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Evercore ISI Ed Hyman: Masters in Business (Audio) · Masters in Business

0:03
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. Today.
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Speaker 1: I have a very special guest, and I really mean it.
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Speaker 1: We have a very special guest, Ed Hyman. He is
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Speaker 1: the founder of I s I, Chairman of evercres I
0:20
Speaker 1: s I UM, a super highly regarded economic research firm.
0:27
Speaker 1: Let me let me share a statistic with you which
0:30
Speaker 1: is impossible. This is an impossible data point. So every
0:34
Speaker 1: year the UH, the institutional investor, puts out their survey
0:40
Speaker 1: of top strategists, analysts, economists. It's a run that that
0:47
Speaker 1: literally is voted on by people who are putting money
0:51
Speaker 1: UH to work, big big pension funds, big institutions, big
0:54
Speaker 1: neustrel funds. And these are the people they say are
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Speaker 1: the most helpful, the the top ranked folks UH in
1:03
Speaker 1: the world of Wall Street research. And it's a great
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Speaker 1: honor to be I I ranked number one in any
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Speaker 1: given year. Our our guest today, Ed Hyman, has been
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Speaker 1: I I ranked number one for thirty five consecutive years.
1:22
Speaker 1: That that's just a number that that is impossible. You know.
1:26
Speaker 1: I'm a big New York Knicks fan and and during
1:28
Speaker 1: the UM Patrick Ewing, Charles Oakley, UH, Anthony Mason John
1:33
Speaker 1: Starks era. It was always Michael Jordan's in the way,
1:37
Speaker 1: and and for six of let's call it ten years,
1:41
Speaker 1: Jordan's bulls, along with Scottie Pippen and the rest of
1:44
Speaker 1: the cast, prevented the New York Knicks from getting either
1:49
Speaker 1: to the finals or or winning the finals. And they
1:54
Speaker 1: came close to a couple of times. Uh Charles Smith
1:57
Speaker 1: fingerroll once um uh did a season for them, a
2:02
Speaker 1: bad finger role. But Michael Jordan's the greatest basketball player
2:07
Speaker 1: of all times, you know, won six championships and and
2:11
Speaker 1: and I think it was uh six championship um m
2:16
Speaker 1: v p s and maybe eight total uh nbah m
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Speaker 1: v p s. Ed Himan for thirty five consecutive years
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Speaker 1: has been I I ranked as the institutional world's top economists.
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Speaker 1: That's just a streak that is unimaginable. I can't not
2:37
Speaker 1: only can I not conceptualize it. I can't ever imagine
2:40
Speaker 1: anyone finding themselves in a position to to top this
2:44
Speaker 1: this streak. And and think about how frustrating it must
2:47
Speaker 1: have been for all of the Looking around Wall Street,
2:50
Speaker 1: there are some really really good economists, some really savvy
2:54
Speaker 1: people who have a fantastic um handle uh on on
3:01
Speaker 1: the world of of economics and what's actually happening in
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Speaker 1: the economy. They have perennially been you know, number two
3:08
Speaker 1: or worse to to Ed Hyman's UH top rank. It's
3:13
Speaker 1: an astonishing um feet you'll find this conversation really quite
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Speaker 1: quite fascinating, quite interesting. Ed's a guy who doesn't do
3:22
Speaker 1: a lot of media, he said, he you know, went
3:24
Speaker 1: for about fifteen years where he did no media whatsoever. Um.
3:29
Speaker 1: This is something I'm I'm nothing if not tenacious and relentless,
3:33
Speaker 1: And eventually he succumbed to my charms and agreed to
3:36
Speaker 1: do our podcast. And I think you'll find his approach
3:42
Speaker 1: to looking at the world uh fascinating, not just from
3:46
Speaker 1: an economic perspective, not just how he views the world
3:50
Speaker 1: of of economics, but how he built a business which
3:54
Speaker 1: eventually was sold for north of four million dollars to
3:58
Speaker 1: have a corps with with the upside potential it's worth
4:01
Speaker 1: even more than that. But there's so much insight and
4:04
Speaker 1: so much wisdom uh in his experience and his perspective.
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Speaker 1: I found it to be an absolutely fascinating conversation and
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Speaker 1: I think you will also so. With no further Ado.
4:15
Speaker 1: Here's my conversation with ever Cores I ses Ed Hyman.
4:24
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
4:29
Speaker 1: My special guest today is Ed Hyman. He is the
4:33
Speaker 1: founder of I s I now the chairman of I
4:36
Speaker 1: s I ever Core. Mr Hyman has the unique distinction
4:40
Speaker 1: of being the number one rated economist on Wall Street
4:45
Speaker 1: by Institutional Investor. It's their poll of of big investors
4:50
Speaker 1: for the past thirty five consecutive years running, an absolutely
4:55
Speaker 1: astonishing feat. You may not have heard of him. Most
4:57
Speaker 1: of his clients are big institutions, hedge funds, pension funds, etcetera.
5:02
Speaker 1: But Ed is really well known on Wall Street, very influential.
5:06
Speaker 1: Let me just give a short version of your curriculum, Vita.
5:10
Speaker 1: You graduate with a bachelors and engineering from the University
5:13
Speaker 1: of Texas in nineteen sixty seven. Then you go on
5:16
Speaker 1: to get your m b a from uh the Massachusetts
5:20
Speaker 1: Institute of Technology in nineteen sixty nine, and finally you
5:24
Speaker 1: ended up forming I s I. In is that more
5:27
Speaker 1: or less correct? Left left the middle part out, but
5:30
Speaker 1: it's perfect. A couple of years in the middle, we'll
5:32
Speaker 1: get to well, welcome to Bloomberg. Thank you. So Ed
5:35
Speaker 1: and I have been talking about him doing the show
5:37
Speaker 1: for some time, and I'm really thrilled to have him here.
5:40
Speaker 1: Most people don't know who you are because you're not
5:43
Speaker 1: really all that public facing you. You you and your
5:46
Speaker 1: office face the institutional universe, right, So I don't. Our
5:52
Speaker 1: clients are all institutional investors, and so we don't really
5:57
Speaker 1: have a retail face, and so we have a very
6:00
Speaker 1: low profile. I also noticed that most of our clients
6:03
Speaker 1: have a low profile as well. So any event, uh,
6:08
Speaker 1: maybe I'm just not famous either, But well, you're famous.
6:11
Speaker 1: You're famous amongst people who manage billions and billions of dollars,
6:15
Speaker 1: So that's a very influential sort of fame. Let's let's
6:18
Speaker 1: talk a little bit about how you ended up on
6:20
Speaker 1: Wall Street. So you get an engineering degree. You didn't
6:23
Speaker 1: go the usual route. Most people in your role end
6:27
Speaker 1: up having a bachelor's in economics and neither get a
6:30
Speaker 1: PhD in economics or something comparable. You took a very
6:34
Speaker 1: different route. How do you go from a bachelors and
6:37
Speaker 1: engineering and an m b a To essentially creating the
6:41
Speaker 1: world of econometric modeling. So because I was an engineer.
6:47
Speaker 1: I knew I was mathematical, and M I t s
6:51
Speaker 1: Business School is one of two or three of the
6:55
Speaker 1: business schools that have a quantitative vent. So that's what
6:59
Speaker 1: I wanted to And when I got there, Uh, I
7:04
Speaker 1: had a research assistance job working with Ed Ku, who
7:10
Speaker 1: was a fairly well known economist and working on econometric
7:15
Speaker 1: models just by chance, and at M I T. They
7:18
Speaker 1: had developed the first time sharing computer where the data
7:24
Speaker 1: is often in one central place and you could access
7:27
Speaker 1: that data from off site spaces with a with a
7:31
Speaker 1: time shared computer. And so I spent uh really those
7:36
Speaker 1: two years at M I T immersed in doing econometric modeling,
7:41
Speaker 1: and then I did my master's thesis for a guy
7:47
Speaker 1: named Paul Kutner who's a fairly well known Both of
7:52
Speaker 1: Ku and Kutner have passed away working on forecasting commodity
7:56
Speaker 1: prices with with econometric models, and then later on I
8:02
Speaker 1: ran a commodity fund using econometric models to forecast pork prices. Basically. So,
8:08
Speaker 1: so these issues that you approach, do you look at
8:10
Speaker 1: these as engineering problems to be solved or are they
8:14
Speaker 1: really pure economics? Uh? I think they're they're economics. But
8:19
Speaker 1: in this case there market economics and and business cycle economics,
8:26
Speaker 1: and that's really what I think I do. At M
8:29
Speaker 1: I T. They had this first time sharing computer, and
8:33
Speaker 1: then uh Otto Eckstein, who was a professor at Harvard
8:37
Speaker 1: started a company called Data Resources, which did econometric modeling
8:43
Speaker 1: with time sharing computer, and I was lucky enough to
8:46
Speaker 1: go to work there, and that's really how I got
8:48
Speaker 1: into this. So that sequence of events is how I
8:51
Speaker 1: got where I am today. So your training, and we're
8:54
Speaker 1: talking M I T was sixty nine University of Texas
8:57
Speaker 1: Engineering with sixty seven. These were really the early days
9:01
Speaker 1: of this quantitative analysis, wasn't it. Well, this was this
9:04
Speaker 1: time sharing computer, was the first use of time sharing computer.
9:08
Speaker 1: They also had developed the Saber of airline ticketing system,
9:15
Speaker 1: which still exists, and that was still exists. It's a
9:17
Speaker 1: company down in Texas and that is still the sort
9:22
Speaker 1: of birthplace of time sharing computing, which is now every everywhere.
9:26
Speaker 1: That's where I got started doing uh time series analysis
9:31
Speaker 1: studying economic data. So it was fairly natural for you
9:34
Speaker 1: to then take because you were really one of the
9:36
Speaker 1: first people on Wall Street to say, hey, let's take
9:40
Speaker 1: this massive computing power that we're developing and apply it
9:44
Speaker 1: to modeling business cycles, modeling economics, modeling forecasting. This was
9:49
Speaker 1: not any great aha moment. It was just obvious, Hey,
9:53
Speaker 1: this is what these tools are here for, right And
9:55
Speaker 1: so I, Um, I was at Data Resources and Cyrus J.
10:00
Speaker 1: Lawrence was a client, and so I went to work
10:04
Speaker 1: for Cyrus J. Lawrence doing the economic forecasting but also
10:09
Speaker 1: building models the forecast industries like kept goods, autos, retail.
10:15
Speaker 1: And that's really how I got launched in the direction
10:17
Speaker 1: that I'm launched in now. So in the last minute, UM,
10:21
Speaker 1: we have one of the things you're sort of infamous
10:24
Speaker 1: for on Wall Street is despite all this computing power
10:28
Speaker 1: and despite the use of technology, you have a tendency
10:31
Speaker 1: to take a bunch of charts, mark them up with
10:34
Speaker 1: a sharpie, mark him up by hands, and then fax
10:37
Speaker 1: that out or today scan it and send it out
10:40
Speaker 1: as a PDF. Where did the idea for hand marking
10:44
Speaker 1: up charts and tables ever come from? So we had
10:48
Speaker 1: a morning meeting at Cyrus J. Lawrence and I would
10:50
Speaker 1: come in and mark us some charts and pass out
10:52
Speaker 1: to the sales guys, and they started singing out to
10:55
Speaker 1: the clients and the clients liked it, so we all
10:58
Speaker 1: have a thinked when you see something, if it's been
11:02
Speaker 1: marked on by hand, your eye goes right to it absolutely,
11:06
Speaker 1: and so that's where it came from, and it's still
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Speaker 1: a good technique. I'm very ridult. You're listening to Masters
11:11
Speaker 1: in Business on Bloomberg Radio. My special guest today is
11:15
Speaker 1: Ed Hyman. He is the chairman of Evercres. I s
11:18
Speaker 1: I UM, and I just wanna I love this quote
11:21
Speaker 1: from Peter Lynch, he's the fame manager of Fidelities Magellan Funds,
11:26
Speaker 1: and he described you as much more practical than most economists,
11:30
Speaker 1: more interested in examining railroad card deliveries than Laugher curves.
11:35
Speaker 1: That was in his book One Up on Wall Street.
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Speaker 1: So really the question is do you consider yourself an economist?
11:41
Speaker 1: Are you a strategist? How do you describe yourself? Well, first,
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Speaker 1: I'm a practitioner, but you know, from my early days
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Speaker 1: I was really going off in the economics area at
11:52
Speaker 1: M I T Than Data Resources and then at C
11:55
Speaker 1: at C. J. Lawrence. But I view myself really as
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Speaker 1: a business side goal expert and a market cycle effects sinado.
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Speaker 1: So that's really what I'm trying to apply the logics
12:08
Speaker 1: of economics too. Makes makes perfect sense to me. So
12:12
Speaker 1: let's let's get into that in a little detail, because
12:15
Speaker 1: over the past couple of years, especially during the financial crisis,
12:19
Speaker 1: the economics profession has come in for some some criticism. Um,
12:24
Speaker 1: so let's talk a little bit about the data you
12:27
Speaker 1: look at. You early in your career created a survey
12:32
Speaker 1: that went out to four hundred different companies in trucking, retailing,
12:37
Speaker 1: home building, manufacturing. How how did that come about? How
12:41
Speaker 1: did the idea for this regular survey of people in
12:45
Speaker 1: the real economy come about? So probably probably thirty years
12:50
Speaker 1: ago or more. Uh, there was a survey of retailers
12:55
Speaker 1: that came out once a week and very widely followed.
13:00
Speaker 1: And I saw that, and I thought, why don't we
13:02
Speaker 1: do that for many industries, not just retailing. So we
13:05
Speaker 1: started a retail survey, which we still have, and then
13:08
Speaker 1: we branched out and now we survey about thirty different
13:11
Speaker 1: areas and have really gone very wide feel. So, for example,
13:17
Speaker 1: as you mentioned, we survey trucking companies and asked them,
13:21
Speaker 1: how are your sales this week compared to what you expected?
