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Well amid all the cries of the government is getting too involved the financial crisis our next guest says the crisis was actually caused.
Bike too much government interference joining -- The -- Sherman author of shattering orthodox season co-founder chief investment officer.
I'm Italian partners which has over eight billion dollars in assets good morning -- -- -- being here.
Good morning Alexis thanks for me still I love this too much intervention from this star.
Who is responsible for that and why has it in part helped cause this calamity in the first place.
What do you think about credit credit underpins everything.
That really goes on our economy whether buying food for -- shelter anything else when you miss price credit people -- use too much or too little up.
So when Alan Greenspan took interest rates down to 1% after the tech bubble.
He urged people to borrow and spend and speculate so people borrowed -- speculated.
We piled up a bunch Ford.
Inflated the housing market inflated all other -- last.
Now that credits being -- price that's being sucked out of the market you're seeing everything cats -- down in tandem so again the government intervening.
-- necessarily in my opinion about lowering rates of 1%.
Has caused this distortion in the markets that we're now playing for so how we do this better would -- -- -- change.
Well if you look at Federal Reserve the Federal Reserve should focus all of its attention on the health of our financial sector.
Rather than manipulating the economic activity for setting interest rates.
So what I would have the Federal Reserve do is focus on capitol were formative banks which had they done we wouldn't be in this mess in the first place because -- banks for.
-- under capitalized.
Secondarily in almost as importantly.
They should not -- short term rates short term rate should be set by the market just like any other commodities soybeans cocoa etc.
Those rates are those prices are set by the market.
Short term interest rates again money is a commodity the prize money is interest rates should be set by the market not a group of men and women.
I east central planning it doesn't work.
If you just -- you actually -- the US government right now to what's happening -- General Motors a couple of some very interesting analogy tell me why.
-- you look at General Motors it has two problems it has way too much debt.
It has huge future obligations under under its pension plan in health care plans if you look at the US we have way too much debt.
We have 55.
Trillion dollars of future obligations.
And Social Security that's 200000 dollars for each -- woman and child.
In the US unless we address this debt problem in -- structure our public programs.
-- that our country can afford.
We're going to be in the same boat as GM it was five to ten years out.
So -- -- that the current.
Area that we are in here in the markets we've had a really beautiful four week rally.
If the US domestic market a good investment equities -- come I mean there's definitely a bubble in treasuries but what do you think.
Well I think you hit it -- on the head -- the treasury market is a bubble it's been fueled by again government.
If you look at US equities the place you really want to be cautious about when your writing off debt.
Is the equity trauma because each dollar debt that your -- -- -- taken directly to equities so I'd be very cautious within the equity -- And focus more my attention and more my assets.
In the fixed income arena but not so much government -- government debt again.
I think is very very pricey.
So -- -- -- -- my -- you go to corporate earning high yield right now delinquency rates are just about low double digits some say could be its highest 15%.
Fannie Freddie debt Arafat gaining as much support so where do you put the money to work and make sure is -- diversify.
Well I think again any time you start looking at speculative grade -- like high -- you have to look at the default cycle.
High yield spreads are very wide which means we anticipate a high default rate.
And lower recoveries I think the default rates -- be much much higher than what the markets are anticipating so be very cautious in that area and I'd focus on.
Short to intermediate term corporate bonds.
It just really focus on that and also I think that hard assets over the next five years.
Our place you're going to want to be -- because if we win this economy start to re lighting.
You're going to have inflation to deal with in owning -- hard assets is where you want to be.
When the economy -- -- That's interesting point I know a lot people are concerned at least initially backed reflation and then attorney shifts to inflation because the printing presses -- full action.
But when you talk about hard -- and we look we've seen this -- go lean to the price of gold and and people hoarding gold at this point.
Does that actually make a case for the fact that you should go out if you haven't already done so.
And buy a home that the hard core value depreciation in your portfolio.
At these levels of housing affordability solo may in fact be your home as opposed to a stock or bond market.
Well if you look at how funny to me if you look at -- house house's dwelling.
I really don't look -- we should look at homes as as an investment as much as a place to live.
-- store of value over time housing prices have gone up about same rate is GDP.
So again if you want to have a home you can look at the markets today.
I -- the markets are gonna go down more in the housing arena and I definitely thinking commercial real state we're gonna continue to see a significant correction.
So again I'd be very cautious about real -- right now a couple years out I think will be a very compelling body.
If -- -- -- a lot of fear about the commercial real estate market will hate Sherman author of shattering orthodoxy is co-founder chief investment officers salient partners.
Great -- on hate -- love to have you back.
Thank you very much Alexis --
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