Bob Rodriguez: Stock Market 'Delusional'; Hard Landing Ahead

Bob Rodriguez, legendary investor and former 25-year CEO of First Pacific Advisors, is famed for forecasting the dot-com bust and the financial crisis of 2008-2009. 

But in 2016, the same year he retired from FPA, he parted ways with the direct ownership of equities. The stock market today lives in a “delusional world,” he says.

What’s in his portfolio now? And is he still predicting a worse financial crisis than the horrific meltdown of 15 years ago?

The celebrated investor tells all in an interview with ThinkAdvisor.

For the past seven years or so, instead of investing in equities, Rodriguez has been focusing mainly on hard assets and to some extent, short-term bonds.

“The odds of a healthy stock market do not seem high to me. There isn’t any question in my mind that bonds provide a far better risk-return element than the stock market as I look over the next 12-14 months,” he argues in the interview. 

But “beyond two years,” he adds, “most equities and bonds will prove to have poor returns.”

Is a recession en route?

“I fully expect a hard landing with a worse economic and fiscal outcome than in 2007-2009,” he opines.

Based in Lake Tahoe, Nevada, Rodriguez was in New York last month presenting a paper at an American Numismatic Society conference, of which he was co-sponsor.

An ANS Life Fellow, his Resolute Americana Collection of rare colonial and early U.S. coins and medals is extensive, dating from the start of the colonial period to the earliest days of the Mint.

At the conference, he discussed his epic four-and-a-half-year coin project, which he calls “the most expensive and intensive scientific investigation ever conducted in numismatics.”

At the Argonne National Laboratory, with its cutting-edge technology, Rodriguez and his colleague Tony Lopez researched an extraordinarily rare coin: a 1792 silver disme (dime), which Rodriguez owns.

Once the research was complete, there and previously at other labs, Rodriguez concluded that the coin was used to design the significant 1793 half-cent, one of the first coins struck by the U.S. Mint.

The Argonne research captured images from the interior of the disme that used to be on its surface but were no longer visible.

What was revealed, in part, was an “L” and a “J,” standing for Liberty and Justice. The coin, decorated with hearts, also had earmarks of a love token representing the U.S. Mint’s second chief coiner’s marriage proposal to his first wife.

In the interview, Rodriguez looks back at America three centuries ago through a numismatic lens and forward to what he predicts will be the state of the country’s economy and securities markets a year from now and beyond.

ThinkAdvisor interviewed him by phone on Sept. 27.

His advice to financial advisors for the next decade is to “focus on purchasing power.”

His expectation is that hard assets — “the most under-owned commodities” — will maintain some form of buying power.

Here are excerpts from our interview:

THINKADVISOR: You exited direct ownership of equities in 2016. What have you been investing in?

BOB RODRIGUEZ: I’ve prepared my estate for a period of economic and financial markets’ disruption. I don’t see how you abuse the borrowing authority, as this country has done, and not have some negative consequences.

What’s in your portfolio?

In 2013, my full allocation for hard assets was less than 7%. I waited and watched and didn’t like what I saw going on.

So since that period of time, I’ve shifted my allocation to about 70% hard assets of various types.

Such as?

Gold is an element. It would be an area that people would consider. The nature of gold has shifted since February-March of 2022. A second thing would probably be selected types of real estate.

Gold is weak in the United States; but in virtually every other currency, it’s setting new highs. One of the strongest markets for gold happens to be in China.

In August, you said that “gold … will continue to get worse and that previous data will be revised lower [but that] gold will get higher after hitting a new high next year.” Still predicting that?

Yes. 

You have a notable collection of very rare coins. How did you get into numismatics?

In July 2013, after I bought a silver half-deem [aka half-disme or half-dime], the first coin I acquired, I wondered what it sold for when I left the field [childhood hobby] in 1960 when I was 12.

So I found my Red Book [U.S. Coin Guide] that I used as a child, and I literally almost fell off my chair: My bookmark was exactly at the page of what would be my first acquisition!

I spent about eight months looking at this area of coins. I didn’t know anything about them. But after barely one year in the field, I was doing research papers on them.

What are the similarities in the way you researched companies as a money manager and how you research rare coins?

In my former field, I would be attracted to companies that were having problems, and I looked at their issues in a different way than other people did.

As a contrarian, there are many similarities of [researching coins] to researching in the investment field.

Did that apply to your 1792 coin project?

Yes, that’s very much the way I looked at this coin. It’s been described as scratched, marked-up and graffitied. That’s what people looked at. 

But when I looked at the [etches], they started to talk to me. They didn’t look random.

This silver coin — a deem — is extraordinarily historical. Its design was that of one of the first two coins of our country.

What went into your research?

The search was to find what I call my Rosetta Stone. We found it using X-ray microdiffraction at the Argonne National Laboratory, which is sponsored by the Department of Energy and administered by the University of Chicago.

We had three physicists conducting experiments that have never been done anywhere in the world.

How long did your project take?

Four-and-a-half years. It was the most expensive and intensive scientific investigation ever conducted in the field of numismatics.

The value of the four coins needed for the project was $2 million.

What was the cost of all that research?

I have no idea, but there were at least 2,000-3,000 hours of research, including the time at [multiple labs].

This was a detective hunt, and a lot of fun.