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Masters in Business: Altegris Group CIO Jack Rivkin (Audio) · Masters in Business

• 0:03
  Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio.
• 0:08
  Speaker 1: Welcome to the podcast. This is Barry Ridholts, and today
• 0:11
  Speaker 1: I have a very special guest, really somebody who is
• 0:16
  Speaker 1: a legend on Wall Street. Jack Rivkin, best known as
• 0:22
  Speaker 1: a managing director at Lehman Brothers, c I O at
• 0:27
  Speaker 1: new Berger and Berman, a partner at Ideal Labs, and
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  Speaker 1: and now managing director at Altegri's. Jack is really a
• 0:35
  Speaker 1: legend and and the way his legend um forms is
• 0:40
  Speaker 1: he was hired to take Lehman Brothers research department, which
• 0:46
  Speaker 1: was literally dead last in the i I rankings, just
• 0:51
  Speaker 1: the worst research department on Wall Street. And he was
• 0:54
  Speaker 1: hired to improve that. And he did a lot of
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  Speaker 1: things that actually turn out to be quite common today,
• 1:02
  Speaker 1: but back in the day when he was doing this,
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  Speaker 1: it was relatively unheard of. He hired lots of women
• 1:09
  Speaker 1: and minorities. People just didn't do that way back when.
• 1:12
  Speaker 1: He also started tracking how people's research report was used
• 1:20
  Speaker 1: by the Street, how often people requested a specific analysts report,
• 1:24
  Speaker 1: how much revenue it generated, how much commission dollars had generated,
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  Speaker 1: simple basic quantitative metrics to evaluate um the research product,
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  Speaker 1: and we take all those things for granted today. He
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  Speaker 1: was the first guy who did this. So not only
• 1:42
  Speaker 1: did he do a lot of for then, out of
• 1:45
  Speaker 1: the box hiring and outside of the box thinking, he
• 1:47
  Speaker 1: engaged in a lot of off campus retreats and lots
• 1:51
  Speaker 1: of stuff that were considered touchy feely back then and
• 1:55
  Speaker 1: again fairly common fair today. And over the course of
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  Speaker 1: three years, he took Lehman Brothers Research from the worst
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  Speaker 1: to the best on Wall Street, who was the number
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  Speaker 1: one ranked research department. For his troubles, he was subsequently
• 2:10
  Speaker 1: fired by Dick Folds and his inner circles of yes men,
• 2:15
  Speaker 1: as I like to call it um, But he was
• 2:17
  Speaker 1: so successful. Jack was so successful in this that the process,
• 2:22
  Speaker 1: the methodologies, what he did became the basis of a
• 2:26
  Speaker 1: Harvard Business School case study. For those of you not
• 2:29
  Speaker 1: familiar with Harvard Business School, they teach through a series
• 2:33
  Speaker 1: of case studies. Here's how a manager, Here's how a CEO,
• 2:36
  Speaker 1: Here's how a company addressed a specific problem and solved it.
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  Speaker 1: And so I actually met Jack through a mutual friend.
• 2:45
  Speaker 1: It was at a dinner with the famous art cassion
• 2:48
  Speaker 1: of Ubs and John Moulden where I met Jack, and
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  Speaker 1: it turned out we had a lot of things in common,
• 2:53
  Speaker 1: even though he's got a few um years and a
• 2:56
  Speaker 1: few gray hairs on me. We're both fishermen. I ended
• 2:59
  Speaker 1: up in reducing Jack to to David ko Talk because
• 3:03
  Speaker 1: they're just same age, same you know, same sort of background,
• 3:08
  Speaker 1: same era. They hit it off swimmingly. Jack is now
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  Speaker 1: a regular fixture at the Ko Talk Shadow Fed event,
• 3:15
  Speaker 1: which is every August up in Maine where a bunch
• 3:18
  Speaker 1: of fund managers and economists go fishing. Um Jack really
• 3:23
  Speaker 1: fit in very well. But he's a fascinating guy because
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  Speaker 1: he then leaves, then leaves Lehman Brothers and ends up
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  Speaker 1: at New Burger and Berman, where he's c I O
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  Speaker 1: and does a phenomenal job there, to the point where
• 3:37
  Speaker 1: Lehman Brothers ultimately ends up buying New Burger and Berman.
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  Speaker 1: And here's Jack, a guy who was fired um after
• 3:45
  Speaker 1: doing a great job, ends up working for the same
• 3:47
  Speaker 1: guys who fired him, and gently egresses himself out of
• 3:52
  Speaker 1: Lehman a second time. This this version is voluntary, and
• 3:57
  Speaker 1: it turns out to be quite fortuitous timing because he
• 3:59
  Speaker 1: le eaves just before Lehman collapses. I want to say
• 4:03
  Speaker 1: two years before everything hit the fan, and so uh,
• 4:08
  Speaker 1: he ended up really being one of those situations where
• 4:12
  Speaker 1: it was a fantastic firing and and did really well
• 4:15
  Speaker 1: for him. But Jack is one of these guys who's
• 4:19
  Speaker 1: just really savvy and down to earth again, another no
• 4:24
  Speaker 1: nonsense sort of guy who just tells it like it is.
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  Speaker 1: And Amen, she's a delight to speak with. He's really
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  Speaker 1: a charming fellow. I love the fact that he's seventy
• 4:35
  Speaker 1: or seventy one and has zero interest in retiring. He
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  Speaker 1: loves what he does. When he was a partner at
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  Speaker 1: Ideal l Abs, he's still a partner at Ideal Labs.
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  Speaker 1: Really fascinated by finance, technology and software as well as biotech,
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  Speaker 1: and we briefly talked about you know, printable organs and
• 4:53
  Speaker 1: principal bones and and things along those lines. It's it's
• 4:56
  Speaker 1: the areas that interest him I find quite fast and
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  Speaker 1: and so I thought this conversation was really really interesting.
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  Speaker 1: It's not as much inside baseball as I've threatened. For
• 5:07
  Speaker 1: a guy that the average investor may not know who
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  Speaker 1: he is, he's been all over the street. He's got
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  Speaker 1: just a phenomenal career, a great track record, and just
• 5:17
  Speaker 1: a deep, deep well of knowledge. So it was a
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  Speaker 1: pleasure to sit with him and have him share some
• 5:22
  Speaker 1: of that. So I think I've babbled more than enough. Uh,
• 5:26
  Speaker 1: probably a minute longer than my usual babbling. Without further ado,
• 5:31
  Speaker 1: here's my conversation with Jack Rivkin. This is Masters in
• 5:38
  Speaker 1: Business with Barry Ridholts on Bloomberg Radio today. On the show,
• 5:42
  Speaker 1: I'm thrilled to have my friend Jack Rivkin, a person
• 5:46
  Speaker 1: you may not know who he is, again, another inside
• 5:50
  Speaker 1: baseball sort of person who people on the street certainly
• 5:54
  Speaker 1: know who he is. His his Let me just give
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  Speaker 1: you a little flavor of his resume, because it's quite outstanding.
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  Speaker 1: You began your career as research as a research analyst
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  Speaker 1: back in ninety eight at a small firm called Mitchell Hushins.
• 6:11
  Speaker 1: Eventually become head of research there they get bought by
• 6:16
  Speaker 1: pain Webber and you work your way up the ladder
• 6:19
  Speaker 1: of Pain Weber, where you become research director, CFO, CEO
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  Speaker 1: of the equity trading side, and eventually president of Pain
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  Speaker 1: Webber Capital. Then you move over to Lehman Brothers in seven.
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  Speaker 1: There are some other things in the middle, but I'm
• 6:34
  Speaker 1: just doing the highlights At Lehman Brothers. You famously took
• 6:38
  Speaker 1: them from first from worst to first famous right, and
• 6:44
  Speaker 1: eventually your tenure there was the subject of a Harvard
• 6:48
  Speaker 1: Business School case study describing exactly what goes in taking
• 6:53
  Speaker 1: a last place research firm turning it to a first
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  Speaker 1: place firm. You were c I O, Chief Investment Officer
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  Speaker 1: at New Burger Berman, and before that you were Director
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  Speaker 1: of Global Research at Smith Barney. And currently you're a
• 7:09
  Speaker 1: director at Dale Carnegie Associates and on the Economic Club
• 7:13
  Speaker 1: of New York. Did did I miss any of the
• 7:15
  Speaker 1: big The only thing you missed were I have My
• 7:19
  Speaker 1: most fun is I'm a director of Ideal Lab. You
• 7:22
  Speaker 1: do very early stage investment pre venture capital. We start
• 7:27
  Speaker 1: with an idea and turn it into a company. There
• 7:30
  Speaker 1: you go. That's that's about as early stage as it gets.
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  Speaker 1: So you've obviously had a very storied career on Wall Street.
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  Speaker 1: You've worked in a lot of major firms. Um, what
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  Speaker 1: were your early influences, what actually affected your early approach
• 7:45
  Speaker 1: to investing. Well, I had some very good mentors at
• 7:50
  Speaker 1: Mitchell Hutchens. There were three people that I worked with
• 7:53
  Speaker 1: for a long time and they made a difference in
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  Speaker 1: my life. Don Mirren, who became CEO at Paint Webber
• 8:00
  Speaker 1: and then when they sold to UBS, he took over
• 8:03
  Speaker 1: a private equity operation there. Dave Williams, who, when he
• 8:08
  Speaker 1: left Mitchell Hutchins went to Alliance Capital and built Alliance
• 8:14
  Speaker 1: Capital up was not owner the Alliance Bernstein acquisition. And
• 8:19
  Speaker 1: Mike Johnston, who went to Capital Research and had a
• 8:22
  Speaker 1: long career there as well. They were very strong influences
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  Speaker 1: on my care I left out earlier. You're from originally
• 8:31
  Speaker 1: from Oklahoma. That's right. How does a guy like you?
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  Speaker 1: You went to college at Colorado, Colorado School of Mines
• 8:38
  Speaker 1: engineering degree. I went there to actually become a petroleum engineer,
• 8:43
  Speaker 1: but I really didn't like identifying rocks, so I switched
• 8:47
  Speaker 1: to metallurgy and got my engineering degree. Realized that I
• 8:51
  Speaker 1: didn't really want to be an engineer. I actually went
• 8:54
  Speaker 1: to work for Procter and Gamble out of out of
• 8:56
  Speaker 1: engineering school and then went back to business school. So
• 9:00
  Speaker 1: you end up at Harvard Business School. I ended up
• 9:03
  Speaker 1: at Harvard and from there, well, I went to Harvard
• 9:06
  Speaker 1: to become the world's expert in manufacturing. I was going
• 9:09
  Speaker 1: to go back and make better soap, and I realized
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  Speaker 1: that there were other things going on in the world,
• 9:14
  Speaker 1: and one of them was Wall stre Did we really
• 9:18
  Speaker 1: need better soap? Soap has been pretty good for a while. Well,
• 9:21
  Speaker 1: but you could always make it better, at least that's
• 9:23
  Speaker 1: what they told. You can always sell more units of all, right,
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  Speaker 1: So you end up. I end up on Wall Street.
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  Speaker 1: And I gotta tell you, you know, growing up in Tulsa,
• 9:36
  Speaker 1: if anyone had told me I had go to New York,
• 9:39
  Speaker 1: I would have told them they were crazy anyone go
• 9:42
  Speaker 1: to that kind of a city. And then if they said,
• 9:45
  Speaker 1: and you're going to work on Wall Street, I would
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  Speaker 1: have had to ask what that was. I had no
• 9:52
  Speaker 1: interest in finance, never, I had no clue. And Tulsa
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  Speaker 1: was at that point the oil capital of the world.
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  Speaker 1: Suddenly moved to Houston, so everyone was kind of focused
• 10:03
  Speaker 1: on that industry and taking those weird tests that you
• 10:07
  Speaker 1: do in high school, it said, well, maybe you ought
• 10:09
  Speaker 1: to think about being an engineer. So that's what I did.
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  Speaker 1: But when I didn't like finding rocks and identifying them,
• 10:18
  Speaker 1: and when I found that there was more to life
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  Speaker 1: than it was a great educational background, but there was
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  Speaker 1: more going on out there, I moved on that's quite
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  Speaker 1: quite fascinating. So you work your way through a number
• 10:32
  Speaker 1: of um a number of big firms. You've you've certainly
• 10:36
  Speaker 1: seen changes since. So you started in the late sixties,
• 10:40
  Speaker 1: which was pretty much the end of the post war rally. Yes,
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  Speaker 1: so you had a twenty year run from forty six
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  Speaker 1: to sixty six. The Dow I think started at someone
• 10:50
  Speaker 1: in the two hundreds, just about kissed a thousand in
• 10:54
  Speaker 1: nineteen six air under it and then for the next
• 10:57
  Speaker 1: sixteen years that's whoever got back over that level. No,
• 11:01
  Speaker 1: it never did. It was an interesting period of time.
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  Speaker 1: It was a time we're actually doing analytical work and
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  Speaker 1: coming up with specific investment decisions. Actually made a difference
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  Speaker 1: because the market wasn't helping you at that time. No,
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  Speaker 1: whin did you're back. You've had five major rallies, five
• 11:17
  Speaker 1: major selloffs, and by the time you were done back
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  Speaker 1: in two you were essentially where you started. That's right.
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  Speaker 1: So high inflation rates, so you could get ten year
• 11:26
  Speaker 1: treasury yielding twelve fourteen and and and free Fed funds rate.
• 11:32
  Speaker 1: The high the peak was twenty two point three percent
• 11:36
  Speaker 1: and twenty two point three percent as the Fed funds rate,
• 11:41
  Speaker 1: and we had one, and we had a whole lot
• 11:44
  Speaker 1: of inflation over that same pioge we did we did
• 11:46
  Speaker 1: that was that was a period where you paid a
• 11:48
  Speaker 1: lot of attention to the to the classic deep cyclicals
• 11:52
  Speaker 1: who were involved in commodities, and some of them made
• 11:57
  Speaker 1: a lot of money. Coming up, we continue our conversation
• 12:00
  Speaker 1: with Jack Rifkin and we discussed how he took the
• 12:03
  Speaker 1: last place research department of Lehman Brothers and made it
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  Speaker 1: the best on Wall Street. You're listening to Masters in
• 12:10
  Speaker 1: Business with Barry rid Holts on Bloomberg Radio. I'm Barry
• 12:19
  Speaker 1: rid Holts. You're listening to Masters in Business on Bloomberg Radio.
• 12:23
  Speaker 1: My guest today is Jack Rivkin. He's chief investment officer
• 12:27
  Speaker 1: at Altegri's Associates and has a very storied career on
• 12:31
  Speaker 1: Wall Street. Worked at UH in very senior positions, head
• 12:35
  Speaker 1: of research, CFO, et cetera, at and a number of
• 12:39
  Speaker 1: large firms. But what you're really is it fair to
• 12:43
  Speaker 1: say what you're best known for is the work you
• 12:46
  Speaker 1: did at Lehman Brothers in its heyday? Is that a
• 12:48
  Speaker 1: fair statement? I I think that's close to a fair statement,
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  Speaker 1: and it was definitely something unusual that happened there, and
• 12:56
  Speaker 1: we touched a lot of people and it made a difference.
