An Early Bear on California Now Sees Worse Ahead
Charles Biderman’s investment newsletter won’t win any boosterism awards from the California Chamber of Commerce.
Here, in recent headlines from his newsletter, is Biderman’s summary view of the Golden State:
* “Southern California foreclosed mortgages up three-fold.”
* “California bank results indicate continuing real estate collapse.”
* And finally: “California in depression; new state figures confirm economic woes.”
Biderman is the 45-year-old editor of Market Trim Tabs, which he writes from his home in Santa Rosa, just north of San Francisco. The weekly newsletter is faxed to about 50 subscribers, mostly money managers, Biderman says. They each pay $4,000 a year for his wisdom--no small change.
From the day he started the newsletter in January, 1990, Biderman has had one theme regarding California: The state’s economy is headed for a crash. There is too much debt here, too many poor, too few new jobs and way too much hot air in real estate prices, he says.
Rather than just stay out of the way of the crash, Biderman has counseled his subscribers to take advantage of it by “shorting” stocks of companies tied to the state economy--such as banking giant Wells Fargo and Central California retailer Gottschalks. In a short sale, you borrow stock and sell it, betting that the price will plummet.
Biderman’s shorting advice has rankled the target companies. His harshest critics argue that he conspires with money managers to drive stocks down, a charge he vehemently denies. “I do securities research,” he says. “Nobody tells me what to do.”
Love him or hate him, but as the state’s real estate market has unraveled, and as joblessness has soared, he has begun to sound like a modern-day Nostradamus, just a little ahead of his time. Either that, or he is merely the proverbial stopped clock, certain to be right for a moment or two if he keeps the same outlook forever.
Biderman denies any personal ill will toward California developers and homeowners. He simply says he has seen these boom-and-bust cycles before, while most Californians haven’t. Now, he says, “I think we’re entering the greasy part of the chute in California. There are an awful lot of people hanging on by their fingernails.”
A Harvard MBA, Biderman joined the financial weekly Barron’s in 1970, where he became an assistant to Editor Alan Abelson. He left in 1973 to run his own securities portfolio, and branched into real estate, he says. By the early 1980s, he began buying and “flipping” land in New Jersey, riding that state’s real estate boom.
By 1988, using borrowed money, he had amassed Jersey land worth $15 million to $20 million, he says. Then, in a classic reversal of fortune, the market collapsed, cut down by aftershocks from the 1987 stock crash. Biderman’s banks called in his loans. Stunned, he was forced to give up his property and file Chapter 11 bankruptcy, he says.
His property empire gone, Biderman returned to independent securities research as a career, and decided to move to California, because, he says, “I’d always wanted to live in the Bay Area.” He and his family landed here in the summer of 1989.
What he saw when he arrived, he says, was New Jersey West--a highly speculative real estate market ripe for a plunge. His personal debacle, Biderman says, taught him that “unbuilt land has zero value in a bear market.” Not only was there wild California property inflation in the ‘80s, but wild dreams were built on that inflation, he says. Couple a real estate bear market now with the flight of jobs from the state, and add in the ‘80s debt load. . . . The crash has only begun, he argues.
Yet Biderman, a father of two boys ages 4 and 10, insists that he is no universal gloom-and-doomer. True, he hasn’t bought a home, choosing instead to rent for $1,375 a month. But he points out that while he advises shorting many stocks, he also has recommended purchasing some, including retirement-community developer Del Webb and computer products firm Solectron. Both have been big winners for subscribers--though his own money is all in cash investments, he says.
He also was an early bear on Community Psychiatric, writing last January that something was askew with the rehab-hospital firm’s patient bookings. Community stock crumbled in September when it reported disastrous earnings.
Yet many of the stocks that Biderman has recommended as short-sale targets because they’re closely tied to California’s economy have in fact held up reasonably well. He first advised shorting home builder Kaufman & Broad, for example, in July, 1990. The stock has dropped since then but has also rebounded, so that at $12.50 now, it is 4% above Biderman’s shorting price.
Biderman says he doesn’t pretend to be a precise market-timer. His newsletter is named for the small trim tabs on a boat’s rudder. When the rudder is turning, to change the boat’s course, the trim tabs turn first. If he can spot the trim tabs in major economic shifts--such as what he believes is happening to California--then he can prepare his subscribers early in the turn, he says.
“How low (the economy) here is going to go, I don’t know,” Biderman says. “I get it right in the general trend, but specifically I don’t know when it’s going to happen.”
As for the U.S. economy and stock market overall, Biderman is similarly bearish, but he stops short of predicting a national depression. Federal spending--and taxes--must be cut to put debt-heavy consumers back on their feet, he says. Without such action, the “D” word becomes more probable, he says. “A depression is only possible when we think we are too smart to have one.”
Biderman’s Short Sales Here are some of the stocks that Charles Biderman has recommended selling short, and how the stocks have performed:
Short sale: Tues. Pct. Stock Date Price price chng. Community Psychiatric 1/91 30 5/8 12 1/2 -59% Gottschalks 9/91 24 7/8 21 7/8 -12% Wells Fargo 3/90 70 1/2 63 1/8 -10% Ahmanson 8/90 16 7/8 16 1/8 -4% Kaufman & Broad 7/90 12 12 1/2 +4% Household Intl. 4/90 42 3/4 48 +12%
Source: Market Trim Tabs
