President "Bobby": "Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?"
[Long pause] 
Chance the Gardener: "As long as the roots are not severed, all is well. And all will be well in the garden."

-- Being There

We are now six full years from the Generational Bottom of March, 2009. The S&P 500 index I:GSPC has tripled in price, and investor optimism is high.

Since there is now a growing possibility of numerous inflection points in the factors that influence the markets, I thought it would be a good time to briefly reflect upon the conditions that have led up to today, many of which could impact our investment decisions going forward.

THE PAST

 "Life is a state of mind."

-- President Bobby, Being There

In order to counter "The Great Decession," the Federal Reserve embarked on an aggressive zero-interest-rate policy and infused massive liquidity into the system by way of quantitative easing. This has produced a steady, but subpar domestic economic growth rate of about 2.5% (as measured by U.S. Real GDP data). That growth rate compares poorly to prior consensus forecasts and to the previous 3.0% to 3.5% secular rate of growth experienced over the last several decades. The domestic economic recovery has not been balanced, so, to many, the benefits of a 2.5% growth rate have failed to trickle down.

Impatient with an exclusive recovery, America's voters demanded change -- first with the election of President Obama, and then with a landslide Republican victory which led to a power shift in Congress.   

The burden of catalyzing economic growth has been laid firmly on the shoulders of our monetary authorities in the face of fiscal inertia. Rather, fiscal solutions have been abandoned in favor of "extending and pretending," and ignoring deepening structural fiscal issues in the U.S. and abroad.   

The labor market is much improved compared to six years ago, though the recovery has been an imbalanced one that has primarily benefited the "haves" with substantial net worth, who possessed large balance sheets (inhabited by homes, bonds and stocks). The screwflation of the middle class has been a constant theme throughout the recovery -- as the costs of the necessities of life have outstripped gains in incomes and salaries.

The housing market's recovery has been muted -- though home prices have firmed and now lie at or near the previous peaks (particularly on the coasts, and in well-to-do communities). In part, this has occurred because of the rise of a new category of home buyers: institutional and hedge funds, who planned to rent out the units. Though mortgage rates remain low, rapid rises in home prices coupled with still relatively rigid lending standards have diminished overall demand in the face of weakening affordability.

The auto market has recovered mightily, fueled in part by aggressive sub-prime lending and the need to replace an aging fleet.

Inflation has been quiescent. The government's inflation indices have been muted but, as mentioned previously, the costs of necessities have steadily risen. As well, the reduction in interest rates has disadvantaged the savings class (retirees and maturing baby boomers). This has likely begun to retard economic growth as savings-starved elderly consumers (and others) cut back on expenditures or hoard cash.

Which gets us to the U.S. stock market, which has thrived mightily.

While corporate profits have more than doubled from the depths of 2009, liquidity has been the market's best friend. The infusion of liquidity coupled with zero interest rates has been a tasty cocktail for investors that has been manifested in valuation gains (expanding price earnings multiples) that have surpassed the historic averages. Low rates, strong balance sheets and access to the high-yield market have stimulated corporate "financial engineering" (historically robust share repurchase activity), which has not only buoyed EPS reports but has contributed to a dwindling supply of shares.   

"I like to watch."

-- Chance the Gardener, Being There

Like Chance the Gardener (Peter Sellers), just "being there" has been profitable for investors over the past six years. 

As the bull market lengthens, investors have grown ever more upbeat. But as the reporter said to Chance, "The New York Times spoke of your peculiar brand of optimism" -- and markets might be repeating the same mistakes as those made by Chance in interpreting the future course of stock prices.

While I am being intentionally hyperbolic, the difference between genius and stupidity is that genius has its limits. Let's not lose sight of John Kenneth Galbraith's sage advice when he said "Genius is a rising market." 

As we progress from the current point in time, both liquidity and zero interest rates will likely be changing their complexion -- slowly at first and likely more rapidly thereafter. And, importantly, that ultimate sea change will be occurring without the benefit of average or above average economic growth.

These days, investors are increasingly preoccupied with minutia and have lost the perspective of the bigger picture. We parse the Federal Reserve chair's every word, but often fail to question the foundation of relentless investor optimism. After all, liquidity has stirred the animal spirits and allowed stocks to rise despite relatively impactful macroeconomic challenges, geopolitical threats, growing evidence of malinvestment across several asset classes, the dour message of lower commodity prices and, arguably, currency wars -- in what I have described as "The Forgiving Market."

"As long as the music is playing, you've got to get up and dance."

-- Chuck Prince

Above all, the growing chasm between rising asset prices and the real economy has been ignored as themes like "TINA" (there is no alternative) and the very strength in stock price momentum (aided by the growing dominance of HFT and momentum- based strategies) discourage investors from deviating from an imbedded bullish mentality in a game of musical chairs that might even make ex-Citigroup (C) - Get Report CEO Chuck Prince blush. 

Significantly, investors have grown inured and comfortable with the notion of buying the dips, and immune to the possibility of any meaningful correction (of 10% or more).