13:24
Speaker 1: Same question every week to the same person. If the
13:27
Speaker 1: person is not there, Typically the the CFO. If they're
13:31
Speaker 1: not there, we used last week's reading, so there's no
13:35
Speaker 1: change in the survey due to somebody changing the answer.
13:39
Speaker 1: And so we've been doing that UH for a long time,
13:41
Speaker 1: and now we cover almost every single nook and cranny
13:44
Speaker 1: of the US economy. We also survey companies that do
13:47
Speaker 1: business in China and ask them how their sales are.
13:50
Speaker 1: So what do all these surveys ultimately end up informing
13:53
Speaker 1: you about? So I have UH, if you follow the surveys,
13:57
Speaker 1: you have an almost perfect knowledge of the US economy today.
14:01
Speaker 1: They're not the least bit predicted. We're not asking what
14:03
Speaker 1: do you think sales will be next week, next quarter?
14:06
Speaker 1: But you know what's happening right now in real time,
14:09
Speaker 1: in real time. The surveys are for revenue. So like
14:14
Speaker 1: our trucking survey got very strong, and part of that
14:18
Speaker 1: with price increases, they were getting rate increases. UH. So
14:22
Speaker 1: we catch capture both the miles driven and the and
14:25
Speaker 1: the rates. Our airline survey was very strong, UH, and
14:29
Speaker 1: now it's come off in part because fares have been
14:31
Speaker 1: under pressure. So it's a it's a it's a nominal measure.
14:35
Speaker 1: Each each of the surveys. So one of the issues
14:38
Speaker 1: that we always run into, at least with investor surveys,
14:42
Speaker 1: is whether or not people are actually telling the truth.
14:45
Speaker 1: You have an issue with that. Are CFOs pretty honest
14:47
Speaker 1: with you about what they're doing or do you run
14:49
Speaker 1: into a little wishful thinking here and again the I
14:53
Speaker 1: think we're getting the straight shot of the companies that
14:58
Speaker 1: do it, that participate with this UH do it for
15:01
Speaker 1: two reasons. One, they get to see the survey result.
15:04
Speaker 1: So if you're running a trucking company and somebody will
15:08
Speaker 1: tell you every week how twelve other truckers put together
15:13
Speaker 1: a consensus, you can tell if you're gaining or losing
15:17
Speaker 1: UH market share. Here's how you're doing relative to the
15:20
Speaker 1: rest of your You know what your answer was, you
15:22
Speaker 1: don't know, and you know what the overall is. You
15:24
Speaker 1: can you can get a feel for it. The second
15:26
Speaker 1: is we give them our economic research and so there
15:30
Speaker 1: we've gotten about three companies to work with us on
15:33
Speaker 1: a on a weekly basis. That that's really fascinating and
15:36
Speaker 1: that answers the question how did you get people to
15:38
Speaker 1: agree to do these You've you've given them an insensive
15:41
Speaker 1: and so because of that. Uh. I really don't think
15:45
Speaker 1: there's any incentive for them to game the system. We
15:48
Speaker 1: also do a survey, for example, of hedge funds, and
15:53
Speaker 1: we're trying to determine whether they're really extended or are defensive.
16:00
Speaker 1: Occasionally I worried that one of the participants might put
16:03
Speaker 1: in of a real fake number, fake number to try
16:08
Speaker 1: and make it look like people are really enthusiastic, are
16:11
Speaker 1: really pessimistic, and then trade against that. So he wants
16:14
Speaker 1: to influence the survey and then take the other side
16:16
Speaker 1: of the trade. I think about that occasionally. But so
16:20
Speaker 1: this really is in how traditional economics has been done
16:23
Speaker 1: in the past. Usually there's official government data and people
16:26
Speaker 1: take that and crunch numbers. You're really looking at the
16:30
Speaker 1: economy with the rubber meets the road, so to speak. Yes,
16:34
Speaker 1: but as as a constant job to look at what
16:37
Speaker 1: our surveys are saying and then compare it to what
16:40
Speaker 1: the government stats are saying, whether it's retail sales or
16:42
Speaker 1: GDP or housing starts. So you're always going back and
16:45
Speaker 1: forth to try and triangulate the best picture is their lead.
16:49
Speaker 1: Is there a lag? Do they often coincide? Uh? The
16:53
Speaker 1: surveys are definitely coincident. Sometimes the government data can be lagging,
16:57
Speaker 1: and it's and it's always lagging just because it comes
17:00
Speaker 1: out a month late or two weeks late. Uh So
17:04
Speaker 1: we're always working real time, and the gunment data is
17:10
Speaker 1: always with some sort of lag, could be a week
17:12
Speaker 1: for employment or two or three weeks for retail sales.
17:15
Speaker 1: That that has to be tremendously valuable to your clients.
17:18
Speaker 1: It's it's valuable to our clients. It's very valuable to me.
17:21
Speaker 1: It's I think it forms my sort of whole vision
17:24
Speaker 1: of what is happening on a current basis. So that
17:26
Speaker 1: leads me to my next question, how do you assemble
17:29
Speaker 1: your economic perspectives. One of the things that you did
17:33
Speaker 1: earlier in your career, when most of Wall Street was
17:37
Speaker 1: making monthly forecasts, you said, we get data weekly, let's
17:41
Speaker 1: do this on a weekly basis. What goes into into
17:44
Speaker 1: that process, So it's a little bit has followed the
17:48
Speaker 1: Internet the frequency you had first you had mailed, then
17:52
Speaker 1: you had facts, then you had email, and as that happened,
17:57
Speaker 1: you could go faster and faster. And also data is
18:00
Speaker 1: coming out faster, and so it's changed dramatically in the
18:04
Speaker 1: forty years I've been doing this, and so we went
18:07
Speaker 1: uh too, weekly, and then we went to daily, and
18:11
Speaker 1: so now every day is a complete immersion and you
18:16
Speaker 1: know what's happened, what the markets are doing, and we
18:19
Speaker 1: put out a piece every every morning. Uh and I
18:23
Speaker 1: can feel it. It's gonna go it's gonna go virtual
18:26
Speaker 1: or they'll be constantly continuous, not that far off in
18:30
Speaker 1: the distance, not that far from distance, and it almost
18:33
Speaker 1: is now. But it is more or less a daily phenomenon.
18:38
Speaker 1: I'm Barry Ridhalt. You're listening to Masters in Business on
18:40
Speaker 1: Bloomberg Radio. My special guest today is Ed Hyman. He
18:44
Speaker 1: is the founder of I s I and the chairman
18:46
Speaker 1: of ever Corps r s I, which is a very
18:49
Speaker 1: large research and asset management firm located here in Manhattan
18:53
Speaker 1: and offices pretty much all over. Let's talk a little
18:57
Speaker 1: bit about the institutional investor rankings. What what you've accomplished
19:02
Speaker 1: with that is is really unprecedented. Thirty five consecutive years
19:07
Speaker 1: from one to two thousand and fifteen and counting, you
19:11
Speaker 1: were the number one rated economist according to a poll
19:15
Speaker 1: of institutional investors. That that's Michael Jordan's plus Tiger Woods
19:20
Speaker 1: plus Derek Jeter rolled into one nobody has ever had
19:24
Speaker 1: at Look. Bill Miller's streak was what fifteen years, that's
19:28
Speaker 1: kids stuff. This is thirty five years. It's unprecedented. How
19:33
Speaker 1: on earth do you explain this? They? Well, first, I
19:37
Speaker 1: think Barry, I've been really lucky. Never it never hurts.
19:42
Speaker 1: So the space that I got into has been a
19:46
Speaker 1: space that has not been that competitive in terms of
19:50
Speaker 1: other people, you know, other economists in the in the space.
19:54
Speaker 1: So I've been I've been a little bit lucky. I've
19:57
Speaker 1: been very lucky in the places I've worked, uh, like C. J. Lawrences,
20:02
Speaker 1: which is really where it happened for me. Uh. And
20:06
Speaker 1: my mission always and our mission at ever Chorus I
20:10
Speaker 1: s I is to help our clients. That's that's what
20:16
Speaker 1: I want us to do. And that comes across clearly
20:21
Speaker 1: in the work that you get. And so everything I
20:23
Speaker 1: do is aimed at trying to help our clients, and
20:27
Speaker 1: that's what they respond to. So for example, if you
20:30
Speaker 1: have an idea, it doesn't help if they don't understand it.
20:35
Speaker 1: And so I spend a lot of time thinking about
20:39
Speaker 1: communicating the idea as well as conceiving the idea, and
20:43
Speaker 1: then we have forty salespeople, uh that or my megaphone
20:48
Speaker 1: and megaphone for our other analyst, and so that combination
20:52
Speaker 1: gives us a very loud signal in the in the community.
20:56
Speaker 1: Do you spend a lot of time making sure those
20:59
Speaker 1: salespeople really understand your thoughts, your thought process, and and
21:03
Speaker 1: what you're trying to communicate to the clients. So we
21:06
Speaker 1: have a terrific group of salespeople and they are my
21:10
Speaker 1: forty biggest accounts, each one of them. And so every
21:16
Speaker 1: morning at seven o'clock, seven fifteen, I start meeting with
21:21
Speaker 1: them and our other forty research teams to try and
21:25
Speaker 1: tell them what I'm thinking. And other analysts do as well,
21:29
Speaker 1: And so that's what you have. If you cannot get
21:31
Speaker 1: your salesman to understand what you're saying, what you're thinking,
21:34
Speaker 1: what you're trying to get at, then the clients aren't either.
21:38
Speaker 1: And so that's that's your first line. And we do
21:41
Speaker 1: that every single morning, every day. Seven How long does
21:45
Speaker 1: that that morning conference last at last till till eight?
21:49
Speaker 1: So you're you're I'm up on goodly early. You have
21:51
Speaker 1: to also be up at a ridiculous a right, right,
21:55
Speaker 1: So we start, uh my team comes in at around
21:58
Speaker 1: six fifteen and I start really at around five, um,
22:05
Speaker 1: watching Bloomberg and getting up on the news and what's happening.
22:12
Speaker 1: Then I read a dozen newspapers and by I meet
22:16
Speaker 1: with our team to launch. We have very similar schedules. UM,
22:21
Speaker 1: only I'm not doing the meeting at seven fifteen. That
22:23
Speaker 1: that's uh, that's really significant. So beside yourself, who are
22:28
Speaker 1: some of your favorite economists? Who who do you like
22:30
Speaker 1: to look at their economic work? So they Um, the
22:36
Speaker 1: person that probably had the most influence on me was
22:39
Speaker 1: Milton Freeman. And he's not putting out economic work now,
22:43
Speaker 1: but he I I was at a presentation he gave
22:50
Speaker 1: an M I T. When I was twenty three, and
22:53
Speaker 1: he had a debate with Paul Samuelson and I just
22:57
Speaker 1: fell in love with Freeman two Giants to Giants and uh.
23:02
Speaker 1: So he had a big influence on me. Uh. And
23:05
Speaker 1: then Otto Eckstein, who I mentioned of, hired me right
23:10
Speaker 1: out of M I T. And he had a huge
23:12
Speaker 1: influence on me. He was very clear thinker, very hard working,
23:17
Speaker 1: very good communicator. Uh and and he really influenced a
23:21
Speaker 1: lot of what I think now. So those are two
23:24
Speaker 1: of the legends of economics, and what about the next
23:27
Speaker 1: generation of strategists and economists coming up? Anybody you look
23:31
Speaker 1: at in the let's call it the under forty set.
23:33
Speaker 1: They so this sort of a drought right there. So
23:37
Speaker 1: there was a time when there were all these fabulous strategists, uh,
23:42
Speaker 1: like Byron Ween and Barton Biggs, Steve Galberth, Henry McVeigh
23:47
Speaker 1: and Uh, now there's some great strategists France Wat Trahan.
23:52
Speaker 1: Uh is you worked with us and now has another firm. Uh.
23:58
Speaker 1: And we're we have in our shop Dennis de Buscher,
24:02
Speaker 1: who I have great hopes for. He's He's my up
24:04
Speaker 1: and comer strategist. I'm Barry Ritults. You're listening to Masters
24:09
Speaker 1: in Business on Bloomberg Radio. My special guest today is
24:12
Speaker 1: Ed Hyman. He is the number one ranked economist in
24:16
Speaker 1: the Institutional Investor Survey of Large Institutions and currently the
24:21
Speaker 1: chairman of ever Corps. I s I. Let's talk about
24:24
Speaker 1: what it was like building I S I. But before
24:27
Speaker 1: we start, I have to read a quote here and
24:30
Speaker 1: it reflects directly to what you said in the earlier segment.
24:33
Speaker 1: So while we were looking up a lot of the
24:35
Speaker 1: details on your background. There was a blog post by
24:39
Speaker 1: a client of yours and this is a couple of
24:41
Speaker 1: years old, and this person writes they are a long
24:44
Speaker 1: term research client of Ed Himan. I s I and
24:47
Speaker 1: here's why he is consistently the number one ranked economic
24:51
Speaker 1: researcher on Wall Street. He sticks to his core mission
24:54
Speaker 1: of providing high quality and independent research. He helps portfolio
24:59
Speaker 1: man ers makes sense of the world. He sorts through
25:02
Speaker 1: the reams of economic data and government surveys to provide
25:07
Speaker 1: a real time analysis of what's happening. He provides a
25:11
Speaker 1: very high level of client service. He is independent and unconflicted.
25:16
Speaker 1: He never pushes a product discuss. So, as I mentioned,
25:21
Speaker 1: I view my career as being a continuum, starting with
25:25
Speaker 1: my work at M I T. Then I had the
25:28
Speaker 1: good fortune working with Data Resources c J. Lawrence, and
25:31
Speaker 1: all these were really high quality experiences for me. And
25:35
Speaker 1: then CJ. Lawrence was brought by Dorge Bank, and that
25:38
Speaker 1: was a discontinuity and what I was trying to do,
25:42
Speaker 1: And so a group of us left and started ies I.
