Top Takes From RealMoney -- Kass Reactions

The RealMoney contributors are in the business of trading and investing all day on the basis of ongoing news flow. Below, we offer the top six ideas that RealMoney contributors posted today and how they played those ideas.

TheStreet.com brings you the news all day, and with RealMoney's "Columnist Conversation," you can see how the pros are playing it on a real-time basis. However, departing from our typical broad perspective, today our commentators are all abuzz about Doug Kass' call of a market top. Here's what Kass' bold prediction elicited from the rest of the RealMoney contributors.

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1. Kass Call


By Sham Gad
11:45 a.m. EDT

If I had to make a bet on the direction of the market today, I would heavily lean toward the downside. It's very difficult for me to argue a continued run-up in the market when all we got is government spending and corporate cost-cutting paving the path to recovery. While our government can continue to expand its balance sheet, you can not have a sustainable recovery without the private sector leading the way.

Until we such signs -- declining unemployment numbers, cap excluding resumption, a stabilizing housing market (not based on increased housing sales because the condo in Vegas that was going for $220,000 last year is being sold for $108,000 this year) -- I am finding very few bargains now.

No positions.

2. It's a Small World After All


By Howard Simons
10:03 a.m. EDT

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 underway since the Nov. 20, 2008 backstopping of Citigroup ( C), not to be confused with any other bailout. But stocks continued to sink while this was underway.

Nearly every condition you detail today was present then. What is different, and what may be driving things today, is the re-opening 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.

No positions.

Doug -- Looking for a Drop


By Dick Arms
9:38 a.m. EDT

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.

No positions.

The Oscillation Between Greed and Fear


By Jonathan Heller
9:33 a.m. EDT

It's hard to doubt Kass' latest call, especially given the 52% run-up in the S&P 500 since March 9, combined with a whole host of bad news on the horizon, all of which should be great cause for concern.

However, I for one believe that this segment of the rally, with the S&P 500 up 17% since July 10, is being driven by the backlash against the current administration's intended policies. Hope has indeed finally been instilled by the president, but not the kind he intended. This is more of a hope that his agenda will be defeated.

No positions.

Great Call, Doug


By Tim Melvin
9:19 a.m. EDT

Brilliant piece by Mr. Kass this morning! His 10 points are 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.

The point about municipalities is one I had not spent a lot of time considering but was driven home by the recently enacted cutbacks here in Maryland. I do not recall seeing layoff and cutbacks from the state government before in the same scale as currently. This could well make the employment situation even worse going forward, as it is not going to be possible to raise taxes to the level needed to reinstate services.

I am in total agreement with Doug and just wish I had his exquisite sense of timing. In his honor, with the Orioles well out of contention, I shall become a temporary Yankee fan for the balance of the year.

No positions.

Morning Trade


By Bob Byrne
9:00 a.m. EDT

Maybe it's Doug Kass being a Debbie Downer, but the more I stare at a 15-minute chart of the e-mini, the more nervous I get (about trading from the long side). For the first time in a while, I am finding decent-looking short setups. Stocks like Starent Networks ( STAR), Riverbed Technology ( RVBD), iShares Dow Jones Real Estate ( IYR) (as long as it stays under $40.65ish), McAfee ( MFE) and LDK Solar ( LDK) all look like they could get clubbed if the broad market begins to tick lower.

The area between 1022.50 and 1020.50 will be the ticket. If the bears are able to punch a hole in this bull cushion, the short side will begin to look quite a bit more enticing.

If the bulls want to remain in control of this market, they need to push the e-mini back above moderate resistance at 1027 and target moderate resistance at 1030 and moderate/strong resistance at 1032. A break above 1032 gives the bulls some room to breathe and allows them to gear up for another run toward 1035.50 (the last two have failed). Traders are likely to fade a move back toward the 1032 area with stops above 1035.50 and 1038.50.

Ever since this amazing rally began back on July 13, the bears have been searching for a crack in the market's foundation. Each time the bears have found a crack, out come the bulls to touch it up. The bears need to drive the emini through moderate support at 1022.50 and moderate/strong support at 1020.50 if they want another shot at taking control of this market. In the event the bears are able to break through 1020.50, they will have found another crack in the foundation. Traders will encounter an area of strong support at 1015 and moderate support at 1010.50.

No positions.

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

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