"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

28 December 2006

ONE Money Manager Sees Trouble for 2007

A Money Manager Sees Storm Clouds Gathering
By LIZ PEEK, The New York Sun, December 28, 2006

What this positive article on ex-Legg Mason fund manager Dawn Bennett omits is that 17% gains on "defensive strategies" is highly abnormal. She should be looking at 7% returns from a 80 year historical average. Booyah !

Dawn Bennett does not think the sky is falling; she just sees it as seriously askew. She says she is skeptical of the year-end surge in stock prices, and not at all convinced America is in for the much-ballyhooed soft landing. Ms. Bennett heads up the Bennett Financial Group, which she founded earlier this year after leaving Legg Mason, and which currently has about $700 million under management. Her concerns are summarized thus: "There's no way we're not going to feel the effects from 17 interest rate hikes. There's usually a seven-month lag. I can see the Fed having to lower rates in the first six months of 2007."

This is not your normal jolly Christmas conversation. Ms. Bennett's concerns include an expectation that the housing sector is going to get still worse before it gets better, and that the sizeable mortgage credit bubble will cause the consumer to pull in more aggressively. The amount of lending done in the past few years to those with questionable (and unquestioned) credit, stimulated by an expectation of evergrowing home prices, makes Ms. Bennett jittery.

Although others certainly have voiced these concerns, Ms. Bennett's outlook includes a more profound and enduring slowdown in the American economic expansion. Consequently, she is aggressively looking for investment opportunities overseas, as well as trying to plump up domestic returns through purchases of convertible preferreds and other high-yield asset classes.

This year, such measures and a broadly balanced portfolio have resulted in gains for Ms. Bennett's clients (through November) of 17%. Over the past five years her accounts have reportedly grown at nearly 12% per year. Since when did defensive investing become so profitable?


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