The energy grid is going to need a lot more capacity to power booming demand for artificial intelligence and supercomputing, according to Lazard’s president Raymond McGuire.

“The amount of energy that’s needed to support that — the demand on the grid — is going to be much greater than the supply that we have today,” he said. “We don’t have the infrastructure today to meet that demand.”

That’s one reason when he was asked at Delivering Alpha how he would invest $1 trillion, McGuire answered this way: “A third each into energy transition, housing and education.”

While AI wasn’t name-checked in that answer, he explained that the two big tech investing themes he sees, AI and cybersecurity, “are all governed by human capital,” and without education, we won’t succeed in these areas.

— Samantha Subin

While inflation may be under control and the Fed at, or at least near, the end of its rate-hiking cycle, Rick Rieder, BlackRock senior managing director and chief investment officer of global fixed income, isn’t ready to take much duration risk in the bond market.

“I think we’ve got some time … but there’ll be a point in time you want to get some more duration,” he said at Delivering Alpha.

It’s just that the time is not now, not yet.

Rieder thinks that the Fed does want to “get another ’25’ in,” referring to one more rate hike of 25 basis points — the market is currently rating that outcome at odds of only roughly 25%.

In the current market, the BlackRock bond trading guru is instead focusing more on the “boring” world of commercial paper.

“I love commercial paper at 6.5% for one year,” Rieder said,. noting that he started his trading career in commercial paper decades ago and is now surprisingly back to a focus on it. “I know what my return is gonna be for single A issuers, big high-profile issuers and I can just lock in that rate.”

Better yet, if he locks in that rate in Australian issues, he can then convert it back into dollars at 6.5%-plus, he said.

That’s during a period of time when treasuries have been extremely volatile, moving by as much as 800 basis points, Rieder noted.

“We’ve got some time and the fulcrum point on the yield curve is the five year. There will be point in time to get some duration in but not yet,” he said. 

— Eric Rosenbaum

Altimeter Capital Chair and CEO Brad Gerstner says the artificial intelligence boom is a “supercycle” like the rise of internet in the late 1990s where there could be conflicting sentiments and uncertainties.

“We like to describe these moments as super cycles, right? The Internet, mobile, cloud computing and now AI,” Gerstner said. “You have to get comfortable with two simultaneous but competing truths. On the one hand, we probably overestimate in the very short term which leads to price inflation.”

AI has been dominating headlines this year, creating a buying frenzy on Wall Street that pushed major enabler Nvidia over a $1 trillion market cap. Buzzy chatbot ChatGPT, capable of taking written inputs from users and producing a human-like response, was an instant phenomenon globally, becoming the fastest-growing software in history.

“But much like the internet in ’98 and ’99 where there was overpricing in the short run, we dramatically underestimated the impact it was going to have over the preceding decade,” Gerstner said.

— Yun Li

The stock market’s recent weakness shouldn’t be ignored by investors looking at how much the market is still up year-to-date. More pain is coming for stocks, says tech investor Brad Gerstner.

His firm has reduced its exposure to long equities’ bets by at least 50%, he told CNBC’s Scott Wapner at Delivering Alpha.

“I think the risk has increased that the Fed has overshot,” he said.

Gerstner pointed to consumer data points that show the lag effects that occur throughout the economy amid higher rates are increasing, from travel demand to housing demand and purchases of big-ticket items like RVs.

“I mean, think about this. We’ve gone from effectively a 0% interest rate environment, where corporations borrowed for free and consumers borrowed for free, to now we have 8% mortgages; we have 10% car loans; we have 20% credit cards, student loans are about to kick in, the huge bulge of corporate borrowing that occurred at next to nothing, April to December 2020, now has to get ‘re-fied’ [refinanced] at rates a lot of these companies can’t afford. So this is the definition of lag effect.”

While Gerstner didn’t say whether he’s confident there will be a hard landing for the economy, he thinks the market is underestimating the risk of one more Fed rate hike and he said he is confident that “we’re going to have meaningful slowing in 2024.”

That’s why “dollars at risk on the long side relative to dollars at risk on the short side are down by at least 50%,” he said. 

— Eric Rosenbaum

Markets work according to supply and demand, and one under-supplied market where there is still huge opportunity is in real estate, especially niches like student housing, according to Kathleen McCarthy, global co-head of real estate at Blackstone, the world’s largest commercial property owner.

