Billion Dollar Fund Managers Agree: The Government Never Fixed the Underlying Economic Problems, So We'll Have Another Crash

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Washington’s Blog

While the snake oil salespeople at the retail investing
level and the bobble heads on the kool aid selling financial channels
have been saying for years that we're in a "recovery" (albeit a slow
one), the billion dollar fund managers are saying that nothing has
changed and we'll have another crash.

As Bloomerg reports:

Mark
Mobius, executive chairman of Templeton Asset Management’s emerging
markets group, said another financial crisis is inevitable because the
causes of the previous one haven’t been resolved.

 

“There is
definitely going to be another financial crisis around the corner
because we haven’t solved any of the things that caused the previous
crisis,” Mobius said ...“Are the derivatives regulated? No. Are you
still getting growth in derivatives? Yes.”

 

The total value of
derivatives in the world exceeds total global gross domestic product by a
factor of 10, said Mobius, who oversees more than $50 billion. With
that volume of bets in different directions, volatility and equity
market crises will occur, he said.

The global financial crisis
three years ago was caused in part by the proliferation of derivative
products tied to U.S. home loans that ceased performing, triggering
hundreds of billions of dollars in writedowns and leading to the
collapse of Lehman Brothers Holdings Inc. in September 2008.

Jeffrey
Gundlach notes that we've still got a quadrillion dollar derivative
overhang which dwarfs the size the of real global economy, the
government hasn't done anything to fix the basic problems in our
economy, and so we'll have another crash:

Pimco co-CEO Bill Gross has repeatedly said that the U.S. is running a Ponzi scheme and says:

Ultimately creditors and investors are at the behest of a central bank and policymakers that will rob them of their money.

Pimco co-CEO Mohamed El-Erian predicts that "financial repression" in the form of a negative real rate of return for savers is coming to America.

The New York Times reports:

Even
some senior Wall Street executives acknowledge the lack of change
surprises them, given how poorly the industry performed last fall and
the degree of government support necessary to keep it from collapsing.

 

“There
was a general feeling that an enormous amount of additional regulation
should be put in place to prevent what happened that weekend from
happening again,” said Byron Wien, vice chairman of Blackstone Advisory
Services and the former chief investment strategist for Morgan
Stanley and Pequot Capital. “So far, we haven’t seen a lot of action.”

 

Robert
J. Shiller, the Yale University economics professor who predicted the
dot-com crash and the housing bust, said the window for change may be
closing. “People will accept change at a time of crisis, but we haven’t
managed to do much, and maybe complacency is coming back,” Professor
Shiller said. “We seem to be losing momentum.”

 

Kenneth C. Griffin,
founder and chief executive of the Citadel Investment Group, a
Chicago-based hedge fund that manages $13 billion, said that regulators
and lawmakers needed to impose rules so failing banks could be shut,
rather than allowed to operate indefinitely with taxpayer support.

“We’ve
taken a lot of steps for the worse, and not for the better, in terms
of the structural underpinnings of our capital markets,” Mr. Griffin
said. “We have to change the rules and correct the fundamental flaws in
the financial system.”

While the big boys try to sell the "dumb money" on a recovery under a "greater fool" theory, the smart money knows the score.