Excerpt from Barrons Roundtable Forum:
(It is very long and I can't copy it all - requires a subscription but I find it to be the most interesting,
relevant, and idea generating piece in Barrons, year to year. It has all points of view including that
of Abbie Clown. I generally agree most with Felix Zulauf, Swiss money manager, and appreciate
his macro analysis of the economy. I haven't read it yet but upon starting, the rational view of our
economic problems is presented below by Art Samberg.)
Q: Art, what have you got to
say?
Samberg: It's all a moot
point. If the Federal Reserve
is going to pump as much
money as it has into the
financial system, and is going
to micro-manage things the
way it has ever since Y2K,
then it's going to finesse our
way through a recession. I
think Oscar's got it.
Q: The Fed finessed us into a recession.
Samberg: And it will finesse us out. The question is when
[Federal Reserve Chairman Alan] Greenspan is going to start
increasing rates. I think the recovery will be fragile because I
happen to agree that the whole boom was created by too much
liquidity.
If you look at the data for the last 12 years, corporate and
personal debt has grown at a 6% rate, and assets have grown at
3%. We have been through a 20-year period in which inflation
has been reduced and long bonds have come down. If you were
to see an uptick in inflation, and therefore interest rates, on top
of a very levered corporate and consumer structure, then you
would have to pay the piper for what Barton has pointed out. I
think we're in a transitional period. I think it is so much more
important to recognize this than to apply the typical analysis of a
recession. Everything that I hold near and dear is broken. It is
nowhere near being fixed.
Q: You're talking about stocks, we hope.
Samberg: The parts of the economy that led first to the
extraordinary growth, and the bubble, are broken. They're going
to have to back the car over it, then put it in forward, and drive
over it three times more before they kill it.
Q: Art, your imagery is really interesting.
Samberg: It isn't dead yet, and it will have to die. And when it
does, you are going to see more concern over the amount of
money people have in their pension plans. It is just starting.
General Motors has to address whether it can still get 10%
returns on its pension plan. Companies like General Electric are
going to spend a lesser proportion of sales on capital spending
over the next five years as they did in the prior five. We are
going into a period of reduced growth. Corporations have no
pricing power. Whether we can make a soft landing or must
make an abrupt landing is the only question left. I am
uninterested in whether the energy rebate is going to last for one,
two or three quarters, and all that other stuff. Usually I think
that's what drives markets, but now I think analyzing it can get
you in a lot of trouble. |
