Into The Services Sector: After years of artificially low rates, the consumer is no longer pent up and is vulnerable to more manufacturing weakness.
5. The Market Structure is Frightening: The proliferation of popularity of ETFs when combined with quantitative strategies (e.g., risk parity) have everyone on the same side on the boat and in the same trade (read: long). The potential for a series of "Flash Crashes" hasn't been so high as since October, 1987.
6. We Are at an All Time Low in Global Cooperation and Coordination: In our flat and interconnected world, what happens to global economic growth when the wheels fall off?
7. We Are Already In An "Earnings Recession": I expect a disappointing 3Q reporting period ahead. What happens when the rate of domestic and global economic growth slows more dramatically and a full blown global recession emerges?
8. A Faltering President Trump and The Rise and (Now) Front Runner Status of Senator Warren: The impeachment hearings may bring out the worst (in behavior and policy) of the President. Most view a Warren administration as business, economy and market unfriendly.
9. Valuations on Traditional Metrics (e.g., stock capitalizations to GDP) Are Sky High: This is particular true when non GAAP earnings are adjusted back to GAAP earnings!
10. Few Expect That The Market Can Undergo A Meaningful Drawdown: There is near universal belief that there is too much central bank and corporate liquidity (and other factors) that preclude a large market decline. It usually pays to expect the unexpected.
(This commentary originally appeared on Real Money Pro on October 10. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)