So to start with the broad overall picture of the economy—how close are we to hitting bottom? Are these latest employment figures a sign that things are worse than we feared?
I have to tell you, from us talking to companies where we invest, we feel we're not seeing a deterioration in their business prospects right now. We might be bumping along the bottom—we're not seeing robust improvement, but we are seeing it trend up a bit in some of our companies. I know the unemployment numbers spooked people this week, but we know it's a lagging indicator and those numbers get worse before they get better. But in terms of the freefall we were seeing in the fourth quarter of 2008 and first couple of months of this year, it's not even close. From our perspective, what we're seeing is some sort of stabilization: It's not getting worse, and after what we've gone through that's good news in and of itself.
Looking ahead further down the road, a lot of observers have expressed concern that even if the economy does pull out of recession, the recovery could be long, slow, and may never get back to quite where it once was. Is this a concern?
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We don’t prognosticate macroeconomic factors, we're looking at our companies from a bottom-up perspective on their long-run prospects of returning. There is a lot of conversation about a slow recovery versus a V-shaped recovery, and that's not how I per se see the world. We do see when companies surprise on the upside it takes people so off-guard that the good news is usually rewarded just as the bad news is overly punished. I don't know to what extent the quickness of the recovery will occur, but what I do see is that good news is celebrated and that ultimately leads to better consumer confidence in that regard.
With unemployment and consumer confidence seeming to feed off each other, it seems difficult to see where future growth could come from. What can spur the economy back again?
I think there are a couple of issues. One, the housing market stabilizing is going to be very important to this story. People feel a great deal of their wealth or lack thereof in their home value. Despite the fact they're living there and not going to sell it per se, it does have a big psychological effect. The problem started in housing and the resolution will have to come with stabilization in housing. That's one thing I think is important. We also have to see foreclosures start to subside some.
So it's the housing market that will lay the foundation for growth.
I think so. [Recovery can began] once you start to see the inventory get reduced, once some of these mortgage workouts start to happen on a broader scale, and foreclosure numbers go down.
Paul Krugman recently wrote an op-ed calling for a second stimulus that's been getting a lot of buzz. Do you think the government needs to take a more aggressive response to jumpstart the economy?
I think the government response has been plenty robust. I think they've tried everything. I think you've got to give them an A for effort, big time. This is like the hundred-year flood we just dealt with so one, there’s no manual, and two, you don’t know what's going to work and not going to work. Assessing stimulus seems premature to me as only 10 to 20 percent of the first stimulus money is even out there. Let's get all that money put to work before we start talking about what's necessary. Since the stimulus was actually passed, it's been just under five months and it's hard to put almost $800 billion to work instantly in a smart way. So again, I give the Treasury and Council of Economic Advisers and the powers that be that have been attacking the problem a lot of credit. One thing that I saw occur is that they were open to every possibility. It seems from the press reports that there's a really healthy debate as opposed to an ideology that is driving the decision-making. I'm encouraged when I hear there’s a split within the group over x, y, z issue because then there's a healthy debate going on at least and all ideas are being considered. The problem was enormous. This was not a small issue. We were on the brink of Armageddon there for a little bit.
What do you think is the most important thing for the administration to keep in mind in formulating their policy approach over the next few months?
Among the most important aspects of working through this issue that I would say to keep in mind is understanding you need a healthy dose of patience to work through a problem this enormous. The other thing I would keep in mind is—and I'm not saying we all shouldn't be accountable for our actions and for what works and doesn't work—but at least from my perspective, we're in such unprecedented territory you have to give policymakers a great deal of consideration because there are no easy fixes and no silver bullet.
We should go in expecting some things not to work then?
I think that's life in general. It's the way it is when we pick stocks, all of them don't always work, so I guess I come to the view naturally. That's just the way life is for human beings so its going to be just as true for policy.
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