Bears Still Lurk

Underlying my fundamental concerns are:

• A tightening labor market (and rising unit labor costs).
• A likely downturn in productivity gains.
• A five-year high in the CRB RIND Index with attendant cost-push inflation implications. (This index measures spot raw-materials prices across a broad group of categories including steel and cooper scrap, tin, zinc, wheat, corn, sugar ... and even lard!)
• The expectation of rising interest rates and cost of capital.
• An implosion in the subprime mortgage market (and a consequent restriction in credit to prospective homebuyers).
• A bubble in credit availability (and private equity).
• The emerging bubble in emerging markets (e.g., over the last six years the India's Sensex has increased by about 300%, while India's total corporate profits have not even doubled -- that's P/E expansion!).
• The levered and vulnerable (long-biased) hedge fund and fund-of-funds (especially of a Swiss kind) industries.
• The broad tax implications of the Democratic tsunami.
• A spent-up American consumer, which should have broad and negative implications for consumer electronics (and the Nasdaq) and a more hawkish Federal Reserve than many expect. (Is anyone concerned about the $100 rally in gold since September 2006, or the quiet 40-basis-point rise in the yield on the 10-year U.S. note?)

To this observer, neither a recession (where my pal Larry Kudlow tries to pigeonhole me!) nor a Goldilocks scenario appears to be in the cards. Rather, I expect a period of lumpy and uneven economic growth in which both investment managers and corporate managers find it hard to navigate.

In time, we will undoubtedly see a mean reversion in home prices, interest rates, credit spreads (and losses), corporate profit margins ... and the world's equity markets.

But for now, it is abundantly clear that the timing of my pessimism couldn't be worse -- as my experience and historical perspective are my albatrosses.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting