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Delivering Alpha: Interesting Outtakes That Didn't Make the Headlines
Delivering Alpha delivered some memorable, well-publicized moments, but here are some other interesting outtakes you may have missed--including Jane Mendillo's awkward moment, Stanley Druckenmiller's out-of-touch musings and Jacob Lew's bureaucratic blunder.
There is no shortage of coverage of many of the headline-grabbing events and presentations from Wednesday’s Delivering Alpha conference, co-hosted by Institutional Investor and CNBC at New York’s Pierre Hotel. They include “the hug” between Carl Icahn and William Ackman, Leon Cooperman’s cautious comments on the market and his one dozen stock recommendations, Kenneth Griffin’s sober view of the changing banking industry and Stanley Druckenmiller’s criticism of the Fed and its current monetary policy.
However, these accounts overshadowed a number of other, less reported comments or moments which were interesting, significant or disturbing, depending upon your perspective.
Here is what else you missed:
MOST AWKWARD MOMENTS: At the outset of “The Global Stage” panel, CNBC anchor Kelly Evans immediately put Jane Mendillo, president and CEO of Harvard Management Co., on the defensive, questioning her why she only allocated 11 percent of assets to U.S. stocks amid a booming bull market and whether her announced departure at year-end is related to this allocation. Mendillo responded that she has 22 percent altogether allocated to the developed world. When Kelly pressed whether Mendillo should have opted for the traditional 60-40 split between stocks and bonds and avoid the high fees of private equity, Mendillo responded: “That is a short-term thinking question.” Touché.
Now, these are actually good, tough questions that should be asked. However, it was a bit uncomfortable to watch. FYI: Evans is actually one of my favorite CNBC anchors (I watch every day.) Smart but not smug or smarmy.
ARE YOU KIDDING ME? Mary Callan Erdoes, CEO of J.P. Morgan Asset Management, was also involved in an “are you kidding me” moment as well. Later on during the same discussion she was pointing out all of the money that has recently been flowing into J.P. Morgan’s bond funds. She seemed very uncomfortable with this as the Fed winds down its stimulus program. She said she worries whether investors are being short-sighted and looking at the current yield or the results of the past few years. “People are not as educated going into the bond market,” she said, which was a good, constructive comment. But then Erdoes acknowledged that most investors are putting their money into unconstrained bond funds, which are also able to go short. When Evans asked Erdoes whether the types of investors who put money in bond funds are aware of this, Erdoes said “Yes, I believe they’re aware of it.” But you could then feel the uncomfortable realization sink in that no, they may not realize this.
JACOB’S LADDER: Treasury Secretary Jacob Lew seemed assertive when he called on Congress to rein in the tax inversion spree that is leading a growing number of U.S. based companies to merge with foreign companies so they can incorporate overseas and lower their tax rate. And it was good to hear him go on the record endorsing higher tax rates for carried interest, a view shared by many billionaire hedge fund managers, including Appaloosa Management’s David Tepper. “It is used inappropriately,” he told the audience. “It should not be used to convert ordinary income to enterprise income.” However, it was very disappointing when Lew seemingly dismissed CNBC anchor Jim Cramer’s suggestion that the Treasury should be taking advantage of historically low interest rates and issue more Treasury securities with longer maturities, such as 30-year and 50-year paper. This is what many major corporations are shrewdly doing these days.
To his credit, Cramer pressed Lew several times on the issue, and the Treasury secretary would only say that liquidity is its major concern, adding, “we don’t try to time it.” He stressed that he doesn’t try to time interest rate levels at any specific point in time. At that moment, Lew sounded like the quintessential bureaucrat. Very disappointing. In five or ten years when politicians complain how much interest on the debt is eating up the annual budget, they will probably point to Lew’s missed golden opportunity.
MOST OUT OF TOUCH BILLIONAIRE: Retired billionaire Stanley Druckenmiller dazzled the audience in his speech railing at the Fed, its easing policy, and its failure to start raising interest rates now. He also warned of excesses in the IPO and credit markets. As part of his case for tightening, Druckenmiller trotted out charts that he purports show that household net worth is “high,” employment is “back above trend,” industrial production is “high” and retail sales are “above trend.” From his lips to Democrats’ ears. Not sure his Republican friends totally agree with this analysis, though. However, I think his view from his Hamptons mansion is a little skewed. Maybe his friends’ net worth is higher than ever after a 32 percent gain in the stock market last year. But just this week a European Central Bank working paper asserted that the top 1 percent of U.S. households own 35 percent to 37 percent of all wealth, higher than the most often reported claims. Earlier this week, the Commerce Department reported that June retail sales growth was the slowest since January. And not too many people think the country is close to full employment.
THE BOOMING JOBS MARKET: One of the few assertions that many speakers seemed to agree about is that happy days are here again for employment. It was not just Druckenmiller who made this declaration. Paul Marshall, chairman of Marshall Wace, told his panel we are “close to unemployment levels” where the Fed begins to tighten. Citadel’s Griffin said the economic recovery is better than we have seen in a long time in part due to “positive momentum in employment.” Trouble is, most people I know in a variety of professions are overworked and performing 1.5 jobs. And alas, the next morning Microsoft announced it is laying off 18,000 people.