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Hedge Funds: Flash In The Pan?

On Tuesday, Jay Miller from the Wall Street Journal’s MarketBeat Blog talked about recent hedge fund performance. Miller wrote:

Hedge funds had a rough July as bets on rising commodity prices and falling financial stocks failed to pan out, according to research firm Morningstar Inc.

The Morningstar 1000 Hedge Fund Index fell 3.07%, its worst monthly performance ever.

“In July, the bet on long commodities and short financials didn’t work as well for hedge funds,” said Daniel Farkas, hedge fund analyst for Morningstar…

“It’s unusual for hedge funds to underperform equities in down markets, but hedge funds haven’t been able to navigate the credit crunch that started last summer,” Farkas said.

Hedge funds have had a tough time as of late. Back on July 10, I noted in a post that hedge funds, which often promise to make money in all markets, were in the red during the first half of the year. Chicago-based Hedge Fund Research reported that the average hedge fund was off 0.75% since January after slipping 0.68% percent in June, and that more funds went out of business during the first 6 months of 2008 than in the same period a year ago. In addition, fewer new funds were started.

There’s no shortage of hedge fund critics either. Recently, I read a piece that was suggested to me entitled “4 Reasons Investors Should Avoid Hedge Funds At All Costs,” which appeared on the website Bankaholic.com back on May 22. The author, Johns Wu, wrote:

But be warned, hedge funds are not all that they are cracked up to be. In fact, for an educated and conscientious investor, hedge funds can be a nightmare.

You can read the rest of the insightful article here.

And what about their most famous critic, the “Oracle of Omaha” himself- Warren Buffett? Back on March 13 I wrote in a post:

Just last week, the “Oracle of Omaha,” Warren Buffett, appeared on CNBC and warned of the volatile nature and exaggerated glamour of hedge funds:

CNBC: How do we see the end of this–of this explosion in hedge fund mania?
BUFFETT: Over time there will be a disillusionment when the–and incidentally, it won’t be disastrous or anything of the sort. There’ll be—there’ll be the occasional blowups here and there. But over time, when people find out that it’s not the holy grail, you know, the money will flow elsewhere. You know, people will–people always go through the rearview mirror, what’s been popular and has worked recently, and this will be like all the rest.

To be fair, hedge funds have been beating equity indices on a year-to-date basis. From MarketWatch on August 8:

Hedge funds tracked by Greenwich Alternative Investments fell in July, but continue to perform favorably against equity indices on the year. The Greenwich Global Hedge Fund Index (“GGHFI”) and the Greenwich Composite Investable Index (“GI2”) posted losses of -2.31% and -1.72% on the month, respectively. This compares to returns in the S&P 500 Total Return (-0.84%), MSCI World Equity (-2.53%), and FTSE 100 (-3.80%) equity indices. Year-to-date, GGHFI and GI2 have shed -3.00% and -1.82%, respectively, while equity indices have produced double digit losses. 32% of constituent funds in the GGHFI ended the month with gains.

“July highlights several popular hedge fund trades unwinding in a short period of time. While hedge funds as a group clearly had a weak month, their year-to-date returns still greatly outpace traditional long-only investment vehicles,” notes Margaret Gilbert, Managing Director.

Sources:

“It’s Hard to Be a Hedge Fund”
Jay Miller
Wall Street Journal (MarketBeat Blog), August 12, 2008

“4 Reasons Why Investors Should Avoid Hedge Funds at All Costs”
Johns Wu
Bankaholic, July 22, 2008

“Hedge Funds Lose Ground in July”
MarketWatch, August 8, 2008

Wall Street Takes A Vacation (From Reality)

From the Wall Street Journal’s MarketBeat Blog this afternoon:

With the Federal Reserve meeting out of the way, along with most of the important earnings reports, many participants are ready to take a bit of time for vacation, and they leave with a smile on their face after the dollar rebounded, oil prices slumped, and the Dow industrials put together a 300-point rally to close out the week. All major indexes gained at least 2%, led by the chipmakers, banks, retailers and cyclical stocks.

