FPA’s Bob Rodriguez: Window Narrowing to Avoid Fiscal Disaster

In a wide-ranging keynote address to investors, famed money manager Bob Rodriguez warned that the U.S. has a narrow window ahead to escape the kind of sovereign debt crisis that Europe is now experiencing.

Rodriguez, FPA Capital’s managing partner and CEO, said next year would be the most crucial in the past 80 to right our fiscal path before “budgetary financial pressures will explode” starting in 2018.

Speaking to an Institute for Private Investors audience in New York last week, Rodriguez said that every year beyond 2013 without structural reform would “increase the size and scope of the necessary fiscal response” amid likely negative capital market reaction of the kind we’re now seeing in Europe.

Rodriguez, a rare money manager who has outperformed in both equity and fixed-income spaces, has in recent years developed a reputation for issuing stark warnings about the direction of the economy. But in his talk, he rejected accusations of being some kind of perma-bear disaster monger, calling himself a “realist” instead and showing through extensive citations that his predictions have been accurate while official forecasts of economic growth or of budget trends have tended to be overly optimistic.

To cite one example, in a year he described as pivotal in his career in investment management, he began holding high levels of cash in 1998 during the dot-com bubble. Anticipating the 2000 stock market bust and 2007 credit bust, Rodriguez maintained cash levels averaging more than 25% in his FPA Capital Fund and peaking at 45% in 2007, compared to 1% to 3% levels in the 14 years in investment management leading up to 1998.

From March of 1998 to the end of 2009, when he left active management for a year-long sabbatical, a 3-month Treasury bill returned 3.1% per year on average compared to the S&P 500 annual average return of 1.9% and an average inflation rate of 2.5%. His FPA Capital Fund achieved an annual average return of 8.2% during that time.