Wednesday, May 25, 2011

Money Magazine: Another Economic Crisis Coming

“We Will Have Another Crisis” headlines Money magazine in a feature article for its June edition just hitting newsstands.

Money quotes Robert Rodriguez, a highly-regarded mutual fund manager and CEO of FPA New Income Fund, as saying the U.S. economy, crippled with a mushrooming federal debt, will soon be slammed with another economic crisis — despite the federal government’s bailout and attempts at fiscal reform.

During the past decade, Rodriguez’s fund posted 9 percent per annum returns, far outpacing the S&P 500 index.
Robert Rodriguez
(First Pacific Advisors photo)
“I would say a lot of nothing has changed,” Rodriguez said, after Money asked him if his negative assessment had changed.

Here’s what Rodriguez sees ahead:

• Banks are operating as they were before the last crisis, investors are still chasing after higher yields and chasing risky investments. “Very little has been learned.”

• The U.S. debt is growing faster than the economy is expanding. At best, the U.S. is facing a substandard recovery.

•He estimates it will take another eight years for consumers to recover.

• “Before my sabbatical, I told clients that if present trends in government continue, we will have another financial crisis within three to seven years — by 2018. I still believe that.”

Rodriguez says there’s still time to start the process of “fiscal rectitude.” But he emphasizes that, “The window of opportunity is shrinking because 2012 will be an election year, when nothing happens.”

There are steps investors can take now to prepare themselves for the next financial crisis.

Rodriguez warns against investing in high-yield bonds because, he says, there isn’t enough extra yield there to justify the risk.

He also says the biggest opportunities in stocks are in the energy sector. “But even there, we have a problem with the high valuations for these stocks,” he says.

“The companies that survive (another crisis) will be those with liquidity, that are reasonable or highly profitable, that have some form of barriers to competition or unique capabilities,” says Rodriguez.

He’s sheepish about gold, though, because he has a hard time determining its value.

“I think energy is the better store of value,” says Rodriguez, referring to oil investments.


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