The following saying by Mark Twain comes to mind:

All you need in this life is ignorance and confidence; then success is sure.

Enjoy your time off, Wall Streeters. Methinks there will be hell to pay in future days.

Talking Heads, “Road To Nowhere” (1985)
YouTube Video Link

Source:

“Four at Four: No Worries”
David Gaffen
Wall Street Journal (MarketBeat Blog), August 8, 2008

Quote For The Week

CNBC television personality, former hedge fund manager, and best-selling author Jim Cramer has declared that the bear market in stocks is officially over. From the CNBC website last Wednesday:

If you thought you heard Cramer call a bottom during Tuesday’s Mad Money, you were right.

“It smells to me like something, in fact many things,” he said, “have at last changed for the better.”

“I am indeed sticking my neck out right here, right now,” Cramer continued, “declaring emphatically that I believe the market will not revisit the panicked lows it hit on July 15, and I think anyone out there who’s waiting for that low to be breached is in for a big disappointment and [they’re] missing a great deal of upside.”

“Stop waiting,” he said, and “buy the next dip because I think it might be the last big one.”

Famous last words? Cramer doesn’t think so. He told CNBC viewers:

My bottom call isn’t gutsy. I think it’s just a smart call that all the evidence points toward. Bye, bye bear market. Say hello to the bull and don’t let the door hit you on the way out.”

The Dow Jones Industrial Average ended the day at 10,962.54, and the S&P 500 at 1,214.91, back on July 15.

The Next Great Depression

Taking it down a few notches today, I enjoyed a nice cigar from the Dominican Republic this afternoon out on my balcony here in the Windy City. Kind of bummed out that one of my suppliers raised their prices, though. Too bad. I almost pulled a JFK and ordered a stockpile of cigars last year after Washington Democrats were looking to increase the tax cap from a nickel per cigar to $10 a stick— or 20,413%. Unbelievable. By the way, never heard of the JFK cigar story? Well, if you have time, I highly recommend you watch the following video (a little over 3 minutes long) of Pierre Salinger, JFK’s secretary, telling the story (and other cigar-related ones)…

YouTube Video Link

While puffing away, I got the chance to listen to a portion of last weekend’s “Financial Sense Newshour” broadcast. Jim Puplava and John Loeffler have been talking about a financial crisis window for a while now, which they expect to take place between 2009 and 2012. Puplava and Loeffler had this to say last weekend:

JOHN: So looking forward, say, 12 to 24 months, we would say, given where we’re going, we can probably look towards higher gold and metals prices; there will be another money crisis – another currency crisis – and all it would seem like they’re [Congress] doing right now is staving off the day of reckoning. Let’s face it, we said that 2008, that’s the ramp up to 2009 to 2012 – it’s accelerated a little more than I thought it would be and it’s a little more violent than I thought it would be, but nevertheless we’re still on that; and somewhere in that window, all of this stuff begins to fall apart and you can’t tell what’s going to trigger it, but it will go.

JIM: It’s going to trigger. And I think that the thing that’s scaring the heck out of them [Congress] is all of this is starting to unfold – whether it’s $4 gasoline at the pumps, headline inflation with foods, banks going under, stock market manipulation – all of this – and they’re desperately just trying to buy time to get elected because you’ve got 535 people in Congress who are worried about keeping their jobs. And what I think is going to happen is as this worsens the country is going to lurch very hard to the left in the November election (we’re going to get into this in the next segment) and then as a result of the policies that are going to put us in place, that is going to give us our great depression that I anticipate.

By 2010, the United States is going to be in a major depression.

And then, what is going to happen is we’re going to lurch – almost do a 180 degree turn – and lurch very hard to the right as one disaster after another unfolds upon the country.

