Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

This past week, Kass discussed his big (and bearish) predictions for the coming year, said goodbye to a basketball legend and gives his market version of Dr. Seuss.


15 Potential Surprises for 2016 

Originally published Dec. 29 at 10:00 a.m. EST 

This following is excerpted from a commentary that originally appeared on Real Money Pro at 7 a.m. on Tuesday, Dec. 29. To read the full version, click here to sign up for a free trial of this dynamic market information service for active traders.

Below are my "15 Surprises for 2016," a rundown of events that have a reasonable chance of occurring during the coming year.

These aren't predictions, but what I call "possible improbable events." The list below should help you position a portion of your portfolio in case these potential events actually happen.

While some might accuse me of being apocalyptical, I contend that I'm simply raising the flag of common sense in a most uncertain world. But again, it's important to note that my surprises aren't set in stone, just possibilities:

Surprise No. 1: Terrorism Dismantles an Already Fragile Global Recovery
I fear we'll see attacks that demonstrate how terrorism incidents are systemic and not simply isolated. It could become apparent that we face a broad, aggressive wave of terrorism aimed (as expressed by ISIS) at defeating the West's world domination.

Acceptance of this notion would cause significant disruption in global markets and the world's economies. Shares in airlines, hotels, entertainment companies (especially theme-park related) might suffer the most throughout the year.

Surprise No. 2: Terrorism Goes Cyber
Middle Eastern, Russian and Chinese hackers successfully invade the U.S. financial system's computers at various points throughout 2016. They consistently launch destabilizing attacks against multiple trading platforms (the New York Stock Exchange, the Chicago Mercantile Exchange etc.) and the overnight electronic settlement system.

This causes a series of temporary multi-day trading halts, shattering confidence in our markets.

Surprise No. 3: 'The Mother of All Flash Crashes'
One of these cyber-attacks causes "The Mother of All Flash Crashes," which scares the hell out of many market participants. The Dow Jones Industrial Average falls by 1,100 points -- the largest one-day point decline in history.

Almost immediately following a Democratic presidential win in November, President-elect Hillary Clinton attacks the market-rigging, unholy alliance between high-frequency traders and the stock exchanges. A special congressional commission is formed after the flash crash to address the HFT industry and its fellow travelers.

In an attempt to correct the unfair playing field that's evolved, the government declares co-located servers illegal and bans "spoofing" and other dirty work that's become routine in the HFT industry. The market's fragmentation and illusion of depth that have allowed quants to profit at the expense of other investors reverses as new, punitive and costly regulations threaten Wall Street's "dark pools."

Surprise No. 4: Terrorism Hits Mideast Oil Infrastructure
The Islamic State destroys a significant amount of Mideast oil-producing countries' infrastructure. This occurs at the same time more violence erupts in the Niger Delta, Algeria suffers from political chaos and a coup disrupts Venezuela's oil production.

While outsized oil inventories initially stem energy-price increases, crude rises above $60 a barrel in 2016 -- sparking, among other issues, fears of reflation. (Energy stocks continue to falter at first, then soar in response to the Mideast hostilities.)

Surprise No. 5: America Falls into Recession and Stocks Tank
Too much debt, too little growth, fiscal-policy paralysis, a "spent" Federal Reserve and limited capital spending (which adversely impacts productivity) weigh down stocks in 2016. So do crony capitalism, geopolitical instability a further narrowing of market leadership and a further technical breakdown.

The current U.S. expansion is now more than 70 months old, one of the longest in history. There have been six recessions since 1971, and the S&P 500's average drop during them is 36%. I predict 2016 could see the seventh recession in the last 45 years, with stocks experiencing a 20% decline.

Few asset classes will be spared, and household net worths will suffer. Rising bond prices had the effect of somewhat buffering falling stock and home prices in the last downturn. But we won't be so fortunate this time as stocks, real estate and bond prices will likely all decline at the same time.

Surprise No. 6: Stagflation
I think stagflation could join "screwflation" as a concern for 2016. Wages could rise and non-energy commodities (particularly agricultural) could pass the Federal Reserve's inflation target despite disappointing U.S. growth.

Although we could see slowing and recession-like growth in 2016's third and fourth quarters, the yield curve won't invert. But oil and a drought that causes higher agricultural prices could raise headline inflation to well above the Fed's target.

Surprise No. 7: The Federal Reserve Doesn't Raise Rates
I think 2015's Fed rate hike will prove to be a policy error. Despite the consensus of two to three more hikes in 2016 (and the Fed's own forecast of four increases), it's possible the central bank won't raise rates at all in 2016.

