Jul 25, 2011

Joe Granville on the expected soft landing (2000)

I am pretty certain that Alan Greenspan would never have agreed to another four-year term if he feared a stock market collapse during his tenure. At least over the next nine months we can relax and expect a soft landing and no recession. Bad news will be out and good news will be in.

~ Joe Granville, The Granville Market Letter, July 13, 2000

(Source: Barron's, July 24, 2000, p. 33)

Kurt Richebacher on the expected soft landing (2000)

Adhering to the famous postulate of Austrian theory that the length and severity of recessions or depressions depend critically on the magnitude of the dislocations and imbalances that have accumulated in the economy during the preceding boom, we take it for granted that a hard, even a very hard, landing is absolutely inevitable for the U.S. economy.

~ Kurt Richebacher, The Richebacher Letter, July, 2000

(Source: Barron's, July 24, 2000, p. 33)

Doug MacKay on investing in dot-com equipment providers (2000)

I guess if I had been in business in northern California during the 1860s, I would have been selling pots and pans and digging tools, rather than panning for gold.

We didn't want to worry about which of the dot.coms would strike gold. But we were sure that their suppliers like Cisco, Sun and Juniper would prosper.

~ Doug MacKay, co-manager of $1.46 billion Red Oak Technology Select Stock Fund, "Cornerstones; Doug MacKay likes brick-and-mortar companies, New Economy style," Barron's, August 14, 2000

(Red Oak Technology Select lost 90% of its value over the ensuing two years. MacKay is no longer at the helm and assets were $69 million as of June 30, 2011.)

Jul 20, 2011

Warren Buffett on the debt ceiling

It doesn't really make any sense. The way to limit debt is to take in revenues in relation to your expenditures, and to have this artificial limit, which always gets raised in the end, disrupt the activities in an important way in Congress periodically, is a waste of Congress's time.

~Warren Buffett, the Oracle of Omaha, CNBC interview, July 18, 2011

Larry Summers on how to save the eurozone

US policymakers were applauded for about 12 hours for their willingness to let Lehman go bankrupt. The adverse consequences of the shattering effect that had on confidence are still being felt now. The European Central Bank is right in its concern that punishing creditors for the sake of teaching lessons or building political support is reckless in a system that depends on confidence.

There must be a clear commitment that, whatever else happens, no big financial institution in any country will be allowed to fail. The most serious financial breakdowns – in Indonesia in 1997, Russia in 1998, and the US in 2008 – came when authorities allowed doubt over the basic functioning of the financial system. This responsibility should rest with the ECB, with the requisite political support.

~Larry Summers, former US Treasury Secretary and former Director of the National Economic Council, "How to Save the Eurozone", Financial Times, July 18, 2011

Jul 17, 2011

Ludwig Lachmann on the economic function of the entrepreneur

We are living in a world of unexpected change; hence capital combinations . . . will be ever changing, will be dissolved and reformed. In this activity, we find the real function of the entrepreneur.

~Ludwig Lachmann, German-born Austrian economist, 1956

Ludwig von Mises on entrepreneurs as visionaries

What distinguishes the successful entrepreneur and promoter from other people is precisely the fact that he does not let himself be guided by what was and is, but arranges his affairs on the ground of his opinion about the future. He sees the past and the present as other people do; but he judges the future in a different way.

~Ludwig von Mises, Austrian economist, Human Action, p. 585, 1949

Ludwig von Mises on how to tell an entrepreneur from a non-entrepreneur

There is a simple rule of thumb to tell entrepreneurs from non-entrepreneurs. The entrepreneurs are those on whom the incidence of losses on the capital employed falls.

~Ludwig von Mises, Austrian economist, 1951

Jul 15, 2011

Ben Bernanke on the consequences of a US debt default

It would be a calamitous outcome. It would create a very severe financial shock that would have effects not only on the U.S. economy, but the global economy.

