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WORST RECESSION SINCE 1930’S?
When picking a major talk show topic for today, we hesitated to send out yet another “woe is me” story on the economy. What’s the point? The dollar is now. Stocks are soft. Oil is high. Inflation abounds, even though you’d never know it when you hear rigged federal reports about such things.
So, why another “gloom and doom” guest pitch? Because we may be facing the worst recession since the 1930s. And if there is a high likelihood of it becoming the worst economy in 75 years, don’t you think your audience needs to prepare for that possibility?
In today’s New York Sun (see article below), its words are gloomy. But what happens if we move from words to living reality? Most people were not alive during the Great Depression but if another one is staring us in the face don’t you think your audience deserves to here the other side of the story, the one not told by big bullish brokerage houses bent on making big commissions from stock sales, regardless of whether they rise or fall—or crash?
Conducting Talk Show interviews on this topic is Craig Smith, CEO of Swiss America, who puts finances into sober perspective, calling for diversification of assets for what appears to be a soft market for some time to come.
EXCERPTS FROM NY SUN ARTICLE:
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…
His (Mr. Melcher’s) basic advice to the country's roughly 80 million stock players: Run for the hills — the worst is far from over.
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. "I've never seen a market with more risk and what's significant is that risk is not yet priced in."
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." © 2007 Special Guests
ABOUT CRAIG SMITH…
Craig R. Smith is the president and CEO of Swiss America Trading Corporation, one of the largest and most respected investment-grade U.S. gold and silver coin firms in the nation since 1982. He’s been featured frequently on Fox News Channel, CNBC, MSNBC and CNN.
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."
©2007 The New York Sun
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