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Despite Bullish Momentum, Could Bears Be Regrouping?

Despite widespread bullish momentum in this market, some investors remain convinced the bears are regrouping and when they roar it's going to get ugly.

Whitney Tilson of T2 Partners is among them. (If that name sounds familiar it’s because Tilson became a widely followed money manager who predicted the mortgage meltdown and made a fortune in the process.)

And Tilson isn't just talking the talk - he's walking the walk. "We've doubled our short book from 30 percent to 60 percent and we've trimmed our long book from 120 percent to about 90 percent."

In other words, he's grown even more certain that stocks are going to tumble. Andlike he told us in September, Tilson again says, too many investors are missing the big picture.

"Investors are thinking that the losses are going to start to diminish fairly quickly over the next year or two, and our best guess is that losses remain very high for the next couple of years."

The X Factor

Although it appears the economy is improving, unemployment is not and Tilson thinks jobs are the wildcard that will likely turn the recovery on its ear.

When people lose their jobs they’re able to hang on for a while. They may not pay credit cards but they try and keep up with the mortgage. But after a while it become impossible to pay any bills.

"What happens to underwater homeowners when they're underwater? Do they walk away from their homes if its economically rational to do so?"

Tilson is betting they do.

As a result Tilson predicts that mortgage defaults are about to skyrocket— the same with consumer loans. In fact, the damage Tilson forecasts is kind of scary.

“There are probably going to be $700 billion of losses in total over the next 8 years and we’ve only seen a few billion of it because those loans haven’t reset.” he says.

What's the trade?

“Remember what Warren Buffet says. Be greedy when others are fearful and fearful when others are greedy. Stocks are priced for a pretty robust economic recovery and I think that’s unlikely.”

"As a result I’m hedging my longs and my favorite area of shorts is housing," Tilson says.

What do you think? We want to know.




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Trader disclosure: On October 19, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (BTU), (GS), (INTC), (MSFT), (NUE); Finerman Owns (AAPL); Finerman's Firm And Finerman Own (RIG), (PDE); Finerman's Firm Owns (MSFT), (NOK), (TJX); Finerman's Firm Owns (BAC) Preferred, (BAC) Call Spread, (BAC); Finerman Owns (BAC) Preferred, (BAC); Finerman's Firm Owns (BBT) Puts; Finerman's Firm And Finerman Own (WFC) Preferred; Finerman's Firm And Finerman Own (WMT); Finerman's Firm Owns (BKS) Puts; Finerman's Firm Is Short (USO), (IJR), (MDY), (SPY), (IWM), (UNG); Najarian Owns (GE) Calls; Najarian Owns (HGSI) Call Spread; Najarian Owns (POT) Call Spread; Najarian Owns (RIMM) Call Spread; Najarian Owns (STX) Call Spread; Najarian Owns (WFT) Call Spread; Najarian Owns (XLF) Call Spread; Najarian Owns (YHOO), Is Short (YHOO) Calls; Najarian Owns (TEX) Call Spread; Terranova Owns (HES), (HOC), (SUN)

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