Interesting Videoclips of the Week (September 7 – September 13, 2013)

Editor’s Note:
In this series of articles, we include important or interesting
videoclips with our comments. 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.

1. High Noon on Wednesday, September 18

A bit dramatic to call Bernanke statement & press conference as High Noon? Chairman Bernanke may not look like Gary Cooper but he packs lot more ammunition than Gary Cooper did in that movie. And what he unloads on us on Wednesday might be very important. That’s what Stanley Druckenmiller told BTV Market Makers on Thursday (see clip 1 below):

“I probably have the smallest positions I’ve had … I like to be patient and when I see something, go little bit crazy. I just don’t see anything right now … I am lost. I don’t play when I am lost. I know in the future I won’t be lost.”.
“I’m very focused on the new Fed chairman and I’m perfectly willing to wait a few weeks to find out“
“if you tell me QE is going to be removed over nine or twelve months, that is a big deal. It is my belief that QE has subsidized all asset prices and when you remove that, the market will go down“

Personally speaking, the wait for this FOMC meeting seems like what we experienced during the wait for the FOMC meeting on October 31, 2007.

2. U.S. Treasuries

Paul Richards of UBS on CNBC FM – 1/2 on Wednesday, September 11

“I don’t think, Scott, that you’ve got the Fed chairman debate in the price. I think you have a binary event. Yellen is a 2.85% 10-year at current levels, and Summers is potentially 3.25%. And that’s a big difference in risk especially now the market is getting a lot longer in risk. A 10-year 3.25% yield could really hurt equities, with potentially a 5% correction, and I don’t think that’s in the price.”

MacNeil Curry of Merrill Lynch on CNBC Futures Now on Tuesday, September 10

“… by pretty much any measure of momentum or for that matter sentiment, we are at levels where historically we tend to pause and so I think near term or a little bit further down the road we are stuck in say 3% – 2.70% range trade if you look at 10s; having said that I do think that is just a range before we ultimately do resume higher..
the big thing that is really transpiring in the interest rates market is we are seeing a dramatic shift out of leadership in the sense that what had led on the sell-off was roughly the 10-year point of the curve; in the past couple of weeks that has shifted dramatically to the 5-year even to the 2-year point of the curve;
in fact we saw 2-year yields close last Friday above their 200-week moving average for the 1st time in 5 years and that is really important because if you go back and look historically breaks of the 200-week have resulted in a pretty decent trending environments going forward.. so while we have been focused on the 10-year part and a little longer, going forward attention is going to be on the front end 2s and 5s.. near term a range but the bigger picture is very much a bear trend led higher by the front end“

Charles Biderman on CNBC Santelli Exchange on Tuesday, September 13

“ever since the Fed said that they’re going to stop buying as much as they had been, well, interest rates have been going up. … Hey, if the biggest buyer is going to stop buying, why should we buy? So if the Fed actually does taper, interest rates are going to keep going up, and that’s going to lead to bad things.”
“well, I would say by the end of next year, at least a 60% chance of a recession, assuming the Fed actually stops buying treasuries over the next year, and interest rates rise.”

Kathleen Gaffney of Eaton Vance on CNBC FM – 1/2 on Friday, September 13

“I think we’re definitely going to see tapering next week. I think the Fed is prepared for it and has let the markets know. I don’t know that there’ll be that much of a reaction in the bond market, because so much has been priced in.”

Her view is that the 10-year treasury yield will be between 3% – 3.5% at year-end.

Those who consider investor aversion to be a contrary indicator might read 1,000 words from the following picture. It is from this week’s report by Michael Hartnett of BAC-Merrill Lynch titled “BofAML private client flow data confirm aversion to bonds“

source: BofA Merrill Lynch Global Investment Strategy, EPFR Global

3. U.S. Equities

Pete Najarian of OptionMonster & CNBC Fast Money on Friday, September 13

“I want to be less involved in the market right now, because I do think that there’s potential for a pullback. … I’m sitting on more cash than I’ve sat on in over a year. I have been lightening up; I just wonder if we are going to see a bit of a pullback; So I have been in short term options and less in stocks.”

