I wrote earlier about how it appears that Pimco has sold Prem Watsa and Fairfax Financial protection against deflation over the next 10 years.
http://www.gurufocus.com/news.php?id=107217
Another legend also disagrees with Watsa and that is Julian Robertson of Tiger Management fame who is calling for inflation. In an effort to look at both sides of the story I thought it would be smart to try and understand what Robertson’s rationale is for predicting inflation. Because Robertson isn’t just calling for inflation, he is investing for it.
Here is an interview with him from late last year by CNBC:
"
ERIN BURNETT: It was almost two years ago today, not quite, but almost, when you said we were in for a doozy of a recession. And a lot of people-- were angry at that. Why would this person be so negative? There was a lot of discussion about it. But you were right. Are we done now?
JULIAN ROBERTSON: Well, it's-- you know, I think kind of a matter of probabilities. And-- I think we're in for some real rough sledding. I don't know quite how it's gonna come about. I really do think the recession is-- at least temporarily over. But we haven't-- addressed so many of our problems. And-- we are borrowing so much money that we can't possibly pay it back, unless the Chinese and Japanese buy our bond.
And if for some reason either from say outbreaks in Western Chin-- China, where-- they require-- help to put these problems down-- whether that or-- other things, maybe just a desire to not be paid in (UNINTEL) dollars. We've seen what's happening to the dollar. It's-- I think at the lowest point in-- of the year right now. Whether-- if they do stop, we're in terrible shape. And I think it's tragic that we've let ourselves be put in this position by our leadership.
And this is not the-- the current leadership, this is the leadership we've had for years. Who seems afraid to tell the people that we have problems. That-- that we've got to quit spending, cutback, start saving, and-- and-- and-- and-- scale backward. And-- until that happens, I don't think we're anywhere near out of the woods.
ERIN BURNETT: Some of the optimists out there say, "Well, the savings rate has gone up. And we had-- an increase actually in-- in income in this country." Now, that was due, in part, to the increase in the stock market. But they point to things like that to show the consumers getting a little bit stronger. Companies are rebuilding inventories. And-- and maybe even though we fell off a cliff-- we're actually gonna come back. And we're going to be okay. And it sounds like you think that that optimistic scenario is missing something pretty crucial.
JULIAN ROBERTSON: Well, I-- I-- I think that-- it's almost Armageddon if the Chinese and Japanese don't buy our debt. I don't know where we could get the money. And-- maybe we-- end up printing it-- and-- taking-- a million dollar bill-- bill to the grocery-- shop, which you have to do now in Zimbabwe. But-- I-- I think we've let ourselves get in-- in terrible situation. And I think we ought to try to get out of it.
ERIN BURNETT: Do you think we can grow our way out of it?
JULIAN ROBERTSON: I think we can grow and save our way out of it. And-- and-- and I think that's-- the only way we're gonna have that threat removed. I-- I wonder what some of the Congressman who have been so upset about-- financial leaders-- I-- I-- I wonder what they think of-- of the leadership of the country that's permitted these very speculative-- policies. I mean, it's amazing. And we're totally dependent on the Chinese and Japanese.
ERIN BURNETT: Do you think that Congress has-- you say the message hasn't been given to Americans. Some people would say, "Well, Americans get it now. I mean, they sort of got that splash of cold water this year. And they know now they have to live differently." Do you think they really know that? Do you think people in Congress have stood up and told people how difficult it might be? Or are they, along with the Fed trying to, for lack of a better word, in-- inflate and spend our way out of it?
JULIAN ROBERTSON: They-- they-- they-- there's no question, they are party to it. They certainly don't know as much about the situation as Fed Chairman Bernanke. But they-- they're party to it. And-- they don't have the guts it takes to tell people to-- slow down. And-- that it is gonna take awhile. And they just don't have those gut-- guts. And-- and-- Bernanke is-- he's very open and above that if problems develop, he's gonna really continue to-- stimulate. And he-- he's very frank with people who talk to him that that's the case.
ERIN BURNETT: What is a bigger risk right now, inflation or deflation?
JULIAN ROBERTSON: Well, I think-- I-- I-- I think-- we can't deflate too much. I mean, our interest rates aren't terribly high. And-- so, I think-- inflation is-- is very high. I-- I mean, I think that risk is much worse.
ERIN BURNETT: It's interesting, 'cause today in the-
JULIAN ROBERTSON: In-- inflation could wipe out so many people in the United States.
ERIN BURNETT: The Federal Reserve today-- in a statement said that-- last month they said commodity prices were rising. But they thought price deflation was a bigger issue. Today they even took out the commodities part. And they stuck with the-- you know, a deflation in asset prices is a bigger risk. Do you think that they are making a huge mistake? Because with that assumption goes interest rates at zero for-- the foreseeable future.
JULIAN ROBERTSON: Well, no, I think they-- are willing to-- make those kind of statements to try to keep this-- the-- the-- the interest rates down. And I think they are-- sort of preaching their own book, so to speak.
ERIN BURNETT: So, one of your biggest-- bets when we spoke-- last was betting on inflation going higher. And Bill Gross (PH) was on with you. And he said, "Well, maybe we could go to six or seven percent." And you said, "That would be conservative." What do you think now?
JULIAN ROBERTSON: Well, I-- I-- I think if the Chinese and Japanese stop buying our bonds-- we could easily see 15 to 20. And I think that-- there-- people-- I mean, where is the money gonna come from? It's not a question of-- of-- of the economy. It's a question of who will lend us the money, if they don't. Imagine us-- getting ourselves in a situation where we're totally dependent on those two countries. It's crazy.
