Jean Marie Eveillard Talks Financial Repression
Special Guest: Jean Marie Eveillard is a legendary French international investor who currently serves as the senior investment adviser to First Eagle Funds. Eveillard, who served more than a quarter century as a portfolio manager, was co-honored in 2001 by Morningstar, Inc. as "Stock Manager of the Year" and was a finalist for their 2009 "fund manager of the decade award for non-U.S. stocks". In 2003, the group gave him a "Fund Manager Lifetime Achievement" award.
27 Minute Podcast Interview
"One characteristic of Financial Repression is extremely low interest rates. That is what the Federal Reserve, ECB and Bank of Japan have done over the past few years in reaction to the financial crisis of 2008. They have in a sense manipulated interest rates by doing what they call Quantitative Easing, which is the purchasing by the central banks of a number of fixed income securities - in the process taking short term interest rates and long term yields down as much as possible. In doing so they are trying to encourage investors but it is of course detrimental to savers!!"
"In a way they are being pushed into equities ... the authorities have created what I think is a bubble in stocks, bonds, high end real estate and art"
Regulatory Ring Fencing
"By forcing the banks to inflate their capital, the banks are being forced into buying sovereign securities!"
This type of regulatory policy chicanery helps finance the growing government debt at the expense of savers, retirees and small business. Eventually sovereign economic growth is affected.
Negative Unintended Consequences
There are many unintended consequences and moral hazards of such policies. They lead to mal-investment, lack of price discovery and the mispricing of risk. Jean Marie Eveillard cites "economists have warned about potential mal-investment and today we are right there with the problem .... there is no ambiguity when they say they will do whatever it takes!"
"Save & Investment" versus "Lend & Spend"
"Today the emphasis of economists is to consume, versus save and invest!"
"Sustained cheap money increases supply much more than it does demand. We presently have over investment resulting in global over supply. This is not being matched by only moderate global demand based primarily on consumerism. This mismatch leads to a lack of pricing power, which eventually defeats policies of Quantitative Easing and ZIRP which were never intended by their academic architects to be sustained policies." ~ Gordon T Long