While Ramsey doesn't see this vulnerability in consumer confidence rearing its angry head right this moment, he warns that any further weakness could be catastrophic, especially if it's swift and sharp."After years of overdoing it, policymakers should now be careful not to overdo it," he said in a recent client note."Confidence is fragile enough that excessive dovishness might actually be harmful.
In terms of what could cause such a sudden decline in confidence, Ramsey says it could be moderate equity-market weakness. This may seem counterintuitive, since he also expects flagging confidence to drag stocks lower. But in the end, it's a circular situation, with the two forces working in tandem to create a vicious downward cycle.
For that reason, Leuthold actually reduced hedges in recent weeks, and has boosted its allocation to equities by 6% in recent months.