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Boaz Weinstein on Credit Investments · Masters in Business

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  Speaker 1: M. This is Mesters in Business with very Results on
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  Speaker 1: Bloomberg Radio. This week on the podcast, I have an
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  Speaker 1: extra special guest. BoA's Weinstein is the founder of SABA Capital,
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  Speaker 1: of five billion dollar hedge fund that specializes in some
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  Speaker 1: really interesting types of trading um credit to fault swaps,
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  Speaker 1: tale protection, volatility trading UH. SABA is one of the
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  Speaker 1: five largest investors globally in spacts, but not in the
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  Speaker 1: way you think they've done really well with it despite
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  Speaker 1: all of the troubles that spacts have seen. Previously, he
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  Speaker 1: was co head of global credit trading at Deutsche Bank,
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  Speaker 1: and ultimately he and Deutsche spun out SABA along with
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  Speaker 1: his whole team as a standalone funds man. I don't
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  Speaker 1: even know where to begin. This was just an absolutely
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  Speaker 1: fascinating conversation. Not only is he a quant with some
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  Speaker 1: real insight into capital market structures and valuation and miss pricings,
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  Speaker 1: but he's put together an amazing track record, uh, not
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  Speaker 1: just in terms of his trading, but his consistent ability
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  Speaker 1: to find parts of the markets that are completely miss
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  Speaker 1: priced because people fundamentally misunderstand what's going on there. Really
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  Speaker 1: just a fascinating guy, an amazing conversation with no further Ado,
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  Speaker 1: my conversation with BoA's Weinstein of Sabba Capital, Hi, Barry,
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  Speaker 1: it's great to be here. And am I pronouncing your
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  Speaker 1: first name correctly Boas? Depends where you're from in these parts,
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  Speaker 1: that would work, and it's really a typical Israeli name
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  Speaker 1: and it would be Boas alright. So so let's start
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  Speaker 1: with um your background, beginning with you started to play
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  Speaker 1: chess when you were five and eventually became pretty highly ranked.
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  Speaker 1: How did you get into chess and and how long
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  Speaker 1: did it take to become a ranked player here in
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  Speaker 1: the US? Sure, so I had those parents that would
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  Speaker 1: drive us on weekends. I have a sister actually been
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  Speaker 1: been on Bloomberg many times, uh Elana. But we my
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  Speaker 1: parents would take us to Saturday morning workshops to learn
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  Speaker 1: about model rocketry or chess or what have you. But
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  Speaker 1: I didn't actually playing tournaments to always thirteen. I got
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  Speaker 1: to junior high school and I was interested in the game.
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  Speaker 1: And there was a kid a year above me, and
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  Speaker 1: I saw that he was ranked in the top fifteen
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  Speaker 1: the United States, and I thought that's amazing. How do
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  Speaker 1: I how do I get there? And so how long
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  Speaker 1: did it take you from when you started playing in
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  Speaker 1: tournaments to becoming ranked. So I became really obsessed with it.
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  Speaker 1: And so in three years I went from a beginner
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  Speaker 1: to number two in the country for age fifteen sixteen. Wow,
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  Speaker 1: that's pretty impressive. And that's thousands and thousands of hours. Uh, yeah,
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  Speaker 1: at least. And and so from chess you moved to
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  Speaker 1: poker and black jack, which seems more of a fit
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  Speaker 1: with with finance. What led you from poker and black
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  Speaker 1: jack to credit it and derivatives? I knew I wanted
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  Speaker 1: to be on Wall Street well before I knew how
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  Speaker 1: to play poker. In fact, I didn't really learn poker
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  Speaker 1: until I was in my mid twenties. Black Jack I
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  Speaker 1: learned a bit earlier. Maybe we'll get there, But Wall
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  Speaker 1: Street was always something I was interested in. My parents
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  Speaker 1: would listen to watch Wall Street Week with Lewis Ruckiser.
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  Speaker 1: I can tell you the postcode for Owens Mills, Maryland.
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  Speaker 1: It's two one one one seven, because that's they would
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  Speaker 1: always do that right in the middle of the show.
