Art Cashin... The Man, The Myth, The Legend

You’re probably familiar with Arthur Cashin if you watch CNBC regularly.  For those unfamiliar, Art is the head of floor operations for UBS and a daily commentator on CNBC.  Art is usually on in the morning and provides us with his market insights that are backed by 50 years of experience.  Say what you will about other CNBC commentators, but Art Cashin is the real deal.  He’s worked through every financial crisis in the post war period and lived to tell about it. He’s also seen bubbles in everything from junk bonds to tech stocks.  His words of wisdom are definitely worth paying attention to.

That’s why today I’m bringing you some highlights from a recent interview he conducted with Bob Pisani.  The interview is lengthy, but it’s available in both print and video.  It’s worth reading or watching the whole session if you’re interested and have the time.  Here are some highlights: A Conversation With Art Cashin, UBS

Here they discuss the prospects for inflation…

PISANI: So where do we go here? The feds have flooded the markets with liquidity and yet, it seems to be pooling into areas like banks where it’s not doing an awful lot of good for the moment. At some point, something’s gotta happen though, right?

CASHIN: Yeah. But here’s where it gets dangerous. The good news out of the bad news is because that money has no velocity, we have no inflation. And the Fed talks about taking away the punchbowl. Now once that money gets velocity, once it gets lent or spent, then you can have inflationary pressures build.

If I fly over Bob Pisani’s house and I drop a trillion dollars in green pictures of dead presidents down on his lawn and he’s so nervous he picks it up and puts it in his garage, that’s no inflation. Nothing’s really happened. But when he starts to spend it or if he starts to lend it, then money’s got what they call velocity. And inflation could explode suddenly. No sign of it now, no sign of a great fear, although there’s a new debate in the fed, but no sign of it now.

On the recent stock market rally…

PISANI: Why has the stock market done so much better than you thought it would?

CASHIN: When you get phases like this…if you remember the dot com bubble, you had to be in. You went to cocktail party. We talk about fear and greed and supposedly the fear of losing money. Let me tell you, in doing this nearly 50 years, one of the most powerful fears and motivators of people in Wall Street is the fear of being thought stupid.

When you go to that cocktail party and they say, ‘Hey Bob, you playin’ this rally? You’re really long?’ [You think] ‘No, I’m kind of skeptical about it’ and you think you’re gonna be the butt of jokes. People actually risk money not to be thought stupid.

On the causes of the credit crisis…

PISANI: Would you agree there were many sources of this crisis?

CASHIN: Oh, absolutely. And not the least of which was no defined responsibility in the securitization. If I put together a package and I sold it to you, that was your problem. So I didn’t do the due diligence to make sure that this guy could pay for that mortgage or could pay for whatever. So that also was a key part.

But the Fed, not to give them a big enough excuse, but they, like all of us, have certain things they watch. And this time they got stuck with the dog that didn’t bark. Greenspan was looking for signs of inflation. That’s when he’d know when to rein things in. That’s when he’d know to come off the very low interest rates that he had. But he didn’t get it. And he kind of misread the signal. ‘Gee, why am I not getting inflation here?’

It’s productivity. People are producing much better. The point that he missed was inflation was overseas. We had people working for lower wages, no demand for higher wages. We exported the problem. The dog never barked because everything occurred so far away. And that’s why they never raised rates. And that’s why it left things wide open to the kind of bubble that we had.