Great cigar, not so great forecast…

Source:

Financial Sense Newshour
3rd Hour, Part 2
FinancialSense.com, July 19, 2008

Say It Ain’t So, Ben Stein

From Ben Stein, a Yahoo! Personal Finance “Financial Advice Expert,” this past Friday:

Now that the three major U.S. stock indexes have hit bear market levels what shall we do? Well, let’s ponder….

First of all I never thought things would get this bad, and I still think the market’s reaction is overdone, to put it mildly.

The aggregate losses in the U.S. stock market since the peak last October have totaled roughly $3.5 trillion dollars. Not billion. TRILLION. That is, the speculators and traders have knocked roughly $3.5 trillion off of the value of all publicly-traded stocks in this country…

Another go as a teacher in Ferris Bueller 2 probably doesn’t sound too bad right now, does it?

Art Insitute Of Chicago Scene
“Ferris Bueller’s Day Off” (1986)

Source:

“Bear Market Advice”
Ben Stein
Yahoo! Finance, July 18, 2008

Wall Street, Housing Woes Hit The Hamptons

There goes the neighborhood. I first talked about the Hamptons, the playground for America’s rich on the East Coast, back on June 5 due to a little foreclosure problem they were having. Now, I understand that the east end of Long Island, New York, is having a bigger problem related to home sales and prices. Bloomberg’s Sharon L. Lynch and Laura Marcinek wrote yesterday:

The Hamptons housing market is feeling the heat of Wall Street’s meltdown.

Second-quarter sales volume dropped 29 percent and the median price fell 11 percent to $735,000 from a year earlier in the resort communities on the East End of New York’s Long Island, Suffolk Research Service Inc. said in a report today…

Bloomberg attributes the decline in sales and prices to tough times on Wall Street. According to Wednesday’s piece:

Transactions are dropping as financial firms have cut more than 93,000 jobs and taken more than $416 billion in mortgage- related losses and writedowns. The retreat in global stock markets, waning consumer confidence and the deepening housing recession are also keeping prospective buyers at bay.

Source: L Nichols Woodcarving

Looking at the individual towns, Lynch and Marcinek noted:

In Southampton, the median price dropped 8.6 percent to $891,000. Sales volume fell 35 percent to 257 homes. In East Hampton, prices fell 11 percent to a median of $1,000,000, Suffolk Research said. Volume there fell 40 percent to 120 homes…

In Southold, prices fell 8 percent to $507,500 and sales dropped 19 percent. On Shelter Island, the median price rose 34 percent to $1.13 million, while sales fell 26 percent to 17. The cost to buy in Riverhead also rose, up 9.6 percent to a median of $411,100, while transactions gained 3 percent to 103 properties.

Source:

“Hamptons House Prices Fall Amid Wall Street’s Decline (Update4)”
Sharon L. Lynch, Laura Marcinek
Bloomberg, July 16, 2008

The Pollyannas Have Their Day (And Say)

“Don’t believe the mainstream media. now is the time to buy. we buy when others sell and sell one others want to buy. even with whats happening in the real estate market, right now is the time to buy real estate too. do it right and cash in big.”

-Comment left on Yahoo! Finance website

Despite a logjam of bad economic news lately, it seems the “Pollyannas” (referring to an overly-optimistic character from a children’s story of the same name) are running rampant on Wall Street and elsewhere. Emboldened by a Dow Jones Industrial Average that has risen 484.12 points since Wednesday’s opening, “don’t worry, be happy” is their war cry. Consider the following headlines and snippets from mainstream media outlets the past couple of days:

“Buy Now, Don’t Regret Later”
Yahoo! Finance, July 16

But perhaps we do have to be bold more often, and maybe even a little foolhardy when our gut tells us that this is important, or when we come across something alluring in our adventures. If something enchanting catches our eye — whether it’s a Ukrainian samovar or just a hat on your way to work — maybe it’s best to get caught up in the euphoria of the moment.