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  Speaker 1: And uh. And so I was able to parlay that
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  Speaker 1: interest into getting an after school job when I was
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  Speaker 1: a high school student in New York City, at Merrill
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  Speaker 1: Lynch and then uh summer internships at Coleman Sacks, which
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  Speaker 1: were really among the most fun times in my career
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  Speaker 1: on Wall Street. Well, we'll talk a little bit about
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  Speaker 1: Goldman In a bit, Um, you mentioned black jack. I
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  Speaker 1: understand you got pretty good at black jack, eventually getting
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  Speaker 1: kicked out of the Blaggio as a card counter to
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  Speaker 1: tell us about that. So it's they're very polite. It's
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  Speaker 1: a you know, it's it's kicked out as more of
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  Speaker 1: the nineteen sixties. Um. But you know ed Thorpe is
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  Speaker 1: a is a hero and beat the dealer and a
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  Speaker 1: man for all markets. Also is I think a fantastic book. Um.
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  Speaker 1: And So I learned how to count cards when I
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  Speaker 1: was a summer intern on the risk guard desk at
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  Speaker 1: Goldman from the partner in charge, Frank Brozen's almost Marone,
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  Speaker 1: some of these legendary hedge fund managers, UM and UH
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  Speaker 1: and I got pretty good at it, and UM and
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  Speaker 1: I went and was sent over to London when I
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  Speaker 1: graduated college with Merlynch, and I found that the games
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  Speaker 1: in London had a weakness that the games in the
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  Speaker 1: US didn't. They had a certain side bed that was
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  Speaker 1: very crackable, and I had to kind of figure it out.
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  Speaker 1: There was no internet, you know, to look up everything
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  Speaker 1: back then, and I became quite a skilled card counter.
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  Speaker 1: Uh that's really that's really quite fascinating. So so from
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  Speaker 1: counting cards, how do you end up at Deutsche Bach? Uh?
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  Speaker 1: So the people at Marylynch that I first worked with
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  Speaker 1: out of college had moved really in mass to Deutsche
• 5:00
  Speaker 1: um Edson Mitchell legendary Mary Lynch, head of global markets,
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  Speaker 1: wanted to recreate that at Deutsche Bank without having the
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  Speaker 1: deep institutional capital markets relationships, and so he really wanted
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  Speaker 1: to build up trading quickly, and credit derivatives was a
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  Speaker 1: new market, and he had someone named Aunt Jane, who
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  Speaker 1: has really been an amazing mentor to me. Um poor
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  Speaker 1: huge amount of resources into making Deutsche if if not
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  Speaker 1: the best, the top two year and in year out.
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  Speaker 1: And at Deutsche Bank you become the youngest person to
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  Speaker 1: be a managing director. Tell us about that path? Yeah,
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  Speaker 1: so I think, um, it's either youngest, your second youngest.
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  Speaker 1: Let me let me not overstep it. But still I
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  Speaker 1: was twenty seven and usually it's not until you're in
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  Speaker 1: your thirties, and I have to say there's so many
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  Speaker 1: aspects to one's career that have to do with luck
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  Speaker 1: and timing that have to go along with skill. Almost
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  Speaker 1: all the time, sometimes you can even avoid the skill
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  Speaker 1: part just be ultra lucky. At my My luck was
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  Speaker 1: that UM, this market creditortives basically started when I started,
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  Speaker 1: and even a year or two after, and I was
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  Speaker 1: waiting for it. It It was like I was waiting for
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  Speaker 1: it to be created, because I was never going to
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  Speaker 1: be the credit investor that can read through the tent
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  Speaker 1: k and and do the deep uh you know, fun
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  Speaker 1: fundamental work and accounting work that was going to I
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  Speaker 1: was not going to make my mark in credit that way.
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  Speaker 1: I needed something more quantitative, more tactical, and creditor. It
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  Speaker 1: of started really in ninety seven and UM and so
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  Speaker 1: there was no one, there were no adults to learn from.
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  Speaker 1: I got to I got to UM learn learn from experience,
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  Speaker 1: and and ninety eight with Russia defaulting and LTCM blowing up,
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  Speaker 1: gave an incredible path to that those lessons, and so
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  Speaker 1: Deutsche Bank kept giving me more and more responsibilities UM
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  Speaker 1: and so each year they promoted me and I and
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  Speaker 1: I think another bit of luck was not just being
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  Speaker 1: at a place that wanted to expand in this new area.
