Stocks may have soared to five-year highs this week, but hedge fund manager Doug Kass of Seabreeze Partners doesn’t expect the good times to last.

Optimism about economic growth and profits are misplaced, he tells CNBC.

"The secular challenges are unprecedented. We are in a period of slower growth. Ultimately, fundamentals rule stock prices," Kass says.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop.

He agrees with Blackstone Advisory Partners Vice Chairman Byron Wien that profits are coming down. In addition, the run-up in the stock market during January has done nothing to change Wien’s bearish outlook, as he is maintaining his forecast for a 200-point drop in the Standard & Poor’s 500 Index in the first half of the year

"I think we face an earnings cliff ahead because of tax and fiscal policy,” Kass says. “I think our domestic recovery is going to be weaker than expected."

So how should an investor play this market? "I would be in cash, or if you're facile enough, I would be short,” Kass says. I'm at my highest net short position I've been this year."

He says current market activity reminds him of another period that ended badly. “I'm getting the summer of 1987 feeling in the U.S. equity market, which means we're headed for a sharp fall.”

The S&P 500 Index hit its five-year peak of 1,514.96 Tuesday and recently stood at 1,507.78.

“I think the fair market value of the S&P is roughly 80 or 90 points lower,” Kass notes.

John “Jack” Bogle, founder of The Vanguard Group, is not excited that the Dow Jones Industrial Average reached 14,000 last week.

“Something like the Dow going to 14,000, I can contain my enthusiasm about that,” he told CNBC. “It doesn’t mean very much.”
Some experts see stocks as ripe for a correction.

“We’ve moved so far so fast that the market’s just looking for any kind of sign to take something off the table,” Mark Freeman, chief investment officer at Westwood Holdings Group, tells Bloomberg. “The market really needs a positive catalyst to take it higher.”

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