Mary Ann Bartels of BAC-Merrill Lynch on CNBC Fast Money on Friday, September 13

“we still remain very bullish at Merrill Lynch – 1750 at year-end, 1850 on 12 months basis … I’ve been very impressed with how the equity market is trading, given the ten-year treasury yields
hit 3%. the market has really been able to move on in face of tapering higher interest rates.”
“the sector you see overstretched is one that could feel the pinch from a rising rate environment. We reduced consumer discretionary weight to underweight, preferring some of the sectors you like here, in energy, industrials, more cyclical type of sectors“

Ralph Acampora on CNBC Fast Money on Monday, September 9

“the blue chips and I’m talking about many of the big components on the Dow are not performing well.If you look at the Russell 2000, you will see it well above its 200-day moving average and withing a couple of points of making new highs, multi-year highs. I think the QQQ made new highs today.”
“you will see that many of the stocks like Disney have completed major double tops – that’s Walmart, Disney, Coca-Cola, Travellers, American Express, McDonald’s. There is something wrong. You can’t have a sustainable move without the generals. That is my near term concern. By the way, I like the broadness of today’s rally. I think it will continue. But if we don’t make new highs in Dow and Transports, I think we will have problems“
“just as I said, if the Dow and the Transports, both of those averages would make new closing highs, i would have to rethink my intermediate terms. by the way, I am not bearish longer term ..I was concerned about the next several months … I still think so unless we get new closing highs.”

Acampora also wondered aloud whether there was speculation in the small caps & technology stocks. He added the following tweet on Friday morning:

Ralph Acampora CMT @Ralph_Acampora – This rally’s biggest challenge – get more large-cap/blue-chip stocks to participate. So far the secondary issues are leading with new highs.

Lawrence McMillan of Option Strategist on Friday, September 13:

“$SPX made a strong upside push this week and that closed the downside gap from nearly a month ago. That officially terminated the “bearish” status of the $SPX chart. It’s hard to say that the chart has turned bullish, though, since there is still overhead resistance at 1700- 1710. Underneath, there is support at 1660 and then stronger support at 1630-1640.”
“The market may be in a rather wide trading range (1630 to 1710), generating overbought and oversold extremes at the edges of that range“

Tom McClellan in his article on Thursday, September 12

“The SP500 bottomed on Aug. 27, 2013, and has bounced up 3.3% since then. But the bond CEF A-D Line has not shown any inclination to join in that rally. That says liquidity is not yet restored, even though the big-cap stocks can still mount a rally. The runts are going hungry.”
“History shows that the periods when the bond CEF A-D Line is weak are periods when the stock market is in trouble. If there is a stock market dip which is not echoed by the bond CEF A-D Line, usually stock prices recover quickly.”
“But signs of weakness in the bond CEF A-D Line can be a big indication of liquidity problems. Thus far, the bond CEF A-D Line has not yet turned up above its 5% Trend (39-day EMA), nor even made a higher high. The message is that the 3%+ rally in the SP500 is not being fueled by raw liquidity. If it was, then the liquidity-sensitive issues would also be benefiting. But the bond CEF A-D Line says that the least deserving issues are not going along for the ride on this rally, and thus that it is a problematic one. That could change, if liquidity suddenly returns to the financial markets and lifts the bond CEFs up to catch the big cap stocks. But so far that is not happening.”

4. Gold & Silver

This was the worst asset class of the week. Gold fell by 5%, Silver fell by 7% and GDX, the Gold Miner ETF, fell by 8% during this week. Almost all the decline took place on Tuesday and Thursday. They all opened down on Friday morning and then rallied on Friday afternoon to close up for the day.

The most interesting comments we found are the two below:

Dan Nathan of CNBC Options Action on Friday:

“yesterday somebody bought 28,000 of the October 131-135 call spreads, paid $1.24. so somebody is playing for a bounce, possibly up to $135”

A tweet from @RR_trades on Thursday morning:

@RR_trades – Gold Demark daily buy set up + support at 50 dma. pic.twitter.com/PfYmEcy86D

5. EM

The most interesting ideas came from Jim Grant in his appearance on CNBC Closing Bell on Friday:

