Editor’s Note: In this series of articles, we include important or interesting videoclips with our comments. Our Web Software does not permit embedding of the clips into our articles. So we shall have to be content to include the links to the actual videoclips. We are very happy with the tremendous response from readers to this series of articles. We thank them sincerely and profusely.
This is an article that expresses our personal opinions about comments made on Television and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article. Investing is a serious matter and all investment decisions should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerances.
Words of the Wise!
- “If Goldman loses this case, then we are going to have to relook at all of the CDOs from 2007 and how we selected the collateral” – Jim Bianco on CNBC .
- “…I gotta believe that a lot of people within Goldman were actually pretty pleased today and that may sound a little crazy & contrarian…there has been a witch hunt for almost a year now, may be a year and half. And if this was the best case that they could present against a 31 year VP? “ – Gary Kaminsky on CNBC
- “There is such a global search for yield. I am surprised you think that trillions are still on the sidelines because it is racing into anything with yield and you are creating mini bubbles in parts of the credit markets…” – Barry Sternlicht on CNBC
- “..a 50-50 chance of another downturn in housing…” – Robert Shiller on Bloomberg
- “I am looking for a 3% yield on the 30-Year Treasury…” – Gary Shilling on Bloomberg
Re-Education Required In Our Cultural Revolution?
This was our thought as we watched the evening news programs on Friday, April 16. The tone on ABC, CABS, NBC was uniformly accusatory with “expert” guests essentially condemning Goldman as guilty beyond any doubt. In fact, one program described Goldman as the one firm that has not “reformed”. We found it interesting that Brian Williams of NBC did not invite any one from CNBC. Instead, he invited Dylan Ratigan of MSNBC who has ranted against Wall Street to discuss this case. Mr. Ratigan behaved true to form and linked this case to students who cannot pay tuition and other social ills.
The concept that Goldman has not “reformed” reminded us of the Cultural Revolution of Chairman Mao. This phase in China made extensive use of re-education farms for intellectuals who had not shown remorse for their mistakes or those who had not embraced the true vision of Mao’s Cultural Revolution.
We do not speak here about the merits of SEC’s case against Goldman. Our comments are about the wave sweeping certain sections of America about the need to “reform” Wall Street. Just like in the land of Chairman Mao, the successful are the ones that need re-education. There is not a peep against Fannie Mae, Freddie Mac, AIG, the companies that have bled the tax payer and caused so much destruction of wealth. In today’s America, it is a virtue on Wall Street to be unsuccessful, to NOT make money and it is virtually a crime to make lots of profits. In this culture, Citi is the hero and Goldman is the villain.
As CNBC’s Rick Santelli asked, is it a coincidence that this case was filed just before the FINREG or financial reform bill was going to be discussed in the Congress? Does any one doubt that this proposed legislation was greatly helped by the filing of the case?
Is the the first cockroach?
This is the billion dollar question. We are not surprised that the best comment about the Goldman case came from the astute Jim Bianco. He pointed out that in this case the selection of loans in the CDO was deemed fradulent. He added if this is the new standard, then this case is a game-changer (see clip 1 below).
Is Bianco right? Will the case against Goldman be followed by cases against others, Merrill Lynch, Citi, Deutsche Bank to name a few?
Our few cents on this case
Frankly, we doubt it. The Obama Administration certainly understands the consequences of damaging Wall Street on the economy, housing and jobs. Our gut reaction is that the case against Goldman will probably be like the case against the Bear Stearns portfolio managers. By the time the case is decided, no one will care about the outcome except shareholders in investment banks.
But for now, the filing of this case against the one “unreformed” Wall Street Firm is critically important to the debate on the Financial Reform Bill.
To the extent we understand it, the transaction in question was a private placement under 144A, the exemption specifically created for purchases by Institutions or Sophisticated Individuals with over $100 million in assets. We are not SEC experts but we recall that SEC has historically asserted that their job is to protect the small guy & gal but not ultra rich, sophisticated investors who have the capacity of getting independent advice.
In addition, as veteran analyst Brad Hintz reported (see clip 2 below), Goldman acted as a placement agent and not as an underwriter, a critically important distinction.
There is no question that the lack of disclosure by Goldman about Mr. John Paulson’s involvement is serious. And according to the SEC officials that were quoted on CNBC, this lack of disclosure seems to be the main basis for the fraud claim.