25:45
Speaker 1: But it was really a continuation of what I had
25:48
Speaker 1: been doing. Same core team, same core team, except at
25:51
Speaker 1: that point we were just Macro just economics. At CJ. Lawrence,
25:56
Speaker 1: we did everything we did, you know, stock research in
25:59
Speaker 1: the street work as well as economic and strategy work.
26:02
Speaker 1: So we developed the idea that we wanted to be
26:05
Speaker 1: the best at whatever we were doing. And at that point,
26:09
Speaker 1: it was not really possible to be the best at
26:13
Speaker 1: stock research because that was being done in the Moulst
26:15
Speaker 1: bracket firms with banking, and you couldn't afford to hire
26:18
Speaker 1: the analysts, and they were doing it at a very
26:19
Speaker 1: high level. And so when UH they separated banking and research, UH,
26:25
Speaker 1: that gave us at an ability to hire the best analysts.
26:29
Speaker 1: The economics worked then, and then you had the financial
26:32
Speaker 1: crisis and the banks have been under siege, and so
26:35
Speaker 1: now we definitely have UH thirty of the best fundamental
26:41
Speaker 1: of fundamental analysts on the street. So that's that's really
26:45
Speaker 1: allowed you to stay focused and every segment you go into,
26:50
Speaker 1: there's no dilly delling. It's all in or not at all, right.
26:54
Speaker 1: And so I grew up in an environment where I
26:59
Speaker 1: was working with analyst, and I thought that gave me
27:02
Speaker 1: a bottoms up advantage, and that's where I am now.
27:06
Speaker 1: So we have this group of analysts I meet with
27:08
Speaker 1: every morning, whether it's industrials or banks or retail China.
27:14
Speaker 1: And so I feel that that collaborative approach gives me
27:18
Speaker 1: a better chance at helping our clients and hopefully our
27:21
Speaker 1: analysts benefit from working with our economics team. So this
27:26
Speaker 1: is an area where a lot of people have tried
27:28
Speaker 1: to build businesses and have failed. You guys have managed
27:32
Speaker 1: to succeed in the space where competitors have dropped off
27:36
Speaker 1: time and time again. What do you attribute this consistent
27:40
Speaker 1: success level when lots and lots of people who are
27:44
Speaker 1: in the same space just aren't making it well, There
27:47
Speaker 1: really aren't many people doing what we've done. Um, So
27:51
Speaker 1: we we've grown UH from a group of macro products,
27:57
Speaker 1: you know, policy, economics, techno, goal strategy, and now we
28:02
Speaker 1: have those plus UH authority fundamental teams and so there's
28:07
Speaker 1: really no one has gone quite this path. And the
28:10
Speaker 1: reason we were able to do it was because we
28:12
Speaker 1: had a lot of momentum, and then we took advantage
28:15
Speaker 1: of the split between banking and research, freeing up analysts
28:20
Speaker 1: to work in an environment like ours, which is very
28:23
Speaker 1: research focused, very research friendly. UH Bernstein is the main
28:29
Speaker 1: firm UH maybe Jeffreys that has the same sort of
28:33
Speaker 1: footprint that we have, and and they're quite a bit
28:36
Speaker 1: larger than than we are. So we're moving ahead and
28:39
Speaker 1: now with our ever core connection, it just makes us stronger.
28:43
Speaker 1: So Bernstein was brought by UM, was it Alliance or Alliance?
28:47
Speaker 1: And UM Jeffrey is still independent. Jefferies is independent, but
28:50
Speaker 1: they have a Lucadia connection. UM. So you keep talking
28:56
Speaker 1: about your various teams. Tell us about some of your teams,
29:00
Speaker 1: who they are, how did you pull them together? How
29:02
Speaker 1: do you manage so many disparate groups. We'll have a
29:06
Speaker 1: strong management group. Uh and the our first analyst was
29:11
Speaker 1: Dave Rosso and industrials and virtually all of our analysts
29:15
Speaker 1: are number one ranked. We have uh in the II
29:18
Speaker 1: magazine ranking. Our firm last year was number five. It's
29:23
Speaker 1: the first time a non bulge bracket firm, a non
29:26
Speaker 1: big bank firm has been in the top five since
29:29
Speaker 1: UH two thousand and that was d L j uh So.
29:34
Speaker 1: I'm very proud of of our guys and every single
29:37
Speaker 1: I'll mention some sectors, but please every single sector we do.
29:41
Speaker 1: We're the best in uh SO Banks Glenn Shore, he's
29:45
Speaker 1: the best, number one ranked. I he's not number one ranked,
29:48
Speaker 1: but he will be. But he also because I know
29:51
Speaker 1: the industry, he is very highly regarded. Steve Sokkua does
29:55
Speaker 1: Riets Rules of Space, Greg Malick does Retail number one
30:00
Speaker 1: in two Spaces, or Marsad does Luxury number one, and
30:04
Speaker 1: those goes on and on. Our healthcare team is the
30:07
Speaker 1: killer team. Uh so we've I'm very proud of the
30:10
Speaker 1: of the guys that I have a chance to work
30:12
Speaker 1: with jury team. So what's the secret to pulling together
30:16
Speaker 1: these top guys? How do you manage to you know?
30:19
Speaker 1: Because look, you look at we just watched um the
30:22
Speaker 1: basketball finals. Hey, some teams have a Lebron James, but
30:26
Speaker 1: not everybody has the seven Yankees, where everybody in the
30:30
Speaker 1: lineup couldn't hit a you know, a crushing home run.
30:34
Speaker 1: So again, you know, we we had a momentum. Uh
30:37
Speaker 1: then you had the separation of banking and research, which
30:40
Speaker 1: so you think you're saying the regulatory shift created an opportunity,
30:43
Speaker 1: and and then the then the financial crisis has been
30:47
Speaker 1: really tough on the on the bulish bracket firms. And
30:51
Speaker 1: and we are a research place. That's what we do,
30:55
Speaker 1: that's our passion. So it's not one of a hundred
30:57
Speaker 1: different things. This is your only focus and possible. Research
31:02
Speaker 1: started out in the seventies with smaller firms like Morgan, Stanley, Dale,
31:07
Speaker 1: J Goldman, Sachs, C. J. Lawrence where I worked Mitchell, Hutchins,
31:12
Speaker 1: Baker Weeks on and on of Alex Brown, and they
31:16
Speaker 1: all disappeared or were absorbed into another organization bigger, and
31:22
Speaker 1: that's the way it was. I have a feeling that
31:25
Speaker 1: research UH is happier in a smaller unit where it
31:30
Speaker 1: is the focus of the unit, not part of a
31:33
Speaker 1: hundred thousand or two thousand UH employee firm. What once
31:37
Speaker 1: research becomes part of a bigger event, it's it's no
31:41
Speaker 1: longer independent. The whole energy changes. So I don't know,
31:46
Speaker 1: it's just the size might make a difference in our business. UH.
31:51
Speaker 1: We make money because we have to, that's our only business.
31:56
Speaker 1: In the bulsh bracket firms, they often view research at
32:00
Speaker 1: a cost as opposed to something profit. Gotcha, so you
32:04
Speaker 1: mentioned you you began in the nineteen seventies. I would
32:07
Speaker 1: be remiss if I didn't mention or ask you what
32:11
Speaker 1: was it like to start work in the early seventies.
32:13
Speaker 1: You began, you said seventy two right before the huge
32:16
Speaker 1: crash in nine seventy three. What was that decade like
32:20
Speaker 1: that had to be a really tough period for both
32:23
Speaker 1: investors and researchers. As as hard as it is to believe,
32:28
Speaker 1: I really don't think the industry has changed that much
32:31
Speaker 1: since nineteen seventy two. Really the biggest change is the
32:35
Speaker 1: frequency of information and the hedge fund participation industry. Uh,
32:41
Speaker 1: there are a lot more players now. It was a
32:42
Speaker 1: much simpler business. I think it's much much more difficult
32:46
Speaker 1: for investors to provide alpha, to provide a leg up
32:51
Speaker 1: on other people. But what the cell side does today
32:57
Speaker 1: is trying to help the clients is pretty much what
32:59
Speaker 1: it did back then. And the our clients investors seem
33:05
Speaker 1: to be totally uh uh formatted to working with sell
33:11
Speaker 1: side firms. So our clients don't need Mark Schaanbaum, who
33:18
Speaker 1: is our health care analyst, They don't need him to
33:20
Speaker 1: work for them necessarily, but they definitely want to be
33:23
Speaker 1: able to pick his brain. And and so you have
33:28
Speaker 1: at at many firms, you have these experts like myself
33:32
Speaker 1: or Mark Shawmbomb or Steve Sakua who does reats, who
33:36
Speaker 1: are used by our clients to try and improve their
33:41
Speaker 1: mosaic of information and come up with a better investment results.
33:46
Speaker 1: So so you're saying that that basic approach unchanged over
33:49
Speaker 1: the past. It's called it forty years. Uh. The only
33:53
Speaker 1: thing has changed has gotten more competitive because there's so
33:55
Speaker 1: many more players, and it's much more difficult, I think
33:58
Speaker 1: than saying when Peter Lynch was was king of the roost. Uh,
34:02
Speaker 1: it's it's much more difficult. Top. So, so in the
34:04
Speaker 1: last couple of minutes we have I have a vague
34:08
Speaker 1: recollection in the nineteen seventies, I was still in school,
34:12
Speaker 1: but I remember that being a really tough economy. The
34:15
Speaker 1: market had gone nowhere, interest rates had spiked, inflation was tough.
34:19
Speaker 1: You're saying that wasn't a more challenging environment than what
34:23
Speaker 1: people are dealing with today, Well, it's for a researcher, right,
34:26
Speaker 1: Well I would say that, Uh, when people look at
34:30
Speaker 1: how challenging it is today, I tell him go back
34:34
Speaker 1: to the seventies. That was also very challenging, and so
34:39
Speaker 1: they were both the same. But uh, I would when
34:43
Speaker 1: I've thought about it, the seventies was tougher than it
34:46
Speaker 1: is today. And that's a very big statement because the
34:48
Speaker 1: day is also very difficult with Europe and China, the
34:52
Speaker 1: banks under siege here quantitative easing. It's a it's a
34:56
Speaker 1: very complicated, but I'm not sure it's much more difficult.
35:00
Speaker 1: Halt then it was was then very interesting. We've been
35:03
Speaker 1: speaking with Ed Hyman. He's the chairman of Evercore I
35:06
Speaker 1: s I. If you enjoy this conversation, be sure and
35:09
Speaker 1: check out our podcast extras where we continue chatting, letting
35:13
Speaker 1: the tape roll. Be sure and check out all of
35:16
Speaker 1: our other conversations. You can find them at Bloomberg dot com,
35:20
Speaker 1: Apple iTunes and SoundCloud. See my daily column on Bloomberg
35:24
Speaker 1: View dot com, or follow me on Twitter at Rit Halts.
35:28
Speaker 1: I'm Barry Richlts. You're listening to Masters in Business. I'm
35:31
Speaker 1: Bloomberg Radio. Welcome to the podcast Extras. I'm Barry Rihlts,
35:35
Speaker 1: and my special guest this week is Ed Hyman. He
35:39
Speaker 1: is the founder of I s I and currently chairman
35:41
Speaker 1: of Evercore I s I. Ed, thank you so much
35:44
Speaker 1: for doing this. I really appreciate my pleasure. Thank you. Um.
35:48
Speaker 1: I know you don't do a lot of media. You've
35:50
Speaker 1: done enough in your day, but it's something that you
35:53
Speaker 1: don't really do uh a whole lot of lately. So
35:56
Speaker 1: I um, I went through maybe the teen years. I
36:00
Speaker 1: didn't do any fifteen years really and at lest it
36:03
Speaker 1: really hurt your business. So early on, uh I was
36:08
Speaker 1: I was on Wall Street Week more than anybody else
36:11
Speaker 1: with Lewis we had earlier this year we had Anthony
36:17
Speaker 1: Scaramucci who just bought the rights. I started up to
36:22
Speaker 1: Wall Street Week, which was really kind of interesting, and
36:25
Speaker 1: Liz and Saunders who occasionally guest hosted for So what
36:32
Speaker 1: was it like doing uh that show back in the
36:35
Speaker 1: day when there wasn't daily too? It wasn't you know,
36:38
Speaker 1: the media landscape was so different. There was none, and
36:41
Speaker 1: so Wall Street Week was so good because it was
36:44
Speaker 1: the only show and uh Lou rook As there was
36:48
Speaker 1: a real professional uh terrific uh interviewer and see her
36:55
Speaker 1: uh great intellect. And so that show was what everybody.
36:59
Speaker 1: Everybody watched it and everybody wanted to be on it.
37:03
Speaker 1: And I was on it because I started so young
37:06
Speaker 1: and I would do twenty three right out of school
37:08
Speaker 1: something like well maybe, but so I just by stand
37:13
Speaker 1: up time, I was on it a lot of it,
37:15
Speaker 1: and that ran from I want to say, gies was
37:21
Speaker 1: somewhere two thousand and some he passed away about a decade.
37:27
Speaker 1: It's really really quite is it? That? Is it longer
37:29
Speaker 1: than that? That? Wow, that's amazing. So um one of
37:32
Speaker 1: the things I didn't get to ask about. So in
37:36
Speaker 1: the early days of I s I, you were both
37:38
Speaker 1: managing assets in a separate entity and doing research. How
37:42
Speaker 1: do you juggle both of those? So I had a
37:45
Speaker 1: very strong partner who led the asset management business, uh,
37:48
Speaker 1: and we've just sold that that business didn't fit into
37:52
Speaker 1: the ever Core is SI. Who was a partner and
37:55
Speaker 1: who end up selling it? Al Metta, It was familiar
37:59
Speaker 1: who is fick fixed income guy and is a firm
38:02
Speaker 1: out of South South Africa that we sold it to.
38:04
Speaker 1: And you also sold I s I. Bloomberg reported last
38:08
Speaker 1: year that I s I was sold to ever Core
38:11
Speaker 1: for a number of theoretically worth north of four million dollars.