“The most loathed and detested securities are common equity of Russian oil companies. Lukoil, Rosneft, Gazprom, trading at 3-4-6 times with yields upward of 4%.”
“Lukoil is the most westernized the of the three. reports in english gap. it s a real business. Gazprom is most like Vladimir Putin in that it reports intermittently or at length in Russian. Gazprom is meant to be the world’s worst company, Bloomberg News announced it at such. It trades at less than three times earnings. What if things go right? Insider buying there,valued at multiples of reserves, a tiny fraction of not only American oil makers but also of Emerging market oil companies. Emerging markets are generally out of favor. Nothing is so out of favor than Russian oil companies. These answer value investor’s criteria for something that is — offers margin of safety, reasonable business prospect and out of favor.”
“someone told me so well a while ago, successful investing is about people having to agree with you later“

Adrian Mowat of JPM on CNBC SOTS on Tuesday, September 10

China – I think you can buy China story as long as you are willing to be reasonably nimble. We would see the China data remaining okay up until around November. It’s important to understand who has been driving this. When the new administration came to power they were very quick in telling people what not to spend money on and more recently they have been telling people on what to spend money on such as railroads, metro systems; we have seen housing starts picking up because they haven’t been controlling property prices like they were under the previous administration. There is probably a delayed impact from the monetary easing started in August last year and finished in June this year and the final thing is the trade data improving. So we think the China data will be good through November and soften as we go into the new year

Brazil – if you are looking at the resources names, yes, because they have partly benefited from the fact that the Real has been weak.but the broader Brazilian story still looks challenged – just 2% potential GDP growth, interest rates are going higher; we are in the middle of a poor credit cycle for the consumer and remember with this iron ore story, the iron ore price has picked up quite a lot already; we are now beginning to see iron ore inventories build once more in Chinese ports post the restocking. India needs to earn foreign exchange to reduce its current account deficit; we do think the Indians are going to start supplying iron ore into the international market; so again, the Brazil trade has been short covering with a little bit of leverage off the China story

India – No; you don’t short India. If you look at what has happened in India, they have done the right thing. the currency is weakened – that’s how you sort out yr current account deficit; we estimate the current account deficit is probably a run rate of around 2 billion a month. that is is a substantial improvement. I think Indian banks, energy, and material stocks are very strong buys here and we are beginning to see a reasonable recovery in the Indian Rupee.

Larry McDonald of NewEdge on the Kudlow Report on Wednesday, September 11

“… this is a great commodity super cycle unwind. In other words, China has had a number of head fake rallies. There was one back last fall where you have these brilliant rallies, rise in commodity prices only to suffer a decline later on.”
“the systemic risk around the world, the epicenter of risk was the united states in 2008; it was Europe in 2011-2012. Now going forward I see clear signs of systemic risk in Asia coming from China so this is a short-lived rally. I would be shorting the emerging markets.”
[on CNBC Closing Bell on Friday] – I think it’s fascinating the whole world is focused on the U.S. The U.S. is in better shape financially. … I’ve got an index of my 17 lehman indicators. It shows the same things are developing in asia that we saw in 2007 – off-balance sheet leverage, $1.2 trillion shadow banking loan. My systemic indicators are pointing to Asia for the next systemic crisis

Re India, Jeff Gundlach expressed a far more negative view of India than Adrian Mowat above in his conference call this week. His comments were reported by Reuters:

Gundlach, … said in an investor webcast that the Indian stock market looks “very scary.” Gundlach later told Reuters that was his intermediate-term outlook. … He referred to cautionary comments on India made on Friday by … Ray Dalio, … and said India might be “the leading candidate” of a market downturn as a result of monetary policy changes. Dalio,
… forecast an “emerging market crisis” and said that India should
“prepare for the worst.” … Dalio
said India is at risk because it has been one of the biggest
beneficiaries of foreign capital flows, which have already begun to
bypass emerging market equities.

Michael Hartnett of BAC-Merrill Lynch reported “Largest Emerging Market equity inflows ($2.6bn) in 7 months” and that is supportive if a tactical bounce in EM.

On the other hand, Tim Seymour, EM hedge fund manager & CNBC FM trader, asked viewers to sell EEM and buy it back at $37.

