Jes Staley, Bruce Richards, and Cliff Robbins were next up at the WSJ Heard on The Street Live event. Below are some (very informal) notes. Also see: Jim Chanos Hints He is Shorting Tesla Short
BlueMountain Capital’s MD on U.S. debt ceiling
Jes Staley, MD of the well-known BlueMountain Capital, spoke about the U.S. debt ceiling, saying that even though the U.S. let Lehman Brothers Holdings Inc Plan Trust (OTCMKTS:LEHMQ) default (which was once thought impossible). This is a much bigger deal. That is one reason the market is likely not pricing it in, since the U.S. will act before the debt ceiling is reached.
Banks are meeting daily about what they should do if issues do come up because of the debt ceiling. We will not opine on banks’ Q3 earnings, which are set to roll out soon.
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Banks are not too big to fail and the big banks are in a strong position. He thinks the asset managers will take a similar role in Europe in formation of capital and buying assets from debt. Jes thinks that Jamie Dimon is a great CEO and would vote for him to retain chairmanship.
Cliff Robbins and Bruce Richards on market panic
Cliff Robbins and Bruce Richards also joined the panel. Bruce Richards thinks that the markets could panic next week. The closer we get to that day, the more fear we will have. Right now there is disgust but a lot of complacency.
At the end of the day, there will be no default, but Obama will use executive privileges, which will bring about a whole messy situation. Richards says it could lead to impeachment for the President doing the right thing. He notes that the Lehman default caused 9.5 million jobs lost, and the President will not let that happen again.
Cliff agrees and is hoping there is no crash, but is looking for bargains to buy and will possibly take activist positions. If we get there, everything will be cheap since the entire market will crash because the market will not differentiate between stocks/sectors.
Bernanke lost his chance to taper
Richards believes that Bernanke lost his chance to taper. What likely pushed him not to taper was the Yellen situation and deciding who would be the next chairman. Yellen won’t be in until January, so taper would not begin until March 2014. Additionally, there will have to be more signs of inflation and job growth.
Cliff is bullish, noting how much money and private equity companies have. He thinks we could see a lot of M&A, but the events in Washington will put it off for a few months.
Cliff thinks that the financial crisis caused corporate governance to improve as management has become aware that they must listen to shareholders more.
Jes notes that private equity firms and asset managers with $100 billion plus could help increase economic growth.
Bruce Richards on European bank assets
Bruce Richards talks at length about Europe. He notes that banking assets are almost at 4x GDP compared to the U.S., at about 1. He says there are a lot of opportunities as banks sell off assets, especially non-performing loans. Richards states that BlueMountain is buying “billions and billions” and will continue to do so.
He notes that in the U.S. there are also opportunities. TXU is a $48 billion opportunity—a company with lots of debt, but also great management and assets. Dell Inc. (NASDAQ:DELL) is a $25 billion opportunity, as it may be forced to restructure and the debt is cheaper as the credit was downgraded.
Someone asked about Puerto Rican munis
Jes had no comment, but Bruce Richards noted that there was a lot of opportunity as it is the second-largest muni market after California. There are different types of bonds, but some attractive ones are trading at 70 cents on the dollar.
The panel asked if banks can achieve ROE of pre-bubble ears. Cliff notes that leverage will come back and banks will have stronger assets. The banks will need pricing power, but the trends should be favorable for all segments of banking.
Asked about hedges
Bruce said they could hedge over the next few weeks, but they will find where opportunity presents itself and buy. However, Richards is not nervous at all as he thinks the President will act if necessary.
Cliff was very bullish, and he noted the cash to stock yield is at an incredibly high level. He is not looking for short-term gains but instead is looking three years out. Even with no crash, the market is still cheap. However, if it does crash, that is further opportunity.