Transcript of Bob Rodriguez's speech at Morningstar Conference: Letâs be frank about last yearâs performance, it was a terrible one for the market averages as well as for mutual fund active portfolio managers.
We deployed more capital than at any other period in the last 25 years, late last year and early this year, with 67% directed into energy stocks. This added to FPA Capital Fundâs hefty energy exposure that existed prior to the market collapse. Over 50% of the Fundâs equity investments are currently in energy.
Former Federal Reserve Chairman Greenspan expressed on several occasions that a bubble could not be recognized before it occurred⌠Apparently, he couldnât recognize the internet bubble; Chairman Bernanke also has his difficulties recognizing bubbles. While in October 2005, according to The Washington Post, Mr. Bernanke âdoes not think the national housing boom is a bubble that is about to burst.â
My trust has been severely shaken in the Federal Reserve, the Treasury, the Congress and the Executive branch of government in their collective judgment as to what is required and appropriate for a fundamentally sound long-term economic recovery. Incorrect analysis, obfuscation and political posturing have brought me to this realization.
âIt was only on July 10th that Secretary Paulson said that âthe lenders (Fannie and Freddie) have sufficient fundsâ before the House Financial Services Committee. On that same day, the Office of Federal Enterprise Oversight, which regulates both Fannie and Freddie, said that âboth are adequately capitalized.â Finally, Senator Chris Dodd in a July 11 news conference said, âThese institutions are sound. They have adequate capital. They have access to that capital.ââ On September 7, 2008, the Federal Housing Finance Agency announced the decision to place both of these institutions into a conservatorship that resulted in the debt and mortgage-backed securities being effectively guaranteed by the U.S. government.
Misguided measures to re-stimulate consumer borrowing, beyond just getting the system functioning, are highly questionable. Governmental programs deployed to stabilize and grow the economy appear highly risky, especially those involving an unprecedented Federal intrusion into the private capital system.
Chryslerâs bankruptcy reveals further conflicts of interest. The four largest senior secured lenders to the company had previously received $90 billion in TARP money. It looks as though they rolled over to allow the Presidentâs plan to move forward. To see junior creditors gain superiority over senior creditors is a bad precedent. It turns upside down the absolute priority rule that is a basis of bankruptcy law.
My financial market outlook is rather cautious. I believe the recent stock market rally is nothing more than a bear market rally. It is being driven by some highly optimistic expectations.
I believe this crisis has reawakened a sense of budgetary responsibility that has lain dormant in Americans these past two decades. As Americans, we should demand the same of our government.
Read the complete transcript
We deployed more capital than at any other period in the last 25 years, late last year and early this year, with 67% directed into energy stocks. This added to FPA Capital Fundâs hefty energy exposure that existed prior to the market collapse. Over 50% of the Fundâs equity investments are currently in energy.
Former Federal Reserve Chairman Greenspan expressed on several occasions that a bubble could not be recognized before it occurred⌠Apparently, he couldnât recognize the internet bubble; Chairman Bernanke also has his difficulties recognizing bubbles. While in October 2005, according to The Washington Post, Mr. Bernanke âdoes not think the national housing boom is a bubble that is about to burst.â
My trust has been severely shaken in the Federal Reserve, the Treasury, the Congress and the Executive branch of government in their collective judgment as to what is required and appropriate for a fundamentally sound long-term economic recovery. Incorrect analysis, obfuscation and political posturing have brought me to this realization.
âIt was only on July 10th that Secretary Paulson said that âthe lenders (Fannie and Freddie) have sufficient fundsâ before the House Financial Services Committee. On that same day, the Office of Federal Enterprise Oversight, which regulates both Fannie and Freddie, said that âboth are adequately capitalized.â Finally, Senator Chris Dodd in a July 11 news conference said, âThese institutions are sound. They have adequate capital. They have access to that capital.ââ On September 7, 2008, the Federal Housing Finance Agency announced the decision to place both of these institutions into a conservatorship that resulted in the debt and mortgage-backed securities being effectively guaranteed by the U.S. government.
Misguided measures to re-stimulate consumer borrowing, beyond just getting the system functioning, are highly questionable. Governmental programs deployed to stabilize and grow the economy appear highly risky, especially those involving an unprecedented Federal intrusion into the private capital system.
Chryslerâs bankruptcy reveals further conflicts of interest. The four largest senior secured lenders to the company had previously received $90 billion in TARP money. It looks as though they rolled over to allow the Presidentâs plan to move forward. To see junior creditors gain superiority over senior creditors is a bad precedent. It turns upside down the absolute priority rule that is a basis of bankruptcy law.
My financial market outlook is rather cautious. I believe the recent stock market rally is nothing more than a bear market rally. It is being driven by some highly optimistic expectations.
I believe this crisis has reawakened a sense of budgetary responsibility that has lain dormant in Americans these past two decades. As Americans, we should demand the same of our government.
Read the complete transcript