ERIN BURNETT: Do you think there's a really risk? Some people say, "Well, gosh, if-- if China stops and the U.S. fails, they fail, too. So, it's this sort of embrace--"
JULIAN ROBERTSON: That-- that is the general-- feeling. I think that is exactly general feeling. And I don't think-- that the Chinese do want to stop buying our bonds. But I do think there are circumstances that could cause them to have to.
ERIN BURNETT: And-- and--
JULIAN ROBERTSON: And-- and-- and one would be-- outbreaks of unrest in the west of China, that we've seen a little bit of that now. I know-- whenever I've been to China, that has been the big worry of people. And-- I've never really understood why it was such a worry, but they definitely have that worry. And they definitely had some problems out in the west recently.
ERIN BURNETT: So, if you had to say that the most important thing that the United States could do to either stop borrowing or pay back more quickly. Or, you know, just some way to get out of this. What do you see?
JULIAN ROBERTSON: Well, I-- I think that-- I think that-- my solution does cause some temporary pain in America. And I think that the only way we're gonna get that is for the American People to be masochistic enough to ask for that. Because we can be sure that-- the politicians are not gonna ask that of us. (UNINTEL) had enough guts to do that. But we don't-- seem to be able to do-- to ask sacrifices-- really anybody here, except our military. And-- and I think that's sort of tragic.
ERIN BURNETT: And-- and how much longer could-- could the pain last? I know, you had mentioned at one point that if we-- we don't get it right, it could be ten or 15 years if-
JULIAN ROBERTSON: Well, I think--the-- the Chinese-- Japanese not-- not buying our bonds-- really could be-- terrible. I mean, really. And it-- and it could-- I mean, (UNINTEL) look at Japan. They are probably entering their 19th recessionary year in a row. And-- I don't know whether you remember this. But they were sort of thought as the master businessmen. The great cooperation between business and government and management.
ERIN BURNETT: Right.
JULIAN ROBERTSON: And-- and now-- that's been pretty tough over there.
ERIN BURNETT: So, (UNINTEL) was your (UNINTEL).
ERIN BURNETT: And you were very, very excited about this.
JULIAN ROBERTSON: And--
ERIN BURNETT: You-- you-- you're out of this trade now? When did you-- how much did you make and where are you now?
JULIAN ROBERTSON: Whoa, whoa, whoa. We have-- we had gone to a refinement of that. Called a curve cap. The-- the curve steepeners (?) was-- a measurement of the differential between short and long-term rates. And-- we figured short-term rates would go down and long term rates would go up. Well, we didn't do well on the long-term part. But the short-term part worked out so well that it actually made a little money on the trade.
But-- now, there's no real reason-- no-- no real way the short-term rates are nothing. So, they can't really go below nothing. And-- so, we've-- we've shifted the curve steepeners which-- are-- as I say, basically-- long-term puts on long-term bonds.
ERIN BURNETT: So, where do you think-- if-- if this trade--
JULIAN ROBERTSON: Highly leveraged-
ERIN BURNETT: Right.
JULIAN ROBERTSON: And-- and they're like puts in that you know what your risk is. I mean, it's measured by what you pay for the put.
ERIN BURNETT: So, where does-- where do you think-- under any scenario the long-term rates might be?
JULIAN ROBERTSON: Well, as I said, I think they can go to 15-20 percent.
ERIN BURNETT: In the-- in the China stops buying America scenario.
JULIAN ROBERTSON: Yeah, yeah.
ERIN BURNETT: What if China-- some people say, "Okay, we hear--"
JULIAN ROBERTSON: And Japan. Japan's a big buyer.
ERIN BURNETT: Right. So, let's just say that--
JULIAN ROBERTSON: And in Japan, it's even conceivable-- I don't think the Chinese would do this. But the-- the Japanese suffer from some of the same problems we have. And they may be forced to-- sell-- their-- they-- they may be forced to-- sell some of their long term bonds.
ERIN BURNETT: Ah.
JULIAN ROBERTSON: Which is--
ERIN BURNETT: So, not even a political statement. Just forced to do it.
JULIAN ROBERTSON: Forced to do it. And-- you know, if they sell, I mean, that's much worse than not buying.
ERIN BURNETT: So-- I'm sure you've thought of every scenario. They buy as much as they're buying now. They buy a little bit less. They start selling. Right? There's all sorts of different things that could happen. What do you think is the most realistic one? I mean, we've seen some of the recent data. China hasn't been buying as much as they-- had--
JULIAN ROBERTSON: Well-- well-- well, the-- the other thing is, they're buying almost exclusively short-term debt. And-- that's what we are offering, because we can't sell the long-term debt, I think. And-- you know, the history has been that people who-- borrow short term really get burned. I mean, that's the beginning, kind of, of the end. So, I think that's very serious.
ERIN BURNETT: People like Bear Stearns and--
JULIAN ROBERTSON: Well-- anybody who-- who-- borrow short and lends long.
ERIN BURNETT: So-- so, this 15 to 20 you think's reasonable. I mean, with any-- they don't need to-- what I'm saying is that-- they don't need to sell everything they have for our rates to go to 15 to 20. This is something you think could happen in an intermediate scenario?
JULIAN ROBERTSON: I think that-- that it could happen just if the Chinese and Japanese stopped buying our bonds. And someone else had to take up that burden. Right now, it wouldn't be quite that bad, because-- I think you pointed this out earlier. We have been saving more money lately. But-- I-- I've seen the statistics on-- you know-- retail sales are doing a little better. Travel is up. Airline traffic is up. So-- and-- and I think that also the big savers have been the big cats. And the-- the big tax players. And they, of course, are not gonna have as much to save. I mean, the-- the-- the-- Obama tax package has taken care of some of that.
