A month ago, Carl Icahn told told CNBC that he was "very nervous" about US equity markets. Reflecting on Yellen's apparent cluelessness of the consequences of her actions, and fearful of the build of derivative positions, Icahn says he's "worried" because if Yellen does not understand the end-game then "there's no argument - you have to worry about the excesssive printing of money!" Today he follows up that warning with an op-ed that states "we are in a major asset bubble that continues to grow," supporting Stiglitz comments that "these very strong stock market prices are in a sense a symptom of the weak economy, not a symptom that we are about to have a strong recovery to our real economy."
Currently, I believe that the facts “reduce” to one indisputable truth which is that we must change our system of selecting CEOs in order to stay competitive and get us out of an extremely dangerous financial situation.
We can no longer simply depend on the Federal Reserve to keep filling the punch bowl.
Federal Reserve Chair Janet Yellen recently commented on our Monetary Policy at the International Monetary Fund saying, “Monetary policy faces significant limitations as a tool to promote financial stability.” She continued that, “Its effects on financial vulnerabilities, such as excessive leverage and maturity transformation, are not well understood and are less direct than a regulatory or supervisory approach.” Yellen’s comments suggest, and I agree, that we are in an asset bubble.
Adding to this, Standard & Poor’s issued a report just a few days ago titled, “How Increasing Income Inequality is Dampening U.S. Economic Growth and Possible Ways to Change the Tide.” In it they say: “Our review of the data, as well as a wealth of research on this matter, leads us to conclude that the current level of income inequality in the U.S. is dampening GDP growth, at a time when the world’s biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population.”
There is also a dire situation regarding pension funds which supports the view that Main Street Americans are the ones falling victims to entrenched CEOs and Boards doing poor jobs at running companies. A study by Ray Dalio, founder of Bridgewater Associates, calculates 85% of public pension funds going bankrupt in three decades and only able to achieve 4% returns on their assets. These inexcusable numbers are mainly due to pension and mutual fund managers “voting with their feet” or simply voting for current management of companies in their funds, regardless of their effectiveness on shareholder value.
Our current system of corporate governance protects mediocre CEOs and boards that are mismanaging companies and this must be changed. With this system we will not meet the needs of Main Street America, nor will we be ready for when the asset bubble we have today bursts – whether it is the next one, five, ten, or 20 years. Nobel Laureate and professor of economics at Columbia University, Joseph Stiglitz recently told CNBC, “These very strong stock market prices are in a sense a symptom of the weak economy, not a symptom that we are about to have a strong recovery to our real economy.” He also said, “In the United States, from 2009 to 2012, 95 percent of the gains went to the upper 1 percent. Ordinary Americans are using up their savings.”
I believe that America needs [shareholder activism] to correct the economic course we are on and push back against the approaching storm clouds resulting from the many problems we face today, including a major asset bubble that continues to grow.