Thursday, September 24, 2009

I May Be Crazy...

... but at least I am not the only one. Here is what Julian Robertson thinks. According to his profile, this gentleman's hedge fund had gross compounded return of 31.5% between 1980 and 2000, and he closed his fund before the dotcom bubble burst. In 2008, Fortune reported that he had seen 400% return since he had closed the fund. It's hard to argue with such a record - you listen to a man like this, even if you do not agree with everything he has to say. Of course, politicians and bureaucrats who have hardly made an honest buck in their lives (Timmeh!) know better, and insist we have to spend more, begin to buy houses again, and while we are at it, allow them to "reform" health care as they see fit... because their track record is... oh, who cares, just let them do it finally, okay?!

A few weeks ago, Richard Russell of the Dow Theory Letters (subscription required) had this to say:

"Let me get this straight -- Obama's health care plan will be written by a committee whose head says he doesn't understand it, passed by a Congress that hasn't read it, and whose members are exempt from it, signed by a president who smokes in secret, funded by a treasury chief who did not pay his taxes, overseen by a surgeon general who is obese, and funded by a country that is broke.

What could possibly go wrong?"

Robertson says the U.S. has to "quit spending, cut back, start saving, and scale backward". But that does not re-elect politicians - quite au contraire. Thus, while the American consumer/taxpayer is doing just as Robertson suggests, the US government is doing it's darnedest to offset it by spending, expanding, borrowing, and "scaling forward". Much as I hate to bet against the Fed and the Treasury, I cannot help but tip my hat to Robertson's steepener bet. In his own words: "I've made a big bet on it. I really think I am going to make 20 or 30 times... I'm amazed at the amount of money the government is throwing at this thing. You don't even react anymore unless somebody's talking about $1 trillion. I genuinely admire the administration's courage in doing what it's doing, but not the wisdom of it. I look at the TALF (Term Asset-Backed Securities Loan Facility) program, for example, and it's almost a bribe to get people to put on more leverage ... I ask anyone to give me an example of an economy beefed up by huge amounts of quantitative easing that did not inflate tremendously when or if the economy improved. I think what we're doing now will either fail, or it will result in unbelievably high inflation - and tragically, maybe both. That would mean a depression and explosive inflation, which is frightening."

Hear, hear!

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