U.S. stocks, buoyed by optimism for an economic recovery, are instead poised to fall.

Hedge fund manager Tilson doubled bets vs stocks

Wed Oct 14, 2009 2:35pm EDT

NEW YORK, Oct 14 (Reuters) - Whitney Tilson, manager of hedge fund T2 Partners LLC, said on Wednesday he has doubled his bets that U.S. stocks, buoyed by optimism for an economic recovery, are instead poised to fall.

"We've doubled our short book from 30 percent to 60 percent and we've trimmed our long book from 120 percent to about 90 percent," Tilson said in an interview with Reuters.

Tilson predicted stocks would give back gains even as the Dow Jones Industrial Average .DJI briefly climbed above the psychologically important 10,000 level early Wednesday afternoon -- part of a stunning rebound for markets that were dominated by fear as recently as March.

"Investors have now gone from being too pessimistic to too optimistic in general," he said.

But Tilson said the Dow touching 10,000 does not translate into the real economy. He predicted that banks, particularly small and regional lenders, would be hobbled by loan losses for up to five years.

"Investors are thinking that the losses are going to start to diminish fairly quickly over the next year or two, and our best guess is that losses remain very high for the next couple of years," he said. (Reporting by Jennifer Ablan and Joseph A. Giannone, editing by Leslie Gevirtz)

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