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  Speaker 1: But also Goldman Sachs had hired away my boss, an
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  Speaker 1: amazing guy, Ron Tannemora, and I think Deutsche was a
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  Speaker 1: little afraid that that I might move over to Goldman,
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  Speaker 1: and so, you know, earlier than than one would have expected,
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  Speaker 1: they made me an empty So so good timing, right place,
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  Speaker 1: right time, plus the right set of skills in in
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  Speaker 1: derivatives trading before we moved to spinning out SABA from
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  Speaker 1: Deutsche Bank. I have to follow up your conversation about
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  Speaker 1: being an intern at Goldman Sachs. You kind of worked
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  Speaker 1: with a murderers row there and you said it was
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  Speaker 1: the most fun you ever had. Tell us about your
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  Speaker 1: time at Goldman, Who did you work for and what
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  Speaker 1: do they have you doing? Sure, so, look, anyone who
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  Speaker 1: comes to Wall Street needs to read Liars Poker doesn't
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  Speaker 1: matter we're talking now, ten years ago or fifty years
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  Speaker 1: from now. And um there was a minor character in
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  Speaker 1: that book, David DeLucia, who Goldman hired from Solomon to
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  Speaker 1: set up the junk bond desk, and he had a
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  Speaker 1: incredible love of chess. He actually has the world's greatest
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  Speaker 1: going to say something that's not gonna sound so great.
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  Speaker 1: World's greatest chess book collection. Um um. Hopefully no one's
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  Speaker 1: gasping at that. But he has, you know, fifteen century
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  Speaker 1: books and and the busts of the hand of the
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  Speaker 1: world champion from the eighteenth century, and so he was
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  Speaker 1: obsessed with chess. I had met him at a at
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  Speaker 1: a chess club, and I came to Goldman Sachs to
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  Speaker 1: interview for a summer internship. And I had a very
• 8:23
  Speaker 1: perfunctory meeting with the HR person. They they even met me,
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  Speaker 1: I think only because my sister was working in private
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  Speaker 1: client services then, so they as I have this twenty
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  Speaker 1: five minute meeting, the woman says, thanks for coming your
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  Speaker 1: college freshman, why don't you come back in three years
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  Speaker 1: and shows me to the door, and I said, okay,
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  Speaker 1: can I use the men's room? And on my way out,
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  Speaker 1: I went into the men's room and who's standing washing
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  Speaker 1: his hands at the sink is David de Lucia. He says,
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  Speaker 1: what are you doing here? Come on back, and that
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  Speaker 1: began five rounds, five interviews per round, and finally, after
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  Speaker 1: twenty five interviews, he calls me back and he says,
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  Speaker 1: we tried to do everything we could. There's no program
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  Speaker 1: for you. There's a there's a program called s c
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  Speaker 1: o UH to give minorities a chance to come to
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  Speaker 1: Wall Street. There's a program for sons and daughters. We
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  Speaker 1: just couldn't fit you in. And I said it's you know,
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  Speaker 1: one thing is never give up. So I said to him,
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  Speaker 1: it's really too bad. You have a program for sons
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  Speaker 1: and daughters but not brothers of sisters. And he said,
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  Speaker 1: let me try that one. And he and he came
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  Speaker 1: back and I had another two sets of meetings and
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  Speaker 1: they they they jammed me in with the Summer NBA.
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  Speaker 1: So I'm a college freshman and I'm there with the
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  Speaker 1: the HBS and Wharton n B as UH during doing
• 9:36
  Speaker 1: training and all sorts of you know things, and and
• 9:38
  Speaker 1: the desk I was assigned to. His desk was we
• 9:41
  Speaker 1: had a three by two rows, so six seats. He
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  Speaker 1: was directly facing me and it was a murderers row.
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  Speaker 1: Um on my on my left was Bill Troy. It
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  Speaker 1: was really an amazing mentor to me. He was a
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  Speaker 1: co founder of a fund called um Gray Wolf Capital.
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  Speaker 1: Next to him was Jim Zelter, who's one of the
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  Speaker 1: heads of Apollo Um. And then on the other side
• 10:03
  Speaker 1: Jonathan Coleach, the founder of Redwood. And then last but
• 10:05
  Speaker 1: not least, a guy who was named David Tepper. But
• 10:08
  Speaker 1: he was not the David Tepper we all know and
• 10:11
  Speaker 1: love now larger than life. He was. He was a
• 10:15
  Speaker 1: distressed analyst that was working for for a group. He
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  Speaker 1: wasn't this. I can't even imagine him, you know, the
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  Speaker 1: way he was then versa now he's He's an incredible superstar,
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  Speaker 1: one of the greatest investors of all time. And I
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  Speaker 1: got to work with the five of them every day
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  Speaker 1: for you know, for months. And what sort of work
• 10:31
  Speaker 1: did they give you? Because I've read that Tepper used
• 10:35
  Speaker 1: to bust your chops a little bit, a lot, not
• 10:38
  Speaker 1: not a little bit. So he would say, what are
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  Speaker 1: we paying you for? You're here to play chess with DeLucia.