But, as I have written, the above conditions raise serious threats to the sustainability of the market's advance.

THE PRESENT

"A bull market is like sex. It feels the best right before it ends."

 --Warren Buffett

We approach the present with corporate profit growth slowing to a crawl (as the benefits of cost cutting anniversary). The U.S. dollar's rise has a destabilizing impact on multinational sales/income. Other dark clouds: the failure to face up to our world's structural debt and fiscal problems, a race to the bottom in currencies, undaunted by the economic and social ramifications of unbalanced growth and the likelihood that faith in central bankers around the globe might be in the process of being lost. And  investor sentiment is approaching another bullish extreme.

Two immediate concerns I have are the extent to which the previous market leaders are now lagging (and that the previous laggers are now leading), coupled with the presence of an abundant and unusual multiple "one way" and parabolic markets:

Be Fearful When Laggards Lead. Over the course of the last 10 days, the weakest and most oversold sectors of the market (industrials and energy) have emerged as leaders, while the strongest sectors (technology and biotech) have faltered. Industrials, retail and drugs prospered. Market history is full of times when laggards outperform previous leaders -- it almost always leads to a rising risk of correction. (On the other hand, the Nasdaq Composite had its worst day in eleven months on Wednesday. The transports' fall was more conspicuous and consistent -- falling back to their January lows. Financials also underperformed. Defensive consumer staples and bond equivalent stocks are in short-term downtrends).  

Be Fearful of "One-Way Markets" and Parabolic Moves. Extremes and "one-way" parabolic markets accompanied by a near-universal acceptance of their continuing are always a concern to me. When there are multiple "one-way" markets, a cautionary light shines brightly. There have been numerous examples of one-way markets recently -- the euro, the U.S. dollar, oil,  treasury bonds, the German stock market (DAX), the Nasdaq and biotechs all come to mind. Importantly, all these extended markets have begun to correct in the last four weeks. Some of those sell offs have been minor, others more severe. The one thing that all these extended markets have had in common is that the spread above or below their longer-term moving average lines (200 day) widened dramatically into the tail end of the moves, as momentum divergences developed as the peak/trough were approached. Two vivid recent examples of parabolic markets breaking down might have been seen in the U.S. Treasury bond and the U.S. dollar market

THE FUTURE

"Why is this night different from all other nights?"

-- Question asked during the Jewish holiday of Passover

As we approach the Jewish holiday of Passover, I have my own set of questions that ask whether the markets in the future will be different (and as buoyant) as in the past.

I start each day with these three questions:

• In a paperless and cloud(y) world, are investors and citizens alike as safe as the markets assume we are?
• In a flat, networked and interconnected world, is it even possible for the U.S. to be an "oasis of prosperity" and a driver, or engine of global economic growth?
• With geopolitical coordination of the G8 at an all-time low, if the wheels do come off, how slow and inept will the reaction be?                         

Given the magnitude of the market's rise in the last six years, coupled with the valuation gains and fundamental concerns I have written about recently, the answers to the questions (above) make me uncomfortable regarding the future outlook for stocks.

In reality, the world is growing more dangerous and unsafe. Fundamental economic instability is at many corners of the globe. That instability could be the mother of ever more political crises.

To combat subpar growth, beggar-thy-neighborpolicies are being adopted around the globe -- economic policy through which one country attempts to remedy its economic problems by means that tend to worsen the economic problems of other countries.                                                                       

To this observer, an "Ah Ha Moment" might be soon at hand -- a time in investment history when investors collectively recognize that the markets' foundation are not as firm as generally observed, and when just "Being There" (as over the last six years) no longer provides a profitable investment pay off.

A MARKET WALKING ON WATER?

Eve: "May I ask your name?"
Chance: "Chance."
Eve: "Chance?"
Chance: "Chance, the gardener."
Eve: "Chauncey Gardiner? Mr. Chauncey Gardiner. Are you related to Basil and Perdita Gardiner?"

-- Being There

In the movie "Being There," Chance the Gardener is a simpleton -- an uncorrupted and vague breath of fresh air (seen against all the corruption and narcissism in politics) -- who rises to power through a series of misunderstandings. The consequences of Chance being in the right place at the right time are such that he is even seen as a candidate for president.

In the last scene, Chance appears as the image of Jesus Christ as he walks on water (much like Mr. Market since 2009!)

Being there, in the markets, has paid off over the last six years. Unlike the other characters in "Being There," don't confuse Chance the Gardener with Chauncey Gardiner. Let's not make the same mistake that others made in their view of Chance as we witness the current reality of fundamentals and the seeming invulnerability of our stock market.

Investors have prospered over the last six years by "Being There."

With the market's foundation less solid and given the magnitude of the market's rise, it might be wise to consider "Leaving There."  Over the balance of the year, the reward vs. risk for the U.S. stock market may now have grown unattractive.

Editor's Note: This article was originally published at 10:32 a.m. EDT on March 30, 2015, on Real Money. 

At the time of publication, Kass and/or his funds had no position in any of the securities mentioned, although holdings can change at any time.