Featured Videoclips:

Stanley Druckenmiller on BTV Market Makers on Thursday, September 12
Henry Paulson on BTV Street Smart on Thursday, September 12

1. Stanley Druckenmiller on BTV Market Makers – Thursday, September 12.

This is a very detailed interview and a very useful one. There are some extremely important investing lessons in what Mr. Druckenmiller say. They appear simple but like so many simple points, they are profound. Kudos & Thanks to Stephanie Ruhle and Erik Schatzker for inviting Mr. Druckenmiller and getting so much out of him.

This long interview is spread over several clips:

Seniors Are stealing form our Young | www.bloomberg.com/video/ class=”il”>druckenmiller-seniors-vote-young-people-don-t-LbJlkuASTSS99ZkYHgm95Q.html

A Looming Catastrophe in Entitlement Spending | www.bloomberg.com/video/a-looming-catastrophe-in-entitlement-spending-Sb7Cbnv2QlKkgpXgT6ZHOw.html

“Fed Choice Totally matters to Market | www.bloomberg.com/video/ class=”il”>druckenmiller-fed-choice-totally-matters-to-market-13sL0DBwSyWZr22IS9S6xQ.html

I’ve Been Really Wrong on Bonds | www.bloomberg.com/video/ class=”il”>druckenmiller-i-ve-been-really-wrong-on-bonds-8JbFFYZ7QHyK45BCcPAMew.html

Is Monetary Policy too loose? | www.bloomberg.com/video/is-vonetary-policy-too-loose-XHzH4LoMRsmIVtq4OVeFLw.html

The detailed summary below is courtesy of Bloomberg Television.

On what he is doing investing wise:

“Not a lot. I don’t want to hedge, but I probably have the smallest positions I’ve had. I had some big decisions earlier in the year. I’m sort of sitting and waiting. There is a lot of uncertainty over who the next Fed chairman will be. What their attitude toward the diminution of QE will be. You have the whole Syria thing. I like to be patient and when I see something, go little bit crazy. I just don’t see anything right now.”.

On what he is doing if he is not completely sitting on cash:

“Ok, so my guess is, and I believe the market is topping. The stock market predicted seven out of the last three recessions; I predicted seven out of the last three bear markets. I started in a bear market, so I have a bearish bias. Where I am on the market is if you gave me a stock I really like, I will buy it. If you give me a stock I really hate, I’ll short it. In terms of having some big position, long or short index, or some exposure to the stock market right now, I am lost. I don’t play when I am lost. I know in the future I won’t be lost.“.

On whether it matters who the next Fed chairman will be:

“It totally matters. When you think back of what Paul Volcker, Alan Greenspan and Ben Bernanke have meant to markets, it is pretty naïve to say the next Fed chairman won’t matter. It may not know why it matters and I may not know why, but it is a really, really important appointment. …I’m very focused on the new Fed chairman and I’m perfectly willing to wait a few weeks to find out.”

On how he looks back on the last five years since the financial crisis:

“So I find the situation somewhat bizarre. It is a little bit colored by how I thought we got into this. I actually did well in the financial crisis because I believe this was the reason we got into it. I’m not saying it was the major reason, but a necessary condition have a financial crisis, in my opinion, is too loose monetary policy that encourages people to take undue risk and go on the risk curve and do silly things. We should have shut this down in 1998, 1999. The NASDAQ bubble, we should have raised rates, we didn’t.”.

On what asset class has been manipulated most because of QE:

“I would say stocks. I have been really wrong on the bond market in the last three or four months. I have been waiting for this decline for two years and completely missed it. First of all, the stuff we were talking about earlier in the show, that is too far down the road in my opinion, for the bond market to pay attention. I have always found in bonds, if you can predict a relative change in the economy, relative to consensus, you will make money in bonds if you get that equation right… Yes [even in the world of QE]. Two or three months ago, I thought people were overly optimistic on the U.S. economy. It is my judgment that assessment turned out to be correct. But bonds went down anyway for not economic reason because we have the unwind going on. For whate
ver reason. While I anticipated down the road, I did not think it would happen while the economy was softening.”

On how close are we right now to a bear market:

“As long as the fed is printing money, not very close. That is why the issue of tapering and where we go with it, is so important. I don’t really care whether we got to 70 or 65 in September. But if you tell me QE is going to be removed over nine or twelve months, that is a big deal. It is my belief that QE has subsidized all asset prices and when you remove that, the market will go down.”

