Dart Tossing Again Reigns on Wall Street

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Money manager Tom Postin tells me he attended a number of holiday cocktail parties in Beverly Hills and Hollywood recently, and that “the chatter was all the same: Mel Gibson and who’s sleeping with whom. That’s not my shtick, no one talked to me, so I was like the party’s leper.”

No more. “With the market pushing higher and higher, that’s changed,” he says. “I’ve replaced Mel Gibson as the new star, and the question I keep getting is, what’s my favorite stock.”

Unfortunately, he’s the wrong person to ask. “I feel like an idiot, and maybe I am one,” Mr. Postin says. His hedge fund, Los Angeles–based P&W Partners, is sitting with about 17% of its $240 million of assets in cash reserves. His cash position generally runs 5% to 7%.

Not surprisingly, given the ballooning averages, he’s lagging the market this year, with just a 7.4% gain.

“I’ve gotten a lot more cautious, but how can you not?”he asks. “Everyone I talk to is so bullish. Then I hear this insane talk that there are no risks in the market anymore. It feels to me like we’re back in the dartthrowing days of the early 2000s before the roof fell in.

“Just turn on your TV sets and watch the financial shows,” he continues. “Forecasters are already predicting a 14,000, 15,000, 20,000, and 22,000 Dow. Another up week and maybe we’ll hear 50,000.”

His skepticism, along with that of two other pros, contrasts sharply with the tone of my Friday column, in which Wall Street guru Elaine Garzarelli painted a glowing stock market picture for 2007.

None of our skeptical trio is a raging bear, but they worry about assorted developments that suggest the market is clearly at risk.

Raymond James Financial’s chief investment strategist, Jeffrey Saut, is one of our cautious cats. He cites a number of worrisome cautionary red flags. One is the failure of the Dow Jones Transportation Average to confirm the bull market — it has not accompanied the Dow Jones Industrial Average’s march to new all-time highs (an event that is considered a negative technical market factor). Another is the overbought nature of the equity markets.

He notes that he has been ribbed by his colleagues, with one describing him last week as Dr. Doom. “I guess it was inevitable,” he says, “because … if you are not forecasting Dow 20,000, you are deemed a bear.”

Investment adviser Michael Larson is another worrywart. In the December issue of Safe Money Report, a monthly newsletter headquartered in Jupiter,

Fla., Mr. Larson, the letter’s associate editor, contends investors presently face one of the greatest conundrums in modern economic history.

The American economy is sliding fast, retail sales are going limp (up 1% in November, versus more than 5% at this time last year), and the dollar is getting pummeled, he notes. Yet he points out that the Dow is still rising, optimism is everywhere, and it’s raining money on Wall Street. He notes, for example, that Goldman Sachs and Lehman Brothers will be handing out $36 billion in bonuses this year.

It’s not so much that the market is overvalued, Mr. Larson says, but that it’s flying on easy money. The Fed is talking about running a tight ship, but it’s letting money supply surge, he says. “I call it the great money pump,” he adds, “which is driving up stocks, prompted by a frenzy of mergers and acquisitions, a flood of stock buybacks and a huge bubble in commercial real estate.”

Asserting that central bankers are pumping money like crazy both in America and abroad, Mr. Larson says, “Look at measures of money supply and credit growth. Look at bank lending. Or debt growth. You see the central bankers’ real agenda is to keep the party going regardless of the long-term consequences. The result: money, money, everywhere.”

He notes, for example, that buyouts by investment firms with more money than brains are soaring. So far this year, leveraged buyout firms have launched $600 billion in takeovers, 2.5 times the $241 billion in 2005.

The financial tremors are starting to become visible, Mr. Larson warns, noting that the country’s 11th largest sub-prime mortgage lender, Ownit, recently went belly-up. He figures further blowups in mortgage financing are inevitable.

So what should investors do in such a climate? Opt for safety, Mr. Larson says. In this context, he favors gold stocks, particularly Kinross Gold, Canada’s third-largest gold miner, and Agnico Eagle Mines, another top Canadian gold producer. Other safety shares he favors are what he calls “steady Eddies,” good dividend payers such as General Mills and Campbell Soup.

US Bancorp and Huaneng Power International, a large Chinese power producer, are a couple of other favorites. Another of his favored plays, in part due to its protection against a weakening American economy and a falling greenback, is Prudent Global Income, a complex of short-term foreign bond funds.

dandordan@aol.com


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