Exclusive: Interview With Elite Fund Manager Tom Conrad – Warns of 50% Market Crash

Thomas D. Conrad, Ph.D. is a highly ranked hedge fund manager with World Opportunity Master Fund and president of Financial Management Corporation. His flagship World Opportunity Master Fund, LP, is an international hedge fund that operates globally as a fund-of-hedge-funds. Fund managers hold in aggregate well over US$2 billion in managed investments. The fund has been ranked number nine in the world in certain categories by BarklayHedge and recently reached a number three ranking. Dr. Conrad has held a seat on the Philadelphia-Baltimore-Washington Stock Exchange, and was Deputy Assistant Secretary of the United States Air Force for the Reagan Administration. 

TDV: Hello, Tom, thanks for sitting down with us.  Before we ask you about the markets, we heard you went to the FreedomFest conference in Las Vegas recently.  I normally go but have decided to stay out of the US for now.  But, tell us about that.

Tom Conrad: I just got back and it was quite an experience. So many interesting people were there – Doug Casey, Peter Schiff, George Gilder, Steve Forbes – and people in the news like Donald Trump. I would say about 2,200 people attended and filled the hotel. Many were, of course, libertarians and Tea Party types.

TDV: Our kind of people.  Was there a lot of market speculation?

Tom Conrad: Nobody talked about the short term but people were certainly concerned about the long term.

TDV: Did anything in particular stand out from a political or business standpoint?

Tom Conrad: I came away believing Jeb Bush will be the Republican nominee as opposed to Marco Rubio. And my recommendation would be Carly Fiorina from Hewlett-Packard as his vice president.

TDV: It may be a strong ticket but the idea of another Bush as president seems uncomfortable to say the least. You’re sort of announcing the system is broken when you have the father and two sons being serial presidents of a 300–plus million country.

Tom Conrad: Well, I’m not endorsing the situation, but it’s a probable reality. Jeb and his family like to grow government and they have a lot of fellow travelers and access to a lot of money including Rockefeller money. And Jeb has already raised $114 million, something like that, a huge amount.

TDV: In a sense it really doesn’t matter does it? The new GOP rules allow top GOP officials to pick whom they want as a candidate regardless of party votes. The conservatives are in charge of the party. That means Rand won’t win either.

Tom Conrad: Rand Paul doesn’t have the charisma of a Ronald Reagan or even of his father, Ron Paul. The one with the most impact on the national stage, for now anyway, is probably Donald Trump. Say what you will, he’s not part of any political conspiracy and he’s a tough negotiator when it comes to the borders.

TDV: He’s also a polarizing candidate.

Tom Conrad: He speaks his mind or seems to. Anyway, I’m not with the GOP anymore. I switched to the Constitution party. The former head of the party, James Clymer, is a client of mine. He’s in the fund and I told him about our performance this year at the conference.

TDV: All right, give us some numbers.

Tom Conrad: Well, the stock market is up 2.43% and we’re [our fund is] up 12.3% percent as of this interview for this year. Not only that, but our position from a statistical standpoint contains seven percent less risk than the S&P.

TDV: Explain how you manage appreciation with less risk.

Tom Conrad: It involves strategies you can use as a private fund. Asset allocation over a variety of strategies and selling indexes and instruments short, including the S&P when necessary. Also we’re broadly diversified on an international level and we take on special situations if we see the opportunity.

TDV: How did you avoid getting hurt by the China downturn?

Tom Conrad: We did take a hit in China. We’re down five percent but we made up the shortfall elsewhere in Asia. Also we’re not hesitant to reverse our positions. We ended up taking back some of our China losses by taking short positions. We were up four percent the other day.

TDV: How about emerging markets?

Tom Conrad: Emerging markets including South Africa and Turkey are hot. We’re invested in several countries and are up about eight percent. Japan has been a good performer for us as well. We’re having a good month and a good year. Of course I agree with the old adage, “sell in May and go away.” But the market has been active. It may slow down in August.

TDV: What do you see by the end of the year?

Tom Conrad: The market will probably close below where it is today.

TDV: That sounds reasonable. With the market so overbought do you see the possibility for a significant correction?

Tom Conrad: A lot of that depends on the Fed and how they handle any rate hike. They could certainly unsettle the markets but right now there’s a lot of buying momentum and something strange is holding this market up.

