Tech investor Brad Gerstner calls AI a ‘supercycle’ like the rise of internet

Altimeter Capital Chair and CEO Brad Gerstner says the artificial intelligence boom is a “supercycle” like the rise of internet in the late 1990s where there could be conflicting sentiments and uncertainties.

“We like to describe these moments as super cycles, right? The Internet, mobile, cloud computing and now AI,” Gerstner said. “You have to get comfortable with two simultaneous but competing truths. On the one hand, we probably overestimate in the very short term which leads to price inflation.”

AI has been dominating headlines this year, creating a buying frenzy on Wall Street that pushed major enabler Nvidia over a $1 trillion market cap. Buzzy chatbot ChatGPT, capable of taking written inputs from users and producing a human-like response, was an instant phenomenon globally, becoming the fastest-growing software in history.

“But much like the internet in ’98 and ’99 where there was overpricing in the short run, we dramatically underestimated the impact it was going to have over the preceding decade,” Gerstner said.

— Yun Li

The boom in student housing isn’t about to end

Blackstone's Kathleen McCarthy: Student housing generates a lot of strong cash flow growth for us

Markets work according to supply and demand, and one under-supplied market where there is still huge opportunity is in real estate, especially niches like student housing, according to Kathleen McCarthy, global co-head of real estate at Blackstone, the world’s largest commercial property owner.

“We have seen insufficient new supply of housing for the demand for it in the markets where you’ve seen job population or student growth,” she said at the conference.

Even after a period of rapid rent growth that has cooled, economics remains strong for landlords.

“In all the different markets where we invest, major cities in Europe, major cities across Asia, U.S. certainly, I think what is supporting demand for rental housing is the overall, I’d say, high cost of housing.”

Particularly in a higher rate environment, she said, there need to be more options.

“I do think that’s attractive in a world where purchasing a home is 50% more expensive on a monthly cost basis than renting a home or renting an apartment,” she said.

“When you have over a decade of not delivering enough supply for the household formation, the path out is to have more supply of housing,” she added.

Eric Rosenbaum

Ignore the ESG politics, seek the IRA opportunity, says UBS exec

Suni Harford, UBS Asset Management President, speaking at the Delivering Alpha conference in NYC on Sept. 28th, 2023.

Adam Jeffery | CNBC

How to play the decarbonization trend was a big part of the discussion between international investing executives, but they looked to the U.S. as a major opportunity despite the partisan political divide on the issue.

While you can make the case that an investment boom related to the Inflation Reduction Act already is a major story in the U.S., Suni Harford, UBS Asset Management president, said she thinks the opportunities are still mostly being overlooked.

“It’s a huge amount of investment,” she said. “There’s a tremendous amount of opportunity here in the U.S., in energy storage, and that’s not a political story.”

She pointed to Texas, a state where the politics can be big and loud, but where she said in her own experience traveling through the state she saw oil rigs on one side of the road and wind farms on the other. “They get it,” she said.

While ESG has become a controversial word, she advised investors to focus on the “tremendous trends in the ESG space that are wide open for investment.”

Even if the 2024 elections lead to a threat to the IRA, Harford said that the provisions in the act that promote investment and growth will work on both sides of the aisle.

“We believe the vast majority will stay in place,” she said.

Eric Rosenbaum

China is going to be ‘very dominant’ in EVs, says Australian pension chief

Mark Delaney, AustralianSuper Chief Investment Officer & Deputy Chief Executive, speaking at the Delivering Alpha conference in NYC on Sept. 28th, 2023.

Adam Jeffery | CNBC

Mark Delaney, AustralianSuper chief investment officer & deputy CEO, noted at the conference some of the things he saw on a recent trip to China that have big implications for the global economy, like a lack of construction cranes in Beijing. But he also spoke about an experience he had: being driven by an autonomous EV on a Chinese highway.

“It went out on the highway, changing lanes … no one in the front seat, and it was quite a unique experience on a three-lane highway. … It almost ran into a bus.”

Even with that near-collision, Delaney came away from the experience with a reinforced view of China’s EV lead. “They are heading down the EV path and it’s the biggest car market in the world and they are going to be very dominant.”

“This is China,” added Suni Harford, UBS Asset Management president. “If they want everyone to drive an EV, they will drive an EV.”