“This Real Estate Rout May Be Short-Lived”
SmartMoney, July 15

Noted market experts such as Pimco bond-fund manager Bill Gross and economist Mark Zandi of Moody’s Economy.com predict the meltdown in housing will continue for many months, with home prices declining by 10% or more from today’s depressed levels… Yet, such pessimism appears overdone, based on much recent data. Sales of existing homes are showing tentative signs of increasing, while the plunge in prices likely is nearing an end.

“Mean Street: Pollyannas of the World Unite! It Is Time to Buy”
Wall Street Journal’s Deal Journal, July 15

All this bad news can only mean one thing: It is time to buy.

Pollyannas of the World Unite! You have nothing to lose but your chains of media-induced panic.

Of course, there is no getting around the seriousness of the situation, given runaway oil prices and the sorry state of the nation’s financial sector. But take a few minutes and peer through the fog of Breaking News flashes scrolling across CNBC every 30 seconds.

Consider these big flashes: A major restructuring at General Motors. Is this news? GM has been lumbering from one restructuring to another for the past three decades.

George Soros and Jim Rogers predict an end of the world as we know it…yet again. Can anyone recall when either was bullish about the U.S. economy?

Wall Street analysts fall over themselves to downgrade financial stocks. Remember the Goldman Sachs reversal of its bullish call on financials a few weeks back? It is pure herd behavior. Good luck finding analysts who like a financial stock at any price.

A bearish Wall Street is swept by powerful ill-winds. But remember the line from the movie Pollyanna, “When you look for the bad in mankind expecting to find it, you surely will.”

And truer words describing the mindset of a bear market have rarely been spoken.

By the way, does anyone know what becomes of overly-optimistic Pollyanna in the children’s story? She gets crippled in an accident.

Sorry to blow the ending for you…

“I’ve never replied to nonsense like this before but I could’t resist there is no way that this minor blip even compares by the numbers I would bet in ten years we won’t even remember the “housing bubble” I think that the time back in 2001 to 03 was worse, give me a break. f@#% the critics. The U.S. economy is still the greatest on Earth. Think about it.”

-Comment left on Yahoo! Finance website

Sources:

“Buy Now, Don’t Regret Later”
George Anders
Yahoo! Finance, July 16, 2008

“This Real Estate Rout May Be Short-Lived”
Jonathan R. Laing
SmartMoney, July 15

“Mean Street: Pollyannas of the World Unite! It Is Time to Buy”
Evan Newmark
Wall Street Journal, July 15, 2008

Merrill Lynch Economist Warns Of Multiple U.S. Recessions

According to the Financial Post (Canada) from July 9, David Rosenberg, the chief North American economist at Merrill Lynch, is warning of the possibility of not one U.S. economic recession, but a series of them. The Post’s Jacqueline Thorpe wrote:

Rosenberg has consistently held one of the more pessimistic views on Wall Street, arguing the housing slump and credit crunch will exact a heavy toll on U.S. consumer spending. He believes the data will eventually show the recession started in January.

But he adds it’s not the peak-to-trough decline in real GDP that’s important but the duration. Trouble is, the duration could be Japanese-like (about a decade).

Just like Japan, he says a series of rolling recessions is possible for the next three to five years, making it extremely difficult to time the market. Japanese equities got trashed through the process. At the 1998 post-bubble lows, Japanese bank, construction, real estate and transport stocks were all down 80%, retail stocks were down 50%. The only place to hide was bonds, notes the bond bull.

Rosenberg told the Canadian publication:

We are nervous that we have ended up following in Japan’s footsteps due to the inept fiscal response to the problem. A temporary tax rebate from Uncle Sam to buy iPods tackles a real estate deflation and credit crunch as effectively as the LDP’s (Liberal Democratic Party) “solution” in the early 1990s to build bridges and pave river beds that nobody needed.

