Wealthy money managers bashed Federal Reserve Chairman Ben
Bernanke's easy money policies at a closely watched annual investment conference
and charitable event on Wednesday.
The Sohn Investment Conference, which raises money for pediatric cancer
research, gets big name hedge fund managers to share their "best ideas" with
other wealthy investors. This year's conference was sprinkled with criticisms of
the Fed's $85 billion in monthly purchases of Treasuries and mortgage securities
in an attempt to stoke the economy.
"Ben Bernanke is running the most inappropriate monetary policy in the history"
of the developed world, said Stanley Druckenmiller, the retired head of Duquesne
Capital Management.
The criticisms of Mr. Bernanke come as investors have begun to speculate when
the U.S. Federal Reserve could slow or stop its monthly bond purchases, a policy
designed to keep long-term interest rates low in order to spur spending and job
creation.
With economic data mixed recently, analysts say the Fed could keep its
ultra-loose stance well through year-end - an unpopular view at the conference,
where many of the featured money managers are billionaires themselves. Mr.
Bernanke took a drubbing from the start, with the first speaker, Paul Singer,
setting the tone.
Mr. Singer, founder of the $21 billion Elliott Management hedge fund and a big
contributor to Republican political candidates, said the Fed's monetary policies
are distorting the prices of long-term bonds and the global recovery.
"Everyone wants a safe haven," Mr. Singer said. "There is no such thing in
today's markets and that's one of the elements of the distortion."
Mr. Singer's criticism of the Fed's bond purchases may not be surprising given
his generally conservative political outlook. But in recent months, other money
managers and economists have expressed concern that the Fed, by keeping rates
low, is artificially pushing up stock prices and forcing investors into riskier
assets like junk bonds and securities backed by student loans as they chase
yield.
Junk bond yields have fallen below 5 percent for the first time ever, as
investors scrambling for the biggest returns possible have pushed the market
into record territory. The yield-to-worst on the Barclays U.S. Corporate High
Yield Index closed Tuesday [May 7] at 4.97 percent, breaking below the 5 percent
barrier for the first time in the index's 30-year history.
The Fed's easy money policy has helped boost riskier assets such as equities,
with the S&P 500 up 14 percent this year. Both the S&P and Dow Jones Industrials
have set a string of all-time highs.
In contrast, the average hedge fund is up only 4.4 percent.
The Fed has also come under fire lately for risking its credibility on
inflation. While policymakers have emphasized the employment side of their dual
mandate, increases in consumer prices have slowed well below the 2 percent
target.
Fed criticism was on full display at the Sohn conference in New York. The
mounting criticism from money managers about the impact the Fed's quantitative
easy policies have on the markets could give more ammunition to Fed policymakers
who want Mr. Bernanke to begin scaling back on the bond buys.
Other central banks came in for their share of criticism, too, with fund
managers pointing to the way global easing has masked the piles of debt amassing
in developed markets, enough to raise fears of insolvency.
Kyle Bass of Hayman Capital got a laugh when he introduced a Japan finance
minister index, a nod to the high turnover in that office in recent years. But
he was more serious when he dissected Japan's finances and central bank chief
Haruhiko Kuroda's "shock and awe" campaign.
"They're completely insolvent," he said. "It's just a matter of when and not
if."
In April, the Bank of Japan said it was likely to purchase over 7 trillion ($75
billion) of long-term government bonds a month - an aggressive monetary policy
to end years of deflation in the world's third largest economy.
Mr. Druckenmiller, however, said the Bank of Japan was doing a better job than
the Fed, considering Japan's deflation worries and its long-time bear market.
"I actually think their policy is much more appropriate," he said.
Not all the speakers at the Sohn conference were ready to heap scorn on the Fed.
In fact, some money manager said they are placing bets that the Fed's easy money
policies will continue to boost segments of the U.S. economy, such as housing,
which has come roaring back in some parts of the country.
Steven Eisman, whose claim to fame is shorting the securitized subprime mortgage
market in the run-up to the financial crisis, said he is positive on the U.S.
housing market.
Mr. Eisman, the founder of Emrys Partners, said he likes homebuilders Lennar
Corp. and Standard Pacific Corp. Inc. He's also a fan of real estate company
Forestar Group Inc. He is particularly bullish on Ocwen Financial, calling the
mortgage servicing firm "completely mispriced" and the "most powerful" play on
housing in the entire sector.
But Mr. Eisman's love of housing doesn't extend north into Canada. He said his
best short idea is to bet against shares of Home Capital Group, a Canadian
mortgage lender.
"If housing rolls over, this company is going to have serious problems," he
said.