Surprise No. 8: China and Russia's Economies Falter
China's real GDP growth rate (at least as stated) could fall below 5%. Unemployment rises and riots ensue, forcing the government to clamp down on social media. As a form of distraction (and an attempt to expand its political and economic reach), China flexes its military muscle and gets more aggressive in the South China Sea.

Despite a rise in oil prices, Russia's economy implodes. Russian leader Vladimir Putin grows increasingly irrational and retaliatory towards his perceived enemies, precipitating more confrontations and crises.

Surprise No. 9: The European Union Begins to Unravel
German Chancellor Angela Merkel's open-door immigration policy backfires and causes her to resign, while Britain leaves the EU (a "Brexit") under the assault of Euro-skepticism.

Separatist initiatives in Scotland and other countries advance and France's National Front party rises to new heights in the face of immigration fears. Support to Greece and other EU peripheral countries diminishes, causing another emerging-market crisis. European borders are shuttered and trade comes to a halt.

Surprise No. 10: It's Hillary vs. The Donald
Despite his rude and crude campaign, a series of terrorist acts within U.S. borders propels Donald Trump ahead of all of his Republican competitors.

He takes on Democrat Hillary Clinton, and their first televised debate attracts nearly 100 million viewers. Given the world's chaotic landscape, the November election is much closer than expected, but Clinton beats Trump 293 electoral votes to 245.

As her first initiative (even before her January inauguration), President-elect Clinton adopts a populist crusade that immediately attacks income and wealth inequality by recommending a large "wealth tax" and an increase in the U.S. minimum wage.

Surprise No. 11: Housing and Autos Tank
The housing and auto industries are exposed as Potemkin Villages on weak foundations. Home prices drop by over 5% as affordability gets stretched, mortgage rates climb and unemployment rates bottom out.

As for cars, rising interest rates, the fear of sooner-than-expected smart mobility and autonomous vehicles (coupled with a sharp drop in SAAR) pummels Ford (F - Get Report) and General Motors (GM - Get Report) . Fierce competition appears from Alphabet (GOOGL - Get Report) , Tesla (TSLA - Get Report) and Apple (AAPL - Get Report) for a share of the emerging mobility market. Add in a spike in auto-loan delinquencies and autos become one of 2016's worst-performing sectors.

Surprise No. 12: Warren Buffett Stumbles (Literally and Figuratively)
The Oracle of Omaha's core investments -- Coca-Cola (KO - Get Report) , IBM (IBM - Get Report) , Walmart (WMT - Get Report) , Deere (DE - Get Report) , American Express (AXP - Get Report) and Wells Fargo (WFC - Get Report) -- continue to falter as their protective "moats" dry up.

Investors become further concerned when Buffett falls and breaks a hip, causing him to be away from Berkshire Hathaway (BRK.A, BRK.B) for several months. As result (and in the wake of move lower in Berkshire's share price to below book value), Buffett is forced to announce the name of his successor, who begins to pick up some of the Oracle's responsibilities in 2016.

Surprise No. 13: Goodbye FANG and NOSH, Hello CRABBY
The FANGs and NOSH -- Nike (NKE - Get Report) , O'Reilly Automotive (ORLY - Get Report) , Starbucks (SBUX - Get Report) and Home Depot (HD - Get Report) -- fall back to Earth and join the market's soldiers.

FANG and NOSH's market leadership is replaced by a new market leader: CRABBY. That's Citigroup, (C - Get Report) , Radian (RDN - Get Report) , Allstate (ALL - Get Report) , Bank of America (BAC - Get Report) , the Blackstone Strategic Credit closed-end fund (BGB - Get Report) and Allegheny Corp. (Y - Get Report) .

Surprise No. 14: More Unicorns
Expect more private-equity unicorn dropouts in 2016 than you'd find truants in Animal House's Delta fraternity.

Excessive valuations will again remind Silicon Valley that "fat, drunk and stupid is no way to go through life, son." Cue the music.

Surprise No. 15: Individual Situations
Here are some individual stock, market sector and other surprises for 2016:

  • Apple makes a $20 billion+ acquisition and the shares trade at $90 after two consecutive, large earnings misses.
  • Two private-equity firms compete to acquire retailer Macy's (M - Get Report) .
  • 2016's best market sectors: Defense, banks and fertilizers.
  • 2016's worst market sectors: Media, transports (particularly airlines and autos), electrical utilities, pharma/biotech and REITs.
Position: Long C, RDN, BGB, BAC, M, WMT (small); Short AAPL, F, GM, SPY, QQQ, IYR, FXI, EWG, EWQ, EWU, DIS, AAPL, CMCSA, SBUX, NKE, BRK.B (small), FB (small), NFLX (small), TSLA (small)


R.I.P. Meadowlark Lemon
Originally published Dec. 28 at 10:15 a.m. EST

"Meadowlark was the most sensational, awesome, incredible basketball player I've ever seen. People would say it would be Dr. J or even Michael Jordan. For me, it would be Meadowlark Lemon."

