Are There Still Opportunities in Russia?

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April 28 (Bloomberg) -- GoldenTree Asset Management Partner Steve Tananbaum discusses sanctions against individuals and companies in Russia, where he sees opportunities in the current market and his investment ideas from the 2014 Milken Global Conference on Bloomberg Television’s “Market Makers.” (Source: Bloomberg)

From the milken conference.

We are joined by steve tannenbaum, the founder and ceo of golden tree asset management.

The last time we spoke and we talked about high yield to stress and student loans.

We have to talk about russia.

Clearly, it's in the news but many investors have said they do not want to touch it.

They cannot understand and don't feel comfortable with the rule of law but you feel differently?

It certainly can go a bad way.

There is certainly a clear scenario where things get worse and it would not be a good investment.

We feel it is quite attractive as an entry point.

Before there was the g7, there was the g-8. russia and the g-8 have the best statistic from debt to gdp with about 15%. the next closest was canada in the mid-30's. russia as a country is starting with very good statistics.

When you look at the themes we find interesting like gasm, that trades in the mid to low 400s and that's the largest gas company in the world.

That trades around 140 basis points or so wide to the sovereign.

To put this in perspective, we cannot find any oil company that is even close toward this trade.

Most of the companies we see trade tight or very close to the sovereign and we think this is the most important company in russia.

We feel we have a little bit of value there.

Can you trust the system?

Nouriel roubini said it's a 7 on a 1-10 scale.

It is priced as if it's a 10 so it is overestimated where it is.

When you line it up, it looks like one of the best credits in the world trading in the mid-400s. if i were thinking about what is most likely to happen, russia will ask its oil company to pay its gas bills over the sovereign.

Because it is an export, they will need to have a different system than that domestic debt.

Have you already put money in their?

Yes, what about ukrainian sovereign debt?

We feel that is a much different situation.

We are on the sidelines and with think it's impossible to analyze.

If you look at russia, it's a strong credit in a difficult environment.

If you look at the ukraine, they're a lousy credit in a tough environment where you need support and external support to justify a lot of the levels.

Everyone looking at the situation in ukraine and how the west is responding in what kind of countermeasures russia may take talked about the possibility that russia will turn off the gas supply to europe.

If they do that, that would be -- disastrous, would that not give you pause?

Its price dan.

I'm sure it will trade down that day.

We believe there is a lot of value there and asset coverage.

It is money good and it will be a very good entry point.

Let's go broader in the credit market.

Where else in credit do you see opportunity?

Howard marks told us last week that if you want to make money come you have to find a good asset class and go against the grain and be bold.

Like russia.

Let's go a couple of other places.

Assets are still cheap and asset backed that go like private student loans offer tremendous value.

We think they are about 100 basis points cheap.

The stats continue to improve.

Another area of value would be municipals.

Specifically, some of the munis like hospital municipals are also attractive.

The last one which iac would be loans.

If you look at the spread you are getting versus what we think are the default rate, you're getting a pretty healthy positive spread.

You like puerto rico?

I like the bonds.

You can have your cake and eat it too.

You can get the rapbonds at about $.60 on the dollar so you have a lot of and civil protection.

It is wrapped by the monolines so it puerto rico default, you still have the support of the monolines.

When you read about a settlement from the bigs like jpmorgan, the beneficiary of that debt are the monolines.

The settlements increase the ability of the mono lines to support other situations like puerto rico.

We feel it is quite constructive on the broad theme of the monoline.

What about real estate finance on the commercial or residential side?

It is very situational.

You probably have a tailwind so it is probably relatively attractive but we are not seeing the value we saw in 2009 on a relative standpoint today.

Do you feel the high yield and credit markets in general are simply getting too crowded?

We talked about a new issue that was 20 times over, doesn't that sound crazy to you?

It does as a former salesman.

If you knew that something was going to trade up like when google went public and that was an option so that might not be the best example -- and maybe facebook which people were wrong about.

Facebook was a little different but you do -- but you know it's trading up and people are looking for a bid and liquid credit with zero spreads print i don't necessarily view that as a proxy.

What tends to her credit markets the most is a bad economy.

It looks like between poor underwriting and a bad economy, is usually a bad economy that hurts credit markets more.

I believe you probably have another 24-36 months before you have a material pickup in defaults.

As a starting point here, i don't think it's a great entry point in high yield relative to some of the other asset classes.

It's more of a value standpoint -- i can't believe the credit was so bad -- generically.

What was liquidity like them

This text has been automatically generated. It may not be 100% accurate.


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