Predictions and Advice

Frederick Sheehan is a regular contributor to Marc Faber’s The Gloom, Boom & Doom Report. The following are excerpts from some of Sheehan’s articles.

October 21, 2002  “The unlimited credit and Fed-led money expansion of the past half-decade does what free money always does – chases the rising asset class…..[B]uying on infinite margin, house prices have risen according to a structure that might be called the home carry-trade.”

April 28, 2003 “[F]or those asking if this credit bubble can possibly go on, yes…. The means of expansion is the Collateralized Debt Obligation (CDO) and Collateralized Bond Obligation (CBO) markets.”

June 21, 2004  “[Americans] are caught in the pitiable condition of not being able to live on 1% interest; the disincentive to save has been energetically promoted with a short-term yield of microscopic content…. The flows have not been channeled towards productive enterprise but towards speculation.”

October 1, 2005 In reference to Federal Reserve Chairman Alan Greenspan’s speech in which he had advised Americans to trade their fixed-rate mortgages for adjustable-rate mortgages: “Given the nature of mortgages – 100% financing, interest-only payments, inflated market values – many who followed his advice were or are destined for the poor house.”

April 12, 2006  “Whether we are six months or six years from the credit fiasco, finance in the U.S. is no longer efficient…. An economy that relies upon finance for 50% of its profits is dysfunctional. Thus we’ve seen the movement into hard assets such as gold, silver, tin, zinc, copper, and aluminum…. The asset manager who owns, brokers, insures, or stores gold and iron ore owns future cash flows.”

September 8, 2006  “Investment firms should be wary of paper assets. Own [real] assets: natural gas, real estate, oil sands, gold mines, soybeans, and cattle.”

July 1, 2007   “The CDO and CLO markets have acted as both lubricant for structuring credit with no thought to tomorrow and as glue by which all asset classes have risen the past couple of years.

September 1, 2008  “It was clear by the 1960s that the United States was outspending what it was producing. The American mind pulled the future into the present at an ever-faster pace. The ‘future is now’ process of thinking also changed the way corporations were run. The obsession with quarterly earnings was unheard of in 1980. The Federal Reserve shifted the economy into high gear, further displacing the value of work compared to ‘exchanging pieces of paper for cash.’ Securitization turned future money flows of everything from mortgages and funeral-home receivables into money today. The credit machinery that started inflating a century earlier turned over in 2007. The deleveraging will continue for quite awhile.” 

December 2012  “It is important to note, for all the talk of deleveraging, there has not been a single quarter when non-financial debt decreased. The government took over when consumer debt and investment bank leverage collapsed between 2007 and 2009…. [C]orporations increased borrowing by 6.2% in the third quarter…. [N]et capital investment by corporations during the quarter was negative. This is the death knell for companies and economies alike. …. Sufficient investment leads to profits. Profits generate more capital to invest. This cycle was propounded by J. Maynard Keynes: “It is investment, i.e., the increased production of material wealth in the shape of capital goods, which alone creates national wealth.”