I can't remember the last time I interviewed a fella who repeatedly described himself as an idiot. In this case, it was a stock market professional who seriously questions his own investment judgment, is acting contrary to what he believes and has had two back-to-back losing years. So if you decide after that introduction you really don't want to read this column, fine! I'm not sure that I would want to read it.
What makes this interview somewhat intriguing is that it provides a graphic insight into the unrelenting pressures facing Wall Street's performance-oriented big guns, many of them leery, and offers a credible reason why the beleaguered stock market could get another significant shot in the arm provided it doesn't cave in first.
Our admitted bumpkin is Arnold Silver, a Los Angeles day trader turned money manager, who runs nearly $145 million of assets for well-heeled individuals under the banner A. Silver Associates and who boasts some super years.
When I told him of my interest in writing a piece on his latest market thinking, he chuckled and shot back: "Why would you solicit the views of an idiot?"
Why such a disparaging reference?, I asked. "Because my gut and the facts tell me the market is going lower, maybe a couple of thousand Dow points lower, and that the economy, contrary to what a lot of economists are saying, will not bounce back very much in the second half," he says. "Yet, I've been reducing cash reserves and buying some stocks fairly aggressively," he tells me. "Only an idiot would do that."
Then why buy? Because the performance pressures from clients are enormous, he explains. "My phone is ringing off the hook at all hours of the day and night. My clients all know the market is up about 30% from its March lows and all they want to hear is how much money I'm making for them after a lousy 2008. With the kind of explosive rally we've had," he says, "they can't imagine my not being an active participant in it, and you really can't explain to people something they don't want to hear -- that it could be a buying trap or a bear market rally.
So Silver has joined the ranks of buyers, somewhat reluctantly, and tells me "I'm keeping my fingers crossed that maybe I have been too negative and that the bull run hasn't run its course."
His clients, he says, are basically telling him to shape up or ship out. So he's given a whirl to try to shape up, largely through the purchases of a number of badly beaten-up stocks, notably such financials as Bank of America, Wells Fargo, Citigroup and American Express. While these stocks are up sharply from their lows, they're being pushed so aggressively in Wall Street that Silver is hopeful there's more mileage ahead.
Given his concerns, he concedes his buying action seems irrational, but he says "I'm in an awful bind, but I'm not ready to look for a new career at age 56."
What bothers him about the market? Among his worries:
--The economy is weak.
--Earnings are declining.
--Global trade is contracting at breakneck speed.
--More bank losses and bank failures are inevitable, especially given near-certain growing problems with credit card debt and commercial real estate loans.
--Unemployment (now at 8.9%) is surely going to double-digit.
--Industrial production is falling.
--Business and consumer spending is bound to grow weaker.
--Though talk is widespread that housing may be nearing a bottom, foreclosures have no choice but to rise further in the face of growing unemployment.
--Greatly expanded U.S. government debt and deficits are turning off many foreign investors.
Especially telling to him, Silver says, is what he has seen in some of Rodeo Drive's ritziest stores. "I see more and more customers bargaining and knocking down ticketed prices and I saw a woman demanding and getting a $295 scarf for $95.
"Considering what's going on," he says, "no one can convince me we're in an environment where any sane person can truly believe the Wall Street BS that an economic bottom is close at hand."
Though he belittles himself, Silver merits a respectful hearing. For example, in 2005, 2006 and 2007, he wowed his clients with respective market-beating gains, he tells me, of 34%, 66% and 43%. Last year, however, was a dog, as he recorded a decline of 22%%, though that showing was far superior to the 38% drop in the S&P 500. This year, he's down about 2% after having been up earlier as much as 16%.
Boston investment adviser Bill Rhodes of Rhodes Analytics figures Silver's entry into the market is typical of what's happening among many wary money managers. With stocks on the rise, they don't want to miss the boat and underperform; so they're being forced to commit money to the market even though they have their doubts. It could be a stimulus for higher stock prices, but it's questionable for how long, he says.
West Coat liquidity tracker Charles Biderman calls such buying "frantic, a dash for trash." Ultimately, though, he points out, fundamentals dictate the course of stock prices and today's sorry fundamentals suggest the buyers rushing to jump in will only add to their losses. "The recent buying is just plain stupid," he says.