Julian Robertson Interview: Stuck Between a Rock and a Hard Place

4 10 2009

We’ve been warning of the dangers of over-investing in dollar assets for many months (http://tinyurl.com/lqsw3v).  Our trade-weighted currency is down 13% since March and, while it may correct to the upside on another deflationary liquidity squeeze, we believe the economic drags of rising tax rates and further dollar debasement will continue to overwhelm the currency over the long term.

Perhaps the largest risk to the dollar involves our dependency on China and Japan as our primary lenders.  I very highly recommend everyone watch the below video interview of investing legend Julian Robertson as he speaks to this risk.

To summarize, WHERE IS THE MONEY GOING TO COME FROM?  If China and Japan stop lending us money (i.e. buying our treasuries), given the size of our current and projected deficits/borrowing needs and debt maturities, our government will have to devalue the dollar (i.e. print money) at an even more rapid pace, perhaps pushing us into a hyper-inflationary state. This means that the intrinsic value/purchasing power of one’s dollar-denominated wealth could quickly dissipate.

As a nation we have found ourselves in a very unfortunate predicament, the result of decades of borrowing to consume in the face of a shrinking manufacturing base. The implications are far-reaching.  What safety one had previously found in holding cash wealth should be reconsidered and balanced by a respect for the aforementioned risks and a handicap on the government’s willingness to show restraint.

Vodpod videos no longer available.


Putting it all Together: Managing Money as you Peer into the Abyss

2 08 2009

We are certain that the unprecedented government policy response to avert a depression-era collapse of our financial system will go hand in hand with an unprecedented number of unintended consequences, perhaps manifested by loss of confidence in the dollar, inflation and possibly both.

Articles of Discussion:

How Prescience Approaches Portfolio Allocation
Peering Into The Abyss
Looking Beyond The Fiscal Stimulus
Investment Implications

Read the rest of this entry »

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