Think the bulls are back in the game? A top hedge fund manager says if you do, you’re in for a rude awakening!
Christopher Zook of CAZ investments calls recent market gains a sucker’s rally and suggests investors who are getting long -- are being played for a fool.
“Just because a chicken has wings doesn’t mean it’s going to fly,” he says. “We’ve got a lot of things happening over the next couple months that will probably cause the market to sell-off.”
Ahead of the broadcast Zook told our producers that he’s net short “in a substantial way” for three main reasons.
Expectations have surpassed the ability of the market to deliver “better than expected” results
2nd quarter economic data may very well show that the recovery is stagnating
SENTIMENT HAS SHIFTED
Psychology has shifted to a “sell the rallies” mentality.
If Zook is right, how should you position yourself?
"Short commercial real estate, he says. "It’s a train wreck coming."
Zook is particularly concerned about $1.4 trillion in commercial real estate loans that will come due for refinancing between 2010 and 2014. For nearly half of them, borrowers could struggle to get new financing because they'll owe more than the properties are worth.
"I’m short the sector broadly via the VNQ ," Zook says.
That might sound like the prophecy of doom and gloom, but Zook isn’t the only person who’s grown much more worried about commercial real estate. And we mean much more worried.
A new report from a bipartisan watchdog group suggests trouble is right around the corner.
"We're looking at a situation where about half of all commercial real estate loans are going to be under water by the end of this year,” says Congressional Oversight Panel Chairman Elizabeth Warren.
”And that’s going to have a direct impact on about 3,000 of community banks; not good,” Warren adds.
The reason smaller banks are more vulnerable to the losses than their larger Wall Street counterparts is because commercial real estate makes up a larger portion of their portfolio.
Unless some catalyst intercedes and prevents these events from playing out, commercial real estate could be the next shoe to drop -- and, in turn, drag the market lower, says Zook.
What do you think? We want to know!
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Trader disclosure: On February 11th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman's Firm Is Short (IWM), (CAKE), (IJR), (SPY), (MDY), (UNG), Short (USO); Finerman Owns (AAPL); Finerman's Firm And Finerman Own (GOOG); Finerman's Firm Owns (MSFT); Finerman's Firm Owns (PLCE); Finerman's Firm And Finerman Own (WFC) Preferred; Terranova Owns (JPM), (OIH), (AA), (RIMM), (GOOG), (EMC), (AAPL), (DELL), (MSFT)
For Joe Terranova
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