No6 Posted January 19, 2007 Report Share Posted January 19, 2007 I received this interview today. At first I thought it might be an early April Fool, but the guy is serious. Apparently, it's all rosy from here on in, so get used to it. Exclusive Interview: Art Laffer Says Oil Will Fall Below $35by Dr. Mark Skousen Last week, I had the opportunity of a rare interview with one of the world’s most ingenious financial economists, Arthur B. Laffer, at his new office in Nashville. A former professor at the famed University of Chicago, Art Laffer is the inventor of the “Laffer Curve,” found in all economics textbooks; it demonstrates that cutting taxes can stimulate productivity so that government revenues can actually increase. The Laffer Curve has been proven right, especially when it comes to cutting capital gains taxes… Every year after a capital gains tax cut, such as 1978, 1986, 1997, and 2001, revenues from capital gains have increased substantially. Laffer is a sought-after expert. His offices are crowded with letters and photos of famous people – Alan Greenspan, Ronald Reagan, Jane Fonda, et al. While I was in his office, he got a phone call from former governor Mitt Romney, who is running for president, and Steve Moore from The Wall Street Journal. But he’s also known as a brilliant money manager and economic forecaster, and since 2000, his Macro 100 stock portfolio is 48 percentage points ahead of the S&P 500 Index. Below is our interview, where we’ll take a look at his unique top-down approach to investing. Is the Laffer Curve a Free Lunch in Economics? Mark Skousen: I see your Laffer Curve is still in all the textbooks. How does it feel to be famous? Art Laffer: I love it. It’s great. I was blessed with a name that is very entertaining [laughter]. MS: Is the Laffer Curve alive and well? AL: I brought it back in the 1980s under Reagan, but it’s been around for time immemorial in economics. And it’s true. How can you ever be worse off if you lower tax rates and you get more money? MS: So there is a free lunch in economics? AL: Of course, there’s a free lunch! MS: Is there a free lunch in finance? Do investors get a free lunch taking advantage of Warren Buffett’s expertise in Berkshire Hathaway? AL: Sure. When Buffett acquires a very large asset and gets it at a discount, because he sees things we don’t get to see as retail investors, it’s hard not to win. It’s a huge advantage over other investors. MS: Do you manage money? AL: We have two firms: Laffer Associates is our research firm and boutique broker/dealer. We have close to 350 institutional clients. And we have a money management firm, co-owned by General Electric, again for institutional investors. We advise the Huntington Funds on the Macro 100 stocks, so individual investors can take advantage of our services through the Huntington funds. We’ve been in business for six years. Laffer’s Top-Down Investing Style MS: Do you have a unique strategy? AL: Our angle is unique. We look at the world from macroeconomics. For example, if oil goes from $10 to $70, you will do well no matter what oil companies you buy. So the key is to invest in sectors that are benefiting from changing macroeconomic policies. We look at trade, income and fiscal policies. MS: What’s your favorite sector right now? AL: Growth stocks, both small- and large-cap. We think we’re in a “neutral interest rate” environment – we don’t think they are going up or down by much right now. We also invest in companies in individual states that are lowering taxes, and avoiding companies in states that are raising taxes. MS: Are there states that are lowering taxes? AL: Oh, my, yes, over 40 right now. State governments are cutting taxes like mad, and adopting pro-growth strategies. It’s very exciting. This is one of the most overlooked pluses in the economy right now. MS: But aren’t most companies national or global these days? AL: That’s true for McDonald’s and IBM, but many companies are concentrated in just one state, such as auto suppliers. We also do our stock analysis country by country. MS: Are you still bullish on China and India like most analysts? AL: Yes, but not as much as I used to be. I was bullish on Japan a year ago, but not so much now. We look at every country’s monetary policy, tax policy, etc. MS: You’re not investing in Venezuela? AL: No. I’d be out of Venezuela for a lot of reasons. Oil is going to come way down in price. MS: Oh, really? You sound like Steve Forbes, who predicted $35 a year ago in one of my IU interviews. AL: Oh, yes, and easily lower than that, over the next two years. MS: Many of my gold bug friends, including Jim Rogers, see a 20-year bull market in commodities. What do you think? AL: They are wrong, wrong, wrong! Oil, copper, gold… they’re all coming down and will continue to fall in price. We’ve seen a huge bull market in commodities, and at the same time, we are now seeing the dollar at its lowest level in terms of its trading partners. MS: Do you envision the dollar crashing? AL: No! It’s going to rise. When oil prices decline, the trade deficit – what I call the capital surplus – is going to come way down. These are all cases of a reversal to the mean. Positive Outlook for U.S. Stocks MS: What about the U.S. stock market? AL: I’ve never seen the U.S. stock market so well positioned as it is now. They’re really cheap right now. According to my own method of valuing stocks – taking into account profits in relation to interest rates and tax rates, which I call “capitalized economic profits,” the stock market has never been lower in relative terms. I don’t see a recession coming, I don’t see interest rates going up. Tell me, what tax increases do you see coming down the road? MS: Well, the Democrats are now in charge of Congress, and they could raise taxes. AL: I was more worried about the Republicans raising taxes! I love gridlock on Capitol Hill. I don’t see a big tax increase right now. Have you noticed that the Federal deficit has fallen dramatically? The Laffer Curve works! MS: What’s your opinion of the new Fed chairman? AL: Ben Bernanke, an orthodox Jew from South Carolina, is terrific. He may be boring, but he’s sound. The Fed has been leaning against inflation, and the monetary base is hardly growing at all, just what you want. The price of gold is going to come down, and the dollar is going to strengthen in 2007. This isn’t the 1970s. Compared to those days, today we have wonderful fiscal policy, and wonderful monetary policy. Who would have thought that since the 1970s, the highest Federal income tax rate and capital gains rate have fallen from 70%, to 35%? We don’t have 21% interest rates, we have 4% rates today. MS: Aren’t you worried by the regulatory stranglehold of Sarbanes Oxley? AL: I think Sarbanes Oxley is great! Yeah, it’s added a layer of regulation that has hurt small business, but I’m on a lot of company boards, and a lot of companies have found Sarbox to be highly beneficial because they’ve learned a lot more about their companies, the good and the bad. MS: Isn’t it true that you are always optimistic about the stock market and the economy? AL: No, not at all. In the 1960s and 1970s, I was a big pessimist. MS: Did you anticipate the Nasdaq collapse in the early 2000s? AL: Yes, sir! I warned investors to “take warning” in late 1999, and in 2000, when inflation and interest rates were rising sharply, I told investors to go to the basement and hide and wait until its over. [Laffer showed me copies of papers he had written confirming his bearish views in the early 2000s.] The War on Terror MS: Are you concerned at all about worldwide terrorism and the war in the Middle East? AL: I really don’t see much of a problem. I think the Middle East is terrible, but it’s always been terrible. Iran and Iraq need the oil money badly, but when the oil price drops sharply, as it will, it will be the best foreign policy we ever had, and we’ll get rid of those tyrants in Iran and Venezuela. Sure, terrorism is a problem, but I lived through an era in the 1950s and 1960s under the fear of Soviet attack, and that was much more scary. www.investmentu.com Did he say interest rates were 4%???? Either this is a very old interview rehashed or perhaps age is catching up with him? Link to comment Share on other sites More sharing options...
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