Kass: So Long, Santa Rally -- Hardly Knew Ya

This blog post originally appeared on RealMoney Silver on Dec. 4 at 9:01 a.m. EST.

Before my critics dismiss out of hand what appears to be an abrupt turn of market judgment and suggest that I am simply reverting to my permabear leanings, today's opening missive will try to explain why the investment mosaic seems to be deteriorating rapidly.

No Memory From Day to Day

First, let me digress and frame the sort of current (and continuing) market in which I see us -- a market with limited memory from day to day. In a period of substandard returns, which I believe we will be in for an extended period of time, gaming 5% moves (up or down) will remain an important ingredient in delivering superior investing/trading results.

As I mentioned on my year-end rally call, most investors should remain market agnostic, as only the most facile can game abrupt short-term moves (even of 5%). Importantly, rather than viewing these moves as the start of a primary trend, investors might best be served to continue the pursuit of both long and short opportunities -- and they should remain skeptical on the initiation of meaningful trend moves higher in a market without memory from day to day.

With this in mind, I had sound reasons for expecting a rally (which managed to produce a near 5% move up from Monday's close to Friday's close). My expectation was based on the perception that the market was getting its arms around some of the credit problems as financial institutions became less opaque and more forthcoming, the administration was planning for a mortgage bailout, November and December are historically periods of strong seasonal strength, the political landscape was changing (in favor of the Republican Party), and we were at an apparent negative sentiment extreme.