November 26, 2012 / 11:14 PM / 5 years ago

Fiscal cliff and corporate scandal

NEW YORK (Reuters) - Bonnie Baha, senior portfolio manager and head of global developed credit at DoubleLine Capital LP, said that the “fiscal cliff” of tax hikes and spending cuts will be “kicked down the road for a six-month period,” which she fears financial markets, especially stock markets, will “hate.”

Damon Silvers, director of policy and special counsel for the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), meanwhile, stressed the importance of Congress ending the Bush-era tax cuts for the wealthy on January 1.

“We can’t afford to invest in our future ... if we continue to allow people whose incomes are in the millions and the billions of dollars to pay taxes that are less than (those of) the typical public school teacher,” Silvers said.

Those were some of the highlights from Day 1 of the Reuters 2013 Investment Outlook Summit. A variety of money managers and policy makers spoke on their top investment plays and major issues such as the “fiscal cliff.”

Here are some of their thoughts:

John Brynjolfsson, managing director and CIO of hedge fund Armored Wolf:

Brynjolfsson said that China may not be sitting on the huge property bubble that fellow short-seller James Chanos prophesied, but that it is still undergoing “growing pains.”

“I think he’s been extraordinarily wrong in a number of dimensions,” he said on Chanos’s famous call. “The office space which he talked about three years ago is all now leased and rents are going up.”

But China still faces challenges to growth. “China has some interesting growing pains, and the main thrust there is that obviously the 12 percent growth that we’ve seen for most of the past 10 years in China is probably not sustainable.”

Bonnie Baha, portfolio manager and head of global developed credit at DoubleLine Capital LP:

Baha said she has favored high-yielding non-government guaranteed mortgage securities over high-yield corporate bonds because they offer better reward relative to the risks. Also that high-yield junk bonds, a fixed income darling this year, is prone to a reversal of fortunes if institutions decide to pull back from the asset class.

“When the flows reverse - and they have started to reverse -the pricing will be incredibly volatile,” Baha said on the potential for institutional managers to exit exchange-traded high-yield funds on a large scale.

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Baha also said that Citigroup (C.N), one of the largest banks by assets, could be primed for a breakup while JPMorgan Chase (JPM.N) is “well-positioned” despite the $6 billion London Whale trading loss.

“It would make sense to break up Citi,” Baha said.

Verne Sedlacek, president and chief executive officer of Commonfund:

Sedlacek, who manages the institutional investment firm Commonfund, said he is wary of hiring portfolio managers from hedge fund S.A.C. Capital Advisors, currently embroiled in an insider trading scandal.

    “We will definitely be much more critical in terms of our evaluations if somebody came out of S.A.C.,” Sedlacek said.

    He said he decided not to invest with S.A.C. for its proximity to the scandal several years ago.

    “Once there was that smell of impropriety, it just doesn’t make sense for us to be in it,” he said.

    Damon Silvers, top policy maker at AFL-CIO:

    Silvers said that megastore chain Wal-Mart Stores (WMT.N) will have to change its business model in order to suit its employees.

    “I think it says something really terrible about our country that the country’s largest employer is systematically driving down living standards of the American workforce. I think that’s a really terrible fact,” he said.

    David Saunders, co-founder and chief executive of K2 Advisors:

    On hedge fund managers handing over the reins to the next generation, Saunders said, “Whether to continue a hedge fund is a very individual decision. Running a hedge fund takes 100 percent to 110 percent effort every day and people get tired, they get distracted and that could leave room for the next guy who is hungry.”

    Reporting by Sam Forgione and Svea Herbst-Bayliss; Editing by Jennifer Ablan and Gunna Dickson

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