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Doug Kass: Market Facing Potentially Toxic Cocktail

Famed market timer Doug Kass believes the market is at a critical juncture. And he doesn’t think it takes much more for it to tip over, entirely.

In a live interview on CNBC’s Fast Money Halftime Report, Kass tells us a handful of catalysts are looming over the market that he finds “quite concerning.”

They follow:

Market Headwinds

1. Unexpected rate cut suggests China worse than thought.
Kass thinks the unexpected rate cut earlier in the week betrays Beijing’s otherwise stoic approach to its economy. He believes Beijing is telegraphing that, “A soft landing is no longer their base base scenario.”

2. Likelihood of QE3 has been reduced
The latest US economic data including the jobs report suggests our nation is mired in a so-called 'zombie economy' – that is not dead but not alive either. And that puts the Fed between a rock and a hard place.

3. Barclays LIBOR investigation has weighed on financial sector
Earlier in the year, bulls had hoped financials would take a leadership role in the market as the real estate market showed signs of improvement. But the sector is now bogged down with controversy such as the LIBOR investigation, JPMorgan’s rogue whale, Morgan Stanley’s behavior in the Facebook IPO etc. There are just too many headwinds facing banks for the sector to rally.

4. Next week will likely bring earnings preannouncements
Kass believes that the woes of Europe and China will drag down corporate profits domestically, with commentary sounding much like what the market heard from Nike last month.

“Put it all together and you have a potentially toxic cocktail,” says Kass, president of Seabreeze Partners and a CNBC Contributor.

And to make matters all the worse Kass believes any new negative catalyst could effectively break the market’s back.

And Kass doesn’t think that catalyst has to be unexpected – like a shoe dropping in the Europe financial crisis. He says the negative catalyst could be as simple as the market coming to think that it’s more likely Barack Obama will be re-elected in November.

According to Kass, anything that causes what he calls ‘the negative feedback loop’ to grow worse, will drive the market out of a range with past levels of support no longer holding. “The downside risk is to 1200,” he says.

What do you think? We want to know!

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Posted by CNBC's Lee Brodie

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Trader disclosure: On July 6, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Jon Najarian is long call spreads in AAPL; Jon Najarian is long call spreads in NFLX; Jon Najarian is long call spreads in KMI; Jon Najarian is long call spreads in AMZN; Jon Najarian is long CIGX; Jon Najarian is long GLUU; Jon Najarian is long CME; Jon Najarian is long CBOE; Pete Najarian is long AAPL; Pete Najarian is long AAPL CALLS; Pete Najarian is long C; Pete Najarian is long INTC; Pete Najarian is long SBUX; Pete Najarian is long FB; Pete Najarian is long NFLX CALLS; Pete Najarian is long NKE; Pete Najarian is long PCX CALLS; Steve Grasso is long ASTM; Steve Grasso is long BA; Steve Grasso is long D; Steve Grasso is long FRO; Steve Grasso is long LNG; Steve Grasso is long MHY; Steve Grasso is long MO; Steve Grasso is long PFE; Steve Grasso is long S; Steve Grasso is long VLO; Steve Grasso is long XLU; Steve Grasso is long ZAZA; Mike Murphy is long INTC; Mike Murphy is long SBUX; Mike Murphy is long FB; Mike Murphy is long NKE; Mike Murphy is long LNG; Mike Murphy is long COG; Mike Murphy is long TOL; Mike Murphy is long LEN

For Boris Schlossberg
Nothing to Disclose

For Doug Kass
Nothing to Disclose

For Brian Marshall
Neither ISI nor its affiliates beneficially own 1% or more of any class of common equity securities of the subject companies referenced in the Report.

For Chirantan Burua
The following companies are or during the past twelve (12) months were clients of Bernstein, which provided non-investment banking securities related services and received compensation for such services: BCS




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