The Vapours, “Turning Japanese” (1980)
YouTube Video Link

Source:

“Rosenberg on strike, fed up trying to pinpoint U.S. recession”
Jacqueline Thorpe
Financial Post (Canada), July 9, 2008

Hedge Funds, Mutual Funds Fall Behind In First Half Of 2008

Looks like the first six months of the year haven’t been too kind to U.S. hedge funds and stock mutual funds. According to the Internet news site NewsMax.com yesterday:

U.S. hedge funds, which often promise to make money in all markets, were in the red during the first half of the year but did not lose nearly as much as mutual funds, according to data released on Tuesday.

Hedge Fund Research said the average hedge fund is off 0.75 percent since January after slipping 0.68 percent in June.

Data from the Chicago-based firm, which specializes in alternative investment information, revealed that more funds went out of business during these first six months than a year ago in the same period. In addition, fewer new funds have started up.

“Please Stop The Pain”

The first half of 2008 wasn’t much better for mutual funds either. According to NewsMax.com:

Still, hedge funds compare very favorably with U.S. stock mutual funds, which lost an average of 10.09 percent in the first six months of the year, according to Lipper Inc, a unit of Thomson Reuters.

Sector stock funds lost 6.07 percent and world stock funds fell 11.54 percent, the Lipper data show.

It’s a good thing fund managers haven’t put a dime of their own money in domestic stock funds (46% of the time) and foreign stock funds (60% of the time) they’re paid to manage, right?

Source:

“U.S. Hedge Funds Lose in First Half, Mutual Funds Worse”
NewsMax, July 9, 2008

Ben Stein Says Buy Real Estate

Do you know who Ben Stein is? He’s an attorney, political figure, and entertainment personality who served as a speechwriter for President Nixon and President Ford. Later in life, he became an Emmy Award-winning actor, comedian, and game show host. His part of the boring teacher in the movie “Ferris Bueller’s Day Off” was recently ranked as one of the fifty most famous scenes in American film.

Stein also has a background in economics, and serves as a “Financial Advice Expert” on Yahoo! Personal Finance. On July 3, he wrote in his column:

The best bet usually is what has gone down the most, and that, for now, is real estate. I got a letter from a thoughtful reader saying he was going to wait until real estate had reached its all time low before he bought. But how will he know? And how rarely does he find a home he truly loves? Even when homebuyers buy at the top of the cycle, if they love their homes, and if they can hold on, they always end up delighted.

Yes, there will be news saying housing will not recover THIS TIME. But in fact, except in really depressed areas, housing recovers EVERY TIME and goes on to pass its prior record. The real story of real estate, as my brilliant money manager friend, Phil DeMuth, says, is of failing to buy, not of staying away successfully. The plain fact is that you don’t know when real estate will be at bottom until it’s too late. If you see a home you love, buy it now if you plan to be in it a long time. And know that the headline writers want to whip you up and make you crazy about the economy. They sell fear. Stay calm and stay well to do.

Would these be the very same headline writers who help create housing booms, even bubbles?

I appreciate Mr. Stein’s optimism, which applies not only to housing but the stock market and the U.S. economy as well. However, I’m just trying to be a realist here. Truth is, I haven’t seen any evidence in my research that suggests housing is even close to bottoming. As a matter of fact, the same individuals who warned of the ongoing housing bust are cautioning against “catching a falling knife.” The fundamentals are still out of whack. Take one look at a U.S. housing supply chart, for example, and you may see what I’m talking about. Get rid of some of that glut, and then you might have the makings of a recovery.

As for Mr. Stein’s recommendation, I’m going to have to pass for now. I still remember the advice he gave back on August 18, 2007, to buy financials, which was right before the sector imploded:

It’s a buying opportunity, especially for the financials, maybe that I’ve never seen before in my entire life.

I wonder how many individuals lost their shirts (or blouses) on that one?

Source:

“Don’t Panic - Buy Index Funds and Real Estate”
Ben Stein
Yahoo! Finance, July 3, 2008

Playing The Markets? Caution Is The Name Of The Game

Caution is not cowardly. Carelessness is not courage.

