Legendary money manager Robert Rodriguez, who predicted the financial crisis of 2008 and the dot-com bust of 2000, has never been shy about speaking his mind. Nor is he now, officially retired from the financial services industry, as of last Dec. 31. Indeed, the controversial value investor is as candid as ever, an exclusive interview with ThinkAdvisor reveals.
For decades, Rodriguez — CEO of First Pacific Advisors for 25 years — has maintained that the 2016 presidential election and the following eight years would determine the direction the country would take leading to either happy days or distressing decline. Today, Rodriguez is hopeful that President Donald Trump will remedy all that ails America — or what the former fund manager believes ails America.
For five years now, Rodriguez has warned of another massive financial crisis unless major structural changes in U.S. fiscal policy, regulation and health care are implemented. He insists that “excesses” in the system continue to cause pressures that will lead to a meltdown, which, he says, is unquestionably on the way if the status quo isn’t changed. Precisely when that crisis will occur, he’s not sure.
In the interview, Rodriguez offers predictions for the economy, the markets and the Federal Reserve, among other hot-button areas. He also serves up his provocative point of view on what might be Trump’s negotiating strategy and style (think Oscar, Emmy, Tony).
Rodriguez earned a striking record during his years at First Pacific, based in Los Angeles. The firm’s FPA Capital Fund, which he managed from 1984 to 2009, boasted an annualized return of 14.2% during that period, according to Morningstar. It outperformed the market indexes by 500 to 600 basis points compounded for those 25 years, Rodriguez says. In the bond arena, the FPA New Income Fund’s annualized return came to an impressive 8.8% under his management.
Safe to say that most of the time, Rodriguez gets it right. In 2009, he forecast a substandard U.S. economic recovery accompanied by elevated levels of unemployment and subpar GDP growth of 2% “as far as the eye can see.” Indeed, from June 2009 through June 2016, GDP growth averaged about 2%, according to the Commerce Department.
In 2012, Rodriguez turned over day-to-day management of FPA’s two key funds to his partners but continued with the firm in an advisory role before retiring at the end of last year.
He may be out of the investment industry, but he’s enthusiastically into something else: researching an area of “collectibles of historic importance,” as he describes his project, cryptically.
ThinkAdvisor recently talked with the famed investor, who was speaking by phone from his home in Lake Tahoe, Nevada. The opinions he expressed reflect his personal views only and not those of FPA. Here are highlights of our conversation:
THINKADVISOR: What do you think of President Trump’s job performance thus far?
ROBERT RODRIGUEZ: The good news is that it’s nice to see someone who’s trying to fulfill his campaign promises. Targeting tax, regulation and health care is long overdue.
Any bad news?
It’s going to take an extraordinarily herculean effort to attack even one of those areas in a major way because of entrenched interests. There are strong forces both within and outside the Republican Party that don’t want to see him succeed.
Some people criticize Trump for being unpredictable and erratic and for using Twitter excessively. Your thoughts?
I have my anxieties about the current president, as I know many people in the country do. But I hope he has the potential to try to pull off what he says he will. The last time we had a president who balanced the budget and had the U.S. debt at zero was Andrew Jackson. He was considered a pretty unstable person too. Do you think President Trump is unstable?
You have to ask yourself: Does his way of behaving reflect his normal way of thinking, or is he a great actor? Part of the art of negotiating is to be viewed as somewhat unstable and unpredictable.
I see…Ever try it?
That’s exactly the type of negotiating stance I decided to take when I took back [repurchased] First Pacific Advisors from our British owner, Old Mutual. At a management council meeting with my parent company in 2004, I was over the top. I stood up and was screaming. I accused some people in the room of being [analogous to] “ladies of the night” and that they were out of their blanking – beginning with an “f” – mind. I knew what I was [deliberately] doing, but did anybody else know? No, except my COO. I had told him I was going to give an Academy Award performance.
What do you think Trump’s chances are for reforming taxes, regulation and health care?
If anybody can potentially break the logjam in one of those three areas, it might be Trump, though his window of opportunity is incredibly short. He hopes to have major tax code reform [accomplished] in eight months. That would be monumentally historic. But I’m hopeful. Trust but verify!
You said in 2010 that if the U.S. didn’t get its balance sheet together by 2013, we’d have “a crisis of equal or greater magnitude” than the 2008 financial crisis. That didn’t happen – thank goodness.
I still stand by what I said. I felt that pressures would be building and that something significant would likely have to take place because the finances of this country were, and are, on a non-sustainable course. But there’s no way to forecast a timeframe explicitly.
As of today, what’s the likelihood of a crisis?
We’re eight years into a recovery, and we’re going to be working with major changes in taxes, regulation and health care. Are the odds in our favor that that will postpone a recession? The more extended the cycle becomes in terms of time, the greater the odds of something negative occurring. This is a critical year. It’s going to be an incredibly dynamic, hostile environment.
In 2009, you said that if nothing was done about the fiscal situation, we’d be facing a huge crisis with total debt outstanding of about $20 trillion to $24 trillion by 2018. Still think so?
Well, we’re at $20 trillion right now; and by the time the presidential election of 2020 occurs, current budget estimates say the U.S. debt is going to be at least $23 trillion — without anything that Trump does. Over the next five to 10 years, if deficits continue to rise and the debt continues to expand, will that lead to the 4% GDP growth that he envisions? I think it’s a low-odds outcome. This is a ticking time bomb.
The president says he wants to spend money on upgrading the nation’s infrastructure. If he does, how can he keep the deficit down?
If you don’t have sufficient money in your family budget, you make choices about what you’re going to spend and not spend on. That’s what’s going to happen [regarding the U.S. deficit]. If not, the debt will explode beyond what it already is.
What’s your take on the Federal Reserve?
I wouldn’t give [chair] Janet Yellen the responsibility of managing a hot dog stand! She’s as clueless as [chairs Ben Bernanke and Alan Greenspan] were. With the Fed’s insane monetary policy and distortion of the financial system for the last eight years, they haven’t accomplished any real economic growth. What have they done?
Repression of interest rates has helped the budget in the sense that it’s keeping rates low and has driven the financial markets. But it’s going to end with many unintended consequences. Is this a sustainable outcome as you’re quadrupling the debt of the United States? The odds are it isn’t.