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Doug Kass: Investors Are Ignoring These Bearish Signs

The Dow made a new bull market high on Thursday as traders bet the Fed will keep the easy money flowing for quite some time.

The bulls were encouraged by comments made by Ben Bernanke earlier in the week, which suggested the Fed will keep rates low – and the dollar weak - for an extended period – now defined as at least two more FOMC meetings.

"That takes us out to the autumn at least,” explains strategic investor Dennis Gartman.

Does that mean the path of least resistance for stocks is higher? Strategic investor Doug Kass says no!

In a live interview on CNBC’s Fast Money Kass, the president of Seabreeze and a CNBC contributor explains his skepticism.

First and foremost, he thinks way too many people are convinced the next leg is higher. ”There’s almost a universal view that the Fed has given a green light to risk and I’m less certain,” he says.

Also, Kass thinks that bulls are working off some faulty assumptions. He thinks the rosy economic data isn’t as rosy as it appears on the surface. “Economists are gushing over the statistics – but growth has been achieved under QE2 and 0% interest rates,” he says. In other words, the growth has happened in an environment of extreme government intervention that isn’t sustainable.

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And in addition, Kass has noticed shifting political winds in Washington. He thinks law makers have the political will to make deep cuts in government spending. “And that translates into higher marginal tax rates and austerity,” he says.

On top of that Kass cites other negatives that he often talks about, namely rising foods costs, a drop in home prices and the rapid depreciation of the dollar. ”Currency was behind October '87 crash,” Kass says. “Although the weaker dollar buoyed exports it ultimately trapped investors.”

However, all those headwinds may be a tempest in a pot of tea compared to this next obstacle, surging prices at the pump.

According to Kass, the cost of gasoline has reached a point where dollars spent as a percentage of income has led to economic contraction in the past. “Maybe it’s different this time but I don’t think so,” he says.

And Kass is putting his money where his mouth is. He’s trading it, short SPDRs against long positions in out of the money calls to define the risk.

What’s the bottom line? “The trend is looking bad,” he says.

* As you may know, Kass is widely followed for his market timing. He correctly called a bottom last summerand also predicted the crisis lows in March 2009.


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Trader disclosure: On April 28, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Najarian Owns (AAPL); Najarian Owns (AKAM); Najarian owns (C); Najarian owns (CVS); Najarian own (MSFT); Najarian owns (VLO); Najarian owns (XLF); Terranova owns ( TCK); Terranova owns (SLV); Terranova owns (NFLX); Terranova owns (APA); Terranova owns (OXY); Terranova owns (FCX); Terranova owns (BAX); Terranova owns (IBM); Terranova owns (HOC); Terranova owns (UPL); Terranova owns (AKAM); Terranova owns (V); Terranova owns (CVI); Terranova owns (BX); Weiss owns (DE); Weiss owns (DE) puts; Weiss owns (AKAM); Weiss owns (QCOM); Weiss owns (VZ); Weiss owns (MSFT); Weiss owns (UUP); Weiss owns (DZZ); Weiss owns (TBT); Weiss owns (GDX); Weiss owns (JPM); Weiss owns (COP); Weiss owns (DVN)

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CNBC.com with wires.