If you think the “Mother of all recessions” isn’t coming

[Raybyrnes]

Top Value Manager Even Gloomier on 2008

Wary of subprime mess, FPA’s Rodriguez halts stock, bond purchases.

Just when you thought Bob Rodriguez couldn’t get any gloomier, the highly regarded value investor has become even more downbeat.

Rodriguez, the hugely successful manager of fpa capital and new income

Rodriguez’s move is virtually unprecedented. Many investors, including Rodriguez himself, aren’t shy retreating to cash when they’re nervous. But few money managers have ever publicly foresworn stocks and bonds altogether.

The Los Angeles-based fund manager has been pessimistic for a while. Citing an absence of attractive values, Rodriguez has long held enormous cash stakes at both of his funds. For instance, cash currently accounts for a whopping 40% of stock fund FPA Capital’s portfolio. And in 2003, Rodriguez declared a “buyer’s strike” at fixed-income FPA New Income, stating that high-quality bonds had little or no investment merit. He’s since loosened his stance a bit, adding short-term government bonds to his portfolio in 2006, but given his concerns over the fiscal health of the U.S. government and fears of higher inflation, he continues to stay away from longer-term bonds.

Rodriguez began sounding alarm bells over loose lending practices in the mortgage arena in 2005. He began to notice that his holdings tied to so-called “Alt-A” mortgages, loans to homebuyers with high credit scores but undocumented incomes, had begun to suffer increasing defaults, leading him to eliminate his bond portfolio’s exposure to such investments. More recently, he questioned whether rating agencies had wrongly given risky mortgage-backed bonds high credit ratings. In his June 2007 report to New Income shareholders and in a panel discussion at Morningstar’s annual investment conference in June, he said that rating agencies hadn’t accounted for the risk of falling home prices in their models. With significant declines in housing prices, Rodriguez argued, even top-rated AA and AAA bonds would run into trouble.
Since then, Rodriguez’s outlook has deteriorated further. He points to etrade’s

ETFC
) recent sale of its mortgage securities portfolio at only 20% of its original face value as an ominous sign. Rodriguez believes other similar transactions are in the offing, leading to more huge write-offs at other financial firms as they’re forced to value their own holdings at fire-sale prices. He anticipates the impact will be felt in early 2008 as companies announce the big write-downs when they release year-end earnings. The losses would force financial institutions to shore up their balance sheets, further restricting lenders’ ability to extend credit and spur economic growth. The credit crunch could spread beyond mortgages to other asset-backed securities and the fixed-income market as a whole.

As a result, Rodriguez’s prognosis for the economy in 2008 is grim. In his September 2007 letter to FPA Capital shareholders, he wrote that the odds of a recession were 50% or greater. But in a conversation with Morningstar, he noted that as recently as a month ago, he would have placed the odds at 70%. Now he says the odds are closer to 100%.

Rodridguez certainly isn’t alone in his prediction, though others envision a less-severe downturn. For instance, top bond investor Bill Gross, the manager of $112 billion

[Ex-SD]

From the sub-prime to the ridiculous: how $100bn vanished:

http://www.guardian.co.uk/business/2007/dec/31/subprimecrisis.creditcrunch

[Ex-SD]

From the sub-prime to the ridiculous: how $100bn vanished:

http://www.guardian.co.uk/business/2007/dec/31/subprimecrisis.creditcrunch

[Ex-SD]

From the sub-prime to the ridiculous: how $100bn vanished:

http://www.guardian.co.uk/business/2007/dec/31/subprimecrisis.creditcrunch

[Ex-SD]

From the sub-prime to the ridiculous: how $100bn vanished:

http://www.guardian.co.uk/business/2007/dec/31/subprimecrisis.creditcrunch

[Ex-SD]

From the sub-prime to the ridiculous: how $100bn vanished:

http://www.guardian.co.uk/business/2007/dec/31/subprimecrisis.creditcrunch

[SD Realtor]

Interesting article Ray. Personally I do feel we will (or already are) in a recession. The severity will be a tough call. Yes it may be a whopper or perhaps Ben and PP team will do whatever it takes to keep the consumerism lifeline intact. I simply do not know. To me employment is the big factor, and if engineers and 100k salaried people (and yes you all know who you are) start losing jobs things will indeed become precarious.

