Wednesday, June 8, 2011

World Banker Makes Stunning Confession

Former President of the World Bank James Wolfensohn makes a stunning admission as he addresses graduate students at Stanford University. He tells the graduate students what is coming, which is a titanic shift in weath from the West to the East. What he doesn't tell the graduate students is that it is his own institution, the World Bank, that is the catalyst for these changes.

Biggs Avoids Financials, Says Cisco, Intel Are ‘Too Cheap’: INTC, CSCO

Barton Biggs, the hedge-fund manager who bought stocks when the market bottomed in March 2009, said tech companies such as Cisco Systems Inc. (CSCO) and Intel Corp. (INTC) are attractively priced and that he’s avoiding financial shares.

With older technology companies, “you can almost buy them as big-capitalization value. They’re way too cheap,” said Biggs, who runs New York-based Traxis Partners LP, in an interview today on Bloomberg Television’s “InBusiness” with Margaret Brennan.

A gauge of technology companies in the Standard & Poor’s 500 Index trades at 14.7 times reported earnings, compared with 14.6 the broader measure. That’s close to the lowest valuation for the technology gauge compared with the S&P 500 since December 2009. Cisco’s P/E ratio is 11.7, while Intel’s is 10.1.

Biggs said he’s not worried about a downturn for technology companies because forecasts for capital spending by U.S. companies are still strong. Biggs said last month he is bullish on U.S. equities even though the global economy has slowed. The S&P 500 has declined 5.8 percent from an almost-three-year high on April 29 as economic data missed forecasts and investors prepared for the Federal Reserve to complete its $600 billion bond-purchase program at the end of June.

Apple, Qualcomm

Biggs finds technology stocks such as Apple Inc. (AAPL) andQualcomm Inc. (QCOM) “incredibly attractive.” He’s not buying companies such as LinkedIn Corp., the largest professional- networking site, which completed its initial public offering last month and more than doubled on its first day of trading.

“The LinkedIns are beyond my powers of comprehension,” he said. LinkedIn’s P/E ratio is 1,111.7, according to data compiled by Bloomberg.

In order for financial-stock earnings to improve, the U.S. housing market needs to strengthen, according to Biggs. Home prices in 20 U.S. cities dropped in March to the lowest level since 2003, figures from the S&P/Case-Shiller index showed on May 31. The number of Americans signing contracts to buy previously owned home sales plunged 12 percent in April, the second-biggest drop in records going back a decade.

“I don’t feel confident I can really count on what the financials say their book value is,” Biggs said. “We know how ephemeral book values have been and we know how ephemeral earnings have been.” He said that if he saw a real improvement in prices of existing single-family homes, “then we’d be looking at ‘writes-up’ in terms of the financials’ earnings statement. With home prices still falling, I’m concerned we’re going to be looking at writedowns.”

BNN: Top Picks

Bruce Campbell, President, Campbell & Lee Investment Management, shares his top picks.

Jay Taylor: Turning Hard Times Into Good Times

Is the Second Half of the 2007/09 Bear Market Getting Underway?

click here for audio HOUR #1 HOUR#2

ECB Has €444 Billion PIIGS Exposure, A 4.25% Drop In Asset Values Would Bankrupt European Central Bank

As if insolvent European private banks were not enough to worry about (and with banking assets of 461 percent of GDP in the UK, 178 percent in Germany, and 820 percent in Switzerland, there is more than enough to worry about), a new study by Open Europe has found that at the heart of the insolvency argument is none other than the only hedge fund that is even worse capitalized than the US Federal Reserve: the European Central Bank. "With Greece forced to seek a second bail-out to avoid bankruptcy, Open Europe has today published a briefing cataloguing how the eurozone crisis could drive the European Central Bank itself into insolvency, with taxpayers likely to pick up a big chunk of the bill. The role of the ECB in the ongoing eurozone and banking crisis has been significantly understated. By propping up struggling eurozone governments and providing cheap credit to ailing banks, the ECB has put billions worth of risky assets on its books. We estimate that the ECB has exposure to struggling eurozone economies (the so-called PIIGS) of around €444bn – an amount roughly equivalent to the GDP of Finland and Austria combined. Of this, around €190bn is exposure to the Greek state and Greek banks. Should the ECB see the value of its assets fall by just 4.25%, which is no longer a remote risk, its entire capital base would be wiped out." It seems that in crafting "prudent" capitalization ratios courtesy of Basel 1 through infinity, the global NWO regulators totally let the ECB slip through the cracks. The finding also confirms what we have been saying all along: there is no way that any form of voluntary or involuntary phase transition that will require the ECB to mark down assets that it has on its books at par (yet are worth 50 cents on the dollar) can ever occur: such an event would result in the immediate insolvency of the European lender of first and last resort, and, in turn, the unravelling of the Eurozone.

