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@Charles: I definitely don't disagree that someone who manages money can be open to criticism if they underperform their intended benchmarks (and All Asset/All Authority's benchmark is not exactly that big a benchmark - which is why I've said no one should exactly expect home runs from it, either.)
"Fed policies are like covering over rotting floor with wall paper."
I believe Fed policies gave the US government time/breathing room/etc to address any number of issues. Meanwhile, we have a congress who is one of the least productive ever -
http://www.washingtonpost.com/blogs/the-fix/wp/2013/07/17/the-least-productive-congress-ever/.) If we've learned anything from 2008, it's not very apparent, and two, it would seem many people have forgotten 2008. There's a level of complacency that's not enormous, but certainly rather concerning.
Arnott's statement is rather serious, but I'll say it this way: I believe the government was given time to make real progress over the last few years on a number of things. It hasn't done much and that's being generous. Maybe I'm wrong, but I sense a tad bit of upset on Bernanke's part at times at this, as well.
The market can keep going up for a while longer and problems can keep being papered over/ignored. Betting that various issues will become large enough to have to be faced is a bet and then time horizons start coming into play. The time horizon of the average investor is next-to-nothing. Arnott is betting on his view. Bruce Berkowitz is asking investors to believe that there is still value in Sears after what Eddie Lampert has done in recent years.
Both views are specific and are not going to happen overnight. Will they be proven entirely wrong? Maybe, but I don't think either has a short-term outlook in their view. I don't know what time frame either is looking at, certainly, but neither appear short-term and Berkowitz has seemed increasingly upset at shareholders who are short-term.
Lampert has treated shareholders of his hedge fund who have a short-term look not exactly well, distributing them shares of Orchard Supply (and look what happened to that) and other stocks when his fund had redemptions because shareholders were upset about the path that Sears is on. (
http://www.bloomberg.com/news/2013-06-13/lampert-clients-exit-fund-with-393-million-of-autonation.html) (With Sears struggling, clients have been pulling money out of ESL Partners. Gross assets declined 24 percent to $5.1 billion at end of 2012 from a year earlier, and the number of investors in the fund dropped to 164 from 250, filings show. )
Arnott has a view. He may change that view, I don't know. But he is asking you to go along with his view, just as many managers who have had a specific view (on everything from EM to whatever) have done in the past. If you don't agree and/or aren't willing to go for the longer-term (and people aren't these days, whether it be Arnott or Berkowitz), then sell.
The laughable thing is when managers think people are going to go along with a longer-term bet. They aren't, especially today as people's investment views are shorter and shorter. Financial media is the biggest example of this "what's working RIGHT NOW" mentality.
"not just stubbornly campaign about economic policy, which is what I fear Mr. Arnott has done lately."
Oy. Not everything is political. Whether Arnott's views on the issues will eventually play out or not who knows. However, the view that anyone who believes that there are actual underlying problems with the country that will have to be addressed are "just being political" is a label that allows people's views to be easily dismissed and really insures that there will not be progress in this country as politics divides people more and more, while what we need is to be united.
This isn't directed at Charles, but the idea that anyone who has a concern about the country is only doing so from a political standpoint and not looking at it from a historical, fundamental, statistical or other standpoint is dismaying.
We have the one of the least productive congresses in history and it's because they have the excuse that the other side doesn't want to work with them. It's an excuse, it's nonsense and it's embarrassing. It's also clear that they are clear to coast getting absolutely nothing done while the Fed does what it does - as senator Schumer said, "Get to work, Mr. Chairman."
Even if there is an element of politics in someone's view, we are getting to the point in this country with the national discourse where I would not be surprised to walk down the street and hear this conversation: "The sky is blue." "No it's not, you're just being political."
That said:
"Central banks cause asset bubbles too...fueled by their profligacy."
Yep. Not saying that we are currently in a bubble, but does anyone not believe that central banks have caused bubbles in the near and far past?
"Fed painted itself into corner with no way to unwind gracefully."
Bernanke yesterday: "If we were to tighten, the economy would tank." I'm not going to say that the Fed cannot exit, but I don't think it will be as soon as Bernanke is acting and it will be considerably more difficult than Bernanke is acting like. Additionally, while Fed economic forecasts remain optimistic, we also get the view that "the economy will tank if we tighten policy." Meanwhile, Fed forecasts vs reality have not exactly correlated well recently (
http://www.economonitor.com/blog/2013/06/feds-economic-projections-myth-vs-reality-jun-2013/,
http://www.streettalklive.com/images/stories/1dailyxchange/Fed-Revisions-GDP-061913.PNG), which makes one wonder how much longer this monetary policy will be present. Even if QE was tampered, it is clear that the Fed would be out trying to calm the markets and QE would return if there was a more significant downturn. With monetary policy being what it is, we have a GDP of 1.8 and a market that throws a temper tantrum any time there is a hint that monetary policy won't be as easy.
All that said:I do think that even if someone is not pleased with underlying problems in the world, there are still long-term themes that need to be addressed, as I discussed with the obesity in EM theme in the emerging markets thread today. Or any number of other themes.
