Stanford University is attempting to unload $1 billion worth of hard-to-sell assets — a treacherous undertaking that the Wall Street Journal said was being closely watched by private equity. That’s an understatement, since hundreds of the world’s biggest institutional and sovereign investors have portfolios very similar to Stanford’s, and many of them will be equally desperate to raise cash in these straitened times. The portfolio model they have embraced, perhaps all too eagerly, in recent years was pioneered by Harvard University, whose endowment fund is by far the biggest in the collegiate world. It was worth close to $40 billion several years ago — almost twice as much as number two, Yale University – but lost perhaps a third of its value since then due to the global collapse in asset values.
Before Harvard made a dubiously fine science of aggressive portfolio management, some of the biggest sovereign funds, including those of Saudi Arabia and Kuwait, maintained a simple allocation scheme favoring stocks and Treasury paper, with a conservative skew toward the latter. But Harvard was the first giant fund to diversify into a wide spectrum of assets that included such exotica as timberland, REITs, Norwegian fishing fleets, and mortgage derivatives. As a result, Harvard’s endowment fund was one of the most spectacularly successful among the majors just a few short years ago, and it was emulated and sometimes closely replicated by many of the biggest players in the investment world. But around 2007, when portfolio assets began to plummet across-the-board, Harvard and all of its copycats got caught in the downdraft.
A Novel Approach
Now Stanford has ventured forward to see what some of these illiquid assets will fetch. The school is taking a novel approach by selling only partial interests in the dubious partnerships it still holds. The sums involved total about $5 billion, or somewhat more than third of the funds overseen by Stanford Management Co. If the sale goes poorly, it will be a grim setback for the aspirations of other big-time funds. But even if things go relatively well it might be premature to break out the bubbly, since the market could get crushed if too many other big sellers take encouragement.
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{ 16 comments }
Rick
It’s like the 2nd or 3rd time you said we stopped the “inflation” debate and gave us
a serving of Mish without the ability to respond. I guess its a one sided debate now. Most “inflationists” are of the hyperinflation camp which is not traditional either as you are aware. I think I’ll stay in the “stupid” camp of Marc Faber, Jim Rodgers,Jim Sinclair, Alf Field and last but not least Martin Armstrong who has a stellar record on trend as do all the others. I know they are “factually” challenged.
You may want to consider not lobbing out insults at paying subscribers without any ability to clearly answer the accusations. We can all just agree to disagree and see what happens. I know intelligent people can sometimes do that.
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Hyperinflation? Peter Schiff’s scenario works just fine for me as a less-than-longshot bet. But in the meantime, where’s the inflation? Have Faber, Rodgers et al. said anything that would factually challenge a word of what Mish has written? Find it and I’ll be happy to print it. They are all intelligent men, but none has made an intelligent argument. Gary North is more of an expert on money supply than any of them, but even he has failed to make a coherent case for inflation. The proof is that the inflation he has been predicting for as long as I can remember has failed to appear even though a perfect storm of catalysts has been present for several years. With North and most of the others, it’s always the same old schpiel about how the Fed can crank up the printing press anytime it wants. The Fed has done so, cranking out $13 trillion worth of bailout credit and commitments already — and yet there has been nary a whiff of inflation.
As I keep saying, you inflationists should wake me when I can sell my home for a quadrillion dollars. Or when the minimum wage goes to $100k an hour.
RA
I have to say, this article is more thought-provoking than I originally saw it as.
The way I see it, they’re testing to see if inflation is indeed the case, and if so, to what extent (but they’re not nessecarily braving the waters. Why so afraid, boys, huh?). I expect that it might do well, but in these waters, a drop-off could be in the next footstep. I think that is what will happen.
Anyway, in defense of Mr. Ackerman and the “deflationists”, though I’m sure they don’t need it, I say once more that it’s all about where the hell all that money is, not that there isn’t a glut of new money. Deflationists have never argued otherwise. They only point out that the money hasn’t really moved all that much.
And when will it? And most of all… why?
I’m going out on a limb here, and say that those questions are from a perspective too linear for our nonlinear world.
The answer to the question of inflation is, in my opinion, that the pirates have taken down the sails of free enterprise and are now looting the helpless ships. Banks won’t loan to private venture, but governments are being monetized beyond all reason. So governments spend like no tomorrow, but it all winds up bank into the banks which won’t lend.
(This isn’t surprising, since tax revenues are fallen. I mean, sure, they’ve cut off one of their hands, but for that sacrifice we have ours bound completely, and oh look… the hand has been replaced by a hook! They really spare no detail in this drama, do they?)
