The market bears are looking for cover and one of their leading superstars, Jim Melcher, who runs the Balestra Capital Partners hedge fund, told The New York Sun today that he believes we are heading for the worst recession since the 1930s and thinks the Dow will fall to between 9,100 and 10,400 - another 20% to 30%.

He told the Sun, "I've never seen the market with more risk and what's significant is that the risk is not yet priced in." He believes an investor's stock portfolio should be half what it is now. He expects unemployment to grow dramatically as consumption slows. And, he things the housing market collapse has a long way to go. He told the Sun that with the "burdens of rising energy and food costs, and combined deterioration of the credit markets" average homeowners will not be able to withstand this recession he sees.

So where's he putting his hedge fund's money? He says it's pretty much devoid of stocks except for two ETFs - the Oil Services Holders Trust (AMEX: OIH) and the StreetTRACKS Gold Trust ETF (NYSE: GLD). The rest of his fund management strategy is shorting stocks and certain bonds - mortgage-backed junk bonds. He's using derivatives, put options and credit default swaps. He is also short ABEX, which is an index of residential mortgage-backed securities.

Another key strategy he is employing is foreign currency trading. His favorite currencies are the Swiss franc and the Japanese yen.

Lita Epstein has written more than 20 books including the "Complete Idiot's Guide to Foreign Currency Trading" and "Trading for Dummies."