Just when it looked like we might be able to string together an entire week without being hit with a sentiment setback from Europe, and S&P goes and kicks the bees nest with a caustically worded downgrade of Spain.
Fortunately, markets pay little attention to belated ratings agency actions anymore, but the move still stands as a not so subtle reminder that much work needs to be done to eradicate the psychological grime that is soiling investor sentiment. As Doug Kass sees it, it is the sum of the problems, the totality of headwinds from all corners of the world, that will keep this market trapped within its ranges.
"There are so many structural issues that face our domestic economy," the president and founder of Seabreeze Partners Management says. "The Eurozone, issues about whether China is going to have a hard or soft landing, they all impact valuations."
While investors appear to be pinning their hopes du jour on the belief that G20 talks in Paris will move the region closer to finding a funding solution for the debt crisis that threatens its biggest banks, it is fair to say that Kass has been underwhelmed by what has been offered up so far.
"They need a shock and awe solution," he says. "So far we've gotten tame and timid."
In the meantime, the market's singular focus on Europe, which I discussed with Vitaliy Katsenelson last week, has allowed China's economic problems to go largely unnoticed. While stock indexes there are "signaling something far more foreboding than the bulls on China suggest," Kass laments the "opaqueness" of Chinese corporate and economic data.
"We might very well have a hard landing (in China)," he cautions while underscoring investor concerns about discerning "what is true and what is fiction."
What is fact is that China is currently the worst performing major market in the world right now, falling to new 52 -week lows, while the US and Europe have been able to hold their ground or even rally in the face of adversity.
As much as we might hope to have made progress toward ending the global growth recession and sentiment slump, Kass is still troubled by a concept he unveiled a year ago and wrote about in Barron's in June: "Screwflation."
"The average working Joe faces stagnation in his wages and income, at the same time that the cost of necessities of life are going up in price," he says, adding that a decline in disposable income plus a plunge in home prices have created a "toxic cocktail" that will make the current national hangover longer and more painful than usual.