This blog post originally appeared on RealMoney Silver on Jan. 5 at 7:17 a.m. EST.

As of the close of trading last night, I have the lowest long exposure that I have had in many years -- in marked contrast to the optimistic recommendations of:
  1. leading strategists;
  2. long-biased money managers; and
  3. commentators (many of whom have no skin in the game!).
While my short position is not at a historically high level, I find few long ideas that meet my risk/reward standards.

The economic recovery of 2011-2012 will underscore that it is different this time. Choppiness of growth, not smoothness, will likely characterize its slope.

Numerous short- and intermediate-term issues (fiscal imbalances, screwflation, rising interest rates and the likelihood of limited movement on reducing the U.S. deficit) will likely belie the smooth and self-sustaining economic recovery thesis that serves as the foundation for the bull case. Moreover, the widening schism between the struggling middle class and the flush S&P 500 corporations will continue to have adverse social, political and economic ramifications.

The recent market advance has spurred an accumulation of optimism. S&P price targets are being lifted by many whose memories are short and who had blinders on as the equity market and economy entered the last downturn. Bullish sentiment, coincident with rising share prices, is approaching an extreme, and the chorus of bullish talking heads grows ever louder on CNBC and elsewhere.

Speculation has entered the market. The Iomegans of the late 1990s tech bubble have been replaced by the Shen Zhous, who worship at the altar of rare earths.

Not only are trends in the market being too easily extrapolated, the same might be true for the health of the domestic economy.

The housing market is again turning lower in pricing, and mortgage-gate's temporary delay in moving the supply of foreclosures to sale will inevitably represent a further challenge this year. And, while the jobs picture has brightened somewhat, the large roster of unemployed will remain with us in the new year, owing to a structural disequilibrium in the labor market and the secular rise in hiring temporary workers ( at the expense of permanent positions). As mentioned previously, wage deflation and rising costs of living are a toxic combination for the middle class that dominates our economy and spending (see screwflation).

Finally, while difficult to quantify, I am especially concerned that some portion of the better economic figures (especially of a retail kind) is likely a byproduct of recession fatigue.

Doug Kass writes daily for RealMoney Silver , a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.
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.

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