Where I Stand

NEW YORK (Real Money) -- Where do I stand today?

Yesterday's late swoon and this morning's weakness in futures should not be unexpected after the rip-your-face-apart rally.

In terms of the major challenge, a beautiful and balanced deleveraging (occurring around the world) is a fine combination of monetary easing, austerity and restructuring debt that often leads to bumps along the way, similar to what we have experienced over the past month.

The challenge in the U.S. is that monetary policy has done almost all that it can do and the onus in now on fiscal policy, which will require a less divided and more cooperative Washington, D.C. Slow but positive growth in a muddle-through backdrop of +2% real GDP growth remains my baseline expectation.

The challenge in Europe is for central bankers and leaders to get back in front of the monetary curve (which they have now fallen behind).

Given China's rate cut, Spain's resolution being weeks away (the bank audits are going to be completed by month-end), the mid-June Greek election and the Fed's next (non-)decision being 12 days away, markets should tread water during most of June with limited upside or downside.

When I turned more optimistic in April, I expected more responsible leadership (in the U.S. and Europe), and I remain hopeful that we will get it. Frankly, over the past four or five weeks, I (and others) have been disappointed by our dysfunctional leaders, who too often place partisanship ahead of responsibility and necessity.

A bunch of subscribers have recently questioned why I am a bit more cautious with stock prices lower after having adopted a more aggressive investment stance in April at higher prices. It is because the facts have changed, and I was too anticipatory in the above expectations. A smooth deleveraging has proven to be more ephemeral, and the long tail of the last cycle has stayed prominent.

Time is of the essence. The market is temporarily losing the trust that it's trying to win back, as individual and institutional investors have continued to de-risk. We see this in continued outflows out of domestic equity funds, inflows into fixed-income funds and record unfavorable ratings for our politicians (Republicans and Democrats).

Regaining the trust (and flows) will now take more time than I previously thought.