Pardon us but the lack of disclosure in the issuance of Auction Rate Preferred Securities was much more serious. The debacle of Auction Rate Securities affected every single Wall Street Firm, thousands of individuals and hundreds of small businesses & corporations. But the SEC never filed a single fraud case against Wall Street Firms. Instead, it was tolerant of Internet or Discount brokerage firms who argued that they had simply placed these securities in their customer accounts and claimed exemption because they were not the underwriters of the securities.
The SEC is focused on damages to investors as they should be. We heard Ben Stein wax eloquently on Bloomberg about “innocent” clients. So who are these innocent clients? We know that (because it was a 144A issue) they are institutions or ultra rich sophisticated individuals. The couple of names we heard on CNBC are IKB, a German bank and ABN AMRO , a big Dutch bank.
So is the SEC acting against American Goldman Sachs to defend German & Dutch Banks? Is that the SEC’s mandate? Did the SEC try to settle this case privately? This to us is a serious issue.
Goldman Sachs is Brand Wall Street and indeed Brand America around the world. When the US Government files a case against Goldman Sachs, the reverberations ripple around the world and trust in America evaporates. This impacts every single American brand except perhaps consumer brands like Coke, Pepsi or McDonald’s. Every industrial company, every high level American exporter will face some reputational impact of the SEC’s move against Goldman. In addition, public opinion around the world will blame America for the ills of their own countries.
Attacking Goldman for real damage to America and its middle class is correct and noble. But accusing Goldman of fraud in a case involving sophisticated European Banks is dangerous both for America’s reputation and for solving America’s problem of creating jobs.
It is not so great for New York City either.
China, India & Real Estate Markets
China is “on a treadmill to hell,” said Jim Chanos, in his interview with Charlie Rose. According to Bloomberg news, Chanos added “They can’t afford to get off this heroin of property development. It is the only thing keeping the economic growth numbers growing.”
On the other hand, Jim O’Neill of Goldman Sachs said to Bloomberg that China is rapidly “becoming the most important economy in the world” (see clip 9 below).
The fate of all, repeat, all asset classes in the world will depend on this answer.
We cannot speak personally about China but we can say a thing or two about India. Last week, residential real estate prices in Mumbai hit a new record. An apartment in a well known building in Mumbai was sold at Rs, 102,000 per sq. foot, yes $2,250 per sq foot. This was a classic big figure transaction, the type that often marks a top. For once, Mumbai’s normally celebratory newspapers described this price as madness.
Frankly, this is small stuff. India’s wildly successful Cricket League, IPL, was embroiled in a controversy about the granting of a new franchise to the southeastern city of Kochi. According to the Times of India , one of the investors in the franchise claimed publicly that he was offered a “bribe of 50 million dollars” to not participate in the auction. Imagine, a bribe of $50 million to NOT buy into the franchise. So what is the profit expectation of the winners of the auction?
If this were not enough, according to the Times of India, there are allegations that a woman friend of a Government Minister was given a “undilutable” stake of 17% (worth 750 million Rs or $16 million) in the new Kochi franchise without having to put up any money. The opposition has demanded an investigation and the Income Tax authorities are now threatening to revoke the tax exemption for the IPL league.
This type of free flowing money has usually called the top in the Indian stock market in the past.
As far as inflation is concerned, we can report personally that between October 2009 and Match 2010, Mumbai restaurant prices have gone up by 20% and car rental prices have gone up by 15%. Talk about inflation! This is one reason the Indian Government has quietly allowed the Indian Rupee to go up 12-15% against the Dollar. Exporters might be hurt but the rise in the Rupee keeps food inflation in check. Nothing topples Indian Governments like sharp rises in food prices.
Greece & Europe
Within a week of the recent bailout package for Greece, the Greek bonds have widened to a spread higher than the pre-package level. Auction of Greek T-Bill came at over 4%. Money at this rate is simply unacceptable to Greece. Greece may have a trump card, say some smart investors. German & French banks have loaned several hundred billion dollars to Greece and its fellow PIIGS. A default by Greece might create a banking crisis in Germany & France requiring a huge & unpopular bailout of the banking system.
So the EuroZone is caught between a rock and a hard place, This may be why Morgan Stanley says Greece might spur German Rethink and Germany might consider leaving the current EMU to form a smaller European bloc.
This sort of thinking leads investors like Gary Shilling to speak about the Euro dropping to parity with the US Dollar (see clip 8 below).
