Advice You Should Not Ignore

Robert Rubin, former Treasury Secretary

(Robert Rubin) The chairman of the executive committee of Citigroup Inc., the biggest US financial services company, said the world faces ‘serious and continuing’ danger of another economic crisis like Asia’s in 1997 and 1998. Threats to wider world trade, the growing gap between rich and poor nations and unwise investments based on the idea that new technology will ensure prosperity all could set off such a crisis, he said. – Bloomberg News, quoted by William Fleckenstein, The Contrarian, 2/7/00

Record Trade deficits, tight labor markets, exceedingly low personal savings rates and stock valuations dramatically high by any conventional measures, are all dismissed as minor caveats to the positive outlook of the US and global economies instead of being seen as possible – not certain, but possible – excesses and imbalances that may pose real risk to our economic well-being,’ Rubin said. ‘The risk is that at some point the excesses may simply become too great, and the inevitable consequences follow.’ - Bloomberg News, quoted by William Fleckenstein, The Contrarian, 2/7/00 (A bear market will follow… JJR)

"The idea that new technologies can erase business cycles is a myth,’ Rubin said. ‘New technologies are of profound importance, but they are not the first new technologies of significance,’ he said. Autos, electricity, railroads and medicine led earlier productivity booms, he said, and ‘none of them, separately or together, produced one-way prosperity.’ - Bloomberg News, quoted by William Fleckenstein, The Contrarian, 2/7/00 (We’ve seen new technologies before and we will see them again, but nothing can erase the business cycle. – JJR)

Michel Camdessus, outgoing head of the International Monetary Fund

"Overvalued" US share prices and low US savings rates are two risks to an otherwise rosy world economic picture, the outgoing head of the International Monetary Fund said Tuesday… "you have this extreme risk of dramatically insufficient domestic savings translating into a current account deficit of a very great size," And there is indeed a risk of an overvalued financial market – by any conventional standards – which create a situation of vulnerability of which we must be mindful." - Michel Camdessus to Janet Gittsman, Reuters, 2/8/00

"I have seen the world very close to a major meltdown in October 1998," Camdessus said, referring to the international crisis caused by a combination of a Russian debt default, the collapse of the hedge fund Long Term Capital Management and mounting financial problem in Brazil. - Michel Camdessus to Janet Gittsman, Reuters, 2/8/00

Lawrence Lindsey, former Fed Governor

Continued reliance on central-bank engineering to sustain the US expansion and rescue the global economy would be ineffective, even calamitous… "We are not in a sustainable expansion. We are in the most unbalanced expansion since the 1920’s; and the question is how do we get out of it. You don’t want to end the expansion. Not only does it matter for us, it matters for the rest of the world." – Lawrence Lindsey, former Fed Governor, to Jim McTague, Barron’s, 11/30/98

"…their stock portfolios go up – give them paper gains – which they borrow against and turn around and spend… This is a very dangerous course of action." - Lawrence Lindsey, former Fed governor, to Jim McTague, Barron’s, 11/30/98

In a private meeting last year, Greenspan told him he saw "all sorts of parallels to the late 1920s" …So now the Fed’s got a problem, They’ve set themselves up just like the Fed in the 1920s. They back themselves in a corner every time the market goes up." - IBD, 8/24/99

Kenneth Pastenak, Chief executive of Knight/Trimark Group

The fact that these sub-sectors of Internet stocks can heat up and then go cold so quickly is a testament to investors’ fixation on momentum, instead of fundamentals… in the end… "there’s going to be a lot of blood here." – Kenneth Pastenak, Chief executive of Knight/Trimark Group, WSJ, 1/18/99

Alan Greenspan, Fed Chairman

…the implications for risk measurement and risk management are significant. - Alan Greenspan, 10/17/99

On raising cash in a portfolio:

These reserves [cash] will appear almost all the time to be a suboptimal use of capital. So do fire insurance premiums. [Until there is a fire] – Alan Greenspan, 10/17/99

The "Greenspan model" unveiled by the Federal Reserve chairman in 1997, calculates that the S&P is a whopping 67% above its appropriate level. - Andrew Bary, Barron’s, 1/24/00

Anthony Deden, Sage Capital Zurich AG

Let there be no doubt, that what we are witnessing is, indeed, history’s greatest financial bubble. The indescribable financial excesses, the massive increase in debt, the monstrous use of leverage upon leverage, the collapse in private savings, the incredulous current accounts deficits and the ballooning central bank assets all describe the very severe financial imbalances which no amount of statistical revision nor hype from CNBC can erase.