On what we see in asset prices is illusory:

“My first mentor and boss, Dr. Ellison from Pittsburg used to tell me, it takes hundreds of millions of dollars to manipulate a stock up but the minute you have this phony buying stock, it can go down on no volume. It can just re-price immediately. I personally think as long as this game goes on, assets will stay elevated. When he removed that prop, let’s face it, the Fed says they’re targeting asset prices. Those prices can adjust immediately. June was instructive. If you did not believe before the exit was going to be tough, the mere hint that maybe in three months, if the economy is good, we might go from $85 billion a month to buying $65 Billion a month, cause that kind of havoc and risk around the world. How in the world does anyone think when the actual exit happens that prices are not going to respond? It is silly.”

On what he has big positions in:

“I don’t have what I would call it takes courage to be a big position in anything. I am long some Japanese equities. I am short some yen. In terms of big outside bets like I had earlier in the year in something like Australian dollar or, frankly, my bet in Japan were bigger earlier in the year, everything is sort of down and waiting for the next big shot.”

On how his investment philosophy reflects his personal views:

“I wouldn’t say it is my investment philosophy, it is just a concern I have. Let me say when Al Hunt said this is easily fixable, I think it is a mistake most people make in investments. They look at the present instead of the future. If you analyze the debt is stated out there, it looks like it is fixed. We do a little change here and change there. That is not the case. Those charts we showed earlier had no demographics in them. What is going to happen now, because 1947 is when the baby boom start and fertility rates were over three than and are two now, 11,000 seniors every day come and we will have 11,000 new seniors. This will make the numbers of seniors who are getting entitlements explode relative to the working population. Instead of having give workers supporting entitlements, you will have 2.5 workers, and that is not on the government sheet. When you hear about the National debt being $16 Trillion or $12 Trillion, if you actually took what we promised to seniors and future taxes, present value to both of them, that number is $200 Trillion. That is the problem when you take the debt of future payments to seniors and put them on the balance sheet, and for god’s sake, they should be on the balance sheet. I mentioned the can kicks back organization. They sponsored a bill in Congress, the Inform Act, which will bring that.”

“True transparency. We need to at least get that on the books so people see it. The other thing that annoys me on this problem and then we can move on, all of these solutions, even Paul Ryan who got absolutely lambasted pushing grandma off the cliff, even he said, let’s exempt everybody 55 and older. They already have this huge share of the pie. The problem is compounded away. If you don’t address it today, the problem is going to be much bigger in 10 years, 20 years, 30 years.”

Druckenmiller on why his college tour is so important:

“It really solidified to me during the sequester period when the whole debate was going on about cutting government spending in our fiscal issues, and that is when I first came to understand the lack of knowledge on this topic, not just from seniors, but future seniors. If you listen to the sequester debate in spending and where the debt is, I find it inconceivable they didn’t know the facts, including I would be surprised if the President knew the facts given the statements he was making. During the sequester, you may remember he said, we are not going to balance the budget on the backs of our seniors. If you look at the situation where we are today, seniors are doing very, very well in the last 30 years. It has been a remarkable accomplishment. And because the mandate went well, the poverty rate is down from 35-percent to 9-percent for seniors. But their wealth is also increasing dramatically. Looking forward, we have a very though picture because of the demographic situation, seniors about to explode as a portion of the population and the benefits we promised them, there is no way to cover them given the current situation we have.”

On whether he blames the voters or politicians for being ignorant and uninformed:

“I would say both. This is a country of special interests, as we all know. As we all know, old people vote or seniors vote. They vote consistently and young people don’t. Young people have other interests than say the future economic situation at the age of 20. I sure did. They’re not necessarily focusing on the stuff.”

On whether his goal is to get young people out to vote, to vote with their consciences:

“It won’t be their conscience. They should be mad as hell. Part of what I’m doing is to inform seniors of the situation… I’m sure they care. Maybe some don’t. But I would bet a lot of money that 85-percent of seniors today, if they knew the numbers were going to go over, they wouldn’t be comfortable with this this what they were leaving to their grandchildren and great-grandchildren.”

