Kass: The Lion's Share

Fundamentals: Second-quarter 2012 results have failed to indicate that an imminent drop in corporate profits (or margins) will occur. Despite some falloff in the top line, corporations have controlled their fixed costs and continue to operate profitably even as the rate of global economic growth decelerates. Balance sheets are rock-solid, with reams of cash and liquidity. The CRB Index has fallen by nearly 15% from June, a tax cut to the consumer and a potential preserver of corporate margins. The residential real estate market has bottomed (in sales activity and price) and appears on the launch path of a durable, multiyear recovery. The U.S. stock market remains the best house in a questionable economic and investment neighborhood.

Eurozone: Though not caged, these lions can still be domesticated by the region's central bankers and leaders through forceful policy. Most importantly, their whereabouts are well-known by the markets.

Politics: While the fiscal cliff is feared, there might be upside to expectations as even our dysfunctional leaders must recognize that a repeat of August 2011 will crush business and consumer confidence, our markets and our economy. History shows that our leadership rises in times of crisis. (Let us hope that Senator Schumer and others are listening.)

Central banks: A broad-based (and market-friendly) global easing promises to be with us for some time to come.

Sentiment and expectations: Investor sentiment remains subdued, mired in a lost decade for stocks, the Great Decession and structural disequilibrium in the jobs market. Investor expectations have been dulled by the May 2010 flash crash, two large drawdowns (in 2000-2002 and 2008-2009) and numerous scandals (Madoff, Stanford, Peregrine, Lie-bor, etc.) and trading gaffes (at JPMorgan Chase (JPM) and elsewhere). Retail investors and hedge-hoggers have de-risked. Large pension plans are skewed toward low- or no-yielding fixed income and have not yet balanced back into equities. Frightened by the past, these (anti-speculative) conditions suggest that, with so many turned off to equities (and turned on to fixed income), the pain trade is to the upside.