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Back from SALT

05/16/2011
Returning to New York from the SALT Conference in Las Vegas has been somewhat difficult. Rainy weather, the Yankees in the midst of a six-game losing streak, and a market that has lost its mojo all dampen the welcome home spirits. Those spirits are in direct contrast to the glorious Vegas weather last week and sunny outlook with which money managers are viewing the capital markets in 2011.
 
At the year-ago conference, I was surprised at the overwhelming cautiousness in response to the capital markets' recovery at that time. Money managers had multiple concerns about the markets' near-term direction and expressed a "See you in September attitude." That cautious sentiment may have contributed to the "Baseball Season of Frustration" that then unfolded (Figure 1.1).
 
This year's conference was much different. Money managers brimmed with optimism for further capital market appreciation. Resiliency from China and other emerging markets, robust U.S. corporate earnings, and a historically cheap market were prevailing reasons. The majority of managers expressed belief that QE2's time had come and that the markets would digest its end favorably. Some actually expressed excitement for any potential correction as an opportunity to reload from the long side.
 
 
Conference Highlights 
  • It was an honor to watch CNBC Fast Money host Melissa Lee interview President George W. Bush for more than 60 minutes. President Bush had the convention center laughing and cheering throughout. He was as warm and gracious after the interview as he was during. It was the biggest conference highlight by far, and truly an honor to be part of it. 
  • CNBC's David Faber interviewed former U.K. Prime Minister Gordon Brown and former U.S. Secretary of State Colin Powell. This session's highlight was Gordon Brown's concerns about the eurozone's ability to "grow its way out of the current crisis." He claimed it nearly impossible and emphasized the need for significant spending cut measures. 
  • Thursday evening on Fast Money, former New Jersey Governor Jon Corzine joined us on set. Two points of emphasis:  He believed more work needed to be done to complete the new regulatory framework, and he suggested the commodities correction is in the late innings. Most folks don't know Governor Corzine was one of Goldman Sachs top bond traders.    
  • One of the more interesting panels included a mild debate between Citadel's Ken Griffin and former Obama administration advisor David Axelrod. Mr. Griffin raised much concern that Washington doesn't get the message that the deficit must be reduced as we reach the tipping point. Axelrod defended there was an economic need in 2009 for the public spending stimulus. Overall, I agreed with Mr. Griffin that it seems D.C. is not working fast enough to enact bipartisan deficit-reducing measures. Bearish the U.S. dollar obviously. 
  • Leon Cooperman, Omega Advisors, joined Fast Money Wednesday afternoon and underscored the overall bullish tone of the conference. He was bullish on oil and yet still believed the U.S. is on a path toward 3% GDP.  
  • When asked about a potential municipal bond crisis, the majority of money managers participating on panels did not believe apocalyptic views expressed by some are correct. 
  • Steven Cohen, SAC Capital, talked about the sell-off in energy as "a point of entry." He also talked favorably about the 4G technology build out. 
  • Finally, beyond my on-air responsibilities for Fast Money, I had the privilege to talk with several casino/resort executives and local realtors about the state of real estate in Las Vegas. Understanding Las Vegas was one of the worst hit U.S. cities in 2008, it would be unrealistic to expect a complete comeback at this point. However, one resort executive summed it up best, "Real estate in Vegas during 2008 was obese, in dire need to shed excess weight, and in 2011 we are still overweight; the pastries will not be delivered for many more years." 
Figure 1.1:  S&P 500® Index, January-October 2010

Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.