He likened equity markets, which have been improving since August last year, to a party where central banks and sovereigns had been "spiking the punch" with easy monetary conditions and bailouts of troubled institutions and debt-laden countries.
"The party seems like it might go on forever but it will end, and the hangover will be a lot longer and a lot stronger as a consequence of everyone drinking the Kool-Aid," he said at Tower's quarterly investment briefing.
"Fundamentally, things are getting worse in terms of the kinds of structural financial imbalances, not better," he said. "Of particular concern is Europe and you would say that at best the United States is muddling along, despite a massive injection of money into its system," Stubbs said.
"China is starting to show the first signs of being a little bit more of a mixed story rather than the driver of global growth."
Europe's problem was that it was having to attack a banking, sovereign debt and growth crisis at the same time.
Addressing any one of those problems would make the other two worse.
"That's the problem. You can't address any one of these issues without it having strong after-effects."
Fiscal austerity measures would become increasingly difficult as Europe faced its next electoral cycle, Stubbs said.
"While all this is going on, fiscal deficits are getting worse, unemployment is rising, and political tensions are rising. That's going to scare the rest of the world."
Despite ongoing turmoil in Europe, Stubbs said New Zealand was relatively well-placed.
"This is a good place to have your money.
"The Government's balance sheet is not stressed and strong terms of trade continues to show that the country has what the world wants to buy."
Short term, he said, Tower was neutrally positioned, but he thought the markets might go through another round of euphoria.
"However, if you look beyond a couple of quarters, we are looking for opportunities to sell and we will be taking risk off the table."
In the next six to 12 months, Tower was likely to be buying more property and shifting out of long-term fixed interest into short term, because of what it saw as an increased inflation risk.
On the sharemarket, Tower would continue to invest in shares and companies that paid dividends and were focused on effectively returning cash to shareholders but would avoid higher-risk growth stocks, Stubbs said.
"Short term, we feel that the markets might have another rally, but long term we will be sellers into it," he said.
Tower's head of fixed interest, Craig Alexander, said he expected the Reserve Bank to start raising rates by the end of this year - earlier than market expectations of an April 2013 rate hike - and for the New Zealand dollar to remain strong in the US80c to 90c region.
He based his interest rate expectations on an upbeat business sector and a "frothy" residential property sector - particularly in Auckland.
Tower has taken a positive view on regional shopping malls.
Head of property Brent Buchanan said Tower partly based its view on an improving trend in retail sales.
He also said "strip" shops would come under more pressure - particularly those built in the 1930s, 40s and 50s - because of heightened safety concerns in the wake of the Christchurch earthquakes.