US Equity Market
It seems hard to think back to Wednesday and the breakout of the S&P above 1200. The action that day seemed exuberant to even Joe Terranova of CNBC Fast Money who said “the market is entering a giddy phase, but it can last awhile”.
Then a mere two days later, the S&P experienced a 90% down day. Was this just a necessary hiccup in a wildly extended market or was this an event that we will look in hindsight as an inflection point?
US Treasuries
The action in long maturity Treasuries does remind us of the dog that did not bark. While they have rallied quietly from the 4% level on the 10s a couple of weeks ago, there is simply no “oomph” in this trade. For example, Friday was a 90% down day in the stock market, VIX was up nearly 20% and Gold fell with other commodities. But the 30-year Treasury managed a paltry 1/2 point increase. Long Treasuries did not see the usual safe haven buying even on the emotional days of the Greece crisis during the past couple of months.
Are the Treasuries losing their safe haven status? Or is the sentiment so utterly inflation focused and bearish? The positioning is clear though. Large Speculators have a 0% position (max short) in 10-Year Treasury Futures while the Hedgers/Commercials are 100% (max long).
At least, Dr, Gary Shilling remains a ardent bull on the 30-Year Treasury (see clip 8 below) and sees the 30-Year Treasury yield going to 3%. The prescient David Rosenberg made a comment this week that we could see the 10-year Treasury yield touch the 2% level it reached in December 2008. On the other hand, Bill Gross of Pimco told CNBC’s Erin Burnett that stocks would return about 5-6% while Bonds would return 3-4%. So he prefers stocks to bonds. That was also the message of BlackRock’s Robert Doll and Curtis Arledge who released their spring outlook on CNBC Squawk Box . Their detailed commentary can be found on the BlackRock website .
Featured Videoclips
SEC vs. Goldman
1. Jim Bianco, Jim Cramer & Tom Lee on CNBC on Friday, April 16
2. Brad Hintz on CNBC on Friday, April 16
3. Gary Kaminsky on CNBC on Friday, April 16
4. Jake Zamansky on CNBC on Friday, April 16
US Housing & Property Markets
5. Barry Sternlicht on CNBC on Friday, April 16
6. Robert Shiller on Bloomberg on Thursday, April 15
7. Robert Shiller & Jeremy Siegel on CNBC on Monday, April 12
Investing
8. Gary Shilling on Bloomberg on Tuesday, April 13
9. Jim O’Neill on Bloomberg on Thursday, April 15
10. Peter Fisher on CNBC on Monday, April 12
1. Goldman: Game Changer? – Jim Bianco, Tom Lee and Jim Cramer with CNBC’s Erin Burnett – Friday, April 16
Jim Cramer began the segment by quoting his sources as saying that Goldman Sachs was an investor in Abacus. He said this was a game changer in the case. This point and the fact that Goldman lost $90 million in this investment was reiterated on many news programs. Cramer went on to say that if this were an open and shut case, Goldman would have expressed remorse for their actions and thrown over the 31 year Vice President who did the transaction.
Jim Bianco said that it depends on what tranches they were invested in, the equity tranches or the AAA tranches. Mr. Bianco said that this entire story about Abacus was laid out in a December 24 piece by Gretchen Morgenstern in the New York Times. He added “this is not new. We knew about this 4 months ago”.
Then he explained why he thought this case could be a game changer. Bianco said “what’s changing here, we appear to be criminalizing selection of loans in a CDO and if that’s what we are doing, if that’s where the SEC is going with this, that would be the game changer”. At this point, Cramer interjected pointing out that if it were criminalizing, it would be the Justice Department and that this is Civil with the SEC.
In response to another question from Erin Burnett, Bianco said: “these things are beginning to come out; last week we learned about Magnetar, a hedge fund in Chicago that was doing some of these deals, we don’t know who with, we have more of this coming and that is really what’s going on. If we are going to criminalize, I shouldn’t say criminalize, if we are going to say that the selection of these loans was fradulent, that’s going to be the game changer because everybody used some kind of bias in selecting the loans. Were all those biases disclosed? Probably not in most of the cases and if the SEC is gonna say that what’s happened then all these 2007 deals are going to have to be revealed'”
Jim Bianco reiterated this point in the next clip titled SEC’s Khuzami on Goldman after hearing the comments of SEC’s Robert Khuzami. Mr, Bianco said “I think they (SEC) underscored the whole idea that selection of collateral is going to be the issue here and whether or not that was fradulent and that’s what we are really going to have to look at. If Goldman loses this case, then we are going to have to relook at all of the CDOs from 2007 and how we selected the collateral.”
