To those who are relatively new to the investing game, Julian Robertson may not be a household name. After all, he returned all the capital his firm managed back to investors in 2000. But the founder of Tiger Management had an incredible 20-year run prior to that point and in short, is a legend in the hedge fund industry. Thus, when Mr. Robertson talks, those that have been around a while definitely listen.
In fact, the mad man himself, Jim Cramer told Erin Burnett that anyone who disagrees with Julian Robertson should "recalibrate" their position. "Because he is that good," Cramer suggested.
The 76-year old philanthropist doesn't concern himself with the wiggles and giggles of the market's day-to-day activity. Known for his big-picture style, Julian made a name for himself as a macro investor. For example, he predicted that there would be big trouble ahead in the U.S. a while back. He told the Wall Street Journal, "I am more disturbed than I have ever been in my investment life." What makes this quote interesting is that it's from June 15, 2005.
Today, Robertson is on edge again. But not so much about the U.S. economy, which he thinks is out of recession "at least temporarily," but more about what happens if either the Japanese or Chinese stop buying, or worse yet, start selling, U.S. bonds.
In an interview with CNBC, Robertson told Erin Burnett, "It's almost Armageddon if the Japanese and Chinese don't buy our debt… I don't know where we could get the money. I think we've let ourselves get in a terrible situation and I think we ought to try and get out of it."
Robertson said that although the recession in the U.S. may be over temporarily, "We're in for some real rough sledding…I really do think the recession is at least temporarily over. But we haven't addressed so many of our problems and we are borrowing so much money that we can't possibly pay it back, unless the Chinese and Japanese buy our bonds."
When asked if either Japan or the Chinese would be likely to stop buying our bonds, he suggested that neither country would really want to stop buying U.S. debt. But at some point, the Japanese in particular might be forced to. Remember that Japan has been in a recession for the better part the past 20 years. And as such, Robertson suggests that it's not out of the realm of possibility that they might need the money at some point down the road.
The hedge fund legend also believes it is a tragedy that we've let ourselves be put in this positions by our leadership "who seem afraid to tell the public that we have big problems." Robertson says, "We need to stop spending, cut back, and increase savings – and until that happens I don't think we are out of the woods."
While it may sound outlandish, Robertson thinks that inflation may be a real threat in the future. No, we're not talking about the 6% or so inflation rates projected by so many economists. Robertson says, "If the Chinese and Japanese stop buying our bonds, we could easily see [inflation] go to 15 to 20 percent." He also said, "It's not a question of the economy. It's a question of who will lend us the money if they don't… It's crazy."
To many, Julian Robertson's worries might seem a little old fashioned given China's trade surplus and the vast amount of U.S. dollars they are forced to put somewhere safe (such as U.S. bonds) each and every month. And with the stock market having enjoyed a nice pop of nearly 60% over the past six months, macro worries aren't exactly at the foremost on most investors' minds. But then again, nobody seemed too terribly worried about the stock market in 2005 either.
