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Bob Rodriguez: Another Great Recession Is Coming In Three Years

November 10, 2014

Legendary fund manager Robert Rodriguez, who forecasted the global financial crisis, sees money managers and advisors in peril. They will be victims of their own heedlessness, he says.

The day of reckoning will come within three years in a financial crisis at least as big and pernicious as the Great Recession, he told ThinkAdvisor in a recent interview. The country is treading a tenuous path toward another disaster of massive proportions, according to Rodriguez.

Today, the investor’s stance is ever-cautious, as evidenced by his personal portfolio, which he discusses in the interview, as well as his five-prong formula for investing success and the essential research he relies upon.

Rodriguez continues to identify the horsefly in the ointment as the federal government’s ineffective monetary and fiscal policies, as he calls them, and the failure to attack critical structural issues.

For years he has warned of a looming crisis, even as the financial services industry has ignored, he argues, the enormously changed landscape since the global meltdown.

The outspoken CEO and managing partner of Los Angeles-based First Pacific Advisors (Trades, Portfolio) (FPA), which has $33 billion in assets under management, is the firm’s strategic advisor. In 2011, he turned over day-to-day management of key funds to his partners following a year-long sabbatical.

The FPA Capital Fund (Trades, Portfolio) boasts a compounded rate of return from July 1984 through Sept. 30, 2014, of 14.65%. The FPA New Income Fund has not had a negative year in three decades.

Seeing all too clearly the handwriting on the wall, Rodriguez, in 2007, moved FPA to a cash level nearly 12 times that of the industry.

This month, he spoke with ThinkAdvisor from his Lake Tahoe, Nevada, base during a violent wind storm and power outage. It was on Oct. 15, the day the Dow plunged 460 points before rallying somewhat to end down 173.

“We’re having a little bit of a blow in the marketplace and a little bit of blow in Lake Tahoe,” he quipped. Here are highlights of the conversation:

THINKADVISOR: What’s your take on the market and the economy?

ROBERT RODRIGUEZ: We’re living on borrowed time. When this market breaks, you’re going to see so many money managers and others washed out to sea who will never see land again. It will happen between now and 2018.


The federal government isn’t controlling their spending. For the past two years, 60% of investment returns have been a function of P/E expansion. Earnings growth is being driven by a fair amount of financial engineering on the part of the Federal Reserve and corporations. I’m sitting here for two years saying, “Hel-lo! Doesn’t anybody get this?”

You must be frustrated.

For some time, I’ve hated the financial market. When the history of this period is written, the Fed presidents and those who have deployed quantitative easing will be glorified as great snake-oil marketers.

How would you characterize the economy right now?

Is this a vibrant economy? Absolutely not. I don’t know what people are smoking! No amount of monetary stimulus that’s driving up the illusion of stock prices is going to get back to the basic elements of improving fundamental elements in the economy. Debt and entitlements are growing at more than twice the rate of nominal GDP growth. It’s an absurdity!

Doesn’t the financial services industry realize what’s happening?

I get on a tangent; but I sit here in utter amazement that all this goes on, and the industry proceeds as usual. Hel-lo! The world has changed! It changed in 2008. We’re in a different and fundamentally more volatile environment than any we’ve seen prior to 2008.

Continue reading: http://www.thinkadvisor.com/2014/10/27/bob-rodriguez-new-great-recession-coming-in-3-year?page_all=1

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Canadian Value

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