Conference Presentation, Panel
Investing in Volatile Markets
Milken InstituteManus Cranny, Todd Boehly, Joshua Harris, Mike Novogratz, Amanda Staveley, Cornelia Meyer, Mary Daly, Tim Gosher, Yusuf Kutsy
- US volatility is projected to rise slightly due to political factors, including a potential Mueller report release within eight weeks, though the economy is expected to remain stable supported by $1 trillion in stock buybacks and a dovish Federal Reserve.
- Fixed income markets imply a 25% recession risk for 2020, while equity markets, excluding FAANG, price in higher risk; an inverted 2.5-year yield curve historically precedes recession in nine out of nine instances, yet a "melt up" is anticipated if the China trade war ends and monetary support continues.
- The trade war is expected to conclude with China purchasing significant US goods to boost GDP, though a protracted "tech war" regarding intellectual property is forecasted to persist regardless of election outcomes.
- China is predicted to utilize over $3 trillion in currency reserves for massive stimulus and rate cuts to prevent economic collapse, with a resolution to the trade war potentially adding 50 to 100 basis points to China's economy.
- A moderate market dip is baked into investment scenarios for the foreseeable future, with an economic cycle expected to sustain through 2020, while a future tipping point for US government debt may eventually force entitlement restructuring, tax hikes, or spending cuts.
- Institutional accumulation of Bitcoin is forecast to begin by June from sources like Canadian pension funds, driven by custody solutions from Fidelity and the NYSE, with a potential scenario of Bitcoin skyrocketing if a Minsky moment triggers a loss of trust in government securities.
- Alternative asset strategies focus on commodities, mining, litigation funding targeting 15-25% IRR (with some reaching 40-60%), and affordable housing with 12-25 year cash flows, while other strategies aim for double-digit returns via secured lending and triple net real estate leases.
- Private equity markets face continued deleveraging as businesses become purchasable at 4-5 times EBITDA, contrasting with the 2018 average transaction multiple of 11 times EBITDA in a "wildly aggressive" leverage finance environment.
- The US trade war is expected to impact China more significantly than the US, while the UK Brexit is anticipated to be a "hard Brexit" where pound devaluation offsets economic impacts, and European exit costs remain a source of political instability.
- Future downturns in 2020 or 2025 would require coordinated action from the US, Chinese, and EU governments, as rebuilding monetary policy "arsenal" tools like rate cuts and QE will be more difficult despite current rates being at 2% rather than zero.
- Esports viewership is predicted to continue growing with video gaming minutes up 20% year over year, and esports events like virtual concerts are noted to reach millions of attendees.
- Volatility is viewed as an opportunity for asset acquisition at low valuations, with a "buy the dip" strategy expected to remain prevalent for most of the current year as rallies are sold and bank systems are anticipated to remain strong with no identified cracks.