WHEN: Today, Wednesday, August 26th
WHERE: CNBC's "Closing Bell"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Passport Capital Managing Partner & CIO John Burbank on CNBC's "Closing Bell" (M-F, 3PM-5PM ET). All references must be sourced to CNBC.
KELLY EVANS: 619 POINTS. THAT WAS THE GAIN IN THE DOW JONES INDUSTRIAL AVERAGE TODAY. 4% HIGHER, THE SWINGS. WE WILL HAVE MORE IN A MARKET SPECIAL FOR YOU 7:00 P.M. TONIGHT. INDIVIDUAL INVESTORS WERE NOT THE ONLY ONES ROCKED BY THIS WEEK'S VOLATILE MARKETS. SOME HEDGE FUNDS ARE ALSO FEELING THE PRESSURE. OUR NEXT GUEST'S FUNDS HAVE BEEN ONE OF THE BEST PERFORMERS THIS YEAR. THROUGH JULY, PASSPORT CAPITAL'S SPECIAL OPPORTUNITIES FUND IS UP 29%. SO HOW ARE THEY NAVIGATING TODAY'S MARKET MOVES? OUR OWN KATE KELLY JOINS US RIGHT NOW WITH AN EXCLUSIVE INTERVIEW WITH NOTED HEDGE FUND MANAGER JOHN BURBANK FROM PASSPORT CAPITAL. KATE?
KATE KELLY: THANKS SO MUCH, KELLY. JOHN, THANK YOU SO MUCH FOR JOINING US IN BEAUTIFUL SAN FRANCISCO. CONGRATS ON THE PERFORMANCE. BEFORE WE TALK ABOUT WHAT YOU GUYS HAVE DONE THROUGHOUT THE YEAR, THOUGH, CAN YOU JUST TALK ABOUT THE LAST FEW DAYS IN THE MARKETS? TODAY SEEMS LIKE A GOOD INDICATION OF WHAT I HAVE BEEN HEARING WHICH IS THAT HEDGE FUNDS HAVE BEEN NET BUYERS IN RECENT DAYS. HAS THAT BEEN THE CASE FOR PASSPORT? AND HOW ARE YOU APPROACHING THIS TURMOIL?
JOHN BURBANK: I SAY FOR US, WE HAVE BEEN EXPECTING A MARKET BREAKDOWN FOR SOME TIME IN THE BROADER INDICES. WHAT'S REMARKABLE IS HOW COMMODITIES HAVE TRADED AND EMERGING MARKETS HAVE TRADED THE LAST COUPLE OF YEARS AND YET THE FAITH IN THE U.S. ECONOMY HAS BEEN SO HIGH. AND THE FAITH IN THE FED HIKING RATES HAS BEEN SO HIGH. SO IT REALLY PROPPED UP, I'D SAY, THE DOLLAR IN U.S. MARKETS. EVEN THOUGH EARNINGS PEAKED LAST SEPTEMBER AND HAVE BEEN DECLINING SINCE. WE THINK THIS WAS A BOUNCE, A REFLEXIVE BOUNCE, BUT WE DON'T SEE WHY THIS IS GOING TO END RIGHT NOW.
KELLY: INTERESTING. SO SPEAKING OF THE U.S. DOLLAR, YOU'VE BEEN ON RECORD SAYING THAT IT TOPPED OUT THIS PAST SPRING. DO YOU STILL BELIEVE THAT? AND WHAT'S YOUR NEAR TERM OUTLOOK FOR THE DOLLAR? ARE YOU BULLISH, AT LEAST, COMPARED TO EMERGING MARKET CURRENCIES, FOR INSTANCE? DO YOU HAVE ANY SORT OF NOTABLE CURRENCY TRADES ON RIGHT NOW? OR ARE YOU STAYING AWAY?
