Take time to read the investment letter from Value Investor Insight. In this month’s letter there is an interview with investment legend Julian Robertson. Here is some of the “finer” points:
“Has anything surprised you about how the financial crisis is playing out? I’m amazed at the amount of money the government is throwing at this thing. You don’t even react anymore unless somebody’s talking about $1 trillion. I genuinely admire the administration’s courage in doing what it’s doing, but not the wisdom of it. I look at the TALF [Term Asset-Backed Securities Loan Facility] program, for example, and it’s almost a bribe to get people to put on more leverage.
What are the ramifications of the path we’re taking so far? I ask anyone to give me an example of an economy beefed up by huge amounts of quantitative easing that did not inflate tremendously when or if the economy improved. I think what we’re doing now will either fail, or it will result in unbelievably high inflation – and tragically, maybe both. That would mean a depression and explosive inflation, which is frightening
What can investors faced with such bleak prospects do? There are a lot of things to do. The insurance policy I would buy is called a CMS [Constant Maturity Swap] Rate Cap, which is the equivalent of buying puts on long-term Treasuries. If inflation happens the way it could, long-term Treasuries are just going to explode. Less than 30 years ago, long-term interest rates got to 20%. I can envision that seeming like a very low interest rate compared to what might occur in the future.
Should you avoid equities under the scenario you envision? Equities are certainly better than cash. In particular, I’d expect the best things to buy to be natural resources stocks. I love energy stocks. Without making any prognostication on oil prices, we think based just on cash flow that oil stocks are very attractive, and of course will be much more so if oil prices return to anywhere near where they were last summer. Some energy stocks we own are Occidental Petroleum, Talisman Energy, Ultra Petroleum and TriStar Oil & Gas. I really like some of the Canadian oil-sands plays, because there’s probably more leverage to the price of oil there than anywhere else.”
We think that these are wise words…….you better have a very good argument to go against what Robertson is saying!
It certainly appears as if the market is confirming what Robertson is saying (and by implication we are agreeing to):
How does one trade Robertson’s idea? Long RYJUX and Long SHY (as one trade) and long UDN (or even FXA or DBC) as a separate trade