ERIN BURNETT: What do you think about all the potential tax changes that are out there? I mean, capital gains and dividends taxes are-- are going to go up. There's gonna be taxes on drug companies, medical device companies. Obviously there's a huge debate raging over whether there's gonna be taxes on average Americans or not. But it-- do you think it's safe to say it's inevitable that taxes will go up for almost everyone?
JULIAN ROBERTSON: I think it's-- it's certainly inevitable that the taxes are gonna go up for the-- wealthiest-- or the-- the-- let's put it this way. The-- the biggest earners in the-- the 20 percent of the biggest earners. I mean, the-- the top 20 percent. I think they-- their taxes will go up big time.
ERIN BURNETT: So, as you look at this world that we're in--
JULIAN ROBERTSON: And I don't think that's necessarily awful. I mean, we're in-- we're in a very terrible period here. And-- as long as they're incentive is not stifled-- you know, we-- we've got to take some serious debt to get out of this situation.
ERIN BURNETT: One thing that-- I remember when we talked, you were-- you were a Romney supporter, right?
JULIAN ROBERTSON: Right.
ERIN BURNETT: And then McCain. But now Obama has won. And he has-- well, some would say, championed some causes you care passionately about. Climate change is something he has put-- put forth on his agenda. He has been supporting-- legislation to cap emissions. The-- has-- have you become a supporter of him?
JULIAN ROBERTSON: I-- I have-- I-- I have unfortunately sort of feel about him-- that-- the way-- I did when he came in. That he was a brilliant man. Potentially a great leader, who had no executive experience. And-- I-- I-- I would love to see him bite the bullet and tell the American People, "Look, here-- we've got to get our house in order. I'm gonna tax you for awhile. And-- we'll get through this thing together. But-- we're gonna have to work hard to-- to get out of the problem."
ERIN BURNETT: But it sounds like-- from your perspective, he's trying to do what a lot of politicians have tried to do.
JULIAN ROBERTSON: Yeah, he's-
ERIN BURNETT: Give people more and don't tax them anymore.
JULIAN ROBERTSON: That's right. I mean, and it's not-- look-- I mean, in some of the things-- I mean, it's not just him. I mean-- George Bush-- took us to war and-- then gave us a tax cut. I mean, that is-- you know, unheard of. And awful, in my opinion. Not so much the going to war. I feel like if anybody-- if a President feels morally that we should go to war, he should certainly consider that. But then to give the tax cut, I thought, was pretty bad. And-- and-- and Congress has gone along with all this. So, they're all part of that. And-- but let's unwind it.
ERIN BURNETT: So, in terms of your-- your best ideas right now. You talk about the-- it's the curve cap, right? That's the new name?
JULIAN ROBERTSON: The curve-- the curve cap. Yeah.
ERIN BURNETT: You come up with new names for things.
JULIAN ROBERTSON: Yeah. (UNINTEL)--
ERIN BURNETT: Curve steepener took off. Now, we got a new one. Curve cap. Your names since last year have done very well, Julian. I pulled them all up. From when we spoke-- in November. I'll give the wins first. You only had one miss. Your wins. Visa was up 44 percent. Byedo (PH)-- has doubled-- more than doubled, 117. Apple up 106 percent. Doubled. Google up 73 percent. Market only up 26.
JULIAN ROBERTSON: Well-- you, unfortunately, are-- you fortunately are just talking about the longs I recommended.
ERIN BURNETT: Well, there was one short--
JULIAN ROBERTSON: Had I given you my shorts-- you would have seen they were probably up-- worse than the longs were up. But-- at any rate, it's been-- a very-- bullish market for-- for awhile.
ERIN BURNETT: And do you think it will-- I mean, you may think we're in for more trouble. But that doesn't mean the market is going to go down. I mean, do you think that the market-- that we're in a bull market, and it's gonna keep going higher?
JULIAN ROBERTSON: I think we're gonna have to pay the piper. And I don't know when that is. But I would almost say we are gonna pay the-- piper. And it's when, not if.
ERIN BURNETT: Meaning stocks are gonna go down?
JULIAN ROBERTSON: Well, meaning that interest rates are going to go up. And-- and-- and I would think what would go along with that, if you'd had my kind of interest rate scenario, that that would put the brakes on the economy. Earnings would go down like crazy. And-- yeah, I would certainly think that would be the case. But-- you know, if we have-- 20 percent inflation. And-- a-- a market-- I mean, 20 percent interest rates and 20 percent inflation and-- the-- the-- the market goes up-- five percent, that's not a really good scenario.
ERIN BURNETT: No. Your-- your one-- short that you did share with me last year was copper. Which-- which was a miss. You-- it shorted-- it was-- and it went up 67 percent. But-- but I guess this fits into the broader view. Which is you think that we do have this-- maybe you wouldn't even call it a double dip. But there is another sharp leg down to come for the economy. Which-- which regardless of whether you'd still short copper, that's what that was, right?
JULIAN ROBERTSON: I'm again-- I've got-- I've fortunately got a little bit-- lucky on copper. And got out. But I am looking at the red metal once again.
ERIN BURNETT: The red-- which was copper and--
JULIAN ROBERTSON: Copper.
ERIN BURNETT: As-- as a short?
JULIAN ROBERTSON: I'm looking at it. I haven't done anything.
ERIN BURNETT: And-- if you-- if you talked about the dollar and you talked about inflation. If you had to say someone sitting here, "I-- I hear what Julian Robertson has to say, I'm worried. What currency would you put your money in?"
JULIAN ROBERTSON: Easy. Norway. Richest country in the world. Great company with great-- great country with great companies. Only four million people. Easy to manage that. The-- the oil reserves are there, in terms of cash. They're invested-- I-- I-- Norway.
ERIN BURNETT: Norwegian kroner, huh?
JULIAN ROBERTSON: Yep.