-Unknown

Here’s one for the traders and investors out there. I came across the following list of reasons yesterday from Bennet Sedacca (with Professor Rob Roy) of the financial website Minyanville.com as to why caution is a must in the markets these days:

1. Stocks are firmly in a downtrend.
2. Corporate spreads are rapidly widening.
3. Everyone I know is saying “All is well, buy America.”
4. European equities are taking out the lows of the year.
5. The capital-raising window is closed.
6. Earnings estimates are too high.
7. While much of the move in financials is done, it should spread to other industries.
8. If the “best of breed” are missing their numbers, what happens to the real dogs?
9. We are entering the worst part of the Presidential cycle.
10. We are at war. On multiple fronts.
11. The consumer is tapped out.
12. Corporate buybacks are gone.
13. Net equity issuance is very high.
14. Oil above $100 is very bearish.
15. The savings rate is 0.
16. The U.S. is actually one of the best performing markets in the world this year.
18. Level III assets continue to grow.
19. “Credit rot” is spreading from sub-prime to prime.
20. The dollar is sinking to new lows.
21. The Federal Reserve’s balance sheet is impaired.
22. Mutual fund equity cash remains low.
23. Individual investors are now taking money from their retirement accounts to survive.
24. The market is technically on the verge of breaking down.
25. We’ve broken the 200-week moving average in the Dow Jones for the first time since 2003.

Sedacca and Roy explained each reason in detail, and offered this advice:

Risks remain high and, as always, being cautious will only lose you opportunity - not capital.

Source:

“25 Reasons To Remain Cautious”
Bennet Sedacca, Professor Rob Roy
Minyanville.com, July 1, 2008

Peter Schiff TV Appearances

Peter Schiff, author of the book Crash Proof: How to Profit from the Coming Economic Collapse, appeared on FOX News Saturday morning and CNBC Tuesday morning. Schiff told viewers of “Fox Bulls & Bears” that the downturn in the U.S. economy goes beyond a “slowdown.” He warned:

We’re already in a severe recession, and it’s going to get a lot worse.

Commenting on the poor performance of the U.S. stock market lately, the president of Connecticut-based Euro Pacific Capital said:

This is a bear market. We’ve been in a bear market since 2000. The market’s going a lot lower, not only in nominal terms, but in real terms.

Later on in the show, Schiff gave a timeframe for how long he thought the bear market would last. He told viewers:

We are in a secular bear market. It’s been going on for 8 years. It’s going to go on for another 5 to 10 years.

As to where investors may want to look at putting their money, the host of the weekly radio program “Wall Street Unspun” said:

It’s [oil] probably going up to $150…

And, you know, trying to catch a falling knife in the financials? They have a long way to go down. I wouldn’t touch them…

Look at gold. You want to see a good chart, look at commodities. Look at foreign currencies.

At the conclusion of the show, Schiff predicted:

Well, this week Bernanke said the economy was going to improve and inflation was going to moderate. He was wrong on both counts. The economy is going to get a lot worse. Inflation is going to get worse. And you’ve got to get out of the dollar. It’s going to fall at least another 10%.

FOX News Appearance
YouTube Video Link

On Tuesday morning, Peter Schiff appeared on CNBC’s “Squawk Box,” and responded when asked who was responsible for the financial mess the United States has found itself in by saying:

Well, first of all, it’s the government, and when I say the government, I also mean the Federal Reserve, that has artificially kept interest rates much too low in this country, and in so doing, they’ve encouraged a culture of consumption, of borrowing to buy things. In America, we borrow to buy houses, to buy cars, to send our kids to school, to remodel our houses, to take vacations. And what we’re seeing right now is the fact that we can’t pay any of this money back. And the lenders are cutting us off, and this whole bubble economy that we have is now deflating. But it never would have existed if we had honest money. If we were on a gold standard and we had higher interest rates, we would have been saving, we would have been producing, and we wouldn’t be in this mess.

