Michael Platt, the co-founder of BlueCrest Capital Management, was on Bloomberg Television’s “Market Makers” today making the case that “Europe has no credible plan for growth.” In his seven-minute interview with host Stephanie Ruhle, the money manager shared his belief that European Central Bank head Mario Draghi’s plan to buy government bonds is a revised version of the European Stability Mechanism (ESM) that was established last month, and quite simply, a way to buy time.
Click on the video to watch in full on Bloomberg Television.
Here are some excerpts from the interview, particularly about why Platt believes the markets have performed so well this year:
It has done very well because central banks have continued to pour money at the problem. Particularly, the ECB has continued to pour money into the markets in a process that can only really be described as buying time. These are constant liquidity fixes for solvency problems in the Eurozone.
Now, Platt and BlueCrest currently have over $25 million in assets under management, but only a fraction of that invested in US equities. Check out the fund’s 13F portfolio here, as most of its holdings are in broad-based directional plays, such as straddles on assets like the SPDR S&P 500 ETF Trust. Platt also holds put options on JPMorgan Chase and SLM Corp that comprise over 200,000 shares each. Here’s what he had to say about the remainder of 2012, and his outlook for 2013:
There’s no credible plan for growth. Monetary policy and monetary conditions in Europe are exceedingly tight, interest rates are the zero boundary, fiscal policy is incredibly tight. The IMF put out a piece strongly arguing that at this point in time, fiscal multipliers are somewhere between 0.9 and 1.7, which in English means that if an austerity packages 5% of GDP, you might see actual GDP decline up to 9%. Because of automatic stabilizers of payments for unemployed people and because of the reduction would get in the environment for tax receipts, you might not even see budget deficits fall anyway.
Speaking more specifically toward the US markets, Platt had a rather realistic attitude toward the situation, stating:
The reality is, what else do you want to do with your money? If you leave it in the bank, you get no percent. You take bank credit risk. Inflation is 1.5 to 2 so you will lose money for sure. If you put it into government debt, the yields are very, very low in the short date. You don’t like the long end of that market either and the yields are incredibly low. Commodities have not been great performers this year, particularly with the energy complex lower. There really is not a lot of alternative. You can find good stories in the equity market. Individual stocks that make sense. The earnings yield is higher, like 6-7%.
A few of Platt’s “good stories” include Dell, National-Oilwell Varco, AutoZone, eBay, Monsanto, Ralph Lauren, Marathon Oil, CME Group, CIGNA Corporation, Metlife, Texas Instruments, and American Electric Power. On the whole, BlueCrest’s 13F portfolio is overweight financials and technology, as seen here.
To conclude, Platt also mentioned that Europe could see an “enormous rally in equities,” more so than in the US, if the ECB continues to print money at its current pace, but he did warn that it is possible that eventually we’ll “reach a point where all balance sheets and all government debt is unsustainable. It will not continue forever, but at the moment, we’re going into another European downturn. It is risky.”
For a complete look at the hedge fund manager’s profile on Insider Monkey, continue reading here.
Related tickers: Dell Inc. (NASDAQ:DELL), National-Oilwell Varco, Inc. (NYSE:NOV), AutoZone, Inc. (NYSE:AZO), eBay Inc (NASDAQ:EBAY), Monsanto Company (NYSE:MON), Ralph Lauren Corp (NYSE:RL), Marathon Oil Corporation (NYSE:MRO), CME Group Inc (NASDAQ:CME), CIGNA Corporation (NYSE:CI), Metlife Inc (NYSE:MET), Texas Instruments Incorporated (NASDAQ:TXN), American Electric Power Company, Inc. (NYSE:AEP), SPDR S&P 500 ETF Trust (NYSEARCA:SPY), JPMorgan Chase & Co. (NYSE:JPM) and SLM Corp (NASDAQ:SLM).