Savvy New York trader John Daylen, who recently left the city to start a hedge fund in Cleveland, has made a career out of crossing swords with what he calls the “those cockeyed optimists” who invariably see stocks in a one-directional uptrend, hyping overblown companies whose shares he believes inevitably have nowhere to go but down.

In an e-mail exchange, Mr. Daylen commented favorably and unfavorably on two of my recent columns that he feels reflected such optimism. “You were right on the button,” he wrote, “when you questioned USA Today’s bubbly stock market appraisal for 2007. However, you were way off base in quoting a money manager who predicts Zoltek, which I’m short, will hit $40 over the next two years. I think Disney should concentrate on fairy tales, not you.”

USA Today’s buoyant market outlook appeared in an article earlier this month in which a group of Wall Street pros spoke glowingly about this year’s stock market prospects.

Mr. Daylen expects 2007 to be an increasingly tough and volatile year for stocks, with the S&P 500 falling between 5% and 7%. He says he finds it hard to believe USA Today truly buys its “everything is coming up roses” scenario.

The newspaper, he thinks, is shutting its eyes to some obvious red lights, such as the vigor of the economy, which is putting upward pressure on bond yields. Noting that the consumer is far from running out of steam, housing appears to be stabilizing, some good earnings numbers are coming through, and the labor market is tightening, Mr. Daylen thinks GDP growth this year may be stronger than expected, perhaps between 3.5% and 4%.

That seems pretty cheery to me, but Mr. Daylen believes such vigor will prompt the Fed — which has repeatedly cited the ongoing inflation threat — not to cut rates this year, contrary to widespread expectations that it will. He thinks once the Street realizes rate cuts are more talk than reality, the market will appreciably weaken. “The idea Fed rate increases are out for this year is crazy,” he says.

He also thinks the newspaper is ignoring potential damage from the expanding Iraq war, in particular the likelihood of greater American casualties with more of our troops being committed to the conflict, and the surging costs to taxpayers to foot the bill.

“More of our GIs are going to die there; that’s for sure,” Mr. Daylen says.

“Three years ago,” he recalls, “the Dow often fell 50, 60, and 70 points on particularly bloody days. Who is to say it can’t happen again? Certainly not USA Today.”

Political risks are another of his strong concerns. Many market watchers say it’s irrelevant which party occupies the White House. Mr. Daylen disagrees. He believes a dramatically weakened President Bush beset by shrinking approval ratings, Democratic gains in the mid-term elections, and heavy opposition to the Iraq war strongly point to a Democratic president in 2008. He thinks that would produce higher taxes, protectionist policies, weakened homeland security, and a less favorable environment for the pharmaceutical, energy, and defense industries.

“Once the Street realizes such developments are likely, it will unnerve the institutions and pressure the market,” he says. “Investors,” he adds, “can only live in Disneyland for so long.”

As for the maker of carbon fibers, Zoltek, money manager Joan Lappin of Gramercy Capital Management forecast in this column that the company, which had a $65.8 million net loss last year, would enjoy a big turnaround this year, earning about $1 a share. Further, she said its stock — which made a 300% sprint to a 52-week high in 2006 of $39.74 from its 2005 close of $8.78, and is now trading at $24.93 — would climb to roughly $40 in 2008.

“Absurd forecasts from a dreamer,” Mr. Daylen asserts. He said Zoltek’s accident-prone management “seriously lacks any credibility,” especially when you consider its recent series of disappointments. He’s convinced Zoltek, which refused to comment, will lose money again this year, and he expects the stock to tumble to a price between $5 and $7 in the next six to 12 months.

Mr. Daylen isn’t alone in his bleak assessment. The latest figures show the company sports a hefty short interest of about five million shares.

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SEC trading probes: Here are seven unreported stock trading investigations recently initiated by the Securities and Exchange Commission, a wired-in compliance source tells me. They involve El Paso Corp., Satyam Computer Services, Ltd., Hudson City Bancorp., Matritech, Investors Bancorp., Odyssey Re Holdings Corp., and Rome Bancorp. Interestingly, in El Paso’s case, the SEC investigation, though fresh, covers a much earlier trading period dating back to January 2003. Letters seeking the identities of clients, both here and abroad, who traded in the stocks and options have already been fired off to the brokerage community. The SEC, as is its usual policy, declined comment.

dandordan@aol.com