By Michelle Celarier
The investment world seems divided into two camps these
days. One group includes those who hope (and pray) that the
U.S. stimulus plan will lead to a sustainable recovery and
enough secular growth to eventually pay down our debt. The
others think it's almost hopeless and fear we'll go the way of
Weimar Germany or - to use a modern-day example - Zimbabwe.
John Taylor of FX Concepts, the subject of our cover story, is
in the latter camp. It's interesting, however, that he hasn't
started shorting the dollar just yet.
One way to look at all the doomsayers is that they offer a
check on the type of American exceptionalism that assumes the
United States will always reign supreme and manage to fix
itself. The optimism of Americans can be maddening (and
incredibly ignorant) at times, but it also helps in times of
crisis. I know all empires fall eventually, but I'm just not
ready to call it quits on this one. Even Taylor points out that
all it would take to avoid the worst-case scenario is to raise
taxes on the rich. Alternatively (or perhaps in tandem), isn't
it possible that pumping money into the greening of America can
create a new eco-industry that will keep us going for a
A lot of hedge funds are not calling it quits either. Sure,
they may have been buying gold (and no doubt selling into the
recent highs), but a number are actually trying to get the
banking system moving again. As we report this month, the Term
Asset-Backed Securities Loan Facility (better known as TALF) is
starting to get some interest from hedge funds.
But the more controversial Public Private Investment Program
(PPIP), which is designed to take the toxic assets off the
banks, still seems to have problems. Hedge funds are wisely
staying away. The country would be better off waiting for what
now appears inevitable for the zombie banks - a reorganization
that will turn bondholders into equity owners and temporarily
put the federal government in charge.
Meanwhile, the International Monetary Fund estimates that $4
trillion in bad debts remain on the books, and that the
recession is going to last a long time. With deflation already
hitting Spain and threatening the U.K., it seems absurd to
worry about inflation now.
No wonder many hedge funds are still sitting on wads of
cash. Others are honing their trading skills and refusing to
take a long-term view. John Maynard Keynes put it best: In the
long run, we're all dead. It's something the pessimists might
want to consider.