The second half is where I would be really worried about the expected path for risky assets. This thinking is based on several factors, most notably withdrawal of emergency government aid, the end of the natural inventory bounce, and the looming mortgage resets mountain. That’s all without taking into account nasty grey swans, such as sovereign default risks and/or huge capital raises by large financial institutions (to account for the low coverage ratio embodying “extend and pray”), not to mention black swams out of left field (think something like an economic collapse from an oversupply bubble in China).

The confounding factor, as has been the case the past couple of years, will be the government’s response to events. So too strong of a recovery in the first half could lead to unanchoring of inflation expectations and subsequent withdrawal of liquidity, leading to 1937 again. Or weakness in the second half (perhaps spurred by crises) could lead to opening the liquidity taps again, in an even bigger way, resulting in risk rally 2.0…Good luck to everyone, stay nimble.

Long high yield equities and sell covered calls?

You are right on this of course. However there are so many factors which they can’t control, and there are far too many plates in the air. Another Greece here, a Dubai there or almost anything is going to cause a cascade.Granted they have pulled this trick off for far longer than one would have thought possible, until you realize the years the housing ponzi scheme went on even after it was exposed. So I am with Leuthold in thinking we have a minor correction sometime in January. Unfortunately for him, that correction will start people asking questions that lead to the inevitable.