"Sentiment is awfully complacent, and volatility is low. Smells like May 2011--or August 2008.
Equities look ripe indeed for an "unexpected" bloodletting and resultant wicked correction. The general outlines of a equity bubble awaiting a nice little thumb-pricking are all present: high levels of confidence and complacency, massive divergences and a disconnect between the global economy and U.S. equities.
"It's certainly possible that the stock market will reward the 83% bulls and further punish the 17% shorts, but it's ever so much evil fun to inflict the most pain on the greatest number of participants. If Mr. Market reverts to his usual evil ways, it's the bulls, slumbering a la Pearl Harbor, 6 a.m. 7 December 1941, feeling little need for hedging against any downside, who may hear "tora tora tora."
"It's possible that the U.S. economy can keep logging positive statistics even as the global economy spirals into depression. Never mind that gasoline consumption has plummeted or that savings have dropped or that austerity and higher debt service payments insure a deep recession in Europe; and who cares about China's real estate bubble popping? None of that matters here--or so it seems."
[click over for the rest. got to love his title for this post.]