Schiff shared his views about how to avoid a financial armageddon. He said:

We need to raise interest rates dramatically. What’s that going to do? It’s probably going to bankrupt most of the financials. It’s going to bankrupt a lot companies. We’re going to have to go through a big retrenchment because we basically spent ourselves into bankruptcy. But we can’t keep trying to reflate the bubble. That’s what the Fed is doing. That’s what the stimulus is trying to do. They’re trying to get us to spend more money. That’s the problem. We’ve spent too much. So, we’re going to have to live through a severe recession. If we keep fighting it, all we’re going to have is higher inflation, higher oil prices, higher commodity prices, and eventually, we’re going to get something far worse than just a severe recession. We could have hyperinflation and a complete destruction of our currency.

You can access the 7 minute 16 second CNBC segment here.

Sources:

“Fox Bulls & Bears”
FOXNews, June 28, 2008

“Squawk Box”
CNBC, July 1, 2008

Dow Headed Below 10,000?

Remember some of those “literary classics” from a few years ago that predicted new heights for the Dow Jones Industrial Average?:

• Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market, released November 14, 2000
• Dow 40,000: Strategies for Profiting From the Greatest Bull Market in History, released June 26, 1999
• Dow 100,000: Fact or Fiction, released September 30, 1999

Well, here’s a new forecast that points in the opposite direction. CNBC ran a piece today on how some analysts are saying that the Dow, which closed down 1.5% today to end at 11,215.5, is heading below 10,000. According to CNBC this morning:

Investors should ignore recent signs of strength and face up to the fact that we will face a prolonged bear market, John Carter, president of Trade The Markets, told CNBC Wednesday.

“Longer term we’re looking at a market that is a bear market,” Carter told “Squawk Box Europe.”

While we can expect a rally over the next three to five weeks, this is a downward spiral that is not going away any time soon, he said.

“A trend is a trend until it ends, and we’re actually looking for the Dow to take out 10,000 by the end of the year,” he added.

There are too few sectors holding the markets up, and too many dragging it down, to consider getting back into non-recession-proof sectors, according to Carter.

“A large percentage [of sectors], like financials, are getting hammered. A lot of the darlings of the past are going to get taken out back and get shot,” he said.

“I’m Your Man”

CNBC also spoke to Hugh Hendry, a partner at hedge fund Eclectica Asset Management, who added that technology stocks are also likely to be gunned down as the two were affected by bubble conditions. From the CNBC piece:

Hendry said the outlook is particularly bleak for financial and technology stocks — the two largest components of the S&P 500 — which he said have both seen a bubble.

“When a sector becomes infected by a bubble…what history reveals is it takes 25 years to regain the highs that we saw in real terms,” he said.

Source:

“Dow Will Sink Below 10,000: Strategist”
CNBC, July 2, 2008

RBS Predicts Stock, Credit Market Crash

Wanted to bring up the following story earlier, but unfortunately I was out of town for a few days. Better late than never, I always say. From CNBC on June 18:

The Royal Bank of Scotland issued a stark warning to investors Wednesday, stating global stock and credit markets could be on the verge of a fully-fledged crash as central banks have their hands tied by soaring inflation, the Telegraph reported.

“A very nasty period is soon to be upon us - be prepared,” Bob Janjuah, credit strategist at RBS, told the UK daily paper.

The S&P 500 index is likely to slump by more than 300 points by September, according to a report from the bank’s research team, as “all the chickens come home to roost” from over-easy lending practices and other excesses of the global boom period, the report quoted by the Telegraph said.

“I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names. Cash is the key safe haven. This is about not losing your money, and not losing your job,” Mr Janjuah told the paper.

RBS expects US stocks to continue to gain until early July before the effects of the oil spike start to drag on momentum, the Telegraph said.

“A very nasty period is soon to be upon us”

Source:

“RBS Warns of Stock, Credit Market Crash: Report”
CNBC, June 18, 2008