CHARLIE ROSE: Barton Biggs is here. He is an investing veteran who has worked on Wall Street for more than four decades. He was Morgan Stanley’s chief global strategist before he co-founded the hedge fund Traxis Partners in 2003. "Smart Money" magazine once described him this way. "He’s the ultimate big picture man. He is without question the premier prognosticator on the international scene and a mover of markets from Argentina to Hong Kong." He’s also an author and a columnist in for "Newsweek" magazine. He was last on this program in the midst of the crisis and has returned to tell us how he now sees the U.S. and global economy in recovery. I’m pleased to have him back at this table. Welcome. BARTON BIGGS: Thank you, Charlie. CHARLIE ROSE: Any you want to disagree with what I just said? (LAUGHTER) BARTON BIGGS: That was all very sweet. CHARLIE ROSE: So, where do you think we really are now, and what gives you a degree of optimism and what gives you a degree of concern? BARTON BIGGS: Well, I think we’re still all right. And I think that in the next major move in stocks it’s going to be the upside. But -- and it could be a 10 percent, 15 percent move. So it’s big enough that you really want to be there to catch it. But, as always, this is not a science, this is guess work. And the last four, five, six weeks, the high frequency data on the U.S. economy have been a little sluggish. And there’s a lot of evidence that the economy is going sideways here rather than off -- back in March when I was on, then it began a real ascent. It’s no longer ascending, it’s going sideways. CHARLIE ROSE: And do you see any diminution in unemployment. BARTON BIGGS: Yes, sure. The new unemployment claims are going -- the rate of increase is declining. We’re going to get some figure this is week, and they’ll show further improvement. And unemployment is always a real lagging indicator. It’s the last thing to turn around. CHARLIE ROSE: But people seem to be worrying as to whether there’s real sufficient job creation for this economy. BARTON BIGGS: Yes, well, again, when we’ve looked at the numbers, and compared to the economic recovery in the early ‘80s, 1981 to ‘82, the pace of improvement is significantly slower. But compared to the low job creation recoveries in 1992 and in 2002- 2003, the pace is faster than that. So it’s not great, but it’s not as sluggish as it has been in the last two. CHARLIE ROSE: There was some reports that came out suggesting that the stimulus had had an impact. BARTON BIGGS: Oh, definitely. The stimulus has definitely had an impact. CHARLIE ROSE: And so therefore we need another one? BARTON BIGGS: Well, it -- nobody knows whether we need another one or not. But I would say if I was Mr. Bernanke and I saw this most recent data, and if I was the president, I would definitely want to go with more stimulus, because the risks -- the penalties if you do too much are higher inflation, and the central banks and the authorities know how to deal with that. The penalties if you do too little are recession and deflation. And the central banks and the authorities have shown that they don’t know how to deal with that. Look at Japan. So the risks are too high on the downside. We need more stimulus. CHARLIE ROSE: And the stimulus program we had is the best way to go about that, or is there a better way? BARTON BIGGS: Well, I guess you’d always want to take some of the pork out of the stimulus program. CHARLIE ROSE: Earmarks and all that. BARTON BIGGS: Yes, I think all things considered the stimulus program has been pretty good. CHARLIE ROSE: And what’s your appraisal of the Obama administration across the board? (LAUGHTER) BARTON BIGGS: Well, I voted for Obama, and I’m an Obama fan. And I think they -- I think under the circumstances they’re doing a good job. But I must admit that an awful lot of my friends have done a 180. CHARLIE ROSE: You’re not worried about the deficit? BARTON BIGGS: I’m not worried about the deficit. CHARLIE ROSE: You’re really not? BARTON BIGGS: No. CHARLIE ROSE: Is this because you think it’s necessary to have a deficit to engage in economic recovery and worry about the deficit after you get out of the recovery? BARTON BIGGS: Absolutely. And our deficit has a percentage of gross domestic product isn’t really that overwhelming. It’s not anywhere near big as Japan’s, and it’s not as big as a country like Germany’s or the U.K. So I’m -- sure, we got a deficit and we don’t want to have it, and we want to begin to reduce hit in the longer run. But it’s not a disaster yet. CHARLIE ROSE: What are you looking at as a hedge fund operator? BARTON BIGGS: Well, I’m trying to figure out where the markets are going to go. As I said, the evidence -- we’ve got to have a strong recovery around the world. This thing has got to sustain itself. And the evidence is mixed. As I say, the U.S. looks a little sluggish here in the last four to six weeks. CHARLIE ROSE: But better than Europe. BARTON BIGGS: No, not really. CHARLIE ROSE: