Subprime? CDOs? Still #$@%&^.

CNBC Video: Cashing in on Subprime.

James Melcher, portfolio manager at Balestra Capital Partners, is up 124% this year due to his bets against the housing market and subprime loans in particular.

His thoughts going forward:

The Fed cut forestalled a financial panic, and likely stalls off a recession for a while, but can't prevent it. Unfortunately, by cutting rates, the Fed could cause a possible currency crisis and much higher inflation given the weaker dollar. Meanwhile, the housing market continues to deteriorate; we're only in the 3rd or 4th inning of this. Ultimately, the subprime mess will move up the chain, affecting Alt-A [subprime loans are the lowest rated, Alt-A are supposed to be one step up the quality chain, while prime are the best] and to a lesser degree prime mortgages. The Fed doesn't have enough ammunition to fight this problem.

He owns: gold, foreign currencies, short term Treasuries and continues to be short the mortgage market.

TheStreet.com: The Credit Crisis Could Be Just Beginning.

Quotes:

Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.

One of the world's leading experts on credit derivatives (financial instruments that transfer credit risk from one party to another), Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes.

....

I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?" Still too optimistic.

Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.

Ursa Major

Das is pretty droll for a math whiz, but his message is dead serious. He thinks we're on the verge of a bear market of epic proportions.

The cause: Massive levels of debt underlying the world economic system are about to unwind in a profound and persistent way.

He's not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times as an optimistic era of too much liquidity, too much leverage and too much financial engineering slowly and inevitably deflates.