38:15
Speaker 1: Is that a real number or is that a just
38:18
Speaker 1: a you know, a rough estimate. So, uh, Ralph Schlosstein
38:23
Speaker 1: is the business operator. He is the person that is
38:26
Speaker 1: driving ever Core and and he is the visionary for
38:30
Speaker 1: putting this together. And so we have a five year
38:35
Speaker 1: UH program with Evercore where our shares in I s
38:39
Speaker 1: I vest into evercre uh in years one to three,
38:43
Speaker 1: four and five, depending on performance metrics. And if we
38:46
Speaker 1: meet all of our performance metrics, UH, it'll be over
38:51
Speaker 1: dollars uh. And it's a terrific example of capitalism. Everybody's incentivize,
38:56
Speaker 1: everybody's incentives are lined up perfectly to make the thing work.
39:00
Speaker 1: Every corps wants it to work. You wanted to work.
39:02
Speaker 1: I wanted to work. Everybody I I wants it to work. Uh.
39:06
Speaker 1: And so we essentially have gone public. So now I'm
39:10
Speaker 1: part of a publicly traded company. That that has to
39:12
Speaker 1: be deeply satisfying after so many I mean this was
39:15
Speaker 1: decades and suddenly for someone to say, look, clearly, you
39:20
Speaker 1: have received accolades professionally for years and years. But at
39:25
Speaker 1: a certain point when someone puts a dollar figure on
39:27
Speaker 1: it and says, hey, what ED and team have built
39:30
Speaker 1: is so valuable, here's what we want to pay them,
39:34
Speaker 1: that has to be like, Wow, I guess we really
39:36
Speaker 1: did this the right way. And what I've take the
39:39
Speaker 1: deepest pride in is that the employees on half the
39:43
Speaker 1: company and so this is a great experience for all
39:47
Speaker 1: of us. UH. And because we now are vesting into
39:50
Speaker 1: every course stock. Uh I really want ever course stock
39:54
Speaker 1: to go up. So if it was a double uh,
39:57
Speaker 1: it's theoretically more half the employ half of the company.
40:01
Speaker 1: I s I stock was owned by employees. How typical
40:05
Speaker 1: is that? Uh? Well, the whole thing is very is
40:08
Speaker 1: very unique. You don't hear fifty. There's a disproportionate share
40:13
Speaker 1: usually at the top, and then a little bit of
40:15
Speaker 1: a stock plan. But that that's a huge I guess
40:20
Speaker 1: everybody is aligned at that point. So by everybody. We
40:24
Speaker 1: have fifty partners that on that and we have total
40:27
Speaker 1: employees of about to fifty. But our keep after something
40:33
Speaker 1: like this. The main problem is retention. And so you
40:39
Speaker 1: speak to Google, you speak to athletes, speak to Facebook
40:42
Speaker 1: or micro. In a previous generation, Microsoft and in Te
40:45
Speaker 1: Francisco they had the same issue. At a certain point,
40:48
Speaker 1: people start to have so much money they might why
40:51
Speaker 1: do I have to work anymore? So uh so we
40:54
Speaker 1: have a five or five year investing plan. So I
40:57
Speaker 1: have have I guess almost at four and a half
41:01
Speaker 1: years now in front of me. Okay, well, let's let's
41:03
Speaker 1: hope you keep on to hold onto all your key,
41:07
Speaker 1: all your key people, so you had mentioned some of
41:10
Speaker 1: your early mentors. Who else were key mentors to you? So, um,
41:16
Speaker 1: these these guys at M I T were really started
41:20
Speaker 1: to change my life. At COUP and Paul Kotner or
41:24
Speaker 1: two professors there, and then Otto Wegstein, who's such a
41:28
Speaker 1: fabulous guy and I was so lucky to work for him.
41:32
Speaker 1: And then I went to work for Jim Moltz at C. J.
41:35
Speaker 1: Lawrence and he's just been a fabulous mentor for me,
41:40
Speaker 1: you know, all all through this this time. And so
41:45
Speaker 1: those were the guys that really formed my my my career.
41:49
Speaker 1: Let me digress about mentoring because this has been something
41:53
Speaker 1: I've thought about in the past. There was earlier in
41:57
Speaker 1: the history of Wall Street a fairly robust mentoring sort
42:02
Speaker 1: of mindset, and one of the things I've noticed is
42:06
Speaker 1: that seems to have slipped away. You know, do do
42:09
Speaker 1: you see that same sort of mentoring approach today on
42:13
Speaker 1: the street that might have existed let's call it twenty
42:16
Speaker 1: or thirty years ago. So, as I mentioned, it's possible
42:20
Speaker 1: that research thrives best uh in a smaller, medium sized environment,
42:26
Speaker 1: not a hundred thousand or two hundred thousand people who
42:29
Speaker 1: are mentoring becomes more difficult just by nature size. Uh.
42:34
Speaker 1: We've been uh growing so rapidly for the past twenty
42:39
Speaker 1: something years. I don't think we've done a good job
42:41
Speaker 1: of mentoring. Really, we've because we've just been pushing and
42:45
Speaker 1: we've been hiring the best analysts in each space. Uh,
42:48
Speaker 1: everyone who don't necessarily need a lot of mentoring at
42:52
Speaker 1: that point, they don't need mentoring that at that point,
42:54
Speaker 1: they've already been mentored. Uh. Ralph Schlastein at ever Cores
43:00
Speaker 1: is really passionate about mentoring and growing talent from from within.
43:07
Speaker 1: And so we've and they have had a much stronger
43:09
Speaker 1: program than we've had. And so we are now launching
43:14
Speaker 1: a career development Committee and a program specifically aimed at
43:18
Speaker 1: mentoring people to give people a path forward. Well, well,
43:22
Speaker 1: if you can't find anybody in to mentor, you can
43:24
Speaker 1: always mentor me. I'm happy to assume those responsibilities. So
43:28
Speaker 1: let's talk a little bit about UM. The investors who
43:32
Speaker 1: influenced you. We mentioned Peter Lynch earlier on UM. What
43:36
Speaker 1: other invents investors have you found to be influential to
43:40
Speaker 1: your thought process? How you look at market cycles, how
43:43
Speaker 1: you look at business cycles. So UM, Jim Maltz ran C. J.
43:49
Speaker 1: Lawrence and is a great investor and strategist, and so
43:55
Speaker 1: he influenced me a great deal. We also had a
43:58
Speaker 1: strategist there name Stan Salixon who's unfortunately passed away, but
44:02
Speaker 1: he was uh sort of nova on the scene while
44:06
Speaker 1: he was with us, and then he went on to
44:09
Speaker 1: Merrill Lynch to become their strategist and then an investor.
44:13
Speaker 1: Uh Stan Drucket Miller has influenced me more than anybody else.
44:19
Speaker 1: And um Drugon Mill is really an interesting, um gentleman.
44:22
Speaker 1: Some of the work he's doing currently is quite uh
44:25
Speaker 1: quite fascinating. And so that that group of of players
44:32
Speaker 1: who I've been fortunate enough to work with have influenced
44:35
Speaker 1: me a great deal. Louis Bacon is another one. Stevie
44:40
Speaker 1: Cohen is another one. Paul Tutor Jones this this is
44:43
Speaker 1: like the Hall of Fame. You're you're listing here. Well,
44:46
Speaker 1: I've been lucky enough to spend some time with them
44:48
Speaker 1: and study how they operate, and I've learned a lot
44:52
Speaker 1: from them and try and uh put some of the
44:55
Speaker 1: ideas that they used to work in my own work.
44:58
Speaker 1: Bob Ferrell was a technician at Meryll Farrell's famous ten
45:03
Speaker 1: Laws of of Markets. Yeah, I'll send you a copy
45:07
Speaker 1: of it. Our mutual friend Dave Rosenberg had put out
45:11
Speaker 1: a piece with the first time eversord printed ten Rules
45:15
Speaker 1: of Bob Farrell and um, I ended up posting on
45:18
Speaker 1: the internet because it was not publicly available anywhere. He
45:22
Speaker 1: still puts out regularly. Agreed him every single week, and
45:26
Speaker 1: so he uh, I have a pretty strong technical uh window,
45:33
Speaker 1: and he helped me form that. People like Lee Cooperman
45:38
Speaker 1: is a real role model for me and met mentor.
45:41
Speaker 1: So Lee Cooperman was the best strategist on the street
45:45
Speaker 1: when he was the Goldman Sachs. He was a sales
45:47
Speaker 1: side before he before he launched Omega. Right, we have
45:50
Speaker 1: him coming up next month, So he's uh, he's been
45:53
Speaker 1: a legendary. Your list is really well, I've been lucky.
45:59
Speaker 1: That's an amazing And I don't run mentors. I don't
46:01
Speaker 1: just say I've learned a lot from from Bill Bill
46:05
Speaker 1: Miller has I've always enjoyed his thought, his thought process,
46:11
Speaker 1: His streak is he his streak is second only to yours.
46:16
Speaker 1: He beat the SNPI fifteen consecutive years. Nobody's come remotely
46:21
Speaker 1: close to it, although I don't know who the hell
46:23
Speaker 1: is ever gonna beat a thirty five years accounting. No
46:28
Speaker 1: one wants to. Well, you'd be surprised. I bet people
46:31
Speaker 1: would be thrilled, thrilled to do it. Um, let me
46:34
Speaker 1: ask you about some of the other interests you have.
46:36
Speaker 1: There's a run of different committees and things are on.
46:40
Speaker 1: Tell us about the China Institute. What do you do
46:42
Speaker 1: with them? So when when we started I s I
46:46
Speaker 1: the name is International International Strategy and Investments and so, UH,
46:54
Speaker 1: you know that the world is becoming much more international,
46:57
Speaker 1: much more globalized, and so that we had that focus.
47:01
Speaker 1: And I think the emerging economies are going to play
47:05
Speaker 1: a major role in the next decade two decades in
47:08
Speaker 1: the way the world economy develops, and China is simply
47:13
Speaker 1: the biggest, strongest one of them. So we have a
47:15
Speaker 1: China research team. Don Strassheim heads that up, and UH,
47:20
Speaker 1: I have a deep interest in China and some on
47:22
Speaker 1: the board of the China Institute, and that gives me
47:25
Speaker 1: a little extra window into into what's going on there.
47:28
Speaker 1: Not too long ago I spoke to you and you
47:30
Speaker 1: were either going to China or coming back from How
47:32
Speaker 1: often do you, um, on that side of the world. Uh,
47:36
Speaker 1: once once once a year. And and what do you
47:39
Speaker 1: do when you are in country in China? Uh? Either
47:44
Speaker 1: visit investors there or visit companies there. Quite fascinating. Do
47:48
Speaker 1: you find anything that you witness when you have boots
47:52
Speaker 1: on the ground. Is that different than just looking at
47:55
Speaker 1: charts and looking at data? Changes the perspective, right, I'm um.
48:01
Speaker 1: I'm definitely a hands on observer of the condition, and
48:06
Speaker 1: so I really like traveling to places and seeing from
48:09
Speaker 1: my own through my own eyes what's going on, talking
48:12
Speaker 1: to people who are there. Uh. And I enjoyed talking
48:15
Speaker 1: to investors. I think I learned from talking to investors
48:17
Speaker 1: about what's happening. But I definitely love I travel. Uh,
48:21
Speaker 1: not a huge amount of travel, about sixty six sixty
48:24
Speaker 1: five days a year, which it's more than two months.
48:27
Speaker 1: That's but for people, people will travel two months months, right, exactly. So,
48:32
Speaker 1: but I feel like I'm learning uh on those trips.
48:36
Speaker 1: I got into a debate with someone not too long
48:38
Speaker 1: ago who was insisting the US is still in a
48:41
Speaker 1: recession really bearished negative long gold short equities, and I
48:47
Speaker 1: asked him, when was the last time you left your
48:49
Speaker 1: trading tarret. Well, I got too much stuff going on
48:52
Speaker 1: and go. Have you been to Seattle? Have you been
48:54
Speaker 1: to Dallas? Have you been to San Francisco, Silicon Valley?
48:58
Speaker 1: You can't. You can't go through Nebraska, o Iowa, or
49:00
Speaker 1: South Dakota and tell me we're in a recession still
49:04
Speaker 1: you if you get out from behind your desk and
49:07
Speaker 1: look at what's going on in the real world, parts
49:09
Speaker 1: of the country are just booming now. It's not evenly distributed.
49:13
Speaker 1: I don't have to tell you. Lots of stuff are
49:14
Speaker 1: still below par. But the folks who never seem to
49:19
Speaker 1: leave their desk, I think they get. We call it
49:22
Speaker 1: a fluorescent view of the world. And it's not very accurate,
49:26
Speaker 1: is it. Yeah, Well, I'm very in tune with you
49:28
Speaker 1: on that. First, I have our company surveys, which are uh,
49:32
Speaker 1: you're asking somebody who is running a company, how's your business?
49:36
Speaker 1: And people have if they have to look it up,
49:38
Speaker 1: I'm not talking to the right person. They know it. Uh.
49:42
Speaker 1: And that is better than anything in ten. It's not
49:46
Speaker 1: quite as good as oh five and oh six, but
49:49
Speaker 1: it's pretty good. But when I travel around the US, UH,
49:54
Speaker 1: almost every place I go, when I talk to locals.
49:58
Speaker 1: They say, it is booming, it's amazing, And I say,
50:02
Speaker 1: places like New Orleans or Minneapolis or Nashville that you
50:07
Speaker 1: wouldn't think of right off the bat. Uh as having
50:11
Speaker 1: that response are pretty strong. So I think the main
50:15
Speaker 1: message here is that the the odds that the US
50:20
Speaker 1: economy is in recession are very very low. What about
50:25
Speaker 1: falling into recession in the next few quarters or year?
