FPA's leader fears that nothing was learned from 2008.
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Bob Rodriguez is back at FPA, but he isn't taking back the reins at his former funds. My colleague Chris Davis and I had a chance to catch up with the three-time Morningstar Fund Manager of the Year and he filled us in on what he's up to now that he's back.
You may recall that he took 2010 off for a much-deserved sabbatical after steering his funds safely through the 2008 meltdown. He said he spent the year traveling--he was in the Galapagos Islands when the flash crash hit--reading and racing in the American Le Mans Series at the pro level.
Now that he's back at FPA, he's serving as CEO. He says he's been working on building up the team and figuring out the threats to the markets and to FPA's portfolios.
He's also worried about investors' eagerness to take on risk. "I'm amazed that I have been away for a while and I come back, and in many cases it's as if nothing has really changed," he said. "Last week, I cut out a couple of headlines from the Wall Street Journal. This is from Feb. 7: 'Investors Expand Appetite In Hunger For Higher Yields,' 'Aleris Debt Sale Covenant-Lite.' The next day, 'Yield on Junk Approaching All-Time Low.'"
Rodriguez worries that the soaring national debt could trigger a crisis in the next two to five years. "One of the things that I can do on my return is make sure that we have prepared our firm again for the potential of the next crisis and I alluded to it in my Morningstar speech (in summer 2009) when I commented about the government, the insane growth in debt that was going on," Rodriguez said. "I commented that, at the end of 2011, Treasury debt outstanding would be somewhere between $14.6 trillion and $16.6 trillion and I think it's pretty safe to say, it's going to be north of $15 trillion at the end of this year and that these trends were not sustainable. And, in my opinion, the next crisis, as opposed to focusing on a particular financial institution, would probably emanate from the governmental area, be that federal, state, or local, and nothing has changed."
Rodriguez thinks the Fed is way off base with its inflation measurements, too as its lack of attention to stock and real estate prices meant it was unknowingly creating bubbles and not understanding the influence it would have on inflation as people spend their gains from real estate or stocks. "The Fed focuses on its core inflation numbers," Rodriguez said. "As I argued before back in the late '90s, if you put the Dow Jones or the S&P 500 in the CPI index and they would have said, 'Oh! My goodness, we're having inflation,' and they would have taken a different monetary policy. The second time around I was arguing that their inflation numbers, if they include single-family pricing rather than rents, the way the composition was, that they would say, 'We're facing inflation, we are going to have to constrain the economy.'
"Well, we are going again and inflation is subdued, but there it is leaking out into other areas, and I would say it's leaking out into asset valuations, commodities. I would argue that the sloshing around of excess liquidity--especially from the Federal Reserve--has resulted in some countries putting on forms of capital controls.