Jan 30, 2009

Peter Schiff: "I'm not just doom and gloom"

I'm very negative on the U.S. economy. But I'm very optimistic on a lot of other economies. A lot of people tell me, 'Peter, this doesn't make any sense. How can you be so dire and gloomy on the U.S. and yet so positive on the rest of the world?' That shows you I'm not just gloom and doom. I recognize that contrary to popular opinion, the U.S. economy has been a drag on the global economy, and that when the rest of the world stops subsidizing us, growth abroad will actually improve as a result.

~ Peter Schiff, President, Euro Pacific Capital, "Gloom and Doom? Nah; Just for the U.S.," Barron's, June 30, 2008, by Lawrence C. Strauss

Nikita Khrushchev, moving from socialism to communism

We cannot expect the Americans to jump from capitalism to Communism, but we can assist their elected leaders in giving Americans small doses of socialism until they suddenly awake to find they have Communism.

~ Soviet Leader Nikita Khrushchev, 1959

Jan 27, 2009

Karl Marx on communism

Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more of expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism.

~Karl Marx, Das Kapital, 1867

Jan 25, 2009

Abraham Lincoln on invading the South

[W]e denounce the lawless invasion by armed force of the soil of any State or Territory, no matter what pretext, as among the gravest of crimes.

~ Abraham Lincoln, inaugural address, 1861

(Lincoln's pledge was broken within a month.)

Jan 22, 2009

Ron Paul on attempts to create wealth by manipulating interest rates

This whole idea that you can do central economic planning by manipulating interest rates is a fallacy. We have depended on this for too long. We believe the Federal Reserve, by creating credit and giving us artificially low interest rates, is the road to great wealth. But it isn't. It's the road to a disaster.

~ Congressman Ron Paul, "Ron Paul on the Geithner Crime," LewRockwell.com Blog, January 21, 2009 (interview on Bloomberg TV)

Jan 21, 2009

Barack Obama on the causes of the economic crisis

Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age.

~ President Barack Obama, Inauguration speech, January 20, 2009

Jan 20, 2009

BusinessWeek: Robert Rubin collects $118 million in pay at Citigroup

Even once-revered former Treasury Secretary Robert Rubin, who, according to compensation data tracker Equilar, collected $118 million in pay between 1999 and 2006 while serving as director and senior counselor at Citigroup, has taken some heat.

~ BusinessWeek, "Bailout Money Could Have More Strings Attached," January 26, 2009

Thomas Sowell on government attempts to create "affordable housing"

The ultimate irony is that increasing government intervention in the housing market over the years has generally made housing less affordable than before, by any standard.

A hundred years ago, Americans spent a smaller percentage of their incomes on housing than they do today. In 1901, housing costs took 23 percent of the average American's income. By 2003, it took 33 percent of a far larger income.

In particular places where government regulations and restrictions have been especially severe, such as coastal California, rents or monthly mortgage payments have averaged as high as 50 percent of the average person's income.

~ Thomas Sowell, "Lured to Disaster," Townhall.com, January 20, 2009

Jan 19, 2009

Barney Frank: GSEs are "fundamentally sound" (2008)

I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They're not in danger of going under…I think they are in good shape going forward.

~ Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008

(Two months later, the government forced the mortgage giants into conservatorships and pledged to invest up to $100 billion in each.)

Bernard Madoff on financial safeguards

In today's regulatory environment, it's virtually impossible to violate rules.

~ Bernard Madoff, money manager, October 20, 2007

(About a year later, Madoff—who once headed the Nasdaq Stock Market—told investigators he had cost his investors $50 billion in an alleged Ponzi scheme.)

Ben Bernanke: large global banks sound (2008)

I expect there will be some failures. … I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system.

~ Ben Bernanke, Federal Reserve chairman, February 28, 2008

(In September, Washington Mutual became the largest financial institution in U.S. history to fail. Citigroup needed an even bigger rescue in November.)

T. Boone Pickens: $150/bbl oil by end of 2008

I think you'll see [oil prices at] $150 a barrel by the end of the year.

~ T. Boone Pickens, June 20, 2008

(Oil was then around $135 a barrel. By late December it was below $40.)

Jim Cramer on Wachovia CEO Bob Steel (2008)

I think Bob Steel's the one guy I trust to turn this bank around, which is why I've told you on weakness to buy Wachovia.

~ Jim Cramer, CNBC commentator, March 11, 2008

(Two weeks later, Wachovia came within hours of failure as depositors fled. Steel eventually agreed to a takeover by Wells Fargo. Wachovia shares lost half their value from Sept. 15 to Dec. 29.)

FBR analyst on AIG (2008)

They could have huge gains in the second quarter.

~ Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008

(AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.)

