Thursday, June 16, 2005

The Big Picture: Julian Robertson interview

The Big Picture: Julian Robertson interview

Double talk!

I have never heard of Julian Robertson. I appreciate Barry bringing the clip to my attention. It is nice to know when market observers are so confused that they talk in circles.

It is amazing that those who love fear and negativity can be fearful of inflation and deflation at the same time. Is the US trying to "inflate our way out"? The last I heard is that many folks are worried because Greenspan is going to over-shoot and tighten too much. The last I heard, tax revenues to state and federal governments are going out the roof. The deficit is shrinking (as a percentage of GNP).

The problem Japan has had is similar to the problem the US had in the 30's, too much money in the hands of the government and not enough consumer willingness to borrow and spend. Don't tell me the American consumer or our government is ready to stop spending. My wife, daughters, sister-in-law and nieces are ready to blow a wad while shopping at the beach next week. You can count on the American consumer to spend. Homeowners are currently lowering monthly mortgage payments by refinancing homes at low rates. They will have hundreds of dollars per month extra to spend for the next 30 years.

Furthermore, we are in the second half of an economic expansion. In this phase it will be businesses that spend and spend some more. Corporations have increased cash to an average of 11% of assets. This is up from 6%. Debt to equity ratios have dropped and extra cash is still flooding corporate balance sheets. Capital spending is strong. Companies must buy back shares, increase dividends, buy other companies or risk hostile take-over bids.

Investors don't even have to guess which companies are going to buy back shares. Take MOT as an example. The company announced a 4 billion dollar buy back and the stock has been inching up steadily.

We currently have a very favorable business climate. Low cost of labor, low cost of capital and even moderate cost of supplies. Profits have been consistently under-estimated for two years. Historically the best time for business is during a time of low inflation. Even the price of oil at $55 has been at a zero inflation rate for several months (I will not bother to look up the date it hit $58 but since that date there has been disinflation in the price.)

Give me a break. Make a sound argument for inflation or deflation but don't try to scare me out of the stock market with talk about both.