market folly

Passport Capital founder John Burbank appeared on CNBC and gave his thoughts in an interview with David Faber from the Barefoot Economic Summit.  Burbank basically said that while he has a negative view on the economy, his trade is essentially to go long high quality stocks and short speculative companies.

Burbank believes there's essentially a 'lack of growth' not yet reflected in equity prices.  He doesn't think all parts of the US are in a recession yet, but we're "very close."  We've covered how Passport had been net short with their negative viewpoint.

He thinks that everyone buying dividend stocks and yield chasing has created a new dynamic.  Burbank said:

"My view is that after '08, all that government spending and central bank liquidity tried to push things back together and push everything up higher and for '09, 2010, and 2011, everything traded together.  Last year things started separating. 

You see the separation now and a recognition that we're not going to have the growth that we thought.  I call it the 'great separation.'  I think what's happening is that the really high quality, well managed, well governed dividend paying companies are going to be treated as an asset class that's priced off of these other available yield instruments.  While speculative companies, things that really need the economy to do well, things that aren't that well managed, that don't pay dividends etc, are going to stay poor.

I basically would be long high quality, leading companies which generally in the United States and then short speculative companies that rise into Fed announcements but then fall away."


Embedded below is the video from John Burbank's interview:



For more on this investor, we've also highlighted Passport's thesis on Saudi equities.