“We have seen insufficient new supply of housing for the demand for it in the markets where you’ve seen job population or student growth,” she said at the conference.

Even after a period of rapid rent growth that has cooled, economics remains strong for landlords.

“In all the different markets where we invest, major cities in Europe, major cities across Asia, U.S. certainly, I think what is supporting demand for rental housing is the overall, I’d say, high cost of housing.”

Particularly in a higher rate environment, she said, there need to be more options.

“I do think that’s attractive in a world where purchasing a home is 50% more expensive on a monthly cost basis than renting a home or renting an apartment,” she said.

“When you have over a decade of not delivering enough supply for the household formation, the path out is to have more supply of housing,” she added.

— Eric Rosenbaum

How to play the decarbonization trend was a big part of the discussion between international investing executives, but they looked to the U.S. as a major opportunity despite the partisan political divide on the issue.

While you can make the case that an investment boom related to the Inflation Reduction Act already is a major story in the U.S., Suni Harford, UBS Asset Management president, said she thinks the opportunities are still mostly being overlooked.

“It’s a huge amount of investment,” she said. “There’s a tremendous amount of opportunity here in the U.S., in energy storage, and that’s not a political story.”

She pointed to Texas, a state where the politics can be big and loud, but where she said in her own experience traveling through the state she saw oil rigs on one side of the road and wind farms on the other. “They get it,” she said.

While ESG has become a controversial word, she advised investors to focus on the “tremendous trends in the ESG space that are wide open for investment.”

Even if the 2024 elections lead to a threat to the IRA, Harford said that the provisions in the act that promote investment and growth will work on both sides of the aisle.

“We believe the vast majority will stay in place,” she said.

— Eric Rosenbaum

Mark Delaney, AustralianSuper chief investment officer & deputy CEO, noted at the conference some of the things he saw on a recent trip to China that have big implications for the global economy, like a lack of construction cranes in Beijing. But he also spoke about an experience he had: being driven by an autonomous EV on a Chinese highway.

“It went out on the highway, changing lanes … no one in the front seat, and it was quite a unique experience on a three-lane highway. … It almost ran into a bus.”

Even with that near-collision, Delaney came away from the experience with a reinforced view of China’s EV lead. “They are heading down the EV path and it’s the biggest car market in the world and they are going to be very dominant.”

“This is China,” added Suni Harford, UBS Asset Management president. “If they want everyone to drive an EV, they will drive an EV.”

— Eric Rosenbaum

Despite concerns about a recession and a softening of the consumer, companies are still spending. S&P 500 companies have ramped up capital expenditures for the ninth straight quarter, which follows years of underinvestment, according to a recent report from Bank of America.

That has presented several investment opportunities, said Tina Byles Williams, Xponance founder, CEO, & chief investment officer.

“The capex recovery is a global story,” Williams said. “The offshoring, inshoring, enemy shoring with China, trying to subvert potential sanctions in Vietnam or Mexico, the green transition making up for under-investments in ESG, all of that leads to an interesting capex story that I think that has a lot of legs and opportunities for long-term investors.”

Edwin Cass, CPP Investments chief investment officer, said that even with corporate leadership sentiment falling, capex has held up as CEOs continue to reinvest in their businesses.

“In some sense they need to, because they need to reshore or energy transition,” Cass said. “The thing about capex is that it builds on itself; one company’s capex is going to another company and that company uses capex.”

But Cass also warned that he is actively monitoring to see if capex holds, or if it could be a lagging indicator at this point.

“We talk about the very, very resilient U.S. consumer that has certainly been buoying the entire world,” Cass said. “If the consumer begins to stumble, how does it make it through the chain and eventually hit some of the capex?”

— Ian Thomas

AustralianSuper Chief Investment Officer Mark Delaney believes this year’s rally has been a bear market bounce and he thinks it’s important to be selective.

Given the tremendous rise in interest rates, Delaney said he finds floating-rate securities attractive. The fixed payments on floating rates go up as rates rise, which helps preserve their value.

“I’m in the bear market rally camp,” Delaney said at the conference. Anything with a floating rate nature “must be a pretty compelling opportunity.”

— Yun Li

TCW Group CEO Katie Koch sees a recession coming for the U.S. economy and is encouraging investors to play it safe.

“We are going to have a recession, because that’s the way the world works,” Koch said during the opening Delivering Alpha panel. “We haven’t had a real one for over a decade and a half.”