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  Speaker 1: So so let's stay back and talk about this. U.
• 13:02
  Speaker 1: By the way, you and I first met some years
• 13:05
  Speaker 1: ago and after I we had met, and you're just
• 13:08
  Speaker 1: a very ordinary guy, very humble. Like when one meets
• 13:13
  Speaker 1: Jack Rifken, one is not does not come away with wow,
• 13:17
  Speaker 1: that guy has an unbelievable resume. So so what a
• 13:20
  Speaker 1: nice guy. And I just happened to mention it to somebody.
• 13:23
  Speaker 1: By the way, I met a guy named Jack Rifken,
• 13:25
  Speaker 1: Jack Rivken. Do you know who Jack Rifken is? Yeah,
• 13:28
  Speaker 1: he's this guy. No, no, no, you should go google
• 13:30
  Speaker 1: Jack Rifken. So I google you, and upcomes the Harvard
• 13:34
  Speaker 1: Business School case study on what you did at Lehman
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  Speaker 1: Brothers from I want to say seven to the early
• 13:42
  Speaker 1: that's right. So so essentially at the time, Lehman Brothers
• 13:47
  Speaker 1: was a fifth or sixth um largest investment bank, maybe
• 13:52
  Speaker 1: even a little smaller than that, with the research department
• 13:55
  Speaker 1: that someone called the laughing stock of Wall Street. Not well,
• 14:00
  Speaker 1: it was not highly regarded, essentially last place in every ranking.
• 14:05
  Speaker 1: And so who recruited you to run their research upon
• 14:09
  Speaker 1: actually a guy named Jeff Laine who had an influence
• 14:12
  Speaker 1: on several things later in my life. He was CEO
• 14:16
  Speaker 1: at New Burger when I went there as CEO at
• 14:18
  Speaker 1: his request, and this was kind of an offer that
• 14:22
  Speaker 1: was hard to refuse. First, it was sort of a
• 14:24
  Speaker 1: blank slate. I could I could do. I could apply
• 14:28
  Speaker 1: everything that I had learned to a something that really
• 14:33
  Speaker 1: needed to be reformed, and it truly needed to be reformed,
• 14:37
  Speaker 1: and there were incentives put in place to take it
• 14:40
  Speaker 1: up to somewhere in the top five. And that was
• 14:43
  Speaker 1: our that was really our goal. And really that five
• 14:46
  Speaker 1: year plan took you about three years to put into
• 14:49
  Speaker 1: a That was the surprise. I was surprised at that
• 14:51
  Speaker 1: as well, that we managed to do that in three years.
• 14:55
  Speaker 1: And so let's talk a little bit about the how
• 14:57
  Speaker 1: did you end up? What did you do to change
• 15:00
  Speaker 1: the staffing, the culture, and the quality of the work there. Well,
• 15:03
  Speaker 1: it was it was fairly easy in the sense that
• 15:08
  Speaker 1: I could make changes to everything. There was nothing that
• 15:12
  Speaker 1: was sacred. And in fact, in the case they talked
• 15:15
  Speaker 1: about the possibility that we could have actually brought in
• 15:18
  Speaker 1: a Wigia board and fired everybody, and nobody would have known.
• 15:24
  Speaker 1: Sometimes people wonder if that's actually what goes on in
• 15:27
  Speaker 1: research departments anyway. Well, the very famous monkey throwing darts
• 15:31
  Speaker 1: at a stop pages on the wall. That's absolutely right,
• 15:34
  Speaker 1: not that far off. So so what what changes aside
• 15:38
  Speaker 1: from the wholesale changes from what wasn't working? What did
• 15:41
  Speaker 1: you actually do? It was two things. Primarily, one was measuring.
• 15:48
  Speaker 1: We measured everything, and we measured it very openly. Whether
• 15:52
  Speaker 1: it was a number of calls and analysts made, what
• 15:55
  Speaker 1: their track records were on their stocks, the quality of
• 15:58
  Speaker 1: their written work, all of the contact they had with
• 16:01
  Speaker 1: the salesforce, the contact with the clients, all of anything
• 16:04
  Speaker 1: we could measure, we did, and we posted it. We
• 16:07
  Speaker 1: posted it so everybody could see it. Now, analysts aren't
• 16:10
  Speaker 1: tend to be competitive, so you're posting who makes the
• 16:14
  Speaker 1: most calls, who writes the best report, who writes the
• 16:17
  Speaker 1: most reports, who has the most feedback coming from the salesforce,
• 16:22
  Speaker 1: how are they getting rated by the clients? All of
• 16:26
  Speaker 1: those things people saw. No one wanted to be at
• 16:28
  Speaker 1: the bottom of the list. So you created a somewhat
• 16:30
  Speaker 1: competitive environment. But against the background of it was spelled
• 16:36
  Speaker 1: out and we tried to make it as collegial as possible.
• 16:40
  Speaker 1: I instituted a rule that's at any time you were
• 16:42
  Speaker 1: out with a client and you talked about what you
• 16:45
  Speaker 1: were doing, and even in your reports, you had to
• 16:49
  Speaker 1: mention two other analysts in the department. Now, that started
• 16:53
  Speaker 1: out with people saying, well why do I do this?
• 16:55
  Speaker 1: I said, Number one, someone's going to mention you. You're
• 16:58
  Speaker 1: gonna get better known. Number two. Ultimately, you're going to
• 17:01
  Speaker 1: have to find out a reason why you're mentioning an analyst.
• 17:04
  Speaker 1: So it's gonna make you a better analyst as well.
• 17:07
  Speaker 1: So so all of these quantitative metrics and this transparency,
• 17:12
  Speaker 1: this is pretty common stuff these days. It wasn't then.
• 17:15
  Speaker 1: So so that was you guys were really operating a
• 17:17
  Speaker 1: little outside of the box and shaking things up well.
• 17:19
  Speaker 1: And we operated even more outside the box. We used
• 17:22
  Speaker 1: to have off sites that were bizarre. We did strange things,
• 17:26
  Speaker 1: face painting, uh. We We had people coming in talking
• 17:30
  Speaker 1: about left brain, right brain. We had people coming in
• 17:33
  Speaker 1: providing sports analogies to how you run a successful organization.
• 17:38
  Speaker 1: We did a lot with these folks. We put them
• 17:41
  Speaker 1: through a lot of training as well. Even the older analysts,
• 17:45
  Speaker 1: we would we would put them in a group and
• 17:48
  Speaker 1: have someone who was let's say we had an analyst
• 17:51
  Speaker 1: who was making the most calls that analysts would talk about,
• 17:55
  Speaker 1: Here's what I do, Here's how I do it, Here's
• 17:57
  Speaker 1: how I get off the phone to make the next call,
• 17:59
  Speaker 1: here is what I concentrate on, etcetera. We had one
• 18:02
  Speaker 1: of our analysts, who was a very good balance sheet person,
• 18:06
  Speaker 1: go through with all the other analysts. First, that meant
• 18:08
  Speaker 1: they were recognized internally, and secondly they were conveying information
• 18:14
  Speaker 1: and other people said, Hey, I'm surrounded by some good
• 18:17
  Speaker 1: folks here. And this did not really happen at other
• 18:20
  Speaker 1: Wall Street Research. It was not happening as much. There
• 18:23
  Speaker 1: was another element that worked for us that was different.
• 18:27
  Speaker 1: We had a fair amount of gender arbitrage. I guess
• 18:30
  Speaker 1: that's the way I'd put it, meaning that you brought
• 18:32
  Speaker 1: in a lot of women, brought in a lot of women,
• 18:36
  Speaker 1: well they were mail and and the women. In terms
• 18:40
  Speaker 1: of market share of ranked analysts, we had the highest
• 18:44
  Speaker 1: market share by a lot. Now why did they come
• 18:47
  Speaker 1: there to work? Because we created an environment where one
• 18:50
  Speaker 1: they felt that they were recognized to that it was
• 18:54
  Speaker 1: totally based on merit. There was no nothing in the
• 18:56
  Speaker 1: way of compensation difference, and we supported, We created an
• 19:00
  Speaker 1: environment was supported if they had kids, let's deal with that,
• 19:03
  Speaker 1: if if they need to take a break, time off, office,
• 19:08
  Speaker 1: at home, whatever you wanted to do. And because we're
• 19:11
  Speaker 1: measuring everything, we knew people were working or they weren't.
• 19:16
  Speaker 1: It also became a very collegial environment. And that work.
• 19:21
  Speaker 1: Now the reason Harvard wrote a case on it is
• 19:24
  Speaker 1: because it applied outside of just a research effort. It
• 19:29
  Speaker 1: was taught in the Management of Service Organizations course as
• 19:34
  Speaker 1: they kind of standard for right. And I still go
• 19:37
  Speaker 1: up there, you know here it is. You know, it's
• 19:39
  Speaker 1: twenty years later and they're still teaching the course. That
• 19:43
  Speaker 1: that's quite fascinating. When we continue our conversation, we'll discuss
• 19:48
  Speaker 1: how Jack actually got fired from Lehman Brothers despite taking
• 19:52
  Speaker 1: them to the top of the institutional rankings. I'm Barry Rihults.
• 19:56
  Speaker 1: You're listening to Masters in Business on Bloomberg Radio. You're
• 20:01
  Speaker 1: listening to Masters in Business with Barry rid Holts on
• 20:05
  Speaker 1: Bloomberg Radio. This is Masters in Business on Bloomberg Radio.
• 20:14
  Speaker 1: I'm Barry rid Holtz. Today we're speaking with Jack Rivkin,
• 20:18
  Speaker 1: who is currently Chief Investment officer of Altegri's associates. But
• 20:22
  Speaker 1: he has a very storied background and career. He worked
• 20:25
  Speaker 1: as the head of research at Lehman Brothers, the chief
• 20:29
  Speaker 1: investment officer for new Burger and Berman. You were at
• 20:33
  Speaker 1: Smith Barney, you are at a number of places, a
• 20:35
  Speaker 1: very storied um background and incredibly knowledgeable about how things
• 20:42
  Speaker 1: work in the world of finance. Earlier, we were talking
• 20:45
  Speaker 1: about how you had taken Lehman Brothers back in the
• 20:48
  Speaker 1: nineteen eighties from the worst research department, a laughing stock
• 20:52
  Speaker 1: on Wall Street, to the number one ranked institutional research department,
• 20:58
  Speaker 1: and for your troubles you were rewarded. How you listed
• 21:02
  Speaker 1: every place I had worked. Some people could say, well,
• 21:05
  Speaker 1: he couldn't hold a job, Well, this was an instance
• 21:08
  Speaker 1: where I clearly couldn't hold it. All those other jobs
• 21:11
  Speaker 1: you had been recruited away and hired away this one,
• 21:15
  Speaker 1: it was not quite the case there. Three years into it,
• 21:19
  Speaker 1: we were number one in research. I then moved from
• 21:22
  Speaker 1: being head of research to running the whole equity division,
• 21:26
  Speaker 1: and we were actually doing extremely well. But it happened
• 21:30
  Speaker 1: to be a time when the fixed income markets weren't
• 21:33
  Speaker 1: doing well. If you go back that was a period
• 21:36
  Speaker 1: of crisis SNLS. There were all these kinds of problems
• 21:40
  Speaker 1: and fixed income, which was the core of Lehman, was
• 21:43
  Speaker 1: not doing quite as well. And we were really kicking it.
• 21:47
  Speaker 1: We were doing extremely well, and I don't think that
• 21:50
  Speaker 1: went over well. And I had a different management style.
• 21:53
  Speaker 1: Lehman was a pretty buttoned up management style, and I
• 21:56
  Speaker 1: had casual fridays and all these offside, very loosey goosey
• 22:01
  Speaker 1: with But by the way, a lot of the stuff
• 22:03
  Speaker 1: you talked about, it's pretty standard operating procedure today today
• 22:08
  Speaker 1: in in a number of management courses and a number
• 22:12
  Speaker 1: of service oriented industries. But back then it was not.
• 22:16
  Speaker 1: People looked at you a little, hey, what is this crazy?
• 22:18
  Speaker 1: It was this crazy guy and what is he doing here? Well,
• 22:22
  Speaker 1: what what we were doing was producing results, but it
• 22:25
  Speaker 1: was not being done. And what I'd call the button down,
• 22:29
  Speaker 1: this is the way we're going to operate. And the
• 22:31
  Speaker 1: guy running the fixed income operation at that time was
• 22:34
  Speaker 1: a West Point grad. He had a certain way of
• 22:37
  Speaker 1: doing business. He was totally opposed to casual fridays and
• 22:41
  Speaker 1: he said, you know, I, I I just don't believe in
• 22:43
  Speaker 1: wearing doctors into work. And I said, well, what's important
• 22:48
  Speaker 1: are the results, not the numbers. That's it. And the
• 22:52
  Speaker 1: numbers were pretty good, but I didn't fit. So who
• 22:57
  Speaker 1: ultimately fired you? Was it Dick Fold or was it
• 23:00
  Speaker 1: Dick was in the office, Dick was in in the meeting.
• 23:03
  Speaker 1: It was Dick and Chris Pettitt, who was the guy
• 23:06
  Speaker 1: running the fixed income operation at that Hey, you're making
• 23:09
  Speaker 1: too much money on the equity side, and we don't
• 23:11
  Speaker 1: like what you're doing. You gotta go. Well you could
• 23:14
  Speaker 1: see how that ultimately were strange because I I you know,
• 23:18
  Speaker 1: they said, well, we're going to have to make a
• 23:19
  Speaker 1: change here and I I said, well, let's talk a
• 23:23
  Speaker 1: little bit about why. And they said, well, we just
• 23:26
  Speaker 1: feel it's necessary. It just as important. They wouldn't go
• 23:29
  Speaker 1: into it. There was no argument on that, and and okay,
• 23:34
  Speaker 1: so it was going to happen. That's fine. So it
• 23:37
  Speaker 1: then became let me negotiate the best exit I possibly could,
• 23:43
  Speaker 1: and I get maybe because they felt guilty or whatever.
• 23:46
  Speaker 1: It was a pretty good exit. It gave me a
• 23:49
  Speaker 1: lot of flexibility of things to do, and uh, I
• 23:53
  Speaker 1: still have lots of friends at Lehman, And of course
• 23:55
  Speaker 1: I came back involved with Lehman because new Burger. So
• 23:59
  Speaker 1: you ended up as chief investment officer at new berglan Berman.
• 24:02
  Speaker 1: So this is you leave Lean Well, No. Nine two
• 24:06
  Speaker 1: is when I Yes, ninety two is when I left Lehman.
