McCulley
Paul McCulley, managing director of Newport Beach-based bond management giant PIMCO, says federal policy has prevented a depression, but it will take months or quarters to get the nation out of a recession.
McCulley spoke at the Global Business Strategies Conference organized by the UC Irvine’s Merage School of Business and the Orange County Business Council. After his talk, he answered questions from the Register. Some excerpts:
Q. You said the government has started implementing the right treatment for the financial system, but still needs to help Main Street. When is the help going to arrive?
A. It’s gonna be a while. What they’ve done is cut off the fat tail of the risk of Armageddon. But I don’t envision a magical Nirvana anytime soon. They still have to do something to fix housing. There’s a huge inventory of over-valued homes. Under the new administration, Washington is going to have put money into preventing chronic foreclosures in the months and quarters ahead.
Q. Do you think they should bail out the auto industry?
A. The auto industry needs federal government support. But it makes sense to be done away from TARP (the U.S. Treasury’s $700 billion Troubled Asset Relief Program). It needs to be done on as a standalone under the new Congress.
Q. How long will it take before the economy starts picking up again?
A. 12 to 18 months? I don’t know. I try not to forecast events and the time of the event in the same sentence.
McCulley, the son of a Baptist preacher from Virginia, speaks with an earthiness uncommon among most buttoned-down money manager. Somes quotes from his lunchtime talk:
On Treasury Secretary Henry Paulson’s request for $700 billion was not based on hard data, but on the size of the problem: “He was operating on a very simple thesis: That when a man needs a beer, he doesn’t need a small beer.”
On what went wrong: “We confused a bull market with brains and regulators didn’t call anyone on it … While it was fun, it ended and the cops are arriving. There’s not going to be the same latitude for fun now.”
On the federal government’s implementation of its financial rescue plan since September: “The implementation isn’t perfect, but it’s good enough. It’s better than what you’d expect.”
His advice to President-elect Barack Obama: “Don’t over promise. Speak a positive message, an optimistic message. Pound your shoe on the table to get things done. Washington has the right diagnosis and treatment, but don’t oversell it.”
What investors should do: “The bottom line is sell what Hank (Paulson) is selling and buy what Hank is buying. I know it sounds a little like socialism. But when the group of three (Paulson, Fed chairman Ben Bernanke and FDIC head Sheila Bair) have access to a printing press and they get money for free, I want to invest along side ‘em.”
To see a published version of McCulley’s thoughts, CLICK HERE.
Other business news …
- How to recover from a fire disaster
- O.C. bank gets cut of $700 billion bailout
- Optimist sees falling foreclosures; pessimist misses doughnuts
- State Fund to hike workers comp rates 8.9% in ‘09
- Taco Bell headquarters in Irvine making massive jobs cuts
- Edison’s power shutoffs jump 10%
- Bankruptcy sought for ocean-view homes in San Clemente
- ‘Housewives of O.C.’ star’s Ladera home up for sale
- O.C. businesses donate to fire victims
