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Doug Kass: Fear the Market’s 'Aha' Moment

This year, Doug Kass has suffered the unenviable fate of watching the market rise 13 percent while he remained bearish. But on Thursday's episode of "Futures Now," he said that the end of the rally will soon be upon us.

"The narrative now is whether the Fed is simply pushing on a string," Kass said, "and many market participants are coming to this 'aha' moment."

Kass, the founder and president of Seabreeze Partners Management, believes that the data have been weak, and will get even weaker.

"I have a variant view on both corporate profits and the outlook for economic growth versus the consensus. My concerns have been ignored by the markets, but they have been supported by the cautious guidance by corporations during the first-quarter earnings calls as well as by the recent economic data," Kass said.

(Read More: Housing Grows, Hiring Slow, Sequester Hits: Fed)

The problem is that "central bank liquidity blurs the line of demarcation between economic reality and stock market euphoria." For Kass, market participants are buying into the idea that the U.S. economy is growing, when we're simply seeing the impact of more liquidity.

(Read More: Vanguard's Bogle: Fed's Strategy 'Simply Will Not Work')

Douglas Kass at the Reach poker tournament in New York.
Amanda Gordon | Bloomberg | Getty Images
Douglas Kass at the Reach poker tournament in New York.

Kass believes that the divergence between perception and fact will hit the market—and hard. "Structural issues are going to continue to produce subpar economic and profit growth," Kass said. "We have above-average price-to-earnings multiples. Now they're being exposed, and they're vulnerable."

The one thing Kass doesn't know is when this "aha" moment will finally arrive. But he's staying short in the meantime.

"In the fullness of time," Kass said, "we will be going much lower."

_ By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex

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