Reuters Summit: Highlights Day 4: The Fed's pace, European bond prospects

Natural Resource Partners

18/11/2016 24:11

(For other news from the Reuters Global Investment Outlook 
Summit, click: http://www.reuters.com/summit/investment17) 
    By Sam Forgione 
    NEW YORK, Nov 17 (Reuters) - Dawn Fitzpatrick of UBS Asset 
Management said the Federal Reserve would likely raise interest 
rates next month and only twice next year, while Steven 
Tananbaum of GoldenTree Asset Management said European corporate 
bonds were relatively unattractive.  
    Larry Hatheway of GAM Investment Solutions said the rise in 
U.S. Treasury yields was durable and had further to go, with the 
Fed likely to tighten at a faster pace than the market had 
priced in.  
    Didier Saint-Georges of Carmignac Gestion said a cut in U.S. 
corporate tax rates would significantly boost companies' net 
earnings in the world's largest economy and also draw in foreign 
money that would push the dollar higher.  
    John Doyle of UOB Asset Management said bonds were in for a 
tough ride in the first half of 2017 as U.S. President-elect 
Donald Trump's plans to boost fiscal spending could stoke 
inflation around the globe.  
    On Thursday, those were some of the highlights from Day 4 of 
the Reuters Global Investment Outlook Summit, where money 
managers shared their best investment ideas and opined on topics 
such as the impact of Trump's presidency on U.S. financial 
markets and the direction of stocks and interest rates in 2017. 
     
    Barry Ritholtz, chief investment officer of Ritholtz Wealth 
Management 
     
    Ritholtz said about President-Elect Donald Trump's speed and 
capacity to learn on-the-job: "I think the single biggest lesson 
he either learned or should have learned since the election is 
when he gave a very calm and rational victory speech. Markets 
were down 5 percent overnight, the Dow was down 800 points - the 
futures - and suddenly, that reversed. That lesson was, 'Hey, if 
I'm not a lunatic and I act like a responsible adult, I could 
get through this'."  
     
    Dawn Fitzpatrick, global head of equities, multi-asset and 
the O'Connor hedge fund businesses at UBS Asset Management 
     
    Fitzpatrick said the Fed would likely hike rates at its Dec. 
13-14 policy meeting and that, while a Trump presidency would 
cause the Fed to raise rates at a slightly quicker pace, the 
U.S. central bank would likely only raise rates twice next year. 
    Fitzpatrick said Fed Chair Janet Yellen, whose term ends in 
2018, probably would not be reappointed under a Trump 
administration. She said she hoped Trump would not "politicize" 
the Fed.  
    "I really hope Trump doesn't politicize the Federal Reserve. 
I think Yellen is doing actually a very good job," she said.  
     
    Steven Tananbaum, chief investment officer and founding 
partner of asset manager GoldenTree Asset Management 
     
    Tananbaum said he was finding little reason to invest in 
European corporate bonds given valuations and uncertainty 
surrounding upcoming Italian, French and German elections.  
    "You could definitely get some surprises," he said in 
reference to the potential election outcomes.  
    Tananbaum said he was bullish on metallurgical coal company 
Natural Resource Partners  NRP.N  and that metallurgical coal 
prices would still have "a lot of value" at $130-140 per tonne. 
     
    Larry Hatheway, group head of GAM Investment Solutions 
    
    Hatheway told Reuters in London that the market needed to 
price in another two rate hikes from the Fed over the next 12-18 
months, making four in total. 
    He argued that the tax cuts and infrastructure spending 
mooted by Trump combined with deregulation of sectors such as 
finance and healthcare could unleash "animal spirits." 
    This mix, coupled with resilient growth in advanced 
economies and the big credit expansion still playing out in 
China, meant the things that have restrained the Fed this year 
were unlikely to restrain it going forward, he said. 
     
    Didier Saint-Georges, managing director at Carmignac Gestion 
     
    "What we need to focus on is corporation tax. Here, I think 
it really gets interesting," Saint-Georges told Reuters in 
London. "It's not going to be very difficult to get an agreement 
through ... a Republican Congress (and) it has got a mechanical 
effect on net earnings of corporate America." 
    But he added that the potential of corporate tax cuts to 
suck in foreign money to the United States could be a key driver 
of a higher dollar over the coming year as that helps cut the 
U.S. balance of payments deficit. 
     
    John Doyle, chief investment officer for multi-asset and 
equity strategies, UOB Asset Management  
     
    UOB has sold off longer-duration bonds and increased 
holdings of shorter-term ones in anticipation of faster U.S. 
growth, John Doyle, chief investment officer for multi-asset and 
equity strategies, told Reuters in Singapore. 
    "The shift in inflation expectations...has big implications 
for investments," Doyle said. "The early part of the year could 
be trickier (for bonds globally)." 
    The dollar could also continue to strengthen, particularly 
as a potential tax amnesty to urge U.S. corporations to 
repatriate earnings could lead to further inflows, Doyle said. 
     
    K.C. Nelson, director of long/short credit and event driven 
strategies at Driehaus Capital Management 
     
    Nelson said that since June, there has been a near perfect 
correlation between U.S. Treasuries and the benchmark Bloomberg 
Barclays U.S. Aggregate Bond Index. 
    Nelson said that in part reflects the broad-based, 
years-long slide in rates that some investors believe may mark a 
culmination for a three-decade bond bull market. 
    "As rates have all compressed lower and lower and lower, 
coupons ... have gone closer and closer to zero," he said. 
"They've all started to look increasingly like a zero-coupon 
bond ... which is the most interest rate-sensitive bond you can 
have." 
             
    Follow Reuters Summits on Twitter @Reuters_Summits 
   (For more summit stories, see:  urn:newsml:reuters.com:*:nL1N1DF0PI) 
 
 (Reporting by Claire Milhench and Karin Strohecker in London, 
Nichola Saminather and Marius Zaharia in Singapore, and Svea 
Herbst-Bayliss, Jennifer Ablan, Jonathan Stempel, Lawrence 
Delevigne, and Trevor Hunnicutt in New York) 
 ((Sam.Forgione@thomsonreuters.com; 646-223-6189; Reuters 
Messaging: sam.forgione.thomsonreuters.com@reuters.net)) 
 
Keywords: INVESTMENT SUMMIT/HIGHLIGHTS