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Q&A With Bob Rodriguez: New Great Recession Coming In 3 Years
FYI: Legendary fund manager Robert Rodriguez, who forecast the global financial crisis, sees money managers and advisors in peril. They will be victims of their own heedlessness, he says.
The day of reckoning will come within three years in a financial crisis at least as big and pernicious as The Great Recession, he told ThinkAdvisor in a recent, exclusive interview. The country is treading a tenuous path toward another disaster of massive proportions, according to Rodriguez. Regards, Ted http://www.thinkadvisor.com/2014/10/27/bob-rodriguez-new-great-recession-coming-in-3-year?page_all=1
"What are your thoughts about the upcoming November elections and the presidential election of 2016?
They’re the most important elections in 80 years. I would like to see a revolt of nine to 10 senators shifting from Democrat to Republican/Independent. I guarantee that would send shock waves through many of the elites in Washington and set up for a major presidential outcome in 2016. Then the elected representatives may finally get around to dealing with what they should be dealing with — addressing out-of-control government spending and the complexity of our tax codes, which are starting to work in ways that aren’t positive. But if the shift is just in the four-to-six range, then it’s business as usual, and nothing will happen." --
A bit dated. (Didn't the mid-terms already take place?) But demonstrates how intrinsically linked all this analysis tends to be to politics. (Paul Krugman would have a completely opposite view.)
Rodriguez and Clements are painfully out of step with current investor sentiment. Their deeply entrenched bearish views (not specific to their current analysis) would have been better received on March 8, 2009.
And what a difference a month and a half makes. His three year annualized return is now 10.64% vs. the 15%+ shown by U.S. News through 9/30. That compares to 21.42% in the S&P and 20.48% in FPPTX's benchmark.
omg is this fantastically comical and fantastically ignorant, that "out-of-control government spending" is a major, or the major, or even an important problem. Wow, wow, wow.
FPA has been bearish for years. Years. I don't think FPACX is seldom below 20% cash. They were weary of a collapse quite a while prior to 2008, and had some sort of long-standing "buying freeze".
I don't mind that, BTW. That's why I've hired them (via FPACX).
While I agree with Clancy and DavidMoran, I think there's an important underlying point to be made: Politics does very much impact investors in all the various markets (stocks, bonds, currencies, etc.). Whether you're talking fiscal policy, regulation of financial markets and institutions, or the subtle (and not so subtle) pressures brought to bear on the Fed, politics matters.
While politics does have an effect on investments (especially some sectors), one should be able to separate politics from broad investment choices, although I think some can't when it comes to their party versus the other.
"However, I clearly confused everyone with my choice of language. What I should have said is that investors are perhaps misconstruing rising equity prices as a traditional bull market spurred on by revenue and earnings growth, and becoming fearful of a reversal, when instead the persistent upwards drift in stock markets is more a reflection of the steady erosion of the soundness of the global monetary system and therefore the rise in stock prices is something that is likely to prevail for some time. There is more to it of course, as I will attempt to explain, but not much.
This should be a great time to be a macro manager. It is almost without precedent: the world's monetary authorities are targeting higher risk asset prices as a policy response to restoke economic demand. Whether you agree with such a policy is irrelevant. You need to own stocks. And yet, remarkably, the most contentious thing you can say in the macro world today is “I’m bullish”."
"October is simply another example. US stocks fell over 10%. I don't really know why. Was it the threat of the end of QE or a global pandemic or more misgivings as to the state of affairs in Greece and Europe's enduringly weak economy? It doesn't really matter. Such is the perceived risk in the financial system that enough investors now anticipate a policy response whenever the S&P falls more than 10%. This ensured that shorts were covered and volatility sold in mid-October. The fixed income market's expectations for hawkish future Fed rate hikes evaporated with stock price weakness and other risk markets soon rallied; the S&P is now back to its all-time high.
Pity the macro manager then who had to stop loss mid-month; that used to be me. But I widened my tolerance for loss. We have no desire to lose money but unless something tangible happens to challenge our narrative we are less willing to automatically reduce our risk taking in response to modest, if rapid, short term market gyrations. Making money requires making the right calls of course but just as importantly it necessitates that we provide trades with enough breathing space to develop and hopefully prosper.
So why all this enthusiasm for upside equity risk?
To my mind the current period is analogous to the Plaza Accord of 1985 when central bankers agreed to intervene in the currency market to drive the value of the dollar lower. The fast moving world of FX was deemed a more expeditious way of correcting for the huge US current account deficit than the laborious and slow process of waiting for the totality of countless micro wage and productivity deals to rectify the yawning trade gap. No one really knew for sure how high the yen or Deutsche Mark should trade back then but this didn’t stop macro managers from being very long such positions."
I did not mean to imply, and do not believe, that politics and investing are not profoundly connected at many subtle levels and in many ways clear and occult. I was just reacting to the wheezing clanking machinery raising the ex machina notions and misunderstandings that gov 'debt' is by definition and from the getgo evil and damaging, that's all, that it is like household or business budgets imprudently executed which will drive us all to ruin somehow and in some grander, higher court. Of course the bizarrely hated BO has not really benefited from the market's performance 09 to present, nor probably should he, or not much.
