Thursday, September 24, 2009

Julian Robertson: US May Face 'Armageddon' If China, Japan Don't Buy Debt

Julian Robertson is a legend; when he speaks - I listen.

Robertson had the best hedge fund record throughout the 1980s and 1990s. It is reported that the compound rate of return to his investors was 32%. During his active years, he was considered to be the "Wizard of Wall Street." His hedge fund, Tiger Management, became the world's largest fund, which peaked at over $23 billion invested.

He seems to appear on CNBC once a year, this is our opportunity to learn via osmosis.

(a) Nailed it ---> [Oct 30, 2007: Julian Robertson Calling for "Doozy of a Recession"] <--- market, as a "forward looking indicator" was at all time highs
(b) Nailed it
---> [Oct 13, 2008: Julian Robertson Buying Some of Our Names - But Bearish on Economy]

A 30 minute interview below on CNBC - watch it; you'll see I am not the only one who "talks crazy" ;)

One portion of it below:

The US is too dependent on Japan and China buying up the country's debt and could face severe economic problems if that stops, Tiger Management founder and chairman Julian Robertson told CNBC.

"It's almost Armageddon if the Japanese and Chinese don't buy our debt,” Robertson said in an interview. (that's what the Federal Reserve will be for Mr. Robertson) "I don't know where we could get the money. I think we've let ourselves get in a terrible situation and I think we ought to try and get out of it."

Robertson said inflation is a big risk if foreign countries were to stop buying bonds.

“If the Chinese and Japanese stop buying our bonds, we could easily see [inflation] go to 15 to 20 percent,” he said. “It's not a question of the economy. It's a question of who will lend us the money if they don't. Imagine us getting ourselves in a situation where we're totally dependent on those two countries. It's crazy.” (it's kick the can policy - we are the world's best)

Robertson said while he doesn’t think the Chinese will stop buying US bonds, the Japanese may eventually be forced to sell some of their long-term bonds.

“That's much worse than not buying,” he said. “The other thing is, they're buying almost exclusively short-term debt. And that's what we are offering, because we can't sell the long-term debt. And you know, the history has been that people who borrow short term really get burned.”

The only way to avoid the problem, he said, is to "grow and save our way out of it."

"The U.S. has to quit spending, cut back, start saving, and scale backward," (politicians won't let us; they keep giving us money and as unruly teenagers we only know how to spend it) Robertson said. "Until that happens, I don't think we're anywhere near out of the woods.”

Robertson is not very optimistic about the short-term. (but the stock market is rallying sir? Its a forward looking indicator! What's that? October 2007. Oh yeh)

We're in for some real rough sledding,” he said. “ I really do think the recession is at least temporarily over. But we haven't addressed so many of our problems and we are borrowing so much money that we can't possibly pay it back, unless the Chinese and Japanese buy our bonds.” (problems are for our grandchildren to deal with, we only get the pleasures - can I interest you in a new home? car? appliance? paid for by your fellow taxpayer? please?)

[Feb 13, 2009: - China to US: "We Hate You Guys"]

[May 21, 2009: China Becoming More Picky About Debt]

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