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Panel Detail:

Wednesday, April 30, 2008
8:00 AM - 9:15 AM

Global Markets: Where Are the Opportunities?

Moderator:

Maria Bartiromo, Anchor, CNBC's "Closing Bell with Maria Bartiromo"; Host and Managing Editor, "Wall Street Journal Report with Maria Bartiromo"

In addition to broadcasting her show from the Global Conference, CNBC's Maria Bartiromo also moderated panels on private equity and, above, global markets.

For the next hour and a half, Todd Boehly of Guggenheim Partners, Kirk Hartman of Wells Capital Management, Pascal Poupelle of Calyon and Komal Sri-Kumar of TCW Group debated questions such as these, agreeing that the worst is indeed over but predicting that we could very well be headed for a recession as the slowdown in the U.S. economy affects the rest of the world and the credit crunch plays out.

Boehly, who invests in credit and fixed income, stated his belief that the technicals have cleared and the Fed's efforts to infuse capital into the market are paying off. "Credit," he said, "is about avoiding losses."

The bottom is near, agreed Sri-Komar. He described three signals that will indicate a turnaround is coming, predicting: 1) the ten-year Treasury hitting 4 percent; 2) credit spreads will narrow, easing tension so banks will start to lend to each other; and 3) better management of the dollar. However, Poupelle warned that it is difficult to call a bottom, especially with the banking industry still in turmoil.

On the impact of the U.S. slowdown on the rest of the world, Boehly pointed out the inefficiencies in European markets, where the bid-ask spreads are extremely wide. Sri-Kumar added China and India to the list of nations feeling the ripple effects and experiencing a significant cutback in growth. Hartman indicated that we should be prepared for lower returns, around 10 percent, in a deleveraging environment. Citing Japan as an example, he pointed out that there are still opportunities in small-cap companies.

When asked to comment on the consequences of a tight credit market, Boehly admitted that there is sluggish investment activity due to the slowdown in financing. Poupelle stressed the importance of disclosure. He admired the actions of UBS, which was one of the first banks to admit to shareholders and the public that there was a "lack of reaction to a changing market" at the firm, triggering excesses.

Changing the course of the discussion, Bartiromo asked the group if there was a bubble in commodity prices. Hartman acknowledged sharply rising demand from developing economies such as China and India, but he nevertheless anticipates a price drop. On oil prices, Hartman expects volatility to continue, commenting from a social standpoint how politics and protectionism — viewing energy as security, fear of sovereign wealth funds — have hurt the economy as a whole. Bartiromo agreed: "No one is talking about war in Dubai," she said. "They are talking about economic expansion." Boehly contended that as oil prices rise and reserves shrink, more companies will find it cheaper to do M&A deals than to find new reserves. Sri-Kumar recommended increasing exposure to energy commodities and staying away from risky assets such as real estate.

Turning the conversation to favorable sectors in the current financial environment, Boehly said he preferred bank debt, where he expects returns in the mid-teens with modest risk; he also sees opportunities in education, health care and consumer staples. Health care and information technology were Sri-Kumar's picks, given his expectation that the trend will shift from commodities to knowledge firms. Poupelle believes that the financial sector is best to invest between now and end of the year. Hartman's pick was also education, with the panelists agreeing that the best thing the United States can offer is education, especially as other countries are inviting Americans in to understand how to think about the world from our perspective.

The session wrapped up with some real-world investment advice. Hartman warned the audience to stay away from long-term bonds. Sri-Kumar did not favor emerging markets for the next several months, as he views commodities and energy to be overvalued and predicts that interest rates will rise again in early 2009. But perhaps the key piece of wisdom came from Boehly: "There are none so blind as those who will not see. There are lessons from the past."

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