The bears are talking up the chances of a major sell-off when the Fed removes its quantitative easing program in June, yet one analyst tells CNBC that the bears could be in for a nasty surprise when the end of the Fed's easy money policy actually happens.
"The market might yet switch from using near zero-rate dollars to the yen to keep the balloon floating for just a little longer than the slowly awakening bears have built into their calculations," said Sean Corrigan, chief investment strategist at Diapason Commodities Management, in an interview with CNBC on Monday.
"The Bank of Japan may be forced to play a much more active role in helping finance the reconstruction of the disaster area," Corrigan added.
In his view, the market turning to the BoJ for support once the Fed begins the process of returning to normal will not mean we are out of the woods yet.
"The fiscal position is so bad in the US, whilst the political will to address this is so lacking, that the termination may well turn out to be temporary, though nonetheless painful for all that, given that it has been the driver for the whole risk-on rally of the last 6 months," said Corrigan.
Standard and Poor's today downgraded its outlook on America's debt outlook to negative citing fears that US law makers may not reach agreement on how to address the country's long-term fiscal pressures.
Before that news broke, analysts at Danske Bank in Copenhagen warned that once the 2012 presidential election is out of the way—when pressure to cut the deficit will be at its highest— lower spending will drag on US GDP by 2 percent a year until 2014.
"Key to restoring longer-term fiscal sustainability is addressing mandatory spending—especially health care—and looking at tax reforms to increase revenues. Without such reforms, debt developments would become unsustainable early in the next decade," Danske said in a note to clients.
"With gross debt levels currently close to 100 percent of GDP, the outlook for debt is sensitive to interest rate changes. While we do not expect a full scale debt crisis to hit the US, it is clear that debt will reach an unsustainable path much earlier in the event of a significant loss of investor confidence in US government bonds," Danske analysts wrote.