Doug Kass chatted on AOL's MarketTalk, hosted by Sage, on Thursday, May 24 at 3 p.m. EDT.

Sagecalc:

What are your views on the current volatile state of the market?

Doug Kass2:

It's important when evaluating the future to get over the past.

Doug Kass2:

The days of the long boom distance being dead and IPOs rising 500 percent on the opening day of issuance is over.

Doug Kass2:

Its end was tragic, trillions of dollars were lost as were dreams of heralding a new era in the human spirit.

Doug Kass2:

Now after the painful hurt inflicted by unrealistic expectations stock market investors are still mired in the damage, which is normal.

Doug Kass2:

Unfortunately, many are looking backward. Investors have to try and distance themselves from the pain of the past, recognize the stabilization of the present and focus on the opportunities of the future.

Doug Kass2:

Now should be the time to celebrate our economy's capacity to revitalize itself and its ability to come up with an endless series of impossible dreams.

Doug Kass2:

My view is that we have entered a period of prosperity for the stock market, which will be muted as compared to the last decade, but healthy nevertheless.

Sagecalc:

Are there any sectors that you feel should be avoided for now?

Doug Kass2:

Yes. The first sector is oil. And I have four reasons why. Firstly, investments in the energy sector have become what I describe as a crowded trade.

Doug Kass2:

By that I mean aggressive investors like hedge funds which historically have invested in technology given the disappointment of that sector have moved heavily into the energy sector. So it is a crowded trade.

Doug Kass2:

Secondly, oil prices appear to be rolling over. Thirdly, as it relates to oil service stocks, pay rates for drilling rigs have also turned over.

Doug Kass2:

Finally, the anticipation of President Bush's comprehensive energy program is over as he recently outlined his expectations.

Doug Kass2:

The second sector I would avoid would be gold mining shares, which have had a very strong rally over the last several weeks.

Doug Kass2:

To me, the rally in gold is similar to a number of short lived rallies of the past.

Question:

With Canadian telecom provider TELUS Corporation

TU raising $3.3 billion in cash and Nextel Communications, Inc.

NXTL raising $1 billion in cash, both through bond offerings, does the worst of the capital crunch for telecom companies appear to be behind us?

Doug Kass2:

Yes, I agree. Access to the capital markets, as you suggested, have improved measurably.

Doug Kass2:

And spreads between government securities and more speculative bond issues, like telcom, have narrowed of late.

Sagecalc:

So, perhaps it's time for investors to begin to nibble at the beaten down telecom and tech stocks?

Doug Kass2:

Yes, I agree with that. And the best way to play the sector is through the QQQ, which is an American Stock Exchange listed tracking stock for the Nasdaq 100.

Doug Kass2:

It provides an investor with liquidity and the ability to buy and sell with low transaction costs.

Comment:

Janus funds have lightened down on tech. Check

TheStreet.com

for the latest news on that.

Doug Kass2:

I believe that is a very excellent contrarian indicator that better times are ahead for technology.

Sagecalc:

What is your outlook with regards to the bond market?

Doug Kass2:

I feel that the Federal Reserve's attempts to stimulate economic growth will be successful.

Doug Kass2:

And the quicker pace of economic growth six months from now will weigh on long bond prices.

Doug Kass2:

I would avoid long dated fixed income instruments.

Question:

Biotech on another run up today? where do you see this sector going? would you recommend a biotech fund investment at this time?

Doug Kass2:

I tend to be a value investor on the long side, and would be inclined to short overpriced biotechs.

Doug Kass2:

Which are long on promise and short on delivery.

Sagecalc:

Do you feel the Fed will once again lower rates at its meeting next month?

Doug Kass2:

I feel that the last drop in easing for at least a month or two will be a prospective cut next meeting.

Question:

What do expect from the revised GDP tomorrow and how expect the market to react?

Doug Kass2:

I would expect a small revision downward in the Gross Domestic Product report.

Doug Kass2:

And I think that's factored into the stock market.

Question:

Mr. Kass, I know from my

RealMoney

subscription that you are long the QQQs. Any specific price/time targets you care to share? Thanks!

Doug Kass2:

During the second half of this year, I expect the QQQ price will have a 5 handle on it, which means it will sell in the 50s as contrasted to its current price of $49.

