NEW YORK (Reuters) – Short-seller Jim Chanos said he was bearish on oil companies such as Exxon Mobil Corp and said the U.S. stock market was becoming riskier, while Aaron Cowen, of hedge fund Suvretta Capital Management, said the market has yet to reach a peak.
Colin Teichholtz, co-head of fixed income trading at hedge fund firm Pine River Capital Management, said the sell-off in certain Puerto Rican municipal bonds has created opportunities.
Those were some of the highlights from Day 2 of the Reuters Global Investment Outlook Summit, where investors shared their best ideas on topics such as this year’s record rally in U.S. stocks and the impact of the Federal Reserve’s monthly bond-buying program.
JIM CHANOS, president and founder of Kynikos Associates:
Chanos, who is known for having anticipated the collapse of Enron, said he was bearish on oil companies such as Exxon Mobil, which he called a “value trap” because its return on capital is declining.
“The cost of finding oil has really, really risen dramatically, and thus hurting returns,” Chanos said.
Chanos said the record highs in the U.S. stock market this year resemble historical periods of downward pressure.
“If you’re the typical investor, it’s probably time to be a little bit more cautious,” Chanos said. “The risks are getting out there.”
The Standard & Poor’s 500 has risen over 25 percent this year.
Chanos also said that he was “pretty much short” all the U.S. leveraged coal companies.
AARON COWEN, chief investment officer of Suvretta Capital Management LLC:
Cowen said the record-breaking rally in U.S. stocks this year could go even farther.
“I continue to believe equities are the best bang for your buck,” said Cowen, who added that retail investors have yet to return to the stock market to a large degree.
“We’ve had a good party, but we haven’t had a crazy party,” he said.
COLIN TEICHHOLTZ, partner at Pine River Capital Management:
Teichholtz said the sell-off in municipal bonds in the past few months has created opportunities, calling certain beaten-down Puerto Rican municipal bonds a bright spot.
“COFINA bonds, which are secured by sales tax receivables, were getting hit just as hard as GOs. We thought that created an opportunity,” Teichholtz said. COFINA’s debt is backed by sales taxes collected in Puerto Rico.
Teichholtz said municipal bonds have offered opportunities since investors tend to sell them indiscriminately.
“That’s part of why we love to invest in munis. The market doesn’t do enough to differentiate risks,” he said.
CATHY O’NEIL, principal at Occupy Wall Street’s Alternative Banking Group
O’Neil said that the Occupy Wall Street movement had an impact on former U.S. Treasury Secretary Lawrence Summers’ withdrawal from consideration to be the next Fed chairman.
“We are actually turning the tide away from the idea that economists can come up with these abstract sort of superficial economic models and impose them as a mindset on people,” O’Neil said.
O’Neil also said that federal regulators have done little to change incentive structures for rating agencies, many of which are paid by issuers to rate products. She said, however, that many investors have changed their approach to the agencies.
“People know not to trust the credit rating agencies,” she said. “So having a rating doesn’t necessarily mean that investors automatically believe it.”
DAMON SILVERS, director of policy and special counsel for AFL-CIO
Silvers said that the absence of criminal prosecutions in the financial sector is a serious concern for democracy in the United States.
“The absence of clear punishments for intentional conduct…is sapping the public’s confidence in our democracy,” Silvers said.
Silvers also said that investor attempts to take the insurance businesses of mortgage financiers Fannie Mae and Freddie Mac private were “absurd.”
“All of this is absurd. The point of these institutions is that they are public,” he said.
DANIEL ALPERT, managing partner at Westwood Capital
Alpert said that he is bullish on bonds in 2014 given risks in global equity markets and headwinds for the U.S. economy, including weak jobs growth.
“I think you have to be long bonds,” Alpert said. “This is not an economy that is surging by any means.”
Follow Reuters Summits on Twitter @Reuters_Summits
(Reporting by Sam Forgione, Luciana Lopez and Katya Wachtel– Editing by Leslie Adler and Lisa Shumaker)
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