Anyway, now that the free market is paralyzed or at least seriously hindered, all that government spending… Well, haven’t they taken over a lot? Hasn’t Big Government engaged in a lot of crazy schemes in just about every area of life? And then all that money goes right back into a bank, where it sits, unmoving. Repeat the process as many times as they like… Punch with the remaining hand, snag loot and liberties with the hooked hand…
I’d say this article…
http://www.telegraph.co.uk/earth/earthnews/6248257/Planned-recession-could-avoid-catastrophic-climate-change.html
… is pretty much dead-on accurate. All the better if they can make it out to be “for own good”. I think they’re out to deflate asset prices, to make all things unprofitable, whilst building up the threat of releasing any of that sun-sized pile of money, to discourage any more prosperity (at least through that (paper/digital) means). This of course leaves the arena floor open for gold and silver money to take over.
Rick, as you know I really don’t comment on these pieces. I do so only to note that your tone has indeed become more insulting to those that disagree with you of late. This might be due to frustration with their inability to see your side of the argument, I don’t know.
I would suggest that calling people stupid is not likely to foster intelligent debate. If the inflation/deflation topic is truly closed it would be the proper thing to let sleeping dogs lie and not repeatedly open the door an inch to hurl an insult through before closing it again.
I myself have no position to take in this debate but I have become increasingly uncomfortable when reading these pieces. Presenting an opinion, backing it up with facts and saying you think the ‘other camp’ is wrong is totally fine but calling them stupid and worse is beneath someone of your caliber.
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My lengthy reply to your post simply vanished, presumably eaten by WordPress, but I’m too mentally fatigued to attempt to reconstruct it. In brief, those who buy into the “fed-won’t-let-it-happen” mantra will get no respect from me, since “it” already HAS happened — and continues to happen before their lying eyes. RA
Rick,
Do you have any guess as to how much of Harvard’s endowment is illiquid? or has a market value considerably less than appraised? Could you say that deflation and inflation are two sides of the same coin, namely a decrease in real productive wealth and its creation?
Inflationists see only the money, but deflationists see its removal from those who need to buy things, – who are most of the people.
PHN
I have the utmost respect for Dr Faber, Jim Rogers and Peter Schiff and at the same time agree with Rick that we will have deflation (although in the true definition of the word – lower cost of goods due to a decrease in the money supply) there can be no such thing. The difference between Zimbabwe or some other banana republic printing a trillion dollars and the US is that the US rightly or wrongly today is still the worlds reserve currency and the monetizing – The Fed directly printing money – as opposed to the creation of new debt is minimal. There may be a decrease in the price of real estate and other non essential items (you can always rent) but there has been no such decrease in the cost of commodities that we need for everyday foods, such as coffee, sugar, wheat etc. The US is actually inflating all the currency by stealth (temporarily) as it forces other nations to also debase their currency in a bid to stay competitive. I agree the banksters are not going to allow Joe six pack and joe plumber to keep their properties no matter what Washington says. why should they care how many people lose their homes Uncle Sam is compensating these crooks with the tax dollars from all Americans – some from the very same people in town. THE NAME OF THE GAME IS CALLED BAILOUT! ITS BEEN AROUND FOR A WHILE AND THE HOUSE – IE THE BANKS (TOO LARGE TOO FAIL) THAT IS ALWAYS WIN. “First by deflation then by inflation the banks will take everything including the homes of the people until they wake up homeless on the continent their fathers founded” Thomas Jefferson – i believe.
Speaking of selling your house for a quadrillion dollars, any thoughts on where the housing market might be going in the next 5-10 years? I got out of my house 5 years ago but am tired of being at the mercy of landlords. How stupid would it be to buy now?
First, well-deserved kudos to Rick for calling precious metals and stocks to a short-term T.
Second, it looks like the Stanford Lawn is turning brown, not at all like the good ol’ days when some of us were teaching there.
Third, alternative investments like Harvard and Stanford’s, predicated on inflation, are a sorry mess with little liquidity. Having driven them up by leading the investment train into exotica, they are now left at Grand Central. As Mish and many Feds patiently recite, there are no signs of inflation. There are rampant signs of deflation like M-3 that have been with us almost two years. In fact, England today announced austerity measures limiting those on the dole. These cuts are reminiscent of IMF World Bank shock therapy in Banana Republics they so long foreclosed after their debts ran amuck.
Thus the fundamental case for stocks and PMs may be an apparition of jury-rigged earnings and dashed great expectations…
PS Australian interest rate hike and secret meetings to price oil in anything but dollars by 2018 have jammed gold in the shorts:
http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html
We occasionally like to fade headline trades and think this may create a buying opportunity for GLL above 11.76 with trailing MOC stops.
Long live the dollar…
The ‘house at a quadrillion’ and ‘minimum wage at $100/hr.’ lines are dodges. I don’t believe
I’ve seen any prominent inflation advocates demand that Beverly Hills or Greenwich average
house prices have to drop to $50,000 or that new Rolls Royces retail at $12,000 to negate their stance.
