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Doug Kass: Shortage of 'This' Could Roil 2011 Markets

Over the next month or so, on CNBC’s Fast Money, widely followed strategist Doug Kass of Seabreeze will be revealing portions of his annual -- and much anticipated -- list of “Surprises for 2011”.

We’ll be bringing you two a week through the end of the year. Scroll down for a complete list as well as links to past surprises revealed!

SURPRISE #3

Kass tells the desk to brace for a water shortage and suggests the resulting ripples it generates could be much wider than investors expect.

Apologies for the play on words, because truth to tell this development is no laughing matter.

Kass thinks the scarcity of water could trigger very serious geo-political issues in Asia –something he describes as a destabilizing factor with the potential to become a powder keg.

“Ever since the 1962 Indo-China War, the shared resources of water supply has been a focal point of conflict between China and India,” he explains.

And in the wake of a water shortage those tension could intensify – in part due to a a decision by the Chinese government to expand the plans to divert the 1800 mile long Brahmaputra River which hugs the Chinese border before dipping into India and Bangladesh.

And that leads us to....

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SURPRISE #4

In the event of a water shortage Kass believes the price of agricultural commodities will move sharply higher.

That may not surprise you so much – but this next part sure will.

“The violence of the cost increases will make it difficult for companies to pass those increases along,” he says.

In other words Kass thinks food companies will have to eat much if not all of the price spike (again apologies for the pun) – which in turn will squeeze margins. As a result Kass expects 2011 profit guidance to be taken down by Kellogg, Kraft , General Mills and many others.

And this “surprise” is not isolated to the food producers. Kass thinks restaurants from Yum! Brands to Ruby Tuesday also take hit due to an abrupt contraction in profit margins.

In fact he says don’t be surprised if food companies and restaurant chains are among the worst performers in the S&P 500 next year!

And Kass puts his money where his mouth is. Following are his relevant disclosures:

Seabreeze Partners Management Is Short (YUM)
Seabreeze Partners Management Is Short (RT)
Seabreeze Partners Management Is Short (GIS)
Seabreeze Partners Management Is Short (K)
Seabreeze Partners Management Is Short (KFT)

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Douglas Kass
Douglas Kass

As we mentioned above Doug Kass will reveal more of his 'Surprises for 2011' on CNBC’s Fast Money over the next 30 days with appearances scheduled for the following dates:

Monday, Dec. 6
Monday, Dec. 13
Monday, Dec. 20
Monday, Dec. 27

Click below for past surprises that Kass already reveals on Fast Money

> Doug Kass: Jaw Dropping Prediction For 2011

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* We realize Kass tends to be a tad bearish. And these predictions reflect his concerns for 2011. In all fairness Kass divides his predictions into 2 categories possible and probable. Although he didn't say, we're guessing these are more possible than probable.

However, when Kass speaks we listen - largely because he’s had an uncanny track record for being right.

Less than a week before the S&P 500 hit a generational low of 676 on March 9, 2009, Kass went on CNBC and predicted the bottom. Also, on July 6, 2010, he said the market had made its lows for the year and so far, that has also proved to be true.




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Trader disclosure: On November 29, 2010, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns (AAPL), (BX), (BAC), (NOK); Finerman owns (AAPL); Finerman and Finerman’s firm owns (BBY); Finerman owns (BAC); Finerman owns (BKS); Finerman and Finerman’s firm owns (BP); Finerman’s firm owns (CMVT); Finerman owns (KFT); Finerman and Finerman’s firm owns (JPM); Finerman’s firm owns (MCD); Finerman’s firm owns (WMT); Finerman and Finerman’s Firm owns (MSFT); Terranova Owns (UPL), (C), (PEP), (VRTS), (GS), (OXY), (OIH), (AXP), (FCX), (AAPL), (POT), (NKE), (MCD), (IBM); Weiss owns (FDX), (UPS), (BWC); Pete Najarian owns (PFE); Pete Najarian owns (BAC); Pete Najarian owns (MS)

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