Doug Kass calling the top

Doug Kass is a well respected hedge fund manager. He nailed the bottom in March within days of it happening and now he's saying that the top for the year is in.
You can view his latest piece here:

http://www.thestreet.com/story/10590765/1/kass-market-has-likely-topped.html

Let me tell you a few things about Kass. He's a very sharp guy who likes to go against the grain....a contrarian at heart. I read his articles often because he tends to be ahead of the curve....but often times he is very early. For instance he was bearish on the market as early as 2005 as he warned about the unsustainability of housing. He was eventually proven right of course but if you followed his advice and shorted the market in 2005 you would have been crushed for 2 years and very likely would have capitulated before the bear of 2007 arrived. Kass was also bearish just before the 2000 bear and turned bullish in the spring of 2001. Markets bounced nicely after that point but the bear market was only half over and a lot more damage occurred in the months that followed. Kass' weakness is that he often goes contrarian just for the sake of going against the trend. A contrarian needs to realize that during the heart of a trend the crowd will be right...after all, you can't have a sustainable trend unless the crowd joins in one at a time...it's when the crowd gets greedy/complacent usually near the point when everyone has jumped in the pool that’s when you should look to go the other way. Identifying that point is often very tricky but I doubt we are at that point now.

In this article Kass argues that most investors have turned from fearful to enthusiastic. I disagree with this. At best I see investors as cautiously optimistic...very quick to run for cover the moment the market shows just modest weakness. Meanwhile I still see a large cohort of investors out there who are still skeptical as ever. I think I've done a good job proving this. If you read Kass' article there is a poll which asks if you agree with his call. About 2/3 of the people who voted agreed! With the market still close to YTD highs does that indicate to you investors are over-enthusiastic?

While browsing the message boards throughout the months it's clear to me the vast majority of people missed most of the rally and/or got burned badly shorting it. I'm sorry but that's not what you call enthusiastic investors. Near the peak of a market you should see stories of retail investors bragging about how much money they made being long. Instead all I see is horror stories of how they lost their life savings betting against the market with bear ETFs. I haven't seen one single person brag about how much money they made being long...not one!

I've been calling for a consolidation and I've warned to keep your guard up but I disagree with Kass's top of the year call. This makes me nervous since I’m a nobody and he a famous hedge fund guy…a true David vs. Goliath situation. By the way, Kass didn't follow his advice when he called for 1050. He's been ranting bearishly ever since about 930 or so.

Famous speculator of the early 1900's century Jesse Livermore said something to the effect that he has met plenty of people who were bearish at the beginning of a bear market and bullish at the beginning of a bull market but nobody who stayed the course all the way through.

As a final note, remember what I said about market gurus like Kass. No matter how many great calls they have made in the past, just like anyone else, they are susceptible to being wrong in a big way at any time. I've seen it happen many times not only with him but others too. Which means you should come to your own conclusions and think for yourself. Nobody and I mean nobody is immune from the motto of this blog. If on this dip I notice a change in attitudes whereby investor’s are overly eager to buy the dip as opposed to running for the hills like they've been doing every time, then there’s a chance I’d be inclined to agree with Kass. If markets are going to retest the lows I have no problems playing the short side even if that means missing the top.