A Bull in March, Doug Kass Now Sees "Potholes on the Road to Higher Prices"

Doug Kass, founder and president of Seabreeze Partners, is a rare bird, having been both bearish at the top in late 2007 and bullish at the bottom in March 2009. Once a dedicated short-seller, Kass opened a long-short fund in January 2009 and made a “generational low” call on the market the week of the March 9 lows.

At The Big Picture Conference in New York Wednesday, Kass told me he still believes those March lows will hold and isn’t expecting any major downdraft for the Dow and S&P. But the veteran hedge fund manager believes the S&P is now likely to settle into an 890-to-950 trading range and said his prior upside target of 1050 for the S&P now seems “ambitious.”

Kass cited a number of “potholes on the road to higher prices” to support this outlook, including:

• A debt-laden consumer dealing with lower housing and stock market wealth, as well as unemployment levels he believes will remain “elevated” for some time.
• A synchronized global recession and the risk of "double-dip" in late 2009/early 2010. Rising government deficits.
• Too much optimism after the big rally off the March lows.
• Increased regulation, rising protectionism and more government intervention in the private sector.
• The demise of the so-called shadow banking system, which helped propel the “velocity” of money during the boom.
• Uncertain business confidence, which is going to curtail rehiring and expansion. 

Notably, Kass isn’t getting aggressively short here and says he is “neutral” on the market overall. Stay tuned for part 2 of our conversation where he reveals his current favorite long and short positions.