50:29
Speaker 1: So um, and I know we're not we don't want
50:33
Speaker 1: to talk about forecasts. I said, Hey, we really don't
50:35
Speaker 1: do forecasts. But in context of people who have missed
50:39
Speaker 1: this bullmarket and are waiting for the next collapse, what
50:43
Speaker 1: do you say to folks like that? So this isn't uh,
50:47
Speaker 1: this isn't so much a forecast as though. It's an
50:50
Speaker 1: observation about where we are in the business cycle. And
50:54
Speaker 1: so this is something you can study and uh, in
50:59
Speaker 1: terms of where we are, we're still early in the
51:01
Speaker 1: business cycle. Say, for example, housing starts are barely over
51:04
Speaker 1: a million, the FED hasn't started to tighten yet, wages
51:08
Speaker 1: haven't started to accelerate yet. So these are all conditions
51:12
Speaker 1: that suggests the next recession is maybe five years out. Really, Uh,
51:18
Speaker 1: every single one of these conditions and wages fed tightening
51:22
Speaker 1: housing all suggests that the recession is way out. So, uh,
51:27
Speaker 1: that's my starting point, and you change that if conditions changed.
51:31
Speaker 1: The biggest thing that could change would be if inflation
51:34
Speaker 1: were to really come on strong. And at the moment,
51:38
Speaker 1: I think it's picking up on the wage side, but
51:41
Speaker 1: that's about it so far. So I think we're still
51:44
Speaker 1: you know, if you had to have a scientific answer
51:46
Speaker 1: about when the next recession is five years out, is
51:49
Speaker 1: the best guess. The yield curve is NOE near inverted.
51:53
Speaker 1: And when we look at most of the metrics, they're
51:57
Speaker 1: continuing to creep up, They're continuing to improve. Like I'm
52:01
Speaker 1: always scratching my head trying to figure out is it
52:04
Speaker 1: just confirmation bias and people who are positioned wrong are
52:07
Speaker 1: rooting for something? Or I'm amazed when I talk to
52:11
Speaker 1: people who have been, you know, just so much on
52:15
Speaker 1: the wrong side of the trade. I think that I
52:17
Speaker 1: think it's hard to overestimate the impact of O eight
52:23
Speaker 1: oh nine psychology. Uh. And then you know, there are
52:28
Speaker 1: a lot of negatives, like you know, Greece is an
52:31
Speaker 1: uncertainty uh and China is an uncertainty and profit margins
52:36
Speaker 1: are very high, and the way that quantitative easing plays
52:41
Speaker 1: out these are unknowable. But I think investors are sort
52:46
Speaker 1: of positioned for negative outcomes on those and if they
52:51
Speaker 1: were to be positive outcomes like or even neutral or neutral,
52:55
Speaker 1: then then the market is probably okay. But on on
52:58
Speaker 1: the economy, which someone different than the market. But on
53:01
Speaker 1: the economy, I'm sure it's okay today. And the destabilizers
53:07
Speaker 1: are inflation, which we don't have now, UH, FED FED tightening,
53:13
Speaker 1: which we don't have now, although we could see that.
53:15
Speaker 1: The theory is that that starts later this year fighting
53:18
Speaker 1: I mean by aggressive FED tightening, um, and that's way off. Yeah,
53:26
Speaker 1: they're gonna start, but they'll go from ultra easy too
53:30
Speaker 1: extremely easy. We have to work our way up two
53:33
Speaker 1: merely easy, is what you're saying. And um, so we we.
53:38
Speaker 1: I asked you about the China Institute. Tell me what
53:41
Speaker 1: you do with the New York Public Libraries financial services?
53:45
Speaker 1: So that just participating in a speaker's program, it's they
53:50
Speaker 1: have about twitter people at each UH sessions a breakfast session,
53:56
Speaker 1: and they get some great speakers in and I interesting
54:00
Speaker 1: to go and I pick a group of clients, uh
54:03
Speaker 1: and it's a nice venue for seeing people that you
54:07
Speaker 1: wouldn't ordinarily see in another setting. So Warren Buffett, Bill
54:11
Speaker 1: Clinton have been speakers and it's a nice way to
54:14
Speaker 1: see uh some ideas that you wouldn't otherwise get very interesting.
54:19
Speaker 1: And I know you do something similar in your own
54:22
Speaker 1: office where you have people come in and present in
54:25
Speaker 1: your in your morning meetings as well. Um, the leadership forum,
54:29
Speaker 1: what what do you do with that? Uh, that's not
54:32
Speaker 1: much of a what is the leadership forum? I have
54:35
Speaker 1: no idea. I'm sorry, that is the it's the leadership forum?
54:38
Speaker 1: Is the public library? All right? Son? That into a second.
54:45
Speaker 1: So it's a leadership forum at the New York Public
54:47
Speaker 1: Libraries Financial Services Advisory Committee. I can't read my own
54:51
Speaker 1: typing about the the Economic Club of New York. So
54:54
Speaker 1: it's a it's a very different thing than the than
54:57
Speaker 1: the library program. But uh, they've been going since the
55:01
Speaker 1: eighteen hundreds and um they get speakers like hundred forty
55:07
Speaker 1: six speakers so far, and it's a great forum for
55:11
Speaker 1: New York to have people come in. The last speaker
55:15
Speaker 1: was was Jack was Jack Ma Ali Baba's founders Ali
55:20
Speaker 1: Baba's Finder And it's it's just they have a great roster,
55:23
Speaker 1: you know, the chairman, the fit comes on a regular basis,
55:27
Speaker 1: and so it's just a it's a place that it's
55:29
Speaker 1: a large form. There's a thousand people and so it's
55:33
Speaker 1: but it's a big room. It's a big room. Very interesting. Um,
55:38
Speaker 1: let me keep working through my list. By the way,
55:40
Speaker 1: these last half dozen or so questions I'm saving are
55:44
Speaker 1: are the same questions I ask everybody. Let me go
55:47
Speaker 1: through some of the questions that, um wow, you answered
55:52
Speaker 1: two of them. You answered where we are in the
55:54
Speaker 1: economic cycle? You answered that you're really a hybrid between
55:58
Speaker 1: a strategists and an economist, and uh what, there was
56:07
Speaker 1: no eureka moment. You basically just started just kept on almight, Tya,
56:11
Speaker 1: and kept going, Um, so you you hinted about quee
56:17
Speaker 1: and the Federal Reserve, So let's explore that a little bit.
56:19
Speaker 1: So what makes QUI so unique? What makes the unwind
56:23
Speaker 1: of QUEI so unique? And can't the Fed just hold
56:27
Speaker 1: this um fixed income paper until maturity? I think the
56:30
Speaker 1: average uration is seven years. Do they have to actually
56:33
Speaker 1: unwind QI or can they just let it run off naturally?
56:37
Speaker 1: So they they can and will I think let it
56:40
Speaker 1: run off naturally over the next five or six years.
56:44
Speaker 1: The paper is something like a six year duration, so
56:48
Speaker 1: it should mature over time. The the Federal Reserve has
56:53
Speaker 1: become much more important because we have so limited we've
56:57
Speaker 1: limited maneuvering room on fiscal pile. Right the Congress is
57:01
Speaker 1: basically just grid locked and doing nothing, and the budget deficit.
57:05
Speaker 1: It barely gets back to a balance and then we
57:08
Speaker 1: go back into deficit. So we we don't have many
57:11
Speaker 1: degrees of freedom when it comes to fiscal policy. So
57:14
Speaker 1: as a result, we've had to operate more and more
57:17
Speaker 1: on monetary policy. And and that's why the FED has
57:20
Speaker 1: become a much more prominent institution UH in our country,
57:26
Speaker 1: with you know, giving speeches all the time, different members
57:29
Speaker 1: and sort of like rock stars in the system. They
57:32
Speaker 1: always used to give speeches, nobody paid attention to, nobody
57:34
Speaker 1: covered it. It It was just really inside baseball sort and
57:37
Speaker 1: they didn't give as many speeches. There are much more
57:39
Speaker 1: and more today in a bigger forum each time they
57:42
Speaker 1: give it. UH. In terms of qwe UH the UH.
57:47
Speaker 1: The overarching problem first is that it's not only QUI
57:50
Speaker 1: here is QUI and the ECB in Europe and KWI
57:54
Speaker 1: in Japan. Uh. So we're gonna end up with something
57:57
Speaker 1: like twelve trillion dollars uh and que in a year
58:01
Speaker 1: or year year and a half round between all three
58:04
Speaker 1: all three, and so then the question is, you know,
58:07
Speaker 1: how can we unwind our que? I think that when
58:11
Speaker 1: the Fed tightens, uh, there'll be a moment of silence
58:18
Speaker 1: to see if we're still alive. And if we are,
58:21
Speaker 1: people are going to relax some that we got the shot,
58:25
Speaker 1: it didn't kill us uh, and then they'll start to
58:28
Speaker 1: think about, well, the next tightening, the tightening act of that,
58:30
Speaker 1: and whether they'll let the fifth balance sheet run off
58:32
Speaker 1: and whether that creates a problem in and of itself. Uh.
58:35
Speaker 1: So we're gonna go from tightening and as soon as
58:38
Speaker 1: one is under a belt, people are gonna start looking
58:40
Speaker 1: forward at the at the next tightening, and it'll be
58:43
Speaker 1: it's gonna to the next, to the next. It's gonna
58:45
Speaker 1: be constant discussion. The FIT is indicated very strongly that
58:50
Speaker 1: they will have a more uh responsive function to tightening
58:55
Speaker 1: as opposed to every meeting twenty five basis points and
58:58
Speaker 1: so uh if that's what happens, there'll be much discussion
59:03
Speaker 1: before every meeting or they're gonna pass this meeting or
59:06
Speaker 1: tighten this meeting because they go fifty. And then when
59:08
Speaker 1: you get down the road, ifn FED funds are two,
59:10
Speaker 1: there might even be a notion they might even cut
59:12
Speaker 1: rates at the next meeting. So that's going to be
59:16
Speaker 1: I think that having Stan Fisher the Vice Chairman of
59:20
Speaker 1: the Fed UH there UH will be a great addition
59:26
Speaker 1: to yelling and Dudley uh in giving the world some
59:31
Speaker 1: vision about how the US might unwind its balance sheet.
59:35
Speaker 1: And then if we can do it, UH, they'll give
59:39
Speaker 1: a big leg up for Europe and Japan to think
59:41
Speaker 1: about whether they can unwind their balance sheets. But those are,
59:44
Speaker 1: you know, three or four or five years out. So
59:47
Speaker 1: two is really fairly accommodat if we take it, take
59:52
Speaker 1: FED funds rates up to two, that's still relatively low
59:56
Speaker 1: rates historically. Can the economy absorb a two percent funds right? Well, first,
1:00:02
Speaker 1: we don't have to answer that question today. We'll we'll
1:00:04
Speaker 1: see day by day. Still data dependent, data dependent, and
1:00:10
Speaker 1: it seems as though it should be able to. There's
1:00:12
Speaker 1: one point I'd like to raise here is that we
1:00:15
Speaker 1: talk about the one or two percent funds rate and
1:00:19
Speaker 1: we also have a four train dollar balance sheet, or
1:00:22
Speaker 1: maybe it goes to three trillion, But we have a
1:00:25
Speaker 1: huge balance sheet, and there's the New York Fed in
1:00:29
Speaker 1: particular has done work, uh that having that big a
1:00:33
Speaker 1: balance sheet means that the funds rate isn't zero, that
1:00:37
Speaker 1: it's negative. So when I walked over here, I was thinking,
1:00:41
Speaker 1: I'm in a funds rate that's minus three percent, not zero,
1:00:45
Speaker 1: and so how do you get to minus? The New
1:00:48
Speaker 1: York Fed said that relative it's real terms, not nominal terms.
1:00:52
Speaker 1: Is that just in norminal terms, that bion is the
1:00:56
Speaker 1: equivalent to cutting the funds rate fifty basis points? So
1:01:00
Speaker 1: it's easy to fifty basis points. But at zero you
1:01:04
Speaker 1: can't cut a fifty basis points. But we've we've now
1:01:07
Speaker 1: done three trillion in in quantity of easing. Obviously that's
1:01:12
Speaker 1: six six and that's three basis points. So well that's
1:01:18
Speaker 1: even close. I do think that there's uh that the
1:01:21
Speaker 1: funds rate might be in negative territory, uh in a sense.