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  Speaker 1: That's why Goldman saxes paying you as if it was
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  Speaker 1: any of his business. So what did he do? He
• 10:47
  Speaker 1: didn't teach me much about the market that I learned
• 10:49
  Speaker 1: from some of the other guys on the desk. But
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  Speaker 1: I would have to get broker quotes in the morning, Um, Murphy,
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  Speaker 1: Duryer or Garband. I'd write down where all the bond
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  Speaker 1: prices were. And I barely knew anything at the time,
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  Speaker 1: but what he would do ring the course of the day.
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  Speaker 1: I remember this was Wall Street in the early nineties. Um,
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  Speaker 1: they would make bets. So he would yell over at
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  Speaker 1: Jim's alter, how many how many synagogues do you think
• 11:09
  Speaker 1: there are in Montana? And and Zelter would say not
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  Speaker 1: more than three. And he would say, I'm I'm gonna
• 11:14
  Speaker 1: buy three bo as, go to the library and figure
• 11:17
  Speaker 1: it out. And this was this is pre internet. So
• 11:19
  Speaker 1: you want to know how many synagogues are in Montana,
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  Speaker 1: It's gonna be a lot of work. And so I
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  Speaker 1: would settle that bed I would settle were interest rates
• 11:25
  Speaker 1: every negative they were briefly during World War Two. I
• 11:27
  Speaker 1: would settle, you know, bets of all kinds. And in
• 11:30
  Speaker 1: the meantime I would also learn a lot through outmosis
• 11:34
  Speaker 1: and by asking questions. So it was just a marvelous experience.
• 11:38
  Speaker 1: And if I have a million stories about it, so
• 11:40
  Speaker 1: we'll see what we have time for. So so the
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  Speaker 1: Solomon Brothers version of gambling was liars poker, played with
• 11:46
  Speaker 1: dollar bills at Goldman It was a trivia contest for
• 11:50
  Speaker 1: random unknown facts. You know, traders like Tibet and and
• 11:56
  Speaker 1: some of the obscure bets need to be settled. And
• 11:58
  Speaker 1: there was no internet, so you a final word. They
• 12:01
  Speaker 1: trusted you to say what what Boa says, that's what goes.
• 12:05
  Speaker 1: I uh, I don't even remember if I had to
• 12:08
  Speaker 1: show evidence or not, but I was. I was asked
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  Speaker 1: to do all sorts of things, and along the way,
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  Speaker 1: I asked dozens of questions a day. And I think
• 12:16
  Speaker 1: that's really important for anyone who is going to have
• 12:18
  Speaker 1: an internship on Wall Street is that there are things
• 12:20
  Speaker 1: you can do to annoy the people around you, but
• 12:24
  Speaker 1: one of them is not asking too many decent questions
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  Speaker 1: about markets. That's that's the only way you're going to
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  Speaker 1: get to where you want to be, and actually, I
• 12:32
  Speaker 1: think it will impress the people around you. So let's
• 12:34
  Speaker 1: talk a little bit about your time trading at Deutsche
• 12:37
  Speaker 1: Bank before the Great Financial Crisis. You allegedly made profits
• 12:43
  Speaker 1: in forty out of forty four quarters. How did you
• 12:46
  Speaker 1: manage to be so consistent? I think there are a
• 12:48
  Speaker 1: lot of investors who, if you look at how they
• 12:51
  Speaker 1: did in that time frame. So let's say the late
• 12:53
  Speaker 1: nineties to the Lehman Brothers. The markets really were a
• 12:57
  Speaker 1: lot easier than they and laws compare editive. There were
• 13:01
  Speaker 1: thousands of fewer hedge funds, and we were we were
• 13:04
  Speaker 1: relatively consistent because there also was a lot of edge
• 13:08
  Speaker 1: in creditoratives. Creditoratives being synthetic bonds or insurance contracts. You
• 13:13
  Speaker 1: can refer to them any number of ways, but how
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  Speaker 1: to think about, how to price them, miss pricings, in
• 13:19
  Speaker 1: credit dioratives against equity ritives. Some of those things were really,
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  Speaker 1: again not well understood, and I think Deutsche allowing me
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  Speaker 1: to trade those relationships, trading out of the money puts
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  Speaker 1: on a stock compared to hedging them with a bond,
• 13:32
  Speaker 1: which is not as crazy as it sounds, is something
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  Speaker 1: that I think gave us a big leg leg up
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  Speaker 1: and an ability to look across markets and find relative value.