Eric Rosenbaum

Capex boom is an ‘interesting story’ to watch, investment managers say

Edwin Cass, CPP Investments Chief investment Officer, speaking at Delivering Alpha in NYC on Sept. 28th, 2023.

Adam Jeffery | CNBC

Despite concerns about a recession and a softening of the consumer, companies are still spending. S&P 500 companies have ramped up capital expenditures for the ninth straight quarter, which follows years of underinvestment, according to a recent report from Bank of America.

That has presented several investment opportunities, said Tina Byles Williams, Xponance founder, CEO, & chief investment officer.

“The capex recovery is a global story,” Williams said. “The offshoring, inshoring, enemy shoring with China, trying to subvert potential sanctions in Vietnam or Mexico, the green transition making up for under-investments in ESG, all of that leads to an interesting capex story that I think that has a lot of legs and opportunities for long-term investors.”

Edwin Cass, CPP Investments chief investment officer, said that even with corporate leadership sentiment falling, capex has held up as CEOs continue to reinvest in their businesses.

“In some sense they need to, because they need to reshore or energy transition,” Cass said. “The thing about capex is that it builds on itself; one company’s capex is going to another company and that company uses capex.”

But Cass also warned that he is actively monitoring to see if capex holds, or if it could be a lagging indicator at this point.

“We talk about the very, very resilient U.S. consumer that has certainly been buoying the entire world,” Cass said. “If the consumer begins to stumble, how does it make it through the chain and eventually hit some of the capex?”

— Ian Thomas

AustralianSuper’s Mark Delaney finds floating-rate securities compelling

Anything with a floating-rate nature 'must be a pretty compelling opportunity': AustralianSuper CIO

AustralianSuper Chief Investment Officer Mark Delaney believes this year’s rally has been a bear market bounce and he thinks it’s important to be selective.

Given the tremendous rise in interest rates, Delaney said he finds floating-rate securities attractive. The fixed payments on floating rates go up as rates rise, which helps preserve their value.

“I’m in the bear market rally camp,” Delaney said at the conference. Anything with a floating rate nature “must be a pretty compelling opportunity.”

— Yun Li

Investors should prepare for a coming recession, TCW CEO says

We are going to have a recession because that’s the way the world works, says TCW CEO Katie Koch

TCW Group CEO Katie Koch sees a recession coming for the U.S. economy and is encouraging investors to play it safe.

“We are going to have a recession, because that’s the way the world works,” Koch said during the opening Delivering Alpha panel. “We haven’t had a real one for over a decade and a half.”

To combat the slowdown, she recommends a variety of conservative investments, ranging from Treasurys to mortgage-backed securities to cash. “We haven’t seen the pain of higher rates, but it’s coming.”

—Jeff Cox

Don’t trust what you’re hearing about China, say international investing execs

Mark Delaney, AustralianSuper Chief Investment Officer & Deputy Chief Executive, speaking at the Delivering Alpha conference in NYC on Sept. 28th, 2023.

Adam Jeffery | CNBC

The U.S. press doesn’t miss a day playing up the geopolitical rivalry with China, with the business press specifically focusing on the risks to companies relying on Chinese consumers and suppliers. But two top international investing executives say that you shouldn’t believe everything you read.

Mark Delaney, AustralianSuper chief investment officer & deputy CEO, said he just returned from a trip to China and saw several notable things in Beijing. One, there were very few construction cranes. Second, there were very few foreigners. Third, he saw a lot of retired people who looked like they were having a great time. “They were healthy and they’ve got singing competitions and line dancing.”

While the lack of construction illustrates the economic trouble in the country, he said the lack of foreigners should highlight the risk of trusting what you hear from Western experts. “China is just China. It’s just different and they are managing their way through like they’ve always done. So I didn’t think it was anywhere near as bad as people thought it was,” Delaney said.

He added that many China experts have said over the past two decades that the government in the country is “very practical.”

“That’s something you don’t pick up from the Western press,” he said.

Suni Harford, UBS Asset Management President, speaking at the Delivering Alpha conference in NYC on Sept. 28th, 2023.