1:01:27
Speaker 1: And so when they start to tighten, if they get
1:01:28
Speaker 1: to say two, and the balance sheet is you know,
1:01:32
Speaker 1: has been shrunk by a trillion dollars, the funds rate
1:01:35
Speaker 1: could still be one and a half or something, and
1:01:38
Speaker 1: that's before we start talking. Hey, we're a one inflation environment,
1:01:42
Speaker 1: so zero adjusted for one inflation is also a negative
1:01:48
Speaker 1: a negative number. So the next the next big event
1:01:51
Speaker 1: in this space, UH is where they're not wages. Wages
1:01:54
Speaker 1: are accelerating, and it looks as though they are. So
1:01:58
Speaker 1: it's been it's been very public that we've seen some
1:02:01
Speaker 1: of the minimum wages go up. We've had the McDonald's announcement,
1:02:05
Speaker 1: we've had the Walmart announcement. UH. San Francisco, Seattle, Los
1:02:09
Speaker 1: Angeles all raised their minimum wage. And but depending on
1:02:15
Speaker 1: whose data use, it's not an insubstantial number of people
1:02:19
Speaker 1: earning the minimum wage. But the bulk of Americans, the
1:02:22
Speaker 1: bulk of middle middle class America UM, don't earn the
1:02:26
Speaker 1: minimum wage. There they're the median income is about fifty
1:02:29
Speaker 1: three thousand dollars or so a year. When does middle
1:02:32
Speaker 1: America start to see real wage gains? Now? Now? So
1:02:39
Speaker 1: in the past, wages have accelerated when unemployment has come
1:02:43
Speaker 1: below five and a half. So we're we're there, and
1:02:48
Speaker 1: these wage increases you mentioned would seem to be the
1:02:51
Speaker 1: smoke that would occur when you're starting to get a
1:02:54
Speaker 1: tighter labor market. There's an employment cost index, the gunment
1:02:57
Speaker 1: measure that's moved from one eight to two six, and
1:03:02
Speaker 1: then average generally earnings, another measure has moved from two
1:03:05
Speaker 1: to two point three. And this morning the UK wages
1:03:11
Speaker 1: came out and they're up to two point nine and
1:03:14
Speaker 1: their uneployment rate also is five and a half. So
1:03:17
Speaker 1: I think when we look back at this time five
1:03:20
Speaker 1: years from now, we'll say this was about when US
1:03:24
Speaker 1: wages started to accelerate. And that's a big deal because
1:03:27
Speaker 1: I think a lot of the feeling we talked about
1:03:29
Speaker 1: earlier about the economy not doing well, it's because people
1:03:33
Speaker 1: are not getting pay increases. If the average pay is
1:03:36
Speaker 1: up two, then a lot of people didn't get a
1:03:39
Speaker 1: pay increase. They're flat with inflation or they got one,
1:03:42
Speaker 1: and their costs relative to increase health care and increased
1:03:46
Speaker 1: education expenses, what Middle America is paying for feels like
1:03:50
Speaker 1: you all these things are going up and I'm staying
1:03:52
Speaker 1: the same. It's also psychology. You know, if you go
1:03:55
Speaker 1: home and say, hey, I got a one pay increase,
1:04:01
Speaker 1: it doesn't make you feel like you're a star. And
1:04:03
Speaker 1: so I think if if wages pick up. It'll make
1:04:06
Speaker 1: the economy feel better in addition to just making retail
1:04:10
Speaker 1: sales better. So how does that was the next question
1:04:13
Speaker 1: is how do how does the beginning of rising wages
1:04:17
Speaker 1: impact the overall economy? Is it just retail sales? Can
1:04:21
Speaker 1: we get a virtuous cycle where people start spending more,
1:04:25
Speaker 1: companies higher and do more capex and good things. Well,
1:04:29
Speaker 1: this is in my view, we have been in an
1:04:32
Speaker 1: evolutionary mode for six years now. You know where things
1:04:37
Speaker 1: change a little bit over time. Uh, the places and
1:04:41
Speaker 1: I mentioned like a Seattle, their economy gets better, and
1:04:45
Speaker 1: then you can see it's getting better and employment is
1:04:47
Speaker 1: now up, uh, well above his prior peak. I've been
1:04:52
Speaker 1: watching lately employment of young people thirty four and that's
1:04:58
Speaker 1: gotten strong. It's up three and a half sent now. Uh,
1:05:01
Speaker 1: and it's well above it's up three three million, or
1:05:03
Speaker 1: about ten percent from the low point five years ago.
1:05:07
Speaker 1: And so these are these are hard to overlook improvements.
1:05:12
Speaker 1: And that was a segment that was lagging the moment.
1:05:15
Speaker 1: In that group, recent college graduates. Bad did not feel right.
1:05:18
Speaker 1: Bad is okay, that's no sugarcoating it. They really felt
1:05:22
Speaker 1: that they were living with their parents. They weren't forming households,
1:05:25
Speaker 1: they weren't getting married, they weren't moving out of their
1:05:28
Speaker 1: parents house. Is that another part of the cycle that
1:05:31
Speaker 1: that's ahead of us. That's that's what we're looking at.
1:05:34
Speaker 1: So that's this five year notion. Really, there are a
1:05:37
Speaker 1: lot of things that are ticking up here that make
1:05:40
Speaker 1: that a very plausible decision. It's not just a random number.
1:05:46
Speaker 1: You're looking at all these other metrics that all have
1:05:49
Speaker 1: a lot of runway ahead of them. The main the
1:05:51
Speaker 1: main metrics that give you the five years. Uh, we
1:05:54
Speaker 1: haven't had wages inflation yet, we haven't had fit tightening
1:05:58
Speaker 1: yet we have, and it had housing starts well over
1:06:01
Speaker 1: a million yet. And after those things happen, is when
1:06:05
Speaker 1: you start the clock for five years, and then you say, well,
1:06:08
Speaker 1: what's going to drive it for five years? And the
1:06:13
Speaker 1: employment and in the millennials could drive it. Household formation
1:06:16
Speaker 1: could drive it. Technology, you could drive it. Uh. So
1:06:19
Speaker 1: those are the things that could make it go for
1:06:21
Speaker 1: five years. And those to me, I feel like they're
1:06:24
Speaker 1: they're starting to fall in place. And wages also will
1:06:29
Speaker 1: be a driver, uh if they start to accelerate. So
1:06:33
Speaker 1: let's take the look at the other side. Of it.
1:06:35
Speaker 1: And I'm on the same side of the street as
1:06:37
Speaker 1: you are in terms of being very negative during the
1:06:41
Speaker 1: last bubble during seven oh eight and just seeing everything
1:06:46
Speaker 1: starts to fall apart, and I'm seeing all the things
1:06:49
Speaker 1: you're seeing. I see a lot of positives, but that
1:06:52
Speaker 1: always makes me nervous. What should we be looking at
1:06:55
Speaker 1: if we want to start to hedge our bets or
1:06:59
Speaker 1: start to get an early warning if things don't work out.
1:07:03
Speaker 1: What sort of data points would you suggest people pay
1:07:06
Speaker 1: attention to. Well, first, as I mentioned, you know, there
1:07:09
Speaker 1: are a lot of of significant negatives now, like Europe
1:07:15
Speaker 1: might not work and I don't want The odds are
1:07:19
Speaker 1: one in a hundred or one in a million, or
1:07:21
Speaker 1: one in ten, but it's a non zero now, it's
1:07:23
Speaker 1: a non zero. And if I tell you the chance
1:07:28
Speaker 1: of me getting run over by a bus when I
1:07:30
Speaker 1: walk back to my office is one in a hundred.
1:07:33
Speaker 1: If I told you that, I just stay here. Uh.
1:07:36
Speaker 1: And so you know there's a there's a risk there,
1:07:39
Speaker 1: and that will probably get resolved in the next year.
1:07:41
Speaker 1: As to where not you know, the Greek exit occurs
1:07:44
Speaker 1: or not, China is a is a concern they're going
1:07:48
Speaker 1: through three different problems at once, and whether they can
1:07:51
Speaker 1: pull that off is a concern. So let me guess
1:07:55
Speaker 1: what the three problems in China are so aside from
1:07:58
Speaker 1: demographics unless you can insider that problem. Um. One, their
1:08:02
Speaker 1: economy has been slowing, although slowing to seven or eight
1:08:06
Speaker 1: percent isn't but down from that's a issue. Second, whether
1:08:12
Speaker 1: you talk to Jim Chanos or any number of different people,
1:08:16
Speaker 1: it certainly looks like their stock market is, if not
1:08:19
Speaker 1: in a bubble, well price and and extended relative to
1:08:24
Speaker 1: everybody else's uh stock market. And I can't even guess
1:08:28
Speaker 1: with the third one, So um my three problems. I
1:08:34
Speaker 1: also think Jim Chanos is is a very bright guy,
1:08:39
Speaker 1: and I've learned a lot from him about China, uh,
1:08:43
Speaker 1: very early on identifying problems there before anybody else or
1:08:47
Speaker 1: so in my view, the three problems are First, they
1:08:51
Speaker 1: have corruption, and that's trying to grout that out, and
1:08:55
Speaker 1: that's endemic, systemic corruption throughout the whole country, not just
1:09:00
Speaker 1: pockets here are there. Second, they have the environmental issues,
1:09:04
Speaker 1: which are well the water, the air shure. They had
1:09:07
Speaker 1: to shut the factories for eight months before the Olympics.
1:09:10
Speaker 1: I don't even you kind of forget about that, but
1:09:13
Speaker 1: that you're looking at that as a really substantial problem
1:09:16
Speaker 1: with and oncology is a growth business and one they
1:09:20
Speaker 1: have to fix. I mean, this is not I was
1:09:23
Speaker 1: at the at the Olympics and every day the sky
1:09:27
Speaker 1: was blue bird right because they shut it down. Uh,
1:09:32
Speaker 1: they set all the factories down, trucks didn't run. But
1:09:35
Speaker 1: it's it's that's not the way it is now when
1:09:37
Speaker 1: it's when everything is running just smog and is it
1:09:42
Speaker 1: that really that bad? Yes, And there's water, you've seen
1:09:46
Speaker 1: the lakes and and the and the third is, as
1:09:50
Speaker 1: Jim Channels correctly points out, uh, you've never had investment
1:09:55
Speaker 1: over of the GDP and not have a major contraction
1:10:00
Speaker 1: the economy. So they have capital China now China stock market,
1:10:06
Speaker 1: no capital spending, and that they've had this investment boom
1:10:10
Speaker 1: and so investment got over GDP. So they're trying to
1:10:14
Speaker 1: rebalance the economy, fight corruption, and fight environmental issues all
1:10:18
Speaker 1: at once. Uh that sounds like as a challenge. And
1:10:22
Speaker 1: so those are some of the issues. But then you're asking, uh,
1:10:26
Speaker 1: you know what, Uh those are more uh deep seated issues.
1:10:31
Speaker 1: Then you're saying, well, what could happen that would make
1:10:35
Speaker 1: it happen, make a negative outcome quickly. And the one
1:10:40
Speaker 1: that I'm most interested in right now is a discontinuity
1:10:44
Speaker 1: in the bond market. Uh. There's a constant discussion about
1:10:49
Speaker 1: the reduced liquidity in the fixed income markets that dealers
1:10:53
Speaker 1: UH have maybe a fifth or a tenth of the
1:10:57
Speaker 1: inventory of bonds they had six or seven years ago.
1:11:00
Speaker 1: The market is very thin, and that's liquidly crisis that
1:11:04
Speaker 1: people have been talking about now for months. Yes, and
1:11:09
Speaker 1: when the German bond yield went from something like fifty
1:11:13
Speaker 1: basis points to a hundred basis points, you half a
1:11:16
Speaker 1: percent to one percent in three days, people are going,
1:11:20
Speaker 1: oh my gosh, this is this could be yet. And
1:11:23
Speaker 1: so that's that's a risk that I watched every every morning.
1:11:27
Speaker 1: I checked the German bond yield out to see if
1:11:29
Speaker 1: it's starting to have a discontinuity. That that's an important
1:11:33
Speaker 1: factor to look at the German bond yield spread in
1:11:36
Speaker 1: order to give a sense of what liquidity issues there
1:11:39
Speaker 1: are and influence our our bond yield trades tick for
1:11:44
Speaker 1: tick every day off of their bond bond yield. Really yeah,
1:11:47
Speaker 1: so I fires are if there's is up three basis points,
1:11:50
Speaker 1: ours will be up three basis points. So yet there's
1:11:52
Speaker 1: is so much lower than ours. Why is the German
1:11:56
Speaker 1: bonds yielding so much less than it's strictly a function
1:12:01
Speaker 1: of the volume of US bonds, or how do we
1:12:04
Speaker 1: trade so much higher yield than than there? So this
1:12:10
Speaker 1: gets back to a business cycle um observation. So bond
1:12:16
Speaker 1: yields should in the long term be roughly equal to
1:12:20
Speaker 1: nominal GDP growth. So in the US, nominal GDP growth
1:12:25
Speaker 1: is probably three two percent real GDP maybe one percent,
1:12:29
Speaker 1: inflation three maybe four that neighborhood. And in Europe, uh,
1:12:36
Speaker 1: real GDP has been about one and inflation has been
1:12:39
Speaker 1: about zero, so nominal GDP growth has been about one.
1:12:44
Speaker 1: So we see Switzerland essentially zero. That means that their
1:12:48
Speaker 1: growth is also uh, their nominal growth is about zero.
1:12:51
Speaker 1: Same with Japan. Yes, it doesn't have to work or
1:12:55
Speaker 1: doesn't work you know on daily or weekly, quarterly basis period.
1:12:59
Speaker 1: That's but that's what you're tracking toward. And so nomal
1:13:03
Speaker 1: GDP and Japan has been close to zero for twenty
1:13:07
Speaker 1: five years and their bond yields have been close to
1:13:10
Speaker 1: zero for twenty years. So basically the spread between the
1:13:15
Speaker 1: German yield uh at say one percent and our yields
1:13:20
Speaker 1: at two And it can be largely explained by that
1:13:23
Speaker 1: first difference that our economy grows fast and there's a
1:13:27
Speaker 1: little bit faster than there. That's that's really amazing. Um
1:13:31
Speaker 1: let's talk a little bit about books, right. I assume
1:13:34
Speaker 1: that you're a bit of a reader. When I walked
1:13:36
Speaker 1: into your office, you had bookshelves and and what what
1:13:41
Speaker 1: are some of your favorite books? Both finance and nine
1:13:44
Speaker 1: non fans related. Well, uh, almost everything I read is
1:13:51
Speaker 1: related to what I do for work. So I shouldn't
1:13:55
Speaker 1: feel bad about that because my wife is like, why
1:13:58
Speaker 1: don't you have a pick up a fiction book? Fast? Yeah,
1:14:02
Speaker 1: this is this is good. So I wrote on some
1:14:05
Speaker 1: books that I've enjoyed recently. So there was one uh
1:14:09
Speaker 1: Coming Apart by Charles Murray and and uh so this
1:14:16
Speaker 1: is a description about the way the US was in
1:14:20
Speaker 1: the sixties and the way it is today and uh
1:14:24
Speaker 1: more socially focused. It's a social commentary and uh the
1:14:29
Speaker 1: way the country is coming apart and uh that I
1:14:32
Speaker 1: spent a lot of time thinking about that were recently.
1:14:36
Speaker 1: Uh Andy McAfee, who's a professor at m. I. T.
1:14:39
Speaker 1: Has done a lot of work on robotics and uh.
