SALT 2016: Kyle Bass, Leon Cooperman Diverge On Economy

This is part of our SALT 2016 coverage stay tuned for more coming! SALT 2016: Kyle Bass, Leon Cooperman
1:55 PM – 2:40 PM
From Theory to Application: Identifying Opportunity Sets Amid Market Volatility

Erik Schatzker (Moderator)
Editor-at-Large, Bloomberg Television

Kyle Bass
Chief Investment Officer, Hayman Capital Management LP

Paul Brewer
Chief Executive Offier, Chief Investment Officer & Founding Partner, Rubicon Fund Management LLP

Leon G. Cooperman
Founder, Chairman & Chief Executive Officer, Omega Advisors, Inc

Kenneth G. Tropin
Chairman & Founder, Graham Capital Management, L.P.
SALT 2016 – Panel Notes: Leon Cooperman, Kyle Bass, Ken Tropin (Graham)

Q: Thoughts on hedge fund industry?

 

Tropin: “Monetary policy losing effectiveness…it’s much harder to make money without a beta tailwind”

Cooperman: “Market structure is broken due to Volcker rule, Dodd Frank, demise of the specialist system…this has all limited liquidity. The move to passive management will accentuate this. Active turnover is 30% per year, passive is 3% per year – this has huge implications for both industry employment and liquidity. I tell my people, before we put a lot of money to work in a stock: ‘they should charge $1M for a marriage license and let you get divorced for free.’ Overall, there’s a lot of individual stocks that are attractive but the market on a whole is not.

Brewer:  “We’ve seen plenty of ‘air pockets’ in the treasury market. Price makers are retreating – many OTC products trade only by appointment which causes problems for macro investors like us.”

Kyle Bass: “The challenge in macro is handicapping central bankers… I’ve been poor at it so far. We closed all so-called ‘risk positions’ between July and September…to the points on liquidity, it took us way longer to close positions than we thought it would. All these air pockets are there because there’s no specialist depth anymore.”

Q: SALT 2016 Where are we in the cycle?

Bass: I think we’re in March or April of 2007 in both credit and equity markets.
Cooperman: The market will have to go higher before it becomes vulnerable. Out of the four phases – pessimism, skepticism, optimism and euphoria – I can say pessimism ended in 2009-2010 – we are between optimism and skepticism – I don’t see any euphoria. 50% of stocks yield more than bonds. The bubble is in fixed income and not equities. Individuals have taken $800B out of markets this cycle and are very conservatively postured. Bear markets come about for one of four reasons: