The bullish case is pretty well established right now and there is no sense repeating them but what may be ignored are these half-dozen risks:

1. How much of 2011 growth was borrowed from 2012 (the payroll tax cut and bonus depreciation allowance end in December 2011). This may be an issue heading into Q4.

2. Energy prices ― if oil breaks above $100 and gasoline prices approach $3.50/gallon then expect the consumer to sputter. Every penny at the pumps drains $1.5 billion out of household cash flow. At the moment, U.S. gas prices at the pumps are at $3.15/gallon, but consider that back in September, it was closer to $2.70/gallon. This increase in energy prices is hardly the result of booming consumer demand, which we know from the monthly personal consumption expenditure data is down more than 2% from a year ago. This is nothing more than an exogenous negative shock, which, at current levels, is approximately a $50-60 billion annualized drag from the U.S. household cashflow (basically absorbing half of the payroll tax relief). If, as many experts predict, gas prices ultimately go to $4/gallon, then this would siphon another $100 billion into the gas tank. As for oil, the rule of thumb is that a 10% increase in prices shaves off 2.5 percentage points off GDP. This means that oil could be a near-one percentage point hit to GDP growth.

3. The GOP-led House is pressing for $100 billion of spending cuts for this year. If enacted, and this could be part of a deal to resolve the debt ceiling issue looming this spring, could cause GDP estimates to be trimmed.

4. Obama just enhanced his 2012 re-election chances by appointing Daley as his chief of staff. Either he is really going to move to the center, or he is trying to cement the next election.

5. Everyone believes that a better employment picture will brighten the stock market’s prospects even more but in fact the opposite will happen as margins get squeezed by rising labour costs. Remember what happened in 1994. Be careful what you wish for.

6. I am hearing that the Fed is moving further away from entertaining the notion of a QE3 program in the second half of the year. Something the market will be grappling with in the second quarter, and I see that the second quarter may well offer up the best buying opportunity of the year since that is the quarter where the concern list will likely start to grow; lagged impact of China tightening shows through, big European refinancings, signs of no more QE, and the debt-ceiling issue hitting its peak.

Nothing of course says that the market can’t keep going up over the near-term. All I hear is about “not fighting the Fed” and “how great the economy is doing” and maybe this will lure some fence-sitters into equities (as has already been evident in the December fund-flow data). To be sure, the U.S. consumer has surprised to the upside even with still-sluggish job market conditions, and the stimulus impact will be most felt this quarter re: tax relief. But surely this is already priced in. What may not be priced in is that much like 2010, the peak rate of GDP growth for this year will be the quarter we are in right now (the peak in 2010 was 3.7% in Q1). Until Bernanke uttered the words QE2 in late August, the market was beginning to recognize the slowing pattern that was underway in the economy. If this pattern re-emerges this year, but the Fed no longer has the willingness or ability to provide additional monetary stimulus, we could be in for a great buying opportunity during the spring and summer months in particular.

To be sure, companies are still sitting on a hoard of cash but that is a better guide for M&A and dividend payouts than for acceleration in capital spending, which I see moderating this year as profit growth softens. Housing is going nowhere. Ditto for commercial construction. The ISM index was decent but did flag a slowing, if not termination, of the inventory cycle as well as a reduced contribution to the economy from exports (this component is down two months in a row). We also have escalating cuts at the state and local government levels to contend with.
In a nutshell, just as the onus was on the double-dippers last summer given the sentiment and market action, the onus now is clearly on the V-shaped enthusiasts (by the way, they also dominated the landscape exactly a year ago and were only proven to be correct after the tremendous monetary and fiscal efforts to revive confidence and economic activity).

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