Kevin Duffy and Bill Laggner of Bearing Asset Management sit down for a Q&A with Barron's in this week's issue. They've done quite well since opening up shop in 2002, averaging more than 18% annually.
Duffy has this to say about capitalism:
Capitalism is primarily attacked by two groups: utopians who wish to impose a more "compassionate" system, and political capitalists who want to enjoy the fruits of success without bearing the pain of failure. They use the coercion of the state to gain privileges, at the expense of everyone else.
As a country we've become less tolerant of economic failure. The result has been a series of interventions, such as meddling in the credit markets, promoting homeownership and creating a variety of safety nets for investors. Each crisis leads to an even greater crisis. The solution is always greater doses of intervention. So the system becomes increasingly unstable. The interventionists never see the bust coming, then blame it on "capitalism."
And when asked about the "little guy," he replies:
The little guy actually has been crushed. Nobody is asking where this money is coming from. And the money has to essentially flow into the political economy at the expense of the real economy. The little guy is always going to be the last one in the soup line. So he will get a bone tossed to him, like cash for clunkers. But if you are Goldman Sachs or if you have got essentially the red bat-phone to Washington, D.C., you are first in line.
Laggner adds:
AIG made sure its creditors received 100 cents on the dollar. Essentially you have the socialization of risk, but the survivors are still highly leveraged. There is still a multi-trillion dollar shadow banking system that FASB [the Financial Accounting Standards Board] wants to address next year. The central planners have already spent $3.15 trillion on various bailouts, credit backstops, guarantees, etc., and given approximately $17.5 trillion of government commitments, etc., while allowing many of these institutions to remain in place, with the same people running them.
Anyone familiar with Jim Grant talking about "the democratization of credit, the socialization of risk" years ago will find that sentiment echoing throughout this interview.
The pair give their longs (including gold -- oh boy!) and shorts. Read the entire thing if you subscribe to Barron's.
That was an excellent article, thanks for posting it. I agree with a lot of what these guys had to say, particularly on gold. In my view the U.S. dollar is in a lot of trouble in the long run because the Fed is now caught in a position where it cannot withdraw the stimulus or stop the money printing without severely damaging the economy. So one of the few ways for people to protect themselves from the ongoing debasement of the dollar in my opinion is to keep adding to gold positions when possible. And I recently came across an article titled "Canadian Gold Stocks Rally as Gold Price Opens 2010 Higher" at http://www.goldalert.com/ which goes over the outlook for several gold-related sectors, including many gold mining companies based in Canada that have benefited and stand to continue to benefit from the rise in the price of gold.
Posted by: strainer | January 05, 2010 at 12:30 PM