From Open Europe:

"The ECB’s attempts to paper over the cracks in the eurozone may have temporarily softened the impact of the crisis, but have exacerbated the situation in the long-term. The ECB has dug itself into a hole and now we are seeing that there is no easy way out.”

“Huge risks have been transferred from struggling governments and banks onto the ECB’s books, with taxpayers as the ultimate guarantor. There’s a real risk that these assets will face radical write-downs in future with eurozone governments and banks teetering on the edge of bankruptcy. This amounts to a hidden – and potentially huge – bill to taxpayers to save the euro.”

“The ECB’s wobbly finances and operations to finance states have landed a serious blow to its credibility. It must now seek to become the strong, independent bank that electorates were promised when the Single Currency was forged.”

ECB Open Europe

US Income Expectations Plummet to 25-Year Low

The average US worker anticipates that in a year from now he or she will be earning the same or less in wages than right now, a 25-year low in income expectations, based on an analysis by Goldman Sachs.

The research explicitly compared expectations of real income growth, meaning that inflation was a significant consideration in the gloomy outlook. However, a combination of additional factors can also be blamed including the still-limping economy, anemic job growth, stagnant wages, lower-paying jobs, and fewer hours.

According to USA Today:

“Real hourly wages have dropped 2.1% on an annualized basis over the past six months, a rate of decline not seen in 20 years, according to Goldman. This analysis is backed up by the other most-watched consumer survey from the Conference Board, which indicated earlier this week that the proportion of consumers expecting their incomes to increase was below 15% in May.

“‘I am much more concerned that the second half resurgence we all expect never arrives and by early 2012 we are in a recession,’ said Joe Terranova, chief market strategist for Virtus Investment Partners and a ‘Fast Money’ trader. Stocks are sliding in June ahead of the monthly jobs report released on Friday. Economists have slashed the number of jobs they believe were added last month as a string of recent economic data have pointed to a slowdown. The 10-year Treasury yield broke below 3% Wednesday as investors bought bonds as a safehaven in case of the slowing economy.

“The fact that income expectations are so low, makes the jobs outlook that much more important, argues Goldman and other investors. These same surveys show that consumers are not nearly as pessimistic about job growth. So once enthusiasm on the labor front is dented at all, then all aspects of consumer confidence are lost.”

Dismal income expectations could potentially lower forecasts for consumer spending as well, meaning that business income, and subsequently the wages those businesses pay out, are that much less likely to pick up any time soon. You can read more details in the USA Today article on how Americans are belt tightening due to lower income expectations.


Rocky Vega,
The Daily Reckoning

10 Tipping Points Which Could Potentially Plunge The World Into A Horrific Economic Nightmare

The global economy has become so incredibly unstable at this point that it is not going to take much to plunge the world into a horrific economic nightmare. The foundations of the world economic system are so decayed and so corrupted that even a stiff breeze could potentially topple the entire structure over. Over the past couple of months a constant parade of bad economic news has come streaming in from Europe, Asia and the United States. Signs of an impending economic slowdown are everywhere. So what "tipping point" will trigger the next global economic downturn? Nobody knows for sure, but potential tipping points are all around us.

Today, the global economic system is even more vulnerable than it was back in 2008. Virtually none of the systemic problems that contributed to the 2008 collapse have been fixed.

Mark Mobius, the head of the emerging markets desk at Templeton Asset Management, was recently was quoted in Forbes as saying the following....

"There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis."

The "financial reform" law that Barack Obama and the Congress passed a while back was a complete and total joke. They might as well have written the law on toilet paper for all the good that it is doing.

We did not learn from our mistakes and our future economic lessons are going to be even more painful.

The world is drowning in a mountain of debt, the global financial system is packed to the gills with toxic derivatives, everyone is leveraged to the hilt and the dominoes could start falling at any time.

I am not the only one that is warning that another financial collapse is coming. In fact, a whole lot of people have been warning about the next financial collapse lately.

So what will the tipping point for the next collapse be?

The following are some potential nominees....

Tipping Point #1: Syria

Syria is a situation to watch very, very closely. The Syrian government is in a lot of trouble right now. Sadly, the instability inside Syria probably makes war with Israel even more likely.