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  Speaker 1: And so we were we were consistent. We were particularly
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  Speaker 1: profitable when markets were volatile up until Lehman Brothers, which
• 13:49
  Speaker 1: is where we had two of our four down quarters.
• 13:51
  Speaker 1: That's volatility large, so you're looking for medium load of
• 13:57
  Speaker 1: medium amount of volatility. Once it spikes to very high levels,
• 14:01
  Speaker 1: suddenly all the correlations start to fail or why does
• 14:04
  Speaker 1: that degree of volatility affect trading. Oh, it was really
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  Speaker 1: so specific to Lehman failing as a counterparty. So because
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  Speaker 1: I was inside of a bank, if you were um
• 14:14
  Speaker 1: whether it's interest rate swaps or credit swaps, you were
• 14:17
  Speaker 1: part of a daisy chain where you buy protection on
• 14:20
  Speaker 1: General Electric or IBM from Morgan Stanley, who buys it
• 14:25
  Speaker 1: from Lehman. And these hundreds of thousands of swaps would
• 14:28
  Speaker 1: remain on the books. So even if you bought and
• 14:30
  Speaker 1: sold something, instead of being out of the trade, you
• 14:32
  Speaker 1: would have two swaps on. And so when Lehman Brothers failed,
• 14:35
  Speaker 1: we had enormous exposure to them as a counterparty, just
• 14:38
  Speaker 1: like all the other desks at Deutsche Bank. So that
• 14:41
  Speaker 1: made it more challenging than being at a hedge fund.
• 14:43
  Speaker 1: But the more volatility for our strategy is really the better,
• 14:46
  Speaker 1: and we saw that and we've seen it again this year.
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  Speaker 1: But Lehman Brothers was very specific because if you couldn't
• 14:52
  Speaker 1: trust not just Lehman to pay you, anybody, Mary Lynch,
• 14:56
  Speaker 1: you know, and and Goldman, Sax and Morgan Stanley were
• 14:58
  Speaker 1: trading like you nearly bankrupt identities trading at credit spreads
• 15:02
  Speaker 1: that were a thousand basis points are higher. So so
• 15:06
  Speaker 1: that was very specific, and I think the market has
• 15:08
  Speaker 1: done a great job to reduce counterparty risk in the
• 15:11
  Speaker 1: intervening fifteen years. So let's talk a little bit about
• 15:15
  Speaker 1: the strategies that SABA employees. One of your funds is
• 15:19
  Speaker 1: a closed end funds arbitrage where companies are either trading
• 15:24
  Speaker 1: at a substantial discount or premium to nav to net
• 15:28
  Speaker 1: asset value. Tell us a little bit about trading closed
• 15:31
  Speaker 1: end funds. Yeah, this is an amazing space. It's one
• 15:34
  Speaker 1: where the product has been around a hundred years. Berkshire
• 15:37
  Speaker 1: Hathaway in a sense is a closed end fund, and
• 15:39
  Speaker 1: Warren Buffett in particular has talked to me and showed
• 15:42
  Speaker 1: me how enamored he was with them right before he
• 15:45
  Speaker 1: took Benjamin Graham's class. So we're going back to nineteen
• 15:47
  Speaker 1: fifty where he had two thirds of his holdings in
• 15:50
  Speaker 1: closed end funds. Why why are they interesting? Because you
• 15:52
  Speaker 1: get to buy a dollar of assets for less than
• 15:55
  Speaker 1: a dollar, and there are ways to turn it back
• 15:58
  Speaker 1: into a dollar. So the there's five hundred of them
• 16:00
  Speaker 1: on the New York Stock Exchange. The most venerable managers
• 16:04
  Speaker 1: all have tons of them, whether it's black Rock or
• 16:07
  Speaker 1: black Stone or Pimpco, UM and Templeton, and they um
• 16:12
  Speaker 1: sometimes because they're not cared for, because the fees are high,
• 16:16
  Speaker 1: because the manager is not thinking about the investor, they
• 16:20
  Speaker 1: can slip into trading for a discounts to any v
• 16:23
  Speaker 1: So objective dollar bassets valued properly in the same way
• 16:26
  Speaker 1: that ETFs mutual funds are valued. You can buy a
• 16:29
  Speaker 1: dollar for eight five cents, and if you accumulate enough
• 16:32
  Speaker 1: of it, and if you take on an institutional approach
• 16:35
  Speaker 1: to reading the documents, understanding the rules as a shareholder,
• 16:39
  Speaker 1: your rights to UM to vote for a board of
• 16:43
  Speaker 1: trustees and UH or or overthrow the board if they're
• 16:47
  Speaker 1: not doing the right thing for investors UM. If you
• 16:49
  Speaker 1: buy up enough of the shares UM, you have a
• 16:52
  Speaker 1: chance to to make change. And UH we only started
• 16:55
  Speaker 1: doing that when they started to go to deep discounts.