ERIN BURNETT: They're taxing. Their-- their richest person just left the country, 'cause the taxes are going up so much. But-- well, taxes are going up everywhere. (LAUGH) So, Norwegian kroner. So, in-- in-- in terms of where we go from here, what are the odds? If you had to say, "I'm gonna make a bet on the U.S. economy." The negative scenario that you're worried about. 15-20 percent interest rates. We're getting through this and growing again. Just like a normal economy, right? Let's not shoot for the moon. Three, four percent. What are the odds?
JULIAN ROBERTSON: Well-- I think a lot of people would say we're low. I think even Bernanke said-- always reported has said that the recession was over.
ERIN BURNETT: He said "technically" it's over, yeah.
JULIAN ROBERTSON: Oh, I'm so glad. Because I like him and I-- and I'm glad-- I didn't know he said "technically." Okay. But-- I-- I-- we still haven't attacked the problem. And unless we attack the problem, we're-- we're not gonna get out of it. And the problem is stimulating, stimulating, stimulating, which is another synonym for spend, spend, spend and borrow, borrow, borrow to pay for the spend, spend, spend. And-- we can't get out of it unless we stop.
ERIN BURNETT: Do you think we're moving in the right direction of stopping? I mean, when-- even if you're skeptical about savings rates. Let's just say they've gone up to five to six percent from zero.
JULIAN ROBERTSON: No, they went-- they've gone up to about 12, I think.
ERIN BURNETT: Is--
JULIAN ROBERTSON: Oh, they've really gone up. I mean, there's no question. I mean, and that has-- you know, ameliorated the situation.
ERIN BURNETT: But you think we need more. And we need to not be borrowing so much--
JULIAN ROBERTSON: Well-- well-- well-- if-- if-- what I'm talking about, if the-- the Chinese are taken out of the equation, it would overwhelm our savings. And-- and it-- and let's say-- well, you say-- then-- then you'd have to have more savings. And if you-- you know, took it up to 20 and 25 percent, that would probably, you know, hurt the economy, because it'd be not much disposable income to get rid of.
ERIN BURNETT: And what about New Zealand?
JULIAN ROBERTSON: Oh, New Zealand's beautiful. They'll always be beautiful. And-- you should go there and so should everybody that's listening to us now. And forget about these problems. (LAUGH)
ERIN BURNETT: And you have a golf tournament coming up on NBC.
JULIAN ROBERTSON: We sure do. And we're very excited about it. And it's the four best golfers in the world on the 30 and-- we're-- we're just thrilled about having them down there on the 14th and 15th of-- November.
ERIN BURNETT: And in terms of-- philanthropy, I mean, I know a couple of years ago we were running some of the advertisements that you had on green, how important that was to you. What is your biggest focus now?
JULIAN ROBERTSON: Well-- I-- I really think that's one thing the American People have lived the-- have-- have led the politicians on is the environment. And I really think-- I don't think he's-- that President Obama is gonna get the-- the-- the green bill he's-- global warming bill that he's hoping for. I hope I'm wrong on that. But I really think that by-- that-- that fight is pretty well won, because I think the people-- realize now the danger of global warming. And I think they are gonna-- gonna-- get in there and-- do somethin' about that.
ERIN BURNETT: And so, is there anything outside of that that you're-- if you've won that fight that you're moving onto another fight? Or is that still the main--
JULIAN ROBERTSON: No. I think-- I-- I think-- there's so many things. I think stem cells are just a terrific thing. I had a friend in New Zealand-- he had twins-- six years ago. One twin was over oxygenated. And had a stroke. The twin deteriorated, deteriorated, and at about four years old was-- I don't like to use this word, but was almost kind of like a vegetable.
And they were desperate to get her help. And-- they-- finally hit up with a doctorate, Duke University. And-- and-- and the one thing they had done, they had had cord blood taken of-- of her placenta with her mother. And-- any rate, they took her to Duke. This wonderful doctor down there-- proposed some sort of cocktail out of this placenta. And injected the child. Several months later, her parents were just wild excitement. She began to do much better. This continued and now she's almost at the same level as her twin sister. And it's just been a miracle. And-- any rate, this is the wife of Teddy Kennedy's brain surgeon at Duke University. And-- the-- the stem cells--
ERIN BURNETT: She's the one who was the mother? Or she's the one--
JULIAN ROBERTSON: She's the one that was the-- the stem cell-- the doctor. She's-- and-- she-- in conversation, told us that her husband could be more aggressive now in his brain surgery, because she could come behind him and-- throw out some stem cells to, you know-- cure something that he might have-- you know, taken too much of a certain nerve or something of that nature. And-- any rate, it's just-- it's a pretty wild, wonderful area. Which I don't understand at all. But which-- realize the value of it. So, I'm a stem cell nut from-- global warming nut.
ERIN BURNETT: And so, that means-- advertising campaigns or-- or-- things to encourage more stem cell research development.
JULIAN ROBERTSON: Yeah-- yeah, more and more of it. I think it's-- it's terrific. And I-- I think the scientists realize that. And I think that will happen, too. So, I'm-- you know-- optimistic about everything except that the American People aren't being asked to do what they can-- for their country. And-- and-- and-- and they're not being asked to go through some difficult times to get us out of this dependence on China and Japan. And-- I think that's the sad part.
ERIN BURNETT: And-- before we go, I always ask this. You said you did well in your longs last year. And you gave your names. And we always ask if you have any news ones. Or the same ones. I mean--
JULIAN ROBERTSON: Well, right now-- we actually own a lot of the ones I think-- I gave you last year. Unfortunately-- we did not keep Byedo. And-- but-- I think I gave you MasterCard and Visa. And-- Apple, we're still in those. And-- and as you can tell I'm not that berserk over owning stocks as I am shorting bonds.
http://www.gurufocus.com/news.php?id=107217
Another legend also disagrees with Watsa and that is Julian Robertson of Tiger Management fame who is calling for inflation. In an effort to look at both sides of the story I thought it would be smart to try and understand what Robertson’s rationale is for predicting inflation. Because Robertson isn’t just calling for inflation, he is investing for it.