Make no mistake - a war between Israel and Syria has been brewing for a long, long time and at some point it will happen. When it happens, the entire Middle East may erupt in warfare.

Just the other day, a very troubling incident happened in the area around the Golan Heights. The following is an excerpt from a report by The Daily Mail about the incident....

"About 20 pro-Palestinian demonstrators were killed and 325 injured yesterday when Israeli forces opened fire on them as they crossed the border from Syria into occupied territories, according to reports."

At this point, the Syrian government is probably glad that the attention has been taken off of them at least for a while. The Syrian government has been getting a lot of bad press lately. The following is an excerpt from a recent report by Human Rights Watch about the treatment of protesters inside Syria....

"The methods of torture included prolonged beatings with sticks, twisted wires, and other devices; electric shocks administered with Tasers and electric batons; use of improvised metal and wooden 'racks'; and, in at least one case documented by Human Rights Watch, the rape of a male detainee with a baton.

"Interrogators and guards also subjected detainees to various forms of humiliating treatment, such as urinating on the detainees, stepping on their faces, and making them kiss the officers' shoes. Several detainees said they were repeatedly threatened with imminent execution."

So in light of the "precedent" that we recently set in Libya, does this mean that we will be "forced" to conduct a "humanitarian mission" inside Syria as well?

Syria is one tipping point that we all need to keep a close eye on.

Tipping Point #2: Iran

The Iranian nuclear program is in the news again. A new report by RAND Corporation researcher Gregory S. Jones claims that Iran could have a nuclear weapon within 2 months. His report is based on recent findings by the International Atomic Energy Agency. According to Jones, airstrikes alone would be incapable of stopping Iran's nuclear weapons program at this point. Instead, Jones says that a "military occupation" would be required.

It is a minor miracle that a war with Iran has not erupted yet. It seems almost inevitable that at some point either the United States or Israel will use military force to try to stop Iran's nuclear program.

When that happens, it is going to cause a major shock to the global economy.

Tipping Point #3: Libya

NATO has made it abundantly clear that Moammar Gadhafi will no longer be tolerated. In fact, NATO apparently plans to reduce Tripoli to a heap of smoking ruins if that is what it takes to bring about the fall of Gadhafi.

What a "humanitarian mission" we have going in Libya, eh? It turns out that NATO believes that the United Nations gave it permission to bomb television stations and to make attack runs with helicopters.

Russian Deputy Prime Minister Sergei Ivanov recently said that by using attack helicopters, NATO has moved dangerously close to turning the Libya operation into a ground invasion....

"Using attack helicopters, in my view, is the last but one step before the land operation."

So why is Libya a potential tipping point?

It isn't because Gadhafi is a threat. He is toast.

It is because the rest of the world is watching what is happening in Libya, and that is raising global tensions.

Even if Gadhafi falls, the Libyan operation will still be a failure because it has brought us all significantly closer to World War III.

Tipping Point #4: More Revolutions In The Middle East

The revolutions throughout the Middle East earlier this year sent oil prices absolutely skyrocketing and they have remained at elevated levels.

And in case you haven't noticed, revolutions continue to sweep the Middle East.

Have you seen what has been happening in Yemen lately?

Yemeni President Ali Abdullah Saleh has burns over 40% of his body and he has suffered a collapsed lung as a result of a recent attack.

If violence and protests throughout the Middle East become even more intense as the weather warms up this summer that could have a very significant impact on world financial markets.

Tipping Point #5: Fukushima

The mainstream news has gotten a bit tired of covering it, but the situation at Fukushima is still a complete and total disaster.

Japan's Nuclear Emergency Response Headquarters admitted on Monday that three reactors experienced "full meltdowns" in the aftermath of the earthquake and tsunami in March.

Did it really take them nearly three months to figure this out, or were they lying to the rest of the world all of this time?

The truth is that the nuclear disaster at Fukushima is far worse than the mainstream media has been telling us. If you doubt this, just check out this excellent article or this article by Natural News: "Land around Fukushima now radioactive dead zone; resembles target struck by atomic bomb".

The economic impact of the Fukushima disaster is going to continue to unfold over an extended period of time. It turns out that Japan is now officially in a recession. Their economy contracted at a 3.7 percent annualized rate during the first quarter.

Look for more bad economic numbers to come out of Japan for the rest of the year. Considering the fact that the Japanese economy is the third largest economy in the world, the fact that they are struggling so badly right now is not a good sign for the rest of us.

Tipping Point #6: Oil Prices

The price of oil is going to continue to be one of the biggest economic stories for the rest of this year and for 2012 as well.