George W. Bush on the economy (2008)

I'm not an economist, but I do believe that we're growing.

~ President George W. Bush, July 15, 2008

(GDP shrank at a 0.5% annual rate in the July-September quarter. On Dec. 1, the National Bureau of Economic Research declared that a recession had begun in December 2007.)

Richard Band on the stock market: "keep the faith!" (2008)

A very powerful and durable rally is in the works. But it may need a couple of days to lift off. Hold the fort and keep the faith!

~ Richard Band, editor, Profitable Investing Letter, March 27, 2008

(At the time the DJIA was at 12,300. By late December it was at 8500.)

Paul Johnson at the onset of the Iraq War (2003)

The U.S. must not merely possess the means to act alone if necessary; it must alsocultivate the will. Fate, or Divine Providence, has placed America at this time in the position of sole superpower, with the consequent duty to uphold global order and to punish, or prevent, the great crimes of the world. That is what America did in Afghanistan, is in the process of doing in Iraq and will have to do elsewhere. It must continue to engage the task imposed upon it, not in any spirit of hubris but in the full and certain knowledge that it is serving the best and widest interests of humanity.

~ Paul Johnson, historian, "Five Vital Lessons From Iraq," Forbes, March 17, 2003

Jan 16, 2009

Albert Jay Nock on social engineering and civilization

There is no social engineering that can radically renovate a civilization and change its character, and at the same time keep it going, for civilization is an affair of the human spirit, and the direction of the human spirit cannot be reset by means that are, after all, mechanical. The best thing is to follow the order of nature, and let a moribund civilization simply rot away, and indulge what hope one can that it will be followed by one that is better. This is the course that nature will take with such a civilization anyway, in spite of anything we do or do not do. Revolts, revolutions, dictatorships, experiments and innovations in political practice, all merely mess up this process and make it a sadder and sorrier business than it need be. They are only so much machinery, and machinery will not express anything beyond the intentions and character of those who run it.

— Albert Jay Nock

Jan 11, 2009

Kevin Duffy on the dreaded "speculator"

Ah, the dreaded “speculator,” the perennial whipping boy of anti-capitalists. What is so evil about the speculator? Just like the entrepreneur, he makes judgments about the future, risks his own capital, and is the bearer of uncertainty. If his crystal ball is clear he profits and expands; cracked and he incurs losses and eventually works for someone with better vision. He allows the farmer, oil company, and refiner to offload uncertainty and risk. He is a hero, not a villain.

Co-managing a hedge fund makes me a speculator I guess, and as a short seller, one of the most dreaded kind. Last spring we began shorting crude oil around $100/bbl and backed up the track at $145/bbl. I remember friends complaining at the time that speculators were driving up gas prices ever higher. It was a conspiracy of Big Oil, OPEC, and those “greedy” speculators. I simply replied, “if you’re so concerned, put your money where your mouth is - buy a futures contract.” And I reminded them I was doing the same, taking the other side of the trade.

What caused the bubble in oil prices? A variety of economic actors - consumers, producers, and yes, speculators - bet wrong. Some bought into Peak Oil theories, others believed in the “decoupling” theory which extrapolated growing demand in the BRIC countries despite a retrenching U.S. consumer. Many underestimated the severity of global recession and ignored conservation measures crimping demand. Also forgotten is the role of Fed policy which was aggressively easing in order to arrest the bursting of a massive credit bubble. Investors and speculators feared inflation and bid up inflation hedges - not just crude oil, but grains, precious metals, and other commodities. Platinum, for example, jumped 77% in just 6 1/2 months after the Fed began cutting interest rates in August, 2007.

That the future is uncertain and human beings are prone to error is a given. The question is, who is better at this endeavor, the entrepreneur/investor/speculator risking his own capital or the politician/bureaucrat/regulator influenced by special interests and risking taxpayer money? The free market - as the oil spike and collapse shows - has a feedback mechanism for correcting error. The political system has a way of ensuring the worst come out on top, as the recent presidential primaries make clear.

~ Kevin Duffy, Bearing Asset Management, January 11, 2009

Barack Obama on financial bailouts and transparency

Let's lay out very specifically some of the things that we are going to do with the next $350 billion of money. And I think that we can regain the confidence of both Congress and the American people that this is not just money that is being given to banks without any strings attached and nobody knows what happens, but rather that it is targeted very specifically at getting credit flowing again to businesses and families.

I think that when you look at how we have handled the home foreclosure situation and whether we've done enough in terms of helping families on the ground who may have lost their homes because they lost their jobs or because they got sick, we haven't done enough there.

~ President-Elect Barack Obama, interview on ABC's "This Week," "Obama: $350b bailout needs to help people," Associated Press, January 11, 2009

(Among the things under consideration by Obama aides and congressional Democrats are limiting executive pay at institutions that receive the money and forcing such institutions to get rid of any private aircraft they may own or lease.)