Here is an interview with him from late last year by CNBC:
"
ERIN BURNETT: It was almost two years ago today, not quite, but almost, when you said we were in for a doozy of a recession. And a lot of people-- were angry at that. Why would this person be so negative? There was a lot of discussion about it. But you were right. Are we done now?
JULIAN ROBERTSON: Well, it's-- you know, I think kind of a matter of probabilities. And-- I think we're in for some real rough sledding. I don't know quite how it's gonna come about. I really do think the recession is-- at least temporarily over. But we haven't-- addressed so many of our problems. And-- we are borrowing so much money that we can't possibly pay it back, unless the Chinese and Japanese buy our bond.
And if for some reason either from say outbreaks in Western Chin-- China, where-- they require-- help to put these problems down-- whether that or-- other things, maybe just a desire to not be paid in (UNINTEL) dollars. We've seen what's happening to the dollar. It's-- I think at the lowest point in-- of the year right now. Whether-- if they do stop, we're in terrible shape. And I think it's tragic that we've let ourselves be put in this position by our leadership.
And this is not the-- the current leadership, this is the leadership we've had for years. Who seems afraid to tell the people that we have problems. That-- that we've got to quit spending, cutback, start saving, and-- and-- and-- and-- scale backward. And-- until that happens, I don't think we're anywhere near out of the woods.
ERIN BURNETT: Some of the optimists out there say, "Well, the savings rate has gone up. And we had-- an increase actually in-- in income in this country." Now, that was due, in part, to the increase in the stock market. But they point to things like that to show the consumers getting a little bit stronger. Companies are rebuilding inventories. And-- and maybe even though we fell off a cliff-- we're actually gonna come back. And we're going to be okay. And it sounds like you think that that optimistic scenario is missing something pretty crucial.
JULIAN ROBERTSON: Well, I-- I-- I think that-- it's almost Armageddon if the Chinese and Japanese don't buy our debt. I don't know where we could get the money. And-- maybe we-- end up printing it-- and-- taking-- a million dollar bill-- bill to the grocery-- shop, which you have to do now in Zimbabwe. But-- I-- I think we've let ourselves get in-- in terrible situation. And I think we ought to try to get out of it.
ERIN BURNETT: Do you think we can grow our way out of it?
JULIAN ROBERTSON: I think we can grow and save our way out of it. And-- and-- and I think that's-- the only way we're gonna have that threat removed. I-- I wonder what some of the Congressman who have been so upset about-- financial leaders-- I-- I-- I wonder what they think of-- of the leadership of the country that's permitted these very speculative-- policies. I mean, it's amazing. And we're totally dependent on the Chinese and Japanese.
ERIN BURNETT: Do you think that Congress has-- you say the message hasn't been given to Americans. Some people would say, "Well, Americans get it now. I mean, they sort of got that splash of cold water this year. And they know now they have to live differently." Do you think they really know that? Do you think people in Congress have stood up and told people how difficult it might be? Or are they, along with the Fed trying to, for lack of a better word, in-- inflate and spend our way out of it?
JULIAN ROBERTSON: They-- they-- they-- there's no question, they are party to it. They certainly don't know as much about the situation as Fed Chairman Bernanke. But they-- they're party to it. And-- they don't have the guts it takes to tell people to-- slow down. And-- that it is gonna take awhile. And they just don't have those gut-- guts. And-- and-- Bernanke is-- he's very open and above that if problems develop, he's gonna really continue to-- stimulate. And he-- he's very frank with people who talk to him that that's the case.
ERIN BURNETT: What is a bigger risk right now, inflation or deflation?
JULIAN ROBERTSON: Well, I think-- I-- I-- I think-- we can't deflate too much. I mean, our interest rates aren't terribly high. And-- so, I think-- inflation is-- is very high. I-- I mean, I think that risk is much worse.
ERIN BURNETT: It's interesting, 'cause today in the-
JULIAN ROBERTSON: In-- inflation could wipe out so many people in the United States.
ERIN BURNETT: The Federal Reserve today-- in a statement said that-- last month they said commodity prices were rising. But they thought price deflation was a bigger issue. Today they even took out the commodities part. And they stuck with the-- you know, a deflation in asset prices is a bigger risk. Do you think that they are making a huge mistake? Because with that assumption goes interest rates at zero for-- the foreseeable future.
JULIAN ROBERTSON: Well, no, I think they-- are willing to-- make those kind of statements to try to keep this-- the-- the-- the interest rates down. And I think they are-- sort of preaching their own book, so to speak.
ERIN BURNETT: So, one of your biggest-- bets when we spoke-- last was betting on inflation going higher. And Bill Gross (PH) was on with you. And he said, "Well, maybe we could go to six or seven percent." And you said, "That would be conservative." What do you think now?
JULIAN ROBERTSON: Well, I-- I-- I think if the Chinese and Japanese stop buying our bonds-- we could easily see 15 to 20. And I think that-- there-- people-- I mean, where is the money gonna come from? It's not a question of-- of-- of the economy. It's a question of who will lend us the money, if they don't. Imagine us-- getting ourselves in a situation where we're totally dependent on those two countries. It's crazy.
