When Doug Kass speaks, people listen. Here at RealMoney, our contributors reacted swiftly and thoughtfully to Kass' big call for a top of 2009. Below are some of their thoughts.


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First up is the call itself from Doug Kass:

To most investors, today the fear of being in has now been eclipsed by the fear of being out as the animal spirits are in full force. Bears are now scarce to nonexistent in the face of steady price gains in equity and credit prices. Stated simply, in the current bull market in complacency, optimism and a boisterous enthusiasm reigns. My view remains that it is different this time. Again (now for emphasis), the typical self-sustaining economic recovery of the past will not be repeated in the immediate future for 10 important reasons that will weigh on the economy and markets like the governor that controlled the speed of the Good Humor truck I drove when I was in my teens during the summer: ...

    Cost cuts are a corporate lifeline and so is fiscal stimulus, but both have a defined and limited life.

    Rev Shark, speaking generally, offers a warning about blindly heeding broad market opinions:

    One of the great temptations in investing is to make the Big Call. We all want to correctly predict the exact point that the market is at a major turning point. That not only allows us to profit greatly if we act on our prediction, but it is quite satisfying to see our insight and logic proved correct. The problem with Big Calls is that there are too many of them, and the vast majority end up being wrong. The incorrect calls are quickly dismissed and forgotten, and the few correct ones are celebrated as something unusual and insightful rather than just the inevitability of eventually being correct if you make enough predictions. Big Calls that are accompanied by well-reasoned thinking do serve a valuable purpose, as they help us to be mentally prepared as conditions change. The problem for investors is that timing the market is very imperfect science. The market is an unreasonable beast and it simply doesn't care about our logical arguments. You can have all the fundamental arguments in the world on your side, but the market is ruled by emotions more than anything. ...

    Value investor Tim Melvin applauded Kass' call in Columnist Conversation:

    Brilliant piece by Mr. Kass this morning! His 10 points are in my opinion spot on. The key phrase for me in the article is that a decade of credit-fueled run-up cannot be undone in a year. His points on cost-cutting and the consumer are in line with what I have been saying for some months. You cannot cut your way to prosperity. ...

    " Market Movers" portfolio manager Ron Insana joined the fray, agreeing that we'll likely experience a near-term disruption but arguing that the fourth quarter will see a big rally:

    I read this morning with great interest Doug Kass' call for a market top for the remainder of this year. His analysis is well reasoned and well presented, which is nothing new for the prophet of Palm Beach. While I agree the market is topping out, I believe it will prove to be only a temporary setback in an ongoing secular bull market. Unlike Doug, I harvested my profits about three weeks too soon, but like Doug, I agree that Wall Street has now more than fully discounted the best news Main Street has to offer ... at least for the next couple of months. ...

    Technical indicators echo Kass' fundamental call, according to Dick Arms:

    My piece this morning sounds a strong warning of caution and suggests a larger drop than the Street is willing to concede. It's based on an extremely overbought Arms Index, both short term and longer term. It might serve to confirm the position you mention.

    Howard Simons is looking for what's different between now and March:

    Doug, even in retrospect I find it difficult to identify the trigger for the rally in March. About the best I can come up with are a decline in sovereign CDS costs after the Fed/Treasury joint statement in late February and a shift in the forward curve of equity volatility. Neither is going to get me on Mt. Rushmore. A more powerful background condition, the decline in corporate credit spreads, had been under way since the Nov. 20, 2008, backstopping of Citigroup (C) - Get Report, not to be confused with any other bailout. But stocks continued to sink while this was under way. Nearly every condition you detail today was present then. What is different, and what may be driving things today, is the reopening of carry trades. Our free money is financing a global turnaround and we are simply going along for the ride. We are used to looking at markets from an America-first perspective. Just as Japan sputtered for years in the late 1990s as the yen carry trade financed everyone else, we may do the same. Whether this is sufficient for declaring this the top of the year, I know not. But money, once created ex nihilo must go somewhere, and that is a powerful force to fight.

    Jeff Bagley agreed with many of Kass' points, but took exception to two:

    The first is the general call that this is the market top for the year. That's a gutsy call, and while he certainly could be correct, I don't believe anyone can have a high degree of confidence in such a forecast. Simply stated, there's a lot of year left. The next item I would disagree with, and I hear this again and again from many people, is that cost-cutting has a finite life. Essentially, the better-than-expected earnings should be discounted because they are derived from cost-cutting. "You can't cut your way to prosperity" is the common cry. In my experience, that couldn't be farther from the truth! Margin improvement usually leads to P/E expansion, and sets the stage for impressive economies of scale when the top line improves. ...

    Christopher Grey suggests a way to play the Kass top:

    Doug has done it again. I think the timing of his call couldn't be better. My favorite way to play the coming correction is to short the REIT index rather than the S&P.

    And Jim Cramer adds his view that Kass' calls must always be respected:

    When someone is as right as Doug Kass has been, when someone has called the bottom, precisely at the bottom, when someone was so compelling then that I switched my view and told people to get back in because when a compelling bear goes bullish that's a huge deal, then whatever he says or writes going forward must give me pause and make me rethink or challenge my thesis. ... Now he's got another big call, a call that, again, is entirely variant with what the vast majority are thinking. I have made no secret of liking this market. I have made no secret of my bullishness. But Doug's comments have been weighing on me, coupled with something else: the conviction, made repeatedly months ago, that we will not get above 10,000 on the Dow anytime soon. ... Here's the problem for me. Doug calls the market. I am a scale-seller into strength from here. I know you could say "Cramer's a chicken." Here's what I say: I respect Doug's concerns, they are not really refutable, as everything that he fears or says is either empirically true or easily could become true. In short, I cannot be the anti-Kass. To do so would be needlessly polemical and intellectually dishonest. It would make me dig my heels in just like the people who at Dow 6500 dug their heels in. Do I want to hold on to make those 400 points? A better way to put it is to stick with what brought me here, which I believe we will have short, shallow pullbacks of no more than 3% to 5%, so to leave the table for fear of those isn't right. ...

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    This article was written by a staff member of TheStreet.com.