• 24:10
  Speaker 1: And I was trying to actually with a guy named
• 24:13
  Speaker 1: Jim Freeman. We were going to actually raise a merchant
• 24:16
  Speaker 1: banking front. And I went to Sandy Wild to raise
• 24:20
  Speaker 1: some money and he said, why don't you come over
• 24:22
  Speaker 1: here and help us on the research. And then at
• 24:25
  Speaker 1: that point they had Smith Barney. Yes, they had Smith Barney.
• 24:28
  Speaker 1: And I said, no, I'm raising this fun And I
• 24:31
  Speaker 1: asked him, I said, well, when are you going to
• 24:33
  Speaker 1: buy Lehman? And he said, oh, they hate me, I
• 24:36
  Speaker 1: hate them. It's not gonna happen. I said, well, if
• 24:39
  Speaker 1: you ever do give me a call, there are a
• 24:41
  Speaker 1: couple of people there. I'm prepared to shoot for you.
• 24:44
  Speaker 1: So that two months later I get a call saying, well,
• 24:48
  Speaker 1: we're not buying Lehman, but we're buying the retail division
• 24:52
  Speaker 1: and we're buying the asset management business Smith Martin of
• 24:56
  Speaker 1: Jerson Lehman. They and they were adding it to the
• 25:00
  Speaker 1: Smith Barney. So they loved the Lehman research. Why don't
• 25:03
  Speaker 1: you come in and get a Susan, I said, I'm
• 25:05
  Speaker 1: raising this fun and to Sandy's credit, he said, okay,
• 25:09
  Speaker 1: you come over here and help us, and I'll give
• 25:11
  Speaker 1: you the money. The money he he gave was first
• 25:14
  Speaker 1: Travelers Investment Group money and then the City Group Investments
• 25:18
  Speaker 1: and I I was there during the dot com era.
• 25:21
  Speaker 1: I spent two years on the research side and then
• 25:23
  Speaker 1: moved into the investment group and ran a group of
• 25:27
  Speaker 1: folks doing venture capital and portfolio myself. And it was
• 25:30
  Speaker 1: during the dot com era. It was a great time
• 25:32
  Speaker 1: to be there. And I retired from that in two
• 25:37
  Speaker 1: thousand one. I tried to retire in the said no,
• 25:41
  Speaker 1: you gotta stick around. But I sold everything that I
• 25:43
  Speaker 1: thought I could sell, so there wasn't much left to do.
• 25:46
  Speaker 1: But I stuck around, retired with the intention of spending
• 25:51
  Speaker 1: a lot of time in the venture world. And then
• 25:53
  Speaker 1: I get a call from my friend from the Lehman days,
• 25:56
  Speaker 1: Jeff Lane, who was running Newberger Berman, and said, why
• 25:59
  Speaker 1: don't you I'm here at ce IO coming up. We
• 26:02
  Speaker 1: continue our conversation with Jack Rivkin discussing the world of
• 26:06
  Speaker 1: venture capital, investing, managed futures and Hedge Funds. You're listening
• 26:11
  Speaker 1: to Masters in Business with Barry Ridholts on Bloomberg Radio.
• 26:20
  Speaker 1: This is Masters in Business on Bloomberg Radio. I'm Barry
• 26:24
  Speaker 1: rid Holts. Today I'm speaking with Jack Rivkin, who is
• 26:27
  Speaker 1: currently head of Research and and principal at Altegri's Associates.
• 26:32
  Speaker 1: Is that correct? Or chief in pretty close chief Investment
• 26:35
  Speaker 1: ce IO, and earlier we were discussing um your career.
• 26:40
  Speaker 1: You had run the research department at Smith Barney and
• 26:44
  Speaker 1: before that at Lehman Brothers, and then eventually became chief
• 26:48
  Speaker 1: investment officer at new Berger and Berman. Along the way,
• 26:52
  Speaker 1: you were pretty active in the venture capital markets as well.
• 26:56
  Speaker 1: You were head of um VC cap it at Pain
• 27:01
  Speaker 1: Webber Is that right? Yes, I started up their merchant
• 27:04
  Speaker 1: banking capital operation. And you also are a principal City
• 27:09
  Speaker 1: Group at City Group and your principal at Ideal Apps
• 27:12
  Speaker 1: that does very early stage investing. Talk a little bit
• 27:15
  Speaker 1: about what the world of venture capital is like. Well,
• 27:18
  Speaker 1: the world of venture capital has changed fairly dramatically, but
• 27:22
  Speaker 1: it's primarily driven by Moore's law. If we're doubling processing
• 27:26
  Speaker 1: speeds every eighteen months, just think about that. That means
• 27:29
  Speaker 1: in ten years, whatever you're doing is sixty or four
• 27:32
  Speaker 1: times faster than it was ten years previously. And I
• 27:35
  Speaker 1: don't think we can imagine all the things you can
• 27:37
  Speaker 1: do with that. But there are folks out there, primarily
• 27:41
  Speaker 1: on the West coast and maybe up a little north
• 27:43
  Speaker 1: of here and that's right, who are figuring out things
• 27:47
  Speaker 1: to do and it's exciting. What what about the biotech side,
• 27:53
  Speaker 1: I think, particularly with what we see going on with
• 27:57
  Speaker 1: healthcare costs and whether it's sim cell re search or
• 28:00
  Speaker 1: brain research or any of this effort, the opportunities are phenomenal,
• 28:06
  Speaker 1: just just fascinating. You know, it's changing the world. It's
• 28:09
  Speaker 1: really tough to make a bet against human ingenuity. There's
• 28:12
  Speaker 1: so many fascinating new technologies coming out all the time.
• 28:17
  Speaker 1: It's hard to keep up with the pace of of innovation.
• 28:20
  Speaker 1: And what you have to do is find some smart
• 28:23
  Speaker 1: people who are driven and have a little bit of
• 28:27
  Speaker 1: something that relates to management and what they're doing, and
• 28:31
  Speaker 1: you can do wonderful things in the world. And the
• 28:34
  Speaker 1: great thing is we've got another country out there called China,
• 28:38
  Speaker 1: billion million people. My guess is the i Q spread
• 28:41
  Speaker 1: is the same as it is here. So you're talking
• 28:44
  Speaker 1: about an equivalent at the high end of the i
• 28:46
  Speaker 1: Q equal to the whole US population. They're going to
• 28:49
  Speaker 1: get there as well. And so what about all the
• 28:52
  Speaker 1: problems of it's a communist country and they're building these
• 28:55
  Speaker 1: ghost cities and you know all the problems that people
• 28:58
  Speaker 1: have been talking about China for the past cup of years.
• 29:00
  Speaker 1: Is that just something they work through or well, I
• 29:04
  Speaker 1: don't think you can work through it. I think there
• 29:06
  Speaker 1: will be some elements of disruption there. But the fact
• 29:09
  Speaker 1: is you have a group of very smart people there
• 29:12
  Speaker 1: at one end of that spectrum, and those folks have
• 29:15
  Speaker 1: always had to be entrepreneurs in a communist system. If
• 29:19
  Speaker 1: you're going to survive in that system and maybe to
• 29:22
  Speaker 1: some extent, thrive, you have to become an entrepreneur. May
• 29:25
  Speaker 1: not be the entrepreneur that we think about, but you're
• 29:28
  Speaker 1: having to think about what can I do, what can
• 29:31
  Speaker 1: I make use of that gets me beyond what's happening
• 29:35
  Speaker 1: in a bureaucratic controlled system, and a big segment of
• 29:39
  Speaker 1: the population does that. So let's talk a little bit
• 29:42
  Speaker 1: about other stuff you've done. In addition to venture capital,
• 29:46
  Speaker 1: there's been a lot of other alternative investments, hedge funds, futures.
• 29:51
  Speaker 1: Let's that's sort of my that's a bit of my
• 29:54
  Speaker 1: new life. Although I go back to having called on A. W.
• 29:58
  Speaker 1: Jones in the early days of one of the first
• 30:01
  Speaker 1: hedge funds that existed. But that's Alfred Jones, the essentially
• 30:06
  Speaker 1: the first He was at the first hedge fund. Are
• 30:09
  Speaker 1: you going to tell me that you knew Mr Jones
• 30:11
  Speaker 1: is no. No. The person I dealt with there was
• 30:13
  Speaker 1: a guy named Tony Healy who was also a legend
• 30:17
  Speaker 1: as well. And uh, they were true hedge funds. They
• 30:20
  Speaker 1: were actually actually they actually did hedges. They weren't leveraged funds.
• 30:25
  Speaker 1: They were actually making decisions on buying and selling securities
• 30:29
  Speaker 1: and thinking about risk, even in those early days. This
• 30:33
  Speaker 1: is back in the sixties as well, but coming out
• 30:37
  Speaker 1: of of New New Burger, where I actually stayed on
• 30:42
  Speaker 1: the mutual fund board for a long time after having
• 30:45
  Speaker 1: been c i O there, I actually got involved with
• 30:50
  Speaker 1: a couple of private equity firms as what's called an
• 30:53
  Speaker 1: executive advisor. What that meant is if they found something
• 30:57
  Speaker 1: that we're looking at where they thought I might have expertise,
• 31:00
  Speaker 1: I would get involved. And I did get involved very
• 31:04
  Speaker 1: rigorously going back to two thousand twelve in the possible
• 31:08
  Speaker 1: acquisition of Altegrists out of an insurance company, and I
• 31:12
  Speaker 1: was intrigued had been intrigued to some extent by alternative
• 31:17
  Speaker 1: investments and how liquid alternatives were becoming a part of
• 31:21
  Speaker 1: the program there. And I like the people, I like
• 31:26
  Speaker 1: the process, and I thought it would help build some
• 31:28
  Speaker 1: brain cells as well. And I after the deal was closed,
• 31:32
  Speaker 1: I went in as chairman of the company. We were
• 31:35
  Speaker 1: looking for a C I O. Really couldn't find someone
• 31:38
  Speaker 1: who could deal as broadly as I would have liked.
• 31:41
  Speaker 1: So I pulled a Dick Jeney, I said I can
• 31:44
  Speaker 1: do this, and and actually they took a vote. I
• 31:47
  Speaker 1: don't know how close it was, but I ended up
• 31:50
  Speaker 1: as c I O. And it's been a great experience.
• 31:54
  Speaker 1: I think it is an area that is doing some
• 31:58
  Speaker 1: under really interesting thing. You have to be careful, and
• 32:02
  Speaker 1: you have to be careful about what strategies at what time,
• 32:05
  Speaker 1: which gets to the concept of managed futures versus lawn
• 32:08
  Speaker 1: short equity or a lawn short fixed income. There's a
• 32:11
  Speaker 1: lot of varieties, so we're going way off into the
• 32:13
  Speaker 1: weeds in terms of a little more complex financial product.
• 32:19
  Speaker 1: Let's talk about how the world has evolved over the
• 32:22
  Speaker 1: course of your career, because you started out the world
• 32:25
  Speaker 1: was a whole lot simpler. You were an equity analyst
• 32:28
  Speaker 1: in the late sixties, you were looking at balance sheets.
• 32:31
  Speaker 1: This is really Graham and Dodd fundamental research, and now
• 32:37
  Speaker 1: it's the polar opposite into the schedule spectrum of complex
• 32:42
  Speaker 1: hedged products, etcetera. Is it the world has changed so
• 32:46
  Speaker 1: much that that's what drew you there, or Hey, this
• 32:50
  Speaker 1: looks like something I haven't played in before. Let's have
• 32:53
  Speaker 1: a little fun with this. This is intriguing stuff. Well,
• 32:55
  Speaker 1: it's a combination. It was something that had not been
• 32:59
  Speaker 1: at the core of what doing. But it was absolutely
• 33:02
  Speaker 1: the case that if you look at the right kind
• 33:05
  Speaker 1: of hedge funds, they're doing the fundamental research. They're just
• 33:09
  Speaker 1: they've just got so much information coming at them that
• 33:12
  Speaker 1: they can do things that we couldn't do back in
• 33:15
  Speaker 1: the the early days here as well. And that intrigued me.
• 33:19
  Speaker 1: That intrigued me, and it also intrigued me that we're
• 33:21
  Speaker 1: moving toward risk is what you ought to be managing
• 33:26
  Speaker 1: as opposed to what are my returns? It's what level
• 33:30
  Speaker 1: of risk. Am I willing to take here to satisfy
• 33:33
  Speaker 1: whatever goals I have? And those strategies look like they
• 33:38
  Speaker 1: can fit into modifying or accepting an element of risk
• 33:44
  Speaker 1: in a portfolio. Risk risk has always been with us.
• 33:47
  Speaker 1: The traditional response is a sixty fortyfolio, so you have
• 33:53
  Speaker 1: an anchor of bonds, and when stocks are gonna shell
• 33:56
  Speaker 1: act like we've seen earlier this year, the bond uh
• 34:00
  Speaker 1: typically go the other way, so it takes a little
• 34:03
  Speaker 1: bit of the sting out of the drop um. For
• 34:06
  Speaker 1: the average person, is this the sort of thing that
• 34:10
  Speaker 1: makes sense? Or they are they better off with a
• 34:13
  Speaker 1: traditional asset allocation model? Or who's the intended client for
• 34:18
  Speaker 1: a sophisticated I think the client the client can't be
• 34:22
  Speaker 1: it's ultimately the end investor. But it is complex and
• 34:27
  Speaker 1: one has to really think about how you want to
• 34:30
  Speaker 1: allocate among all the asset classes that you've got available here.
• 34:34
  Speaker 1: And I think it takes an intermediary. It takes someone
• 34:37
  Speaker 1: who's operating as an advisor of some sort, who is
• 34:41
  Speaker 1: actually paying attention to risk and what their client is
• 34:44
  Speaker 1: saying they want to achieve over the next twenty years,
• 34:48
  Speaker 1: and it's prepared to spend some time on that and
• 34:51
  Speaker 1: actually incorporate hedged product or to modify the amount of
• 34:57
  Speaker 1: risk that their client is going to be set GEK two.
• 35:01
  Speaker 1: But for an individual investor to make these decisions around
• 35:05
  Speaker 1: the particularly the liquid product that is out there, I
• 35:09
  Speaker 1: think you need help. It's complicated. It is complex stuff.