ERIN BURNETT: Do you think there's a really risk? Some people say, "Well, gosh, if-- if China stops and the U.S. fails, they fail, too. So, it's this sort of embrace--"
JULIAN ROBERTSON: That-- that is the general-- feeling. I think that is exactly general feeling. And I don't think-- that the Chinese do want to stop buying our bonds. But I do think there are circumstances that could cause them to have to.
ERIN BURNETT: And-- and--
JULIAN ROBERTSON: And-- and-- and one would be-- outbreaks of unrest in the west of China, that we've seen a little bit of that now. I know-- whenever I've been to China, that has been the big worry of people. And-- I've never really understood why it was such a worry, but they definitely have that worry. And they definitely had some problems out in the west recently.
ERIN BURNETT: So, if you had to say that the most important thing that the United States could do to either stop borrowing or pay back more quickly. Or, you know, just some way to get out of this. What do you see?
JULIAN ROBERTSON: Well, I-- I think that-- I think that-- my solution does cause some temporary pain in America. And I think that the only way we're gonna get that is for the American People to be masochistic enough to ask for that. Because we can be sure that-- the politicians are not gonna ask that of us. (UNINTEL) had enough guts to do that. But we don't-- seem to be able to do-- to ask sacrifices-- really anybody here, except our military. And-- and I think that's sort of tragic.
ERIN BURNETT: And-- and how much longer could-- could the pain last? I know, you had mentioned at one point that if we-- we don't get it right, it could be ten or 15 years if-
JULIAN ROBERTSON: Well, I think--the-- the Chinese-- Japanese not-- not buying our bonds-- really could be-- terrible. I mean, really. And it-- and it could-- I mean, (UNINTEL) look at Japan. They are probably entering their 19th recessionary year in a row. And-- I don't know whether you remember this. But they were sort of thought as the master businessmen. The great cooperation between business and government and management.
ERIN BURNETT: Right.
JULIAN ROBERTSON: And-- and now-- that's been pretty tough over there.
ERIN BURNETT: So, (UNINTEL) was your (UNINTEL).
ERIN BURNETT: And you were very, very excited about this.
JULIAN ROBERTSON: And--
ERIN BURNETT: You-- you-- you're out of this trade now? When did you-- how much did you make and where are you now?
JULIAN ROBERTSON: Whoa, whoa, whoa. We have-- we had gone to a refinement of that. Called a curve cap. The-- the curve steepeners (?) was-- a measurement of the differential between short and long-term rates. And-- we figured short-term rates would go down and long term rates would go up. Well, we didn't do well on the long-term part. But the short-term part worked out so well that it actually made a little money on the trade.
But-- now, there's no real reason-- no-- no real way the short-term rates are nothing. So, they can't really go below nothing. And-- so, we've-- we've shifted the curve steepeners which-- are-- as I say, basically-- long-term puts on long-term bonds.
ERIN BURNETT: So, where do you think-- if-- if this trade--
JULIAN ROBERTSON: Highly leveraged-
ERIN BURNETT: Right.
JULIAN ROBERTSON: And-- and they're like puts in that you know what your risk is. I mean, it's measured by what you pay for the put.
ERIN BURNETT: So, where does-- where do you think-- under any scenario the long-term rates might be?
JULIAN ROBERTSON: Well, as I said, I think they can go to 15-20 percent.
ERIN BURNETT: In the-- in the China stops buying America scenario.
JULIAN ROBERTSON: Yeah, yeah.
ERIN BURNETT: What if China-- some people say, "Okay, we hear--"
JULIAN ROBERTSON: And Japan. Japan's a big buyer.
ERIN BURNETT: Right. So, let's just say that--
JULIAN ROBERTSON: And in Japan, it's even conceivable-- I don't think the Chinese would do this. But the-- the Japanese suffer from some of the same problems we have. And they may be forced to-- sell-- their-- they-- they may be forced to-- sell some of their long term bonds.
ERIN BURNETT: Ah.
JULIAN ROBERTSON: Which is--
ERIN BURNETT: So, not even a political statement. Just forced to do it.
JULIAN ROBERTSON: Forced to do it. And-- you know, if they sell, I mean, that's much worse than not buying.
ERIN BURNETT: So-- I'm sure you've thought of every scenario. They buy as much as they're buying now. They buy a little bit less. They start selling. Right? There's all sorts of different things that could happen. What do you think is the most realistic one? I mean, we've seen some of the recent data. China hasn't been buying as much as they-- had--
JULIAN ROBERTSON: Well-- well-- well, the-- the other thing is, they're buying almost exclusively short-term debt. And-- that's what we are offering, because we can't sell the long-term debt, I think. And-- you know, the history has been that people who-- borrow short term really get burned. I mean, that's the beginning, kind of, of the end. So, I think that's very serious.
ERIN BURNETT: People like Bear Stearns and--
JULIAN ROBERTSON: Well-- anybody who-- who-- borrow short and lends long.
ERIN BURNETT: So-- so, this 15 to 20 you think's reasonable. I mean, with any-- they don't need to-- what I'm saying is that-- they don't need to sell everything they have for our rates to go to 15 to 20. This is something you think could happen in an intermediate scenario?
JULIAN ROBERTSON: I think that-- that it could happen just if the Chinese and Japanese stopped buying our bonds. And someone else had to take up that burden. Right now, it wouldn't be quite that bad, because-- I think you pointed this out earlier. We have been saving more money lately. But-- I-- I've seen the statistics on-- you know-- retail sales are doing a little better. Travel is up. Airline traffic is up. So-- and-- and I think that also the big savers have been the big cats. And the-- the big tax players. And they, of course, are not gonna have as much to save. I mean, the-- the-- the-- Obama tax package has taken care of some of that.
