| Author | Message | ||
     Ferris_von_bueller |
The New York Sun November 12, 2007 Talk of Worst Recession Since the 1930s By DAN DORFMAN After what Los Angeles money manager Arnold Silver called "a brutal three days," the question is: What now for the market? A Wall Street superstar this year who runs Balestra Capital Partners, Jim Melcher, says he's "worried about a recession. Not a normal one, but a very bad one. The worst since the 1930s. I expect we'll see clear signs of it in six months with a dramatic slowdown in the gross domestic product." Balestra Capital, a $350 million New York hedge fund, was up 3% for the past three market sessions, when the Dow Jones Industrials, spearheaded by widespread declines in financial stocks and fears of more billion-dollar-plus asset write-downs, tumbled more than 677 points, or about 4.5%. The Nasdaq fared worse, skidding about 7%, triggered by across-the-board declines in those fast-stepping technology stocks. Balestra has increased in value by 175% so far this year, Mr. Melcher tells me. A 9-year-old fund, it has posted compounded annual growth of about 30% since its inception. Mr. Melcher, a market bear, had some pretty discouraging words. "What I think is not good for the country, but good for me." he says. His basic advice to the country's roughly 80 million stock players: Run for the hills — the worst is far from over. An investor's stock portfolio now, he believes, should be only about half of what it might normally be. With the housing market in a state of collapse — and he says he believes it is far from over — Mr. Melcher argues that average homeowners will not be able to withstand the kind of recession he sees, given the added burdens of rising energy and food costs, and continued deterioration in the credit markets. Noting that consumption is already slowing, Mr. Melcher figures sharply rising unemployment is inevitable. Another of his worries is that central banks around the globe, America's included, are debasing their currencies, which is setting the stage for a new round of higher inflation. Our bear figures the next six to 12 months will be awful for investors as the market goes down "pretty substantially." His frightening outlook calls for an additional 20% to 30% decline from current levels. A drop of that magnitude would put the Dow down in a range of roughly 9,100 to 10,400. Asked how he could conceivably give credibility to such an ominous forecast, Mr. Melcher observes: "I've never seen a market with more risk and what's significant is that risk is not yet priced in." Given his grim expectations, he says there is no equity market in the world he would play right now. "When the American market goes down, other equity markets around the world should follow," he says. As of now, his portfolio is pretty much devoid of stocks, save for an exchange-traded fund focused on leading companies in oil services, which he regards as an ongoing growth industry. The ETF, the Oil Services Holders Trust, trades on the American Stock Exchange under the symbol OIH. Although enthusiastic about the industry's growth prospects, Mr. Melcher says he would be reluctant to recommend oil services stock because he believes the price of oil could easily drop 50% in the recession he envisions. Another danger he sees for the market is the prospect of huge withdrawals of funds from America by foreign investors due to the falling dollar, the credit crisis, and a slowing economy. At the moment, Mr. Melcher's chief investment strategy is shorting stocks and certain bonds, notably mortgage-backed and junk bonds, through the use of derivatives, put options, and credit default swaps. He is also short ABEX, an index of residential mortgage-backed securities. His short strategy is largely responsible for his super performance this year, as are his holdings in gold. The fact he's sticking to this strategy is evidence that he firmly believes the chaos in the financial markets is far from over. Mr. Melcher is also gung-ho on several currencies, particularly the Swiss franc and the Japanese yen. The average investor, he believes, should seek to protect his assets by raising cash, putting money to work in short-term treasuries, and buying some gold (notably through StreetTRACKS Gold Trust, an ETF that tracks the price of the precious metal and trades on the Big Board under the symbol GLD). Is the world coming to an end? I asked our bear. "I don't think so," he replied, "but as I mentioned, the ingredients are in place for the worst kind of a recession, which means it's the wrong time to own stocks." | ||
| Gentleman_jon |