• 35:13
  Speaker 1: And and before we run out of time, let's just
• 35:15
  Speaker 1: talk a little bit about what sort of stuff you're
• 35:18
  Speaker 1: seeing on the venture sides, because I know you're still
• 35:21
  Speaker 1: active in early stage investing. What's out there that's kind
• 35:24
  Speaker 1: of fascinating. Well, this may seem actually old now because
• 35:28
  Speaker 1: it's in the news, but I think three D printing
• 35:31
  Speaker 1: bringing three D printing down to the individual, where you
• 35:34
  Speaker 1: get to a device that costs you a two hundred
• 35:37
  Speaker 1: bucks and you can print out a lot of different
• 35:41
  Speaker 1: things based on what someone is coming to you. Three
• 35:44
  Speaker 1: D printing. We we've also I'm still involved in some
• 35:47
  Speaker 1: elements around climate change, not climate change specifically, but some
• 35:51
  Speaker 1: of the different ways to create or store energy. Moving
• 35:56
  Speaker 1: a little bit into the healthcare area, which I think
• 35:59
  Speaker 1: is such a need. You know you mentioned three D
• 36:04
  Speaker 1: printing and healthcare. I saw too fascinating stories on that.
• 36:08
  Speaker 1: One was a group of doctors in Europe that had
• 36:12
  Speaker 1: an inoperable tumor on a relatively young kid, and they
• 36:16
  Speaker 1: were able to take the m R I and CAT
• 36:18
  Speaker 1: scans of this tumor printed in three D so they
• 36:23
  Speaker 1: could see how the tumor was interfering with what veins
• 36:26
  Speaker 1: and what arteries, and and repeated practice surgeries in order
• 36:31
  Speaker 1: to get to it, and eventually they operate on this
• 36:35
  Speaker 1: inoperable tumor and save this boy's life. The other thing
• 36:39
  Speaker 1: which is astonishing that I was just reading about the
• 36:41
  Speaker 1: other day is using three D printing to print biological output,
• 36:47
  Speaker 1: so they could print part of a kidney or print
• 36:50
  Speaker 1: part of a That's astonishing, astonishing happening. And I've I've
• 36:54
  Speaker 1: actually been up to New York stem Cell Foundation and
• 36:57
  Speaker 1: they're they're printing bones, but they're printing bone that actually
• 37:01
  Speaker 1: have you know, veins running through them. You're actually it's
• 37:04
  Speaker 1: not a dead piece of calcium. It's an actual bone,
• 37:09
  Speaker 1: a growing, living, living, a living bone. Thank you Jack
• 37:14
  Speaker 1: for spending so much time with us. We've been speaking
• 37:16
  Speaker 1: with Jack Rivkin, managing director at Altegris. Be sure and
• 37:19
  Speaker 1: check out our podcast extras where we continue the conversation
• 37:23
  Speaker 1: you could see that at Bloomberg dot com or at iTunes.
• 37:27
  Speaker 1: Check out all of our past conversations are archived at
• 37:30
  Speaker 1: both those locations, or follow me on Twitter at Ridholts.
• 37:34
  Speaker 1: I'm Barry Rihults. You're listening to Masters in Business on
• 37:37
  Speaker 1: Bloomberg Radio. This is Barry Ridholts, and this is our
• 37:43
  Speaker 1: Masters in Business weekly series where I find some very smart,
• 37:48
  Speaker 1: influential person who's work and ideas have really dramatically influenced
• 37:54
  Speaker 1: the market, uh or society or business over the past
• 37:59
  Speaker 1: few years. And today I'm thrilled to have my friend
• 38:02
  Speaker 1: and fishing buddy Jack Rivkin, who's now with Altegris. And
• 38:06
  Speaker 1: if you listen to the early part of the show,
• 38:09
  Speaker 1: pretty much couldn't hold the job and just kicked around
• 38:12
  Speaker 1: Wall Street, from Lehman to City to pain Webber to
• 38:16
  Speaker 1: new Berger and Burnman. Eventually somebody was nice and took
• 38:20
  Speaker 1: him in. And you know, it's really funny that that
• 38:22
  Speaker 1: the story I told early on. You know, I just
• 38:26
  Speaker 1: realized exactly John Maulden introduced us. That's that's what That's
• 38:29
  Speaker 1: how we met at a dinner that John was in
• 38:32
  Speaker 1: town for and I remember having a conversation you and
• 38:38
  Speaker 1: I briefly talked about fishing. I had a conversation. It
• 38:41
  Speaker 1: might have been David Kotok said, I met a guy
• 38:44
  Speaker 1: very interested, Jack Rifken, fisherman. Oh you met Jack Rivkin,
• 38:48
  Speaker 1: And uh yeah, I just told you. She goes you
• 38:51
  Speaker 1: know who Jack Rivkin is, right, some guy. I just no, No,
• 38:55
  Speaker 1: you don't understand. You go he's the one. Go Google.
• 39:00
  Speaker 1: So I google you, and holy cow, look at this. Wow,
• 39:03
  Speaker 1: this guy has worked everywhere. The Harvard Business case study
• 39:07
  Speaker 1: comes up, which is, oh, that's the first time that's
• 39:10
  Speaker 1: ever happened. And Ko Talk is another one who's a
• 39:13
  Speaker 1: huge fisherman. I put you two guys in touch and
• 39:15
  Speaker 1: we ended up we're fishing as much as we can.
• 39:19
  Speaker 1: Not as much as I would like, but as much
• 39:21
  Speaker 1: as we can. It isn't so every year Ko Talk
• 39:24
  Speaker 1: host the it's called the Shadow Federal Reserve UM fishing Trip.
• 39:29
  Speaker 1: We're informally known as Camp ko Talk. And this is
• 39:32
  Speaker 1: up in the wilds of Maine and it's just God's country.
• 39:35
  Speaker 1: It's as gorgeous an area. Every time I'm sitting in
• 39:38
  Speaker 1: a canoe on a lake there and you just look around, geez,
• 39:41
  Speaker 1: this is there's nobody around from miles You're in the
• 39:44
  Speaker 1: middle of this pristine like people don't even think that
• 39:49
  Speaker 1: sort of stuff is left anymore. That's it's just incredible.
• 39:53
  Speaker 1: And a lot of the guys who go there actually
• 39:56
  Speaker 1: work with some of the nature conservancy to keep that
• 39:59
  Speaker 1: land absolutely wild and pristine, and there's just they ain't
• 40:04
  Speaker 1: making any more of it, and there's less and less
• 40:06
  Speaker 1: of it all the time. It's really quite amazing. So
• 40:10
  Speaker 1: so that's how we met um. And you do a
• 40:14
  Speaker 1: lot of fly fishing, don't you. I do what my
• 40:16
  Speaker 1: My father put a fly rod in my hand when
• 40:18
  Speaker 1: I was five years old, and now it had a
• 40:21
  Speaker 1: hook with a worm on the hook, but it was
• 40:24
  Speaker 1: still a fly rod. It was still a fly rod,
• 40:27
  Speaker 1: and at five that's what you needed if you're actually
• 40:30
  Speaker 1: going to catch a fish. But from then on that's
• 40:34
  Speaker 1: what I've done. That's my sport. So it's funny because
• 40:37
  Speaker 1: I was never a fly fisherman, but as a kid,
• 40:40
  Speaker 1: we used to spend our summer's upstate New York and
• 40:44
  Speaker 1: back in the day when there wasn't air conditioning everywhere.
• 40:47
  Speaker 1: I'm old enough to growing up where there was in
• 40:50
  Speaker 1: central air in everybody's house, so he would work during
• 40:54
  Speaker 1: the week and come up Thursday night and spend the
• 40:55
  Speaker 1: whole weekend with us and then go back down. So
• 40:58
  Speaker 1: it's three day weekends over the sun and same thing.
• 41:01
  Speaker 1: I recall getting up at four thirty five o'clock in
• 41:04
  Speaker 1: the morning, driving to the Liberty Diner for breakfast, and
• 41:08
  Speaker 1: then we're on the lake at six six thirty and
• 41:11
  Speaker 1: it was either Swan Lake or one of his other
• 41:13
  Speaker 1: lakes upstate. And as a kid, that's what you did. Well,
• 41:17
  Speaker 1: that's that's what I did, except it was Lake Spavanaugh
• 41:20
  Speaker 1: and Spring Creek right outside of Tulsa, and we get
• 41:24
  Speaker 1: up early, we'd find someplace to add breakfast, and then
• 41:27
  Speaker 1: we were on the water. There's nothing like that. And
• 41:30
  Speaker 1: you know, it's funny because there are always these life
• 41:33
  Speaker 1: lessons to be learned, and if you're fishing, the lesson
• 41:37
  Speaker 1: you learn is patients patients, which certainly doesn't hurt as
• 41:41
  Speaker 1: an investor to have. And I'm not a naturally patient person,
• 41:46
  Speaker 1: so that was a little bit of struggle learning to
• 41:49
  Speaker 1: have that. But what what sort of life lessons did
• 41:53
  Speaker 1: you take from Tulsa, Oklahoma. Well, one was that, um,
• 42:00
  Speaker 1: you don't learn much when your mouth is open. So
• 42:05
  Speaker 1: I did a lot of listening. And my father and
• 42:09
  Speaker 1: actually my grandfather encouraged that they were both photographers. They
• 42:12
  Speaker 1: made their livings as photographers, so they were and they
• 42:15
  Speaker 1: were photographing nature, but they were photographing human nature as well,
• 42:20
  Speaker 1: weddings and you name it. And uh. I used to
• 42:25
  Speaker 1: love going into my father's when he was in the
• 42:28
  Speaker 1: dark room and the smell of hypo and sitting there
• 42:32
  Speaker 1: quietly while he was creating these phenomenal things that there
• 42:39
  Speaker 1: were blank sheets and then suddenly there was a picture
• 42:41
  Speaker 1: there that was that was what I saw, And there
• 42:44
  Speaker 1: was a lot of patients and silence associated that, and
• 42:48
  Speaker 1: then when you said something it tended to be a
• 42:51
  Speaker 1: little bit more profound. Yeah. I I learned the patients
• 42:55
  Speaker 1: side of things over time. It took a while to
• 42:57
  Speaker 1: learn that the keeping a mouth shut. I still don't
• 43:00
  Speaker 1: have that. I'm working on it. Um. So let's talk
• 43:04
  Speaker 1: a little bit about some of the things we didn't
• 43:06
  Speaker 1: get to during the broadcast segment. So Dick Fault pretty
• 43:11
  Speaker 1: much fired you. Yes he was in the room you
• 43:14
  Speaker 1: you politely said, but he was known for sitting in
• 43:17
  Speaker 1: the corner and having his henchmen do his bidding. That
• 43:20
  Speaker 1: wasn't well. I guess if you need me there, I'll
• 43:22
  Speaker 1: be there. But essentially it was between you and the
• 43:25
  Speaker 1: head of fixed income, and Dick said, we're a fixed
• 43:28
  Speaker 1: incomes to the shop. This guy Jack has to go.
• 43:31
  Speaker 1: If it's between the two of you, I'll choose you.
• 43:33
  Speaker 1: And he's gone, right, And and this was a guy
• 43:36
  Speaker 1: that he'd worked with at the old Lehman for lots
• 43:39
  Speaker 1: of years and had they had done a very good
• 43:42
  Speaker 1: job on the fixed income side. They had built quite
• 43:44
  Speaker 1: an operation there and there one of the biggest fixed
• 43:48
  Speaker 1: income shops they were and and commercial paper that was
• 43:52
  Speaker 1: that was where all of this group that was now
• 43:54
  Speaker 1: running fixed income and Lehman came from. And that was
• 43:59
  Speaker 1: sort of the end of it. But I I continued
• 44:02
  Speaker 1: to actually get along with Dick. And the next time
• 44:05
  Speaker 1: I ran into him, I had joined the Economic Club
• 44:08
  Speaker 1: of New York and I was on the membership committee
• 44:11
  Speaker 1: and he applied for membership, and so I called him.
• 44:14
  Speaker 1: I was so sorry. It was great, but that's not
• 44:19
  Speaker 1: what happened. I called him up and and he returned
• 44:23
  Speaker 1: the call. He called back and I said, Dick, I
• 44:26
  Speaker 1: see you've applied for the Economic Club of New York
• 44:29
  Speaker 1: and I'm on the membership committee, and I said, my
• 44:32
  Speaker 1: job is to make sure that you can spell economics.
• 44:36
  Speaker 1: And he laughed and said, he said, I'll never I'll
• 44:40
  Speaker 1: never forget how you handled yourself when we made that mistake.
• 44:46
  Speaker 1: That's what he said. Really, that's a very nice I mean,
• 44:49
  Speaker 1: it was it was pretty clear. Look, you know, not
• 44:52
  Speaker 1: everybody figures that out. It took me till I was,
• 44:56
  Speaker 1: I want to say, mid forties to learn, hey, when
• 44:59
  Speaker 1: you leave, and if you were leaving on your own terms,
• 45:02
  Speaker 1: how you exit and exit gracefully really leaves a taste
• 45:07
  Speaker 1: in people's mouths. And you know, the past few places
• 45:10
  Speaker 1: I've left, I've actually learned that lesson that. I think
• 45:14
  Speaker 1: a lot of people learned much younger than me. But
• 45:17
  Speaker 1: it's it's always nice when someone says something like that
• 45:19
  Speaker 1: and said, it was very nice. You were a gentleman,
• 45:22
  Speaker 1: and we appreciate it was very nice. And then subsequently
• 45:25
  Speaker 1: I was at New Burger and who comes knocking on
• 45:29
  Speaker 1: the door but Lehman, and it was he was there,
• 45:33
  Speaker 1: and and again I talked to Joe Gregory and all
• 45:37
  Speaker 1: those guys, and they said, you know, I hope you've
• 45:40
  Speaker 1: got no hard feelings. You know, let's let's make a
• 45:43
  Speaker 1: go of this. And obviously you gave the thumbs up
• 45:46
  Speaker 1: to you know, if you were a vindictive character, you
• 45:49
  Speaker 1: would have submarined his Economics Club of New York membership,
• 45:53
  Speaker 1: and they had to know that you were not harboring
• 45:57
  Speaker 1: any will at that point. No, it was just one
• 45:59
  Speaker 1: of those sayings that that happened. It is a small street,
• 46:04
  Speaker 1: and it pays, it pays to actually makes realize that
• 46:10
  Speaker 1: it's a small street and there's no place to hide,
• 46:13
  Speaker 1: and there's always something that is good about of person.
• 46:17
  Speaker 1: Now maybe that comes from my Dale Carnegie sort of experience.
• 46:21
  Speaker 1: Your job as a manager to find the good and
• 46:23
  Speaker 1: bring it out and bring it out even the worst.
