|
 |
Unfunds Merger February 14, 2003 A Bear Of A Business Merged O.C. stock advisers take different angles to the same downbeat view. By JAMES B. KELLEHER The Orange County Register
Chip Hanlon and Peter Schiff don't appear to have much in common. Hanlon is a native Californian, with a reflective air and the fresh-scrubbed earnestness of a fraternity pledge. Schiff is a native New Yorker, with a restless air and the urgent opinions of a street preacher. Both are in the investment business in Orange County, but while Hanlon focuses on the domestic market, Schiff focuses overseas. And while Hanlon concentrates on the technical clues the market throws off, like put-call ratios, Schiff concentrates on fundamentals, such as dividend yields for companies and growth rates for economies. Polar opposites? Not quite. What the men share is a decidedly bearish outlook on the U.S. economy and, by extension, U.S. stocks. In a nutshell, Schiff and Hanlon believe that Wall Street will spend the next few years, perhaps the next decade, paying for the sins of the late-1990s bubble. Investors who try to ride out the downturn by buying and holding domestic equities are going to get hurt, they say. Badly. The two bears share something else these days: a single Newport Beach lair. BAD NEWS BEARS Last month, Schiff's Euro Pacific Capital purchased Unfunds, Hanlon's Huntington Beach-based investment advisory company. "The strategy - the thinking that got us together - is that, while we've reached similar conclusions about the economy and markets, we have different areas of focus," Hanlon said. "Euro Pacific's expertise has always been foreign markets. By buying Unfunds, Peter now has somebody to lead the charge - and talk to his clients - on domestic markets, even though we're skeptical about them at this point." The all-stock deal was small, even by local standards. Even so, when it was signed just after New Year's, it was tempting to see it as something of a bullish signal. Here, after all, were two of Orange County's most vocal bears consolidating their operations into one. And they were doing it just as Wall Street was going on a tear that sent the Nasdaq up 8.4 percent in the first 11 days of January - a jump that encouraged some people to forecast the end of the three-year bear market. Since then, the market has weakened. Now, after a four-week sell-off that has the three major indexes trading back near their October lows, it is getting tougher to see the merger as a desperate move by a couple of despondent bears. Because if Schiff and Hanlon are yesterday's men, they are enjoying a heck of a last hurrah. "We've probably brought in $2 million in additional investor money (in recent weeks)," Schiff said, "as the U.S. market has dropped down and there's been a lot of media attention on the weakening dollar." GLOOM AND DOOM Most of the inflow, Schiff says, has come from existing customers, who have moved more of their money into Euro Pacific's care as the Iraqi crisis and other geopolitical tensions have sent the price of gold and oil rising and the dollar falling - developments Schiff has long predicted. Business is so good that Euro Pacific is doing something most local investment firms have not done for several years: It is hiring brokers. That does not surprise Tom Lydon, the head of Global Trends Investments in Newport Beach. Lydon, who knows Schiff and Hanlon but does not share their pessimism, says that with the economy limping and war looming, negativity seems hard-nosed and pragmatic to investors who listened to three years of empty happy-talk from bullish brokers. But Lydon cautions that investors who think America is going to be a backwater for the next decade may be seriously underestimating the market's resilience - and the speed with which routs turn into rallies. "Gloom and doom is selling now," Lydon says. "And I wish Peter and Chip well. But while it's all right to be defensive, I wouldn't bet against the long-term strength of the U.S. stock market, especially at this late stage in the game." Neither would most investment advisers. For example, at a Register panel of 12 finance and economics professionals, nine experts predicted the Dow would rise this year. While Hanlon abstained, only Schiff and one other forecaster predicted a drop. A BELIEVER, TO A POINT Euro Pacific's client roster has grown as investors hurt by the bursting Internet and tech bubbles have moved what was left of their money into the company's care. But one of Schiff's biggest clients, and fulsome fans, is Dan Pedersen, a Newport Beach dentist who enjoyed all the upside of the tech bubble without suffering any of the downside, thanks, he says, to Schiff's intervention. In early 2000, Pedersen asked Schiff, his upstairs neighbor in an office complex next to Newport Golf Course, to look at his portfolio, which was managed by another broker and heavily concentrated in high-octane tech issues. Pedersen wondered if he should tweak his holdings to pick up some extra performance. Schiff told the dentist to sell everything. Pronto. "At that time, the Nasdaq was at 5,000," Pedersen says. "Everybody else I talked to said it was going to 7,000. But Peter said it was going to be cut in half. He saved me a lot of money." Since then, Schiff has urged Pedersen to sock his money into assets outside the United States. Among Schiff's favorites: overseas stocks that pay dividends, like energy and real estate trusts; gold stocks; and Australian bond funds. Pedersen says he has gone along with most of Schiff's recommendations - and done well. His currency-adjusted returns last year were 45 percent, he says - boosted, of course, by the dollar's steady decline during the year. But when Schiff, who believes the housing market is in a bubble as big as the one that took Nasdaq to 5,000, urged Pedersen to sell his house, the dentist balked. "My wife's a real estate broker," Pedersen says, "and that's the one area that I have been a little more skeptical. I've seen the cycles. We may have a cycle where it goes down. But I don't think it's going to be down and out." PROVOCATIVE For more than a year now, Schiff has taken his warnings about the market to any forum that would have him. These have ranged from investment roundtables hosted by the Register (where he first met Hanlon) to appearances on "Southland Today" on KDOC-TV, the home of Wally George, the O.C. talk-show host whose provocative style Schiff frequently echoes - and sometimes exceeds. After Federal Reserve Chairman Alan Greenspan told Congress this week that the economy was showing no sign of inflation, for instance, Schiff sent an e-mail to 75 stock market reporters around the country mocking the central bank chief as "Mr. Magoo." "Is he blind?" Schiff's e-mail asked. "The warning signs are plainly there for all to see. The money supply is growing rapidly, gold, oil, and other commodity prices are soaring, the dollar is collapsing, and the federal budget deficit is about to explode." Schiff's rivals in the brokerage business typically respond to jeremiads like this by rolling their eyes and changing the subject. Not because they doubt, for instance, that the U.S. dollar could lose value, but because Schiff puts such an apocalyptic spin on it. That tendency to see the glass half-empty is unlikely to change now that Hanlon has joined Schiff. In their penchant for dark warnings, the two men are practically twins. "We really think that the buy-and-hold broker is going to be out of business," says Hanlon. "The bear market will take care of that. "The only question is, 'Will the clients of the buy-and-hold brokers move toward active management while they still have anything left?'" |
||||
|
|
|
||||