Not to worry my dear. Not a single disaster predicted by Mr. Dorfman has ever come true, and he has predicted many of them. He has an unblemished record of being completely irrelevant as a stock market analysis over a period of over 30 years, during which time he as been the house hack for a number of NYC publications. Capitalism, for Dan Dorfman is a complete terra incognita. | ||
| Ft_bstrd |
Dorfman is a dubious hack of questionable repute. Consider him the Larry Flint of financial pornography. | ||
| Danger_dave |
I'd like to be the Larry Flint of Bike Porn. | ||
| Danger_dave |
The article has given me a good idea though. Name in upper case by DAVID COHEN from now on. | ||
| Ft_bstrd |
But I think it's so much more telling in mixed caps: dAvId cOhEn.  | ||
| Danger_dave |
Say 'Why Yea-as' like Miss Prissy in a Foghorn Leghorn cartoon. | ||
| Ft_bstrd |
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| Court |
>>>>His short strategy is largely responsible for his super performance this year, as are his holdings in gold. As are everybody's shorts. The wife has had two $20,000,000 days last week. She was holding short positions in currency swap derivatives. It's a gutsy game that's too risky for me. . . I prefer construction.  | ||
| Ferris_von_bueller |
Ah, Dan Dorgman wasn't giving his opinion. He was reporting what Jim Melcher, who runs Balestra Capital Partners, prognosticated. In any case, a stopped clock is correct twice a day. I wouldn't easily dismiss what anyone says about the economy, at this point. There are too many negative factors at play to say that all will be well. | ||
| Ducxl |
Court...Jeremy,you guys' just know how i was going to start this one.But....i don't know enough.I DID sell all my Magellan on the 30th though,and saved myself a few bucks doing it.I'm going VERY conservative for awhile NOW. | ||
| Ft_bstrd |
I believe that each "talking head" should be required to have an independently determined Position-O-Meter indicated with each article. You must qualify to become a certified economic pundit and have your personal portfolio reviewed and rated for position. You shouldn't have the ability to use a platform to affect the market. Warren Buffet should not have the ability to describe an expected economic future without disclosing his vested interest in the outcome. If Dorfman claims that the sky is falling, we should know how many short positions he currently has in his portfolio. If he claims that gold is the next hot commodity, we should know how much of his portfolio is long in gold. Joe schmo lacks the ability to affect the market. Neil Cavuto, Warren Buffett, and Jim Cramer do. These folks have dubious intentions and virtually no responsibility in the financial predictions they make. I still remember all the "tale of two economies" with regard to the difference between the S&P and NASDAQ growth with the pundits gleefully declaring the old market dead. Question the motives of what they say. They aren't trying to get you to invest with them, they are simply trying to get you to listen to them. Mostly they tell you what you want to hear. Rarely do they tell you what is true. In Dorfman's case, he's got a 50/50 shot at being right. His odds of being correct are the same as yours. | ||
| Court |
I always wonder . . . when these guys spew doom and gloom following a bad day. . . where they hang out after days like yesterday? People who are good at this tend to be real good. My wive managed a fund for all the ex-Soros folks and they were nuts. They, as a result of the $985,000,000 day Soros had were a bunch on no-to-bright Yalie's, each with about $400M of their own money . . . but they were emotional and didn't tend the store. The guy she's with now is normal as an old shoe, smart, unpretentious and calculating. They are very small with less than $3B but he's never lost money. Just a hell of a nice guy. The last firm she was with was managed by 3 young billionaires who basically rode luck. The current firm is much lower key, a small (nearly Buell like) team and plays with brains rather than brawn. Rather than shoot for the moon, they're happy with a day when they make a $20,000,000 profit. The market will eventually trump greed and reward the smart, patient, steady player. Her stuff is too scary for me but I do always tease her that my I.B.E.W. 401K has been doing better than 20% returns. . . in my case, it's pure blind luck. The guys who write these columns remind me of the "pump and dump" crowd. I had a job offer about 7 years ago that was really funny. . . they wanted me to "write amazing things" about stocks they recommended. . . they'd ride the rise the next day or two and then jump ship. I passed. . . construction is more fun. | ||
| Court |