I think that there is a sense of omnipotence that many engineers and young professionals earning big money that are in the 20-40’s category have. Perhaps it is because they have not been through tough times or maybe they have but have always weathered the storm.

Now, with that sourpuss outlook I also do inherently pull for the home team. Something in me always tends to think that skilled motivated people can and will get by even when things are tough. In 2001 engineering jobs were hard to come by but you didn’t see many engineers working at home depot. Same with the early 90s.

Thanks to the other posters who have good knowledge of the stats like gdp and the “official” meaning of inflation. It doesn’t matter to me that the government tells me inflation is 3 or 30% because I know what I pay to SDGE and every few days at the pump and it is alot more then what I used to pay. So I guess I have the SDR inflation reading and that is all I care about.

So yeah perhaps it will be a mother of all recessions. Yes I inherently don’t really trust our leaders because I know they are looking out for them, not for me. However I am resourceful and I would bet many who read this site are as well.

SD Realtor

[SD Realtor]

Interesting article Ray. Personally I do feel we will (or already are) in a recession. The severity will be a tough call. Yes it may be a whopper or perhaps Ben and PP team will do whatever it takes to keep the consumerism lifeline intact. I simply do not know. To me employment is the big factor, and if engineers and 100k salaried people (and yes you all know who you are) start losing jobs things will indeed become precarious.

I think that there is a sense of omnipotence that many engineers and young professionals earning big money that are in the 20-40’s category have. Perhaps it is because they have not been through tough times or maybe they have but have always weathered the storm.

Now, with that sourpuss outlook I also do inherently pull for the home team. Something in me always tends to think that skilled motivated people can and will get by even when things are tough. In 2001 engineering jobs were hard to come by but you didn’t see many engineers working at home depot. Same with the early 90s.

Thanks to the other posters who have good knowledge of the stats like gdp and the “official” meaning of inflation. It doesn’t matter to me that the government tells me inflation is 3 or 30% because I know what I pay to SDGE and every few days at the pump and it is alot more then what I used to pay. So I guess I have the SDR inflation reading and that is all I care about.

So yeah perhaps it will be a mother of all recessions. Yes I inherently don’t really trust our leaders because I know they are looking out for them, not for me. However I am resourceful and I would bet many who read this site are as well.

SD Realtor

[SD Realtor]

Interesting article Ray. Personally I do feel we will (or already are) in a recession. The severity will be a tough call. Yes it may be a whopper or perhaps Ben and PP team will do whatever it takes to keep the consumerism lifeline intact. I simply do not know. To me employment is the big factor, and if engineers and 100k salaried people (and yes you all know who you are) start losing jobs things will indeed become precarious.

I think that there is a sense of omnipotence that many engineers and young professionals earning big money that are in the 20-40’s category have. Perhaps it is because they have not been through tough times or maybe they have but have always weathered the storm.

Now, with that sourpuss outlook I also do inherently pull for the home team. Something in me always tends to think that skilled motivated people can and will get by even when things are tough. In 2001 engineering jobs were hard to come by but you didn’t see many engineers working at home depot. Same with the early 90s.

Thanks to the other posters who have good knowledge of the stats like gdp and the “official” meaning of inflation. It doesn’t matter to me that the government tells me inflation is 3 or 30% because I know what I pay to SDGE and every few days at the pump and it is alot more then what I used to pay. So I guess I have the SDR inflation reading and that is all I care about.

So yeah perhaps it will be a mother of all recessions. Yes I inherently don’t really trust our leaders because I know they are looking out for them, not for me. However I am resourceful and I would bet many who read this site are as well.

SD Realtor

[SD Realtor]

Interesting article Ray. Personally I do feel we will (or already are) in a recession. The severity will be a tough call. Yes it may be a whopper or perhaps Ben and PP team will do whatever it takes to keep the consumerism lifeline intact. I simply do not know. To me employment is the big factor, and if engineers and 100k salaried people (and yes you all know who you are) start losing jobs things will indeed become precarious.