To combat the slowdown, she recommends a variety of conservative investments, ranging from Treasurys to mortgage-backed securities to cash. “We haven’t seen the pain of higher rates, but it’s coming.”

—Jeff Cox

The U.S. press doesn’t miss a day playing up the geopolitical rivalry with China, with the business press specifically focusing on the risks to companies relying on Chinese consumers and suppliers. But two top international investing executives say that you shouldn’t believe everything you read.

Mark Delaney, AustralianSuper chief investment officer & deputy CEO, said he just returned from a trip to China and saw several notable things in Beijing. One, there were very few construction cranes. Second, there were very few foreigners. Third, he saw a lot of retired people who looked like they were having a great time. “They were healthy and they’ve got singing competitions and line dancing.”

While the lack of construction illustrates the economic trouble in the country, he said the lack of foreigners should highlight the risk of trusting what you hear from Western experts. “China is just China. It’s just different and they are managing their way through like they’ve always done. So I didn’t think it was anywhere near as bad as people thought it was,” Delaney said.

He added that many China experts have said over the past two decades that the government in the country is “very practical.”

“That’s something you don’t pick up from the Western press,” he said.

Suni Harford, UBS Asset Management president, agreed. “We rely on the media, with all due respect, to tell us these stories. There are no foreigners there, people don’t know, they’re not on the ground,” she said, referring to the fact that most readers of news in the U.S. do not have real-life experience visiting China — her firm has staff on the ground in China. The headlines about an invasion of Taiwan aren’t something you hear about nearly as frequently in Europe, or when you travel in the Asian region, she said. “If you’re in Europe, you have a very different perspective on U.S.-China relations and how danger[ous] it is. … You go to Asia or Europe and it’s not the same issue that’s the first of mind that everybody has. It’s not about the [South] China Sea and it’s not about Taiwan. .. How much of the news we get has a political bent to it?”

“We’ve been there for a very long time, and we will be there for a very long time. … we actually believe in China,” she said. And she added that at a time of increasing talk of de-globalization or de-coupling from China, she said, “I’m a long-term believer we’re going to be global again.”

— Eric Rosenbaum

One reason the Federal Reserve won’t raise interest rates in 2024 is because it won’t want to become a story during an election year, according to Tina Byles Williams, CIO at multi-strategy investment firm Xponance.

“The Fed is going to stay behind the curve because it doesn’t want to be part of the election narrative,” Williams said at CNBC’s Delivering Alpha conference Thursday.

She noted that the Fed historically hasn’t raised rates within six months of an election.

Fed officials already have indicated that they expect to cut rates by half a percentage point next year. Well-anchored inflation expectations and the presidential race give them further ammunition, said Williams, who thinks the U.S. could enter recession but probably not until “way at the end” of next year.

—Jeff Cox

Many investors were burned in the years leading up to Covid during the rise of ESG and the bear market in oil. Buying energy amid all that negativity paid off in a major way for investors, and as oil comes off its most recent bull run, energy remains a big part of the equation for the Teacher Retirement System of Texas.

“We like that investment,” said Jase Auby, the chief investment officer for the pension system, which has a 6% allocation to energy and energy infrastructure.

Even after energy’s big comeback, there is still a lot of pressure on many institutions to stay out, or get out, of fossil fuel investments, and Auby said it helps when other pools of capital are exiting an asset class. He said investing in energy becomes a strategic advantage when others are backing away from the sector and in a market dominated by passive beta, strategic advantages are rare.

“We like that from a flows perspective,” he said. But he added that new investors are coming in, especially family offices around the country “stepping in where there might be a dearth of capital.”

It’s a risky asset class and oil prices can go down as quickly as they go up, especially if the economy weakens. Auby said his pension system stress tests for oil prices because it is very volatile. While he hesitated to put a number on where energy investments “break” because it is different for every exploration and production company and opportunity, he did say that if you take the fracking industry as an example, a breakeven number that’s fair to use is $50 a barrel.

The Texas pension system is a long-term investor and looks at energy that way, as it does the broader commodities complex. But Auby said it’s important to make a distinction between long-term and infinite, and to evaluate energy and commodities holdings based on business risk. “I get the hedge in the inflation scenario,” he said, adding that the pension system holds commodities in its risk parity portfolio for inflation reasons. But he added, just holding commodities for the long-term the expected rate of return “goes to zero.”

