A footnoted.org exclusive: Michael Steinhardt on the current markets…
We take a break from our usual troll through the filings because last night, I had a chance to hear legendary hedge fund investor Michael Steinhardt speak at a Brandeis event at the Harmonie Club. Though Steinhardt has been retired from the industry for nearly 15 years now, and said he spends most of his time on philanthropic issues, including trying to set up a charter school that focuses on teaching Hebrew in (of all places as the Brooklyn native joked last night) Gerritsen Beach, he had lots to say about the current economic situation, including how impossible it is to really predict anything.
During the hour-long talk, I attempted live tweeting, focusing on the market-related issues (as opposed to the other questions that came up about philanthropy and Jewish education) though I don’t think Twitter was able to give the full flavor of the talk, which was really incredibly interesting and more than a bit inspiring.
Of particular interest to footnoted readers were Steinhardt’s comments on the SEC losing its way (he also said the Department of Justice had too). He also said that the current period has “made me less of a capitalist” because so far at least, it has been a “punishment-free period.” That’s particularly interesting given Steinhardt’s personal history with regulators. Some might remember that back in the early 1990s, Steinhardt settled with the SEC and DOJ over an investigation over T-bills, personally paying over $50 million in fines. He said the money management industry had “failed miserably” and that hedge funds were “no longer a place for the best and the brightest”.
During the talk, he kept returning to the theme that everyone is a product of the last tick. So with markets going up since early March, there’s an expectation that they will continue to go up. Ditto for back in September, when things started imploding. But the contrarian — and it would be hard to describe Steinhardt as anything but — doesn’t follow the crowd. Steinhardt also kept returning to the theme of creative destruction and said that while some companies had been allowed to fail, there was “no appetite for short-term pain” like allowing GM to fail. There was also a bit of a dig at what has to be Bob Nardelli when Steinhardt said that “failed executives go on to lead car companies”. Footnoted readers no doubt remember Nardelli’s rocky tenure at Home Depot (HD) and his enormous exit deal.
Afterward, as I stood in line to introduce myself, I heard the guy behind me — a fellow alum — say, “It must be nice to make a billion bucks and tell everyone else that they have it all f-ing wrong.” Needless to say, he didn’t say that to Steinhardt directly.
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May 27th, 2009 at 1:19 pm
The guys at the top of the “pyramind” or who get in early on the “ponzi scheme” is always better off and feeds off those below him.
May 27th, 2009 at 1:23 pm
Yes the issue of political capture is becoming quite significant. This is essentially what Steinhardt was saying or alluding to if I read the review correctly. The degree of the capture and the resulting “policies” will set the trajectory. We could either soar into inflationary territory or dive into deflationary territory. Either way we crash eventually as capture alweays ends in catastrophic failure. Tough to say what happens right now or how long we have. Hopefully a long time still but there are no guarantees. Rome lasted over 500 years from the capture which incidentally happened nearly exactly 2000 years a go. Historians call it the movement from Republic to Empire.
May 27th, 2009 at 3:48 pm
“… I don’t think Twitter was able to give the full flavor of the talk, which was really incredibly interesting and more than a bit inspiring.”
Wait, you’re telling me 140-character updates don’t give the full flavor of an hour-long talk?
Also, why is it “needless to say” that someone would bite his tongue rather than offer a perfectly valid critique to Mr. Steinhardt’s face? I could imagine that a man as apparently thoughtful and contrarian as he would be more than able to take it.
May 27th, 2009 at 9:18 pm
Wall street is just one big Ponzi scheme. Pump and dump by no less than CNBC and their shills.
don
thelittleguylobby.org
May 28th, 2009 at 3:40 am
This whole Economic fiasco reminds me of Milgram’s Studies not Ponzi the Schemer.
No regulation is like putting Wolves in the cage with the Sheep to watch them!
Their animal instincts take over and soon they have to eat each other!
Bill Clinton got credit for a wonderful economic boom. I loved him but now I realize that he made a deal with ‘The Devil’ (Con-servatives/Repugnicans) to get credit within his term in office. Our short sighted policies are pathetic. Anyone should know that an entity like a boardroom of investors have no conscience or soul. Never will.
Fact is we would be better served if we followed the rules of savages.
From the Iroquois Confederacy-’In our every deliberation, we must take into consideration the impact that our decisions will have on the next seven generations’ Savages?
May 28th, 2009 at 2:38 pm
Pimco’s Gross: Boom times are over
3:18p ET May 28, 2009 (MarketWatch)
CHICAGO (MarketWatch) — Bill Gross, co-chief investment officer of bond mutual-fund giant Pimco, on Thursday offered investors a sobering market outlook in which he sees lower returns, decreased U.S. growth and the loss of the dollar’s status as the world’s reserve currency.
In a speech delivered to advisers and investment managers at the Morningstar Investment Conference, Gross outlined what Pimco colleague Mohamed El-Erian has termed the “New Normal.”
In a world of more regulation, private-sector deleveraging and less consumption, “it’s hard for [Pimco] to imagine” the Dow Jones Industrial Average climbing back to 14,000 or home prices returning to 2006 levels, Gross said.
“Growth will be stunted,” he said. “It will be a different type of world and we have to get used to that.”
The U.S. economy will grow at between 1% and 2% a year rather than 2% to 3% a year for the next three to five years at least, Gross said. “That will make a significant difference for corporate profit growth,” he said.
Moreover, unemployment will hover around 7% to 8% rather than the recently typical 4% to 5%, he added, and the higher rate would be around “for a long time to come.”
Gross added that inflation would also start to accelerate in about three to five years’ time.
New questions
This new economic climate should prompt investors to question many previously held assumptions — especially about whether stocks will outperform bonds, and what this means for their portfolios. Figures show that over certain time cycles, bonds have outperformed stocks. See related story.
Gross also said that corporate America will have to adapt to no longer being the focus of government policy. Wage earners will claim policy-makers’ attentions, he said, and gave the looming resolution of General Motors Corp. in favor of its union as an example of the new environment.
“Whether or not you like it, whether or not you endorse it, get used to this,” Gross told the audience.
In light of this new reality, investors should look for stable income from their investments, rather than reaching for returns.
“This is not a bond thing,” he said. “Companies like Procter & Gamble and Coca Cola Co. are good, stable companies.”
Gross also said, with certainty, that the dollar will lose its reserve status. “We simply have too much debt,” he said.
To be ready for that day, investors should invest outside the U.S., in areas that will grow. In particular, he named Brazil, India and China, pointing out that consumption in China is 35% of GDP compared to 70% in the U.S.
“That shows it has huge growth potential,” Gross