I think that there is a sense of omnipotence that many engineers and young professionals earning big money that are in the 20-40’s category have. Perhaps it is because they have not been through tough times or maybe they have but have always weathered the storm.

Now, with that sourpuss outlook I also do inherently pull for the home team. Something in me always tends to think that skilled motivated people can and will get by even when things are tough. In 2001 engineering jobs were hard to come by but you didn’t see many engineers working at home depot. Same with the early 90s.

Thanks to the other posters who have good knowledge of the stats like gdp and the “official” meaning of inflation. It doesn’t matter to me that the government tells me inflation is 3 or 30% because I know what I pay to SDGE and every few days at the pump and it is alot more then what I used to pay. So I guess I have the SDR inflation reading and that is all I care about.

So yeah perhaps it will be a mother of all recessions. Yes I inherently don’t really trust our leaders because I know they are looking out for them, not for me. However I am resourceful and I would bet many who read this site are as well.

SD Realtor

[SD Realtor]

Interesting article Ray. Personally I do feel we will (or already are) in a recession. The severity will be a tough call. Yes it may be a whopper or perhaps Ben and PP team will do whatever it takes to keep the consumerism lifeline intact. I simply do not know. To me employment is the big factor, and if engineers and 100k salaried people (and yes you all know who you are) start losing jobs things will indeed become precarious.

I think that there is a sense of omnipotence that many engineers and young professionals earning big money that are in the 20-40’s category have. Perhaps it is because they have not been through tough times or maybe they have but have always weathered the storm.

Now, with that sourpuss outlook I also do inherently pull for the home team. Something in me always tends to think that skilled motivated people can and will get by even when things are tough. In 2001 engineering jobs were hard to come by but you didn’t see many engineers working at home depot. Same with the early 90s.

Thanks to the other posters who have good knowledge of the stats like gdp and the “official” meaning of inflation. It doesn’t matter to me that the government tells me inflation is 3 or 30% because I know what I pay to SDGE and every few days at the pump and it is alot more then what I used to pay. So I guess I have the SDR inflation reading and that is all I care about.

So yeah perhaps it will be a mother of all recessions. Yes I inherently don’t really trust our leaders because I know they are looking out for them, not for me. However I am resourceful and I would bet many who read this site are as well.

SD Realtor

[mixxalot]

In 2001 engineering jobs were hard to come by but you didn’t see many engineers working at home depot. Same with the early 90s.

I agree- I have lived and survived through both of these recessions, in 1993 when I graduated college and had zero work experience which was painful and had to work a crap job to gain experience and again in 2002 when the software company layed me off and my severance package kept me afloat until I found work almost a year later. Not fun. But I learned to budget and live below my means for the hard times. I drive an old car but its paid off and I have zero debt.

[mixxalot]

In 2001 engineering jobs were hard to come by but you didn’t see many engineers working at home depot. Same with the early 90s.

I agree- I have lived and survived through both of these recessions, in 1993 when I graduated college and had zero work experience which was painful and had to work a crap job to gain experience and again in 2002 when the software company layed me off and my severance package kept me afloat until I found work almost a year later. Not fun. But I learned to budget and live below my means for the hard times. I drive an old car but its paid off and I have zero debt.

[mixxalot]

In 2001 engineering jobs were hard to come by but you didn’t see many engineers working at home depot. Same with the early 90s.

I agree- I have lived and survived through both of these recessions, in 1993 when I graduated college and had zero work experience which was painful and had to work a crap job to gain experience and again in 2002 when the software company layed me off and my severance package kept me afloat until I found work almost a year later. Not fun. But I learned to budget and live below my means for the hard times. I drive an old car but its paid off and I have zero debt.

[mixxalot]

In 2001 engineering jobs were hard to come by but you didn’t see many engineers working at home depot. Same with the early 90s.

I agree- I have lived and survived through both of these recessions, in 1993 when I graduated college and had zero work experience which was painful and had to work a crap job to gain experience and again in 2002 when the software company layed me off and my severance package kept me afloat until I found work almost a year later. Not fun. But I learned to budget and live below my means for the hard times. I drive an old car but its paid off and I have zero debt.

[Author]

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