On what he is most uncomfortable about: *chart discussed is at the 4 minute mark of video “seniors are stealing from our young”

“Let’s first set the table and looking at what is going on in the last 35-years. Then I want to get into the demographic problem and why it is so scary from here and why I don’t understand the current dialogue that is taking place over the situation. It is completely uninformed. This chart on the screen is federal government entitlement transfers and percent of government budget outlays. If you go back to 1960 when I was sever years old, about 20-percent of the federal budget government outlays were transfer payments or what we call entitlement. That number has gone up to 72-percent over this 35 year period. The problem with that, first of all, the good news on that, as I said, seniors are much better off, it’s been a tremendous accomplishment, poverty rate is way down for seniors, but these are transfer payments a
nd there is no productive investment or no looking to future coming out of this. If you look at how we get form 20-percent to 70-percent, almost all of that money went to the elderly. If you took an elderly person back in 1960, 40-percent of government outlays per capita went to them. That number is 71-percent all stop where did that come out of? It came out of children, came out of investments and things like education, infrastructure, thing like that. And that crowding out effect creates a problem going forward because these are not productive investments.”

On response he is getting from influential youths:

“The answer is, I don’t know. Jeff Canada and I, my partner, well, I am sort of the tag along, we went up to Bowdoin College to see where this went. I had a number of people contact me after your show. I did not expect that… We went up to Bowdoin college and give a presentation just trying to outline the facts of what we’re looking at the next 30 or 40 years. The response was overwhelming. So based on that, we’re going to do about 10 to 12 colleges in the next two months. Mr. Zuckerberg is focused more on immigration than this stuff.”

On the net worth by age group: *chart discussed is at the 7 minute mark of video “seniors are stealing from our young”

“It is important shaping the debate. We have always heard the term, ‘you don’t want to leave the next generation with less than the current generation.’ This chart when it was first shown to me, and it is from the Federal Reserve board survey of consumer finances, it is kind of shocking. Because of the previous chart I showed where these transfer payments have gone primarily to the elderly and have been substantial, look at what has happened. If you are A 29-37 year old in this country, your net worth is less than 29-37 year old in 1983. Those are staggering statistics. This is the first generation where a 30-year old is worth literally is worth less than his parents. If you look at older people, their net worth has doubled over this timeframe. Again, because this money has been transferred.

On whether he worries that people will overlook what he is saying because he is a billionaire:

“Well, modestly, the way I would answer that is the way I made my money in the industry wasn’t necessarily in stock s. I made most of my money in the bond and currency markets trying to forecast future economic trends and problems that I saw happening. And one thing I’m not very proud of if you look at my record, the big years were in bear markets and chaos. I tend to take rate advantage of catastrophes happening in the marketplace. In other words, for whatever reason, maybe I have a dysfunctional personality; I was good at looking around corners and protecting them. And this is much longer a timeframe, but it is the easiest lay-up I have ever seen of something we have got to address and a problem we have got to deal with…My record speaks for itself on forecasting.”

On what changed his opinions of President Obama since 2008:

“I was drinking the hope and change Kool-aid. I was thinking of a younger generation. I think in hindsight, looking back, he probably needed more experience for this job. I also thought he would be more Clinton-like a move to the center. Clearly, he hasn’t…I am an independent and just hoping one candidate on either side in 2016 shows up.”

2. Hank Paulson with BTV’s Tom Keene – Thursday, September 12.

In our opinion, what Secretary Paulson & Chairman Bernanke did in the last five months of the Bush Presidency was heroic. And they were lucky to have a President who instructed them to do what is best for the country and leave the politics to him. Compare the resolve and the speed with which Paulson-Bernanke put up the firewall with what is going on now in emerging markets. We were lucky to have Paulson-Bernanke & Geithner at the helm in those days. And then Secretary Geithner forced banks to raise capital with his real stress tests. Compare the state of capitalization of US banks today with those in Europe and with what we are afraid of in Chinese Banks. We thank Secretary Paulson for what he did in 2008.

Below is a slightly condensed summary of the detailed transcript below from Bloomberg Television.

On his relationship with President George W. Bush:.

“I had fortunately, a year before the crisis to build relationships of trust with the President and that relationship was clearly critical. … The man was totally engaged. He was a great boss. He was accessible all the time. Could get him early or get him late. What he did during the crisis, he recognized we needed a different set of procedures. He said, I was his wartime general. We had a good working relationship.”