~Ben S. Bernanke, chairman, Federal Reserve, Congressional testimony to the Senate Banking Committee, July 14, 2011

Bernanke on the effect of budget cuts on the US recovery

I only ask ... as Congress looks at the timing and composition of its changes to the budget, that it does take into account that in the very near term the recovery is still rather fragile, and that sharp and excessive cuts in the very short term would be potentially damaging to that recovery.

~Ben S. Bernanke, chairman, Federal Reserve, Congressional testimony to the Senate Banking Committee, July 14, 2011

Jul 14, 2011

Alan Greenspan on the Bush tax cuts

I was in favor of the Bush tax cuts. on the grounds that it was the dissipation of a surplus. As soon as it became obvious that the surplus disappeared, I no longer supported that. My view about taxes is I would like them as low as possible but not with borrowed money.

~Alan Greenspan, former chairman, Federal Reserve, CNBC interview, June 30, 2011

Alan Greenspan on the return of the Greek drachma

A greek default is inevitable. If there is not fiscal consolidation, I cannot see any credible scenario where the Greek drachma does not come back.

~Alan Greenspan, former chairman, Federal Reserve, CNBC interview, June 30, 2011

Alan Greenspan on the inevitability of a Greek default

There's only two possible givens: there's a Greek default or there is a fiscal consolidation of the 17 countries of the Euro Zone.

I find that unlikely except for the fact that Germany is so key to that decision. Germany's caught up in a very critical political dilemma. If they were to stop and stop supporting Greece and Greece went under, what would very likely happen, we'd get some dismantling of the euro. What the Germans are resting on is a very strong export market, the result of the fact that the euro, relative to euro, relative to the eollar, is lower.

If, however, Germany goes back to the Deutschmark, which almost surely would be worth 20% more than the euro, they would have a huge capital gain. Remember, their liabilities would be much lower, but the very high Deutschmark would mean their exports would be under severe contraction. They have this short term problem of "how do we keep exports going, employment good?" Remember, they're doing very well, a very large part of that is they are supporting the transfer of a very large amounts of money.

That keeps the euro in place. It also keeps exports, as a critical variable.

~Alan Greenspan, former chairman, Federal Reserve, CNBC interview, June 30, 2011

Alan Greenspan says the motor of the US economy is Greece

It's very evident to anybody that looks at the data the major force driving our economy indirectly through the financial markets is Greece. As the Greek default goes up in probability, we run into all sorts of problems. largely, not because the United States has a lot of Greek debt. As you know, it doesn't. It's essentially that we have very large commitments in Europe and Europe is critical to not only holding the Greek debt, but I might add, also where I think approximately half the foreign affiliate earnings are generated.

So if Europe runs into trouble because of Greece, it's going hit us two ways. One, the basic commitment that we have to Europe and the usual financial flows, but in addition, it's going to affect the whole structure of profitability in the United States. Because we can't afford a [mumbled] and foreign affiliate earnings in Europe coming down significantly.

~Alan Greenspan, former chairman, Federal Reserve, CNBC interview, June 30, 2011

Alan Greenspan on the real reason the stock market has risen since 2009

There is an alternate explanation for the rise in the stock market, particularly since early 2009 and that is the  extraordinary increase in productivity in non-financial corporations. Not only labor productivity but productivity in energy, in the use of materials, and a number of other things. And if you construct that into a profit margin indicator, it directly causes a major rise in profit margins, a major rise in earnings, which we've seen. But, because of the so-called equity premium, the price people have to pay for stocks, or, I should say, that issuers have to pay for stocks, in order to get money relative to bonds, that is at the highest level in 50 years.

So, you have earnings pushing up against the structure of a very immobile equity premium and algebraically, the relationship of those two, is the stock price.

~Alan Greenspan, former chairman, Federal Reserve, CNBC interview, June 30, 2011

Chinese rating agency chairman on the creditworthiness of the US govt

Whether the U.S Congress approves the deal to raise the country's debt ceiling or not, it can't improve the repayment ability of the U.S. [The U.S. government is] issuing new debt to repay old debt.

