Regulators: Past the Point of No Return
Life on Wall Street has certainly changed. A year ago nobody would short retail stocks fearing a private equity bid lurked under every ticker. Stocks crept higher, and everyone was a winner. It was all very, well, laissez-faire.
And while Wall Street might not have a baby sitter, it will be on a much shorter leash, in the eyes of Robert Rodriguez, the rock star fund manager at FPA Capital:
In our opinion, a new financial system is in the process of being created. This is the beginning of a new era. Some may refer to it as Pre-Bear Stearns and Post-Bear Stearns. It is inconceivable to us that the Fed can place its balance sheet at greater risk without having some type of regulatory authority over those financial institutions that now have access to its liquidity services. In essence, new and increased levels of regulations are a likely outcome from this series of events. We believe that primary dealers and the rest of the brokerage industry will be subject to greater regulatory oversight, with a concomitant reduction in firm flexibility and financial leverage. FPA
We have run out of easy fixes, and the path of least resistance is hitting a dead end.
....the partners of FPA came to a unanimous conclusion that the recent Federal Reserve actions and the potential new Congressional policies under consideration are likely to lead to a significantly higher level of long-term inflation in the U.S. We are more than disappointed in the substandard decision making that has taken place within the Federal Reserve and other governmental entities these last several years.
The misguided monetary policies of the former Chairman of the Federal Reserve, Alan Greenspan, created an era of “too big to fail” that has led to two major asset bubbles. With each successive bubble, the policy actions available to the Federal Reserve to reduce financial system risk have been systematically reduced. The extraordinary actions taken by the Bernanke Federal Reserve reflect acts of desperation rather than long-term policy solutions. The rapidly changing events within the capital markets are forcing the Fed to adopt policies that have the potential of long-term negative consequences. These recent events, and their fundamental changes to the U.S. financial system, are forcing the leaders of FPA’s product areas to reassess their present portfolio allocations. In essence, we believe we have “Crossed the Rubicon” into a new financial era.
Robert Rodriguez is echoing much of what we have read on the blogs, but does it with a bit more panache. And while Bernanke took the Armageddon trade off the table, we will continue to slide down a slippery slope.
Scale out of a position or two and give it a read.
Crossing the Rubicon
FPA
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