A footnoted.org exclusive: Michael Steinhardt on the current markets…

May 27, 2009

We take a break from our usual troll through the filings because last night, I had a chance to hear legendary hedge fund investor Michael Steinhardt speak at a Brandeis event at the Harmonie Club. Though Steinhardt has been retired from the industry for nearly 15 years now, and said he spends most of his time on philanthropic issues, including trying to set up a charter school that focuses on teaching Hebrew in (of all places as the Brooklyn native joked last night) Gerritsen Beach, he had lots to say about the current economic situation, including how impossible it is to really predict anything.

During the hour-long talk, I attempted live tweeting, focusing on the market-related issues (as opposed to the other questions that came up about philanthropy and Jewish education) though I don’t think Twitter was able to give the full flavor of the talk, which was really incredibly interesting and more than a bit inspiring.

Of particular interest to footnoted readers were Steinhardt’s comments on the SEC losing its way (he also said the Department of Justice had too). He also said that the current period has “made me less of a capitalist” because so far at least, it has been a “punishment-free period.” That’s particularly interesting given Steinhardt’s personal history with regulators. Some might remember that back in the early 1990s, Steinhardt settled with the SEC and DOJ over an investigation over T-bills, personally paying over $50 million in fines. He said the money management industry had “failed miserably” and that hedge funds were “no longer a place for the best and the brightest”.

During the talk, he kept returning to the theme that everyone is a product of the last tick. So with markets going up since early March, there’s an expectation that they will continue to go up. Ditto for back in September, when things started imploding. But the contrarian — and it would be hard to describe Steinhardt as anything but — doesn’t follow the crowd. Steinhardt also kept returning to the theme of creative destruction and said that while some companies had been allowed to fail, there was “no appetite for short-term pain” like allowing GM to fail. There was also a bit of a dig at what has to be Bob Nardelli when Steinhardt said that “failed executives go on to lead car companies”. Footnoted readers no doubt remember Nardelli’s rocky tenure at Home Depot (HD) and his enormous exit deal.

Afterward, as I stood in line to introduce myself, I heard the guy behind me — a fellow alum — say, “It must be nice to make a billion bucks and tell everyone else that they have it all f-ing wrong.” Needless to say, he didn’t say that to Steinhardt directly.

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