~Guan Jianzhong, chairman, Dagong Global Credit Rating Co., company report, July 14, 2011

Ben Bernanke on the possibility of QE3 in 2011

We are uncertain about the near-term developments in the economy. We’d like to see if, in fact, the economy does pick up, as we are projecting.

~Ben S. Bernanke, chairman, Federal Reserve, Congressional testimony, July 14, 2011

Ben Bernanke on possible US debt default

I think that there is not really any solution other than to find a way to solve these problems, to address the fiscal issues and to raise the debt limit at the appropriate time.

Ben S. Bernanke, chairman, Federal Reserve, July 14, 2011

Harry Reid on the consequences of a US debt default

[If the U.S. defaults] a massive financial disaster will sweep the world in a global depression.

~Harry Reid, US Congressional representative from Nevada, July 14, 2011

Jamie Dimon on US debt default

It's imperative that that debt ceiling be fixed and it's imperative the United States shows fiscal discipline. They're both important not just for the health of the United States, but the financial health of the world.

No one, no one can tell me with certainty that default wouldn't cause catastrophe. Therefore it's irresponsible to take that chance. It's not possible that someone can say with a straight face that the default of the United States wouldn't damage the United States and the global economy. Why take that chance? I would never take that chance.

Jamie Dimon, chairman and CEO, JP Morgan Chase, 2nd Quarter 2011 conference call, July 14, 2011

Ben Bernanke on whether gold is money

Ron Paul: Do you believe that gold is money?
Bernanke: No.
Ron Paul: Why do central banks hold gold?
Bernanke: It is an asset, like Treasuries. They're not money.
Ron Paul: Why hold gold, and not diamonds?
Bernanke: Oh, tradition, I suppose.

~Ben S. Bernanke, chairman, Federal Reserve, in Congressional testimony with Rep. Ron Paul, July 13, 2011

Jul 12, 2011

Buffett on the wisdom of Keynes

I especially recommend Keynes' essays on persuasion. Reading Keynes will make you smarter about securities and markets. I'm not sure reading most economists would do the same.

~Warren Buffett, the Oracle of Omaha, Outstanding Investor Digest, June 23, 1989

Jul 7, 2011

What Laszlo Birinyi worries about (aka, nothing)

What I worry about is what the market worries about. Right now the market, if you look at the breadth, if you look at the volume you saw the last couple of weeks, you look at these things, the market doesn't seem to be terribly concerned.

I've always argued, and you've heard me say this many times [Maria Bartiromo], that the negative case is always more articulate, it's always more intelligent, it's always more compelling because it looks at the now. The market, meanwhile, looks ahead. So, we don't know what the market is looking for and I could come up with all kinds of potential disasters but looking at the market, the market doesn't seem to be saying anything is going to happen.

~Laszlo Birinyi, president, Birinyi Associates, CNBC, July 6, 2011

Laszlo Birinyi says this is a bull market and to expect surprises

We're in a bull market. I think the most important part of a bull market is perception. Right now, sentiment is positive and I think we're overstating the negatives with regard to the economy. We're surprised at how many good things are happening in the economy. If you look at it from bottoms-up and not these overall surveys, these overall views, these overall indicators, if you look at individual industries and these other secondary indicators there will be some potential surprises for the economy.

~Laszlo Birinyi, president, Birinyi Associates, CNBC, July 6, 2011

Ken Fisher on "bounce back" investing

One of the points is that the stocks that have been getting hammered the most are actually the same categories that were doing well as the market was going up, which is really normal for a correction. They are the ones the most economically sensitive and therefore I think the bounce back where you want to focus now is on the things that are economically sensitive including energy and materials and industrials and consumer discretionary as you have shown on your chart earlier as to the areas that have done best in the expansion. I think those areas bounce back, because as we move from a period in a normal expansion of below average growth back to more normal growth, those stocks will get more bounce back and more empathy behind them, if you will.

~Ken Fisher, CEO, Fisher Investments, CNBC, June 22, 2011

Laszlo Birinyi says we've seen this before in a bull market

I think we're in a long term bull market. and just as we always do, we have these periods where we slow down and stop.

