David D�Alessandro (CMDTY Capital) � Long Oil
� Peak oversupply of 1.5-2m barrels/day; started 2016 with 600-700k which isn�t weather adjusted (El Nino).
� 3 buckets of supply
� North America � modeling down 700-800k by �17
� OPEC � Iraq, Iran, Saudi Arabia. Overall modeling up 600-700k
� SA � look for them to freeze. Signs are on the table, they�re willing to attend meetings.?
� Iran � ramping to 500k growth yoy due to sanctions lifted. Difficult to export due to capex needs.
� Iraq � At the limits of their export capacity; won�t raise production.
� Non-OPEC � Most will be down, some flat. Models down 600-800k?
� Libya is the wild card on supply side � dire situation, but can do 1m/day export if political situation changes.
� Just on supply, we are undersupplied. Counter: 900m inventory?
� A third is unusable (essentially reserves that never are used).
� Look at days of inventory � because demand is increasing, this is decreasing.
� Demand was up 1.8m in 2015, assuming 1.5m for 2016, range of 1.0-1.8m increase.
� Drivers: India, South Korea, US, China. - Variant perception
� Supply is declining?
� Demand is accelerating?
� No sudden surge in US production at $50-55 like sell-side projects
� Labor markets aren�t as loose
� Bush-era EPA not around?
� Stricter capital
� Dug but not completed wells are overstated.
Scott Bessent (Key Square Group) � Japan
� China isn�t the biggest risk � Japan is.
� Abenomics � underappreciated aspect is Abe�s leadership in 2006 as PM.
� Tons of charts on various macro elements in Japan
� 3 arrows partially successful � but craters in the policy
� JPY depreciation solely during inflation?
� Limited structural reforms outside of women labor participation and corporate governance
� Services recovery will be needed to drum up CPI.?
� Sales tax increase will be cancelled
� Good chance of surprise at April BOJ meeting
� Debt write-off is eventually how we get out of this
� Never count on immigration or privatization being a factor in Japan
� If you�re investing, look to take off FX hedges in Japanese stocks, stay long JPY.
Anne Stevenson-Yang (J Capital Research) � L/S China ?
� China since 2006 has looked like Silicon Valley in 1999 � growth at the expense of profitability
� Two sources of capital � both end with massive capital flight � best short ideas are the most loved names
� State via household deposits
� FDI / Portfolio / etc.
� Short BABA
� Look to put on when the capital flows change?
� Maxed out ecommerce platform � avg annual spend of $1075 vs AMZN $330 (faking?).
� Poor capital allocation; using capital to generate growth?
� Misleading GMV?
� Dubious assets � Investment in equity investees, goodwill & intangibles
� Long Tingyi
� Largest maker of noodles � have scale, brands, operating leverage, 10b US revenues
� Competes with UPC but UPC backing down / becoming more rational
� Extensive distribution, partnerships with SBUX & PEP � upside from beverages segment
� 20x PE vs 30x historical, 10% op margin historical vs 3% now > expansion of both leads to 2-3x winner
� Short RMB
� Nothing has changed in the policy, but politicians say it has; don�t believe them
� PBOC using forwards / swaps to hide capital outflows, delay booking in foreign reserve declines
� 9 months before reserves run down to perilous point
Jamie Dimon (JPMorgan Chase)
� Auto is a little stretched, but overall consumer credit is pristine
� Student loans are going to be a problem � growing too fast
� Rate normalization is a good thing � strong economy. 25bps will have a de minimas impact
� Grant: is the gov�t digging a moat for your biz in regulation? What would it take to replicate JPM?
� Could give you $1t and you couldn�t remake this. Employees, customers, goodwill, etc.
� Banks will trade at 2.0x TBV when regulation, lawsuit overhangs go away. Look at pace of change in regulation.
� We�ll be there for energy customers in tough times � most loans are still money good. We can�t run from the problems or sell stock � we�re not traders, we�re building a business
� Grant: �The fed out to provide a living will for the central banks.�
� The fed sets short rates, but market participants set the curve
� More detail on credit: 10% debt servicing to mortgages; this is near lows, all good here. Credit cards are pristine. Some may get hur tin auto, terms extending, but will be very small. $1.3t in student loans, 30% delinquent. Went from 20% to 80% government underwritten.
� I own stock � HD / YUM / JNJ / BA and the like.
� Nil chance to make money in US treasuries over the next 10 years.
� By 2030, China will house 30% of the Global 3000.
Pierre Lassonde (Franco-Nevada Corp) � Gold ?
� Demand rising, has outperformed everyone the last decade
� Mine supply has not kept pace with demand because cost of production risen 4-5x over past 30yrs. ?
� Production next 6-7 years goes down. ?
� Takes 7-12 years to get production online from field discovery, discoveries have fallen since 80�s. ?
� China and India now over 50% of worldwide demand ?
� Shanghai will take over the London Exchange in 5-10 years. It becomes a casino and prices skyrocket. ?
� Central banks went from sellers to buyers in 2010 � now buying 400-600tonnes/year ?
� Retail investment has grown since 2008, Europe now largest market ?
� Negative interest rates spur demand � greater uncertainty, no opportunity cost, uncertainty in FX ?
� Recycling has grown to meet shortfall between supply and demand ?
� Gold: liquid, low volatility, low correlation to other asset classes ?
� 80% of price is determined by USD, which will roll over again, driving gold higher (mean reversion). ?
� Trump would accelerate this devaluation
� DJIA / Gold = financial assets / real assets. Expect normalization at 1:1 and a 3-7 year bull market ?
Kevin Warsh (Hoover Institution) � Case of the missing growth ?