Adam Jeffery | CNBC

Suni Harford, UBS Asset Management president, agreed. “We rely on the media, with all due respect, to tell us these stories. There are no foreigners there, people don’t know, they’re not on the ground,” she said, referring to the fact that most readers of news in the U.S. do not have real-life experience visiting China — her firm has staff on the ground in China. The headlines about an invasion of Taiwan aren’t something you hear about nearly as frequently in Europe, or when you travel in the Asian region, she said. “If you’re in Europe, you have a very different perspective on U.S.-China relations and how danger[ous] it is. … You go to Asia or Europe and it’s not the same issue that’s the first of mind that everybody has. It’s not about the [South] China Sea and it’s not about Taiwan. .. How much of the news we get has a political bent to it?”

We’ve been there for a very long time, and we will be there for a very long time. … we actually believe in China,” she said. And she added that at a time of increasing talk of de-globalization or de-coupling from China, she said, “I’m a long-term believer we’re going to be global again.”

Eric Rosenbaum

Presidential election to keep Fed from raising rates, private equity exec says

Tina Byles Williams, Tina Byles Williams, Xponance Founder, CEO, & Chief Investment Officer, speaking at the Delivering Alpha conference in NYC on Sept. 28th, 2023.

Adam Jeffery | CNBC

One reason the Federal Reserve won’t raise interest rates in 2024 is because it won’t want to become a story during an election year, according to Tina Byles Williams, CIO at multi-strategy investment firm Xponance.

“The Fed is going to stay behind the curve because it doesn’t want to be part of the election narrative,” Williams said at CNBC’s Delivering Alpha conference Thursday.

She noted that the Fed historically hasn’t raised rates within six months of an election.

Fed officials already have indicated that they expect to cut rates by half a percentage point next year. Well-anchored inflation expectations and the presidential race give them further ammunition, said Williams, who thinks the U.S. could enter recession but probably not until “way at the end” of next year.

—Jeff Cox

Investing in energy can be a ‘rare’ strategic edge, says Texas pension chief

Jase Auby, Teacher Retirement System of Texas Chief Investment Officer, speaking at the Delivering Alpha conference in NYC on Sept. 28th, 2023.

Adam Jeffery | CNBC

Many investors were burned in the years leading up to Covid during the rise of ESG and the bear market in oil. Buying energy amid all that negativity paid off in a major way for investors, and as oil comes off its most recent bull run, energy remains a big part of the equation for the Teacher Retirement System of Texas.

“We like that investment,” said Jase Auby, the chief investment officer for the pension system, which has a 6% allocation to energy and energy infrastructure.

Even after energy’s big comeback, there is still a lot of pressure on many institutions to stay out, or get out, of fossil fuel investments, and Auby said it helps when other pools of capital are exiting an asset class. He said investing in energy becomes a strategic advantage when others are backing away from the sector and in a market dominated by passive beta, strategic advantages are rare.

“We like that from a flows perspective,” he said. But he added that new investors are coming in, especially family offices around the country “stepping in where there might be a dearth of capital.”

It’s a risky asset class and oil prices can go down as quickly as they go up, especially if the economy weakens. Auby said his pension system stress tests for oil prices because it is very volatile. While he hesitated to put a number on where energy investments “break” because it is different for every exploration and production company and opportunity, he did say that if you take the fracking industry as an example, a breakeven number that’s fair to use is $50 a barrel.

The Texas pension system is a long-term investor and looks at energy that way, as it does the broader commodities complex. But Auby said it’s important to make a distinction between long-term and infinite, and to evaluate energy and commodities holdings based on business risk. “I get the hedge in the inflation scenario,” he said, adding that the pension system holds commodities in its risk parity portfolio for inflation reasons. But he added, just holding commodities for the long-term the expected rate of return “goes to zero.”

Eric Rosenbaum

Oaktree’s Armen Panossian says private credit returns look ‘very attractive’

Private credit returns are 'very attractive' given the risk, says Oaktree's Armen Panossian

Returns on private credit look appealing in today’s market, according to Oaktree’s Armen Panossian.

“There’s clearly a need for a replacement source of capital from pension plans, insurance clients, institutions and even retail entering that market,” with the departure of incumbent lenders, said the incoming co-CEO and head of performing credit. “I think the need is quite apparent and the returns are very attractive given the risk.”

— Samantha Subin

More reason to be patient than aggressive in markets, say TCW and Soros investing heads

Even with the recent decline in stocks, the market has been resilient this year, but two top investing officials say investors should not be complacent when looking at U.S. stock market returns year-to-date. Things are likely to get worse before they get better, and with cash in the bank able to earn 5%, aggressively betting on stocks in the short-term is a mistake.