Precisely. That is why we believe this will be an isolated case. The Obama Administration, in our humble, uninformed opinion, has no interest in raking up the entire debacle and subject all investment banks to major penalties after bailing them out last year. That would be disastrous for the entire financial sector.
In our opinion, Goldman, the sole “unreformed” and most profitable Wall Street Firm has been targeted as an example and as a means of getting the much desired financial reform bill passed.
We believe that every one has a bit of Cramer inside them. Our own internal Cramer, rather tiny and normally subdued, prompts us to consider this case against Goldman in the context of re-education sentences handed out in Chairman Mao’s cultural revolution.
After the above quoted comments, Bianco & Cramer disagreed about whether Goldman would win this case. We think that by the time the verdict is announced, no one will care just like the verdict in the case against Bear Stearns portfolio managers was ignored by virtually every one.
At the end of the Khuzami clip , Tom Lee, the JP Morgan Strategist, said “… I think this is going to be an excuse for investors for next couple of weeks to de-risk..From a tactical perspective, I don’t think I would be buying the dips right now.”
2. Quantifying GS’ Reputational Risk – Brad Hintz of Sanford Bernstein on Fast Money – Friday, April 16
Brad Hintz is an analyst with Sanford Bernstein and a former CFO of Lehman Brothers. His comments begin at minute 05:41 of the 09:01 minute clip.
Anchor Melissa Lee – “What’s your assessment of how this impacts Goldman….?”
Analyst Brad Hintz – “We have quantified this. It is $1.20 a share paid out in 2011-2013. It doesn’t seem like it is an end of the world situation.”Lee – “$1.20 – what is that based on?”
Hintz – “That says they lose everything. They have to disgorge their fee, they get a $50 million fine on this, by the way, that is a large fine, that they pay a billion dollars out on the loss, they pick up the loss on the credit default swap, when you do that you end up with an impact that is certainly manageable for a Goldman Sachs.”
Hintz – “What people are forgetting is that this is a 144A private placement, every one signed that they were sophisticated investors and all Goldman was a placement agent. They were not an underwriter. As an underwriter you have a very different obligation than as a placement agent”
We think that the point raised by Brad Hintz may be very important. What specifically are the disclosure obligations of a non-underwriter private placement agent to sophisticated institutional investors?
3. GS Shocker Knocks Market – Gary Kaminsky on CNBC Fast Money – Friday, April 16
Gary Kaminsky, an experienced portfolio manager, is one of the smartest members of the Fast Money team. His comments began at minute 05:32 of the 09:03 minute clip.
- Kaminsky – … “Let me kinda say this. This is a serious matter. However, if we give some sort of perspective here….I gotta believe that a lot of people within Goldman were actually pretty pleased today and that may sound a little crazy & contrarian. But understand that there has been a feeling that there has been a witch hunt for almost a year now, may be a year and half. And if this was the best case that they could present against a 31 year VP? Securitization was financial heroin. I said that a year and half ago. Institutional buyers that are trading in these products are very well aware that people are shorting the product and picking the tranches. My point would be that Goldman, I actually think they were probably pretty pleased if this the strongest case…”.
This is the most interesting comment we heard all day about the case against Goldman.
The rest of Kaminsky’s comments are interesting as well. For example, he says that “this is Main Street’s way of getting it (financial reform bill) done”. He points out that far worse transactions were done by other banks including Citi. Then he says that the government’s sale of its stake in Citi would be impacted because of suits by “ambulance chasing attorneys”.
4. Is This the ‘Or Else? – Securities Attorney Jacob Zamansky on CNBC Fast Money – Friday, April 16
Anchor Melissa Lee – Are you intending on filing a law suit yourself?
Jacob Zamansky – Absolutely. I am hearing from Goldman investors. I consider this a game changer. The SEC has charged Goldman with fraud for failing to disclose Paulson’s involvement. If I am an investor, that is something I would like to know. Emails remind me of Henry Blodget of Merrill Lynch…
Fast Money Trader Karen Finerman – Are you talking about investors in Goldman stocks or investors in those CDOs?Zamansky – If I were an investor in Abacus, I would want to know what Paulson was doing and they did not disclose that.
Lee – Is the same sort of crisis we have seen on Wall Street or is this something different?