~Laszlo Birinyi, president, Birinyi Associates, CNBC, June 22, 2011

Ken Fisher shows his macro blind spots, says look to the emerging market stars in 2011

My view is you should always think globally first and think America second. You look around the world, emerging market companies are what are cumulatively doing better than America's economy, growing pretty darned nicely. While there is some global slowdown, there's not the slowdown we see focused on America. In every economic expansion some countries lead and some lag. Right now, we're in the middle of the pack, not the leaders or laggards. we're so used to being the leaders, we have a hard time with it.

~Ken Fisher, CEO, Fisher Investments, CNBC, June 22, 2011

Ken Fisher tunes out Bernanke, tempers his 2011 forecast

First, whenever I feel the urge to pay attention to Mr. Bernanke, I watch reruns of the Beverly Hillbillies instead. Second, in every economic expansion in our lifetimes, and before, the rate of GDP growth has been variable and there have always been quarters the GDP growth rate slowed down sometimes, in fact single quarters of negative GDP growth within economic expansions. This period is not very abnormal. Mind you, I'm not terribly bullish for this year. My view of this year has been single digit positive returns and much more of a picker's year than big broad theme year. I'm not terribly wildly optimistic and try to do the best I can to think about Mr. Bernanke the way Milton Friedman would have written about him-- we would do better if we would do less.

~Ken Fisher, CEO, Fisher Investments, CNBC, June 22, 2011

Warren Buffett on how to deal with the public debt

I would go after the very rich.

~ Warren Buffett, interview with Becky Quick in Sun Valley, Idaho, CNBC, July 7, 2011

Jul 6, 2011

Jim Grant on the state of the US dollar since 1971

Since 1971, the dollar has been a derivative without an underlying asset.

~Jim Grant, publisher, Grant's Interest Rate Observer, GIRO, May 20, 2011

GaveKal MD unwittingly makes the case for avoiding Chinese financial system at all costs

[In a market system, with independent shareholders and more or less alert debt-rating agencies, the Chinese banks wouldn't last "five minutes".]

But because it's a closed system, they can last indefinitely, because it's in no one's interest to pull the trigger on these institutions and force them to do an instant mark-to-market.

This is a perfectly rational way to organize a financial system at China's level of development. Don't take the metrics and standards that are devised for a mature financial system and impose them on China. If you do, you come to the conclusion that it should fall apart tomorrow. But, by the same standard, the system should have collapsed 25 years ago.

~ Arthur Kroeber, managing director, GaveKal-Dragonomics, interview, Grant's Interest Rate Observer, May 20, 2011

Jim Chanos compares Chinese LGFV's to US subprime

China apparently can't hide its LGFV [local government funding vehicles] problem any more. The fact that these LGFV loans are already going bad in a 'booming' economy makes them analogous to our subprime mortgages in late 2006, only worse.

At Rmb 9 trillion at the end of 2010, LGFV loans equaled 30% of China's GDP. In early 2007, U.S. subprime mortgage debt totaled $1.3 trillion, or 8% to 9% of U.S. GDP. In fact, the Rmb 2 trillion to Rmb 3 trillion that's already been identified as needing to be restructured is close to the U.S.' entire subprime exposure, realtive to GDP.

~ Jim Chanos, founder, Kynikos Associates, May 31st, 2011

Kevin Duffy on the legacy of QE2

Seduce savers into risk assets. Replace savings with speculation. Help foment bubbles in everything from silver and cotton to Chinese dot-coms and social networking IPOs. Add another round of moral hazard. Add price inflation to the woes of the middle class. Have zero effect on housing and employment. Bring unfounded confidence back to the corporate sector (witness massive stock buybacks). Further engorge the public (parasitic) sector at the expense of the private (productive) sector. Enable the public debt to go parabolic, putting it on credit watch and raising longer-term rates. Set an example to the rest of the world that they can paper over their problems, putting off the day of reckoning another day.

… All in all a raging success!

~ Kevin Duffy, July 5, 2011