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On Pinatas, Parasites and Feeding Frenzies: Scaramucci Speaks

Anthony Scaramucci tends to talk in lists: Here’s what’s working, here’s what’s not, here’s what a good hedge fund manager needs to do — all enunciated in clear, bullet-point conversational format.

Anthony Scaramucci
Anthony Scaramucci

It’s a technique that has served the budding financial media star well as he enjoys a higher profile since his notorious questioning of President Obama at last month’s town hall organized by CNBC.

Scaramucci asked Obama why he was treating Wall Street like a “piñata.” The question set up a lively dialogue between the SkyBridge Capital founder and a president who is perceived to regard financial types as three levels below the gunk you scrape off your shoe when walking through a toxic waste dump.

For this chat, Scaramucci is taking a break from the Capital IQ Investor Leadership seminar held Tuesday at the New York Athletic Club. He has just delivered a dynamic half-hour sermon on “Best Practices for Hedge Funds and Alternatives to Market Themselves to Investors” and is now in a private room individually entertaining a parade of media-types who’ve come to garner his wisdom.

(DealBook’s Cyrus Sanati worked up a cool profile Wednesday of Scaramucci that you can find here. For the record, Cyrus was next in line behind me.)

Like the presentation he just delivered, Scaramucci’s responses during a 10-minute interview are pithy and conveyed with a preacher’s zeal. He sounds at once rehearsed and thoughtful. He is decidedly more cerebral than your typical hedge fund manager, and his casual posture contrasts with the personality of a deal maker who is marketing a fund of hedge funds that has the market buzzing.

We don’t talk much about his newest venture but rather about some general market conditions.

First thing I want to explore is how highly correlated market assets are and how difficult that makes life for a hedge fund manager whose livelihood depends on divergences.

“It’s the counter-thesis to modern Portfolio Theory,” Scaramucci says, a deft analysis that kicks off the first of his lists: Five Reasons For High Market Correlation:

1) Big Government Intervention.

2) Unemployment Uncertainty and Stagnant Wage Growth.

3) Ineffective Multiplier Effects, in which spending is failing to generate any ancillary growth.

4) Population Crisis in Western-Style Democracies, in which fewer people are entering the workforce to pay support for those leaving through retirement.

5) Post-Crisis Traumatic Stress Syndrome, in which the people who have money are still afraid to spend it.

I’m already amused when I ask him what type of qualities a good hedge fund manager needs to survive in such a tough climate. On cue, he has three vaguely rhyming attributes that one needs to keep in mind:

1) Adaptability

2) Flexibility

3) Fallibility

“There are very select managers out there that are doing well within a highly combative environment,” he says.

So what’s working? Yep, another list.

1) Residential Mortgage-Backed Securities

2) Distressed Assets

3) Structural Arbitrage

And what’s not?

1) Long-Short US Equity

2) Macro Strategies

3) Short-selling

Scaramucci likes talking markets but he loves talking politics.

His “piñata” reference, while ridiculed in some corners of the cable commentariat universe, hit a naked nerve among financial professionals. After all, he’s not exactly the first person to say Obama is anti-business, but he is among the select few who actually got to say it to the president’s face.

Scaramucci is a frequent guest on CNBC’s “Fast Money” show for traders, but the exchange with the president propelled him to a different strata.

“There’s a lack of government restraint,” he says with a high level of empathy for the so-called superrich who are earning more than $200,000 a year and are in the White House’s populist crosshairs. “Investors are fearful that the government is encroaching too much on the private sector.”

There is hope, he says, but things will get tougher if the status quo holds in November.

“If the Republicans take the House and the Senate you’re going to see a rally in the market,” Scaramucci says.

He insists it’s not about partisan interests but rather the importance of staunching the bleeding.

“The head of the government thinks it’s a feeding frenzy on the private sector,” he says. “Like a parasite, it can kill its host,” he adds, before drawing the metaphor even further to a “rotting cadaver” that the retail investor will become in the face of so much government intervention.

That must be what happens to the piñata after it’s been whacked too many times.

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