The answer is not yields, tariffs, war, famine, or Trump; although any of those could contribute to the selloff.

Here is a Tweet discussion leading up to the correct answer which will likely surprise many.

Goldilocks vs the Bears @LizAnnSonders @hussmanjp @biancoresearch @TheBubbleBubble @JeffSnider_AIP @Hedgeye
Is Goldilocks in the room or out of the room? That's not even the right question.https://t.co/Ppw7kdere2 pic.twitter.com/kbKEvrL8FC

— Mike Mish Shedlock (@MishGEA) March 12, 2018

Yes, valuation is high; but historically (since 1958) it’s had no consistent correlation to subsequent one-year returns (either for CAPE or trailing P/E) pic.twitter.com/TCHENi3uSG

— Liz Ann Sonders (@LizAnnSonders) March 13, 2018

Did anyone say CAPE correlates to 1-year or even 3-year returns? @Hedgeye @LizAnnSonders @hussmanjp No one knows when it matters, but we do know the higher it gets the worse the final results. There does not have to be a definable catalyst. Sentiment can change for no reason.

— Mike Mish Shedlock (@MishGEA) March 13, 2018

Also, I believe that writing off these valuation indicators (because they're not short-term timing tools) is a way of trivializing the very real risk that asset bubbles pose to our economy and society. This is disingenuous. The coming mean reversion will prove this to be true.

— Jesse Colombo (@TheBubbleBubble) March 13, 2018

About Catalysts.
Think back to 2006. People lined up on the streets overnight for the right to enter a lottery to buy a Florida condo. A week later: no lines. Vanished. There was no trigger or event. What happened? Sentiment changed. The catalyst is "sentiment" not an event.

— Mike Mish Shedlock (@MishGEA) March 13, 2018

Well said. The same will happen this time around too, because "This time ISN'T different."

— Jesse Colombo (@TheBubbleBubble) March 13, 2018

Gaga Over Real Estate

Thinking back to 2005, I recall this magazine cover.

Gaga Over Real Estate

Things do not get any better than Time Magazine going "gaga" over real estate, right on the cover.

The media reflects the mood.

I wrote about it at the time and accurately called the top even though sentiment is extremely hard to judge.

1. March 2005: It’s a Totally New Paradigm
2. June 2005: Home $weet Home Top Call
3. September 2006: Updating the Arrow after Home Prices Drop

Gaga Over Tax Cuts

In January 2018, nearly everyone was giddy over Trump tax cuts and business investments that are not likely to happen.

In February, investors were so convinced stocks could not drop that they were shorting the VIX more and more every time the VIX rose.

Things finally snapped.

Inflation Sentiment

With nearly everyone so hell-fire convinced inflation is on the way, I propose Inflation is in the Rear-View Mirror.

Before anyone shouts that I have lost my mind, please read the discussion about what inflation really is and how things work in the real economy.

If the Fed reverses course will it be as bullish as before or will investors react as if the curtain was pulled on the Wizard of Oz?

Peak Equity Sentiment?

Have we seen peak sentiment in equities this cycle?

I do not know the answers to those questions, nor does anyone else, but valuation speaks for itself, as noted in Sucker Traps and the Arithmetic of Risk.

The VIX

In regards to the VIX massacre, what happened? Inflation fears? Rate hikes? Anything?

You can conjure up a catalyst, but what really happened is there was a sudden sentiment change regarding the notion that being short volatility was a guaranteed smart thing to do.

Junk Bond Whales

Junk bonds and equities are correlated. They both represent risk assets.

Four days ago I noted that a Mutual Fund Whale Goes "All In" On Junk Bonds.

Just like the VIX speculators, the junk bond whales have no concerns about valuation.

How does BST do market timing? The fund uses a computer program.

Bear in mind, many of the securities in the ETF are extremely illiquid. A credit manager informed me that "up to 90% of the bonds in HYG don’t trade on a daily basis."

What can possibly go wrong?

Buy the Dip!

With "buy the dip" so overwhelmingly pervasive, there does not have to be any catalyst for a sustained decline.

I strongly suspect there will not be one.

1. Does anyone recall a catalyst in November of 2007, one month ahead of the Great Recession? If there was one, what was it?
2. Does anyone recall Bernanke's denial on the housing bust?
3. Does anyone recall Greenspan's worry the economy was overheating in summer of 2000, right before the dot-com bust?

Regarding question three, the FOMC minutes show Greenspan was concerned about overheating right before the dot-com crash.

hmmm.

What will change this time?

Sentiment.

The same thing that changed in 2007 with equities, 2006 with housing, and 2000 with dotcom stocks.

The pool of greaters fools will eventually run out, and it won't take a recession or a drop in earnings (although both are coming).

Here's something to think about: Perhaps the pool of greater fools has already run out. If it has, when will you know?