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Kass: Slow Drip

This blog post originally appeared on RealMoney Silver on May 25 at 8:06 a.m. EDT.

Last night when I arose to check the S&P futures, they were down by nearly 10 points.

It is hard to gauge the proximate cause.

Was it Greece's finances? Further evidence of a double dip inhousing? China's infrastructure spending hitting the wall? Applied Materials' (AMAT - Get Report) profits warning (likely not, as it was telegraphed)? The Democratic congressional upset win in upstate New York (which could make a budget compromise less likely)? Or talk of nearly $20 billion of bank mortgage liabilities (a vivid example of the "tail risk" I have warned about for some time)?

Or maybe a lot of people were reminded how close to the financial abyss our system was after watching Andrew Sorkin's Too Big To Fail on HBO. (I was!)

Hard to say.

Though the futures have rallied markedly since last night's nadir, the market has experienced a slow drip in value over the past few weeks. The river's songs have not been sweet, as the economic data points (here and abroad) have grown increasingly ambiguous and another tail risk of eurozone sovereign debt issues continues to weigh on prices and investor sentiment.

Meanwhile, a market without memory from day to day and with limited price direction/momentum also has investors on the defensive. So does the uncertainty of policy (monetary and fiscal). And, as the materials, industrials, technology and financial sectors weaken, defensive consumer nondurables are the world's fair, raising a technical warning sign.

Equally important, many formerly strong emerging stock markets are, at best, lifeless (see China's 10% drop).

I continue to see, as I have for months, an inconsistent and uneven economic recovery -- difficult for corporate managers and investment managers to navigate. Tail risk, greater earnings volatility and corporate margin and profit challenges are the headwinds I see above and beyond the nontraditional issues of fiscal imbalances, higher marginal tax rates and elevated structural unemployment caused by globalization, technological advances and temporary employment as a permanent fixture to the jobs market.

And I see a U.S. consumer, who has been victimized by screwflation, as particularly vulnerable and exposed. Money freed up from nonpayment of mortgages and recession fatigue have likely temporarily buoyed retail sales, but that slope is slippery and provides the sustainability of growth with a weak foundation.

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