Julian Robertson: “We’re in for some real rough sledding”

This is how the famed investor and Chairman of Tiger Management began an interview with CNBC yesterday. Yes, the recession is probably over, he says.  But, in his view there is likely to be problems going forward because the U.S. has so much debt.

The money quote: “It’s almost Armageddon if the Chinese and Japanese don’t buy our debt.”

I am not sure I agree because a recession caused by a fall in the dollar’s value will almost certainly mean a reduction in imports and an increase in savings and domestic purchases of government bonds, something we are already witnessing.

As to inflation versus deflation, consider Robertson an inflationista. He is betting on inflation going higher in his investments. “We could easily see 15 to 20” percent inflation if the Chinese and Japanese go on strike, Robertson says.

Below are both the short video, which runs for the first eight minutes of his interview, and a longer full 30-minute version beneath it.

  1. kynikos says

    I do not think the inflation would be that pervasive, but why is “inflation” bad anyway? Of course, if the US doesn’t get cheap imports because those countries do not buy US securities to fund a current account deficit, there will be inflation.

    Protectionism leads to inflation because it reduces the supply of labor (in the form of international workers who export cheap goods) within a country, thus reducing presures on wages. Politically, reducing this supply of foreign cheap labor is also attractive since this labor doesn’t pay ANY taxes at all while working class people pay taxes. Within a country, this inflation would be redistributive; if we assume that the working class would be net winners (they receive higher wages that would more than cancel out the effect of increased consumer good prices), the losers would be people in jobs that aren’t affected by import competition in any way who have to buy more expensive protected goods thus reducing their real wages. I am willing to assume that most of the top ten percent are people whose jobs are not subjected to import competition (so they wouldn’t gain in a protectionist regime), and their demand for goods is relatively inelastic. (They might lose jobs from protectionist retaliation by other countries if they are in an export related sector though and this might serve to reduce the demand for consumer goods domestically.) Since the top ten percent composes 40% of consumer spending, this is a lot of demand that can be redirected domestically.

    If we discount the detrimental international effects of protectionism (by discounting its effects on foreigners while only focusing on the domestic consequences in the utilitarian calculus), one can see how attractive protectionism is even if we do assume a net loss to “society” because of protectionism.

  2. bob_in_ma says

    I watched that and I didn’t find Robertson’s argument even remotely persuasive.

    I think Faber makes the most cogent argument for the inflation camp. What’s interesting is that his view of how we got here and where we are now is very similar to Steve Keens.

    But where they diverge is on the willingness of the Fed to purposely debase the currency.

    Faber seems to make the argument that the Fed has aided and abetted a series of bubbles purposely and therefore it’s reasonable to expect them to continue down the this track of excessively loose money until there is a crisis.

    Keen, I think, would agree they bear responsibility for the bubbles, but that they did it more through incompetence then design. But to purposely debase the currency by letting the helicopters fly would be a purposeful act and that’s something no self-respecting central banker is likely to do.

    I’m moving into Keen’s camp on this, and least for the short-medium term.

  3. Anonymous says

    Why is it that when the recession began we had increasing GDP growth, but also increasing unemployment, and now that we have increasing GDP growth and increasing unemployment we are now no longer in a recession???

    That doesn’t seem to add up. Same state of affairs at the beginning and at the end, increasing GDP and increasing unemployment. So why was the beginning bad and the end good?

  4. The Real Deal says

    “… rough sledding …”

    Why? You borrow money, you pay back with interest. Been like this for centuries. The laws of every country upholds and enforces it.

    Why rough?

    Nobody forces the US to borrow money. The whole darn country borrowed with full knowledge of the rules and responsibility.

    Why rough?

    So trillions were borrowed. Well, what happen to them? Presumably they are now sitting as valuable assets all over the country. The borrowed money should have funded all kinds of things and activities that produced a positive return, right? After all, America is the land of the smartest capitalists in the world. They are the same people who supposedly taught the Chinese to be smart capitalists, right? Paying back borrowed money should be a cinch, since we have the great wise people of the Fed and Wall Street.

    So pay ’em back. No need to cry like babies.

  5. Jolt says

    love her complete confusion at 20:30 when he says “the red metal”. she doesn’t even know what copper looks like.

    classic cnbc.

  6. Vangel says

    “I am not sure I agree because a recession caused by a fall in the dollar’s value will almost certainly mean a reduction in imports and an increase in savings and domestic purchases of government bonds, something we are already witnessing.”

    It will be a problem if the Chinese and Japanese stop buying because the USD will collapse and capital costs will go significantly higher. In the absence of the foreign buying the government would have to let interest rates sky-rocket, let public and pension funds go under, raise taxes, default on its SS and Medicare liabilities, and cause oil and food prices to explode.

    By the way, it is my belief that a significant correction needs to be made so that the malinvestments are washed out and the Federal Reserve System is eliminated. I just don’t think that it will happen as long as the government has access to a printing press and has the option of printing money to finance activities because it does not wish to see the taxpayer revolt when taxes are increased.

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