On what Dick Fuld was going through:

“Agony. Every CEO on Wall Street was tested. This was a 100-year storm. They were dealing with problems they had not seen in their lifetime and it was totally new. Many of them working to keep their companies solvent. To be there and go down with your ship is very, very sad.”

On not being able to communicate to the public that the bailout was a rescue for the economy rather than a bailout for Wall Street:

“I was unable…It was a difficult thing to do. Communication, publicaly, of that broad audience, I thought it should be obvious that as Treasury Secretary of America, everything I was doing was to save the American people. I knew how bad it would be if the system collapsed. But it was a communications challenge because I feared to come upon us. The more I talked about what it would be.”

On why East Coast elites should trust guys like him:

“Where I was at my best was working in smaller groups, working with colleagues in the administration, working with democrats and republicans on the Hill, building trust based upon credibility, working together, being nonpartisan. I think for me, as a public speaker going broadly, first of all, for people to understand what we did and agree with it, you have to understand how severe the crisis was. You had to understand that if the system collapsed it could be the Great Depression all over again. They could lose their jobs. I think part of the challenge for me was, I did not want to say it quite that bluntly because we were on the edge. What I had to decide between communicating one way and stability, I always opted for stability.”

On what his best practices for the elite to transfer their message to Main Street:

“To do this job right today an
ywhere in the world and particularly in the United States running any big global company is much more difficult than it’s ever been. There are many demands on a CEO. One of the demands is speaking to the public and helping the public understand you and your company, your business, and its value to society. Banks are a huge part of our economy. Our financial system, our banking system is the strongest in the world. It’s the most transparent. It’s the most efficient. Its core strength. It has problems, but it is an honorable profession.”

On whether he is confident we will not have another financial crisis:

“Here is what I say. It is the question I get asked of the most. We will certainly have another financial crisis, as long as we have financial markets and bouts of panic there will be crises. Most of them are manageable. What we need to do is avoid these massive disruptions, like the Great Depression or like the 2008 crisis that could have been the Great Depression. I say the following. The system today is much safer than it was. We’ve made a lot of progress but we have more work to do. We need to finish cleaning up our messes and we need to fix the number of flawed government policies beginning with Fannie Mae and Freddie Mac.”

On why Jamie Dimon and others fight the simplistic idea of just putting more capital on the books:

“ The question is how much? I’m a big believer that it is the best defense against failure. We want capital and liquidity. What I would say here, the banks are already much better capitalized. Second of all, we have the new regulations put out by the Federal Reserve and other regulators which call for a capital surcharge for the biggest financial institutions. I think that’s a very good first step. On top of that, regulators now have the tools so they can manage the failure of any large institutions.”

On what characteristics the next Fed chair needs to confront those possible instabilities:

“The next phase will be important because there will be much more of an emphasis on a return on assets, productivity, real growth, and we are going to have to as Chairman Ben Bernanke has said, we are going to have to move from these extraordinary low interest rates and get back to real margin.”

On whether he has the confidence we will do that without instability and shocks:

“There’s bound to be volatility. There is no perfect solution when you have a big, ugly, messy problem. There will never be a perfect, elegant solution. I believe that Ben Bernanke has been a hero. To be where we are today, where you have growth of 2% since late 2009 while we have been undergoing this necessary and massive deleveraging of consumers, it’s important. There is bound to be volatility. The next Fed Chairman, again, which is a huge, very important decision for President Obama, the key qualities are, first of all, fierce, independence, great ability, and to be someone who you want to see a return to and Ben Bernanke. And then someone who is a good communicator.”

On Putin’s Op-ed questioning American exceptionalism:

“Well, this is a very special country. It’s a country that’s based upon innovation, entrepreneurship. And the key thing is social mobility, the fact that everyone feels in this country they’ve got a chance to succeed. And so I think the most important thing we have to do to keep this spirit of American exceptionalism is fix our economy so that we’re growing at a level so we can sustain our long-term prosperity, create jobs and narrow the gap – this widening income gap. Because I think if there’s anything that’s demoralizing, it’s to have the gap get wider and wider. And to do that, I think we’re going to need some bipartisan compromise in Washington and get some – some policies that are really pro-growth policies. Immigration reform, a different tax system, et cetera.”

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