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This blog post originally appeared on RealMoney Silver on Nov. 13 at 8:24 a.m. EST.

Kass: It's nice to back with everyone on "Fast Money," especially Princess Karen Finerman, daughter of Roland, King of the Druids.
Adami: Does that mean she is a Druish Princess?
Kass: No, Guy, she really doesn't even look Druish.
-- Doug Kass/Guy Adami, on CNBC's "Fast Money" last night

And, with the above parody on Mel Brooks'


, we began the "Bull Market or BS" segment of


"Fast Money" last night.

With the

Planet Druidia

in sight and with a 1% correction in the stock market yesterday, let's "prepare to fast forward" to the

tape of my appearance

on "Fast Money."

Melissa started by asking me my reaction to my market top call on the show in late October. I started by saying that I had expected a 5% to 12% drop from the highs and the decline stopped at about 6% and then swiftly returned back and made a higher high.

My view is that there is some whistling past the graveyard in today's stock market as investors have become dismissive of a number of intermediate-term challenges and are now


several important short-term warning signs that seem to be rationalized away in a tide of rising world stock prices.

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I suggested that some of the following shorter-term warning signs will weigh on equities:

  • Housing demand is not sustainable. Applications for new mortgages, announced Thursday morning, dropped sharply in the previous week to levels not seen in almost a decade. This decline was consistent with Toll Brothers' (TOL) - Get Toll Brothers, Inc. Report conference call on Wednesday, in which the company's Chairman described demand since Labor Day as uneven. And the decision by Toll Brothers to hold its community count at 200 for the next 12 months was a sign that the nation's largest luxury homebuilder shared my trepidations that housing demand will not sustain itself when the stimulus of the mortgage tax credit is lifted and the Fed's mortgage-backed securities purchase program is abandoned in early 2010.
  • U.S. rail traffic is rolling over. October rail traffic dropped by 15.3%, slightly worse than the year-over-year drop in the previous month of September.
  • Consumer and small business sentiment is weakening. Not only is consumer confidence foundering but the National Federation of Independent Business Index (NFIB) of small business confidence remains at more than two standard deviations below its long-term average. John Hatzius at Goldman Sachs has done some solid work on this. In a report published Thursday morning, he expressed the view that the weak NFIB, which stands in stark contrast to other indicators such as the purchasing managers indices and real GDP (which have moved back closer to their long-term averages), could result in a meaningful revision to third-quarter 2009 GDP. His analysis confirms, to some degree, that small companies are underperforming their larger peers, most likely because of "differential access to credit."
  • We are seeing some bearish technical divergences. We might have seen a double-top in the S&P 500 as there are fewer highs and the smaller-cap indices (Russell 2000 and Value Line) are diverging from the larger-cap indices. The latter phenomenon is typical of a maturing bull market.

Tim Seymour, an outspoken bull, asked me what about the strong tape action and the rising GDP forecasts by a number of good economists. I said that, while I am respectful of Tim's views (and others), at the end of up moves, the demarcation between fantasy and progress often gets blurred. Certainly, the message of the markets over the past month is that, with increased certainty, investors are growing more comfortable with the forecast of a smooth and self-sustaining economic recovery in 2010-2011. Many, like the economists Tim mentioned, now have even adopted the view that the current cycle is the start of a normal 45-month expansionary phase that has typically followed a recession over the past century. The previous consensus forecast of a shallow recovery has now been displaced with far more optimistic and unrealistic projections, but the intermediate-term challenges of

nontraditional headwinds

loom ever closer at hand: Municipalities are in financial disarray and won't provide their normal anchor to growth, the credit mechanisms that existed in the shadow banking industry and in the securitization markets still remain adrift, marginal tax rates are headed higher, and I don't see what replaces housing as a driver to growth -- the sector was responsible for over 40% of job growth in the 2001-2007 period.

Melissa, a disbeliever in my bearish thesis, asked how long, in the face of the market's steady rise, was I willing to remain ursine in my market outlook? I responded that while I now see a far less attractive risk/reward ratio than at any time in 2009, I am also respectful of Mr. Market. Realistic factors that could weigh positively on the market include the continued buyout activity, which raises the perceived notion of value, and the normal seasonal market strength seen in November and December.

While I understand the rarity of 10% bull market corrections -- Strategas' Jason Trennert has done some good work on this -- I ended the segment by expressing the view that there is no message in the recent market ramp nor, more important, in recent economic releases that lead me to change my baseline expectation that market and economic challenges will rise anew over the next few months along with the withdrawal of stimulus and the threat of higher taxes.

May the Schwartz be with you!

Doug Kass writes daily for

RealMoney Silver

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At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.

Doug Kass is the general partner Seabreeze Partners Long/Short LP and Seabreeze Partners Long/Short Offshore LP. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.