market folly

Next up in our series of notes from the Alpha Hedge West Conference is a talk by Bruce Richards of Marathon Asset Management.  He focused on navigating the macro & interest rate environment.


Bruce Richards' Talk at Alpha Hedge West 

 If Yellen is nominated, she'll be a shoe-in.  Very Dove-ish.  QE is worth 150 BPS.  10 year was 4% 5 years ago.  Most of rate exposure likely is over.  Can get to 3.25% or 3.5%.  Thinks Fed won't sell Bond Portfolio.  They'll hold and let it roll off.  Maybe reverse repo.  

Where do you invest?  Invest in equity, deeply discounted assets.  Events and special situations.  Short duration, high yield.  

Avoid long dated fixed income, treasuries, agencies, high grade debt, leveraged fixed income, interest rate sensitive sectors.  If floating rate, still need credit story.  

Macro risk factors:  Interest rate risk, fiscal/ debt ceiling, Syria and Middle East, sluggish growth in emerging markets, US, Euro, China, Japan, Flow of Funds.  

Best Opportunities: Europe, Distressed Corporate, Special Situations / Distressed Bank Asset Sales (NPLs), US Special Situation and Distressed Credit Investments, Structured Credit, Liquid Seasoned Burned Out & Illiquid High Yield, Europe Debt Oppys today like RTC oppy back in 80's.  Will be available next few years.  

Bought a $1.2B pack from a UK bank made of German debt.  84 cents on dollar.  TXU may be biggest non-financial bankruptcy ever.  $48B.  Expect announcement later this year.  Emerging markets are overreacting.  They are at an interim low.  Good hedge funds managers make LIBOR plus 500 BPS.


Be sure to check out the rest of our summary of the Alpha Hedge West Conference.