• 46:25
  Speaker 1: That's right. That's right. And Dick Fold was and is
• 46:29
  Speaker 1: he's still a real gentleman. He was a tough guy. Yeah,
• 46:36
  Speaker 1: but that's right. This is family radio, so I can't
• 46:39
  Speaker 1: use some of those phrases. But he had a reputation
• 46:42
  Speaker 1: of really, you know, bare knuckle no bs sort of
• 46:46
  Speaker 1: you don't want to be on the wrong side of him. No,
• 46:48
  Speaker 1: you did not want to be on the wrong side
• 46:50
  Speaker 1: of him. But frankly, I think with a lot of
• 46:52
  Speaker 1: CEOs that's the case. It makes it very difficult to
• 46:57
  Speaker 1: actually have large organization and move forward because there is
• 47:02
  Speaker 1: this fear. There is this fear, and there's also an
• 47:04
  Speaker 1: attitude I'm CEO, I'm in charge here. I have to
• 47:08
  Speaker 1: make decisions and I'm going to make them. But that's
• 47:11
  Speaker 1: a bottleneck. They lose something, to lose something because the
• 47:15
  Speaker 1: people instead of thinking about what they're doing is the
• 47:18
  Speaker 1: inverted pyramid where there at the bottom and they're supposed
• 47:21
  Speaker 1: to be supporting everybody working for them, as opposed to
• 47:25
  Speaker 1: at the top telling everybody what to do. I think
• 47:30
  Speaker 1: that's part of the problem with what's going on with
• 47:33
  Speaker 1: a lot of companies in the country now. And I
• 47:36
  Speaker 1: would tell you that that sort of you know, when
• 47:39
  Speaker 1: you rule by fear a little bit, and I don't
• 47:42
  Speaker 1: want to say Lehman was ruled by fear, but when
• 47:44
  Speaker 1: you have that reputation of being a tough s O
• 47:46
  Speaker 1: B and no one wants to bring you bad news,
• 47:50
  Speaker 1: you end up surrounded by yes men. So I suspect
• 47:54
  Speaker 1: Lehman could have been saved a year or two before
• 47:56
  Speaker 1: it collapsed and people saw problems, but nobody wanted to either.
• 48:02
  Speaker 1: It wasn't in anybody's interest if I go and tell Dick,
• 48:05
  Speaker 1: this is going to collapse. And in fact, I think
• 48:07
  Speaker 1: the story was some mortgage backed analysts and Lehman said, hey,
• 48:12
  Speaker 1: we're sitting on all this paper. It's a disaster. We
• 48:15
  Speaker 1: have to deal with this, and ultimately he was fired.
• 48:17
  Speaker 1: I wouldn't. I don't know that that could be apocryphal,
• 48:20
  Speaker 1: but it could also be very true as well. And
• 48:23
  Speaker 1: you you come to believe your own stuff pr spines,
• 48:29
  Speaker 1: and again you're surrounding yourself by people who are people
• 48:32
  Speaker 1: are reinforcing that. Then you think we're going to get
• 48:36
  Speaker 1: through this, and historically Lehman got through some very tough
• 48:40
  Speaker 1: periods previously. You could make its right, that's right. So
• 48:45
  Speaker 1: you make a case that they actually went bankrupt a
• 48:48
  Speaker 1: few times before, but because of the way they pulled
• 48:52
  Speaker 1: together and somebody bailing him out, whether it was American
• 48:56
  Speaker 1: Express or actually in the ninety eight crisis, the FED
• 49:00
  Speaker 1: bailed everybody out, I mean long term capital management. But
• 49:04
  Speaker 1: I think they were one of the smaller exposed. Um
• 49:09
  Speaker 1: they were. I don't think it was potentially fatal in them,
• 49:11
  Speaker 1: but it was, but they were, they were leveraged, they
• 49:14
  Speaker 1: were as leveraged then as a as a broker dealer
• 49:16
  Speaker 1: as they were when the end finally came as well.
• 49:21
  Speaker 1: I think by the time we rolled around to oh
• 49:23
  Speaker 1: six oh seven, because of that last five years, the
• 49:27
  Speaker 1: leverage just ran out of control from across the board
• 49:30
  Speaker 1: six and they were, you know, it was across the board,
• 49:34
  Speaker 1: but they were so heavily in the commercial paper and
• 49:38
  Speaker 1: the mortgage back area that they were at ground zero.
• 49:42
  Speaker 1: You know, it wasn't just people misunderstand People seemed to
• 49:45
  Speaker 1: think that Lehman Brothers fell and then all the dominoes
• 49:49
  Speaker 1: went after it. I'm fond of saying, you know, Lehman
• 49:52
  Speaker 1: was the first trailer in the trailer park that the
• 49:56
  Speaker 1: tornado came through. But it was gonna take everybody else.
• 49:59
  Speaker 1: It was gonna take everybody, wasn't It wasn't But for
• 50:02
  Speaker 1: if we only save Lehman, everything would have been fine.
• 50:05
  Speaker 1: They were all going down. They were all heavily exposed,
• 50:08
  Speaker 1: they were all heavily leveraged. They all had a huge
• 50:11
  Speaker 1: derivative bet on housing, which when sour, Lehman just it
• 50:16
  Speaker 1: was such a big focus of their business. In fact,
• 50:19
  Speaker 1: when Bear Sterns wobbles, when Bear Sterns had its problem
• 50:24
  Speaker 1: in March of oh eight. Lehman Brothers immediately got hit
• 50:27
  Speaker 1: afterwards because it didn't take a lot of traders a
• 50:31
  Speaker 1: whole lot of brain power to say, hey, who looks
• 50:33
  Speaker 1: the most like bad, who's got a lot of fixed income,
• 50:36
  Speaker 1: who's got a lot of mortgage exposure, and who doesn't
• 50:39
  Speaker 1: have a lot of other bigger departments that could subsidize
• 50:42
  Speaker 1: that if if need be. And they were the obvious
• 50:45
  Speaker 1: they were, There were the obvious ones, and I I
• 50:48
  Speaker 1: don't think that it was realized by Treasury and the
• 50:51
  Speaker 1: Fed of their importance in the short term in the
• 50:55
  Speaker 1: commercial paper market as well in the short term paper.
• 50:58
  Speaker 1: That's right, And and once Bear and Lehman were no
• 51:02
  Speaker 1: longer you lost a huge amount of liquidity that was
• 51:05
  Speaker 1: used to fund Corporate America. There's an argument to be made, Hey,
• 51:10
  Speaker 1: why are you rolling over six month paper to fund
• 51:13
  Speaker 1: five and ten year obligations. That's a different conversation, and
• 51:17
  Speaker 1: that's that's that gets to the FED. That gets to Okay,
• 51:21
  Speaker 1: do I have a put here or not? Is the
• 51:24
  Speaker 1: is the FED going to allow this to happen? And
• 51:28
  Speaker 1: that introduces moral hazarded, introduces all kinds of things. There's
• 51:32
  Speaker 1: an argument that the FED really didn't and let's talk
• 51:35
  Speaker 1: about the FED, but there's an argument that the FED
• 51:38
  Speaker 1: really didn't have a lot of jurisdiction over Baron Lehman
• 51:41
  Speaker 1: and wall Street. There we're really supervising City and Bank
• 51:46
  Speaker 1: America and Wells Fargoing and all the other depository banks
• 51:51
  Speaker 1: that would go to the discount window to borrow from
• 51:54
  Speaker 1: the Fed. But the bear Stearns and Merrill Lynches really
• 51:58
  Speaker 1: weren't banks, then, No, they weren't banks, but they were.
• 52:02
  Speaker 1: They were. There was the shadow making at that time
• 52:06
  Speaker 1: as well, and they were They were doing everything and
• 52:10
  Speaker 1: more that the banks were doing, and they were not
• 52:14
  Speaker 1: being watched. So they were doing what the banks were doing,
• 52:17
  Speaker 1: but they were doing with more leverage and less regulation
• 52:20
  Speaker 1: and less supervision. Well, how could that possibly go wrong? Yeah,
• 52:24
  Speaker 1: that's right. I'm sure that self regulation works. Great, I'm
• 52:28
  Speaker 1: sure that'll be fine. You could make a case though,
• 52:31
  Speaker 1: that if Lehman hadn't gone, would the Fed and would
• 52:37
  Speaker 1: Treasury have had the degrees of freedom that they had
• 52:42
  Speaker 1: to bail people out to rack actually put money to work.
• 52:47
  Speaker 1: Did it have to get to to get dead enough
• 52:50
  Speaker 1: for them to so yeah, so let's let's talk a
• 52:56
  Speaker 1: little bit about the bailouts and about what the FEDS
• 52:58
  Speaker 1: reaction has been. The most of the bailouts we can
• 53:02
  Speaker 1: place at the footstep of Treasury, but you know, the
• 53:05
  Speaker 1: FED facilitated the bail out of long term Capital Management,
• 53:10
  Speaker 1: which Roger Lowenstein very famously said, if only banks had
• 53:15
  Speaker 1: been reintroduced to the concept of bad loans biting them
• 53:19
  Speaker 1: instead of oh, look we managed to trade away out
• 53:23
  Speaker 1: of this. That was. And then we look at um,
• 53:28
  Speaker 1: the bailout of essentially facilitating JP Morgan's purchase of bear Sterns.
• 53:35
  Speaker 1: Without the twenty nine billion dollar guarantee the FED, that
• 53:37
  Speaker 1: theoretically wouldn't have happened. Although my pet thesis is the
• 53:42
  Speaker 1: biggest counterparty exposure to bear Sterns derivative book was JP Morgan.
• 53:48
  Speaker 1: And if Ben Bernanci was a better poker player, he
• 53:51
  Speaker 1: could have gone to Jamie Diamond and said, hey, listen,
• 53:53
  Speaker 1: I know you want thirty billion dollars, but here's what
• 53:56
  Speaker 1: we're gonna do. We're not going to give you a dime,
• 53:58
  Speaker 1: and if you're smart, you'll do this because if they
• 54:01
  Speaker 1: blow up, they're going to take you down. And the
• 54:04
  Speaker 1: next time you have this conversation, both of us will
• 54:06
  Speaker 1: be in front of Congress with a right hand raise.
• 54:09
  Speaker 1: Then I'll be recounting this conversation and when we're done,
• 54:12
  Speaker 1: they'll take you off in shackles. Well, but I think
• 54:15
  Speaker 1: the reason he didn't do that because he was he
• 54:18
  Speaker 1: was afraid. This is a supposition that his job was
• 54:23
  Speaker 1: at risk as well. If burn Aki said we're not
• 54:27
  Speaker 1: doing this, We're gonna let something bad happen here. Hey,
• 54:31
  Speaker 1: you guys made a bad loan, It's on you. Yeah,
• 54:34
  Speaker 1: but who are they going to look to? Who is
• 54:37
  Speaker 1: Congress going to look to? And the FED is is
• 54:39
  Speaker 1: always and continues to be concerned about who actually has
• 54:44
  Speaker 1: oversight of what they're doing, and they don't want more oversight.
• 54:49
  Speaker 1: So some of what they do and some of what
• 54:52
  Speaker 1: they've done here is job preservation in my view. So
• 54:56
  Speaker 1: the FED doesn't want to be bailing people out because
• 54:59
  Speaker 1: they don't want responsibility for why are we involved with
• 55:03
  Speaker 1: an insurance company. We're supposed to be regulating banks. Why
• 55:06
  Speaker 1: is the Federal Reserve participating in the Baila you're saying
• 55:10
  Speaker 1: they don't want to do that. They want to stick
• 55:12
  Speaker 1: to their knitting worry about banks and and everybody else
• 55:15
  Speaker 1: can worry about their own thing. Well, the problem is
• 55:19
  Speaker 1: they can't do that because no matter people look to
• 55:24
  Speaker 1: the FED, whatever goes wrong financially, it ultimately comes back
• 55:28
  Speaker 1: to the Fed, and certainly out of Congress and out
• 55:31
  Speaker 1: of the administration as well. It's not our fault. It's
• 55:34
  Speaker 1: because the Fed didn't do the thing that they were
• 55:37
  Speaker 1: supposed to do. The FED didn't pack our parachute correctly,
• 55:40
  Speaker 1: and that's why. That's it. So people have been pretty
• 55:44
  Speaker 1: critical of Ben Bernanke and the Federal Reserve in general,
• 55:48
  Speaker 1: but you've been pretty supportive of saying, hey, you guys
• 55:52
  Speaker 1: may not love what was done, but think about the alternative.
• 55:55
  Speaker 1: That's it. It is think about the alternative, and it's
• 55:58
  Speaker 1: think about an unwillingness to take the risk of the alternative.
• 56:04
  Speaker 1: So what they did, some people don't like, and they
• 56:07
  Speaker 1: wonder if it's actually done any good at all. So
• 56:10
  Speaker 1: so let's get let's get really specific. So October oh eight,
• 56:17
  Speaker 1: Congress doesn't pass the TARP program, and the markets have
• 56:21
  Speaker 1: their worst week ever on a on a point basis
• 56:25
  Speaker 1: and a percentage basis, one of the worst weeks ever,
• 56:28
  Speaker 1: and ultimately the Treasury passes TARP and then the FED
• 56:33
  Speaker 1: begins a number of liquidity programs to thaw out the
• 56:38
  Speaker 1: frozen credit markets. You know, when you have the head
• 56:41
  Speaker 1: of McDonald's and ge and Ford calling the White House
• 56:45
  Speaker 1: and say, hey, I'm not gonna make payroll next month,
• 56:48
  Speaker 1: not because we don't have the cash, but the cash
• 56:52
  Speaker 1: flow is gone. There's there's everything is frozen solid. The
• 56:55
  Speaker 1: normal flow of capital is completely disrupted. You gotta do
• 56:59
  Speaker 1: something and who who was going to do it? So
• 57:03
  Speaker 1: the White House calls the Paulson calls Bernanke and said, hey,
• 57:07
  Speaker 1: we have real trouble. What can we do to fix this?
• 57:12
  Speaker 1: And and they have to respond. They have the response
• 57:15
  Speaker 1: they have no choice, and and they've made the argument
• 57:19
  Speaker 1: and it may be valid that they've had no choice
• 57:21
  Speaker 1: all the way along here that QUI was not enough,
• 57:25
  Speaker 1: they had to go to QUE two was not enough,
• 57:28
  Speaker 1: they had to go to que three. And now we're
• 57:31
  Speaker 1: they do believe now, I think at least they have
• 57:35
  Speaker 1: until we've had all these problems in Europe, and we
• 57:38
  Speaker 1: can talk about that a little bit. Let's let's talk
• 57:40
  Speaker 1: about that. So so before before we leave the FED,
• 57:44
  Speaker 1: you know, the complaint is so now we have QUI
• 57:47
  Speaker 1: four and every time the market is a is he
• 57:49
  Speaker 1: fit and drops were not even down ten percent. Now
• 57:53
  Speaker 1: we're gonna have QUE five and QUE six and kwe
• 57:56
  Speaker 1: and finley, are we on a permanent state of QI? Now?
• 57:59
  Speaker 1: I don't leave that. I think eventually the Fed just
• 58:03
  Speaker 1: lets these you know, the average duration of seven years.
• 58:06
  Speaker 1: You just let it roll off. You eventually get money
• 58:10
  Speaker 1: back for the bonds, and they turn it over to
• 58:12
  Speaker 1: Treasury and everybody is is happy and goes on their way.
