bhc investment: Steinhardt: Stocks Will Extend Drop on Banks, Oil

Wednesday, July 09, 2008

Steinhardt: Stocks Will Extend Drop on Banks, Oil

Michael Steinhardt, the investment pioneer whose hedge funds returned more than 20 percent a year for almost three decades, said U.S. stocks will keep falling even as ``contrarian'' buy signals abound. [Steinhardt is saying herds who thought stocks are cheap for buying will be slaughtered!]
Record oil prices and the credit-market slump that spurred more than $400 billion in asset writedowns and loan losses at banks worldwide will prevent the market from rallying, Steinhardt, 67, said in a Bloomberg Television interview today.
``There are genuine, solid, fearful reasons for a bear market,'' Steinhardt said. ``I don't think we're at a bottom.'' He added, ``I can think of only one quick fix, which is a dramatic, substantial drop in the price of oil.'' [Keywords: quick fix, dramatic, substantial.]
Crude oil surged 88 percent in the past year and reached a record $145.85 a barrel on July 3. Some of that advance is sustainable, Steinhardt said.
``A lot of it's political, a lot of it is inexplicable, but I don't think oil at $100 a barrel is very difficult to imagine,'' he said. [No mention of speculators by Steinhardt.]
``If there were a will in the key centers of power in this country to get the price of oil down, it would come down.'' [For examples, allow for more drillings instead of stopping them, build new refining capacity, technological upgrades, etc. However, politicians aren't doing any of these; they blame the speculators!]
The Federal Reserve, which cited rising oil prices last month after ending its most aggressive monetary easing in two decades, should raise interest rates ``a little bit'' to restrain inflation, which is on the verge of accelerating, Steinhardt said.
Rising bets against U.S. stocks and growing pessimism among investors, usually indicators that it's time to purchase shares, are giving a false buy signal, he said.

`This Time It's Different'

``There is rarely a moment such as this where as a contrarian, one sees so many reasons technically, stock market-wise to be bullish. I can't imagine a circumstance where a market is more available, more ripe for a rally than this one,'' Steinhardt said. Still, ``this time it's different,'' he added.
General Motors Corp., Ford Motor Co., airlines, banks, mortgage lenders and brokerages, ``companies and industries that heretofore had been sacrosanct,'' are in jeopardy amid higher inflation and slowing economic growth, he said. GM, the biggest U.S. automaker, retreated 72 percent for the Dow Jones Industrial Average's biggest loss since the measure's record high in October.
``It's an extraordinary phenomenon where that which was the heartland of America is now so, so sick and not easily vulnerable to improvement,'' Steinhardt added.

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