Interesting article about oil prices in today's Wall Street Journal. | ||
| Mtch |
meanwhile in Japan Following the problems in the US 'sub-prime' lending market that have hit UK banks such as Northern Rock and Barclays- it appears that several Banks in Japan are now reporting difficulties. In Tokyo last week the Origami Bank was reported to have Folded, while the Sumo bank also went 'belly up'. The Bonsai Bank is reported to be cutting it's Branches while shares in the Karaoke Bank have been sold for a song. News of funding difficulties led to values of shares in the Kamikaze Bank nose-diving, while 500 members of staff in the Karate Bank have been given the chop. Unconfirmed reports suggest some fishy goings on in the boardroom of the Sushi Bank, it's anticipated that shareholders and customers alike will get a raw deal! | ||
| Swordsman |
LOL! Cheeeeze!  ~SM | ||
| Court |
That's great ! I had to laugh this morning reading about the impending doom as oil slips below $98/B. If you had told anybody, including our resident industry expert RT, that oil would be toying with $100/B . . even 6 months ago they'd laughed at you. Let's presume for a minute that oil does indeed go "in the tank" and drop to $90/B(industry term) suppose RT will panic and dump the bikes? I can only speak to construction . . . but, in my 39 years, I have never seen a market where you can add $2M to a simple bid for 14 foundations in a switchyard and be the low bidder. You used to have to "throw one in the dirt" from time to time to get a job. These days doubling your bid is not assurance that you'll not be low. We let, last week, a bid for a tunnel under the Harlem River. . . the engineers estimate was $20M. The ONLY bid we got was $78M. Tried to negotiate . .and got the "take it or leave it". We had no choice. . . there are currently over 50 tunnel projects under Manhattan and there are more major league, from the ground up, brand spanking new sports facilities underway at one time than the rest of the world. . . Yankees, Shea, Meadowlands, Knicks. . . . Times are good, enjoy and strike while the iron's hot. | ||
| Cityxslicker |
The cycles of the economy are inevitable. Your loss on investment, product, asset X is somebody's great deal buying into that same product. Its like saying that the only real best time to be in stocks was right before the crash in the twenties. There will always be swings, somebody get that dope back to an Econ 101-102 series, and leave the blather to Greeting cards. | ||
| Ft_bstrd |
If you really believe the market is going to tank, why would you not sell short? People bitch about how the market is about to fall, but they don't put their money where their mouth is. I can make more money in a short position in less time than I can make taking a long position in the same stock. Why? Many investors are sheep who don't know why they are buying what they buy. Add to that the fact that everyone will act in his or her own best interest to preserve value as much as possible. Together the result is that when the market gets spooked people sell causing the outcome they fear. People never trust rosy outlooks on the market but believe as gospel every downward whisper. If your portfolio is allocated correctly based upon time tested principles, you may lose a little in the short run, but you will gain it back plus more in the next upturn. Don't fall prey to the calamity pimps. | ||
| Ferris_von_bueller |
What I find more disheartening then the article is the fact some are still focusing on Mr. Dorfman as if to suggest they never took the time to read the article. Mr. Dorfman might be a self-serving baffoon but he is quoting Jim Melcher. So, unless Dorfman misquoted, criticisms ought to be directed at Mr. Melcher. The cycles of the economy are inevitable The concern arises when you end up on the wrong side of a down-turn. Even during the Great Depression, 75% of the population was still working. However, the standard of living was depressed for everyone and for those in the 25% ranks of the unemployed it was very rough. | ||
| Cityxslicker |
The down ward spiral of the American dollar over the last few months has meant that the Canadian Dollar is now in a stronger purchasing position than it ever has been. Dont believe me? ask the 3 Canadians that came across the border to buy some of our gently used bikes in the last week. Their purchase still goes directly into our economy,(and my paycheck) but our value of the dollar has made domestic purchases wane a bit, that and it is winter. there will always be cycles and relative advantages in an economy, esp if you are talkinga global market. To think other wise is simply unfounded statistical manipulation and blather |
