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Kass: Subsurface Weakness

Over there, the southern area of the eurozone is in an economic death spiral. France's economy is imploding, and its government seems even more dysfunctional than ours. Also, many of us don't know what to believe about China's economic data, which seems to be disconnected with on-the-ground data. (Note: The HSBC Services PMI climbed to 54.3 in March , up from February's 52.1 and the highest since September.)

Finally, Goldman Sachs' final March GLI now places the global industrial cycle in a "slowdown phase," characterized by still-positive but declining momentum.

From Hero to Goat

There is little question that investors are feeling the pressure of underperformance. Hedge funds are now at their highest net long exposure in some time, sentiment studies are uniformly bullish, and retail investors are warming up to stocks.

For those who are of the view that the U.S. stock market feels like it will never decline (and that global easing is the panacea for growth and ever-rising share prices), we suggest you look at the price of gold in mid-September 2011 and/or the price of Apple's (AAPL) shares in late-September 2012. At those points in time, investor sentiment was at an extreme. Now look at the subsequent price drops following those heights and where those prices stand today.

Many are certain of a continued market climb into 2014. Unfortunately, the only thing I remain certain of is the lack of certainty and that some of the conditions described above are consistent with classic top signs over stock market history.

In Bernanke We Trust

The lift in the S&P 500 in first quarter 2013 was clearly a reflection of the better-than-expected real GDP growth, abetted by broad-based central bank easing. Of course, massive monetary intervention has been the primary difference between March 2013 and other periods. At least domestically, however, I view the marginal impact of quantitative easing as not trickling down into the real economy, though it has clearly buoyed equities and fixed-income securities. And I strongly view global growth dependent on central bank easing (which still appears not to be self-sustaining) as an inherently low-quality state, deserving a less robust valuation than accorded in prior periods. (First-quarter 2013 real GDP of nearly +3% should decelerate to gains of +1.5% to +2.0% in the last three quarters of the year.)

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