Houses are-and have been- bought on credit, which system is broken,and in most
locations relative prices(vs. other goods) are still too high. If we ever get a government
that is serious about ejecting illegal aliens, and imprisoning & impoverishing those
who hire them, and serious about imposing huge costs, via tariffs and taxation(including
on sghareholders and managers personally) on US business that offshore production and
we might get a $10/hr minimum wage. Which would be good.
We had classic debt deflation begin just over a year ago, and it continues in the private
sector, but the crazed efforts of the financial-government complex has offset it for the past
six months, creating a deadlock. Conditions are ripe for overall deflation to reappear(and if it does, a downward spiral in equities will be a indicator of it) and plow ahead, and I’d bet that it would happen, if I was to bet-but it ACTUALLY HAS TO HAPPEN, the SPX needs to go under 600, oil under $40, etc. Potential has to be realized, or eventually the potential is gone. If the SPX passes the 50% retrace @ 1120, or especially the 61.8% retrace @ 1228, if gold and oil continue steadily higher, in the weeks & months ahead,and especially if we see actual growth in employment by the turn into next year, then deflation blew its’ great opportunity to fully play out. Done and over.
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Since it is a $700 trillion credit edifice that is currently deflating, it will require nothing less than an outright, Zimbabwe-style hyperinflation to reverse the polarity of our current, deflationary “cure” for debt. RA
Rick…you keep asking where are quadrillion dollar houses…as if that insulting and sarcastic comment lends any kind of support to your deflation theory. I would expect more of you…obviously a lack of quadrillion dollar homes does not prove anything except the fact that the dollar has not yet been annihilated. And I don’t think anybody here believes a dollar is not worth picking up off the street, even if there are differences of opinion on whether and how soon we will see such a situation in the future.
The Austrian economists put forward the concept that inflation is a monetary phenomenon. If inflation is measured by money printing we definitely have it. And if we look at the twelve trillion dollar non-GAAP US debt, which is in addition to tens of trillions in unfunded liabilities…we will have lots of inflation in the future. What has stemmed most of this inflation from showing up as a rise in prices is probably the fact that for the past half a century countries and people all over the world accumulated US dollars as if they were gold. When this fallacy is realized, floods of dollars may flood into circulation from all over the world as the US government does its own printing to cover its suffocating expenses.
Back to the house analogy…I know in my area houses have gone up 2000% since 1980. While they may be no quadrillion, I see plenty of inflation in houses.
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If you think I was trying to insult you, then you still don’t get it. You need to deal with the quadrillion dollar house, Ben, because that’s what it will take to pull 60 million (and growing) homeowners from the deflationary mire. Or do you perhaps believe the government can create just enough “controlled” inflation to float underwater mortgages to the surface without goosing prices into the ionosphere? With $13 trillion worth of skin in the game already and no housing inflation in sight, some would argue that much bigger numbers are called for. And I suspect they’d be right.
With all due respect, there is not enough substance in your post to warrant an argument. For instance, you say that “If inflation is measured by money printing we definitely have it.” Is that an argument? A statement of fact? Do you — does any inflationist? — even understand what “printing press money” is? Do the mountains of digital bailout dollars that the banks have socked into Treasury paper count as “printing press money”? And if so, how will those digital dollars cause inflation? (Above, you flatly assert that debt itself will bring about inflation. Is this a lapse in syntax, or were you simply hoping no one would notice the ten-mile gap in your argument?) And, will the banks make mortgage loans in an inflating market when they are not even willing to do so now, at the supposed rock bottom? In fact, bank lending is still contracting, and sharply. What do you foresee that will reverse this trend?
Meanwhile, how many times do I need to repeat here that the only way to actualize all of the supposed printing press money is to get people to borrow it. (But what would they use as collateral? Their already over-hocked homes?). Or perhaps, like most economists, you think The Government can conquer deflation via massive deficit spending? If so, are you certain that Keynesian heroics will suffice to overcome the drag of the liquidity trap that has been suffocating the economy for nearly three years? I’d have thought the answer was too obvious by now to avoid. And would you — or Jim Rodgers, or Marc Faber, or for that matter any of the other grandees of inflationism — like to take on Professor Fekete’s argument concerning the marginal productivity of debt? Of course not, since it is miles beyond the reach of “Fed-won’t-let-it-happen” drivel.
And what about all of those hoarded dollars around the world that you mentioned? In fact, compared to a financial asset deflation aggregating into the many hundreds of trillions of dollars, the total number of physical dollars in vaults and mattresses barely registers on the scale. And so what if the price of houses in your area has risen by 2000 percent? What on earth has that to do with today’s housing prices, or with the failure of the massive stimulus undertaken so far to lift residential values more than an iota? Nothing you guys have thrown at the wall has stuck. Have you anything to say besides, “Sooner or later, all of that printing press money is going to cause inflation.”? Please start by telling us why all of that printing press money has caused zero inflation so far. At the moment, with asset values (other than psychotically energized stocks), wages and bank lending contracting, the burden of proof most surely does not lie with the deflationists.