ERIN BURNETT: What do you think about all the potential tax changes that are out there? I mean, capital gains and dividends taxes are-- are going to go up. There's gonna be taxes on drug companies, medical device companies. Obviously there's a huge debate raging over whether there's gonna be taxes on average Americans or not. But it-- do you think it's safe to say it's inevitable that taxes will go up for almost everyone?
JULIAN ROBERTSON: I think it's-- it's certainly inevitable that the taxes are gonna go up for the-- wealthiest-- or the-- the-- let's put it this way. The-- the biggest earners in the-- the 20 percent of the biggest earners. I mean, the-- the top 20 percent. I think they-- their taxes will go up big time.
ERIN BURNETT: So, as you look at this world that we're in--
JULIAN ROBERTSON: And I don't think that's necessarily awful. I mean, we're in-- we're in a very terrible period here. And-- as long as they're incentive is not stifled-- you know, we-- we've got to take some serious debt to get out of this situation.
ERIN BURNETT: One thing that-- I remember when we talked, you were-- you were a Romney supporter, right?
JULIAN ROBERTSON: Right.
ERIN BURNETT: And then McCain. But now Obama has won. And he has-- well, some would say, championed some causes you care passionately about. Climate change is something he has put-- put forth on his agenda. He has been supporting-- legislation to cap emissions. The-- has-- have you become a supporter of him?
JULIAN ROBERTSON: I-- I have-- I-- I have unfortunately sort of feel about him-- that-- the way-- I did when he came in. That he was a brilliant man. Potentially a great leader, who had no executive experience. And-- I-- I-- I would love to see him bite the bullet and tell the American People, "Look, here-- we've got to get our house in order. I'm gonna tax you for awhile. And-- we'll get through this thing together. But-- we're gonna have to work hard to-- to get out of the problem."
ERIN BURNETT: But it sounds like-- from your perspective, he's trying to do what a lot of politicians have tried to do.
JULIAN ROBERTSON: Yeah, he's-
ERIN BURNETT: Give people more and don't tax them anymore.
JULIAN ROBERTSON: That's right. I mean, and it's not-- look-- I mean, in some of the things-- I mean, it's not just him. I mean-- George Bush-- took us to war and-- then gave us a tax cut. I mean, that is-- you know, unheard of. And awful, in my opinion. Not so much the going to war. I feel like if anybody-- if a President feels morally that we should go to war, he should certainly consider that. But then to give the tax cut, I thought, was pretty bad. And-- and-- and Congress has gone along with all this. So, they're all part of that. And-- but let's unwind it.
ERIN BURNETT: So, in terms of your-- your best ideas right now. You talk about the-- it's the curve cap, right? That's the new name?
JULIAN ROBERTSON: The curve-- the curve cap. Yeah.
ERIN BURNETT: You come up with new names for things.
JULIAN ROBERTSON: Yeah. (UNINTEL)--
ERIN BURNETT: Curve steepener took off. Now, we got a new one. Curve cap. Your names since last year have done very well, Julian. I pulled them all up. From when we spoke-- in November. I'll give the wins first. You only had one miss. Your wins. Visa was up 44 percent. Byedo (PH)-- has doubled-- more than doubled, 117. Apple up 106 percent. Doubled. Google up 73 percent. Market only up 26.
JULIAN ROBERTSON: Well-- you, unfortunately, are-- you fortunately are just talking about the longs I recommended.
ERIN BURNETT: Well, there was one short--
JULIAN ROBERTSON: Had I given you my shorts-- you would have seen they were probably up-- worse than the longs were up. But-- at any rate, it's been-- a very-- bullish market for-- for awhile.
ERIN BURNETT: And do you think it will-- I mean, you may think we're in for more trouble. But that doesn't mean the market is going to go down. I mean, do you think that the market-- that we're in a bull market, and it's gonna keep going higher?
JULIAN ROBERTSON: I think we're gonna have to pay the piper. And I don't know when that is. But I would almost say we are gonna pay the-- piper. And it's when, not if.
ERIN BURNETT: Meaning stocks are gonna go down?
JULIAN ROBERTSON: Well, meaning that interest rates are going to go up. And-- and-- and I would think what would go along with that, if you'd had my kind of interest rate scenario, that that would put the brakes on the economy. Earnings would go down like crazy. And-- yeah, I would certainly think that would be the case. But-- you know, if we have-- 20 percent inflation. And-- a-- a market-- I mean, 20 percent interest rates and 20 percent inflation and-- the-- the-- the market goes up-- five percent, that's not a really good scenario.
ERIN BURNETT: No. Your-- your one-- short that you did share with me last year was copper. Which-- which was a miss. You-- it shorted-- it was-- and it went up 67 percent. But-- but I guess this fits into the broader view. Which is you think that we do have this-- maybe you wouldn't even call it a double dip. But there is another sharp leg down to come for the economy. Which-- which regardless of whether you'd still short copper, that's what that was, right?
JULIAN ROBERTSON: I'm again-- I've got-- I've fortunately got a little bit-- lucky on copper. And got out. But I am looking at the red metal once again.
ERIN BURNETT: The red-- which was copper and--
JULIAN ROBERTSON: Copper.
ERIN BURNETT: As-- as a short?
JULIAN ROBERTSON: I'm looking at it. I haven't done anything.
ERIN BURNETT: And-- if you-- if you talked about the dollar and you talked about inflation. If you had to say someone sitting here, "I-- I hear what Julian Robertson has to say, I'm worried. What currency would you put your money in?"
JULIAN ROBERTSON: Easy. Norway. Richest country in the world. Great company with great-- great country with great companies. Only four million people. Easy to manage that. The-- the oil reserves are there, in terms of cash. They're invested-- I-- I-- Norway.
ERIN BURNETT: Norwegian kroner, huh?
JULIAN ROBERTSON: Yep.