Really? BARTON BIGGS: The thing that’s changed is that the European economies are really beginning -- they didn’t have near as big as a decline, they don’t have anywhere near the same of the magnitude of the housing bubble that we had, and they’re coming out fairly well. And the Asian economies are coming on very, very strong -- very strong. CHARLIE ROSE: So we’re the laggard then? BARTON BIGGS: We’re the laggard. The U.S. is different. CHARLIE ROSE: Everybody wonders, they look at China and the United States and they wonder where the demand will come for all those Chinese products, and if it’s not coming from the United States, what will be the impact of that? And if it’s coming from somewhere else, what will be the impact of it? BARTON BIGGS: Well, the -- I mean, the conventional wisdom is that the Chinese economy is a bubble, and we’re in the stage where everybody knows about bubbles, now everybody sees bubbles everywhere. They think China is a bubble. But I don’t think so. And there are clear signs that domestic demand in China is picking up so that Chinese products, some of those Chinese products that they were exporting to the rest of the world are going to be consumed internally in China. So the Chinese economy is making the transition from being an export and investment-led economy to being a domestic demand driven economy. And that’s global... CHARLIE ROSE: Is it going to the point of being a demand-driven economy? Is it a long way from it, or is it just taking the first few steps towards it? BARTON BIGGS: Well, I’m not sure these exactly the right numbers. But domestic demand amounted to 25 percent or 30 percent of gross domestic product. It’s now this year it will be up around 40 percent. And as the Chinese people get richer, it’s going to keep rising. CHARLIE ROSE: As their middle-class grows, demand will grow. BARTON BIGGS: Yes. CHARLIE ROSE: And exports are down by about 25 percent, aren’t they? BARTON BIGGS: Exports? CHARLIE ROSE: Yes. BARTON BIGGS: Yes, exports are down. Exports are down and imports are down some, too, but they’re not down nearly as much as exports. The Chinese are starting to become a consumer not just of raw materials but of domestic goods from all across Asia and capital equipment from Japan, places like that. CHARLIE ROSE: What do you think the lesson is? Is that human nature to want to take more and more risk? And what are your responsibilities in doing that? BARTON BIGGS: You know, it is human nature, and it’s been going on -- this was really no different than the 15 or 20 banking crises that we’ve had in the last 200 years around the world. The only time -- thing this time was it was much bigger and it was a global crisis. It wasn’t the -- it wasn’t the crisis in northern Pacific corner on the New York Stock Exchange. It is a global crisis. And it’s the old thing of fear and greed, and I don’t -- I think it’s going to be hard to legislate that out of the system CHARLIE ROSE: So what kind of regulation, reform should we have? BARTON BIGGS: Well, I mean, frankly, I mean I think that deposit- taking institutions should not be allowed to do proprietary trading or underwrite securities. In other words, we ought to go back to Glass- Steagall. CHARLIE ROSE: So they shouldn’t be in the underwriting business, number one, which investment banks did. But they also shouldn’t be able to trade in their own... BARTON BIGGS: But the roots of all these practices come in the banking system. So that’s the only way we’re going to improve it and make it less risky is to change and make the banking system less risky. But that’s not going to take greed and fear and periodic bubbles out of financial markets or any kind of market. But it’s going to -- solving the banking or mitigating the banking system problem is going to make this system less volatile, in my view, and make it less likely that we’ll have the kind of economic collapse we had. CHARLIE ROSE: So how should hedge funds change? BARTON BIGGS: Well, I mean, I think hedge funds fees are too high and that inevitably they’re going to come down. And I think that hedge funds should have to register with the SEC and should be subject to supervision by the SEC. CHARLIE ROSE: So when you look at the future, what sectors of the economy are going to be the most exciting? BARTON BIGGS: Well, in the U.S.? CHARLIE ROSE: Yes. BARTON BIGGS: I think in the U.S. technology is going to be a very exciting sector, and America and the world have really under-spent on technology for the last ten years almost since going back to 2000, 1999. And so I think we’re going to see a lot of -- we’re going to see another wave of technological innovation and spending on technology. CHARLIE ROSE: What did you think when you saw Warren Buffett spend another $26 billion to buy what he didn’t own of the Burlington Northern? BARTON BIGGS: Well, I think it was -- I think it was a great statement that he made that he was investing in America. And I’m certainly an American patriot. But