Few investors have the prescience of this week’s Financial Thought Leader guest. Long before the 2008/2009 financial crisis he identified the powerful and destructive rise of what he called the “Shadow Banking System”, the unregulated institutions funding the housing and credit bubble. He also coined the phrase “Minsky Moment”, after the economist Hyman Minsky’s theory that financial stability ultimately leads to financial instability, as people and institutions take on more risk. That is exactly what happened.
This week’s WEALTHTRACK guest is legendary bond trader, Federal Reserve watcher and economist, Paul McCulley who spent many years in the top ranks of bond giant PIMCO. What financial forces does he see gathering now?
Charlie Munger: Invert And Use “Disconfirming Evidence”
One of my favorite research headlines this week came from Evercore ISI, the firm run by Ed Hyman, Wall Street’s number one ranked economist for 35 years running and an exclusive WEALTHTRACK guest every January. The title was
“Deals, Dividends, and Easy Money.” The report pointed out the link between all three, and what an incredible impact easy money is having on the markets.
The biggest deal was Royal Dutch Shell’s announcement of its $85.9 billion acquisition of liquefied natural gas producer, BG Group. That takeover dwarfed drug maker, Mylan’s unsolicited takeover of rival Perrigo for $29 billion.
According to ISI, $138.9 billion of deals have been announced so far this week. Since February 6th of last year the tally is 862 deals totaling $4,994 billion! As ISI points out, companies have lots of cash. Monetary policies are ultra stimulative. Growth prospects are muted.
ISI notes that cash is also being put to work in dividends. Dividends increased 14.8% year-over-year in the first quarter. “Zero interest rates are also playing a role.”
This is a perfect time for this week’s interview with Paul McCulley, a Financial Thought Leader, noted Fed watcher, economist and former short-term bond trader. .
You might recall that for years McCulley was a Senior Partner at bond giant PIMCO. He was a founding member of its Investment Policy Committee, along with firm founder Bill Gross, and author of the influential monthly “Global Central Bank Focus”. During his time at PIMCO, he managed their huge short term trading desk, overseeing an estimated $400 billion dollars in assets.
McCulley retired from PIMCO in 2010 to write, think, speak and otherwise lead a more balanced life, which he did until last year when he was asked to return to his old firm, by his former boss and close friend, Bill Gross. Gross then unexpectedly left the firm a few months later, an experience McCulley will talk about in our exclusive EXTRA feature on our website.
McCulley is known for his understanding of economics, the capital markets and Fed policy. Long before the 2008/2009 financial crisis he identified the powerful and destructive rise of what he called the “Shadow Banking System”, the unregulated institutions fueling the housing and credit bubble. He also coined the phrase “Minsky Moment”, after economist Hyman Minsky’s theory that financial stability, as this country had during the Alan Greenspan era, ultimately leads to financial instability, as people and institutions take on more and more risk.
That is exactly what happened.
In this week’s interview he makes some other startling predictions about Fed policy under Janet Yellen, Mario Draghi’s intentions and the global level of interest rates. If he is correct it will be positive for investors. If he is not it’s batten down the hatches.
If you can’t join us for the show on public television this week, you can always watch it on our website, WealthTrack.com over the weekend. As I mentioned you will also find our exclusive online EXTRA interview McCulley about his decision to retire – twice – and how he’s achieved a work/life balance.
Have a super spring weekend and make the week ahead a profitable and productive one.
Continue To Seek Out Exceptional Investors, Both Individuals & Firms
Distressed European Assets
- Buy European equities and real estate
- Hedged back into the U.S. dollar
A Morningstar favorite:
- WisdomTree Europe Hedged Equity ETF (HEDJ)
- Price: $67.11 on 4/8
- 52-week range: $51.67 – $67.50
Paul Mcculley From The Archives
Paul McCulley: Work/Life Balance
Legendary bond trader, Federal Reserve watcher and economist, Paul McCulley spent many years in the top ranks of bond giant PIMCO before retiring in 2010 in search of a work/life balance. He returned to PIMCO as Chief Economist for a few months in 2014. We asked him about his latest departure, his current interests, and his plans for the future.