BURBANK: WE JUST OBSERVED THAT THE DOLLAR TOPPED OUT TEMPORARILY MID MARCH WHEN THE FED BACKED OFF FROM HIKING RATES SOONER. I'D SAY THE DIXIE JUST HIT THE 200-DAY MOVING AVERAGE THE LAST COUPLE OF DAYS. THE EURO WENT UP TO 117. IF ANYTHING, THE GREAT RISK HERE IS THE DOLLAR RESUMES RISING AND GOES TO NEW HIGHS. EMERGING MARKET CURRENCIES JUST KEEP BREAKING DOWN. I'D SAY THE EMERGING MARKETS ARE AT GREAT RISK OF AN ONGOING LIQUIDATION ALMOST LIKE WE SAW IN 1998 GIVEN THE WAY THINGS ARE TRADING.
KELLY EVANS: JOHN, HOW ARE YOU GUYS MAKING SO MUCH –
BURBANK: WHAT THE FED DOES –
EVANS: GO AHEAD. GO AHEAD.
BURBANK: WELL, WE JUST OBSERVE. UNILATERAL QE THAT THE FED EMBARKED ON AT THE END OF '08, '09, INTO LAST YEAR. BEFORE THE REST OF THE WORLD JOINED IS REALLY WHAT'S AT WORK HERE. YOU KNOW, WE LEARNED AND I LEARNED WHAT QE CAN DO IF YOU JUST KEEP DOING MORE AND MORE OF IT AND KEEP THE DOLLAR WEAK. I'D SAY WHAT WE ARE LEARNING IN THE LAST YEAR IS WHAT HAPPENS WHEN CREDIT CONDITIONS TIGHTEN AND THE DOLLAR RISES. THIS IS WHAT'S PRODUCING COMMODITIES LOWER, EMERGING MARKETS LOWER, AS WELL AS THIS BIG SEPARATION IN DISPERSION ACROSS MARKETS.
EVANS: JOHN, IF YOU DON'T MIND, COULD YOU BE SPECIFIC ABOUT HOW YOU MANAGED THE 29% GAIN THROUGH JULY? AND IF YOU'RE STILL UP THAT MUCH?
BURBANK: SURE.
EVANS: ARE YOU SPECIFICALLY SHORTING PARTS OF THE COMMODITIES MARKET AND COMPANIES EXPOSED TO THAT?
BURBANK: YES. SO, YES. QE ENABLED MANY COMPANIES AND EMERGING MARKET COUNTRIES TO GET A LOT OF CREDIT CHEAPLY THAT THEY NEVER SHOULD'VE GOTTEN. AS THE DOLLAR RALLIES, AS CHINA SLOWS, AS THE OIL PRICE CRASHES, ALL THESE THINGS TIGHTEN CREDIT CONDITIONS. DODD/FRANK TIGHTENS CREDIT CONDITIONS HERE. LIQUIDITY IS NOT VERY GOOD. ALL WE'RE SEEING NOW IS PRICE VALIDATING AND SHOWING YOU THE WAY THINGS REALLY ARE. I DON'T SEE ANY REASON WHY THIS IS GOING TO STOP. I THINK YOU HAVE TO HAVE IMAGINATION HERE THOUGH AS TO HOW LOW THE OIL PRICE CAN GO. HOW LOW EMERGING MARKET STOCKS CAN GO. AND SO WE'VE BEEN ABLE TO RUN A VERY TIGHT, LONG SHORT STRATEGY THIS YEAR, REALLY IN THE LAST YEAR. BELIEVING THAT THE DOLLAR WAS GOING TO KEEP RISING. A RISING DOLLAR HURTS COMMODITIES AND EMERGING MARKETS, COMPANIES WITH TOO MUCH DEBT, THOSE KINDS OF THINGS. AND SO WE'VE STAYED SHORT AND IT'S REALLY BENEFITTED US THIS YEAR.