1:14:42
Speaker 1: He and his colleague wrote a book called The Second
1:14:44
Speaker 1: Machine Age, and they uh so I spent time working
1:14:52
Speaker 1: with them and and thinking about uh. And their view
1:14:56
Speaker 1: is that this time is different, that robots are a
1:15:00
Speaker 1: destroy jobs and so they have a provocative of your angle.
1:15:06
Speaker 1: You're starting to see it happened already in a number
1:15:09
Speaker 1: of different areas. Um, they're no longer a pertinent to jobs.
1:15:14
Speaker 1: They're now replacing jobs. Well, I don't I don't agree
1:15:16
Speaker 1: with them on that. You don't know, but that's uh,
1:15:19
Speaker 1: we'll find out in the next three or four years,
1:15:23
Speaker 1: not that that's happening. Um. There's a a doctor who's
1:15:27
Speaker 1: written two books I've loved, UH named Gowandhi. I knew
1:15:31
Speaker 1: you were gouldn't go there. The checklist was that the
1:15:34
Speaker 1: most recent one? Yes, do you know that one? Um,
1:15:37
Speaker 1: because it's on my on my bookshelf. It's like number
1:15:41
Speaker 1: four in my queue waiting to be read. The book
1:15:46
Speaker 1: he did before that, Yes, Better Medicine was really got
1:15:50
Speaker 1: fantastic reviews, and um, it was one of those things
1:15:54
Speaker 1: that all right, I'll get around to that. But the
1:15:56
Speaker 1: checklist looks like it has well. His first one I
1:15:59
Speaker 1: think is better than the check List. See the checklist
1:16:02
Speaker 1: looks like it's applicable to everything it is, and better
1:16:05
Speaker 1: medicine would look like a very specific sector discussion. But
1:16:09
Speaker 1: he's a great writer. And then I've really enjoyed the
1:16:12
Speaker 1: book by by Talib called Anti Fragile and Uh, I
1:16:18
Speaker 1: think he's a brilliant guy. And I've I haven't quite
1:16:21
Speaker 1: finished that one, but he's He's so fooled. Button Randomness
1:16:25
Speaker 1: was a really interesting read by him, but it's not
1:16:28
Speaker 1: a fast read. You have to kind of pick it up,
1:16:31
Speaker 1: read a couple of chapters, put it down, and think
1:16:33
Speaker 1: about the same thing with the Black Swan. It's it's
1:16:36
Speaker 1: it's not. You know. I love Michael Lewis's stuff. I
1:16:39
Speaker 1: could pick up a book of his cloth through it
1:16:41
Speaker 1: in an afternoon. Talib not not really requires some digestion. Well,
1:16:46
Speaker 1: I think on his books you can go either way.
1:16:49
Speaker 1: You can just get the gist of it and move on,
1:16:54
Speaker 1: or you can go through you know, each page in
1:16:57
Speaker 1: each chapter, which have some real nugget as you go
1:17:00
Speaker 1: through it. Uh. And then I do find money, money
1:17:05
Speaker 1: Ball and the Big Short by Michael Lewis to be
1:17:09
Speaker 1: books I think back on frequently. Moneyball was one of
1:17:15
Speaker 1: the most interesting books I've ever read. If you like
1:17:19
Speaker 1: Michael Lewis, I'm going to tell you a book I
1:17:23
Speaker 1: read that I don't think a lot of people read,
1:17:26
Speaker 1: and one that I'm waiting to read. So I have
1:17:29
Speaker 1: so money Ball was about football, was about baseball, but
1:17:32
Speaker 1: he did a football book called The blind Side. I
1:17:36
Speaker 1: have not read that. My cue waiting to be read.
1:17:39
Speaker 1: Not as not as good as money Ball, well, not
1:17:41
Speaker 1: as quantitative, not as applicable to every aspect of life.
1:17:46
Speaker 1: So in and our business at EVERCREI s I uh,
1:17:52
Speaker 1: you see many many examples of where you can apply Moneyball.
1:17:58
Speaker 1: That's what made it so fascinating. It was so universal.
1:18:00
Speaker 1: The other book of so I've read everything of his
1:18:03
Speaker 1: except The Blindside. The book of his that I really
1:18:07
Speaker 1: liked that I don't know a lot of people have
1:18:09
Speaker 1: read was the book called The New New Thing. And
1:18:14
Speaker 1: you know everybody's read you know, Liars Poker, everybody's read
1:18:18
Speaker 1: The Big Short. I really enjoyed Flashboys. I thought Flashboys
1:18:21
Speaker 1: was despite the criticism, despite the pushback, I thought that
1:18:24
Speaker 1: was really interesting. But The New New Thing was one
1:18:27
Speaker 1: of his books that sort of slipped in under the radar,
1:18:30
Speaker 1: and it's also really fascinating. So all these things, Uh,
1:18:35
Speaker 1: you know, the world is changing very rapidly. I'm not
1:18:39
Speaker 1: sure we uh we discussed it enough or think about it.
1:18:43
Speaker 1: But say in the area of economics, Uh, it's just
1:18:50
Speaker 1: changing because there's so much more data now all the
1:18:52
Speaker 1: time for people to study and say, like in investments, Uh,
1:18:58
Speaker 1: there are many, many more people doing investments now, which
1:19:02
Speaker 1: makes it more difficult. Chanos said that there are, um,
1:19:08
Speaker 1: there are ten thousand hedge funds today. Back when he started,
1:19:12
Speaker 1: there were a hundred and fifty hedge funds, but all
1:19:14
Speaker 1: the office still being created by those same hundred and
1:19:17
Speaker 1: fifty hedge funds. I don't know how true that is,
1:19:20
Speaker 1: but it certainly means that there's more competition for employees,
1:19:23
Speaker 1: there's more competition for capital, there's more competition for for
1:19:27
Speaker 1: everything now, and it's it's still more difficult when you
1:19:30
Speaker 1: have that many more people playing. I would I would
1:19:34
Speaker 1: imagine at the very least, it's the challenges of managing
1:19:38
Speaker 1: that have to be increasing. Right, So let's let's keep
1:19:43
Speaker 1: blowing through. Any other books on the list, any classic
1:19:45
Speaker 1: books that you. Uh so everything you've mentioned is relatively
1:19:49
Speaker 1: new any of the old classics really? Uh? Well, you
1:19:53
Speaker 1: know I liked I liked I like the stuff that
1:19:57
Speaker 1: John Maynard Kein's has written, and I find him as
1:20:01
Speaker 1: an economist, I find him very fascinating. But because he
1:20:04
Speaker 1: operated in so many different spheres, you know, he was
1:20:07
Speaker 1: an accomplished investor, very successful investor, people don't realize how
1:20:11
Speaker 1: good of an investor he was. And obviously, you know,
1:20:15
Speaker 1: a complete thought leader in his field and had a
1:20:19
Speaker 1: big political role in life. And he should really get
1:20:21
Speaker 1: him on the show. Um, good luck. Um. You know
1:20:27
Speaker 1: what I'm embarrassed to admit I've never read. It's literally
1:20:31
Speaker 1: on my night table. What's the next book in my
1:20:33
Speaker 1: queue is? Where Are the Customer's Yachts? That's been something
1:20:37
Speaker 1: that I've been waiting to read for forever and I
1:20:41
Speaker 1: foundly once I finished the I'm reading Failer's Misbehaving The
1:20:46
Speaker 1: Founding of Behavioral Economics. Once I'm done with that, Customers
1:20:49
Speaker 1: Yachts are are next? What else do you have queued
1:20:51
Speaker 1: up to read? What else are you looking forward to reading.
1:20:55
Speaker 1: I'm looking forward to finishing Anti Fragile and the same
1:20:59
Speaker 1: with the the check checklist. Oh so you will you
1:21:03
Speaker 1: read multiple books at a time. Yes, that's one of
1:21:06
Speaker 1: my worst habits because I have different ten books I'm
1:21:10
Speaker 1: working on. But there's a book, if you haven't read it,
1:21:14
Speaker 1: called Reminiscences of a stock Operator Edward lafarv yes on
1:21:19
Speaker 1: on the I read that many years ago, fascinating. It's
1:21:23
Speaker 1: it's as good today if you pick it up and
1:21:25
Speaker 1: read a couple of pages. So there's a new there's
1:21:29
Speaker 1: a new book that's a bio of um Esse live
1:21:36
Speaker 1: More called Um the Boy Plunger, and it's it's basically
1:21:40
Speaker 1: a it's not written with the same sort of style
1:21:43
Speaker 1: that that Reminiscence was, But that just arrived in the
1:21:46
Speaker 1: mail the of the day. I don't know when I'll
1:21:48
Speaker 1: get to that. But I read Reminiscences a while ago
1:21:51
Speaker 1: and just thought it was really that I started on
1:21:54
Speaker 1: a trading desk. That might have been one of the
1:21:57
Speaker 1: first five books I read. Good for you, Market Wizards
1:22:01
Speaker 1: was the first book the head head trader said, here
1:22:04
Speaker 1: go read this that that was my training. Here, take
1:22:07
Speaker 1: a look at this. So any anything else that you
1:22:09
Speaker 1: have tied up that you want to uh, you want
1:22:11
Speaker 1: to read anytime soon. I just read constantly. That is
1:22:16
Speaker 1: not um. That is not such a rare thing amongst
1:22:21
Speaker 1: people who are regarded as excellent investors, excellent strategists, excellent economists.
1:22:28
Speaker 1: You read what Charlie Munger and Warren Buffett say. They
1:22:32
Speaker 1: say they spend their time reading that. That's just amazing
1:22:36
Speaker 1: to think about. You're so used to people with technology
1:22:40
Speaker 1: and Twitter and everything else, being so hyperactive four four
1:22:47
Speaker 1: out of five hours during the day. These guys are
1:22:49
Speaker 1: sitting around reading books. It's amazing. So I read the
1:22:54
Speaker 1: Jeff Bezos book UM that came out a couple of
1:22:58
Speaker 1: years ago and uh, which is great, a great read.
1:23:03
Speaker 1: And in the end it had a page on the
1:23:06
Speaker 1: books that he had read and they're all these books
1:23:10
Speaker 1: like good to great and etcetera. Well, are they all
1:23:13
Speaker 1: business books? These are all business books. Charlie Munger also
1:23:19
Speaker 1: has about a forty page speech he gave right on
1:23:25
Speaker 1: behavioral psychology and the way it plays into the market.
1:23:28
Speaker 1: I've seen that, which is where it's it's really excellent.
1:23:32
Speaker 1: The speech may actually be on YouTube. I'm gonna have
1:23:35
Speaker 1: to dig that up. Another book sitting on my bookshelf,
1:23:39
Speaker 1: not even on the night table. Is port Charlie's Almanac
1:23:43
Speaker 1: that I'm waiting to pack. It's this thick and it's
1:23:46
Speaker 1: basically a collection of a lot of his thoughts, a
1:23:49
Speaker 1: lot of his speeches, and it's one of these things
1:23:52
Speaker 1: that you could get lost in for three months. So
1:23:54
Speaker 1: it's it's waiting. I just haven't. Maybe that's a winter
1:23:57
Speaker 1: project this year. So let me keep more thinking through
1:24:00
Speaker 1: some of my favorite um questions. You mentioned how the
1:24:06
Speaker 1: pace of changes accelerating. Everything is happening more data faster.
1:24:12
Speaker 1: What what other major shifts do you see coming up
1:24:14
Speaker 1: for research and economics? So I thought about that, and
1:24:20
Speaker 1: I don't. I thought about the question. Nothing comes to mind.
1:24:24
Speaker 1: It just seems as though it slowly is getting faster
1:24:29
Speaker 1: and faster as electronic information becomes more and more available
1:24:35
Speaker 1: and consumable by people. Oddly enough, trading volumes have gotten
1:24:41
Speaker 1: slower and slower. Uh, so there's more news. But in
1:24:47
Speaker 1: the in the equity markets, it's it's gotten. People have
1:24:51
Speaker 1: been trading less. What what explains that? That's really an
1:24:54
Speaker 1: interesting The first first is muscle memory, you know people,
1:25:00
Speaker 1: And second active management has been doing poorly, and so
1:25:05
Speaker 1: people haven't been winning by making moves. So they less,
1:25:09
Speaker 1: they do less and uh, and then money has been
1:25:12
Speaker 1: flowing from active to passive, which generates less trading in
1:25:17
Speaker 1: that space. Dango just passed three that's that's an amazing number.
1:25:23
Speaker 1: And there are two thirds passive. So that's just a tremendous,
1:25:27
Speaker 1: tremendous heart of fathom number. And so it really is
1:25:32
Speaker 1: a staggering development. Trading volume was ten billion shares a
1:25:38
Speaker 1: day h five years ago and now it's six billion.
1:25:44
Speaker 1: You started mentioning ets. Does that having an impact? That's
1:25:48
Speaker 1: less less less trading? So so you could one transaction,
1:25:52
Speaker 1: you're buying the whole SMP. You don't need to to
1:25:56
Speaker 1: purchase the individual stocks and the odds. Are you going
1:25:59
Speaker 1: to sit with that over time time and not jump
1:26:00
Speaker 1: in and out so that you know, I don't I
1:26:03
Speaker 1: don't want that's a permanent condition or uh. And we've
1:26:07
Speaker 1: gone through it's been stable now for about two three years.
1:26:12
Speaker 1: What does that mean in terms of money flowing to
1:26:14
Speaker 1: research dollars because it has to be used to be
1:26:17
Speaker 1: research was paid for with trading commissions that they still
1:26:21
Speaker 1: that's exactly our business trading. So so how do you
1:26:25
Speaker 1: structure that to you? Is there a minimum amount is
1:26:27
Speaker 1: it hard dollar or is it all soft dollar commissions?
1:26:30
Speaker 1: So it's it's not all soft dollar commissions, but it's
1:26:34
Speaker 1: virtually all soft collar commissions. Uh. And so it just
1:26:39
Speaker 1: made it a much more difficult environment for everybody in
1:26:43
Speaker 1: the business. So that turn it into a little bit
1:26:45
Speaker 1: of a winner take all. You have a handful of
1:26:47
Speaker 1: firms if the volume is dropping that much, but there's
1:26:50
Speaker 1: x amount of research people are looking to buy. That
1:26:53
Speaker 1: means any firm that's on the fringe or on the
1:26:56
Speaker 1: edge is not going to capture those those trading dollars. Uh.