The last time U.S. energy expenditures were over 9 percent of GDP was in 2008 and we quickly plunged into the deepest economic downturn since the Great Depression.

Well, we have reached the significant 9 percent figure once again in 2011, and many fear that once again high oil prices will cause another major economic decline.

Tipping Point #7: Government Austerity

In the United States, it is not just the federal government that is drowning in debt.

All over America, there are state and local governments that are financial basket cases.

I don't always agree with the time frames that Meredith Whitney puts out there, but she is absolutely correct that we are going to see a massive municipal bond crisis. The following is an excerpt from a recent report about Whitney's predictions on CNN....

"Meredith Whitney is issuing a fresh warning to mutual funds, banks, and politicians: The state of state finances is far worse than what you think, or at least than what you've been willing to tell the investors and taxpayers who will eventually carry the burden."

Many state and local governments are attempting to get their budgets balanced by making huge budget cuts. But most of the time these austerity programs also include the elimination of a lot of government jobs.

UBS Investment Research is projecting that state and local governments will combine to slash a whopping 450,000 jobs by the end of next year.

So where will the half a million good jobs come from to replace all of those lost jobs?

Tipping Point #8: The European Sovereign Debt Crisis

Greece is just the tip of the iceberg in Europe.

Moody's downgraded Greek debt again last Wednesday. This time Moody's downgraded Greek debt by three levels all the way down to Caa1. At this point, the yield on 10-year Greek bonds is over 15 percent.

The EU has been going crazy trying to deal with the Greek debt crisis. The truth is that a default by the Greek government would be absolutely catastrophic. If you do not understand the kind of chaos a Greek default would set off on world financial markets, just read this editorial.

But Greece is not the only major European nation with a massive debt problem.

The government of Ireland is already indicating that they may need another bailout.

Portugal, Spain and Italy are also on the verge of collapse.

So will the EU bail all of these nations out for years and years to come?

At some point will the whole house of cards come crashing down?

Everyone needs to keep watching what is going on in Europe. The status quo is not sustainable and it cannot go on forever.

Tipping Point #9: The Dying U.S. Dollar

The euro is not the only major currency that is in trouble.

The U.S. dollar is also slowly dying.

On April 18th, Standard & Poor’s altered its outlook on U.S. government debt from "stable" to "negative" and warned that the U.S. could soon lose its prized AAA rating.

The sad truth is that faith in the U.S. dollar and in U.S. Treasuries is rapidly declining. The mainstream news is not reporting on it much, but right now the Chinese are rapidly dumping U.S. government debt.

As the dollar declines, so will the purchasing power of average Americans. We are already seeing a tremendous amount of inflation in 2011.

But this is just the beginning.

A lot worse is going to be coming down the road.

Tipping Point #10: Drought

A lot of people that read my articles doubt that we will ever see a major global food crisis.

But one is coming.

It is just a matter of time.

Even now, many areas of the world are experiencing very serious droughts. The following is from a recent Bloomberg article....

Parts of China, the biggest grower, had the least rain in a century, some European regions are the driest in 50 years and almost half the winter-wheat crop in the U.S., the largest exporter, is rated poor or worse. Inventory is dropping 8.8 percent, the most in five years, Rabobank International says. Prices will advance 20 percent to as high as $9.25 a bushel by Dec. 31, a Bloomberg survey of 14 analysts and traders shows.

Are you concerned yet?

You should be.

But if you prefer some mindless pablum that will make you feel better, we have some of that for you too.

Larry Summers, the former director of the National Economic Council under Barack Obama, recently told CNBC the following....

"We definitely hit a slower patch, but I think the basic fact that the terrible financial strains we had are abating, remains in place, and I expect this recovery to continue for a substantial period of time."

Does that make you feel better?

Larry Summers says that everything is going to be okay.

It would be great if Summers was actually right, but sadly he is not.

In fact, the worst economic times that America has ever seen are ahead.

The following is a brief excerpt from a recent interview with Dmitry Orlov about the coming economic collapse that was posted on

First you have financial collapse, which is basically the volume of debt that has to be taken on in order for the economy to continue functioning, cannot continue. We’re seeing that right now in Greece, we’re probably going to see that in Japan, we’re definitely at a point now in the United States where even if you raised the income tax to 100 percent, there’s absolutely no way of covering the liabilities of the U.S. federal government. So, we’re at that point now but the workout of the financial collapse is not all quite there. We don’t quite have a worthless currency but that’s in the works.

