The ETF bubble along with the proliferation of price-sensitive and momentum-driven high-frequency-trading strategies have served to exacerbate market moves. Indeed, as I mentioned on "Fast Money" last week, nearly 70% of NYSE trading activity is ETF- and high-frequency-trading-related.

I worry that the transition from accumulation to liquidation of ETF products produces tracking problems as well as transmission and redemption issues. Retail and institutional investors lose faith in the ETF system and abandon the markets.

9. It becomes apparent that control of the House of Representatives will turn over to the Democratic Party in 2014. This provides a clear mandate for the Obama administration to enact populist legislation, including a wealth tax and transaction taxes on equity and stock trading.

10. An unanticipated black swan event surfaces. As I have observed, there has been a growing frequency of black swans around the world. Black swans, by design, are something unseen.

  • Perhaps it is an extreme drought in the U.S., Brazil and/or Russia, which could result in much higher commodity and food prices, adversely impacting the consumer's purchasing power.
  • Maybe it is another major flash crash or a series of mini flash crashes that inject market uncertainty.
  • Or a coronal mass ejection in which the sun emits solar flares that penetrate the Earth's atmosphere and initially wipe out most GPS systems and disrupt numerous communications systems, electronic devices and power grids all over the world.
  • Or maybe an event that is entirely not expected such as a political coup or a liquidity event emanating from a company, sector or region not anticipated.

Note: I am not suggesting that any of these factors will emerge; I am simply conveying events that might pose a threat to consensus.
At the time of publication, Kass and/or his funds had no positions in any stocks mentioned, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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