On government intervention:
The slowness in the economy was slowing down. That's all been changed. But most of it's been changed with the help of the government. We've had Cash For Clunkers, we've had special tax incentives for first time [home] buyers. And that's been good. It's moved things around. Now the question is, can the patient sustain himself, that being the economy, when he comes off life support. And there is some doubt out there about that.
On excess reserves (update, the most recent number is nearly $1 trillion, an increase of $150 billion from the end of September):
Well, first of all, I'm concerned about lending and the availability of credit. There's something called excess reserves. Now if you run a bank and I come in and I give you $1,000 in deposits, you have to reserve a certain portion of that according to the Federal Reserve's laws.
In ordinary times, you're in kind of a hurry to lend out the balance of that. So we'll call it 10 percent. I come in with $1,000. You've gotta keep $100 under the rules. But now you're ready to lend out $900. So what do we look like? Well, excess reserves at banks at the end of September were $823 billion. You know what they were a year ago? $2.4 billion. And the year before that it was $1.4 billion. Now that tells me that either banks are so worried about lending that they've virtually stopped and they're holding on to all the money they can or that it's a combination of banks worried about risk and people saying, 'I'm worried about borrowing. I don't know if I wanna get in debt.' So without that liquidity, it's gonna be tough to get back to the old normal.
On the velocity of money:
Yeah. But here's where it gets dangerous. The good news out of the bad news is because that money has no velocity, we have no inflation. And the Fed talks about taking away the punchbowl. Now once that money gets velocity, once it gets lent or spent, then you can have inflationary pressures build. If I fly over Bob Pisani's house and I drop a trillion dollars in green pictures of dead presidents down on his lawn and he's so nervous he picks it up and puts it in his garage, that's no inflation. Nothing's really happened. But when he starts to spend it or if he starts to lend it, then money's got what they call velocity. And inflation could explode suddenly. No sign of it now, no sign of a great fear, although there's a new debate in the fed, but no sign of it now.
On the stock market bubble:
When you get phases like this…if you remember the dot com bubble, you had to be in. You went to cocktail party. We talk about fear and greed and supposedly the fear of losing money. Let me tell you, in doing this nearly 50 years, one of the most powerful fears and motivators of people in Wall Street is the fear of being thought stupid. When you go to that cocktail party and they say, 'Hey Bob, you playin' this rally? You're really long?' [You think] 'No, I'm kind of skeptical about it' and you think you're gonna be the butt of jokes. People actually risk money not to be thought stupid.
On the dollar:
Well, it's a very complicated topic in two ways. Ordinarily, if you looked at it as a stand-alone currency, you might say, 'really, I don't mind a weak dollar. I don't want it to be disorderly weak. If it's gonna drift down a little, let it drift down. That will make my products cheaper overseas.' But the complicating factor here is we have the unseen elephant in the room. And that's China, because as cheap as the dollar gets, they're pegged to the dollar. So if you're Japan or if you're India or if you're Europe, you say, look, the dollar's killing us two ways. Number one, it's making American goods cheap. But it's making Chinese goods far more cheap. Therefore, they're very concerned. And this, I don't think, will continue in an orderly fashion, this benign neglect will not work.
On Chinese growth and the massive fraud driving the economy:
China is very perplexing because it's not just your debate about what do we know about the Chinese banking numbers. What do we know about the Chinese numbers as a whole? There is a great deal of cynicism about how valid some of these numbers are. The feeling is in the regional districts, they don't want to look bad in front of the powers that be. So if they're supposed to come in with certain numbers, those numbers come in. This has the potential to be Enron-esque on a national level. Is it so? I hope not. But I will tell you there are enough people around looking and saying this number doesn't actually add up with that. I mean, Japan is no slouch. But they're not showing exporting at anywhere near the level that China's showing. So there's an inconsistency in the region as to what's going on.
On buy and hold:
Buy and hold is dead if you're talking about buy and hold autopilot. At the same time, people shouldn't be in churning. You don't want those day trading days that we saw with the dot com bubble. People who were wiring for cable companies were said to be trading stocks in the back of the truck when they had a little room to go. What you wanna do is think of your portfolio somewhat like your car. It's not suddenly gonna flip in a day or a week. But you are gonna bring it in for check-up and service on a regular basis. So once you get a portfolio that suits you, you gotta go back to an advisor who you trust and say, okay, let's review where we stand. Is this still true about this industry? Is this so? And you have to work with that. I've had this happen to me a couple of times before. But I've managed to last 50 years in the business. And I will tell you this, there is nothing more painful -- ideologically and psychologically -- than being at a banquet thinking that the food is tainted and watching everybody else have a grand old time. It can be a little tough. But if you have strong suspicions about the food, you may feel better than they do in a day or so.
And much more. Must see clip: