Acceptance Speech for Wayne D. Lisky
A synopsis of remarks by Wayne D. Lisky Upon His Induction Into FIASI's Hall of Fame on November 12, 1998
Upon receiving FIASI’s Hall of Fame award, Wayne D. Lisky, Chief Investment Officer of Alliance Fixed Income Investors, discussed the current financial environment. He points out that 1998 is a lousy year "and not over yet."
In 1998, economists have learned to revise their forecasts even faster. Bonuses will be slim, and some people in the fixed income industry are experiencing sleeplessness. The year is filled with "bathos," an abrupt descent from an exalted position to the commonplace. Securitization - which for a while was applied to anything with a cash flow and some without - will slow. The credit market has been transformed to a credit organism. As market volatility increases so does credit volatility; as the volatility of credit increases, ratings become much more important.
Banks and non-banks must decide where they want to be. Liquidity plays in an important role in making that decision. In a "revenge of the nerds," the market will appreciate real money managers. Real value depends upon how much a company is leveraged. Relative value becomes much more important in terms of performance; research will also become more important.
In the European market, the advent of the Euro will produce an explosion of credit issues. This creates a huge opportunity.
When asked about the future of hedge funds, Mr. Lisky believes that hedge funds will no longer try to leverage spreads since that style is not viable. Looking for major differences in the market of 40 to 100 basis points is a way to find relative value.
When asked about the recovery of Japan, Mr. Lisky said it is hard to be overly negative about Japan. Eight percent of credit flows through banks, but the banking system is nonfunctional. He believes the system cannot be fixed by throwing money at the banks, but he did not suggest how to correct the downward spiral.
As far as the current situation around the world, Mr. Lisky is not very optimistic. Asia is on a downward path; Europe and the United States have already peaked and growth will probably slow. Latin America is declining. This all suggests a risky credit environment. Equities are too high, and Fed Funds should drop to about 3-1/2%. U.S. Treasuries are still the best securities, though some corporations also have good securities.
