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15 Reasons Stocks Should Be Falling

05/10/07 - 02:56 PM EDT

Doug Kass

This post by Doug Kass appeared at 8:45 a.m. on May 10 on TheStreet.com's Street Insight.

"I deserve good things. I am entitled to my share of happiness. I refuse to beat myself up. I am an attractive person. I am fun to be with."
-- Stuart Smalley, Saturday Night Live

Every morning over the past two months, I have woken up at 3 a.m. and looked at myself in the mirror. I say to myself, "Self, I am a worthy human being. Are stocks cheap enough, liquidity strong enough and, doggone it, interest rates low enough, for the stock market to continue to rise?"

Then I go back to sleep for maybe an hour. I get dressed in my yellow button-down shirt with a powder blue cardigan. Soon after, I start my day by writing my opening missive for "The Edge."

I typically stare at the blank document on Microsoft Word for a few minutes, and I think to myself, "If this advance continues forever, I'm going to die homeless and penniless. No one will ever love me."

And then I write what I believe to be a soundly structured fundamental argument that seems to differ drastically from those on the opposite pew -- the bullish cabal, who seem to have a total and complete grasp of the market.

I anxiously await 9:30 a.m. and the trading day to begin for my "Market's Daily Affirmation With Dougie" -- that is, with the expectation of some confirmation of my market view. The opening bell rings, and it doesn't take much time for me to be, shall we say, a wee bit disappointed these days....

With every data point of stagflation -- a weakening U.S. dollar, slowing economic growth, moderating retail spending and weakening housing -- my pulse quickens as if my general thesis is confirmed, but we see little confirmation in the market's immediate response to these downward-trending government releases or in the face of other recent earnings/economic warnings.

In the current one-way market, all problems are overlooked -- and rationalized. Here are some examples:

1. The price of gasoline rises to a new high, serving as the functional equivalent of a tax increase for the U.S. consumer.

2. Tech bellwether Cisco's CSCO U.S. business enterprise is weak, and guidance for aggregate sequential revenue growth (of +4%) is disappointing.

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At time of publication, Kass and/or his funds were short Wal-Mart, although holdings can change at any time.

Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd. Until 1996, he was senior portfolio manager at Omega Advisors, a $4 billion investment partnership. Before that he was executive senior vice president and director of institutional equities of First Albany Corporation and JW Charles/CSG. He also was a General Partner of Glickenhaus & Co., and held various positions with Putnam Management and Kidder, Peabody. Kass received his bachelor's from Alfred University, and received a master's of business administration in finance from the University of Pennsylvania's Wharton School in 1972. He co-authored "Citibank: The Ralph Nader Report" with Nader and the Center for the Study of Responsive Law and currently serves as a guest host on CNBC's "Squawk Box."

Kass appreciates your feedback; click here to send him an email.


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