Doug Kass2:

Last Wednesday's breakout of the NDX 100, of which the QQQ tracks represents an important technical event in my view.

Doug Kass2:

Over the last several days, the QQQ and the Nasdaq have undergone a backing and filling process which is very healthy.

Question:

I read that Doug was getting long GLW in the mid 30's and wonder what he thinks of it here?

Doug Kass2:

I did buy Corning in the mid-$30s and subsequently sold the stock at a loss.

Doug Kass2:

I was wrong. And there have been many times in the past that I have been wrong.

Doug Kass2:

And there will be many times in the future that I will be wrong.

Question:

What is your outlook for fuel cell stocks? Do you include them in the overcrowded energy sector?

Doug Kass2:

I most certainly do. Over conceptualized and misunderstood.

Sagecalc:

Isn't it still worthwhile being long major integrated oils like Conoco

COC.B?

Doug Kass2:

The only sector of the oil area that I would be long would be the integrated oils, which have done very little in the market as contrasted with rather spectacular gains in other areas of energy.

Doug Kass2:

Like coal and the oil refiners.

Sagecalc:

Do you feel the market will go through a traditional summer correction?

Doug Kass2:

I feel the market will go through a traditional summer rally!

Question:

How do you trade through QQQ ... you don't use your regular broker?

Doug Kass2:

The QQQ instrument is traded just like any other stock and can be purchased or sold through your broker. The security trades on the American Stock Exchange, and usually trades on average in excess of 50 million shares a day.

Question:

Since the "conventional wisdom" is expecting a low-volume, low-volatility, range bound summer, do you think we could have a nice up-trend in the NDX instead?

Doug Kass2:

I think you are right on.

Doug Kass2:

My view is that the Nasdaq will lead the market, both from the short and intermediate term and that the index could put on a sharp run in the next few months.

Question:

Having bought and sold Corning, would you consider re-entering the stock any time soon?

Doug Kass2:

Corning is on my restricted list!

Doug Kass2:

I've lost too much money in the stock and have taken it off my monitor and stock screen. I'm sure some of you understand the feeling.

Question:

What about the chip sector, is the inventory at the bottom?

Doug Kass2:

The semi equipment book to bill numbers reported yesterday were the worst figures ever recorded since the data was compiled ten years ago.

Doug Kass2:

The reading at .42 compares against the prior low reading in the summer of 1998 at .56

Doug Kass2:

Nevertheless, there are signs of a bottoming.

Doug Kass2:

Firstly, during the most recent conference calls semi equipment manufacturers have said that the cancellations have subsided.

Doug Kass2:

Secondly, manufacturers are not likely to cut back orders much further while maintaining commitments to new technology.

Question:

Doug, I read your articles daily. What sectors and companies do you feel offer the most upside potential in today's market?

Doug Kass2:

The sectors that I like on the long side would include technology, which we've discussed as well as financial stocks and cyclical stocks like Alcoa and Minnesota Mining.

Sagecalc:

What is your view on the healthcare sector?

Doug Kass2:

The health care sector appears interesting as well, and the stock I would look at would be United Health Group.

Question:

would you suggest investing in the total market index at this time? Isn't this better than choosing individual stocks?

Doug Kass2:

The benefit of buying the QQQ, the SPY or the DIA - all of which are tracking stocks for the Nasdaq 100, the S&P Composite and the Dow Jones Industrial - give you an opportunity to buy a diversified and liquid index which will replicate what those how those indices perform.

Question:

You are short HDI, where are you looking to cover this one?

Doug Kass2:

When it goes lower. Seriously, though, I have a number of concerns regarding Harley Davidson who's share price sells at a generous 40 times trailing earnings, 12 times book value and has a market capitalization of $15 billion, which is roughly 5 times annual revenue.

Doug Kass2:

My major concern is that based upon my analysis retail inventories of HOGS, or Harley Davidson bikes, are ever increasing on retail lots.

Doug Kass2:

Therefore, the possibility of an earnings disappointment looms in the future in my view.

Comment:

Thank you for joining us today Doug! We have been speaking with Doug Kass, general partner of Seabreeze Partners and Kass Partners, and columnist, TheStreet.com, Inc. Visit Keyword: TheStreet

Doug Kass2:

It's a pleasure once again to be a part of Sage Online, and we welcome everyone to subscribe to

RealMoney

on

TheStreet.com

.