That, of course, is followed by commercial collapse especially in a country like the United States that imports two thirds of its oil. A lot of that is on credit and if a little bit of that oil goes missing then the economy starts to fall apart because nothing moves unless you burn oil in the United States and, of course, a lot of goods that are sold everywhere are imported again, on credit.

When the U.S. dollar dies and our financial system collapses we are not going to be able to get all of the things that we need from the rest of the world so cheaply any longer.

That is going to cause fundamental changes inside the United States.

Right now, the economic news just seems to get worse and worse, but this is just the beginning.

What is eventually going to happen in this country is going to be so nightmarish that most Americans could not even imagine it right now.

So are our leaders doing anything to prepare for the coming economic crisis?

No, they are too busy with other things.

The big political news of the day was U.S. Representative Anthony Weiner finally admitting that hesent out lewd photos of himself over Twitter to women that he was not married to.

We have become the laughingstock of the world and the economic collapse has not even happened yet.

Bob Rodriguez: The man who sees another crash

He's the mutual fund manager with the best record in the past quarter-century, and he correctly predicted the last two stock market crashes. So why aren't people listening when Bob Rodriguez says another calamity is looming?

By Mina Kimes, writer

FORTUNE -- You have to see it from Bob Rodriguez's perspective. Twice he has spotted an approaching storm. Twice he has warned the world. Twice he has been pooh-poohed and seen investors abandon the two mutual funds he managed. Twice he has taken steps to shield his clients from the coming crisis.

And twice -- first with Internet stocks in the 1990s, and then with the financial crisis of 2008 -- Rodriguez has been right.

As the latter cataclysm unfolded, the man once mocked for missing out on the hottest markets of his lifetime was anointed as a seer. The Wall Street Journal pronounced Rodriguez one of the "doomsayers who got it right." Barron'slabeled him a "prophet." MarketWatch described him as one of the "four horsemen of the market."

Rodriguez, the CEO of $16 billion money management firm First Pacific Advisors, isn't the type to be satisfied with being right (though he's certainly not above that particular pleasure). He's seemingly compelled to share the hard truth. It's as if he has this terrible gift, and with that comes the obligation to tell the world when calamity is on the horizon.

So when he was invited to address more than 1,000 mutual fund managers at a conference held by Morningstar in May 2009 -- just when it looked as if the crisis had finally abated -- Rodriguez gave himself only a brief pat on the back. Then he launched into a tirade, ripping into all of the parties involved in the meltdown. Fund managers, he said, had "stunk." The federal stimulus programs were foolish and shortsighted, and regulators had lost all credibility. Worst of all, he said, was the ballooning U.S. debt, which had prompted him to stop buying long-term bonds from the "irresponsible and fiscally inept government."

He continued in that fiery vein for almost an hour. When he was done, he stared out into an awkward and complete silence. Then it came: a thunderous standing ovation from the very fund managers he had just excoriated.

Rodriguez is an anomaly in the sunny world of mutual funds, where the typical manager is perpetually optimistic and happy to welcome ever more investors. Indeed, he's almost an oxymoron: a buy-and-hold man with the stubborn, hard-boiled pessimism of a short-seller. While most money managers focus on attracting assets, Rodriguez closes his funds to new investors when he doesn't see opportunities -- which is often (including today).

His resistance to investing vogues has paid off richly over the long run: His stock fund, FPA Capital (FPPTX), has returned 15% annually over the past 25 years, beating every single diversified equity fund, according to Lipper. His bond fund, FPA New Income (FPNIX), has never posted an annual loss. "He'd rather lose his clients than position their money in a way that he feels is inappropriate," says Stephanie Pomboy, head of institutional research firm MacroMavens. "It's almost sad that you can count the number of people who are willing to do that on, probably, one finger."

Like most iconoclasts, Rodriguez often feels as though he is screaming into an abyss. But in the spring of 2009, he thought people were finally listening. Sobriety, it seemed, was back. Leverage was out. Frugality was hailed once again as a virtue. It appeared that the world had finally begun to understand risk.

Rodriguez decided he could take the break he'd been dreaming of for years. Then 61, he turned over the reins of his two mutual funds and embarked on a yearlong sabbatical. Rodriguez trekked with his wife in Patagonia, visited the Galápagos Islands, and took the Trans-Siberian Railway. Instead of obsessing about the news, he plowed through a stack of books (a favorite was Mark Twain's Roughing It), drove in 10 auto races on the Le Mans circuit in North America, and lost 20 pounds. The sabbatical was a time for reflection, a chance to think about the crisis that had just occurred and ponder how he could prepare his company for the changing world.

