Novogratz Calls Euro Liability as Chanos Expects Exits

Michael Novogratz of Fortress Investment Group LLC (FIG) said the euro will decline this year, and Litespeed Management LLC’s Jamie Zimmerman and Kynikos Associates Ltd.’s Jim Chanos said Greece will exit the currency.

“It’s a liability currency this year,” Novogratz said in an interview during “Titans at the Table,” which airs tonight at 9 p.m. New York time on Bloomberg Television. “It will be the entire year. It probably will be a liability currency for the next few years.”

Novogratz, 47, principal and director at New York-based Fortress, said the European Central Bank may lower interest rates or inject more money into the economy, spurring the euro to fall. He isn’t calling for countries to leave the currency, he said.

European finance ministers approved a 130 billion-euro ($172 billion) package for Greece on Feb. 21 by tapping into ECB profits and convincing investors to provide more debt relief to the Mediterranean country. The deal includes a 53.5 percent writedown for investors in the nation’s debt. The package means Greece won’t miss a 14.5 billion-euro debt payment scheduled for next month, which risked triggering concern that other nations might also default.

Zimmerman, chief executive officer and founder of Litespeed, and Chanos, 54, president and founder of Kynikos, whose hedge funds are both based in New York, said Greece will be forced out of the euro.

Euro Breakup

Portugal may also have to exit, Chanos said in the interview, taped Feb. 13 at Danny Meyer’s The Modern restaurant.

“Gone,” Zimmerman said after being asked for her thoughts on the euro currency. “Parts of it are. I think Greece goes back to the drachma. The rest of it stays for a while. It’s shocking.”

There is about a 29 percent chance that at least one country currently using the euro will change its official currency by Dec. 31, based on bets made at Intrade.com yesterday. John Paulson, the hedge fund manager, said in a letter to clients this month that Greece may default by the end of March and trigger the breakup of the currency.

Zimmerman is finding opportunities in European and U.S. companies undergoing restructurings, she said. Litespeed is also taking advantage of a steady stream of bankruptcies, she said, recounting the recent filings of American Airlines Inc., Eastman Kodak Co (EKDKQ). and MF Global Holdings Ltd (MFGLQ).

Best Ideas

Managers were asked to give their best investment ideas for this year. Steve Kuhn, head of fixed-income trading and portfolio manager at Minnetonka, Minnesota-based Pine River Capital Management LP, said he is betting that the price of subprime debt will climb, echoing similar calls by managers including Paulson, Greg Lippmann of LibreMax Capital LLC and Kyle Bass of Hayman Capital Management LP.

“We should reverse the big short,” Kuhn said, referring to investors who made some of the biggest profits from the 2007 bust in U.S. mortgages. “Being long subprime mortgage bonds in 2012 might be the best long, at least for 2012. Every other form of taking credit risk is more expensive.”

Kuhn recommended buying Two Harbors Investment Corp. (TWO), a publicly traded REIT run by Pine River Capital that purchased subprime bonds last year.

Novogratz said he is betting on emerging-market currencies for the first part of this year as he seeks more exposure to market risk. Twenty-two of 25 emerging-market currencies tracked by Bloomberg advanced against the dollar in January. He expects the U.S. Standard & Poor’s 500 Index to reach as high as 1,390, and didn’t cite a time range for the gain.

“We’re long risk,” Novogratz said. “Then it’ll be over and we’ll probably take the reverse side of it.”

China Shorts

Chanos said he is shorting, or betting against, Chinese developers and banks, as well as financial-services, machinery and cement companies. Chinese lenders don’t have enough capital to offset bad loans as economic growth slows, he said. He is also wagering against Australian and Brazilian mining companies, which sell commodities to China. In a short sale, an investor borrows a security and sells it, expecting to profit from a decline by repurchasing it later at a lower price.

“The government is now acknowledging it’s going to have to defer repayments of lots of loans,” said Chanos, who predicted the collapse of Enron Corp (ENRNQ). in 2001. “It’s just unprecedented, whether it’s infrastructure, manufacturing, residential real estate, commercial real estate. Everything now is going into over-supply over there.”

To contact the reporters on this story: Kelly Bit in New York at kbit@bloomberg.net; Betty Liu in New York at bliu17@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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