Financial experts at the fifth annual University of Virginia Investing Conference, held Nov. 15 and 16 at the Darden School of Business, grappled with the intricacies of the global financial crisis, the new health care laws, the future of financial markets and energy, and the fast-approaching fiscal cliff.
The 650 attendees of the sold-out conference gained insights from more than a dozen asset management experts who addressed the topic, “After the Election: Realities, Opportunities and Challenges for Investors.” The consensus: tough times ahead.
Robert F. Bruner, dean of the Darden School, said, “You came here for fresh ideas, and I don’t think you’ll be disappointed.”
Sheila Bair, the former chair of the U.S. Federal Deposit Insurance Corporation and author of the book “Bull by the Horns: Fighting to Save Main Street From Wall Street and Wall Street From Itself,” began by examining the root cause of America’s fiscal crisis. “It’s not rocket science,” she said. “It was caused by speculation with borrowed money.”
She criticized the 2008 government bailout: “People didn’t have to take their medicine. You made a lot of money then the government bailed you out. In fact, you were getting bonuses. Who wants to reform that system?”
To prevent another crisis, Bair said financial institutions must understand that bailout is not an option. She predicted, “I think the financial system is going to be smaller, and I don’t think it will be producing a lot of good returns.”
Kyle Bass, founder of Hayman Capital Management LP, turned attention to Japan, which has the biggest debt-to-GDP ratio in the world and, he said, is edging toward default. Its economic collapse would exacerbate the global financial crisis. “The smartest people in Japan are running from the yen,” Bass said, adding. “I hope I’m wrong, but I’m paid to be a realist.”
Speakers on Friday focused on the “fiscal cliff,” a term used to describe the more than $500 billion in tax increases and widespread spending cuts scheduled to go into effect at midnight on Dec. 31.
Flip Pidot, founder and CEO of American Civics Exchange, a public policy futures market, sees “no zone of agreement” between the nation’s two political sides. “As the fiscal cliff problems increase, hiring is put off, projects are scrapped,” he said. “It’s a significant impact on the economy.” He predicts Congress will “continue to dither back and forth. We’ll see a short-term patch of fix. Then they’ll kick it down the road again.”
Lawrence Goodman, president of the Center for Financial Stability, is optimistic that an agreement will be struck, but said the “fiscal cliff will continue to be contentious and rattle the markets.” Investors face “tremendous policy and regulatory uncertainty,” a shrinking financial sector and overvalued bonds.
John B. Taylor, director of Stanford University’s Introductory Economics Center, took the pulse of the U.S. economy. “The poor performance continues. Things are worse than they should be,” he said, adding, “I think economic policy is the problem. The fiscal cliff is a representation of how shaky policy really is.”
Dennis Lockhart, president and CEO of the Federal Reserve Bank of Atlanta, painted a brighter picture. “New orders are encouraging. … Consumer spending is holding up as is the consumer confidence level. The housing market is showing signs of life. … I have some confidence the housing recovery is under way,” he said.
Stephanie Ruhle, an anchor for Bloomberg Television – the exclusive broadcaster of the conference – moderated a lively Q&A on financial markets with Goodman, Lockhart and Taylor.
David Smith, associate professor in U.Va.’s McIntire School of Commerce, led a conversation on health care with Dr. Richard Evans, general manager and co-founder of Sector & Sovereign LLC; Robert J. Hugin, chairman and CEO of Celgene Corporation; and Dr. Jay Venkatesan, portfolio manager and managing partner of Ayer Capital Management. A key issue discussed was the future impact of the Patient Protection and Affordable Care Act, signed into law in 2010 by President Obama.
“It’s so complex and so technical it’s mind-numbing,” Hugin said of the law. “But it’s so significant. It will have a dramatic impact on different segments of health care.” Financing the new coverage will mean health costs will jump from 16 percent of GDP to 25 percent by 2025, he said. “We’re going to live our entire lifetimes reforming our health care.”
Evans noted that the new health care law will require a subsidy for about 65 percent of American households to buy health insurance on exchanges. And Venkatesan added that Obama “is bringing an increased number of people into the health system.” The influx of new patients will create a shortage of physicians, and hospitals and health plans will likely merge to save money.
“We’ll bring in physicians from outside the U.S., and we’ll rely more on nurse practitioners,” Evans said.