But when Rodriguez returned to FPA this January -- as CEO only -- he realized that, to his horror and disgust, almost nothing has changed. Risk taking is back in fashion, and the nation's debt load, which he believes is the single greatest threat facing investors today, has soared. Now, once again, Rodriguez is sounding the alarm.

His new prophecy: If we don't fix the budget – soon -- the economy faces disaster. "I believe that within two to five years we'll have a crisis of equal or greater magnitude of what we just went through," he says. "And it will emanate from the federal level."

Either a crank or a man of principle

For a doomsayer, Bob Rodriguez is surprisingly affable. When he gets excited, which is often, he breaks into bouts of wheezing laughter, whether he's talking about financial earthquakes or his fondness for plaid shirts (he wears one most days, he says, because the patterns conceal stains). He makes apocalyptic pronouncements even as he is trailed around his home by a trio of rescued pets: a mutt, Wrigley, and two cats, Purrsia and Callie.

You can view Rodriguez as a bit of a crank or a man of principle -- or both. He has long opposed efforts in California to raise taxes on the wealthy. At one moment in 2006, when such debate was particularly intense, he was quoted in a Los Angeles Times article -- the only millionaire willing to attach his name to his comments -- arguing that such initiatives would drive affluent people out of the state. Almost as if to prove his prediction correct, he left L.A. a few days after the article came out and moved to the Nevada side of Lake Tahoe.

Truth be told, Lake Tahoe provides Rodriguez with a more profound benefit: isolation. Living away from his industry confreres, he says, helps him think independently. A similar impulse motivated him to make his home in bohemian Venice, Calif., back when he was starting out in finance. Even when Rodriguez discusses racing -- he owns seven Porsches -- he raves about solitude, not speed. "When you're racing," he says, "the rest of the world can't get to you."

Rodriguez spends three weeks each month working from his lakefront home, in a small office equipped with a Bloomberg terminal connected by T-1 cables. The location is rustic enough -- with shimmering views of the lake and snow-capped mountains -- that when the cables were first installed, he says, they were chewed through by animals. In his living room on a recent day, after his wife, Sue, prepares a breakfast of French toast and bacon, Rodriguez tells his life story. It is a classic American tale: the immigrant's son who made good.

Rodriguez is a genial doomsayer, prone to bursts of laughter even as he makes his apocalyptic pronouncements.

Rodriguez grew up in a working-class neighborhood in Los Angeles. His father, Joseph, was a Mexican immigrant who plated jewelry for a living (the family's otherwise modest house had gold-plated doorknobs). Though neither the mother nor the father, now both deceased, went to college, they taught Rodriguez and his older brother, Dick, about history and ethics. Joseph used to carry a copy of the Constitution in his pocket and would quiz his sons on it.

Joseph refused to teach the boys Spanish. "He was adamant that we be Americans," Rodriguez says. "He did not want my brother or me to grow up with an accent. It was not a good time to be of Mexican or Spanish heritage." Rodriguez's father proudly hung his certificate of U.S. citizenship in a "place of honor" in the family's den.

Rodriguez was an obsessive boy, especially when it came to money. He began collecting coins at age 6. He would memorize which vintages of pennies, nickels, and dimes were most valuable, and then convince gas station managers to trade with him. (He also collected stamps and insisted that his friends use tweezers if they wanted to pick them up.) When Rodriguez received a school assignment to write a letter to an important person at age 10, he chose the chairman of the Federal Reserve. He was even a (very) small-time banker: Rodriguez slowly accumulated savings, then lent money to his high-school-age brother -- at usurious rates -- when Dick needed cash to go on dates.

When Rodriguez was 12, he had a major operation on his teeth that, for two years, left him with a heavy speech impediment. Classmates teased him -- so he gave a speech on the topic of elocution to show that he could make fun of himself. "Most people, when they're different, they become self-conscious," says Dick. "Bob hasn't been one to sacrifice his ethics or his intellect to fit in."

Los Angeles in the 1950s could be a hostile place for an immigrant's son. Rodriguez recalls riding his bike past NO MEXICANS signs. And when the self-described B+ student told his high school guidance counselor that he wanted to go to college, he says, the counselor said he would be a better fit for trade school. "I told him to go to hell," he bristles.

Rodriguez worked his way through college and business school at the University of Southern California. He sold encyclopedias door-to-door and toiled nights as a file clerk at Transamerica, where he met his future wife. ("I let him walk me to my car," she says, "and I thought to myself, 'Is this guy ever going to shut up?'")