• 16:59
  Speaker 1: Some these barry had been at discounts seven eight, nine years.
• 17:02
  Speaker 1: They never had a day where they were not at
• 17:03
  Speaker 1: a discount. And we've been able in dozens of cases
• 17:08
  Speaker 1: two for thousands and thousands of investors, tens of thousands,
• 17:11
  Speaker 1: to get the discount to UM converge back to ny VING.
• 17:16
  Speaker 1: So so let's talk about that approach. When I think
• 17:19
  Speaker 1: of activist campaigns, I think of investors like Carl Icon
• 17:24
  Speaker 1: or Dan Loebe or or uh Bill Ackman. How is
• 17:28
  Speaker 1: your approach similar or different to their sort of activist
• 17:32
  Speaker 1: investing campaigns. Right, So, they're finding a company where they
• 17:35
  Speaker 1: can make change, and that change maybe on average, is
• 17:40
  Speaker 1: quite valuable, but you can debate it. And certainly there
• 17:43
  Speaker 1: are examples where the impact of the activist was terrible
• 17:47
  Speaker 1: me in some cases even led to the bankruptcy of
• 17:49
  Speaker 1: the of the company. Enclosed end funds. It's totally different
• 17:52
  Speaker 1: because the medicine, the plan for how to get the
• 17:56
  Speaker 1: fund trading to ny V works every single time. And
• 17:59
  Speaker 1: all I'll tell you why, because we're not trying to
• 18:02
  Speaker 1: remake J. C. Penny in the image of Apple Computer,
• 18:05
  Speaker 1: which might or might not work. Or you know, we
• 18:07
  Speaker 1: could pick some that were fantastic successes um general growth
• 18:11
  Speaker 1: to follow on with one of Akman's amazing longs um
• 18:15
  Speaker 1: on the close end funt side, if the manager we're
• 18:19
  Speaker 1: just thinking about the investor, they could literally press a
• 18:21
  Speaker 1: button turn it into an e t F, which they
• 18:23
  Speaker 1: also those same managers. Black Rock is selling e t
• 18:26
  Speaker 1: s by the cartload. If they changed their closed end
• 18:28
  Speaker 1: fund into an open ended fund, because it didn't give
• 18:31
  Speaker 1: investors an exit at n a V for five six,
• 18:34
  Speaker 1: seven years, it would immediately go to n a V,
• 18:37
  Speaker 1: just like all e t f s are arbitrage double
• 18:41
  Speaker 1: if they're trading different than any of V. So they
• 18:42
  Speaker 1: could change it to an open ended fund, they could
• 18:45
  Speaker 1: tender for shares at no discount. They could liquidate the
• 18:48
  Speaker 1: fund and offer investors the chance to go into almost
• 18:51
  Speaker 1: the exact same products, whether it's New York communities or
• 18:54
  Speaker 1: or junk loans, or UM or energy equities MLPs UM.