-- Wilt Chamberlain, talking about Harlem Globetrotters legend Meadowlark Lemon, who died Dec. 27.

A legend came to rest this weekend as Meadowlark Lemon passed away at 83 years young.

Late Harlem Globetrotters' owner Abe Saperstein was my dad's "partner in crime" and in hopping from jazz club to jazz club in the Greater New York area. That's another lengthy story, but the upshot is that I went to a lot of Globetrotters' games over the years. I even met Meadowlark Lemon on several occasions.

Meadowlark was like the Energizer Bunny or The Four Seasons' Frankie Valli -- he kept going and going and going. Meadowlark played over 16,000 basketball games, or 300 games a year for over half a century.

Unlike my "15 Surprises for 2016," Meadowlark and the Harlem Globetrotters were predictable -- but that didn't reduce the team's popularity because when Meadowlark played, he could make the basketball "talk."

 Position: None



The Bull in the Hat

Originally published Dec. 31 at 8:01 a.m. EST 

"And the Grinch, with his Grinch-feet ice cold in the snow,
Stood puzzling and puzzling; how could it be so?
It came without ribbons. It came without tags.
It came without packages, boxes or bags.

And he puzzled and puzzled till his puzzler was sore.
Then the Grinch thought of something he hadn't before.
What if Christmas, he thought, doesn't come from a store?
What if Christmas, perhaps, means a little bit more?"

-- Dr. Seuss, How The Grinch Stole Christmas

As we close out 2015, I'm thankful for this year for a host of personal reasons (which will remain personal!).

My tone has certainly been bearish of late -- and as I expressed in my 15 Surprises for 2016, I'm the Wall Street equivalent of the Grinch who lives north of Whoville; I simply don't like stocks or bonds right now. And like Horton in Dr. Seuss' Horton Hears a Who, "I meant what I said, and I said what I meant. An elephant's faithful 100%."

I obviously admire Dr. Seuss, having paid homage to him (while expressing my ursine market view) in my recent column Green Eggs and Stocks: Neither Rocks.

Jim Cramer's Pool, my annual tribute to my pal Jim "El Capitan" Cramer, also plays off of Dr. Seuss' McElligot's Pool.

So, on the last day of 2015 and in the spirit of the holidays, let's observe a different and more-constructive market view -- that of the The Bull in the Hat by Dr. Dougie Kass:

The Bull in the Hat

The sun did not shine.
It was too wet to play.
So I sat in the house
All that cold, wet and bearish day.

I sat there with Jim Cramer.
We sat there, we two.
And I said to my pal Jim: "How I wish we had some shorts to do!"

Too wet to go out
And too cold to play ball.
So we sat in the house.
We did no buying at all.

So all I could do was to
Short! Short! Short! Short!
And Tony Dwyer did not like it.
Not one little bit.

And then something went BUMP!
How that bump made us jump!
We looked! Then we saw him step in on the mat!
We looked! And we saw him! The Bull in the Hat!

And he said to me, "Why do you short there like that?
I know it is wet
And the sun is not sunny.
But we can find
Lots of good stocks that are funny!"

"I know some good stocks we could play,"
Said the cat. "I know some new stocks,"
Said the Bull in the Hat.

"A lot of good equities. I will show them to you.
Jim Chanos will not mind at all if I do."

Then Cramer and I
Did not know what to say.
David Einhorn was out
Of the house for the day.

But our fish said, "No! No! Make that Bull go away!
Tell that Bull in the Hat You do NOT want to play."

He should not be here.
He should not be about.
He should not be here
When Raymond James' Jeff Saut is out!"

"Now! Now! Have no fear.
Have no fear!" said the cat.
"My stocks are not bad,"
Said the Bull in the Hat.

"Why, we can
Have lots of good fun,
If you wish, with a game
That I call UP, UP, UP
with a bullish twist."

"Put me down! said the fish.
This is no fun at all! Put me down!" said the fish.
"I do NOT wish to go long!"

"Have no fear!" said the cat.
"I will not let the market fall.
I will hold it up high
As I stand on a ball.

With low rates on one hand!
And a recovery on my hat!
But that is not ALL I can do!"
Said the cat ...

Position: None

At the time of publication, Kass and/or his funds were long Long C, RDN, BGB, BAC, M, WMT (small); Short AAPL, F, GM, SPY, QQQ, IYR, FXI, EWG, EWQ, EWU, DIS, AAPL, CMCSA, SBUX, NKE, BRK.B (small), FB (small), NFLX (small), TSLA (small), although positions may change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.