Kass: This Bear Sees a Year-End Rally

"Stay committed to your decisions, but stay flexible in your approach."
--Tom Robbins

This is a tough call for me to make because I believe the world's economy and capital markets face significant challenges. But, increasingly, many of those concerns have been recognized, and some of my shorts have reached my targeted price objectives. That said, in a roller coaster market that has no memory from day to day, successfully gaming 5% moves (or so) becomes a necessary ingredient to creating alpha (excess returns). This will be particularly true in the generally low-return setting for equities that I envision over the next year or two.

In summary, the ingredients for a market rally are now falling into place. Whether it occurs today, tomorrow or in the next few weeks, I think it is coming, albeit at far lower levels than Barton Biggs had predicted recently on CNBC's "Fast Money."

I would note that while the anticipated recovery in share prices (amidst this week's gloomy headlines) could be far more brisk than the growing ursine crowd expects, the economy and financial system face broad challenges that will likely limit the rally in scope and duration. A relatively choppy and uncertain picture should unfold after the anticipated year-end rally.

A short-term rally could now occur for some of the following reasons.

Economic: Even the most optimistic bulls now acknowledge the likelihood of a consumer-led slowdown and the likelihood that housing will not recover for several more years, two themes I have emphasized over the last year. It will now come as no surprise to most, and it might be partially discounted....