Bill Miller and Paul McCulley Discuss the Economy, Stocks and Bonds

By on April 10, 2012

Bill Miller - Legg Mason OpportunityConsuelo Mack recently interviewed Bill Miller and Paul McCulley regarding shifts experienced in the investing arena in recent years. This includes changes at the macro level involving central banks money easing efforts to deal with financial upheavals. Mack stated that many of the monetary authorities efforts have been controversial.

Mack said she moderated a panel at a conference re-examining central bank orthodoxy in Paris, France where Bill Miller and Paul McCulley, close friends, were speakers.

Mack introduced the “legendary” Bill Miller as the only mutual fund manager to beat the market an astounding 15 years in a row. Although his streak came to a crushing end a few years back, Mack said Miller remains an innovative thinker in the investment business. In late April Miller will be stepping down from the Legg Mason Value Trust Fund which he has run for 30 years. Miller will continue to manage the Legg Mason Opportunity fund.

Mack described Paul McCulley as another great investor and financial thought leader who, until recently in 2010, was a senior partner at PIMCO where he ran the $400 billion short-term trading desk and was author of its monthly Global Central Bank Focus. McCulley is currently chair of the Global Interdependence Center Society of Fellows which promotes international dialogue.

Paul McCulley - PIMCOMack said McCulley presented a thought provoking paper at the Paris conference discussing why central bank intervention does not work in the current economic situation, which he describes as a “liquidity trap.” McCulley promotes expansive government spending as a key to avoiding recessions, or worse.

According to Mack, McCulley coined the term “Minsky Moment” which described the crash of the global financial system, something the late economist Hyman Minsky predicted would happen. Minsky’s theory was that periods of long-term economic stability such as experienced from the early 1980’s through 2000 would lead to increased risk taking resulting in financial instability.

Mack’s interview of Miller and McCulley covered individual behavior’s role in economics, the theory and repercussions surrounding the recent liquidity trap (deleveraging) phenomenon, the role of government spending in reducing unemployment, the Fed’s ability to control interest rates, the current risk premium for equities (very high according to Miller), the unattractiveness of 10-year Treasuries (which McCulley sees as a potential short), the recently decreased risk of Armageddon in Europe, the importance of long-term thinking and patience by investors, and the prospects for the “most hated” asset class (real estate).

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