With all the bullish calls on the U.S. economy in the new year, including Goldman's call for a 20% market rally, what could possibly go wrong?
According to strategic investors Doug Kass, a lot.
The president of Seabreeze partners tells CNBC’s Fast Money in a live interview that many of the broker forecasts are too optimistic.
”We should be fearful that the recovery in the economy as well as the rally in the market will be short lived.”
In other words he thinks the stock market is on the brink of a correction.
“The secular headwinds are being ignored,” he explains. “Fiscal imbalances, marginal higher tax rates, and excess housing inventory.”
And that’s not all. Kass also foresees cyclical headwinds, “such as interest rates, inflation, and higher oil – it’s all going to weigh on the economy,” he says.
And Kass is also putting his money where his mouth is. “I am moving to a net short position,” he tells us.
If you agree with Kass, the next question would be 'are stocks a buy after the correction and ahead of the next leg higher."
According to Kass, they're not. At least not in the near term.
He thinks the market is entering no-man's land. As he first told Fast Money on December 13thhe expects, “The market will end 2011 exactly where it ends up in 2010."
In other words, Kass thinks 2011 will largely be a sideways year.
And that he says, is a big deal. “Since 1900 there’s been only six occasions where the S&P’s change was between +3 percent and –3 percent. 2011 will be the seventh,” he concludes.
Of course, not everyone sees it that way. OptionMonster Jon Najarian argues that the headwinds presented by Doug Kass won’t be as strong as the tailwinds from the economic stimulus – and tax cut extension.
And Dennis Gartman, author of the Gartman Letter adds that charts are bullish. “We’re going from the lower left to the upper right – until that trend changes I wouldn’t fade it,” he says.
Nonetheless when Doug Kass talks 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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Douglas Kass
All month Doug Kass revealed his 'Surprises for 2011' on CNBC’s Fast Money.
Click below to check out what else he told us:
> Doug Kass: This Giant Tech Takeover, A 2011 Surprise
> Doug Kass: Shortage of 'This' Could Roil 2011 Markets
> Doug Kass: Jaw Dropping Prediction For 2011
> Doug Kass: Market Ends 2011 At Same Levels As 2010
> Doug Kass: Gold Among Worst Asset Classes of New Year
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Trader disclosure: On December 27th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Funds Managed by Dennis Gartman are short the Euro; Funds Managed by Dennis Gartman are short the Yen; Funds Managed by Dennis Gartman are long Steel; Funds Managed by Dennis Gartman are long Gold; Funds Managed by Dennis Gartman are long Crude Oil; Funds Managed by Dennis Gartman are long Nat Gas; Funds Managed by Dennis Gartman are long Silver; Funds Managed by Dennis Gartman are long Copper; Funds Managed by Dennis Gartman are long Orange Juice; Funds Managed by Dennis Gartman are long Soybeans; Funds Managed by Dennis Gartman are long Wheat; Scaramucci and Skybridge Capital are long USD; Scaramucci and Skybridge Capital own (AAPL); Scaramucci and Skybridge Capital own (C); Scaramucci and Skybridge Capital own (CSCO); Scaramucci and Skybridge Capital own (GS); Scaramucci and Skybridge Capital own (HRB); Scaramucci and Skybridge Capital own (MS); Terranova owns (UPL); Terranova owns (C); Terranova owns (PEP); Terranova owns (VRTS); Terranova owns (OXY); Terranova owns (GS); Cortes is short (LVS); Cortes is short (XRT) vs. the S&P; Cortes owns (TSN); Cortes is long USD vs. the Australian Dollar and the Mexican Peso; Cortes is short Gold; Cortes is short Nat Gas; Cortes is short Corn; Jon Najarian owns (AAPL), is short (AAPL) calls; Jon Najarian owns (MSFT), is short (MSFT) calls; Jon Najarian owns (XLF), is short (XLF) calls; Jon Najarian owns (MS), is short (MS) calls; Jon Najarian owns (BAC), is short (BAC) calls; Jon Najarian owns (CME), is short (CME) calls; jon Najarian owns (CBOE), is short (CBOE) calls; Jon Najarian owns (V), is short (V) calls; Jon Najarian owns (NKE), is short (NKE) calls; Jon Najarian owns (ADBE), is short (ADBE) calls; Jon Najarian owns (GDXJ), is short (GDXJ) calls; jon Najarian owns (MCP), is short (MCP) calls; Jon Najarian owns (REE), is short (REE) calls; Jon Najarian owns (XLF), is short (XLF) calls
JOE TERRANOVA
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (ALK)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
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TODD GORDON
Gordon is long U.S. Treasuries
DOUG KASS
Seabreeze Partners Management is short S&P
JOHN STEPHENSON NBC Universal is the parent company of CNBC
Stephenson has no disclosures
MARYANN KELLER
Keller has no disclosures
MIKE KHOUW
Cantor Fitzgerald & Co. is a market maker in (CHK PRD)
GARTMAN SOT
Funds managed by Dennis Gartman are long Soybeans
Funds managed by Dennis Gartman are long Wheat
ANTHONY SCARAMUCCI SOT
Scaramucci and Skybridge Capital Owned (CSCO) on 11/11/2010
Scaramucci and Skybridge Capital Owned (CSCO) on 12/22/2010
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