• 58:15
  Speaker 1: So it's not like, how are we going to get
• 58:18
  Speaker 1: out of this? Well, you let seven years go by,
• 58:21
  Speaker 1: and that's that's right, and you get out of a
• 58:24
  Speaker 1: lot of it here. And in the meantime some evidence
• 58:28
  Speaker 1: that the economy is doing okay, not doing great, but
• 58:33
  Speaker 1: maybe it's in a period where there's a little more
• 58:35
  Speaker 1: opportunity for self sustaining. But the Fed is also sitting
• 58:40
  Speaker 1: there truly believing that they're it. It's certainly not Congress, right, Well,
• 58:45
  Speaker 1: that's not administration. That's the other thing is when you
• 58:48
  Speaker 1: have a Congress that refuses to do what Congress normally does,
• 58:53
  Speaker 1: which is, look if if if this current administration had
• 58:58
  Speaker 1: the same sort of fiscal not monetary, but fiscal stimulus
• 59:02
  Speaker 1: as the previous administration. This would be a much healthier
• 59:06
  Speaker 1: economy use higher employment, higher wages, lower unemployment, and GDP
• 59:12
  Speaker 1: would probably be a full percent higher than where it was.
• 59:16
  Speaker 1: It would be In the meantime, the FED is having
• 59:18
  Speaker 1: to deal looking at the employment numbers, and the employment
• 59:22
  Speaker 1: numbers to extend people say they're not good are driven
• 59:27
  Speaker 1: by the sixteen to twenty four year olds. That's where
• 59:30
  Speaker 1: the unemployment is high. You know, sixteen and the nineteen
• 59:33
  Speaker 1: it's it's pretty high for the twenty to twenty four
• 59:37
  Speaker 1: year olds as well. And and is it really the
• 59:40
  Speaker 1: Fed's responsibility to have a policy that actually allows you
• 59:49
  Speaker 1: to employ teenagers and the under educated or is that
• 59:53
  Speaker 1: somebody else's responsibility. I don't think it's the FED. Most
• 59:56
  Speaker 1: people would say it's Congress's responsibility. So the next question is, so,
• 1:00:01
  Speaker 1: here's the fascinating counter argument. If the FED did less,
• 1:00:07
  Speaker 1: then the economy would be worse. We'd slip into a
• 1:00:10
  Speaker 1: recession and all the people who are refusing to participate
• 1:00:15
  Speaker 1: in the normal economic state stimulus get tossed out of
• 1:00:19
  Speaker 1: office and a new crop comes in. But instead the
• 1:00:22
  Speaker 1: FED is essentially enabling and do nothing Congress because the
• 1:00:26
  Speaker 1: repercussions for their do nothingness, and that's happened. That that's
• 1:00:31
  Speaker 1: absolutely right, that monetary stimulus leads to no fiscal activity,
• 1:00:39
  Speaker 1: and that's the period that we're in now. I think
• 1:00:42
  Speaker 1: in Europe, maybe there's a different experiment going on here.
• 1:00:46
  Speaker 1: One could make the case that in spite of Droggy
• 1:00:49
  Speaker 1: saying will do everything we can do, I think he's
• 1:00:54
  Speaker 1: saying that he certainly hasn't done it, and he hasn't
• 1:00:57
  Speaker 1: got the tools to do it. And he's calling for
• 1:01:00
  Speaker 1: both reform and stimulus coming out of the European countries
• 1:01:06
  Speaker 1: and he's trying to make that work. So we've got
• 1:01:08
  Speaker 1: this other experiment that we were watching to say, Okay,
• 1:01:12
  Speaker 1: well this is what the FED could have done. Now
• 1:01:15
  Speaker 1: Dragging maybe feels more secure in his current job than
• 1:01:19
  Speaker 1: the FED members did, but that's that's a different experiment
• 1:01:23
  Speaker 1: that's happening in Europe. I look at that the statement,
• 1:01:26
  Speaker 1: and I think what he really wants to say is, hey,
• 1:01:29
  Speaker 1: we need some fiscal stimulus. Yes, but I can't say that.
• 1:01:33
  Speaker 1: So I'm gonna call for fiscal stimulus and reform and
• 1:01:36
  Speaker 1: let people argue about a little of both can hurt.
• 1:01:40
  Speaker 1: But in the meantime, you know, Europe, it continues to
• 1:01:44
  Speaker 1: be weak. Um, you look at the euro. They've the
• 1:01:48
  Speaker 1: one thing that they've managed to do over in Europe
• 1:01:51
  Speaker 1: is actually get the euro to fall. So we have
• 1:01:55
  Speaker 1: the dollarate multi year highs, which is good for us
• 1:01:59
  Speaker 1: as consumers of oil, which is now at multi year lows. Um.
• 1:02:03
  Speaker 1: And if you travel abroad, hey, burger in London is
• 1:02:06
  Speaker 1: no longer forty seven dollars. That's and that's not a
• 1:02:09
  Speaker 1: made up number. That's the last time I was there,
• 1:02:11
  Speaker 1: I had a burger somewhere it was forty seven dollars.
• 1:02:14
  Speaker 1: Was the exchange rate was so awful. So now that's
• 1:02:17
  Speaker 1: changed a bit. It's changed a bit. And there are
• 1:02:20
  Speaker 1: some people. I was at a all day meeting with
• 1:02:24
  Speaker 1: one of our managers and it was Chatham House, So
• 1:02:27
  Speaker 1: I can't really talk about who said this. Adam House
• 1:02:31
  Speaker 1: rules means you can describe what was said, but you
• 1:02:34
  Speaker 1: cannot identify the person by name. Identify You could say
• 1:02:37
  Speaker 1: a manager who specialized in fixed income, but that's I
• 1:02:40
  Speaker 1: can say. I can say a manager who actually pays
• 1:02:44
  Speaker 1: a lot of attention to foreign exchange, believes that ultimately
• 1:02:49
  Speaker 1: will see the euro at one parity with the dollar
• 1:02:55
  Speaker 1: dollar for dollar, and if he had to bet over
• 1:02:58
  Speaker 1: under one or eight. So keep in mind, the euro
• 1:03:05
  Speaker 1: not too long ago was about a buck forty seven?
• 1:03:08
  Speaker 1: Is that right? And I had a friend who in
• 1:03:12
  Speaker 1: the early two thousand's, the last time the dollar was
• 1:03:15
  Speaker 1: crazy strong, was going to Europe and buying Porsches and
• 1:03:19
  Speaker 1: Ferraris and high end bmw and Mercedes, bring them to
• 1:03:24
  Speaker 1: the United States, making them US d OT legal and
• 1:03:28
  Speaker 1: selling them for a fat profit and still undercutting the
• 1:03:31
  Speaker 1: dealers by twenty dollars because the exchange rate had gotten
• 1:03:36
  Speaker 1: that crazy. To this day, I regret not making the
• 1:03:41
  Speaker 1: pulling the trigger on a BMW Z eight, which at
• 1:03:45
  Speaker 1: the time I couldn't have afforded. This is fifteen years
• 1:03:48
  Speaker 1: ago or twelve years, twelve years ago, and it was
• 1:03:51
  Speaker 1: about seventy grand and now that car is going for
• 1:03:53
  Speaker 1: about two. This goes a little in the other direction,
• 1:03:57
  Speaker 1: but the same thing. I was in Japan on a
• 1:04:00
  Speaker 1: business trip, took my wife. The end was at to right,
• 1:04:04
  Speaker 1: and today today where are we? One oh six? Right?
• 1:04:07
  Speaker 1: How I was gonna say half? But and what were
• 1:04:10
  Speaker 1: you looking at back then? Uh? Well, my wife was
• 1:04:15
  Speaker 1: just going shopping every possible place she could. At that
• 1:04:20
  Speaker 1: point in time, everything just so cheap. It was we
• 1:04:25
  Speaker 1: had to buy two extra trunks, not just suitcases, trunks
• 1:04:31
  Speaker 1: to haul back what she bought. And the truth is
• 1:04:34
  Speaker 1: we should have bought more. So it's funny because when
• 1:04:38
  Speaker 1: people should be aware of how CONNI affects everything. From
• 1:04:42
  Speaker 1: two thousand and one, when the FED started cutting rates
• 1:04:46
  Speaker 1: after nine eleven UM to two thousand and seven, the
• 1:04:50
  Speaker 1: dollar lost of its value. If you want to know
• 1:04:55
  Speaker 1: why oil skyrocket in the two thousands, food and gold
• 1:04:58
  Speaker 1: and everything else. Hey, the measuring stick got much smaller.
• 1:05:02
  Speaker 1: And we were here in Manhattan. My old office was
• 1:05:06
  Speaker 1: on Fifth and forty four and around the corner from
• 1:05:08
  Speaker 1: us was a two ME shop and T M I
• 1:05:13
  Speaker 1: the logest really high end, very expensive stuff. The city
• 1:05:18
  Speaker 1: was just filled with Europeans and this was the highest
• 1:05:22
  Speaker 1: producing shop in the country. So I speaking, I pop
• 1:05:26
  Speaker 1: in there and it was impossible, just looking for a
• 1:05:29
  Speaker 1: computer case and for a laptop. And I started talking
• 1:05:33
  Speaker 1: to the manager and I'm like, the house business these days,
• 1:05:36
  Speaker 1: and his answer was it's insane. He goes, we don't
• 1:05:39
  Speaker 1: have a big enough warehouse. To keep ourselves filled. The
• 1:05:42
  Speaker 1: Europeans come in, they're buying the big wheeled suitcase. He goes,
• 1:05:46
  Speaker 1: we sell these a piece. We can't keep them in stock.
• 1:05:49
  Speaker 1: People are coming in and buying them two and three
• 1:05:51
  Speaker 1: at a time. The dollar was so cheap to them.
• 1:05:53
  Speaker 1: It was like si off to these folks. And then
• 1:05:56
  Speaker 1: they would take these big suitcases and wheellum over to
• 1:05:59
  Speaker 1: Bloomingdale's and Phil Madison and they would basically take all
• 1:06:03
  Speaker 1: the stuff and take it back. That's that's exactly That's
• 1:06:07
  Speaker 1: exactly what happened. And that's clearly what my wife did
• 1:06:10
  Speaker 1: in Japan, and she's electronics or clothes or well. She
• 1:06:14
  Speaker 1: was buying actually a lot of antiques, a lot of
• 1:06:20
  Speaker 1: baskets that they had, you know, very artistic basket She
• 1:06:23
  Speaker 1: was buying a lot of this stuff that today again
• 1:06:27
  Speaker 1: it costs two and a half times right then, and
• 1:06:30
  Speaker 1: even a little more because some of these were collector's items.
• 1:06:33
  Speaker 1: The thing that I used to hear about people coming
• 1:06:36
  Speaker 1: back from Japan with all the time was the nikon.
• 1:06:39
  Speaker 1: I want to say, D seven's is that yes, yea.
• 1:06:43
  Speaker 1: And my wife actually lost one in the back of
• 1:06:45
  Speaker 1: a cab, left it in the trunk of a cab.
• 1:06:47
  Speaker 1: But we knew people would come back and it's a
• 1:06:50
  Speaker 1: three thousand all camera. They were paying like six just
• 1:06:54
  Speaker 1: the numbers were so crazy. I'll take to bring it
• 1:06:57
  Speaker 1: back with And it was also we went to Hong
• 1:07:00
  Speaker 1: Kong after that it was the same thing. What year
• 1:07:03
  Speaker 1: was this this gosh before unification? Obviously it was it
• 1:07:07
  Speaker 1: was very much So. So you do a lot of
• 1:07:10
  Speaker 1: traveling for for business or for pleasure of both, a
• 1:07:14
  Speaker 1: little bit of both, and I try to combine it.
• 1:07:16
  Speaker 1: So where have you been and what parts of the
• 1:07:18
  Speaker 1: world are really interesting to you as an investor these days? Well,
• 1:07:23
  Speaker 1: what's interesting? Well, I'll start with some of the places
• 1:07:26
  Speaker 1: I've been. I'm watching what's going on in India with
• 1:07:29
  Speaker 1: Modi and I'm watching also what's going on between India
• 1:07:33
  Speaker 1: and Pakistan, because there's a little history with a little Yeah.
• 1:07:38
  Speaker 1: What what's amazing is why have hasn't India become China?
• 1:07:44
  Speaker 1: Why hasn't India to take all this intellectual capital they
• 1:07:48
  Speaker 1: have and amongst the highest educated workforce when it comes
• 1:07:53
  Speaker 1: to stem um science, technology, engineering, math, and and you
• 1:08:00
  Speaker 1: look at medicine, look at and yet they half the
• 1:08:03
  Speaker 1: country doesn't have indoor plumbing, they're using half the half
• 1:08:06
  Speaker 1: the country six million people don't have they're not tied
• 1:08:10
  Speaker 1: into the grid, they have no electricity. How is that
• 1:08:13
  Speaker 1: Is that a societal failure? Is that? Well, it's political.
• 1:08:18
  Speaker 1: Part of political. It's a it's a democracy and and
• 1:08:21
  Speaker 1: it's the biggest democracy in the world, and it's a
• 1:08:24
  Speaker 1: democracy down to a provincial level. The politics are are severe.
• 1:08:31
  Speaker 1: I think you can blame a lot of it on
• 1:08:33
  Speaker 1: the British. They set up a great bureaucratic system, which
• 1:08:37
  Speaker 1: the Indians have perfected bureaucracy, so the efficiency of the
• 1:08:42
  Speaker 1: system is way down, and frankly, the corruption is very high,
• 1:08:47
  Speaker 1: very very high. Wed to ideal lab companies over there,
• 1:08:51
  Speaker 1: we ultimately sold them both to Indians because as outsiders,
• 1:08:58
  Speaker 1: we couldn't we couldn't deal. We could deal with everybody's
• 1:09:01
  Speaker 1: hand out to actually get business done. There are some
• 1:09:05
  Speaker 1: laws that say, as Americans were not supposed to do that,
• 1:09:09
  Speaker 1: even if it's in another country and you just you
• 1:09:12
  Speaker 1: just couldn't do it. But you couldn't. You then could
• 1:09:15
  Speaker 1: not create a business unless you knew how to work.
• 1:09:18
  Speaker 1: So what's it going to take to get India out
• 1:09:21
  Speaker 1: from out of their own way. It's it could take
• 1:09:25
  Speaker 1: someone like Modi, because if I went to Gujarat a
• 1:09:28
  Speaker 1: lot and we actually set up our manufacturing facility there,
• 1:09:32
  Speaker 1: and Gujarat ran like a real it ran almost like
• 1:09:36
  Speaker 1: its own country. There was efficiency, there was less corruption.