— Eric Rosenbaum

Returns on private credit look appealing in today’s market, according to Oaktree’s Armen Panossian.

“There’s clearly a need for a replacement source of capital from pension plans, insurance clients, institutions and even retail entering that market,” with the departure of incumbent lenders, said the incoming co-CEO and head of performing credit. “I think the need is quite apparent and the returns are very attractive given the risk.”

— Samantha Subin

Even with the recent decline in stocks, the market has been resilient this year, but two top investing officials say investors should not be complacent when looking at U.S. stock market returns year-to-date. Things are likely to get worse before they get better, and with cash in the bank able to earn 5%, aggressively betting on stocks in the short-term is a mistake.

“We’re more bearish than most people about what lies ahead,” said Katie Koch, TCW President & CEO. “Things break when you reprice aggressively,” she said.

With the Fed raising rates from zero to above 5%, the lag effects of monetary policy on the economy haven’t fully hit yet and the longer it takes for them to hit, the more things that will break, Koch said.

“You’re getting paid to be patient right now,” Koch said. “Cash has a good return.”

Dawn Fitzpatrick, Soros Fund Management CEO & chief investment officer, noted that the hundreds of billions that banks are holding in to-maturity bond portfolios are still holding a lot of pain under the surface that’s being exacerbated by the recent spike in bond rates.

Meanwhile, U.S. consumers have $2 trillion in mortgages that are fixed rate and that means the pain of the interest rate rise isn’t felt as acutely, in real-time, in the U.S. as it is in other markets, where more mortgages are floating rate.

“Everything gets harder from here,” she said.

— Eric Rosenbaum

The U.S. dollar has defied a lot of market pundit calls in the recent past, but with $33 trillion in national debt, and a government debt load that is rising, don’t bet on the currency’s continued strength.

That’s the view of Tina Byles Williams, Xponance founder, CEO, & chief investment officer.

Answering an audience question at Delivering Alpha about the market and economic impact of the rising national debt, she said, “The first victim is the U.S. dollar.”

“People have been saying that and lost money for a while, but it is 21% above purchasing power parity levels,” she said.

“That is the first to me, and most direct asset class victim … and that then has implications on U.S. equities vs non-U.S. equities.”

“I think it’s the primary victim. I can think of others, but that’s the one at the center of the bullseye.”
— Eric Rosenbaum

Remember what happened in retail a decade ago as large swaths of retail properties starting disappearing? That’s going to happen in the office market next.

About a third of the existing supply of office square footage will need to get taken out of the market, led by office properties that aren’t the top tier, TCW CEO and president Katie Koch said.

“We have to give people a reason to come to work and that has to be nice property,” she added.

The debt load in the market will remain under stress as well.

“A trillion and a half dollars of the CMBS market is going to need to be extended in the next about year and a half at four point higher,” Koch said.

Koch, who noted that TCW is both a tenant and investor in downtown Los Angeles, said that it is a “really tough real estate market” for big cites across America, which will lead to that supply getting taken out of the market.

“We’ve had a few people start to walk away from buildings in Los Angeles, San Francisco, other cities,” she said. “It is a long tailed event.”

— Ian Thomas

Even after this year’s run up, artificial intelligence still has more room to run, according to TCW CEO and president Katie Koch.

“We’ve got a long way to go for the story to play out,” Koch said, noting that while all technologies go through hype cycles, AI hasn’t hit its peak just yet.

She called AI a “transformational technology” likening it to mobile phones and one that will determine the winners and losers across sectors.

— Samantha Subin

The 13th annual CNBC Delivering Alpha Investor Summit is taking place at a crucial time for markets as investors grow concerned about a further pullback in stocks. A majority of Wall Street investors haven’t taken solace in stocks’ 2023 gains, thinking the market could retreat further as risk of a recession creeps up, according to the new CNBC Delivering Alpha investor survey. 

We polled about 300 chief investment officers, equity strategists, portfolio managers and CNBC contributors who manage money about where they stood on the markets for the rest of 2023 and beyond. The survey was conducted this week.

More than 60% of respondents believe the stock market’s gain this year has just been a bear market bounce, seeing more trouble ahead. A total of 39% of investors believe we are already in a new bull market.

Asked about the probability of a recession, 41% of survey respondents said they expect one in the middle of 2024, and 23% said a downturn will arrive later than 12 months from now. Only 14% said they don’t expect a recession.

— Yun Li