Our monthly round-up of the best quotes from the financial world.
The big financial news over the past month was the IMF agreement to provide soft loans to Ireland -- the causes of that crisis are many and various, but one Dragon from the Irish version of Dragons' Den includes the false sense of security provided by the appearance of financial regulation:
"On the regulation front ... quangos give the impression to the public that there is regulation, so this stupidity … that every ten seconds of every financial services ad had to [mention regulation] gives the impression that there is financial regulation going on, and there clearly wasn't."
Ireland and the euro
Andrew Clare, a professor at the Cass Business School, argues Ireland should be forced to recognise that its banks are bust; only then will Ireland and Brussels be able to 'move on':
"The only way to put a stop to this sovereign contagion within the heart of the euro is to recognise the losses in the banking sector, and then to write off those losses at the expense of bank equity and bondholders. It is the investors in bank equity and the holders of bank debt that really need to feel the pain, not the relatively lowly-paid workers of the eurozone. Without this type of action these problems will persist."
Unsurprisingly, Jim Rogers agrees:
"Just [the Irish] banks alone have borrowed 80% of their gross national product. There's no way they'll ever pay this off, and it's going to cripple the Irish economy for years to come. In the future, Ireland wlll be crippled because nearly everything they earn will go to pay off old debts."
"There is no reason that taxpayers around the world or around Europe or in Ireland should pay for other peoples' mistakes. The banks who lent the money and made the mistakes should lose money. The bondholders and the stockholders of those banks should lose money. It's that simple."
"Ultimately the euro is weakened, the whole European Union is weakened, and ultimately it all falls apart."
Jim O'Niell of Goldman Sachs sees this playing out differently:
"European Monetary Union (EMU) will probably survive, but it is likely to remain very messy."
Obligatory Hugh Hendry section
As usual, hedge fund manager Hugh Hendry, of Eclectica, puts his own colourful spin on proceedings:
"The euro project has not gone according to plan. It reminds me of the story of the James Bond character Q ... who invented a compass for spies hidden in a button that unscrewed clockwise. The contraption was based on the simple yet brilliant theory that the unswerving logic of the German mind would never guess that something might unscrew the wrong way. This is really what happened with the Euro. New member states were supposed to take lower interest rates and invest their resources wisely to improve and deepen their productive capacity. Instead, they used the advantage to finance speculative asset bubbles. The world screwed them the wrong way. The Germans are unhappy."
He goes on to describe the latest round of quantitative easing in the US as "[taking] the Fed back to dancing around a bubbling cauldron rubbing two chicken bones together."
Bull or bear?
Seth Klarman of Baupost Group sees fewer opportunities in the market today:
"Baupost's opportunity set is smaller than it has been in some years, while our cash balances have grown."
If anyone doubts that he believes this, he is reportedly returning 5% of Baupost's $23bn capital to investors, thereby foregoing a non-trivial amount of annual management fees.
John Bogle too, while never pretending to know how to time the market, says:
"I've never seen a more difficult time to invest, with the spectre of these enormous deficits hanging over us, and with the global economy teetering a great deal more than people think it is. China poses special risks, with a huge construction boom that can't go on forever."
As ever, he recommends a long-term focus:
"The market is at a relatively fair value now, but may be a bit overvalued for the long-term. But I would no more predict what will happen in 2011 than fly to the moon.
"Anybody who goes into the market to make money specifically in 2011 should either be spanked or have their head examined. It's just too short of a period to predict, and it's a crap shoot. [Long term] I expect stocks will have a dividend yield of about 2 percent, with stock price appreciation of maybe 6 percent from earnings growth. So you might see a total return of around 7 to 8 percent. For bonds, I expect around 3.5 percent."
Invesco Perpetual's Neil Woodford, who recently sold his holding in Severn Trent (LSE: SVT), shares Bogle's aversion to stock-churning:
"There are a lot of busy fools creating huge friction, where the costs are borne by investors … I do not think our obsession with short-term performance is terribly conducive to delivering what we are in business to deliver -- which is good long-term returns to our investors."
"We need to ask ourselves some hard questions. Are we doing things that are socially useful? Have we added value to our ultimate investors?"
The purpose of wealth
Also considering the social implications of wealth was Warren Buffett.
Interviewed last week along with Microsoft's Bill Gates and his wife Melinda by Christiane Amanpour on ABC News, Buffett dismissed claims that he is a great philanthropist for giving his wealth to charity:
"I consider the real philanthropist the person who sticks $5.00 in a collection plate this Sunday and can't go to a movie because of it. Plenty of people do that."
"I just think the idea of dynastic wealth is kind of crazy. The idea that you should be able to do nothing in this world, you know, for the rest of your life and your children and your grandchildren just because you picked the right womb does not really seem to be very American."
On the subject of winning the ovarian lottery, he adds:
"It was being born in America in 1930. I was born in the right country at the right time. Bill Gates has always told me if I had been born, you know, many thousands of years ago, I'd have been some animal's lunch because I can't run very fast, I can't climb trees, and some animal would be chasing me and I say, well, I allocate capital. The animal would say, 'those are the kind that taste the best'."
More from Padraig O'Hannelly:
