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Fund guru fears recession near

One of Boston’s top fund managers is predicting up to a 75 percent chance of a recession within the next six to 12 months.

“Chances are very high,” Manu Daftary told the Herald yesterday. “They could be as high as 75 percent. I think the next six months are going to be pretty rocky.”

Daftary, who runs the $1 billion Quaker Strategic Growth Fund here in the Hub, sees “a lot of headwinds” that may actually end up forcing the economy backward.



Naturally, the latest fears about North Korea and the Middle East are uppermost in investors’ minds.

Among the other factors Daftary cited were soaring fuel prices, rising interest rates and the sharp slowdown in the housing market. Daftary suspects that, when it comes to bailing out a panicky stock market, Fed chairman Ben Bernanke will prove less obliging than his predecessor Alan Greenspan.

He also noted that restaurants, retailers and other consumer-focused companies have already started warning Wall Street that profits are worse than hoped.

Many consumers are also precariously balanced after years of piling up record debts.

And, above all, the economy has been growing above its long-term average rate for a number of years. A recession “is long overdue,” Daftary said.

A few months ago I reported that Daftary had grown so nervous that he was holding 28 percent of his fund - an astonishingly high figure for any mutual fund manager - in cash.

How much cash is he holding today? “Close to 50 percent,” he said.

Most of his selling has been recent. On June 6, he told Barron’s, the Wall Street weekly, that he was 29 percent in cash.

There are good reasons to pay attention to his warnings.

Since Daftary launched his fund 10 years ago, he has beaten Wall Street, Warren Buffett and pretty much any one else you care to mention.

The figures?

Since he launched in November 1996, Daftary’s investment savvy has turned each $1,000 into $5,000.

The figure for “super investor” Warren Buffett: $2,750. For a typical Wall Street index fund it’s around $1,950. And most other mutual fund managers haven’t even done that well.

State Street Corp. is now buying more than a ton of gold bullion a day to meet surging demand among investors for the alleged “safe haven” asset.

New data from the Hub investment giant shows its total bullion has surpassed that of the Bank of England to reach a gleaming 388 metric tons, valued at more than $8 billion.

That’s up another 20 metric tons so far this month, and 125 since the start of the year.

The British central bank, by contrast, holds just 310 metric tons. The Brits dumped more than half their gold six years ago, at the bottom of the market.

State Street, meanwhile, is reaping the benefits of its decision in 2004 to launch an exchange-traded fund to track the gold price shortly before that price went vertical.

The fund, which traded under the ticker GLD, is backed by the bullion the company buys.


The gold is actually held by a third party in a vault . . . in London.

How many fund managers have been forced to interrupt their vacations because of the crises in North Korea and the Middle East? Have a guess. Trading volumes on the New York Stock Exchange hit 1.47 billion shares yesterday. That’s up a thumping 18 percent from the same Monday a year ago.

http://business.bostonherald.com/businessNews/view.bg?articleid=148800&format=&page=1