FPA funds closed? Try these three alternatives

After getting his MBA, he struggled to find a job in finance before eventually becoming a stock trader at Transamerica. He then worked himself up to analyst by taking over sectors, such as forest products, that colleagues dropped. Says Rodriguez's FPA colleague, Steven Romick: "There weren't any 'ez' last names at the firms." He adds, "Bob has always had to prove himself, again and again."

Even today, Rodriguez is one of only a handful of Hispanic mutual fund managers in the country. A fervent believer in the power of the individual, Rodriguez downplays the effect of discrimination in his own life. Still, his thinking is revealing: He says he fell in love with investing in the first place (as opposed to architecture, another early interest) because it was a field where success isn't based on subjective opinions. "I said, 'Gee, there's an exam every day. And whether you're good or bad is independent of somebody else,' " he says. "If they say, 'That's a lousy idea,' and it works out, that's not their judgment -- the market has judged."

Rodriguez's formative investing experience occurred during the stock bubble of the early 1970s. Like many at the time, he says, he thought anyone who posted annual returns of less than 25% was an idiot. Then the market crashed in 1974. Rodriguez owned shares of an RV maker called Executive Industries, whose stock plunged from $22 to less than a dollar. Unsure of what to do, he ventured into the USC library, where he discovered a book that would forever change his investing outlook: Graham and Dodd's Security Analysis. "It helped me understand what was going on with the stock," he says. "It was selling at less than 50% of the cash on the balance sheet." His calculation of the company's fundamental value convinced him that Executive Industries' share price was baseless. He held on and eventually rode it back above $22. From then on, he was a committed value investor.

In 1983 Rodriguez joined First Pacific Advisors, then a burgeoning money-management firm with $1.6 billion in assets, and launched FPA Capital, a stock fund, and FPA New Income, a bond fund. His approach has been the same ever since. In his equity fund he maintains a highly concentrated portfolio of about 30 stocks and holds them for many years, buying and selling on dips and bumps. He spends months researching before taking the plunge; when he was thinking about buying more shares of Michaels, the craft-supply chain, in the '90s, he called dozens of store managers to find out whether the company's turnaround strategy was feasible. (It was: He bought shares in 1996 and watched them triple.)

By the mid-'90s, Rodriguez had achieved one of his goals as a fund manager: His stock fund had finished in the top 10 of its category over the previous decade (his bond fund ranked 11th). His other objective? "I said, I have a simple goal," he recalls, laughing. "I just want to be the best goddamn money manager in the country."

Trouble spotter: Two for two

Bob Rodriguez never liked Internet stocks. As the dotcom bubble swelled in the late '90s, it made him nervous to see money-losing companies trading at higher multiples than cash cows. In 1999 he described the phenomenon as "nothing more than speculation masquerading in the costume of investment." Afraid of a coming bust, he began trimming his technology holdings.

That decision cost his fund in the short term. Rodriguez's stock fund underperformed and shareholders bolted. The fund's assets shrank from $800 million to $350 million. He received an anonymous letter, which he can still recite from memory more than a decade later: "It said, 'Rodriguez: You couldn't manage your way out of a paper bag with both ends open. I am gone.' " Observes Don Phillips, president of fund research for Morningstar: "There was growing pressure during the late '90s from people saying, 'Bob Rodriguez has lost it. For heaven's sake, man, you live in California. Can't you understand tech stocks?'"

But when the bubble finally burst, Rodriguez was vindicated: From 2000 through 2002, FPA Capital returned 29% vs. -38% for the S&P 500 (SPX). After the crash Rodriguez was the toast of the investing world, and both of his funds steadily accrued assets over the next few years.

Then, in 2005, he began detecting signs of trouble again. Rodriguez and his co-manager at FPA New Income, Tom Atteberry, noticed unusually high quantities of defaults in supposedly safe mortgage pools. They quickly dumped those investments and began improving the credit quality of the portfolio. By 2006, Rodriguez was haunted with anxiety. He sold every Fannie Mae and Freddie Mac bond his fund owned not long after a particularly vivid nightmare: He dreamed he was on trial, with a prosecutor grilling him as to why he had invested in a pair of companies that didn't even have their financial statements audited.

Even as the subprime-mortgage market was starting to crumble in 2007, most stock managers were still fully invested. Rodriguez, by contrast, had shifted 40% of FPA Capital's assets to cash and invested the rest in oil and gas companies with strong balance sheets. "Many experts believe that the housing cycle is at or nearing a trough or at least is at a stable level," he said in a speech that summer. "We are not of this opinion." He concluded: "We are willing to bet our firm and our reputation to be right." Once again investors punished him. In 2007 and 2008, his stock fund was hit with $711 million in net redemptions.

