FPA's Robert Rodriquez is one of those rare breed who can invest prescient macro observations with an astute investing mind. He does not mind going against the masses, and waiting for his thesis to play out. More often than not he has been proven correctly. After taking a 1 year sabbatical from FPA in 2010 [Mar 12, 2009: FPA Funds Robert Rodriquez to Take 1 Year Sabbatical], he has returned to the company and in this recent interview with Money Magazine is warning we really have not fixed (nor learned) much of anything related to the crisis of 2008-2009.
Some excerpts below:
- Few mutual fund managers could pull off what Robert Rodriguez did. During the tumultuous 2000s, his FPA Capital stock portfolio, which is closed to new investors, managed to earn an annualized 9% even as the S&P 500 lost money. At the same time, he also co-managed FPA New Income, a bond fund that earned a spot on our Money 70 list of best funds.
- Rodriguez, 62, is known for thinking big: In early 2007 he laid out a detailed case for why housing debt could trigger a crisis. Now he's just as worried about the federal debt.
- Rodriguez took a sabbatical in 2010 -- he traveled the globe, read about the fall of Rome, indulged his car-racing hobby -- and has returned to FPA as CEO, with an advisory role on the funds. He spoke with editor-at-large Penelope Wang; the conversation has been edited.
- Now that you're back, do you have a different perspective on the economy? I would say a lot of nothing has changed. Before I left, I was vocal about the difficulties that were going to hit the U.S. economy: the growing federal debt and the lack of meaningful fiscal reform. These issues still have not been addressed. Meanwhile, banks are operating much as before -- too big to fail is continuing. Investors are still chasing after higher yields and loading up on risky investments. The search for safety in the wake of the financial crisis lasted maybe two years. Very little has been learned.
- Won't the economic recovery help us grow out of these problems? At best, we're facing a substandard recovery. It will probably take another eight years for the consumer to recover. But mainly I worry about the swelling debt of the U.S. government, which is ballooning faster than the economy is expanding.
- So you see rates rising, and bond prices falling. How big will the correction be? Before my sabbatical, I told clients that if present trends in government continue, we will have another financial crisis within three to seven years -- by 2018. I still believe that. We still have time to start the process of fiscal rectitude. But the window of opportunity is shrinking because 2012 will be an election year, when nothing happens. But it's hard to put a forecast together because when problems occur, they don't occur in a linear fashion. Take Greece. When the moment came that the emperor had no clothes, what happened to the Greek bond? It went from 4% rates to 10%.
- Speaking of stocks, your team doesn't seem to see much opportunity there either -- FPA Capital is 30% cash. Is there anything you like? So far the biggest opportunities we're seeing in stocks are in energy, where we've been investing heavily for more than 12 years. It's a supply-demand situation. Wherever I traveled last year, the one word that came to mind was gridlock. Cities from Korea to Moscow to South America were totally filled with cars. It makes the 4 o'clock rush on San Diego Freeway in Los Angeles look like a speedway in comparison. There will be more and more demand for oil as consumers' incomes rise in developing nations.
Please follow the link above for the full interview if interested.