market folly

CNBC and Institutional Investor's Delivering Alpha Conference just took place and featured many big name speakers.  Here's notes from the event itself and summaries of television interviews as well:


Delivering Alpha Conference Notes 2017


Julian Robertson (Tiger Management)

Robertson noted that interest rates need to increase because there's a bubble forming in the stock market.  Since rates are low, stocks don't really have much in the way of competition for money.  He also predicts that Trump will ask Janet Yellen to stay on as Federal Reserve Chair.

He recently got back into Alibaba (BABA).  He previously owned it at "a very low price" (seven years ago) but sold it around $100 but now he's back in.  Says it's unbelievable how the company has seen 50% in earnings.  While other investors claim it to have accounting issues, Robertson said, "It would have to be such a giant fraud.  I mean, I can't imagine anything would be that colossal."

Argued that Apple (AAPL), Facebook (FB), and Google (GOOG) are cheaper than they would have been in the 1960's, 70's or 80's.  On Netflix (NFLX), he noted "does anyone not like it?"  He said it "might be a little out of reach" now but it's still tempting him because it's run by good people and he loves it.

He likes the cruise industry, saying that "(It) has come of age.  And older people my age are attracted to the cruise ship industry.  And they are booming right now, and all over the world they are booming.  And I think they're for the golden oldies."

Robertson still also owns Air Canada: "We got into it at around 8 or 9.  And it's now 23, approaching 24, and the multiple is about the same as when we got in, which is all of five times earnings.  So we have too much Air Canada, but I can't make myself sell it."

Also noted he doesn't think he'll ever understand Bitcoin.

He also continued to share his view that part of the hedge fund crisis is exacerbated by the fact that there's so many of them now and they compete against each other.

Robertson also gave advice to the younger generations: be sure that you love the field and let that be what guides you.



Ray Dalio (Bridgewater Associates)

Dalio's biggest concerns were the following: wealth gap, social conflict, and various financial burdens (debts and pensions).

"I think we're probably in a 2.5% type of growth environment.  I mean, the real question is, to some extent, whether you can unleash the productivity by some of the changes that a pro-business environment can produce."

He thinks tax reform etc will be a watered down version and will come later.

He likened the current environment to 1937 in terms of the early stages of a tightening.

Dalio thinks that we're in an environment with a lot of conflict: political, conflict between parties, conflict between countries.  "This is very important.  This is even more important than how the tax changes are going to take place."

The Bridgewater founder then talked about balancing alpha and beta.  He said gold is essential and part of that balance.  He called it "an effective diversifier of assets" as well as "an alternative version of cash."  He feels it should be 5-10% of everybody's portfolio.

He also thinks it'd be terrible if Gary Cohn left the administration and it'd be bad for the market too.

When asked what he's most worried about, Dalio mentioned risks like North Korea, but said his bigger worry is long-term: wealth and social gap and the conflicts that arise from that.  He's worried about the various debt and pension burdens.

We also recently posted Ray Dalio's TED talk which takes you inside a meeting at Bridgewater.  He also has penned a new book, Principles.



Leon Cooperman (Omega Advisors)

He said that "Conditions that normally lead to significant market decline are either not present or not forecastable."

"The market is in a zone of fair and full valuation.  I see very few signs of exuberance."

Stocks mentioned by Cooperman include First Data (FDC), which he's owned for some time now and called very cheap.

Also, United Continental (UAL), which he felt has solid management that's identified a lot of cost opportunities.  He thinks earnings there can see around 15% over the next few years.  Operating profits could rise by 50% over the next few years and the company has bought back 2% of its shares

He also pitched two energy ideas: Hess (HES), as well as WPX Energy (WPX).  "The solution for low oil prices is low oil prices.  These two (stocks) have growing production profiles and a net asset value well above current prices at existing oil prices."  He thinks oil is headed higher to $60.  Says the sector has been overly discounted.  Says Hess in particular will increase production.

He also likes Shire (SHPG), citing its growth, positive pipeline, and the expectation of stock buybacks.

Said bonds look like they're in a bubble but at same time notes the Fed has been 'forcing people into risk' via its monetary policies.  It will change one day he says, but not yet.