I’m not sure that America’s not going to have to pay the price of three to five years of relatively sluggish GDP growth for this housing bubble and then for the wealth destruction that’s occurred. And so I’m not convinced that was the best place for him to put money. But I admire his motives and his statement. CHARLIE ROSE: If you talk to Warren Buffett, he will tell you his expertise is price not timing. Which is yours? BARTON BIGGS: In the modern world running a hedge fund, you’ve got to be able to do more than just say that it’s a good value. There’s got to be some kind of -- something’s going to happen that’s going to make the market focus on that value or that’s going to be some change that is going to enhance that value. CHARLIE ROSE: How do you look at this world different today than you did 15 years ago? BARTON BIGGS: I don’t think I look at it any differently. CHARLIE ROSE: That’s my point. The principles are the same? BARTON BIGGS: Yes. But we’re more international investors than we ever were 15 years ago. CHARLIE ROSE: But the analytical skills that you bring, the questions you ask, are the same? That has not changed. BARTON BIGGS: Yes. CHARLIE ROSE: And where does your own composite of things tell you to go in search of companies? BARTON BIGGS: Well, the area that I think and have thought for some time now is very attractive is Southeast Asia. And including China and I include in Southeast Asia, I include India. CHARLIE ROSE: Vietnam? BARTON BIGGS: And Vietnam and then that whole area of the world. CHARLIE ROSE: Now why is that? Is it because... BARTON BIGGS: Well, it’s because those countries have and those people have a very strong work ethic. They have a very, very high savings rate. They have a savings rate of 40 percent or 50 percent. They have basically very little consumer credit. So, they’re where we were in 1946 or ‘47. And so they’re capable of having a long burst of economic growth. And the financial markets are -- have been discovered to a certain extent, and so that they’re not cheap. They sell at about the same valuations as the developed financial markets like the U.S. But I think they have much, much superior growth. And then, of course, if you want to be really adventurous, there’s the frontier emerging market which haven’t been discovered yet. CHARLIE ROSE: Where’s that? BARTON BIGGS: Well, they’re -- I mean, just to give you an example, a country like Nigeria, for example. Nigeria is a -- the airports are a disaster, and they’re taking your passports away and you don’t get them back, and so on. But, you know, this is a very big, strong country with a lot of oil, and it’s chaotic, but there are some great consumer franchises in Nigeria, and the stocks are very cheap and the banks in Nigeria are very cheap. CHARLIE ROSE: Do you still get on a plane and go there? BARTON BIGGS: I’ve got to admit that I do not do that, not to Nigeria. It’s not worth it. (LAUGHTER) But, I mean, I was recently in a country you may know, Lebanon and Syria. CHARLIE ROSE: Sure, I know well. BARTON BIGGS: And I think that the same thing applies to Syria. Syria could be a frontier emerging market. But it’s really frontier. They don’t even really have a stock market at this point. CHARLIE ROSE: And do you worry that there are no institutions of a judicial system or whatever there might be or might not be in a particular country so that you worry about if you make a significant investment and that you may be at risk of things that have nothing to do with the value of the individual... BARTON BIGGS: Absolutely. And that’s what makes those markets so dangerous. But the world knows that. CHARLIE ROSE: So you factor that? BARTON BIGGS: Yes. And look at Russia. I mean, the stocks there are very, very cheap, and they’re very cheap because nobody has any real faith that the Russian government is going to treat foreign investors in an honest and legal way. CHARLIE ROSE: What do you attribute your own success to as a legendary investor? BARTON BIGGS: To be completely candid with you, I don’t think that -- my whole generation was born at exactly the right time. And I joined Morgan Stanley in 1973 as a partner and was at the bottom of a really serious secular bear market. And so it wasn’t that we were geniuses. We were in the right place at the right time, and we had a really powerful tail wind just blowing us right up. And we were overcompensated for the whole process, and some other area of the world is going to be overcompensated for being lucky in the next 20, 30 years. CHARLIE ROSE: If you had it to do over, would you do the same thing? BARTON BIGGS: Yes, because it was great and it was lot of fun. I made some money, and I’d definitely do it again. (LAUGHTER) CHARLIE ROSE: You still had time to read good books and do all the things that you thought you might do when you were in college. BARTON BIGGS: Right. CHARLIE ROSE: Great to see you again. BARTON BIGGS: Thank you. CHARLIE ROSE: Barton Biggs. Back in a moment. Stay with us.