ERIN BURNETT: They're taxing. Their-- their richest person just left the country, 'cause the taxes are going up so much. But-- well, taxes are going up everywhere. (LAUGH) So, Norwegian kroner. So, in-- in-- in terms of where we go from here, what are the odds? If you had to say, "I'm gonna make a bet on the U.S. economy." The negative scenario that you're worried about. 15-20 percent interest rates. We're getting through this and growing again. Just like a normal economy, right? Let's not shoot for the moon. Three, four percent. What are the odds?
JULIAN ROBERTSON: Well-- I think a lot of people would say we're low. I think even Bernanke said-- always reported has said that the recession was over.
ERIN BURNETT: He said "technically" it's over, yeah.
JULIAN ROBERTSON: Oh, I'm so glad. Because I like him and I-- and I'm glad-- I didn't know he said "technically." Okay. But-- I-- I-- we still haven't attacked the problem. And unless we attack the problem, we're-- we're not gonna get out of it. And the problem is stimulating, stimulating, stimulating, which is another synonym for spend, spend, spend and borrow, borrow, borrow to pay for the spend, spend, spend. And-- we can't get out of it unless we stop.
ERIN BURNETT: Do you think we're moving in the right direction of stopping? I mean, when-- even if you're skeptical about savings rates. Let's just say they've gone up to five to six percent from zero.
JULIAN ROBERTSON: No, they went-- they've gone up to about 12, I think.
ERIN BURNETT: Is--
JULIAN ROBERTSON: Oh, they've really gone up. I mean, there's no question. I mean, and that has-- you know, ameliorated the situation.
ERIN BURNETT: But you think we need more. And we need to not be borrowing so much--
JULIAN ROBERTSON: Well-- well-- well-- if-- if-- what I'm talking about, if the-- the Chinese are taken out of the equation, it would overwhelm our savings. And-- and it-- and let's say-- well, you say-- then-- then you'd have to have more savings. And if you-- you know, took it up to 20 and 25 percent, that would probably, you know, hurt the economy, because it'd be not much disposable income to get rid of.
ERIN BURNETT: And what about New Zealand?
JULIAN ROBERTSON: Oh, New Zealand's beautiful. They'll always be beautiful. And-- you should go there and so should everybody that's listening to us now. And forget about these problems. (LAUGH)
ERIN BURNETT: And you have a golf tournament coming up on NBC.
JULIAN ROBERTSON: We sure do. And we're very excited about it. And it's the four best golfers in the world on the 30 and-- we're-- we're just thrilled about having them down there on the 14th and 15th of-- November.
ERIN BURNETT: And in terms of-- philanthropy, I mean, I know a couple of years ago we were running some of the advertisements that you had on green, how important that was to you. What is your biggest focus now?
JULIAN ROBERTSON: Well-- I-- I really think that's one thing the American People have lived the-- have-- have led the politicians on is the environment. And I really think-- I don't think he's-- that President Obama is gonna get the-- the-- the green bill he's-- global warming bill that he's hoping for. I hope I'm wrong on that. But I really think that by-- that-- that fight is pretty well won, because I think the people-- realize now the danger of global warming. And I think they are gonna-- gonna-- get in there and-- do somethin' about that.
ERIN BURNETT: And so, is there anything outside of that that you're-- if you've won that fight that you're moving onto another fight? Or is that still the main--
JULIAN ROBERTSON: No. I think-- I-- I think-- there's so many things. I think stem cells are just a terrific thing. I had a friend in New Zealand-- he had twins-- six years ago. One twin was over oxygenated. And had a stroke. The twin deteriorated, deteriorated, and at about four years old was-- I don't like to use this word, but was almost kind of like a vegetable.
And they were desperate to get her help. And-- they-- finally hit up with a doctorate, Duke University. And-- and-- and the one thing they had done, they had had cord blood taken of-- of her placenta with her mother. And-- any rate, they took her to Duke. This wonderful doctor down there-- proposed some sort of cocktail out of this placenta. And injected the child. Several months later, her parents were just wild excitement. She began to do much better. This continued and now she's almost at the same level as her twin sister. And it's just been a miracle. And-- any rate, this is the wife of Teddy Kennedy's brain surgeon at Duke University. And-- the-- the stem cells--
ERIN BURNETT: She's the one who was the mother? Or she's the one--
JULIAN ROBERTSON: She's the one that was the-- the stem cell-- the doctor. She's-- and-- she-- in conversation, told us that her husband could be more aggressive now in his brain surgery, because she could come behind him and-- throw out some stem cells to, you know-- cure something that he might have-- you know, taken too much of a certain nerve or something of that nature. And-- any rate, it's just-- it's a pretty wild, wonderful area. Which I don't understand at all. But which-- realize the value of it. So, I'm a stem cell nut from-- global warming nut.
ERIN BURNETT: And so, that means-- advertising campaigns or-- or-- things to encourage more stem cell research development.
JULIAN ROBERTSON: Yeah-- yeah, more and more of it. I think it's-- it's terrific. And I-- I think the scientists realize that. And I think that will happen, too. So, I'm-- you know-- optimistic about everything except that the American People aren't being asked to do what they can-- for their country. And-- and-- and-- and they're not being asked to go through some difficult times to get us out of this dependence on China and Japan. And-- I think that's the sad part.
ERIN BURNETT: And-- before we go, I always ask this. You said you did well in your longs last year. And you gave your names. And we always ask if you have any news ones. Or the same ones. I mean--
JULIAN ROBERTSON: Well, right now-- we actually own a lot of the ones I think-- I gave you last year. Unfortunately-- we did not keep Byedo. And-- but-- I think I gave you MasterCard and Visa. And-- Apple, we're still in those. And-- and as you can tell I'm not that berserk over owning stocks as I am shorting bonds.