1:27:01
Speaker 1: It hasn't quite worked out that way because you have UH.
1:27:05
Speaker 1: So we were on the edge and we were doing
1:27:08
Speaker 1: fine because we were taking commissions from the the guys
1:27:14
Speaker 1: in the middle. And now we're not in the middle,
1:27:19
Speaker 1: but we're in the inner circle. But we're still you know,
1:27:23
Speaker 1: gaining market share. But it's a very difficult business. But
1:27:26
Speaker 1: it's uniform across the industry. So it's not like, you know,
1:27:29
Speaker 1: it's sunny in some spaces and reigning and others. It's
1:27:32
Speaker 1: just it's tough. It's tough everywhere. So it doesn't it
1:27:35
Speaker 1: doesn't put us at a competitive disadvantage or advantage either,
1:27:38
Speaker 1: I don't think so. You said something interesting earlier. I
1:27:41
Speaker 1: want to come back and revisit. You said much of
1:27:45
Speaker 1: the industry has not changed since the nineties seventies. You
1:27:50
Speaker 1: alluded to that, how is that possible? Given technology and
1:27:53
Speaker 1: given everything all that's all that's changed. But the basic
1:27:57
Speaker 1: players uh, or you have people in my space, you
1:28:02
Speaker 1: have people doing research and they interface with investors at
1:28:08
Speaker 1: the at the big institutional accounts. That is pretty similar
1:28:12
Speaker 1: to what it was, except they're more investors. Uh. There's
1:28:17
Speaker 1: also UH, keep in mind, there's a ton of money
1:28:22
Speaker 1: that didn't exist in the seventies, so there's although the
1:28:26
Speaker 1: the vibes are down, there's still a lot of trading
1:28:29
Speaker 1: going on, but they're that basic interface, Uh is pretty
1:28:34
Speaker 1: much the same as it as it was. The industry
1:28:37
Speaker 1: started to grow as pools of money began to accumulate. UH.
1:28:42
Speaker 1: When you say pools, you mean big pension funds, foundations
1:28:46
Speaker 1: that sort of stuff, or just assets. The size of
1:28:49
Speaker 1: the stock exchanges, the size of the equity markets in
1:28:53
Speaker 1: the US, so the size of those are feeding off
1:28:55
Speaker 1: of what you mentioned the first the pension funds, mute
1:28:59
Speaker 1: mutual ones you mentioned like Vanguard and so as those
1:29:05
Speaker 1: moneys came together, Uh, it really gave birth to institutional
1:29:10
Speaker 1: research and starting pretty much with Donaldson, Lufkin and Jenrette
1:29:15
Speaker 1: in the late fifties early sixties. How did that How
1:29:19
Speaker 1: did that have such an impact on on the world
1:29:21
Speaker 1: of research. As as pools of money developed, you had
1:29:26
Speaker 1: professional investors now able to shepherd that money. So you
1:29:30
Speaker 1: had research people at City Bank, and so they started
1:29:34
Speaker 1: to need some research from the street and the whole
1:29:37
Speaker 1: dance began. And it's pretty much the same today. It's
1:29:41
Speaker 1: just gotten bigger, fascinating. UM. So the next question was
1:29:46
Speaker 1: is this a good or a bad thing? But you're
1:29:48
Speaker 1: really saying it's neither. It's just the size is increasing.
1:29:52
Speaker 1: The main the main problem is that active management has
1:29:56
Speaker 1: not done well for I don't know how many years.
1:29:59
Speaker 1: But why do you think that is? Because there's so
1:30:01
Speaker 1: many players. It's very difficult. It's UM. Charlie Ellis said
1:30:08
Speaker 1: that when you have this many smart, competitive people out there,
1:30:13
Speaker 1: and he was the chairman of the Yelle Endowment for
1:30:16
Speaker 1: a long time, UM and a board member of Vanguard,
1:30:20
Speaker 1: when there's so many really smart people out there, they
1:30:22
Speaker 1: all just end up canceling each other. Out and that's
1:30:25
Speaker 1: how you have a period where nobody's generating alpha because
1:30:30
Speaker 1: everybody is trying to and it's just you know, it's
1:30:33
Speaker 1: like stepping out into the field with the New York giants.
1:30:36
Speaker 1: You're you're not very well out there, and so that's uh,
1:30:41
Speaker 1: we'll see how that plays out. Uh. Usually that's somewhat
1:30:45
Speaker 1: cyclical though, and so we'll see. There has been one
1:30:49
Speaker 1: aspect that's not been discussed much, is that of people
1:30:54
Speaker 1: have been more successful doing asset allocation, which doesn't show
1:30:59
Speaker 1: up in generating alpha or not. You're always looking at
1:31:02
Speaker 1: a portfolio stocks and are you outperforming the SMP or
1:31:05
Speaker 1: something like that. But in terms of you know, can
1:31:08
Speaker 1: you put together a a portfolio of private equity and
1:31:15
Speaker 1: equities and bonds, uh, real estate that outperforms and uh,
1:31:22
Speaker 1: I think there's been a number of people that have
1:31:24
Speaker 1: done an excellent job of that. Any anyone in particular
1:31:28
Speaker 1: you want to mention or is it just just just
1:31:32
Speaker 1: the shift. I mean you have to look at Vanguard
1:31:35
Speaker 1: as a beneficiary of that. They have huge beneficiary right
1:31:39
Speaker 1: because if you want an instant, low cost exposure to
1:31:43
Speaker 1: a region, a sector of this or that that they
1:31:46
Speaker 1: offer enough funds and at eleven basis points and things
1:31:51
Speaker 1: like that. You get exposure to any of those things instantaneously.
1:31:55
Speaker 1: It's really, it's really quite amazing. Um what what are
1:31:59
Speaker 1: some of your favorite miss on Wall Street that refused
1:32:02
Speaker 1: to die? I looked at that one very I don't.
1:32:04
Speaker 1: I don't see any myths that refused it. I thought
1:32:08
Speaker 1: about it, the Super Bowl Indicator, any of that stuff. Well,
1:32:11
Speaker 1: you don't. You just don't pay attention to. Um So,
1:32:15
Speaker 1: last two questions. Let me ask you to a millennial
1:32:19
Speaker 1: or someone just coming out of college. Now, what sort
1:32:22
Speaker 1: of career advice would you give them if they were
1:32:24
Speaker 1: interested in in finance or investment? So? Um So, First,
1:32:31
Speaker 1: I would say, go fast? What does that mean? Go fast?
1:32:36
Speaker 1: Just whatever you want to do, do it, you know,
1:32:40
Speaker 1: try and uh. It's hard to know what to do. Uh.
1:32:45
Speaker 1: And there are good arguments that you should, you know,
1:32:49
Speaker 1: take your time. You're gonna live a long time compared
1:32:52
Speaker 1: to why people lived a hundred years ago. Uh, And
1:32:55
Speaker 1: I think there's truth in that. But I think you
1:32:58
Speaker 1: should still try and go fast. Let's say you go
1:33:01
Speaker 1: fast by reading a lot of books all of a sudden, right,
1:33:04
Speaker 1: But as I can tell you are you're going fast
1:33:06
Speaker 1: at reading and so whatever you do, go at it.
1:33:12
Speaker 1: It would be one idea that comes to my mind.
1:33:15
Speaker 1: This way you could discover if you like it or
1:33:17
Speaker 1: you don't like it, you move on to the next.
1:33:19
Speaker 1: What what's the thinking behind go fast? Just go fast?
1:33:22
Speaker 1: So do you you get as much you have a
1:33:24
Speaker 1: good time to get a much experience as possible. Um,
1:33:28
Speaker 1: maybe go fastest to you know, go and live in
1:33:31
Speaker 1: Thailand for five five years just to see what it's like.
1:33:34
Speaker 1: But you're doing it. It's experience, so you're what you realize.
1:33:38
Speaker 1: What I'm really hearing from you is be decisive, do something.
1:33:43
Speaker 1: Just don't sit around and wait for the world to
1:33:45
Speaker 1: come to you. Right, Okay? That the things that I've
1:33:49
Speaker 1: when I look at the people that do well in
1:33:51
Speaker 1: this business, the first one that comes up is the
1:33:55
Speaker 1: most trite, which is is work hard. And everybody that
1:34:01
Speaker 1: I see the succeeds. They simply outwork other players. I
1:34:07
Speaker 1: think Michael Bloomberg is a great example of that, where
1:34:11
Speaker 1: he's he's just full of life and is a concredible worker. Well,
1:34:17
Speaker 1: let's see if we can get him on the show.
1:34:19
Speaker 1: Keep asking, he keeps turning me down. Um, work hard,
1:34:22
Speaker 1: clearly go fast. The goal go fast is sort of
1:34:26
Speaker 1: a general condition that work hard. UH. And then I
1:34:30
Speaker 1: think you have to be competitive. You have to whatever.
1:34:35
Speaker 1: Different people are competitive in different ways. Some are overtly
1:34:38
Speaker 1: competitive and some are quietly competitive. But that whatever that
1:34:42
Speaker 1: instinct is to win UH in this business is definitely
1:34:47
Speaker 1: necessary in the investi business and as frankly true in
1:34:51
Speaker 1: most businesses. I take a look at UH. And then
1:34:54
Speaker 1: the third one I think is critical is to be flexible,
1:34:58
Speaker 1: to say this isn't working something, I'm going fast not
1:35:03
Speaker 1: the right direction. And particularly for fund managers, those three
1:35:08
Speaker 1: characteristics are the ones that I find every time. They're
1:35:13
Speaker 1: very competitive, hard working, and they're oddly flexible. You know,
1:35:18
Speaker 1: when they have a bad idea, they're able to get
1:35:20
Speaker 1: rid of it moving. In my office we call that
1:35:23
Speaker 1: strong opinions weekly health, so that you can really have
1:35:27
Speaker 1: a strong belief in it. But as soon as you
1:35:29
Speaker 1: see proof you're wrong, you gotta It's okay to be wrong,
1:35:32
Speaker 1: it's not okay to stay wrong, is what I learned
1:35:34
Speaker 1: on a trading desk. I heard that early on, but
1:35:37
Speaker 1: that's the same concept, is to be flexible. And now
1:35:41
Speaker 1: we're up to our last question, what do you wish
1:35:44
Speaker 1: you knew about investing today? What do you wish when
1:35:48
Speaker 1: when you began? Rephrase it, then, when you began, what
1:35:51
Speaker 1: do you know today you wish you knew when you
1:35:53
Speaker 1: started out? So, man, I very I got your list
1:35:56
Speaker 1: of questions. I looked at that one and it just
1:35:58
Speaker 1: has me stumped. I thought about coming over here, and
1:36:01
Speaker 1: nothing just wells up that that there's something that you
1:36:07
Speaker 1: figured out today that would have been of assistance right
1:36:11
Speaker 1: out of school. Nothing came to mind. You know, someone said,
1:36:15
Speaker 1: gave me an answer to that once, and the answer
1:36:17
Speaker 1: what have you gotten the path? See? For me? So
1:36:21
Speaker 1: the answer that I found intriguing was, gee, what I
1:36:24
Speaker 1: know today? I had to take a certain path to learn?
1:36:28
Speaker 1: And if I knew that when I started, well, then
1:36:30
Speaker 1: where's the path? Where's the the accumulation of wisdom? That
1:36:34
Speaker 1: the journey is itself the value? Sort of a Zen philosophy.
1:36:39
Speaker 1: I don't remember who answered it that way, but I
1:36:43
Speaker 1: found that sort of Maybe it was Bobby Flight. I
1:36:46
Speaker 1: thought it was kind of an intriguing Okay, that's very philosophically.
1:36:51
Speaker 1: I've been I'm have you life as a as a
1:36:56
Speaker 1: journey not a destination, as they put it, and and
1:37:02
Speaker 1: I have. I've been extremely lucky and that my journey
1:37:07
Speaker 1: has been pretty much in a straight line um as
1:37:12
Speaker 1: we've talked about today. So I don't there's nothing, there's
1:37:15
Speaker 1: no So the journey was that. That's a similar answer
1:37:19
Speaker 1: to what somebody else said, which was the journey was
1:37:23
Speaker 1: what they learned and is you have to kind of
1:37:25
Speaker 1: live it. You can't go back to square one with Okay,
1:37:28
Speaker 1: here's everything I've learned. I would have done it differently, right,
1:37:31
Speaker 1: It's it's how to you how to take that process
1:37:32
Speaker 1: to get what you You couldn't be here today if
1:37:35
Speaker 1: you didn't take that route. So, ED, thank you so
1:37:38
Speaker 1: much for being so generous with your time and spending
1:37:41
Speaker 1: my place so much time with us. I really for
1:37:44
Speaker 1: for listeners. You should realize ED doesn't do a lot
1:37:47
Speaker 1: of media, and I really kind of hunted you down
1:37:50
Speaker 1: for for a while trying to cajole you into doing this,
1:37:54
Speaker 1: and I really appreciate it. So thank you. Um you've
1:37:58
Speaker 1: been listening to Masters and in Business on Bloomberg Radio.
1:38:02
Speaker 1: If you want to hear more conversations like this, just
1:38:05
Speaker 1: look up or down an inch or so on your
1:38:08
Speaker 1: um iTunes or Bloomberg dot com. UM. I want to
1:38:14
Speaker 1: thank Charlie Vohmer, our producer and Matt our engineer, and
1:38:18
Speaker 1: Mike bat Nick, the head of research, who helps us
1:38:20
Speaker 1: put together all these questions. Uh, be sure and check
1:38:24
Speaker 1: out my daily column on Bloomberg View and follow me
1:38:27
Speaker 1: on Twitter at rid Halts. You've been listening to Masters
1:38:30
Speaker 1: in Business on Bloomberg Radio.