Boaz Weinstein (Saba Capital)

He warned investors to avoid junk bonds.  Argued that half or a third of junk bonds today are held by retail investors, who have a ton of exposure, partly due to the rise of ETFs.  He feels the high yield market is overheated and he's short bonds of various retailers and hospitals.  At the same time, he's long equity of some of those same companies.  "Equity is at a much more rational price and credit markets are ignoring those signals."

Noted that portfolio protection is cheap but few are buying it.  "Does everyone think they can get out on the top?"



Jim Chanos (Kynikos Associates)

He says that "what's worked will continue to work" and monetary will stay easy and investors will live with the valuations.

Chanos says it's easier to find short ideas in this environment, but those ideas "don't work" due to the underlying upward trend.  He says the market was far more correlated last year than it has been this year.

He's short Continential Resources (CLR).  "People have been looking at the industry with rose colored glasses.  This is a problem with the North American shale business.  If we don't get a pickup in the company's fortunes in the back half of the year it's going to struggle."



Jeff Smith (Starboard Value)

Pitched Perrigo (PRGO), generic drug maker.  Says a lot of these products are sold on Amazon now and the company can expand sales of its over-the-counter medicines via that channel.  Shares have been undervalued from pricing pressures.

Also mentioned Altaba (AABA) as a top idea.  This is the former Yahoo stub that is left after selling the core Yahoo business.  What's left is a stake in Alibaba (BABA) and Yahoo Japan, etc.  It's basically a holding company.



Mick McGuire (Marcato Capital)

The activist investor has taken a new stake in Terex (TEX), the company that makes construction equipment.  They started buying last year and roughly own around 1.1 million shares per a recent SEC filing as they own 6% of the company

McGuire feels the company should see a revenue boost after a strategic re-positioning.  It's in the middle of an operating turnaround and is reducing SG&A, so there's operational profit upside.  The company also switched its sourcing program which could potentially save them around $500 million annually.  Thinks shares could triple, and has already doubled since he invested in 2016.



Chamath Palihapitiya (Social Capital)

The venture capitalist who now also runs public investments, said that he's massively long cryptocurrency bitcoin.  He calls the blockchain technology disruptive.

He argued that tech investors need to look at a company's ability to innvoate: "There's just this massive trade right now between the disruptors and the disrupted."  He says there's a lot of opportunity to be long disruptors and short the disrupted.



Jamie Dimon (JPMorgan Chase)

He called bitcoin worse than Tulip Bulbs and thinks it will eventually blow up.  Said he'd fire any of his traders trading bitcoin for being stupid.  Says it could go up to $100,000 before it blows up, who knows.  His daughter bought it, it went up, now she thinks she's a genius, he said.  Thinks it could be vulnerable to government intervention.

Thinks government policies are stifling growth.  If things changed, we'd see 3% growth rather than sub 2% which we've seen annualized now.  Singled out small businesses as most impacted.

Argued banks in the US are very sound at the moment.  Says the successor to JPMorgan is inside JPMorgan.



Mary Erdoes (JPMorgan Asset Management)

When asked about US stocks or bonds, she said none of the above.  Sees enormous opportunities in Europe, Japan, and emerging markets.  Thinks that some investors are worried about emerging markets due to the US dollar as an 'anchor' currency.



Steve Mnuchin (Treasury Secretary)

He says that tax reform is too important not to be passed and that it can occur this year and might even be retroactive back to the beginning of 2017.  Said the President's number one concern is North Korea and security.  Said hedge funds wouldn't have the carried interest provision under Trumps tax proposal.



Steve Schwarzman (Blackstone Group)

He's optimistic on tax reform, saying the 'worst' we'd do is a tax cut somewhere around 25-28%.

He thinks the biggest risk to markets are geopolitical, in particular North Korea.  He said "i would not be buying office buildings in Seoul" though didn't comment further on how this would affect investment decisions.

Schwarzman also argued that he relationship between China and North Korea is not friendly as it is perceived to be.  "The Chinese do not want a nuclearized Korean peninsula, and they're very serious about that.  They also don't want to have a shooting war occur and have 20 million refugees from North Korea go into China.  So it's complicated for them as to what they do."



Barry Sternlicht (Starwood Capital)

"It feels like the ocean is full of money, but it could evaporate."  Says he's most worried about potential problems from North Korea or Syria.