Today on "Market Makers" with Erik Schatzker and Stephanie Ruhle, Mike Novogratz of Fortress Investment Group said that the results of the Greek election will postpone a recovery in Europe. He said, "If we had the Lehman moment it would have forced the European authorities to decide, are they in or are they out. But we've pushed the ball down the field."
Novogratz also said, "for your children's money you should be short every fixed-income instrument on the planet, or at least in the developed world...we're going to continue to have a lot of tension in the markets for awhile."
Novogratz on whether a Lehman moment for Greece is off the table:
"It is. It is kind of frustrating because at least if we had the Lehman moment, it would have forced European authorities to really decide if they are in or if they're out. With new democracy winning and most likely forming a coalition government in the next few days, we pushed the ball down the field a little bit further...Most likely we will hit a crunch time at some point."
"Greece is less important, but not out of the woods yet. You still have to form a government. Most likely that will happen in the next few days. Then the troika comes back. Greece will need more money, because in the last eight weeks they have not done a whole lot. That will not come from the IMF. They are going to say that the largest single investment we've ever made in terms of percentage and outright. They will have to renegotiate the Greek package and cut debt. That will be messy and take two months."
On whether Germany will have to kick in more money:
"The Germans know they are going to kick more money in. They are willing to kick more money in. They just do not want to look like the fool. They want to make sure we're making some progress on structural reform, labor market reform, fiscal market reform and there is some teeth to it, and she will not march all the way to the goal line before she declares victory...For your children's money, you should be short every fixed income instrument on the planet, or at least in the developed world--in the U.S., Europe, and probably Japan--and you should be long equities. Does that mean in the next few months that trade will pay off? Probably not. We're going to continue to have a lot of tension in the markets for awhile."
On whether the smartest trade right now is to shore German bunds:
"It very well could be. The ECB will cut rates by 50 basis points in the next meeting. That should inject liquidity into the system and inject some sort sense that the cavalry is coming. The most likely will do another LTRO. As they try to take some of the risk premium out of the market, bunds should sell off. I do not think you have a major sell-off in bunds however. On a leveraged basis, you can make a whole of money. That is how people get rich."
On how to trade Europe:
"This is a very difficult environment for everybody because there are lots of moving parts. You have to have a framework. We have a framework. We trade on relatively short time horizon. But there are some big thematic things that continue to happen. We are in a deflationary deleveraging, this year especially. Fixed income has a tendency to want to go lower. The highest fixed-income yields in the world in places like Brazil, those rates are coming down and so there are some core positions you can keep in your portfolio. You do not have to participate in the stuff with the least certainty around it. You do not have to own Italian bonds or Spanish bonds."
On how wrestling helps to prepare a career on Wall Street:
"14 of the 44 of the presidents of the United States were wrestlers. It teaches you toughness and discipline and teaches you to walk on your front foot...All sports prepare you to some degree. Wrestling you go through such a grueling training regimen from dieting and push ups to getting beat and smacked in the face and you are there on-on-one that you just become tougher. The two guys that took down the plane over 9/11 over Pennsylvania, Todd Beamer and Jeremy whose name I can never remember, both wrestlers. You learn not to be scared."
On whether he thinks the regulatory environment is killing Wall Street:
"No, I do not. I think we are in a transition. The banks and all of Wall Street screwed up. The push toward regulation is probably going too far and is not as clear as it could be. It will take a few years for that to settle down and become clear. I think it is great for the hedge fund industry. I do think if you are guaranteeing bank deposits in banks, those banks should take less risk. I think most people agree on that and they are. That transition causes a lot of turmoil though."
On Jamie Dimon's testimony to Congress last week:
"The problem is a lot of the guys in D.C. missed the nuance. If you try to regulate with lots of line items, you creating a big army...The check the box regulation ends up creating more complicated firms, lots of accountants and lawyers and compliance officers, and not necessarily achieving the goal. You can achieve it in a much simpler ways."
On bigger long-term investing:
"I think the markets are in a transition. A lot of that merchant banking business, long-term lending business and risk taking is going to move out of regulated entities and into hedge funds, private equities, private pools of capital. Where quite frankly, it is probably better stored. That does that does not happen overnight. In the process in between, credit growth shrinks, it doesn't grow."
On where he would want to invest if he was a client of Fortress:
"Right now if you look at historical valuations of stocks versus bonds and public valuations versus private valuations--if you are taking a longer-term view, having a lot of money in private equities is probably the right thing to do. It is the Rip Van Winkle trade. Sell all your bonds, buy a lot of stocks, go to sleep. We have central banks here and around the world that will try to inflate their way out of this debt mess, and they will. There is only one way out, and it is inflation. It does not mean bonds will sell off dramatically. You will have a financial market repression era where we keep nominal interest rates low and run inflation 2.5-3-3.5-4% and slowly get ourselves out of this debt mess. That's good for risk assets. Public equities is probably the place to be."