TDV: Strange? The plunge protection team?

Tom Conrad: I’m not going to speculate because there’s no need to. But with a market like this people may feel they have no choice but to invest. Real estate is speculative and the return on fixed income is fairly insignificant. So where are you going to go? You can’t simply keep your money in savings accounts. None of it makes much sense, and domestically I keep getting beat up on my shorts. Right now equities are the only game.

TDV: Well let’s restate to make sure we have you on the record: You don’t see a crash in the fall?

Tom Conrad: I see at some point a big decline, possibly a slow and steady one. I see a market domestically that could lose 50 percent of its value. The longer we go without a correction the worse it’s going to get. We haven’t had a correction in six years. Eventually we’re going to get one – short and sharp or over a long period. It could resemble the aftermath of 2008 which dragged on into 2009 and was a bloody mess for months.

TDV: What about precious metals?

Tom Conrad: Precious metals will do well. Silver for instance is at a pathetic low, especially compared to gold. The ratio is usually 15 or 16 to one but right now silver is trading around 77 to one. That means silver can move up a great deal from historical lows to close with gold.

TDV: What other sectors look good to you?

Tom Conrad: Well, we’re buying exposure to Greek banks believe it or not. We just purchased Alpha Bank in Greece. That’s a leading private-sector bank and probably the second largest commercial bank. We buy when there’s blood on the streets.

TDV: You were holding Apple at one point?

Tom Conrad: We’re out of Apple. Apple simply became too pricey. It’s an example of overreach, but in this market there are many Apples – and a lot of them at extremely high valuations. But you short them at your own risk. Until we see significant price inflation, a short position can be like catching a falling knife. We sell short as I’ve described, but it’s not an easy strategy right now.

TDV: The frothiness is strange given the weak economy.

Tom Conrad: I agree. The economy never recovered from 2009. The middle class in the US is really hurting. Many of the jobs are part time or low paying. Meanwhile, it’s the big guys investing and making the money in this market. Wealthy people and corporations. Easy money drives all this speculation.

TDV: Are you looking at any special situations?

Tom Conrad: We’ll give it a try if we think it’s worthwhile. George Gilder is a friend of mine and he told me about a company called EZchip Semiconductor. I think he’s written about it and he may be on the board. Anyway, we’ve invested and since it’s traded in the US, that’s made life easier.

TDV: OK, Tom, this has been interesting. You’re not doing a lot of aggressive short-selling in the US because the market has too much momentum. And you’re experiencing success on the long side in emerging markets. However, you’re expecting that the fall may be more volatile or simply trigger a long-term sell off that could see the Dow lose 50 percent of its value.

Tom Conrad: The market simply can’t keep rising at this rate. Once we see a little price inflation, the Fed will have to step in. And that may finally puncture the greed that’s driving this show. Maybe that will happen in the fall, maybe not. Maybe the market will continue to climb. But eventually it will happen.

TDV: The injection of a little fear?

Tom Conrad: With a market like this, even a little bit can tip the balance.

TDV: Until then you’ll stay long?

Tom Conrad: Reluctantly because even at these valuations, we’re still making money. They say you can’t fight the tape and those are wise words.

TDV: Well, thanks Tom. Good luck with the rest of the year.

Tom Conrad: Thank you.

For us, this interview with an elite hedge fund manager, currently ranked #3 in the world by some measures, was illuminating.  As we’ve heard and seen from most fund managers, they have to remain long in many markets due to the monetary environment.  But to hear from someone of his reputation that the market could easily crash 50% really caught our attention.  Because, due to numerous events we are predicting, including our Shemitah theory (see our video on that here), we had told subscribers that a 50% drop is a possibility by, or in, the fall.  It is interesting we both had that number in mind.  Also take note that since 2008 we have not been calling for a US stock market crash… we said it would go much higher based on money printing.  But we are now moving to the other side.

We have already told subscribers (subscribe here) of an ingenious way to potentially make a fortune if a market drop anywhere near 50% happens, yet with quite limited downside risk.  We are also looking at other ways to play what we see coming this fall and will update subscribers as we have developed them.

The above information and opinions in the interview are Mr. Conrad’s; those affiliated with this interview and its presentation may or may not have involvement with Mr. Conrad or his fund.

Originally Appeared At The Dollar Vigilante