@ davidmoran: I drew no such implication. Sorry if came across that way. And I don't see Scott's post as critical either.
I guess it's just something I'm acutely aware of - that any number of well-meaning (but ill-informed) people might get themselves elected to high office and could at any time muck-up our relatively healthy economy and markets. Makes me a bit cautious about risk taking - for better or worse.
Without taking any sides, Rodriguez's remarks reminded me of that ever present danger.
We can add Mr Rodriguez to the list of names that have called for the end of good times in the market. Wilbur Ross put out a statement late last week I think.
We can add Mr Rodriguez to the list of names that have called for the end of good times in the market. Wilbur Ross put out a statement late last week I think.
Icahn has said it, now the other day he said 3-5 years. While people are looking for a Santa Claus rally and all that, I do think a pullback would be healthy.
Also, Wilbur Ross has some kind of bizarre shell company listing that went public not that long ago.
Value and momentum both work. To laugh at a value funds performance during the fifth year of a V shaped bull market is ignorant. If you want some serious long term Sharpe, try combining the two.
Comments
Lower! It will be easily 20% or 30% lower from what it is now."
Mr. Rodriguez, meet Mr. Clements.
They’re the most important elections in 80 years. I would like to see a revolt of nine to 10 senators shifting from Democrat to Republican/Independent. I guarantee that would send shock waves through many of the elites in Washington and set up for a major presidential outcome in 2016. Then the elected representatives may finally get around to dealing with what they should be dealing with — addressing out-of-control government spending and the complexity of our tax codes, which are starting to work in ways that aren’t positive. But if the shift is just in the four-to-six range, then it’s business as usual, and nothing will happen."
--
A bit dated. (Didn't the mid-terms already take place?) But demonstrates how intrinsically linked all this analysis tends to be to politics. (Paul Krugman would have a completely opposite view.)
Rodriguez and Clements are painfully out of step with current investor sentiment. Their deeply entrenched bearish views (not specific to their current analysis) would have been better received on March 8, 2009.
Regards,
Ted
http://money.usnews.com/funds/mutual-funds/mid-cap-value/fpa-capital-fund/fpptx
"You need discipline... to sell because you’ve been correct or to sell because your analysis has been incorrect."
How many of us sell because our analysis has been incorrect?
I don't mind that, BTW. That's why I've hired them (via FPACX).
Rodriguez should read Hugh Hendry's letter.
http://www.zerohedge.com/news/2014-11-18/hugh-hendry-i-believe-central-bankers-are-terrified#comments
"However, I clearly confused everyone with my choice of language. What I should have said is that investors are perhaps misconstruing rising equity prices as a traditional bull market spurred on by revenue and earnings growth, and becoming fearful of a reversal, when instead the persistent upwards drift in stock markets is more a reflection of the steady erosion of the soundness of the global monetary system and therefore the rise in stock prices is something that is likely to prevail for some time. There is more to it of course, as I will attempt to explain, but not much.
This should be a great time to be a macro manager. It is almost without precedent: the world's monetary authorities are targeting higher risk asset prices as a policy response to restoke economic demand. Whether you agree with such a policy is irrelevant. You need to own stocks. And yet, remarkably, the most contentious thing you can say in the macro world today is “I’m bullish”."
"October is simply another example. US stocks fell over 10%. I don't really know why. Was it the threat of the end of QE or a global pandemic or more misgivings as to the state of affairs in Greece and Europe's enduringly weak economy? It doesn't really matter. Such is the perceived risk in the financial system that enough investors now anticipate a policy response whenever the S&P falls more than 10%. This ensured that shorts were covered and volatility sold in mid-October. The fixed income market's expectations for hawkish future Fed rate hikes evaporated with stock price weakness and other risk markets soon rallied; the S&P is now back to its all-time high.
Pity the macro manager then who had to stop loss mid-month; that used to be me. But I widened my tolerance for loss. We have no desire to lose money but unless something tangible happens to challenge our narrative we are less willing to automatically reduce our risk taking in response to modest, if rapid, short term market gyrations. Making money requires making the right calls of course but just as importantly it necessitates that we provide trades with enough breathing space to develop and hopefully prosper.
So why all this enthusiasm for upside equity risk?
To my mind the current period is analogous to the Plaza Accord of 1985 when central bankers agreed to intervene in the currency market to drive the value of the dollar lower. The fast moving world of FX was deemed a more expeditious way of correcting for the huge US current account deficit than the laborious and slow process of waiting for the totality of countless micro wage and productivity deals to rectify the yawning trade gap. No one really knew for sure how high the yen or Deutsche Mark should trade back then but this didn’t stop macro managers from being very long such positions."
etc etc
I guess it's just something I'm acutely aware of - that any number of well-meaning (but ill-informed) people might get themselves elected to high office and could at any time muck-up our relatively healthy economy and markets. Makes me a bit cautious about risk taking - for better or worse.
Without taking any sides, Rodriguez's remarks reminded me of that ever present danger.
Also, Wilbur Ross has some kind of bizarre shell company listing that went public not that long ago.