� Yellen gets done what she wants to get done; don�t make fed watching more complicated than that.
� We all have bias to think our economic status is better than other countries ?
� Growth doesn�t just appear by being one step ahead on devaluation ?
� QE was initially to restore markets, drive liquidity, not to boost asset prices.
� Difference between 2% and 3% GDP growth is not 1%, it�s 50%. And we�re not even getting 2% here, nor 3% internationally, and int�l trade is slowing; policymakers shouldn�t be doubling down. ?
� This is the most important year since 2008
� The 8 Growth destructive policies
� Conflated regimes
� Politicians fail so fed turns to multipurpose agency
� Fed has wrong dashboard � backward looking and heavily revised data
� Short-term time horizon as if managing q/q not thinking like a long-term biz owner
� QE is copied abroad � the wealth effect � works primarily to boost financial assets, not real assets
� Regulatory structure is in purposeful limbo with respect to banks � �we�re only 60% done implementing so we can�t be blamed if something goes wrong again� but now tougher for banks to make money
� Models are still from the 1970�s
� Story of an aggregate demand shortfall with no acknowledgement of supply side
� Central bank buying takes away the price signal � no clue about risk premium > price of assets. Asset prices shouldn�t worry the fed but they�re still managing around them, vocal about it.
� Want growth? More people working and more productive workers.
John Haskell (Explorador Capital) � Long LATAM equities ?
� Forex, earnings, and the multiple in LATAM all down in 2015 � attractive grounds. ?
� INRETC1:PE
� 1/3 malls, 1/3 supermarkets, 1/3 pharmacies (think Walgreens)
� Hold 22%, 36% and 53% share respectively
� Accelerating private label from 33% to 40%; drives higher margins.
� Accelerating store count
� Reduced dollar exposure from 74% in 2014 to 23%
� Trading at 13.8x 2018 EPS vs comps > 20x
� GRAM:US
� Largest engineering firm in Peru
� End of commodity supercycle means depressed results in core E&C biz
� Capital structure stressed due to cash cycle and business shift
� 2016 outlook is positive; inflection point
� Up 52% since Monday morning, whoops
� Trading 3.2x �18 EBITDA � core E&C biz for 1.9x EBITDA
� ENTEL:CL
� 36.9% mobile market share in Chile (the VZ there)
� 7.6% share in Peru vs Telefonica at 52% and Am Movil at 37%
� Buy Chila biz for 4.3x �16 EBITDA and get Peru biz for free
� 25% dilution � due to desire to participate in spectrum auction
� Founder�s HoldCo owns 55%
� MCO downgrade
� Potential Liberty / Malone target
� 60% of additional 50b in debt from 00-15 was to fund operating deficits.
� Don�t blame gov�t completely; they�ve tried � raised taxes and cut employment / benefits
� Framed as liquidity vs insolvency problem and now decidedly unsustainable / insolvent
� Defaults on May 1 & July 1
� Author�s note: admittedly didn�t follow much of this presentation
Amy Falls (Rockefeller University Endowment)
� Low rates � lower returns for savers, increases risk � leverage, excess investment, erodes system�s capacity to absorb risk, increases inequality
� Endowment provides one-third of budget, spend 5-5.5% of it each year.
� HEPI outpaces CPI by 1% on avg since 90�s. 70% of HEPI is salary and benefits
� Absolute rates matter more than credit spreads
� Seeing shorter durations and less cash holdings in many endowments now
� Declining implied vol masks increasing structural weaknesses
� Typically run 2-5% cash, now 8%
� Seek managers with wide mandates and the ability to exploit them
� LATAM looks attractive to us, too.
� You are actually comped for letting your managers hold longer. Longer lockups > higher returns w/lower Std. dev.
� > 1 yr: 12 - 14%
� 1 mo � 1yr: 11 - 13%
� < 1 mo : 6 - 9%
� Don�t outsource your investment functions � intelligent institutions work both sides of the balance sheet
� Yale model isn�t about the outputs or the allocations, but the analytical rigor.
� As nations grow as a % of world GDP, their market caps tend to follow � Brazil, Mexico, and Argentina are all the most attractive here.
Zervos
- Fed was fighting deflation at any cost. With high debt levels, worst thing to do is deflate. Make assets increase, ?liabilities decrease to repair broken balance sheets from 2008. ?
- China is pegged to the US however, and we caused their bubble via our QE; we don�t just do monetary policy for ?ourselves anymore, must consider consequences.
Grant?
- If the USD is a commodity, it�s natural price will near the cost of production ... ?
- 700 PhD economists on fed payroll ?
- Fed MO is to distort price mechanism ?
- He said a lot of other good classic Jim Grant stuff in here that I didn�t write down... ?
- Took a shot at Bernanke at PIMCO and whoever happens to live in Greenwich
Zervos ?
- US, China, Japan, Europe � 4 countries that matter for FX. ?
- Tightening causes feedback � see August and the Chinese 3% devaluation; our stocks off 10%. ?
- If we go, it�s got to be a turbocharged tightening ?
- When Europe and Japan devalue, it�s against us but against China too; Draghi took the signal and looked to pump ?inflation without relative devaluation. ?
- Japan can print and buy back its own equities. ?
- This is a prisoner�s dilemma � won�t break down before the November election, but Yellen considering all these ?interdependencies. ?
- S&P will form base here and go much higher, but real trade will be in EMs. Worst possible asset to hold is cash; it will ?be diluted by CBs. ?
- Understanding CB reactions to data is the only way to get an edge. Everyone is terrible at forecasting data; I�d never ?give a trade rec on unemployment, GDP, or inflation. ?
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