Summarizing The SALT Vegas Conference: Key Bullet Points From Cohen, Dinan, Ainslie And Englander

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Save yourself the $1,000 bottle service at Tryst (not to mention the always failing Martingale strategy (unless you are the Fed or a Primary Dealer with discount window access of course) at the high rollers table), and cut right to the chase with this summary of the key points by Stevie Cohen, Jamie Dinan, Lee Ainslie, Izzy Englander and Jeremy Siegel.

 

Steve Cohen, SAC Capital: Energy ‘Interesting’ After Plunge

  • Steven A. Cohen, the billionaire founder of hedge fund SAC Capital Advisors LP, said last week’s selloff in commodity markets makes this a good time to buy stock in energy companies.
  • Energy is “an interesting sector,” he said, speaking to a packed room with 1,750 seating capacity. “I think that energy stocks are discounting oil prices much lower than where we are trading today.”
  • Cohen, who handles about 10 percent of the roughly $35 billion the Stamford, Connecticut-based firm trades, including leverage that magnifies SAC Capital’s $13 billion in assets under management, said he has started doing more macro trading in his portfolio, known as the “Cohen Account.”
  • The macro strategy accounts for about 20 percent of the money he manages, he said.Cohen, 54, has been managing the macro portion of his portfolio with Dan Tapiero, who has worked with macro investors Michael Steinhardt and Stanley Druckenmiller. “I always understood macro but now I’m heavily involved in those markets,” Cohen said.
  • Cohen said he expects the stock market to take a “pause” and that while he was optimistic about the second half of the year, forecasting a 4 percent U.S. economic growth rate, he is “worried” about the impact of rising budget deficits in 2012. “The deficit is the elephant in the room,” he said. “Either the Democrats and Republicans will get together or the markets will force a solution on them.” Cohen said he thinks the deficit is “easily fixable.”
  • He started SAC Capital in 1992 with 12 people and about $25 million after leaving brokerage Gruntal & Co., where he worked his entire career. Cohen’s track record SAC Capital, a 30 percent average annual return for 18 years, is one of the best in the hedge-fund industry. The firm suffered one annual loss since it was founded: a 19 percent drop for its flagship SAC Capital International Ltd. fund in 2008.

 

Jamie Dinan, York Capital: Bearish on Banks

  • Jamie Dinan, founder of $17 billion hedge fund York Capital Management LP, said he is bearish on financials.
  • The amount of capital banks will be required to hold, in addition to changing so many of their money making activities,” including spinning out their proprietary trading desks, will have a negative impact, he said.
  • ROE is going down and there is nothing they can do.” He said bad loans were what hurt banks during the crisis and that regulators want them to continue making those loans, which he considers a “much less attractive business model.”
  • Dinan said Wednesday that the surge in credit markets in recent years suggests lessons from the financial crisis have been “totally forgotten.”
  • Junk-bond spreads are back to where they were during the previous credit boom, and Treasury bond yields are still very low, he said.
  • There’s a lot of liquidity still on the sidelines. That money is seeping back into the market,” Dinan said.
  • People are looking for yield because they’re sick of earning zero. They’re holding their nose to the risks,” he said, adding that credit spreads can’t tighten much more.
  • “The lessons of ‘07 and ‘08 are totally forgotten,” Dinan warned. “The thinking that ‘I won’t be left behind when the music stops.’ That’s very dangerous thinking.”

 
Lee Ainslie, Maverick Capital: Likes Technology Stocks

  • Lee Ainslie, founder of New York-based hedge fund Maverick Capital Management LLC, said he is bullish on technology companies.
  • On the long side, I go back to the theme of the fact that, in this risk rally, there are large, stable multinational companies that have been left behind. Some of the most attractive opportunities in that space are in the world of technology,” he said.
  • He cited commodity and labor inflation as factors that will have a negative impact on some companies. “Corporations are clearly getting more comfortable; you’ll see it in cap-ex and R&D.”
  • Ainslie said Wednesday that risk isn't being properly priced in the stock market, partly because of the Federal Reserve's latest round of government bond purchases, known as QE2. "It will be interesting to see what happens when QE2 disappears -- to have such a big active participant withdraw."
  • "We're more focused on how that will impact individual stocks," he added. The riskiest stocks -- smallcap, higher-leveraged companies -- have been the best performers, while large, multi-national companies with strong balance sheets "have been left behind,"  Ainslie noted. If the end of QE2 introduces more risk into the market, that will probably be more conducive to trading and investing, he added.

Izzy Englander, Millennium Management

  • Englander said Wednesday the world "seems pretty fertile territory" for the relative-value type strategies that are the specialty of his hedge fund firm Millennium Management. Millennium doesn't focus on the macro economic outlook and tries to keep correlation and exposure to the market as low as possible, Englander said.
  • Instead, the firm tries to find anomalies in the value of related securities in equity and fixed-income markets. The current environment for these strategies is pretty fertile -- as it was after the 2008 financial crisis, Englander said.
  • Still, he added that there's more competition for talented traders, partly from so-called seeding firms that are willing to commit a lot of money to new hedge fund managers, Englander explained.

 
Jeremy Siegel, Professor of Finance at the Wharton School

  • Siegel said Wednesday that the Standard & Poor's 500 index may climb 12% to 15% by this time next year as corporate profits grow stronger.
  • Inflation could be in the 2% to 4% range in five years time and the Federal Reserve may start raising rates next year.
  • However, the first two years of a rising rate cycle has been good for equities in the past, he noted.

h/t David