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Short seller Kass on market highs: I am waiting to pull the trigger

Stocks continue to reach new heights in November.

The S&P 500 (^GSPC) and the Dow Jones Industrials (^DJI) hit fresh records on Tuesday. The S&P 500 has hit eight records so far in the month of November. The Dow has broken seven records since November began and has hit new highs 26 times in 2014.

The strength of corporations is what's driving stocks. Third quarter earnings have been better than expected and up 8.1% from the third quarter of 2013.

The good times are rolling for equity investors, except for those who are betting stocks will drop. In his new book, "Doug Kass on the Market: A Life on TheStreet," the famed short-seller Doug Kass reveals 40 years of investment experience and recounts almost 20 years of contributions to TheStreet.com and Real MoneyPro. "I’m waiting. I’m net short, but only small," says Kass. "I am trying to control risk. It’s very important for the short-seller because reward vs. risk is asymmetric. It’s very important to have discipline in your position."

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Kass’s contrarian views are well known on Wall Street. Last December, he predicted that global economic growth would be subpar, even as much as 50% less than the consensus and that, as a result, bonds would outperform stocks and the 10 year yield would fall to around 2.5%. “Nobody thought that,” says Kass.

“My view is the Fed has made a mockery of fundamentals, that there is no real natural price discovery," he says. Kass believes, "Every asset class in the world is being tied relative to the U.S. 10-year yield which is artificially depressed and even more depressed because of the recessionary conditions and the sovereign debt yields in Europe... It's leading toward malinvestment."

With the economies of Japan, Russia and Brazil in a recession and Europe on the brink, many including Kass believe the U.S. stock market will be brought back down to earth. Kass says "25% of the world is basically flatlining or in a recession...We might be the cleanest shirt in dirty laundry, but it’s going to get soiled."  Kass expects corporate profit expectations to come down as a result.

So how is the short-seller Kass positioned now? “One of the important tenets and the most simple tenet I have learned over four decades is to let your profits run and stop and cut your losses. It’s easier to write and say… than implement sometimes,” he says, “Right now I have a small net short position, and I am waiting to pull the trigger.”

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