I think Doug Kass has just about nailed a key theme for 2010 in this comment:
I continue to believe an important theme (and headwind to the markets) for
2010 will be the policies that emanate out of a tidal wave of populism. (And thanks to Uncle Vinnie Farrell for the shout-out on this theme
…Few talking heads are addressing this undercurrent — instead they are almost
universally and not surprisingly myopically focused on the latest economic
releases. This focus, as I have written, has resulted in a clustered consensus
forecast for economic growth, corporate profit growth, interest rates and for
S&P Index targets.
… Memo to the consensus: Dudes, we already know that the shorter-term domestic
economic prospects are bright, but the market looks out further than our noses.
The market typically ignores the obvious and the consensus by smelling out
change, quarters in advance. Properly evaluating those changes and structuring
portfolios accordingly can yield superior investment returns.
As I underscored on “Squawk Box,” there is an angry subtext — the average
American resents some of our largest institutions (especially of a financial
kind), our politicians (Republicans and Democrats alike) and the wealthy.
When the policies of populism (higher taxes and more costly regulation) are
mixed with a number of other nontraditional headwinds (municipalities’ disarray,
a still-wounded lending mechanism, etc.), the trajectory of economic growth will
almost certainly be stunted. I believe these influences and policies will be
reflected, contrary to consensus, in a weakening economy by the second half of
These two factors — public policy that grows from populism, and
nontraditional headwinds — form a potentially toxic cocktail, especially within
the context of the size of the market rally of the last eight months and under
the possible setting in which higher interest rates begin to offer competition