Real Talk on Gov. Jerry Brown, Kevin Hassett, Yale’s Endowment, and Elliott’s Climate Change Battle

Apr 10 2017 | 12:41pm ET

Today we talk about the end of the California drought, why Yale is still willing to pay hedge fund managers, how the mainstream press will cover Trump’s appointment of Kevin Hassett, and a growing battle over climate change in the board room of NRG.

Shot: Gov. Jerry Brown, Jan. 2016: “Now we know that drought is becoming a regular occurrence and water conservation must be a part of our everyday life.

Double Shot: Wired Magazine, Jan. 2016: “Despite the snow in the Sierra Nevada, the water filling Lake Shasta, and the rapids in the Kern River, California is still in a state of drought. For now, maybe forever.”

Chaser: Gov. Jerry Brown: April 2017. “This drought emergency is over, but the next drought could be around the corner. Conservation must remain a way of life.

Thanks Jerry. Always leave people in a constant state of emergency. Only then can you control their behavior…

Quotes of the Day

"He's not just a standard-issue really good economist, he's someone who knows how policy works. "The tax changes being considered are really aimed at boosting investment, so I think Kevin is exactly the right person."

That is Glenn Hubbard, former chair of the Council of Economic Advisers (CEA) under President George W. Bush.

Hubbard is reacting to the news that President Donald Trump has tapped Kevin Hassett for the role of CEA chairman. 

Hassett is considered one of the top economists as the American Enterprise Institute, a conservative think tank in Washington. He received his Ph.D from University of Pennsylvania

Given Hassett’s prowess in tax policy, the appointment is a clear indicator that Trump is taking aim at delivering tax reform at some point this year.

The big three news channels are working on their coverage of the Hassett appointment. Here’s what we expect to hear later this evening.

  • First, CNN will incorrectly report that Kevin Hassett is this man living in Vladivostok, Russia. After being forced to retract their first story, they will then report from behind the correct Hassett’s house, look through his trash, but fail to deliver any evidence that he has recently flown within 500 miles of Moscow or owned a Russian tea set. They will, however, report that he knows someone who once did a graduate dissertation on the economic reforms of the Russian economy after the fall of the Soviet Union.
  • Then, Fox News will say that Kevin Hassett is the best economic adviser… “the best… trust me… the best…” and that he will provide a road map to 7.3% GDP growth in 2018.
  • Finally, Lawrence O’Donnell at MSNBC will smugly report tonight that Kevin Hassett’s real name is Dmitry Kuznetsov and that he is working to replace Alexander Hamilton on the $10 bill with images of Alexander II.

 

“Performance-based compensation earned by external, active investment managers is a direct consequence of investment outperformance.”

Yale University has a message for the passive-investment crowd. They’re going to keep paying hedge funds to manage their money.

In the university’s annual endowment report, Yale explains that if they would have taken a passive-strategy approach over the last 30 years, they would have had lower annual net returns and not been able to support the university as well as they have.

This sounds like perfect fodder for the upcoming SALT Conference in Las Vegas. 

“It almost feels that they're backing into the numbers, It just so happens that the two work out so that they don't have to change their price target. It's almost humorous.”

Charles Lee, a professor at the Stanford Graduate School of Business, offers his take on how Morgan Stanley arrived at its $28 price target on Snapchat. 

Morgan Stanley first published a report on the stock on March 27. At the time, the stock wasn’t exactly blowing the doors off and the investment bank helped bring this firm public. It had set a price target of $28 in the process.

The next day, Morgan Stanley issued a correction that altered a few metrics in its financial modeling. However, the stock price didn’t change. Professor Lee hints that the assumptions that went into this research may not hold water. It’s once again an indictment of Wall Street research at a time that doubts are already high.

Modern Trader readers will recall that we have no reservations about telling investors to avoid this company until the lock-up period ends. We did a very deep dive into the institutional concerns about the company’s multi-class voting structure, the firm’s lack of profitability, and accusations from a former employee that the company cooked its user growth figures.

You can read: The Banana Republic of Snapchat. 

“To say that I was surprised would be the understatement of my life.”

Billy Walters’ insider trading trial is over. Dealbook breaks down the details of the case, including Walters’ ties to activist investor Carl Icahn and professional golfer Phil Mickelson. 

Buckle Up.

“Don't be fooled — not everyone believes in global warming.”

That’s Barry T. Smitherman, a lawyer and former energy industry regulator from Texas, who also serves on NRG’s board of directors.

NRG is locked in a battle with activist fund Elliott Management.

The activist firm wants the company to divest or spinoff its huge investments over the last few years into low-carbon energy technologies. The company had set rather aggressive goals in reducing its carbon output from its energy generation.

It wants to slash emissions of carbon dioxide by 50% by 2030, and 90% by 2050.

But the activists aren’t just going against the plan. They’re challenging the science. The appointment of Smiterman to the board has created a hell of a storm from social investors.

Smiterman has called climate change a hoax and gave a presentation called  "The Myth of Carbon Pollution" at a regulatory conference in 2013.

His high-profile opinion of climate change has attracted the attention of New York City's comptroller Scott M. Stringer, who oversees the city's pension funds. The city is a large investor in NRG.

Now, Stringer is pushing for NRG to boot Smiterman from the board uring the company’s upcoming annual meeting on Apr. 27.

Elliott has defended Smitherman and praised his “Texas-centric utility regulatory background.”

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Garrett Baldwin is the voice of the The Daily Alpha, the features editor for Modern Trader magazine, and the author of The Man with The Big Red Balloon.


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