Like virtually every fund, FPA Capital tumbled in 2008. But unlike most, it had huge cash reserves. As prices cratered, Rodriguez was able to double down on his stocks. The result: The stock fund returned a whopping 54% in 2009, outpacing the index by 27 percentage points.

Rodriguez's self-assurance is striking. When he decides something is true he pursues it wholeheartedly, regardless of whether the call will pay off in five months or five years. His bond fund, for example, has been buying only low-duration, high-quality debt for years. Though that benefited the fund in 2008, it caused it to lag the rally in 2009 and 2010.

That has spurred criticism that Rodriguez has sometimes confused what he thinks should happen in the bond market with what is actually happening. "Bob had a lot invested in the idea that things were going to hell in a hand basket," says Morningstar analyst Chris Davis of the 2009-10 period. Davis credits him for being right about housing market excesses, but adds, "there's evidence suggesting he was too wedded to that idea to see the opportunities in front of him."

Rodriguez scoffs at that notion, pointing out that FPA Capital leaped back into stocks when the market bottomed in 2009; in the past he's done the same with FPA New Income. This time, he refused to invest in a bond market that he believed was distorted by government interference. "If I roll the dice and buy, and high-yields rally like crazy, I'm a star," he says. "On the other hand, if I roll the dice and it comes up craps ... I had a hard time intellectually with that." The fund's risk-averse stance may not have borne fruit in 2009 and 2010, but FPA is sticking with it -- and he thinks it will pay off soon.

The looming debt crisis

Standard & Poor's has just announced that it's downgrading the outlook for U.S. debt, and Bob Rodriguez couldn't be cheerier. It's another sign, he says, that at least some people are waking up to the looming debt disaster. As he paces FPA's offices in Santa Monica on a spring day, he sips coffee from a stained green-plastic mug. It's a 20-year-old souvenir from a company called Green Tree Financial; Rodriguez keeps it because it reminds him of one of his worst investing losses.

Since coming back to work on Jan. 1, he has found himself galled once again by what he sees. Fund managers, emboldened by their mammoth gains, clamor for risk. Junk bonds remain wildly popular. Even more stunning, says Rodriguez, is the government's failure to address its debt. "I know one thing from business," he says, his voice quavering as he tries, mostly successfully, not to yell. "Unless you correct the problems that are already occurring, you don't add on new leverage and new, other responsibilities until you correct the old! All you're going to do is capsize the ship!"

Rodriguez argues that the U.S. debt as a percentage of GDP ratio (currently 64%) is massively underreported because it doesn't count off-balance-sheet entitlements such as Medicare, and debt owed by Fannie and Freddie. If you factor in those liabilities, he says, the actual ratio is greater than 500% and growing. The U.S. must reduce that before 2012, Rodriguez says, because it's unlikely to accomplish anything during the election year. If nothing changes, he adds, investors will start to get nervous about the amount of debt on the U.S. balance sheet. As lenders balk at buying Treasuries, rates will spike, causing borrowing costs to skyrocket across the financial system. "The financial system is held together with a very thin filament called confidence," says Rodriguez. "When you clip that, all hell breaks loose."

The situation isn't irreparable; Rodriguez believes the government can keep rates from climbing too high if it starts making cuts of $350 billion to $500 billion per year. But he has little faith in its willingness to do so. If it were up to him, there would be serious tax reform, with all tax deductions (including mortgage interest) on the table. A former Republican, he describes himself as a "fiscal conservative but social moderate" who has grown disgusted with both parties: "I say, 'A pox on both their houses.'"

So FPA's managers, guided by Rodriguez, are battening down again, trimming risk. FPA Capital now has 30% of its portfolio in cash and 38% in energy stocks because he believes the world's oil supply is declining. Still, even in that sector, he doesn't see many opportunities. (Forget other sectors.) He refuses to buy most bonds or long-term government debt. His restraint has rankled some investors: FPA New Income has begun to shrink again, and a few FPA Capital clients are grumbling.

It takes thick skin to be a contrarian. Rodriguez is used to losing his shareholders' faith, but he seems weary of it. "I don't think you get rewarded in this business for doing the right thing," he says. "It's a love-hate relationship. You could feel bitter about it, but then I ask, 'What would I do differently?' The first thing you have to do is live with yourself." For him, that's easy. Convincing others is the challenge.