HardAssetsInvestor

Written by Olivier Ludwig  |

June 04, 2012

Bill Bernstein: Fed Chief Bernanke Has Been Right All Along

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Author and money manager says more stimulus is needed for the U.S. economy and that Ben Bernanke's handling of the crisis has been excellent.

[This interview originally appeared on IndexUniverse.com and is republished here with permission.]

William Bernstein, the former neurologist turned money manager and author, is about as ardent a passive investor as you’ll ever find. He’s also one of the more piquant and colorful commentators on the world of investing, which makes any conversation with him as interesting as it is fun.

When IndexUniverse.com Managing Editor Olivier Ludwig visited with Bernstein recently on the telephone, Bernstein talked about the need for more stimulus as the U.S. economy continues to slowly recover from the worst market meltdown since the Great Depression, and marveled that Fed Chairman Ben Bernanke has had it right all along.

Ludwig: It seems like the ETF industry continues to move forward. And depending on who you talk to, it’s got a long way to go. Do you have an opinion about that?

Bernstein: I just don’t see what all the hullabaloo is about. There’s not an awful lot of difference between ETFs and open-end funds. The more rational you are, the more of a buy-and-hold investor you are, the less difference there is. But there are certain disadvantages to ETFs, particularly when the world is in a bad state. But that’s a relatively small thing.

Ludwig: What weaknesses are you alluding to?

Bernstein: Liquidity. Look at what happened to the spreads on some of ETFs during the crisis. I want to be able to transact at the NAV at the end of the day. And in a bad state of the world, that’s worth something.

Ludwig: Understood. But what about “the race to the bottom,” as I heard somebody describe it recently, in terms of expense ratios? It seems that ETFs are trying to get their foot in the door through low pricing, no?

Bernstein: Yes, I think so. But at the end of the day, you’re talking about a few basis points here and there. And whatever basis points you make on the expense ratio, you lose them on the spread, unless you hold them forever. That’s deck chairs on the Titanic—a really small consideration.

Ludwig: That’s a great image! So, what’s your overall view of things? As you take measure of what happens after the November election, is the political class going to get it together or what?

Bernstein: The good news is that we may go off the fiscal cliff, which I don’t see as being a terrible thing. Think about what happens if there is absolute gridlock and nothing passes. Well, the Bush tax cuts go away, which actually, in my mind, might be a good thing—more money for schools; less money for billionaires. And spending might go down a little bit. That’ll close the fiscal gap. We may see a bit of a recession because of that.

But at the end of the day, that’s better than the bond market waking up one day and deciding that no one in the world wants to buy Treasurys.