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Doug Kass: This Nasty Catalyst Will Take Down Stocks

According to Doug Kass, there’s a nasty catalyst barreling toward the market and when it hits, the bulls are going down.

And that catalyst will come in the form of a sharp decline in housing.

We recognize that Kass’ thesis may be met with skepticism. Some would argue that the market has rallied just fine without housing doing anything.

But Kass thinks that’s about to change.

”My father was a dentist and he always used to tell me your mouth is central to the health of your body. It’s the same thing with housing. Housing is central to the health of our domestic economy,” says the president of Seabreeze Partners and CNBC Contributor.

Kass often comments on CNBC’s Fast Money about a string of looming catalysts that threaten to knock down stocks. But he thinks none of those catalysts are more problematic than housing.

“We’re going to see a weakened residential real estate market. And that’s very important headwind to domestic growth,” he says.

He points to some of the latest data to support his thesis. For example Zillow said home prices fell 3 percent in the first quarter—the worst drop since late 2008. They also said 28% of single family home mortgages are drowning in negative equity and the problem is even more acute in urban areas.

”I now expect another leg down in home prices of at least 5% and probably closer to 10%,” says Kass. In other words, the housing double dip isn’t even debatable anymore, it’s here.

And that, he thinks will generate a ripple of tremendous magnitude ranging from foreclosures and delinquent loans to anemic corproate earnings - a nasty spiral lower.

In case you're wondering, Kass isn’t just talking the talk he’s walking the walk. He got “more short” on his thesis and established new short positions in building and materials stocks.

What do you think? We want to know!

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Trader disclosure: On May 10, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Weiss owns (VZ); Weiss owns (QCOM); Weiss owns (DE); Weiss owns (INTC); Weiss owns (MSFT); Weiss owns (COP); Weiss owns (DVN); Weiss owns (HK); Weiss owns (SWC); Weiss owns (NIHD); Weiss owns (UUP); Weiss owns (TBT); Weiss is short (X); Weiss is short (AKS); Cortes owns (K); Cortes owns (KFT); Cortes owns (SO); Cortes owns (EXC); Cortes owns (TGT); Cortes is short Nasdaq Futures; Cortes is short EUR vs. USD and CHF; Cortes is short EEM vs. S&P long; Adami owns (AGU); Adami owns (C); Adami owns (GS); Adami owns (MSFT); Adami owns (NUE); Adami owns (BTU)

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