Bob Rodriguez Cautious About the Economy, Bullish On Energy
Rodriguez was one of the only mutual fund managers to forecast the global financial crisis of 2008-09. In 2007, he moved to 43% cash.
Rodriguez recently returned from a yearlong sabbatical where he gave a rare interview about the U.S. economy.
Rodriguez is particularly concerned about the ballooning Federal deficit. He thinks that there is only 7 months to impose budget cutbacks because 2012 is an election year.The macro concerns have yet to be acknowledged by the broader markets.
“It’s about: When does the market start to get uneasy? Where is the tipping point when these trends become destabilizing, and are you being compensated sufficiently in the capital markets for these uncertainties?”
Rodriguez has been critical of the Federal Reserve for years and he did not mince words when discussing QE2 calling it the “height of lunacy.”
“The purpose of QE2 is to lower interest rates and encourage asset price appreciation so that consumer balance sheets are improved and there’s a higher propensity to spend. You do not build long-term, productive resources by encouraging people who are overleveraged to go out and borrow more.
The consumer added more debt to his balance sheet between 2000 and 2007 than in the prior 40 years.”
As for equities, Rodriquez was cautious and defensive but still bullish on the energy sector.
“In equities, we’re continuing to operate with a high degree of defensiveness. We’ve been reducing some exposure to energy. That has been our largest exposure and still is. There’s no hot new area that I’m saying, “God! I have to focus in on that!”
FPA Capital holdings are still largely centered on the energy industry with 56.8% of the portfolio allocated to oil and gas. Interestingly, their largest holding is Ensco (ESV) which is a favorite of hedge fund manager David Einhorn.