On Aug. 8, fears over Europe's debt crisis were mounting, markets were convulsing, and money manager Seth Glickenhaus was in his element, buying stocks on weakness, as he often does when panic reigns.
At 97, he has witnessed a multitude of market swoops, swoons and rallies. His career began in 1934, in the depths of the Great Depression, as a municipal bond trader at Salomon Brothers. (He was on the desk when then-Salomon chief Herbert Salomon "cleared his own trading department by dropping a stink bomb. He thought that was very funny.") Though he has forsaken wingtips for orthopedic soles, he comes to his midtown Manhattan office four days a week and, with help from son James, still runs Glickenhaus & Co., his 50-year-old shop, which has about $1.4 billion in assets.
Glickenhaus' record is certainly enviable. With a compound annual return of 8.27% over the past seven years, Glickenhaus & Co. ranked seventh during that time among 75 large-cap value-oriented stock managers tracked by Money Manager Review.
Glickenhaus has shown himself to be as prescient about the markets as in his stock picks. After the 1987 crash, he prophesied the Dow would rise 40% by the end of 1988. Though he was a few months early, the rally arrived. In 2002 he opined that the housing market, then a pillar of economic growth, was "on the verge" of collapse. Just the timing of his prediction, not its substance, was off.
So what is his latest augury?
Glickenhaus is "rather optimistic" on stocks in the short run, believing that prices will bounce back some after tumbling too far.
As for long run, "I'm less optimistic than most of my confreres. They feel that in the third and fourth quarters things will get better. I don't. I think we're apt to have a very tough market."
Looking out a few years, Glickenhaus is similarly pessimistic, largely because the government has no choice but to slam the brakes on public spending, a fundamental driver of the economy and of equity values.
"There has been a signal change that is quite unrecognized in the country. For darn near 80 years, we've had an inflation based on deficits in federal spending, where they create money to a lesser or greater degree," he says.
"Now, for the first time, we're going to have deflationary federal budgets. They're starting by doing very, very little in reducing the deficit, but eventually they will have to do more."
As a result, he believes "the great bull market" that has propelled the Dow Jones index from 160 in the late 1940s to above 11,000 is doomed: "I think we're going back to where we came to some degree over a period of years. In the same way that Europe is being austere, we're going to be forced to be austere.
"It's a very bleak picture if I'm right. I just hope I'm wrong."
Glickenhaus despairs that the country's political leaders will rectify matters. Neither they nor most economists understand that taking an ax to the military budget would inflict the least amount of pain ("military spending does not give you an offsetting good or service"). A onetime Obama enthusiast, he now pans the president as "a man with a great philosophy who does nothing," He adds: "That doesn't mean I won't vote for him, because the Republicans will have an even worse candidate" in the 2012 elections.
This isn't to say that an astute stock picker won't find a way to profit. Glickenhaus does so by capitalizing on the tendency of stock prices and the overall market to get out of sync with the underlying fundamentals, overshooting them on both the way up and the way down.
When stocks plummet, the descent "is accentuated by the fact that there are always the margin players. You often have the paradox that some of the most stable, steady-growth stocks are hit the most because they had good yields and were owned on margin."
On Aug. 4 and 8, with the Dow in a free fall, Glickenhaus built positions in companies fitting that profile: Dow Chemical Co., hospital and nursing home owner Senior Housing Properties Trust and shipper Navios Maritime Partners LP. "Dow Chemical came out with a spectacular [earnings] statement for the second quarter, [but] the stock kept going down."
Eventually, he says, prices catch up with fundamentals. It's a pattern that has powered Glickenhaus' performance over the decades.
"I love the system the way it is, the way it's been and the way it'll always be if there's a free market."
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