As it happened in 1929… in 1972, 1989 in Japan, or in 1998 in East Asia, booms are followed by busts – they are called recessions, depressions, etc. – because the boom sows the seeds of every succeeding bust. …Their cause is… an excessive amount of money and credit created by central banks… - Anthony Deden, Sage Capital Zurich AG, 1/1/00

Andrew Crockett, head of Bank of International Settlements

Stock markets around the world are almost certainly overvalued. - Andrew Crockett, head of Bank of International Settlements, Financial Mail, 1/16/00

Sir John Templeton, Legendary Fund Manager, Father of International Investing

His (John Templeton) view of the US in particular, and the world’s stock markets in general, was that it should be avoided the most of any time in his investing life-time (that is about 60+ years). - Don Hays, Morning Comment, 1/12/00

Paul Volcker, former Fed Chairman

I think it’s kind of a casino. It’s all the rage, trading certificates that have no intrinsic value… There’s enormous confidence today, but it can evaporate very quickly for reasons that are not very clear. – Paul Volcker, former Fed Chairman, NY Times, 1/2000, quoted by William Fleckenstein, 1/24/00

Arthur Levitt, Securities and Exchange Commission (SEC) Chairman

US investors, lulled into a false sense of security by hefty returns, need to do more to manage investment portfolio risk, Securities and Exchange Commission (SEC) Chairman Arthur Levitt said on Saturday. …In remarks made at an investor conference… the SEC chairman warned that investors had become complacent about risk because of years of solid and predictable returns.

"No government agency can protect you from your own foolishness," Levitt told the conference. - Reuters, 2/12/00

"Any way you look at it, many of today’s valuations seem to defy traditional explanation. The run-up of these valuations is largely the result of multiple stock splits and soaring stock prices fueled by an almost insatiable investor appetite." - Reuters, 3/6/2000 (Notice he didn’t say the run-ups were due to the performance of the companies? JJR)

…said on Monday that he was concerned many retail investors did not fully understand how the financial markets work and were overextending themselves. …he said there is a risk these investors could fall victim to unwarranted optimism because they do not understand the fundamentals of market dynamics. "in the celebration of today’s prosperity. I’m concerned that some of the basic but important fundamentals of investing are being lost on investors. Or, even worse, being ignored. …Unless investors truly understand both the opportunities and the risks of today’s market, too many fall victim to their own wishful thinking." - Reuters, 3/6/2000

Levitt warned that… many of today’s Internet companies would fail in the long run. He said this should raise questions about the valuation of many of these firms and about their ability to survive. …"Are some of today’s companies really worth 1,000 times nothing?" - Reuters, 3/6/2000

"I am very concerned about investors who may be borrowing on other assets such as homes or real estate to invest in out markets…" - Reuters, 3/6/2000

HSBC

When will the bubble burst? …analysts at banking giant HSBC have bravely offered an answer. They expect a loud pop from across the Atlantic within the next five months, producing a fall of about 25% on Wall Street. - Daily Mail, 2/8/00

Byron Wein, chief domestic strategist at Morgan Stanley Dean Witter

A model used for the past 15 years by Byron Wein, chief domestic strategist at Morgan Stanley Dean Witter, now suggests that the S&P 500 Index is overvalued by a record 54%. Wein’s model says the S&P 500 should be trading at around 945, way below its recent level of 1455. - Andrew Barry, Barron’s, 1/24/00

Brian Mattes, Principal for Vanguard Inc.

"Buying on the dip," the conventional wisdom that has rewarded investors… may not be a sure-fire way to make a few bucks… "It is a concern to us," "…at some point you may not see the immediate rebound you have been seeing." - Reuters, 2/24/2000

Michael Mussa, Senior IMF official

US shares are probably more sharply overvalued than in 1987 and they may need a larger and more prolonged correction than took place then… - Reuters, 2/24/2000

Thomas O’Neill, chief investment FleetBoston

O’Neill believes the technology stock market is a speculative bubble that is bound to burst. - Boston Globe, 2/24/2000

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