Zamansky – I think this is different. The heart of this case is Goldman’s conflict of interest, that they are telling their investors that this is a great fund to invest in when they know that Paulson is going to go short and that there are problems with this fund so Goldman’s conflict of interest… there has been a lot of suspicion on Wall Street that they have been doing things like this for years and this case I believe will prove it.
Frankly, we are disappointed in this interview. Mr. Zamansky talked about the Abacus CDO as if it were a mutual fund or a fully registered security sold to individual investors. The Henry Blodget analogy seems invalid. The technology IPOs were fully registered underwritings sold to ordinary individual investors who do not have the ability or the capacity to do more than cursory due diligence.
Abacus was completely different. From what we have been told, it was an unregistered private placement specifically created under Rule 144A for sophisticated institutional buyers who normally buy such CDOs. By the very construct of the 144A exemption from registration, investors have to state in writing that they are sophisticated and understand the risks.
If we had the chance, we would have asked the following questions of Mr. Zamansky:
1. What are the disclosure requirements under 144A issuances?
2. What is the legal precedence for penalties for failure to disclose material facts in a 144A offering?
3. Is there a lower bar for disclosure for a placement agent vs. underwriter in a 144A offering?
4. What are some major wins for plaintiffs in 144A fraud lawsuits?
These seem extremely basic questions to us. But none of the Fast Money team seemed to have any clue about the issues in 144A offerings. Why didn’t Fast Money ask Brad Hintz to debate Jacob Zamansky? Or why didn’t they ask Jim Cramer? We are particularly disappointed in Karen Finerman and Tim Seymour. They claim to be hedge fund managers. They should be up on these issues and they should have the courage to ask real tough questions.
We think Fast Money dropped the ball in this case.
5. March Housing Starts – Barry Sternlicht of Starwood Capital on CNBC Squawk Box – Friday, April 16
Barry Sternlicht, Chairman/CEO of Starwood Capital is one of the smartest investors in property markets. His comments begin at minute 02:48 of the 08:38 minute clip. He begins by talking about land prices and the housing prices in New York city. CNBC’s Steve Liesman talked about the lack of private credit in the country and when the rebound in CMBS will come. Barry Sternlicht picks up on this theme and begins talking about credit.
Barry Sternlicht – ..There is such a global search for yield. I am surprised you think that trillions are still on the sidelines because it is racing into anything with yield and you are creating mini bubbles in parts of the credit markets, including in the real estate markets; there is a lot of money chasing yield and property that throws off yield. Look at the Reits they are on fire …the other night one of the Reits did a 1,2 billion dollar spot offering. That’s amazing. But there is a lot of money that wants to earn returns …
Steve Liesman – When you build, how do you finance that?
Sternlicht – You can’t; that actually the most broken part of the system
Liesman laughingly – How do you build?
Sternlicht – you buy in finished lots but if you are buying semi finished lots, we would have to do all cash – suppliers of credit to the small home builders are the regional banks and smaller community savings banks and most of them – they are out of business; practically they are just on life support….there are no land loans, there are no construction loans. That’s ok, That’s what makes for better investments because there is no supply ….it is a interesting market … if you are public , you have amazing access to equity & debt today, ..if you are private , it is a lot harder .
6. 50-50 chance of Another Housing Slump – Robert Shiller with Bloomberg’s Matt Miller & Carol Massar – Thursday, April 15
Professor Robert Shiller has earned the right to be called the guru on U.S. Housing. He is usually cordial, mild mannered and easy to listen to. This is a must watch interview in our opinion.
Prof. Shiller reminds us that unemployment in the Great Depression never went below 12% until World War II. He thinks that housing is dependent on both unemployment and Government’s support. He is concerned about the rise in foreclosures and the possibility of a sudden drop in house prices as more houses get dumped on the market as the Government support ends.
When asked directly, Prof. Shiller says that he sees a 50-50 chance of another slump in housing. He says this is a high figure because historically when housing turns, it keeps going, but today’s situation is so unusual.
7. Is the Recession Over? Robert Shiller and Jeremy Siegel with CNBC’s Erin Burnett – Monday, April 12
Professor Siegel of Wharton has no doubts. He says that consumption data is fabulous, retail data is accelerating and the debate is over. Professor Shiller says that Martin Feldstein (of Harvard) has expressed concern about a double dip and he is with Prof. Feldstein on that.
