This article appeared over the weekend in the Wall Street Journal but I didn't have the chance to post it.
Seth Klarman is an investing legend, as the article points out, and only occasionally makes comments in public about the markets and investment ideas.
I don't necessary agree with his apocalyptic views on currencies and the fate of the world, but I do agree with one key point: By keeping interest rates at 0%, the government is essentially forcing savers to buy more risky assets. While this might help in the short term - the banks, for example, have considerably more capital cushion than they had a couple of years ago - it is not clear that the longer implications of this policy have been fully considered.
Here's an excerpt from the article:
Some members of the audience gasped audibly when Mr. Klarman said, "The government is now in the business of giving bad advice." Later, he got more specific: "By holding interest rates at zero, the government is basically tricking the population into going long on just about every kind of security except cash, at the price of almost certainly not getting an adequate return for the risks they are running. People can't stand earning 0% on their money, so the government is forcing everyone in the investing public to speculate."
"We didn't get the value out of this crisis that we should have," Mr. Klarman told the audience. "For our parents or grandparents, it was awful to have had a Great Depression. But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions." He added: "All we got out of this crisis was a Really Bad Couple of Weeks mentality."
The Intelligent Investor: You Should Be Worried - WSJ.com
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