Jan 7, 2009

Jeremy Siegel sees stocks up 20% in 2009

All of this means that, although the first quarter of 2009 will see negative growth, GDP should stabilize in the second quarter, earlier than most economists now anticipate. In real terms, housing prices have already retraced most of their gains from 2000, and by midyear prices should stabilize in this low-interest-rate environment. Year-over-year inflation should sink to zero, especially in the first half of 2009.

This year, as the economic slide abates and investors realize a catastrophe has been avoided, stock prices should enjoy a 20 percent or higher return. All equity sectors should recover.
The financial stocks will still be burdened by bad loans and government obligations.

Nevertheless, new lending will prove extremely profitable to the banks whose cost of funds is now essentially zero. The Fed might find that it will be forced to raise rates during the summer, earlier than planned. And I believe long-term Treasuries are in a giant bubble and their prices will fall to earth once the economy improves.

~ Jeremy Siegel, "2009: A Much Better Year," Yahoo! Finance, January 6, 2009

Cicero on public debt and welfare

The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.

~ Cicero, 55 BC

Jan 5, 2009

Jeremy Grantham turns cautiously bullish at 900 on the S&P 500

Finally! On October 10th we can say that, with the S&P at 900, stocks are cheap in the U.S. and cheaper still overseas. We will therefore be steady buyers at these prices. Not necessarily
rapid buyers, in fact probably not, but steady buyers. But we have no illusions. Timing is difficult and is apparently not usually our skill set, although we got desperately and atypically lucky moving rapidly to underweight in emerging equities three months ago. That aside, we play the numbers. And we recognize the real possibilities of severe and typical overruns. We also recognize that the current crisis comes with possibly unique dangers of a global meltdown. We recognize, in short, that we are very probably buying too soon. Caveat emptor.

~ Jeremy Grantham, "Reaping the Whirlwind," GMO Quarterly Letter, October, 2008

Jeremy Grantham on bubbles as outlier events

Just as all bubbles have broken, these bubbles did. Far from being a surprise, the bubbles breaking were absolutely not outlier events, contrary to protestations. The bubbles forming in 1998 and 1999 and in 2003 through 2007 were the outlier events. The U.S. housing market, which was a clear bubble with prices at least 30% above a previous very stable trend, is well on its way back to normal, and equities and risktaking may well have made it all the way back.

~ Jeremy Grantham, "Reaping the Whirlwind," GMO Quarterly Letter, October, 2008

Jeremy Grantham on the bubble in risk taking

The combination of favorable conditions and irrationally exuberant encouragement from the authorities produced an even more poisonous bubble – that in risk-taking itself. Everybody, and I mean everybody, got the point that risk-taking was asymmetrical and reached to take more risk. The asymmetry here was that if things worked out badly they would help you out (this sounds very familiar!), but if all went well you were on your own, poor thing. Ah, the joys of pure capitalism!

~ Jeremy Grantham, "Reaping the Whirlwind," GMO Quarterly Letter, October, 2008

Byron Wien forecasts a 33% rise in the S&P 500 for 2009

In anticipation of a second-half recovery in the U.S. economy, the market improves from a base of investor despondency and hedge fund and mutual fund withdrawals. The mantra changes from ‘fortunes have been lost’ to ‘fortunes can still be made.’

~ Byron Wien, 75-year-old chief market strategist at Pequot Capital Management, "Pequot Capital’s Wien Sees Rallies in Stocks, Oil, Gold in 2009," Bloomberg, January 5, 2009, by Elizabeth Stanton

(Wien forecast the S&P 500 will rise to 1,200 in his 24th annual “10 Surprises” list. He also predicted gold will rise to $1,200 an ounce and oil will rebound to $80 a barrel.)

Brent Mattis on Nouriel Roubini's diagnosis and remedy for the credit crisis

Nouriel Roubini accurately saw the building problems that led to the crisis, but his understanding of the solution is completely false. He's like a Doctor who detected cancer before anyone else, but recommended magic charms and chicken bones to cure it.

~ Brent Mattis, December 24, 2008

Jan 4, 2009

WSJ: Greenspan expects to command $150,000 per speech

Mr. Greenspan intends to sign up with the Washington Speakers Bureau and command as much as $150,000 per speech, the Financial Times reported last week.

~ The Wall Street Journal, "Alan Greenspan in Play? Headhunters Can Dream...," January 31, 2006

Hugo Chavo on George W. Bush

Hitler would be like a suckling baby next to George W. Bush.

~ Hugo Chavo, President of Venezuela, February 4, 2006

Jeff Skilling on Enron: "We were making the world better"

We were making the world better.

