Our monthly round-up of the best quotes from the financial world.
Considering the news-flow over recent weeks, it's no surprise that the most quotable quotes of the past month have related to the bail-outs of countries, the behaviour of banks, and the mechanisms of boom and bust.
Bankers and bailouts
Marc Faber was particularly caustic in his assessment of the Greek situation:
"It would be a mistake to think that the bailout is actually a bailout of Greece -- Greece is a write-off; you cannot have the kind of debt Greece has with olive oil income. They have no industries to speak of -- they have shipping, but the shipping industry does not pay taxes in Greece -- so basically the bail-out is actually a bail-out of the ECB itself, because they have already a lot of paper [from] Spain, Portugal and Greece in the their portfolios."
Jack Bogle, perhaps predictably, blames active fund management for a lot of the problems we face:
"It used to be that individual shareholders owned 90% of all the stocks in America … and now they own only 30%. It's these agents, these pension managers, institutional money managers, mutual fund managers, who control 70% of all stocks, and I fear that these managers are acting in their own interests rather than in the interests of their ultimate beneficiaries. So we have to fix that, and the [Financial Reform] Bill does nothing about that."
The Chair of America's Congressional Oversight Panel, Elizabeth Warren, was also scathing in her criticism of the CEOs who allowed their balance sheets to be weakened:
"I'm always stunned when the CEOs stood up and said 'no-one could have seen this crisis coming'; well, no-one could have seen it who wanted to keep his eyes tightly closed and his ears stuffed with money."
Not everyone is critical of the way the crisis has been managed, however. Charlie Munger, in his annual address to Wesco Financial, said:
"This time was far worse than any other time in modern history ... The [US] government's reaction was a credit to democracy and capitalism. We had wonderful leadership, and I'm quite grateful."
Hedge fund boss Hugh Hendry, with typical candour, disagrees:
"Let's purge this system of its rottenness. Let's take on a recession. It's going to be tough, people are going to lose their jobs -- they're going to lose their jobs anyway. We can spread this over twenty years, or we can get rid of it over three years."
"I would recommend you panic. The European banking system is in crisis. The European banks are refusing to lend to each other -- that's the reality."
"I think our elites have it wrong. It is my contention that China produces gross domestic product growth without per capita wealth creation. It is analogous to a cocktail party without the cocktails; what is the point?"
Professor Niall Ferguson, on the other hand, sees the current crisis as another phase in the decline of the West, relative to China and the emerging Asian states. But just like Hendry, he is concerned that the moral hazard created by the bail-outs is storing up more problems for the future:
"The financial world ... is worse than it was five years ago, in the sense that all the problems that caused the crisis have been worsened by the crisis ... For example, the banking system in the United States is more concentrated, there are fewer investment banks, [and] the amount of risk that they take on has gone up."
"The fatal implicit guarantees of government to excessively large financial organisations are now explicit, so the moral hazard has gone off the charts … I would not be at all surprised to see another crisis in relatively a short time."
Bubbles, booms, and busts
Bogle takes a more cautious stance on China:
"Nobody really knows what's going on there ... we don't have the sort of economic data that we'd like to see. Is there a great big bubble in China? Honestly we don't know. Can China grow at 9% a year, as they have been growing for the past decade? It seems amazing and unbelievable to me, but it's too uncertain for me to use that in my own investment programme, too risky."
Ferguson, meanwhile, sees more bubble behaviour in the British housing market:
"It's funny … that we should be so enthusiastic about asset price inflation, when we used to worry so much about consumer price inflation. The news that UK housing prices are going up should be greeted with unease, not enthusiasm, because it's a symptom that once again we are heading down the primrose path to Hell."
"I still hear people talking about V-shaped recoveries, but it seems to me that it's more like a V-sign recovery that we're going to get. We're going to get a big shock about the hangover that this crisis has left us with."
Seth Klarman doesn't say a lot, but is worth listening to when he does. It makes it all the more worrying that he pronounces:
"I'm more worried about the world broadly than I've ever been in my whole career … Given the recent run-up, I'd be worried that we'll have another 10 years of zero returns."
Klarman reportedly has nearly a third of his fund's $22 billion in cash.
Meanwhile, GMO's Jeremy Grantham is struggling to justify investing in the bubble he expects in emerging markets:
"It is hard … for value managers like us to ever overweight an overpriced asset, so we struggle on the margin to find kosher ways to own a little more emerging [markets] in order to give them the benefit of the doubt. I recommend that readers do the same. The urge to weasel and own a little more emerging [markets] is a direct result of the lack of clearly cheap investment alternatives."
The Muppet Show
Finally, it was touching to read the assurances of press secretary at Disney, who was caught in an FBI sting operation after offering to sell information on forthcoming financial results to hedge funds:
"I can count on your discretion as you can count on mine."
Indeed.
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