“We’re more bearish than most people about what lies ahead,” said Katie Koch, TCW President & CEO. “Things break when you reprice aggressively,” she said.

Katie Koch, TCW President & CEO speaking at the Delivering Alpha conference in New York on Sept. 28th, 2023.

Adam Jeffery | CNBC

With the Fed raising rates from zero to above 5%, the lag effects of monetary policy on the economy haven’t fully hit yet and the longer it takes for them to hit, the more things that will break, Koch said.

“You’re getting paid to be patient right now,” Koch said. “Cash has a good return.”

Dawn Fitzpatrick, Soros Fund Management CEO & chief investment officer, noted that the hundreds of billions that banks are holding in to-maturity bond portfolios are still holding a lot of pain under the surface that’s being exacerbated by the recent spike in bond rates.

Meanwhile, U.S. consumers have $2 trillion in mortgages that are fixed rate and that means the pain of the interest rate rise isn’t felt as acutely, in real-time, in the U.S. as it is in other markets, where more mortgages are floating rate.

“Everything gets harder from here,” she said.

— Eric Rosenbaum

The U.S. dollar will be the ‘primary victim’ of rising national debt

The first victim of the $33T national debt is the U.S. dollar: Xponance CEO Tina Byles Williams

The U.S. dollar has defied a lot of market pundit calls in the recent past, but with $33 trillion in national debt, and a government debt load that is rising, don’t bet on the currency’s continued strength.

That’s the view of Tina Byles Williams, Xponance founder, CEO, & chief investment officer.

Answering an audience question at Delivering Alpha about the market and economic impact of the rising national debt, she said, “The first victim is the U.S. dollar.”

“People have been saying that and lost money for a while, but it is 21% above purchasing power parity levels,” she said.

“That is the first to me, and most direct asset class victim … and that then has implications on U.S. equities vs non-U.S. equities.”

“I think it’s the primary victim. I can think of others, but that’s the one at the center of the bullseye.”
Eric Rosenbaum

One-third of office real estate could disappear

Dawn Fitzpatrick, CEO and CIO of Soros Fund Management speaking at the Delivering Alpha conference in New York on Sept. 28th, 2023.

Adam Jeffery | CNBC

Remember what happened in retail a decade ago as large swaths of retail properties starting disappearing? That’s going to happen in the office market next.

About a third of the existing supply of office square footage will need to get taken out of the market, led by office properties that aren’t the top tier, TCW CEO and president Katie Koch said.

“We have to give people a reason to come to work and that has to be nice property,” she added.

The debt load in the market will remain under stress as well.

“A trillion and a half dollars of the CMBS market is going to need to be extended in the next about year and a half at four point higher,” Koch said.

Koch, who noted that TCW is both a tenant and investor in downtown Los Angeles, said that it is a “really tough real estate market” for big cites across America, which will lead to that supply getting taken out of the market.

“We’ve had a few people start to walk away from buildings in Los Angeles, San Francisco, other cities,” she said. “It is a long tailed event.”

— Ian Thomas

Even after the big boom, artificial intelligence hasn’t hit its peak yet

AI is a transformational technology, and we are using it: TCW CEO Katie Koch

Even after this year’s run up, artificial intelligence still has more room to run, according to TCW CEO and president Katie Koch.

“We’ve got a long way to go for the story to play out,” Koch said, noting that while all technologies go through hype cycles, AI hasn’t hit its peak just yet.

She called AI a “transformational technology” likening it to mobile phones and one that will determine the winners and losers across sectors.

— Samantha Subin

Investors see 2023 gain as a bear market bounce, CNBC survey shows

The 13th annual CNBC Delivering Alpha Investor Summit is taking place at a crucial time for markets as investors grow concerned about a further pullback in stocks. A majority of Wall Street investors haven’t taken solace in stocks’ 2023 gains, thinking the market could retreat further as risk of a recession creeps up, according to the new CNBC Delivering Alpha investor survey. 

We polled about 300 chief investment officers, equity strategists, portfolio managers and CNBC contributors who manage money about where they stood on the markets for the rest of 2023 and beyond. The survey was conducted this week.

More than 60% of respondents believe the stock market’s gain this year has just been a bear market bounce, seeing more trouble ahead. A total of 39% of investors believe we are already in a new bull market.