I was emotionally tired. I put so much of my life into it. Every day was intense. I had not spent the time I should have spent with my family.

The short sellers were all over the stock, and I was having a hard time explaining why Enron was a strong company.

~ Jeff Skilling, former president of Enron, testifying in his defense in Houston, "Skilling Defends Enron, Himself," The Wall Street Journal, April 11, 2006

Jan 3, 2009

Alan Abelson on "widespread stealth bullishness"

We'll happily abandon our nagging negativism on the stock market when everyone stops saying it's time to buy because everyone's bearish. As was nicely enunciated last week by an options maven in this space, the professed ubiquitous bearishness doesn't square with unmistakable evidence of widespread stealth bullishness. We'll pay more heed to the optimism of the most luminous pundits, including those few who properly urged caution in advance of the debacle, when they stop offering projections five and seven years out in urging one and all to invest now.

~ Alan Abelson, "A Plague of Prophecy," Barron's, January 5, 2009

Jan 2, 2009

Bill Bonner on government meddling in the economic downturn

The bad news is that government meddlers all over the world are making the situation much worse. They don’t have any choice. They have to react. And the only things they can do are the usual claptrap remedies. More government spending. More giveaways. More bailouts. All they are doing is trying to avoid the ‘creative destruction’ that a real economy needs... and postponing the inevitable adjustments and corrections that must be made.

~ Bill Bonner, "Well... It's Over," LewRockwell.com, January 2, 2009

Ken Fisher: "Look past the pessimism"

Look past the pessimism and remind yourself that it's better to be a little early than a little late in getting back into stocks. The upward move at the beginning of a bull market is almost always huge compared with the vacillations late in the bear market. If you try to pick a bottom, you will miss a good part of the action.

~ Ken Fisher, "Be a Bad News Bull," Forbes, December 18, 2008 (January 12, 2009 issue)

Bob Rodriguez on the futility of economic stimulus

[President-elect Barack Obama] will try to stimulate spending with one foot on the gas, while consumers are pushing on the brake [by saving.] We're in for a very discontinuous environment.

~ Bob Rodriguez, "The Doomsayers Who Got It Right," The Wall Street Journal, January 2, 2009, by Jeff Opdyke

(Thus, he says, the economy will sputter in fits and starts. The recession will deepen over the next six to 18 months.)

Michael Flynn on the credit crisis

Let's be clear: This is a Wall Street crisis, not a national economic crisis. The overall economy, while a bit weak, is still growing. Some politicians are comparing the current environment to the Great Depression. But in 1932, when the federal government last moved to bail out the banking sector, economic output had fallen 45 percent and unemployment was a staggering 24 percent. Today, economic output is actually up and unemployment is a historically modest 6.1 percent.

~ Michael Flynn, director of government affairs at the Reason Foundation, "The Roots of the Crisis; How did Wall Street get into this mess?," reasononline, October 1, 2008

Reverend Martin Niemoller on defending liberty in Nazi Germany

In Germany they came first for the Communists and I didn't speak up because I wasn't a Communist. Then they came for the Jews and I didn't speak up because I wasn't a Jew. Then they came for the trade unionists and I didn't speak up because I wasn't a trade unionist. Then they came for the Catholics and I didn't speak up because I was a Protestant. Then they came for me and by that time no one was left to speak up.

~ Reverend Martin Niemoller

Suzie Orman on Jim Cramer's advice

People might want to listen to Mr. Cramer because he has not been wrong.

~ Suzie Orman, as appeared on CNBC, 9:38 AM ET, January 2, 2009

Motley Fool's Matt Koppenheffer: "Premature to start betting against Bill Miller (2008)

To me, it seems premature to start betting against an investor like [Bill] Miller, who has performed so well over a long time.

~ Matt Koppenheffer, "Legg Mason Still Takes Its Lumps," Motley Fool, January 31, 2008

Legg Mason CEO Mark Fettig on fund goat Bill Miller

Chairman and Chief Investment Officer [of Legg Mason Capital Management] Bill Miller has built a tenacious team of long-term investors. Thus far in their 26-year history, any period of underperformance has been more than offset by subsequent outperformance. We fully support their thoughtful action plans for improvement.

~ Mark Fetting, president and chief executive officer, Legg Mason, "In a bad year, these funds were the worst; Down more than 60%, three U.S. stock portfolios hope for a turnaround," MarketWatch, January 2, 2009

(Among non-leveraged U.S. stock funds with at least $100 million in assets, none did worse than Bill Miller's Legg Mason Opportunity Trust (LMPOX), which as of Dec. 30 was down 66% this year. The third-biggest loser was another fund from Legg Mason Inc. (LM, 21.91) , Growth Trust (LMGTX), which is down 61%.)