KELLY: JOHN, I WANT TO GET BACK TO YOUR POINT ABOUT LIQUIDITY IN JUST A SECOND. BUT REAL QUICKLY, TWO SECTORS I WANTED TO ASK YOU ABOUT. ON THE MINING SIDE, I UNDERSTAND YOU'VE HAD A SHORT VIEW OF THAT. I WONDER IF YOU COULD ELABORATE ON THAT A LITTLE BIT AND MAYBE TELL US ABOUT GLENCORE WHICH I KNOW HAS BEEN AN AREA OF FOCUS FOR MANY PEOPLE INCLUDING YOURSELF ACCORDING TO FILINGS. SECONDLY, TOO, HOW ABOUT CHINESE INTERNET STOCKS? I MEAN, YOU HAVE BEEN BULLISH FOR SOME TIME. HAVE YOU REDUCED THOSE POSITIONS RECENTLY? WHERE DO YOU STAND AT THE MOMENT?
BURBANK: GOOD QUESTIONS. AND THEY ARE ACTUALLY SEPARATE QUESTIONS ALTHOUGH THEY BOTH SEEM TO HINGE ON CHINA. GLENCORE HAS A TREMENDOUS AMOUNT OF DEBT. THEY'RE LEVERED TO BASE METALS INCLUDING COPPER, WHICH KEEP FALLING. AND IT IS AN UNDEREXAMINED COMPANY WITH AN UNDEREXAMINED BLACK BOX OF ITS TRADING STRATEGIES WHICH WE BELIEVE IS NOW BECOMING UNDERSTOOD BETTER. ALTHOUGH, REALLY, IT'S NOT A VERY SHORTED COMPANY. MINING DOES NOT HAVE A LOT OF UPSIDE, WE THINK. ALTHOUGH, IT'S VERY DIFFERENT THAN THE WAY IT'S TRADED IN THE LAST SAY 6, 7 YEARS. WITH CHINA INTERNET, REALLY IT'S THE CONSUMPTION PART OF CHINA THAT KEEPS GROWING, BUT THE CHINA SENTIMENT IS TERRIBLE AND IS CLOSE TO BOTTOMING, IN MY OPINION. I THINK IT MAY BOTTOM WITH THE BOTTOMING OF THE CHINESE STOCK MARKET, WHICH COULD HAPPEN I'D SAY IN THE NEXT 1 TO 2 MONTHS. BUT I HAVE NO CONCERNS LONG TERM ABOUT CHINA INTERNET.
EVANS: JOHN, A LAST QUESTION BEFORE WE LET YOU GO, THEN. IT SOUNDS LIKE FOR EVERYBODY TRYING TO FIGURE OUT THE DIRECTION OF THE U.S. STOCK MARKET HERE, THEY'RE LOOKING TO CHINA. YOU SEEM TO BE SAYING, THEY SHOULDN'T BE LOOKING TO CHINA'S MARKET SO MUCH AS MAYBE JUST WATCHING, QUITE SIMPLY, THE U.S. DOLLAR. THAT FURTHER DOLLAR RALLIES ARE GOING TO BE A HEAD WIND FOR THIS MARKET AND FOR THIS ECONOMY. IS THAT RIGHT?
BURBANK: ABSOLUTELY. SO IF THE FED REALLY WANTS TO HIKE RATES, IT KNOWS IT SHOULD HAVE HIKED RATES. DOING IT NOW, I THINK, IS IRRESPONSIBLE. BUT IT VERY MAY WELL DO IT. I THINK WE'RE VERY LATE CYCLE IN THE U.S. THE DOLLAR HAS ANTICIPATED THIS. BUT IF THEY ACTUALLY DO HIKE, THE DOLLAR'S GOING TO RISE. THE DOLLAR RISES, I THINK, IT'S RISK OFF.
EVANS: ALRIGHT. THANK YOU SO MUCH FOR SHARING YOUR PERSPECTIVE. KATE, REALLY APPRECIATE IT. THAT'S JOHN BURBANK FROM PASSPORT CAPITAL WITH OUR VERY OWN KATE KELLY.
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