The Original 'Dr. Doom' Warns Current Investors

The original Dr. Doom.

Here is a man who could move markets when he gave out warnings about the markets, but will younger investors heed his is current warnings?

In the 1970s, Henry Kaufman (89) earned the sobriquet "Dr. Doom" when he was the chief economist at Salomon Brothers due to his frequent criticisms of government policies and the resulting dangers he saw in the stock and bond markets.

But he also turned bullish at the right time.

On the morning of August 17, 1982, he accurately predicted the market had bottomed out which led to a huge rally that day in both stocks and bonds that was to be the beginning of the longest bull market in history.

Now, decades later, he is issuing another warning.

Yesterday, CNBC's Mike Santoli spoke with Kaufman in an exclusive interview for CNBC PRO.

 "As a result of the quantification of statistics as the result of the computer, we generate a huge amount of economic and financial news, and now most economists are trained much more in the analytics of the numbers than the philosophy of economics and finance," Kaufman said. "And we tend to overlay one cyclical period with another cyclical economic expansion period, and while those periods can vary in magnitude we average it out and we say this is the typical economic expansion and this the typical economic contraction … Well, it doesn't really work that way."

He sounds almost Austrian school in his methodological criticism!

Kaufman is also now worried younger investors do not realize the riskiness of new tradable assets:

The management of risk has become far more difficult, far more complex. Large institutions today are not allowed to fail. When you have a marketable credit instrument, the assumption is that it is always ttradable But that's not true … It's very difficult under the current arrangement to hold the risk-taking in check. We have relatively low interest rates, which makes the arbitraging of risk-taking as an incentive. We have the ability of lower-quality borrowers to be in the market, which also increases the risk-taking, and the central bank is having great difficulty in taking hold over the magnitude of risk-taking.

He was one of the key players that morphed the Soho district of New York from a deserted and dilapidated section of the city to an upscale and highly sought-after neighborhood.

It is believed that with partners he currently owns a third of the real estate in downtown Tulsa, Oklahoma.


  -RW