On Monday, my column focused on a wild stock-buying binge by corporate America, which, over the past month, has acquired (via stock buybacks and cash acquisitions) roughly $2 billion a day more than it was selling.

Some pros, though, think that’s insane. One is hedge fund manager James Melcher, who runs Balestra Capital (assets: $40 million). He believes corporate America is wearing blinders. “This is a dangerous market,” he told me the other day. This assertion follows earlier comments he made in a recent letter to clients in which he warned them of “significant risk of financial turmoil and a major bear market” and argued “the risk is serious and perhaps imminent.”

Those are tough, frightening words, but Mr. Melcher, given his market prowess, is not a fellow to be taken lightly. From 1999 through 2004, his hedge fund, after deducting fees, was up 262.9%, versus a 7.5% gain for the S&P 500 in the same period. Last year, the fund was up 10%, and so far this year, it’s up about 1%.

At the moment, his portfolio is heavily hedged though the use of cheap derivatives. Based on the market value of his holdings, he’s about 50% long (stocks he owns) and 50% short (a bet on falling prices), and holds put positions (another bet on falling prices) on both the S&P 500 and Nasdaq indexes. “You’ve got to be crazy not to protect yourself in this kind of market,” he said. For additional forms of protection, he’s buying five-year Treasury notes and holds a stake in gold, which, he notes, serves both as a currency hedge and disaster insurance. Actually, gold futures represent about 15% of his holdings.

Why so negative? For all the reasons you know, he responded, pointing to, among other things:

* The sizable trade and federal deficits.

* Household debt at booming levels. The consumer, he observes, seems compelled to borrow and spend more money than he’s making. “This is an indulgent society and no one denies themselves anything these days.”

* Slowing worldwide economic growth.

* Slowing earnings growth.

* Growing foreign competition, turning this country increasingly into a service economy.

* A wildly speculative housing market, with financial institutions pushing consumers to borrow more money, while at the same time lowering their lending standards.

Mr. Melcher notes that when the real estate market tanked in 1990, a lot of savings and loans went out of business and banks took a big hit, but not everyone suffered. At this time, though, he thinks, if housing should slow down, the whole economy will be hit. Ditto, he adds, if interest rates go up much more, or if consumers really slow down, or if the dollar goes down much more. In other words, he points out, if any of these events occur, the entire economy will suffer.

To Mr. Melcher, it means “the upside for the economy is limited, but the downside is big.” Likewise, he believes, “We’re setting ourselves up for a disaster; it’s only a question of when.” Relating this thinking to the stock market, he believes there’s a significant chance it will be a lot lower by year-end.

Our worrywart compares today’s market to a springtime walk in the meadows, which may seem appealing, but is actually riddled with land mines.

So how is he playing the market? He’s doing a considerable amount of shorting, such as autos (General Motors and Ford); financials (Fannie Mae); credit-card companies (Capital One Financial), and housing stocks (Toll Brothers and Standard Pacific). He’s also shorting high-yield junk bonds, which he thinks are overpriced.

On stocks he owns, he’s still playing the energy sector, although he has cut back on the group because of the big gains. Among his favorites: Newfield Explo ration, Grant Prideco, Arch Coal, Enerplus Resources Fund, and Suncor Energy.

Given his concern about the American market, Mr. Melcher has half of his equity holdings stashed in overseas markets, such as Russia, India, and Brazil.

Another of his market concerns centers on hedge funds, which have been in the news recently, based on rumors of big losses in GM debt that could spur heavy liquidations of existing stock holdings.

Mr. Melcher thinks the potential for another 1998-style hedge fund-induced financial crisis looms large. That’s a reference to Long Term Capital, a billion dollar-plus hedge fund, which ran into financial trouble that year and caused a sizable market decline. Pointing to the surging number of hedge funds – which have doubled in the past few years to about 8,000 and boast assets approaching $1 trillion – Mr. Melcher contends the problem is “there are too many hedge funds with too much money that are trying too hard.”