Diana Olick of CNBC has put forth an interesting article Mortgage Defaults May Be Driving Consumer Spending that suggests a different rational for the surge of consumer spending that Prof. Siegel referred to. Her concept is that consumers are using their house as an ATM in another innovative way. Homeowners in many cases have stopped paying their mortgages and are using the money previously reserved for mortgage payments to pay their credit card bill and to spend on consumer goods. Ms. Olick explains that “It currently takes well over a year, in some cases nearly two years, to go from missing a payment to being chucked out of your home“.
8. China, Greece, Euro, Treasuries – Dr. Gary Shilling with Bloomberg’s Erik Schatzker – Tuesday, April 13
We have a great deal of respect for Dr. Shilling and we like to listen when he speaks. Whether you agree with him or not, his views are sound and seem contrarian until they prove to be correct. This entire interview is a must watch in our opinion.
Dr. Shilling points out that while domestic spending in China is growing, it is growing from a very small base. Consumer spending accounts for 36% of China’s GDP while it is 71% of America’s. Based on a study they did, Shilling argues that there are only 110 million people in China that have more than $5,000 of discretionary spending power. This is 8% of China’s population while the corresponding figure in the USA is 80%. His conclusion is that China simply does not have a large enough middle class. His most interesting observation is that the Chinese currency would go down if China took off all controls and allowed it to float freely.
He thinks that the recent bailout of Greece is not the end but the beginning of Euro’s problems. The divide between the Teutonic austere North Europe and the profligate Club Med is rooted in the character of the respective countries. So he still thinks the Euro could get to parity with the Dollar and he suggests that the current rally in the Euro is an opportunity to buy the Dollar against the Euro.
Perhaps his most controversial view is that the 30-Year Treasury bond yield is headed to 3%. He points out the move to 3% from today’s 4.87% level would mean a 35% gain in the 30-Year coupon bond and a 65% gain in the 30-Year Zero Coupon Bond.
9. BRIC Economics, Yuan – Jim O’Neill with Bloomberg’s Andrea Catherwood – Thursday, April 15
The world’s foremost bull on emerging markets is Jim O’Neill, Chief Economist at Goldman Sachs. Mr. O’Neill is credited to have coined the acronym BRIC for the bloc of Brazil, Russia, China & India.
Ms. Catherwood begins with a discussion on Brazil and mentions Brazil’s relations with China. She points out how Brazilians have called it “sleeping with the enemy” because they are worried that China is in their backyard increasing its share of trade. Mr. O’Neill terms such Brazilian concerns as paranoid and his response to those people is “get real, guys”. He says that China is increasingly the most important economy in the world. He further points out that China’s trade with Germany is growing so fast that within a year it will be a bigger trading partner of Germany than France. So he thinks countries like Brazil will have to chill out and get on with it.
Then Mr. O’Neill turns to the second BRIC summit and discusses the issue of using IMF SDRS as a sort of reserve currency. He says that the Chinese Remnimbi and the Russian Ruble have a greater role to play in the SDR than the Brazilian Rial and the Indian Rupee. But unless these countries allow more companies and individuals to trade these currencies, it is hard to consider their relevance to the SDR.
Finally when asked directly about the free float of the Chinese currency, Mr. O’Neill said laughingly that he wakes every week with different views about this than the week before. He says that China wants its currency in the IMF SDR by 2015 and you cannot be in the SDR without having a free floating currency and free capital markets.
10. China: Friend or Foe? – Peter Fisher, Vice Chairman of BlackRock with CNBC’s Maria Bartiromo – Monday, April 12
Mr. Fisher was an Under-Secretary of the Treasury from 2001 to 2003 before he joined BlackRock. In our view, he is one of the smartest thinkers we have heard.
He told Maria that “the Chinese are not going to appreciate their currency as a favor to us. They are gonna do it when it is in their best interests. Right now, we are getting to a point where they have to tighten policy.” He fears there will be more friction with China but hopes that we don’t. He points out that the Japanese Yen used to trade at 160 to the dollar and then it came down to 80. That did not do much to change our trade imbalance with Japan. So he says we can overhype what we can get of exchange rates when they move.
When asked to comment on investing in our markets, Mr. Fisher said they are not afraid of the long end of the Bond market. He said that “this year would be a good year to clip coupons. It is a good idea to hold some credit, hold some investment grade bonds, stay up in quality and clip the coupons going along at the long end. The US economy is going to do Ok but not brilliantly, inflation is going to come down.”
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