Asked about the probability of a recession, 41% of survey respondents said they expect one in the middle of 2024, and 23% said a downturn will arrive later than 12 months from now. Only 14% said they don’t expect a recession.

— Yun Li

Investors can get 10% in stocks, but only if you look outside U.S., says Goldman’s public investing CIO

Investors should be looking globally for buying opportunities, says Goldman Sachs' Ashish Shah

With yields of 6% available in the bond market, stocks have to do a lot to deliver on a risk-adjusted basis for investors.

They can, according to Ashish Shah, Goldman Sachs Asset Management CIO of public investing, but only for investors willing to look beyond the U.S. market.

Shah sees the setup in the markets as an “interesting buying opportunity” for equities in India and Japan, among other global markets. “Lots of good things are going on across the globe in equities and one of most important things is looking globally,” Shah said in an interview ahead of Delivering Alpha on CNBC’s “Squawk Box.”

How much should investors who buy overseas stocks expect?

“I think you can get 10% in equities, but you have to look internationally,” he said.

The U.S. dollar trend line and the tightness of U.S. balance sheets, combined with bond yields, mean that in the near-term there are headwinds for U.S. dollar-based assets. “It’s a nice setup for cheap assets abroad,” Shah said, point to reflation trades in India, where there considerable investments related to secular trends taking place, and Japan, where diversification of the supply chain is a tailwind.

And where, he said, “valuations are a lot better than in the U.S.”

Eric Rosenbaum

Wall Street is more interested in making money in China than national security, says Kyle Bass

Kyle Bass: Wall Street is more interested in making another dollar with China than national security

Kyle Bass, Hayman Capital Management founder and CIO, said investors and companies that are looking to deepen ties with China as opposed to severing them are making “the wrong bet.”

“China’s hooks on Wall Street are so deep into us, all of the big players keep saying we need more integration, not less,” Bass said on “Squawk Box” in an interview on the sidelines of Delivering Alpha. “They’re not interested in our national security, they’re interested in making another dollar, and one day we’re going to wake up and realize that was the wrong bet.”

Bass said that the desire to forge business relationships with China stems from “looking for the cheapest labor, and we’re looking for the cheapest labor with counterparties that are adversarial to our way of life and our values system.”

He called the situation with China a cold war, and said that “we’re not doing a great job but we’re starting to protect ourselves.”

One way Bass says the U.S. should be protecting itself is through an FTC review of TikTok. “TikTok broadcasts straight into our kids’ bedrooms and has never had to obtain an FTC license,” he said.

— Ian Thomas

Private equity valuations will drop as more companies face cash crunch, says Ariel Alternatives’ CEO

Valuations will continue to come down in current interest rate environment: Ariel Alternatives CEO

Les Brun, Ariel Alternatives CEO, says private equity valuations will decline as more companies “run out of cash” and need to complete transactions to fund their growth.

In an interview with CNBC’s “Squawk Box” ahead of the Delivering Alpha summit, Brun said the current situation reminds him of the 2008-2009 period when those in private equity with money were able to make a lot more money, but those holding onto assets that had seen their values drop during the crisis were going to see valuations drop even more because there wasn’t a sufficient pool of buyers. 

The current interest rate environment will add more pressure on valuations.

He said traditional companies are having trouble finding financing at rates that are attractive and transactions have to be completed with either greater amounts of equity or lower valuations. “It has to be one or the other,” he said.

“They will have to find ways to do transactions at valuations that are lower than they expected,” Brun added.

Eric Rosenbaum

Bill Ackman on deck this afternoon at Delivering Alpha

Bill Ackman, founder and CEO of Pershing Square Capital Management.

Adam Jeffery | CNBC

Treasury yields have hit multi-year highs and major stock market averages look poised to cap off a losing September and down quarter. The S&P 500 closed below the 4,300 level for the first time since June earlier this week, while the Dow Jones Industrial Average posted it largest one-day loss since March. Technology stocks have also come under pressure in recent weeks from the threat of rising rates

Comments from Pershing Square’s Bill Ackman later today could play a pivotal role in market sentiment. The renowned billionaire hedge fund manager who’s been a vocal commentator on inflation, the Federal Reserve and the state of the market is slated to speak with CNBC’s Scott Wapner at 4:15 p.m. ET.

— Samantha Subin

Leave a Reply