Top Fund Manager: Get Ready for Worst Recession Since 1930s
http://www.nysun.com/article/66268
Talk of Worst Recession Since the 1930s
By DAN DORFMAN
November 12, 2007
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.
http://www.nysun.com/article/66268
(See link for remainder of article)
Talk of Worst Recession Since the 1930s
By DAN DORFMAN
November 12, 2007
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.
http://www.nysun.com/article/66268
(See link for remainder of article)
8 Replies (last)
I posted this about 10 months ago, and nobody found it to be of interest.
Somehow, it seems apropos today.
Well we haven't really even reached the top of Mr. Melcher's prediction for the DJIA. I told my boss it could easily go to similar levels before things turned around again. I like to be especially negative on the downside and be happily surprised on the upside.
Anyway good post :)
Anyway good post :)
He was right. Nobody wanted to believe it. I guess they do now. I'm sorry I didn't see your original post.
Although good info, Ud, what would any of us as normal, regular people have done with it, other than shift our investments out of those sectors? What was the discussion you wanted when you first posted this? Wringing our virtual hands and decrying the future? A grass roots movement to nationalize our economy?
I understand the sentiment that we are all in denial, or viewing the economy through rose-coloured glasses, but the truth is, no one is really surprised that what has been predicted is coming to pass, are they?
I understand the sentiment that we are all in denial, or viewing the economy through rose-coloured glasses, but the truth is, no one is really surprised that what has been predicted is coming to pass, are they?
No, still mostly doom-speak. Not particularly useful, outside of your looking for a justification to hole up in your compound.
I highly suspect the 70s are a closer analog.
Original Post by udokier:
I posted this about 10 months ago, and nobody found it to be of interest.
Somehow, it seems apropos today.
Talk about timing on your repost - The Dow closed down over 500 points today!
This is clearly a mental recession! The fundamentals of the economy are still strong. What is this, a nation of whiners? :P
Seriously though, not to hijack this thread, but the banking system is entirely dependent on ever increasing amounts of cheap oil, and its pretty likely that the world is approaching the peak rate of oil extraction. Oil is nonrenewable, after all. You cant have exponential usage of a nonrenewable energy source and expect that growth can last forever. Cheap oil subsidizes growth in every market...except maybe the alternative energy market. Even if all of these banks hadnt made the bad decision to make loans to people who cant pay them back, this recession would have happened anyway for several reasons.
IF it is true that we have reached the peak oil extraction rate globally, we should expect to see:
Population and Energy by nuclear physicist Albert Bartlett. This is an explanation of why ALL exponential growth has limits and one of the best videos I have ever seen. *Video is one hour long but well worth it.*
Seriously though, not to hijack this thread, but the banking system is entirely dependent on ever increasing amounts of cheap oil, and its pretty likely that the world is approaching the peak rate of oil extraction. Oil is nonrenewable, after all. You cant have exponential usage of a nonrenewable energy source and expect that growth can last forever. Cheap oil subsidizes growth in every market...except maybe the alternative energy market. Even if all of these banks hadnt made the bad decision to make loans to people who cant pay them back, this recession would have happened anyway for several reasons.
IF it is true that we have reached the peak oil extraction rate globally, we should expect to see:
- rapid inflation of energy, food and transportation
- global energy wars as powerful countries fight over the last remaining natural gas and oil deposits ..2/3 of which are in the middle east.
- a recession which turns into a depression
- value of the dollar will plummet
- price of houses will collapse
- OPEC will decrease output saying there is "less demand," but the price of oil will skyrocket
Population and Energy by nuclear physicist Albert Bartlett. This is an explanation of why ALL exponential growth has limits and one of the best videos I have ever seen. *Video is one hour long but well worth it.*
I find it tragic that the dooms tellers and naysayers espoused all this--- doom and gloom--
about the Iraq war, the housing bubble, the economy, the banks...
how our policies were oh so wrong...
only to turn out...
they were right.
Dark day on Wall Street. No where to go but down for a good long while... which was also foretold. Wonder where Nostradamus is in all this?
The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money. - Alexis de Tocqueville
8 Replies (last)
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