While many investors are turning bullish on stocks as major indices rise to 34-month highs, Doug Kass, president of Seabreeze Partners Management, has turned bearish.
“I’m taking the road less traveled” to short the market, he told CNBC. “There’s almost a universal view that the Fed has given a green light to risk, and I’m less certain.”
Conventional wisdom on the economy is much too positive, Kass maintains. “All the major strategists are gushing over the economic statistics of last couple quarters,” he says.
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GDP growth totaled 1.8 percent in the first quarter and 3.1 percent in the fourth quarter of 2010.
But that expansion resulted from the Federal Reserve’s quantitative easing, its zero-interest-rate policy, payroll tax cuts and fiscal stimulus, Kass says. “All these stabilizers are going.”
Gasoline prices as a percentage of income have risen to levels that always led to economic contractions in the past, he says.
“The market also is ignoring tipping points like rising food costs, a continuing drop in home prices and depreciation of our currency.”
Kass has set up his short position through ETFs and bought out of the money calls as a hedge.
Others are expressing concern about stocks too.
“The one thing that keeps coming up is inflation risk, and we’re beginning to see some of that cost pressure in the (earnings) reports,” Thomas Nyheim, a money manager for Christiana Trust, tells Bloomberg. “There’s still a lot of caution in the market.”
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