"S&P 500 Overvalued by 40%, Set to Fall, Smithers Says"

Bloomberg interviews economist Andrew Smithers, who called the correction in 2000. Smithers says U.S. stocks are 40% overvalued according to Shiller's cyclically-adjusted P/E ratio and the Q Ratio. Smithers says quantitative easing by central banks has fueled this asset bubble which won't be sustainable when that QE is reversed (HT: The Atlantic's Daniel Indiviglio).

Sounds reasonable to me.

Another Madoff Investor: Uma Thurman's Fiancé

This month's Bloomberg features an article about the French fund-of-fund manager Arpad Busson, who happens to be engaged to Uma Thurman: "Uma Thurman No Help to Arpad Busson in Madoff Fraud’s Nightmare". Excerpt:

Arpad Busson is angry. He’s just looked at the latest returns of a hedge fund he used to invest in; it’s down more than 60 percent in the past nine months.

“That a-hole!” Busson says of the New York-based manager, as he walks out of the conference room at the Mayfair offices of EIM SA, the $11.5 billion fund-of-hedge-funds firm of which he is founder and chairman. Though EIM yanked its money out of the fund in April 2008, when it was down only 25 percent, Busson says there are too many like it out there.

“If these managers are not focused on preservation of capital, they should not have the right to manage other people’s money,” he says.

Busson’s opinion matters. Since he launched EIM in 1992, he has been instrumental in luring billions of dollars of public and corporate pension money into his and other funds of funds. The industry, which Busson helped pioneer, allows investors to spread their risk among hedge funds with different strategies.

Busson gets dinged later in the article for allocating a small percentage of his clients' funds to Madoff's firm:

An investment with Madoff was a litmus test for whether a fund of funds did proper due diligence, says Salomon Konig, who invests about $75 million with funds of funds as chief investment officer at Aventura, Florida- based investment firm Artemis Capital Partners LLC. “Whenever a fund had money with Madoff, it raised a red flag,” Konig says. “It meant they were chasing returns.”

It's worth reading the rest of the article for some insight into the origins of the fund-of-fund industry, and for the story of how the enterprising Busson leveraged his connections from an affluent upbringing to become a lot wealthier.

The photo on the top left, of Busson and Thurman, is from Bloomberg. The photo on the top right, is of the French actor Mathieu Amalric, who bears a striking resemblance to Busson. Almaric starred as the villain in last year's James Bond film Quantum of Solace, and was perhaps best known in the U.S. before that for his role as the stroke-paralyzed Elle editor Jean-Dominique Bauby in the French film The Diving Bell and the Butterfly.

Great Moments in Business Journalism

In a recent post ("Iraq, the Automakers, and the Limitations of Technology") we noted New York Times columnist Tom Friedman's glib suggestion that if Steve Jobs were hired as the CEO of GM, he could turn out a successful "iCar" in a year. On Wednesday, Bloomberg Columnist Mark Gilbert expanded on Friedman's suggestion, and recommended Bill Gates for the top job at Ford and Warren Buffett for the top job at Chrysler ("Jobs, Gates, Buffett Should Run U.S. Automakers").

Aren't there are more qualified candidates to run an automaker than Jobs, Gates, and Buffett -- three men with no experience in the auto industry? How about someone who worked his way up the executive ranks of arguably the best automaker in the world, becoming the president of its North American division? Someone like James Press, the first non-Japanese executive appointed to the board of directors of Toyota Motor Company. You might think a business journalist such as Mark Gilbert might have heard of him. Granted, Tom Friedman isn't a business journalist, but he needn't have been one to have heard of Jim Press. All he would have had to do is read his own paper's New York Times Magazine, which featured a laudatory article on Press last year ("From 0 to 60 to World Domination"¹).

Jim Press has been co-president of Chrysler since September of 2007. The combination of unsustainable labor costs, excess capacity, and CAFE standards has been the main impediment to profitability for the domestic automakers; neither Jobs, Gates, nor Buffett would be able run any of the companies profitably under the current conditions.


¹The comic strip image above comes from this article.