Tags: Asness | Fed | Bernanke | QE

Hedge Fund Manager Asness Bets on 'Return to More Normal Market'

Sunday, 30 Jun 2013 01:50 PM

By Michael Kling

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Cliff Asness, co-founder and managing principal of AQR Capital Management, says investors need to relax.

"The preponderance of evidence right now suggests a return to more a normal market environment," Asness told Fortune. "I would bet on that, and I am with my own money."

Stocks plunged and bond yields spiked after Federal Reserve Chairman Ben Bernanke
announced the Fed might start tapering its monthly bond purchases later this year.

Video:
Economist Predicts 'Unthinkable' for 2013 


Asness, who has $80 billion under management, says the market overreacted to the Bernanke's announcement.

But the recent turmoil will end, he predicted.

"There is absolutely no reason for this to continue. There is no liquidity crisis or big unwind. This is not 2008."

Asness disagrees with those who see too much leverage or say Wall Street dealers won't support the market because of new regulations.

"Markets are functioning well," he noted.

The substantial increase in interest rates was surprising given the current low inflation, Asness stated. Plus, expectations for corporate revenues have not substantially improved and commodity prices are falling.

Either growth must improve or rates must drop.

Asness has a nonchalant attitude to the Fed's actions.

"Monetary policy is like a dog chasing a car," he told Fortune. "Central bankers are always
behind, and then not quite sure what to do when they catch up. It's just paper chasing paper."

Goldman Sachs CEO Lloyd Blankfein agrees that the market's reaction to Bernanke's announcement was excessive.

Bernanke said the Fed's exit from quantitative easing would be data dependent, Blankfein told CNBC. The pace of its exit will depend on growth, particularly the unemployment rate, and it might not necessarily begin tapering this year.

"The market understood, but the market overreacted," he said. "The market, of course, took this as 'Oh my God, it's the first moment, and it was going to be an avalanche.' And that doesn't necessarily have to be the case."

The U.S. economy has plenty of factors working in its favor, Blankfein explained. The deficit is shrinking. Greater energy production will aid manufacturing, and there is plenty of liquidity. The problem is that people are afraid to take risks in the aftermath of the financial crisis. "We are muddling through and we're actually in a very good part of the cycle," Blankfein said.

"Sentiment has a real effect. This is not natural science. It's a social science, so sentiment and people's feelings really matters in this thing," Blankfein said. "Confidence really matters."

Video: Economist Predicts 'Unthinkable' for 2013 



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