As the market continues its two week rip higher the fundamental backdrop is not improving - in fact, it is eroding.
The divergence between inflated stock prices and economic reality - higher and sustained inflation, slowing growth = "slugflation" - has arguably created the most unattractive market reward vs. risk in a long while.
Over history, markets often ignore reality - it did in early 2000, in late 2007 and in late 2019.
Here is a laundry list of my concerns and the market's challenges:
* In his recent remarks, Fed Chairman Powell stated that it would take at least three years to get inflation back on track (2% or lower). I didn't hear any commentators, especially those of a bullish-kind, mention this important fact. In saying this, Powell has acknowledged that it should have reduced the Fed's balance sheet and should have raised interest rates sooner.
* As a result of this comment and recent inflation readings, here and over there in Europe this morning, I expect a front-loaded 50 basis point increase starting at the May meeting. If energy and food prices continue to rise, a 75 basis point hike at one meeting is possible.
* A more hawkish Federal Reserve particularly done into a period of moderating economic growth is a toxic cocktail for stock valuations.
* Though this sort of developing rate rise trend is alarming enough, the loss of liquidity in the deleveraging of the Fed's balance sheet might be more meaningful - and deleterious - to the equity markets.
* Meanwhile, the global economy, even before the rate hikes, is deteriorating far faster than the consensus expects.
* "Slugflation" lies ahead.
* "Peak housing" - as mortgage rates lift to over 5% and home prices are literally through the roof - is upon us. Pending home sales are turning down and refinancings will shortly evaporate.
* Inflated auto prices will adversely impact the car business. And so will the high prices of nearly everything else - from Starbucks (SBUX) coffee to refrigerators.
* Bullish auto observers are unfocused on neon shortages - and broad parts shortages will plague the auto business into next year.
* Not only with inflation be persistent, economic growth lower, but supply chain dislocations/disruptions will not be fleeting.
* The Ukraine/Russia war will exacerbate both inflation and supply chain problems - that fallout will be longer lasting than most expect.
* I expect consumer confidence to suffer in the months ahead and for those that say the consumer is fine - they should look at the data and dwindling savings rate.
* Food shortages and rising food prices - given the lower production of corn and wheat and the rapidly rising expense of fertilizer and gas - are on tap over the next six months.
* The potential exists for a global food crisis in 2023 and, with it, social uprisings.
* Globalization, the practice and ideology, is dead and, with this and other factors, U.S. corporate profit margins have peaked.
* And so is global cooperation dead with geopolitical risks residing on three separate continents.
* European inflation is at the worst levels in 75 years - and the ECB will have no choice but to raise rates faster than the consensus expects.
* Europe will be in a recession in the second half of this year.
* China's economy - the driver of worldwide economic growth - is foundering.
* We still remain terribly vulnerable to sourcing of critical products and materials in China. An economic war between the U.S. and China is not out of the question - as China could interrupt that product flow in at any point in time.
* Real U.S. GDP will be under 1% over the next six months and the odds of a 2023 recession are mounting quickly.
* The widening gap of political partisanship in the U.S. will result in a failure of important legislation at a time of political, social and economic headwinds and upheaval.
As a result of these factors/observations/analysis/opinions, I am of the view that we are in a Bear Market rally.
(This commentary originally appeared on Real Money Pro on March 30. 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.)