• 1:09:41
  Speaker 1: I wouldn't say there was no corruption, but there was
• 1:09:43
  Speaker 1: less corruption, and there was a you know, a firm,
• 1:09:48
  Speaker 1: a firm leader who was actually making decisions around what
• 1:09:52
  Speaker 1: was going on there. The country could move in that direction,
• 1:09:56
  Speaker 1: but it's it's going to take a long time to
• 1:09:58
  Speaker 1: get from where they are to where they could be.
• 1:10:01
  Speaker 1: But you know, that stock market is actually been a
• 1:10:04
  Speaker 1: pretty good stock market. Pretty well. Mody was here during
• 1:10:08
  Speaker 1: the last U N session and he was a rock star.
• 1:10:11
  Speaker 1: He gave there was a presentation at Madison Square Garden.
• 1:10:17
  Speaker 1: It was insane. We saw eclipse of it. It was
• 1:10:20
  Speaker 1: like you two was in town. It was an absolutely
• 1:10:25
  Speaker 1: a madhouse, you know, Rolling Stones type of show. How
• 1:10:30
  Speaker 1: does a politician find themselves? And that we don't see
• 1:10:34
  Speaker 1: that in the US. You don't see that. But this
• 1:10:36
  Speaker 1: was a major change. It was a move away from
• 1:10:39
  Speaker 1: the whole Gandhi and and the other party, the Congress Party,
• 1:10:44
  Speaker 1: into something totally different where there's a lot of hope,
• 1:10:47
  Speaker 1: while we recall the president being elected here where there
• 1:10:51
  Speaker 1: was a lot of hope as well, there was a
• 1:10:53
  Speaker 1: lot of hope. I think we have a very experienced
• 1:10:57
  Speaker 1: both politician and manager, and it could make a difference there.
• 1:11:01
  Speaker 1: But I'm watching that. What I'm interested in, I call
• 1:11:05
  Speaker 1: it sort of close to home. I think you can
• 1:11:07
  Speaker 1: find investments from Canada to Tierra del Fuego that will
• 1:11:12
  Speaker 1: take care of your emerging market needs, your energy needs,
• 1:11:16
  Speaker 1: your actual businesses. If you want rule of law, you
• 1:11:20
  Speaker 1: can sort of stay with Canada and UH in the
• 1:11:23
  Speaker 1: US if you want to take some risk. Great things
• 1:11:26
  Speaker 1: going on in Mexico. We'll see how this election comes
• 1:11:29
  Speaker 1: out Brazil, and I think I think what's happening in
• 1:11:33
  Speaker 1: Argentina ultimately does get resolved, and it may get resolved
• 1:11:37
  Speaker 1: in a way where we're not going to see the
• 1:11:40
  Speaker 1: opportunity to do what happened there on sovereign debt. So
• 1:11:44
  Speaker 1: so are you talking about the social unrest or the
• 1:11:47
  Speaker 1: hedge fund situation? The hedge fund situation that's ultimately got
• 1:11:52
  Speaker 1: to get squared away. I think it will, and I
• 1:11:55
  Speaker 1: think we'll get squared away in terms of a change
• 1:11:58
  Speaker 1: in the rules around sovereign debt, having a lot of
• 1:12:02
  Speaker 1: the rules already been changed going forward, there have there
• 1:12:05
  Speaker 1: have been some, but you haven't totally gotten to the
• 1:12:08
  Speaker 1: point where a rogue investor and sovereign debt can actually
• 1:12:15
  Speaker 1: cause the kind of grief that we've seen, so for
• 1:12:19
  Speaker 1: people who may not be tracking this closely. So, Argentina
• 1:12:24
  Speaker 1: has a lot of UM sovereign debt, not not corporate debt,
• 1:12:29
  Speaker 1: and they went through restructuring, and when you go through restructuring,
• 1:12:33
  Speaker 1: the creditor committee gets to weigh in on how much
• 1:12:36
  Speaker 1: of a haircut, how much less they're willing to take,
• 1:12:39
  Speaker 1: and there's a secondary market where people can go and
• 1:12:43
  Speaker 1: buy this debt. Hey, listen, this is gonna get cut
• 1:12:47
  Speaker 1: in half. Um, you could wait seven years to get
• 1:12:50
  Speaker 1: your fifty cents on the dollar, I'll give you thirty
• 1:12:52
  Speaker 1: cents on the dollar today. And a number of hedge
• 1:12:55
  Speaker 1: funds did this, some of whom then became members of
• 1:13:00
  Speaker 1: that creditor committee and I'm grossly oversimplifying this and basically
• 1:13:04
  Speaker 1: said we're not going to participate in this. We want
• 1:13:07
  Speaker 1: a full hundred cents on the dollar. And they even
• 1:13:09
  Speaker 1: managed to attach a warship, one of one of the
• 1:13:13
  Speaker 1: Argentinean warships made ports somewhere and they show up and
• 1:13:17
  Speaker 1: serve papers on the captain and said, until we get paid,
• 1:13:20
  Speaker 1: this isn't your ship anymore, which I don't think is
• 1:13:25
  Speaker 1: a way to run a process around sovereign debt. And
• 1:13:29
  Speaker 1: it just is not the way that it may make
• 1:13:31
  Speaker 1: sovereign debt more expensive. It's not very clean, it's not
• 1:13:35
  Speaker 1: very efficient. Yes, and you you actually paralyze a country,
• 1:13:40
  Speaker 1: and um, we need to get past that. And I
• 1:13:44
  Speaker 1: I think Argentina's got energy just running sure everywhere. And
• 1:13:50
  Speaker 1: it's a beautiful country. It's got great people. It's always
• 1:13:54
  Speaker 1: had or for a long time here has had a
• 1:13:57
  Speaker 1: bad government. Well that that you could described so many countries.
• 1:14:01
  Speaker 1: Let you mentioned. So there's two things you you touched
• 1:14:04
  Speaker 1: on that I want to You mentioned that I definitely
• 1:14:07
  Speaker 1: want to touch upon in our last ten or so minutes.
• 1:14:10
  Speaker 1: You mentioned Japan, and that's a country that has all
• 1:14:12
  Speaker 1: sorts of interesting problems, and then you mentioned energy, And
• 1:14:15
  Speaker 1: I want to talk about both of those because I
• 1:14:18
  Speaker 1: know you have a lot of experience in each area.
• 1:14:20
  Speaker 1: Japan debt ridden society, aging society, terribly low birth rate,
• 1:14:27
  Speaker 1: almost no immigration, but a phenomenal corporate export economy. How
• 1:14:36
  Speaker 1: does that work and how what's the endgame there? With
• 1:14:40
  Speaker 1: what happens? The real question is what is the end game?
• 1:14:43
  Speaker 1: And the end game may be driven by demographics as
• 1:14:47
  Speaker 1: much as anything else. So the average age keeps going up,
• 1:14:51
  Speaker 1: very few new kids coming in. You know, you think
• 1:14:55
  Speaker 1: about the baby boom and what that in the United States.
• 1:14:58
  Speaker 1: This is the opposite of that. This is the opposite. Now,
• 1:15:01
  Speaker 1: what what Japan has not done is it hasn't taken
• 1:15:04
  Speaker 1: full advantage of their female population. So they've got workers,
• 1:15:09
  Speaker 1: They've got workers that they could actually have something happen with.
• 1:15:14
  Speaker 1: But I don't know culturally, yes that there. You know,
• 1:15:18
  Speaker 1: you have women are talented and they're the society is
• 1:15:22
  Speaker 1: just not taking advantage of that, and they may have to.
• 1:15:27
  Speaker 1: At the same time, you do have technology continuing to
• 1:15:31
  Speaker 1: move here. So how many people do you actually need?
• 1:15:33
  Speaker 1: Less and less? That's the that's the secular argument for
• 1:15:37
  Speaker 1: why the labor pool continually shrinks. Yeah, there's a baby
• 1:15:42
  Speaker 1: boom generation that's sixty thousand a day or whatever the
• 1:15:45
  Speaker 1: number is retires. But on the other hand, globalization of
• 1:15:49
  Speaker 1: people else we're willing to work much cheaper. That's whether
• 1:15:52
  Speaker 1: it's Vietnam or Turkey or Mexico. And you have look
• 1:15:56
  Speaker 1: in my office, we're less than ten people. The stuff
• 1:16:00
  Speaker 1: that we do, we talk about technology, it would have
• 1:16:04
  Speaker 1: taken it would have taken a hundred people, it would
• 1:16:07
  Speaker 1: not have or it would have been so expensive to
• 1:16:09
  Speaker 1: do you couldn't so so we put out a number
• 1:16:13
  Speaker 1: of different commentaries every month, We put out a quarterly
• 1:16:19
  Speaker 1: conference call for clients. We do a whole series of
• 1:16:22
  Speaker 1: analytics on all our portfolios, and we do a regularly
• 1:16:28
  Speaker 1: balancing and every one of those things is essentially you
• 1:16:31
  Speaker 1: push your button. And it used to take four guys
• 1:16:34
  Speaker 1: with green eye shades working for two weeks in the
• 1:16:38
  Speaker 1: basement of some building, you know, a month to get
• 1:16:40
  Speaker 1: that out. And now it's eight seconds pushing and it happens,
• 1:16:44
  Speaker 1: and that that would that's the only thing that I
• 1:16:47
  Speaker 1: think could save Japan Front from what looks like I
• 1:16:53
  Speaker 1: don't know how long it's going to take, but it's
• 1:16:55
  Speaker 1: not going to end well, I don't think. And yet
• 1:16:58
  Speaker 1: and yet people are willing to lend them money for
• 1:17:01
  Speaker 1: ten years at fifty basis. How is that their their
• 1:17:06
  Speaker 1: debt to GDP is approaching two. It's twice as bad
• 1:17:11
  Speaker 1: as ours, almost three times as bad as ours, and
• 1:17:15
  Speaker 1: yet their their treasury is much muscle. So so if
• 1:17:20
  Speaker 1: people are still willing, the marketplace is still willing to
• 1:17:23
  Speaker 1: lend them money, when when is that going to stop?
• 1:17:26
  Speaker 1: When is that going to change? I don't know, but
• 1:17:29
  Speaker 1: at some point it has to or or you're going
• 1:17:32
  Speaker 1: to see the end back at and maybe that'll change. Well,
• 1:17:37
  Speaker 1: that'll hurt their economy dramatically if everything becomes more expensive
• 1:17:40
  Speaker 1: out of them. So let's talk a little bit about energy.
• 1:17:44
  Speaker 1: Where we're in a at the time we're recording this,
• 1:17:47
  Speaker 1: oil briefly dipped under eighty dollars, and some of this
• 1:17:51
  Speaker 1: has to do with let's talk about three things. So
• 1:17:54
  Speaker 1: we have the strong dollar obviously a factor. We also
• 1:17:58
  Speaker 1: have seen supply I'm sorry, we've seen demand drop some
• 1:18:03
  Speaker 1: of its weakness in Europe and weakness in Japan and Asia.
• 1:18:07
  Speaker 1: But we've also seen the US become more efficient as
• 1:18:11
  Speaker 1: a consumer as the world's largest consumer of energy is
• 1:18:15
  Speaker 1: a factor. And then at the same time, massive discoveries
• 1:18:19
  Speaker 1: of supply everywhere, whether it's tar sands or shell gas.
• 1:18:25
  Speaker 1: It's around the world. It's not it's not not just
• 1:18:29
  Speaker 1: the technology, but it's it's around the world. So I
• 1:18:32
  Speaker 1: think the supply picture, the combination of what they call
• 1:18:35
  Speaker 1: it conventional hydrocarbon energy combined with the alternative energies, we're
• 1:18:41
  Speaker 1: creating a lot of energy and I think it's going
• 1:18:44
  Speaker 1: to keep pressure on prices here. And we've got certainly
• 1:18:48
  Speaker 1: at this point in time, we have a lot of
• 1:18:50
  Speaker 1: countries that need those revenues and they're not getting them.
• 1:18:54
  Speaker 1: So that's Russia, which is Russia is I think we
• 1:18:59
  Speaker 1: see a finance chill crisis coming out of all this.
• 1:19:02
  Speaker 1: I don't know, it could be three years or whatever.
• 1:19:05
  Speaker 1: You have to look at at Russia and what's going
• 1:19:08
  Speaker 1: on there, and and the revenue requirement that they've got.
• 1:19:12
  Speaker 1: They can't afford to actually get overly involved in the Ukraine.
• 1:19:17
  Speaker 1: They need the revenues. Energy prices are just seeing a
• 1:19:22
  Speaker 1: global a global shift here and and and actually I
• 1:19:26
  Speaker 1: think it affects geopolitics dramatically. What is what is the
• 1:19:30
  Speaker 1: real importance of the Middle East if in fact we
• 1:19:34
  Speaker 1: develop all these other sources of who cares about Iran
• 1:19:38
  Speaker 1: a foil that's right, that they have much lower ability
• 1:19:42
  Speaker 1: to do mischief. That's that's right, and this is this
• 1:19:45
  Speaker 1: is good thing. It means that maybe they have to
• 1:19:49
  Speaker 1: compropise more about nuclear or anything else that that allows
• 1:19:55
  Speaker 1: them to get back away from the sanctions and be
• 1:19:58
  Speaker 1: involved in the in the real world. Here, it's a
• 1:20:01
  Speaker 1: major shift in where the power, if you'll pardon the pun,
• 1:20:07
  Speaker 1: where the power resides. And it will change our relationships
• 1:20:12
  Speaker 1: with the Middle East. It may change our relationships with Israel.
• 1:20:16
  Speaker 1: It certainly changes our relationships with a lot of the
• 1:20:19
  Speaker 1: other energy suppliers as we find other sources. So you
• 1:20:23
  Speaker 1: mentioned traditional crude oil, traditional energy. We have the Tarsands
• 1:20:28
  Speaker 1: up north, we have hydro fracking in for natural gas.
• 1:20:34
  Speaker 1: Here we have liquid using cold to make liquefied natural gas.
• 1:20:39
  Speaker 1: And what am I forgetting in the um hydrocarbon space
• 1:20:43
  Speaker 1: and in the hydrocarbon space, I think, I think that's it,
• 1:20:46
  Speaker 1: But but the impact there is not just on energy.
• 1:20:51
  Speaker 1: Hydrocarbons are a feedstock for a lot of what gets
• 1:20:55
  Speaker 1: produced around the world, as plastics and the plastics I
• 1:21:01
  Speaker 1: mean the job. Iran once said that that oil is
• 1:21:04
  Speaker 1: too precious to be used to power cars, and you
• 1:21:09
  Speaker 1: can make anything you want with it. And if you're
• 1:21:12
  Speaker 1: if you're lowering the cost of that feedstock in terms
• 1:21:15
  Speaker 1: of what you can produce and where you can produce it.
