Doug Kass: 11 Reasons Why I Remain Bearish

On Wednesday I summarized my ursine market outlook in a column entitled, "Repeating For Emphasis - Why I Remain Bearish."

I continue to view the market's upside reward as minimal compared to the downside risk.

Here's why I remain bearish:

1. The world is getting less safe.

2. Globalization is being replaced by nationalism -- serving to reduce corporate international top-line growth and representing a threat to the bottom line (margins).

3. Our unelected monetary authorities and fiscal policy makers remain horribly weak in their forecasting ability, implementation and in effectiveness of policy.

4. Extremely partisan domestic politics augurs poorly for any fiscal discipline, with regard to controlling/reducing the U.S. deficit.

5. Consensus forecasts for global economic and corporate profit estimates seem unrealistic.

6. The cumulative or "stacked" increase in inflation since 2000 will be felt over the next few years -- contributing to a period of likely "slugflation."

7. Short dated Treasury yields (exceeding 5%) are at record spreads relative to the (lowly) S&P dividend yield (1.5%).

8. The equity risk premium, arguably the best predictor of future stock returns, is near a multi-decade low.

9. Much like in 1987, market structure risks are expanding geometrically as dispersion and other products manufactured by banks are a little accepted threat to market stability.

10. Investor sentiment, which follows stock prices, are overly ebullient -- household exposure to equities is at a near record high level.

11. Valuations remain elevated by historic standards and traditional metrics.

Investors should heed the Bible and prepare for a period of lean years in which market returns are inferior to the longer-term averages.

More volatility seems likely -- providing unemotional traders and investors with more opportunities than in the past when the market had one direction, higher.

The Short Term

At the same time I recognize, and it has been my experience, that bull markets die hard, so I am not surprised by the rebound in stocks Thursday.

I plan to be ever more tactical and less dogmatic in the months ahead.

As noted on Wednesday, I reduced my short book into Wednesday's schemissing, covering all of my short Index common positions and reducing my short Index calls.

That said, I will return to the dark side on any further strength.

I am looking forward to the "two way" action I anticipate this year -- it will be fertile with opportunities to deliver superior investment returns.

(This commentary originally appeared on Real Money Pro on February 1st. 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.)

At the time of publication, Doug Kass had no position in the securities mentioned.