RA
“Since it is a $700 trillion credit edifice that is currently deflating, it will require nothing less than an outright, Zimbabwe-style hyperinflation to reverse the polarity of our current, deflationary “cure” for debt.”
BIS just reported Q2 global derivatives down to $426 T, so not sure where the $700 T comes from.
Unlike 1933 when we were on a gold standard, gold was stolen and the dollar was devalued 69% overnight by FDR bankers, gold and silver are legal today, selling at premiums, and the dollar was devalued by 83% since 2001. Most Americans are armed and self-reliant. Only those dependent on broken government promises and bailouts may suffer when they fail.
No wonder insiders overall are selling $52:1, and in the case of NEM have not bought since March 2006.
Like the JubileeGeneration cycle in the Old Testament when property returned to its rightful owners, deflation may not quit until all bad debt is wiped out.
Therefore Helicopter Ben and Zimbabwe inflation in America are highly unlikely fantasies anytime soon.
The market today looks like a crazy capitulation top.
Perhaps that was your point…
JubileeProsperity.com
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Nice to hear we’re making headway against that mountain of derivatives, but too bad they are not the sole source of our credit liabilities. However much it all adds up to, though, every blessed penny eventually will have to be repaid — if not by the borrower(s), then by the lender(s). RA
Dear Laurel
We have a nice Tahoe condo worth $600,000 that we will happily sell you for $400,000 while tipping Rick $4000.
Regards*Rich
Ben
Nice houses in Professerville Palo Alto sold for $3000 during the Depression.
They went to over $3 million because of leverage inflation, not investment return. They left rents and reason far behind, as stocks left earnings yields for liquid fantasies. We may be on the verge of a liquidity cliff and great unwinding, particularly if gold continues up. Gold is a proxy for real interest rates, and is inherently deflationary, contrary to public headline pundits. Every action has an equal and opposite reaction. I take Rick’s point seriously that every dollar borrowed will be repaid. Sir John Templeton noted all assets correct the amount they are financed. What this may leave us with is an eventual roundtrip back to 1930s prices. People conditioned or hypnotized by two generations of inflation have a hard time comprehending this, I know.
That’s why we have a market of buyers and sellers.
Regards*Rich
Rick,
I think all those mentioned who argue hyperinflation look at the dollar as collapsing.
The momentum of foreign bought treasuries is low and so we print and print.
Sinclair , Armstrong, Faber as well as Gerald Celente see a 62 and below on the USDX. How will the dollar buy more of anything at that level. I don’t think its that difficult an argument.
As far as deflation goes where is my 15,000 dollar house …my 2000 dollar car….my 10 cent gas….my 50 cent minimum wage…my 3 dollar filet at Outback with tip…Wake me for that because that would be fine with me.
Not much needs to be added at this point as it’s getting pretty feisty in here BUT put me down in the inflationist column. I’d like to see more of these “gurus” get some balls and put their money where their mouth is. Sinclair put out a $1 million dollar bet on $1650 and agreed to terminate his website. Everyone has right to opinion but when name calling starts then lets see something to back it up with.
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Sinclair, a guy whose gutsiness we’ve always admired, could be right about gold but wrong about inflation. The bull market in Treasury bonds suggests this has actually been the case for years. RA
Rick, I have to laugh a bit when I see people shouting deflation using a sub 40 dollar oil or the the S/P under 600 as a “deflation” target. For most of my career as a petroleum engineer we used to dream of 40 $ oil and 4 $/mcf gas,during most of the 1980 and 90’s and as recently as 2002/03, (the same time you could stil get sub 400$ gold) Huge inflation has already happened! Big time. The dollar ain’t worth anything. Can’t anyone remember owning a three bedroom house that costs 180,000 k$ ? Where I live on the bald ass prairie (it sure ain’t Bubbleville California) those prices were constant till about 10 years ago; now the city appraises those same houses for taxes at 1.5 mm$ and they routinely sell for 1.2 to 1.4 mm$. I remember talking to an older National Park employee at the Tram in Palm Springs a couple of years ago and on her salary (18 $/hr) she could only dream of owning a car, let alone a house. The big loss in buying power for people like her have already happened. Instead of holding our breath watching carefully for signs of this massive collaspe of buying power, go outside and look around, you dollar you now earn buys half a coke or bad cup of coffe and that’s about it. That is why you need to own something that can not be printed out of thing air. It almost does not matter what. What am I missing here?
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All yesterday’s news, Glenn. You’ve described what was, not what is. RA
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