• 1:21:19
  Speaker 1: This also can lead to a renaissance of where you
• 1:21:22
  Speaker 1: actually established your manufacturing, particularly if it's not labor related
• 1:21:26
  Speaker 1: and more what I would call technology related in the
• 1:21:31
  Speaker 1: way you set up your manufacturing. And if your feedstock
• 1:21:34
  Speaker 1: sort of guaranteed feedstock is lower, let's say in the
• 1:21:37
  Speaker 1: US or lower in Argentina, it makes a difference on
• 1:21:42
  Speaker 1: where you're putting your plants. You can build manufacturing facilities
• 1:21:45
  Speaker 1: right there. That's right, and that's good for the local
• 1:21:48
  Speaker 1: economy and it's good for the local account. It's it's
• 1:21:51
  Speaker 1: a major shift that's taking place here and and always
• 1:21:54
  Speaker 1: as it has. Energy actually produces major shifts and powers structures.
• 1:22:00
  Speaker 1: Is why you can you can go back to the
• 1:22:02
  Speaker 1: to the Dutch and and whale oil, or you can
• 1:22:05
  Speaker 1: go to coal and the United Kingdom. I mean, you know,
• 1:22:11
  Speaker 1: it's caused major shifts. We we started seeing this a
• 1:22:14
  Speaker 1: few years ago, and people were not big believers of,
• 1:22:18
  Speaker 1: you know, the manufacturing renaissance in the United States. The
• 1:22:21
  Speaker 1: complaint in China is, well, we don't we can't reliably
• 1:22:25
  Speaker 1: get electricity, and the electricity that comes in fluctuates wildly
• 1:22:29
  Speaker 1: and ampage and voltage. So there's a cost of building
• 1:22:34
  Speaker 1: a set of electronics to create a steady output as
• 1:22:38
  Speaker 1: opposed to these wild swings. You go anywhere in the
• 1:22:41
  Speaker 1: mid Midwest, United States and run a natural gas pipeline
• 1:22:46
  Speaker 1: or just a natural gas line there, set up electrical
• 1:22:49
  Speaker 1: co generation plant, you have inexhaustible, almost free electricity. Right.
• 1:22:55
  Speaker 1: And so if you're running a heavy consumer of actricity,
• 1:23:00
  Speaker 1: whether it's a semiconductor fab or a heavier industrial manufacturer,
• 1:23:06
  Speaker 1: it be is now once you back at the cost
• 1:23:08
  Speaker 1: of shipping from from Asia, the United States has become
• 1:23:12
  Speaker 1: really cost competitive. It's called it's cost competitive. And and
• 1:23:16
  Speaker 1: we still have the rule of law here, which makes
• 1:23:19
  Speaker 1: a big, big difference, as anybody who was trying to
• 1:23:23
  Speaker 1: do business in Russia can tell you. You know, someone
• 1:23:26
  Speaker 1: described the United States as a um a huge insurance
• 1:23:31
  Speaker 1: health insurance company with a standing army attached. Russia, on
• 1:23:34
  Speaker 1: the other hand, is a huge cuiminal enterprise with a
• 1:23:38
  Speaker 1: standing army attached. That's why would you want to go
• 1:23:41
  Speaker 1: there and do business? Last subject before we let you go,
• 1:23:45
  Speaker 1: so I know you're big into alternative energies and associated technologies.
• 1:23:51
  Speaker 1: What's interesting in that space these days, Well, we're driving
• 1:23:55
  Speaker 1: town the cost curve significantly in the classic uh, classic
• 1:24:01
  Speaker 1: alternative energies. I know that solar, solar wind, all of that.
• 1:24:05
  Speaker 1: I think what's coming to the fore and I believe
• 1:24:08
  Speaker 1: this for quite some time. Fuel cell technology is now
• 1:24:12
  Speaker 1: getting down to cost levels where I think it will
• 1:24:15
  Speaker 1: be a major impact, particularly like hydrogen fuel cell, Like
• 1:24:19
  Speaker 1: hydrogen fuel cell, and and if we've got alternative energies
• 1:24:23
  Speaker 1: and we're we're starting with water and we're using using
• 1:24:28
  Speaker 1: solar energy, let's say, to create hydrogen which then is
• 1:24:31
  Speaker 1: used to turn back into the water to power product.
• 1:24:35
  Speaker 1: That's ultimately I think the direction. I think electric cars
• 1:24:40
  Speaker 1: as we're defining them today is our interim and it's
• 1:24:43
  Speaker 1: a stop measure between gasoline and hydrogen and hydrogen dred
• 1:24:48
  Speaker 1: years away from full hydrogen cars or is it sooner
• 1:24:52
  Speaker 1: than that. I think it's sooner. I think you're in Japan.
• 1:24:55
  Speaker 1: That's one thing they're doing. The Japanese auto companies, which
• 1:24:58
  Speaker 1: are internally very competitive, are moving down the fuel cell track,
• 1:25:03
  Speaker 1: and they put in place the infrastructure for fueling on
• 1:25:06
  Speaker 1: that is hydrogen refueling. Yes, And we mentioned earlier the
• 1:25:10
  Speaker 1: falling price of oil. Isn't that a threat to traditional
• 1:25:16
  Speaker 1: things like solar and winds? It is a threat. It
• 1:25:18
  Speaker 1: is a threat. But you're again, technology is working for
• 1:25:21
  Speaker 1: you there. You're driving absolutely does so. The other question is,
• 1:25:28
  Speaker 1: I don't think there's enough alternative energies that are competitive
• 1:25:32
  Speaker 1: enough that that's making the price of oil drop. But
• 1:25:37
  Speaker 1: at a certain point, on the margin, it's an element
• 1:25:40
  Speaker 1: of supply. On the margin, it's an element of supply.
• 1:25:43
  Speaker 1: And if you add you know, fracking to the picture here,
• 1:25:47
  Speaker 1: which is major technological breakthrough as well, the supply picture
• 1:25:54
  Speaker 1: is just going to overwhelm. I don't care what the
• 1:25:56
  Speaker 1: growth rates are. The marcels um uh It's people have
• 1:26:03
  Speaker 1: literally said, there's five hundred years three hundred years of
• 1:26:07
  Speaker 1: natural gas consumption and they're still making fine To find
• 1:26:11
  Speaker 1: that they are now the technology needs to develop that
• 1:26:15
  Speaker 1: that five hundred years is not using today's fracking technology.
• 1:26:20
  Speaker 1: But again, you're moving down a path there, and and
• 1:26:23
  Speaker 1: the and the oil companies spent a lot on R
• 1:26:27
  Speaker 1: and D. It's it's not recognized as much, but they're
• 1:26:30
  Speaker 1: they're as technologically savvy and users of technology, even even
• 1:26:37
  Speaker 1: as much as you can see out a silicon valley
• 1:26:39
  Speaker 1: around the Internet. So how low can oil go before
• 1:26:44
  Speaker 1: it puts a crimp in all these alternative energy I
• 1:26:50
  Speaker 1: think I think if you saw, if you saw as
• 1:26:53
  Speaker 1: a marker, oil down around seventy dollars a barrel not
• 1:26:59
  Speaker 1: that far away. Yeah, that and what would that do
• 1:27:04
  Speaker 1: seventy dollar oil? What does that do to solar? What
• 1:27:06
  Speaker 1: does that do to win? Well, I think it slows
• 1:27:09
  Speaker 1: down the adoption, but I'm not so sure it slows down.
• 1:27:14
  Speaker 1: It actually may speed up the technological development in alternative energy.
• 1:27:19
  Speaker 1: You know, we haven't had a huge breakthrough in battery technology.
• 1:27:24
  Speaker 1: These have all been incremental improvements. And I was just
• 1:27:27
  Speaker 1: reading that too long ago. Some sort of a gel.
• 1:27:31
  Speaker 1: I can't remember the metal that underlines it, but it's
• 1:27:35
  Speaker 1: a metallic gel used for these new batteries and the
• 1:27:39
  Speaker 1: storage is the first order of magnitude breakthrough. Now I
• 1:27:44
  Speaker 1: don't know what the safety dangers and if it could
• 1:27:47
  Speaker 1: be commercialized, yeah, and how how big it can get.
• 1:27:50
  Speaker 1: There's actually a lot of technological work going on with
• 1:27:54
  Speaker 1: lead acid batteries, old lead acid batteries where you're using
• 1:27:58
  Speaker 1: nanotechnology for the cathodes and anodes and some mixture thereof.
• 1:28:03
  Speaker 1: You can increase the efficiency to the point where they
• 1:28:06
  Speaker 1: actually may be as competitive as they as you can
• 1:28:10
  Speaker 1: get with lithium as well. The the amazing thing is
• 1:28:13
  Speaker 1: that you can really improve technology and with all these
• 1:28:18
  Speaker 1: incremental changes, all these iterations, but when you get that
• 1:28:21
  Speaker 1: big breakthrough and you know there's one out there, it's
• 1:28:26
  Speaker 1: going to be such a game change. You imagine. You
• 1:28:29
  Speaker 1: know when when I used to have this drill, this
• 1:28:31
  Speaker 1: electric drill, with this big heavy battery, and for years
• 1:28:35
  Speaker 1: it was it was perfectly fine. Yeah, it was a
• 1:28:38
  Speaker 1: little heavy, and when you're done using it, you plugged
• 1:28:40
  Speaker 1: it and you had to charge it. When the new
• 1:28:42
  Speaker 1: litho lithium batteries came out, you just, oh my god.
• 1:28:47
  Speaker 1: These other things are just ancient technology. So you charge
• 1:28:50
  Speaker 1: this up. I have this. I have this leaf blower
• 1:28:53
  Speaker 1: that I got at home deep. I'm trying to remember
• 1:28:55
  Speaker 1: the name of it, but it's the home depot in
• 1:28:58
  Speaker 1: house brand. I charge this thing up, you forget about
• 1:29:02
  Speaker 1: it for a year. It's still it hasn't lost the charge.
• 1:29:06
  Speaker 1: It weighs half as much as the old one. So
• 1:29:09
  Speaker 1: I'm waiting for that next breakthrough. That's four times as
• 1:29:13
  Speaker 1: as powerful half to wait. And that's how it will happen.
• 1:29:17
  Speaker 1: And it's happening across the board. Is happening in the
• 1:29:20
  Speaker 1: medical area, is happening in data just in general, it's
• 1:29:24
  Speaker 1: happening in manufacturing. It's it's just across the board. It
• 1:29:29
  Speaker 1: makes me just very optimistic in spite of what happens
• 1:29:33
  Speaker 1: to the market on any given day. This this is uh,
• 1:29:37
  Speaker 1: this is an interesting time to be involved in watching
• 1:29:40
  Speaker 1: it and and maybe with what's going on in medical,
• 1:29:43
  Speaker 1: I'll get to watch it a lot longer than I
• 1:29:45
  Speaker 1: might have otherwised. You know. The last the last thing
• 1:29:47
  Speaker 1: I want to mention, and it's right on that point.
• 1:29:51
  Speaker 1: So we go to this conference um every other year.
• 1:29:54
  Speaker 1: It's out in California, and it's just a bunch of
• 1:29:56
  Speaker 1: young college kids showing off each their new technology ideas
• 1:30:01
  Speaker 1: and looking for venture investing. And you go through to
• 1:30:06
  Speaker 1: spend two days looking at these nineteen year old kids
• 1:30:10
  Speaker 1: and what comes out of there. And I'm in my
• 1:30:12
  Speaker 1: fifties now, so I'm I look at nineteen year olds
• 1:30:14
  Speaker 1: as kids, and it's impossible to have a negative outlook
• 1:30:19
  Speaker 1: when you just see this parade of brilliance and the
• 1:30:24
  Speaker 1: ingenuity and the new technologies. It looks as if every problem,
• 1:30:30
  Speaker 1: at least from a technology standpoint, can be solved, whether
• 1:30:34
  Speaker 1: India can get the politics in order in order to
• 1:30:37
  Speaker 1: fix their system or the United States can can get
• 1:30:40
  Speaker 1: their healthcare budget in order. It's not the technology that's
• 1:30:45
  Speaker 1: the problems, and it's not it's society that's around the
• 1:30:48
  Speaker 1: society that's around it. But see, I I get what
• 1:30:52
  Speaker 1: you get every two years. I get it every three
• 1:30:54
  Speaker 1: months when I go to the Ideal LAMB board meeting
• 1:30:57
  Speaker 1: and walk around that big warehouse with all of these companies.
• 1:31:01
  Speaker 1: You know, three people or maybe there's ten people. You've
• 1:31:04
  Speaker 1: got to sign up above them. This is what they're doing.
• 1:31:07
  Speaker 1: And you're watching these and they are kids, Well, everybody's
• 1:31:10
  Speaker 1: a kid to me. Now you're watching these kids with
• 1:31:13
  Speaker 1: such enthusiasm and such energy tackling a problem and it's
• 1:31:19
  Speaker 1: not they're not saying no, they're saying, we're going to
• 1:31:21
  Speaker 1: figure this out. Why not work the first time around,
• 1:31:24
  Speaker 1: but we'll figure it out. We'll figure I couldn't do
• 1:31:27
  Speaker 1: that every three months because it would just make me
• 1:31:28
  Speaker 1: too bullish. I have to have some objectivity and that
• 1:31:32
  Speaker 1: sort of stuff. I would just long and forget about
• 1:31:36
  Speaker 1: everything else. So I can only go every other year,
• 1:31:39
  Speaker 1: and that that's that carries me through, brings you back
• 1:31:41
  Speaker 1: into anyway, Jack, thank you so much for spending so
• 1:31:44
  Speaker 1: much time with us today. Um, you're just a font
• 1:31:47
  Speaker 1: of information and as always, it's a pleasure chatting with you. Well,
• 1:31:51
  Speaker 1: it's a pleasure chatting with you Berry. I always enjoyed
• 1:31:54
  Speaker 1: that you've been listening to Masters in Business on Bloomberg Radio. Um,
• 1:32:00
  Speaker 1: I'm gonna say that again. I'm Barry rid Halts. You've
• 1:32:03
  Speaker 1: been listening to Masters in Business on Bloomberg Radio. If
• 1:32:06
  Speaker 1: you're listening to this, you're obviously hearing the podcast. Be
• 1:32:10
  Speaker 1: sure and check out our other podcasts, which are archived
• 1:32:14
  Speaker 1: on Bloomberg dot com. In theory, we should be up
• 1:32:18
  Speaker 1: on Apple iTunes any day now. They've been dawdling. I
• 1:32:23
  Speaker 1: guess they're waiting for for Samsung to put us up first,
• 1:32:26
  Speaker 1: and then they'll they'll match that. That's my digit Apple.
• 1:32:30
  Speaker 1: Despite me owning little Apple products, I can't get our
• 1:32:33
  Speaker 1: damn podcast up there. Um. Follow me on Twitter at
• 1:32:37
  Speaker 1: rid Halts, or check out my daily column on Bloomberg
• 1:32:41
  Speaker 1: View dot com. You're listening to Masters in Business with
• 1:32:45
  Speaker 1: Barry rid Holts on Bloomberg Radio