Kass: Bearus Interruptus -- but Just a Bit

To be honest, I am a lot more flexible -- and a lot less intransigent -- in managing my short sales than the impression I probably give in my writings as a steadfast bear who's shorting everything in sight.

Case in point: Amid the fear and panic associated with the announcement that Citigroup planned additional and sizeable writedowns on Monday, and as I described in a , I materially reduced the size of my short book yesterday.

Whether one is a bear or a bull, opportunistic trading and practical positioning should be the cornerstone of trading in a market that holds little memory from day to day. (This is a theme I have discussed for over a year.)

I would not be surprised if the market began to climb a wall of worry -- there is a lot to worry about! -- over the next few days/weeks and into year-end because a lot has been discounted in certain market sectors. But I do not believe the short-term upside will be i.e., like the wildly bullish Barton Biggs.

Rather, the advance will be muted because of all the overarching concerns out there.

Here is my attempt to distill the bear case into a few words (and more concisely than I typically do).

The U.S. economy has ended a lengthy period of prosperity in which we saw an accumulation of petroleum dollars, synchronized world growth and an unprecedented loosening of monetary policy around the world, which, in part, sparked a simultaneous rise in almost every asset class (stocks, bonds, commodities and residential and nonresidential properties).

This period of surplus cash creation led to a shortage in common sense in borrowing and lending.

My investment concerns, expressed daily to all of you, largely remain unchanged, and as evidence builds daily, my confidence in this outcome increases.

At the epicenter of my concerns are the numerous financial institutions that packaged, sold, held and insured derivative products during the ebullient period of credit and debt growth in the 2000s. Investors continue to underestimate the key role of credit in generating domestic growth -- and how the reduced availability of credit will take away from growth going forward.

The situation looks increasingly dire when weighed against a maturing economy, with fresh signs of housing weakness and an increasingly levered consumer. Household mortgage debt has risen by over $10 trillion since 1999, and with incomes lagging, mortgage debt as a percentage of disposable income has risen from 64% to 100%. (Add in consumer installment and credit card debt and the ratio goes to 131%.)

To put the last eight years' increase of mortgage debt into perspective, the recent rise is more than the increase over the prior 45 years leading up to 1999.

With incomes lagging and home prices on the descent, the health of the U.S. consumer now lies squarely on the shoulders of the equity market. As recent market action indicates, that's a slippery slope of support.