Notes from Delivering Alpha 2013, Part I


My coverage of CNBC and Institutional Investor Magazine’s third annual Delivering Alpha Conference will come in four parts today.

Below, my notes from the early morning sessions, I hope you enjoy! – Josh


Treasury Secretary Jack Lew begins the conference with prepared remarks.

Long story short – Dodd-Frank did not crush the economy as was widely predicted nor did it curb lending. 7 million jobs have been created in the last 40 months, the housing market has improved and the banks are holding more capital than ever. Most importantly, according to Lew, because of Dodd-Frank “if a financial firm fails, taxpayers will not have to bear the cost of the failure.” I’ll take the under on that, but we’ll see.

Q&A with Steve Liesman:

On Sequester: He still believes Congress has time to act to avert “mindless cuts” and full sequester on a bipartisan basis. I think his job is to be optimistic, though, right? He does believe the effects of these cuts are very real, however, and we are paying the price in GDP growth and jobs.

On Bernanke: Ben Bernanke has done an extraordinary job, has saved the country from Depression.

Best ideas for creating jobs: “There is no substitute for economic growth.” Also, “centers of manufacturing excellence” – this would be a cool band name. Tax reform would help, not looking likely right now.


Next panel – The Global Stage (finding opportunities in a deleveraging world) moderated by Michelle Caruso-Cabrera

• Mary Callahan Erdoes, Chief Executive Officer, J.P. Morgan Asset Management
• David McCormick, Co-President, Bridgewater Associates
• Jane Mendillo, President and Chief Executive Officer, Harvard Management Company
• Richard Perry, Chief Executive Officer, Perry Capital

Mary from JPM is billed as having $2.2 trillion under management five minutes after Jack Lew announces that Too Big To Fail is over. LOL. She says diversification will always matter.

Jane from Harvard: Reaction in the markets to Bernanke’s taper talk were “ridiculous” – getting off crutches and beginning to walk is good news, not bad news.

David from Bridgewater: Fed has been innovative, filled gaps, has described the conditions under which bond buying policy will change.


Richard Perry: Markets have overreacted to Bernanke this summer. US took the corrective medicine faster than Europe has and so we’re further along. Makes sense that their markets are lagging. He is buying European debt now, thinks things are changing in the peripheral countries. Still holding the newly issued Greek sovereign bonds, encouraged that German officials are working with them and thinks Greeks have taken the right steps. Germany will make sure Greece stays, elections in Germany will solidify that.

JP Mary: Bullish on Euro recovery, money is being made in Euro stocks long and short, bonds, credit etc. Be opportunistic.

Harvard Jane: “Distortion creates investing opportunity – Europe fits into that.” Money is lined up to take advantage of Europe but has not really come in yet.

Perry: Spain’s banks (Cajas) couldn’t mark their holdings down or take losses like our banks because they were insolvent. Spain got between 50 and a 100 billion euros to plug holes, will clean up the balance sheets of their banks. Florida is a good instructive lesson for this kind of thing. 12 months from now Spain will show signs of recovery.


Harvard Jane: sentiment was too bullish, now it’s getting to bearish. Need to be careful investing there. She’s doing private equity and real estate there with local partners. “No one from Harvard on the ground in China.”

JP Mary: “You can’t not know what’s going on in China.” Even if you don’t want to invest there, knowing what’s going on there is your responsibility. Index investing in China won’t work. Most companies are state-run, 25% of state-run Chinese companies don’t even make money.

Perry: “There are advantages to having relationships – that’s the only way to do business there and invest there.” You can invest in derivatives of China, he is currently playing the story but demurs on which investments he’s made.

All panelists agree that Chinese wealth management products and shadow banking are dangerous.

JPMorgan’s “Eastern Fund” launched in 1971 to invest in Asia. An investment of $1 million would today be worth $250 million. This compares $50 million invested in the 1971 S&P 500. Speaks to the necessity for diversification globally.


Perry is bearish, is now shorting Japanese bonds, thinks Japanese corporations are in big trouble – highly leveraged, high import costs, not competitive enough. Has been shorting Japanese corp credit for over a year now.


Big discussion about Argentinian debt – hedge funds like Elliott Management (Paul Singer) are in court versus the Argentine government over being made whole on sovereign bonds.

Bridgewater is still long Treasurys. Harvard is “underweight” Treasurys – “better places to be.”

JPMorgan’s credit card delinquencies are at 30 year lows, very important for investors to pay attention to.


Next panel – Jim Cramer interviews Preet Bharara, United States Attorney – Southern District of New York

“Armchair prosecutors” in the press who sit around speculating about ongoing or potential cases are frequently proven wrong. He is not under time constraints to indict wrongdoers. “I don’t even wear a watch.”

Draws a distinction between going after an individual person at a company and the entire company. He is willing to do both and hold institutions accountable, even if they have 100,000 employees. “If you’re an institution that has on multiple occasions committed malfeasance – and the first time you get a fine and the second time you don’t have to admit guilt – eventually there has to be some pain, some extraction of a penalty.”

Cramer: “Should people at banks fear bad conduct catching up to them?” Preet: “Yes.” (The crowd nervously cracks up in laughter. Someone peed their chair, prolly.)

Cramer is asking if Snapchat can be used for insider trading tips. Preet: I don’t even know what you’re talking about.”

Cramer’s hypothetical: If I set up a hedge fund, and I tell my employees NO ILLEGAL TIPS, and then someone working for my fund – unbeknownst to me – starts receiving tips and trading on them, and I have no idea – could I be indicted? “Depends on the circumstances.”  That’s a yes.

What should the press be doing? “The press helps democracy, incredibly important in a financial fraud context. We have brought cases because the press has pointed things out. But my worry is that it’s not as responsible as it should be. The press is the only private institution that is mentioned in the Constitution.”

On press coverage of his cases: “I laugh a lot. I like to laugh.” Press bears responsibility for ruining reputations by speculating on arrests that never happened.

Collateral consequences of the cases he brings – shareholders of companies, employees of companies, people with children, etc. But no one is above  the law. Should legal expenses be borne by shareholders? It’s a balance but punishment is better for the whole system.

We don’t bring every case that we investigate. In the Raj case, the sum of the evidence was such that “it wasn’t square” – cheating occurred.

Our job is beyond financial fraud – protecting kids, corrupt politicians. I have hundreds of prosecutors in my office helping to keep New York safe, we’re not “obsessed with insider trading.”


See you at Part II! 






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