University of Virginia Investing Conference Surveys Post-Election Uncertainty and Opportunity

A single question dominated the ninth annual University of Virginia Investing Conference, a two-day gathering sponsored by the Darden School of Business Richard A. Mayo Center for Asset Management:

Now what?

After an unprecedented U.S. presidential election produced Donald Trump as president-elect, conference speakers and audience members alike wanted to know what’s next for the U.S. economy, global markets and equity investments.

Although a variety of well-known investors, strategists and thought leaders repeatedly wrestled with an answer in sessions devoted to global geopolitics, stock ideas in a policy-driven world and the outlook for global credit markets, among others, the rough consensus seemed be that no one really knows what the immediate future holds.

Barry Sternlicht, chairman and CEO of the real estate-focused Starwood Capital Group, said he knew Trump well and predicted a move toward moderation in a number of areas, despite some of the extreme positions in his campaign. Sternlicht described Trump as someone of limited policy convictions who managed to ride a brilliant marketing message that perfectly suited the discontent of a wide swath of the electorate.

The sour mood came against a backdrop of an economy that is fairly strong, Sternlicht said, and he declared the current market to be “real estate nirvana” for a company with vast interests in apartments, hotels and single-family homes.

“Overall, this is the best real estate market since 1991,” Sternlicht said. “Asset classes are very healthy.”

Sternlicht’s Starwood invests all over the world and continues to see much momentum in the United States — particularly in the apartment market. Europe, on the other hand, remains a slow-growth story.

Despite the “Goldilocks” state of real estate at present, Sternlicht said what actions a new administration takes on foreign countries and currencies will have a significant impact.

“If we kick the Chinese and make a Muslim ban real, that could really affect real estate values,” Sternlicht said. “[Chinese and Middle East investors] are the highest paying guys in the world now.”

The investor said he was recently involved in a high-end New York City hotel sale for $1 million “per key” with a foreign government that wouldn’t finalize its letter of intent until after the election. Although Sternlicht reported that he had received the letter of intent on 10 November, he said he was unsure what would happen to the international flow of funds going forward.

The best near-term indication of the kind of president Trump will be might be unveiled through his Cabinet picks, Sternlicht said. If someone like JPMorgan Chase CEO Jamie Dimon comes aboard as treasury secretary, for instance, investors may breathe a sigh of relief.

Given a preexisting relationship with Trump and a deep understanding of the housing industry, Sternlicht was asked if he would serve in the administration if asked. Using colorful language, Sternlicht said he would, so long as Trump proved that he planned to act with moderation, particularly on issues involving immigration and race.

“I don’t think Donald is going do something crazy,” Sternlicht said. “It may not be that bad. We’ll see.”

Car Czar on Managing Through Uncertainty

An experienced hand in both the political and financial worlds, Willett Advisors Chairman Steven Rattner was still coming to grips with the election results at UVIC, marveling at the “very strange” outcome that had caught almost all prognosticators off guard.

Rattner, who led the effort to restructure the auto industry for the Obama administration and now manages the personal and philanthropic investment assets of Michael Bloomberg, noted the market volatility around the election, where an election night stock market plunge turned into a two-day rally.

In addition to underscoring the extraordinary difficulty in timing markets, Rattner said he believed investors, after getting over the initial shock, realized that they had elected someone who was “very pro-business” and was likely to cut business taxes and invest heavily in infrastructure.

While Willett takes a long-term investment approach, Rattner said he initially canceled all meetings for the day after the election to consider potential moves, then realized there really wasn’t any action for him to take.

“For the moment we keep our eye on the long prize,” Rattner said.

In terms of specific investment theses, Rattner said the firm was significantly overweight in the U.S., China and Japan. Like Sternlicht, Rattner sees little enthusiasm for investing in Europe at present.

Although the potential policies of the president-elect remained opaque two days after the election, Rattner was among those predicting significant changes, particularly in the area of taxes.

“I think we will have an economic revolution here that could actually exceed what Ronald Reagan wrought,” Rattner said, noting that Reagan never had an entirely Republican congress with which to work.

A Coming Building Boom?

As to what new tax and spending policies could mean for specific stocks and sectors, multiple UVIC participants suggested that stocks tied to infrastructure building — from steel to engineering and construction firms — could be smart plays.

One popular theory making the rounds held that a Trump administration may push to repatriate huge sums of capital currently held by corporations overseas, with some portion of those sums put into a fund to pay for infrastructure improvements.

Jason Trennert, managing partner at Strategas Research Partners, predicted that health care stocks and companies like Amazon could be under fire in a Trump administration. Although conventional wisdom seems to hold that a rollback of the Affordable Care Act would be a net positive for health care stocks, Trennert noted that Trump ran as a populist and “not a true free-market person,” and may be less inclined to let the market dictate pharmaceutical prices, for instance.

Regarding technology stocks like Amazon, Trennert said a Trump administration might not be as deferential to a tech sector that has largely been insulated from excessive policy meddling and is often treated as a “virtuous” industry by much of the media.

Trennert expects interest rates to increase and predicted that rise would spur growth, with many companies coming off of the sidelines to invest more.

“Having perpetually low interest rates has largely eliminated the need for companies to do capital expenditures,” Trennert said. “There’s no incentive for companies to take risk.”

The average, risk-averse CEO has been lulled into a complacency of issuing bonds at extraordinarily low rates and buying back stock, a low-growth move that nevertheless tends to be accretive to share price.

Looking Abroad For Stability

Although UVIC speakers generally suggested that the U.S. remained ripe for investment, New Sparta Holdings Chairman Jerome Booth said many investors are giving emerging markets undue short shrift.

Booth, a well-known economist, investor and commentator, is a staunch advocate of investing in emerging markets, and faults many First World investors for being blind to risks at home while obsessing over fundamentals in China, for instance.

“It’s surreal that people worry about China’s level of reserves,” Booth said. “China is exporting capital and building infrastructure across the emerging world. The Chinese really do know what they are doing. They are quite smart.”

Booth believes investors need to rethink how they view a world in which too many automatically equate the words “emerging markets” with “risk.”

“If you want to be reasonably prudent, you should invest more in emerging markets,” Booth said. “It’s important to get access to where the economic opportunities are.”

And as to what a Trump presidency might mean for the world and global investing?

“I’m of the opinion that he’ll either be a great president or a terrible mess,” Booth joked. “None of us really knows.”