• 18:59
  Speaker 1: There's five hundred closed in funds and there's thousands of
• 19:02
  Speaker 1: mutual funds and thousands of e t fs, So the
• 19:04
  Speaker 1: ability to go from eighty four to a hundred, you're
• 19:07
  Speaker 1: talking about return, and maybe it's the recapture of a
• 19:10
  Speaker 1: loss that the investor, of course UM, if they knew enough,
• 19:15
  Speaker 1: would want it every time. And the only thing standing
• 19:18
  Speaker 1: in your way is the manager that feels like they
• 19:20
  Speaker 1: have some god given right for that capital to be
• 19:23
  Speaker 1: permanent capital. And if they tender for shares, that means
• 19:26
  Speaker 1: less au M and less fees for them, and so
• 19:28
  Speaker 1: there's a huge um. There's really a huge problem where
• 19:32
  Speaker 1: the managers putting their own interests and the board is
• 19:34
  Speaker 1: putting the manager's interests ahead of the shareholders. And that's
• 19:37
  Speaker 1: where we come in. So why can't closed n funds
• 19:40
  Speaker 1: be arbitrage the same way E t f s can? So?
• 19:44
  Speaker 1: E t s have a mechanism where you can create
• 19:47
  Speaker 1: new shares if or redeem old chairs and so if
• 19:50
  Speaker 1: if it's ever trading below, you could buy it and
• 19:52
  Speaker 1: then redeem it, if it's trading above, you could sell
• 19:55
  Speaker 1: it and then create it and always at any V.
• 19:58
  Speaker 1: So there's that mechanism that tether is E t f
• 20:01
  Speaker 1: s two N A V closed end funds. It's like
• 20:03
  Speaker 1: a stock. You know, you may think IBM is worth
• 20:05
  Speaker 1: two to share, but you've got to find somebody to
• 20:08
  Speaker 1: sell to. You can't call our monk New York and
• 20:10
  Speaker 1: ask IBM to give you the two d bucks. So
• 20:12
  Speaker 1: so the things can trade at a big discount for
• 20:15
  Speaker 1: very very long time, and even at a big premium,
• 20:18
  Speaker 1: and so um. But there's a very simple fix, which
• 20:21
  Speaker 1: is they don't have to figure out some new fangled
• 20:24
  Speaker 1: way to run the company. They just need to offer
• 20:27
  Speaker 1: liquidity like a mutual fund or an e t F
• 20:29
  Speaker 1: that would get it back to ny V. And so
• 20:32
  Speaker 1: we've basically won all of the challenges we've had because
• 20:35
  Speaker 1: we're on the side of right. We get letters from
• 20:38
  Speaker 1: octogenarian saying I was in this fund for fifteen years.
• 20:40
  Speaker 1: I never thought I would see the light of day
• 20:42
  Speaker 1: to get out near n a V And um, we're
• 20:44
  Speaker 1: not doing it for them, but but at the same time,
• 20:46
  Speaker 1: we're doing it for our investors. It is a great
• 20:48
  Speaker 1: joy to be able to in certain market environments pick
• 20:52
  Speaker 1: through the closed in fund space and find literally dollars
• 20:56
  Speaker 1: trading for a two cents that you can pick up
• 20:59
  Speaker 1: the two cents and turn it back into a dollar.
• 21:01
  Speaker 1: And that's true even today. So markets are efficient, they're
• 21:03
  Speaker 1: just not that efficient. Well, yeah, there's you need someone
• 21:07
  Speaker 1: to come along and say I'm gonna change that. And
• 21:09
  Speaker 1: the closed in fund space really was lacking an institutional
• 21:13
  Speaker 1: manager to do that in size because institutions are also
• 21:18
  Speaker 1: that are an activists are also beholden to those same managers.
• 21:22
  Speaker 1: They need black rocks votes when they're an activist, so
• 21:25
  Speaker 1: they so they might say I'm not going to upset
• 21:26
  Speaker 1: the Apple card and annoy black Rock to the benefit
• 21:29
  Speaker 1: of thousands of investors and our investors if I need
• 21:32
  Speaker 1: to come to black Rock on my regular way, activism
• 21:35
  Speaker 1: when they're a big shareholder, so you have a little
• 21:37
  Speaker 1: bit of you know, people don't necessarily want to fight
• 21:41
  Speaker 1: UM the big asset managers, but we UM, We're very
• 21:45
  Speaker 1: happy to. We're not We're not activists in any other place.
• 21:48
  Speaker 1: And this is one of the best ARBs uh that
• 21:51
  Speaker 1: that you can find. And there's only one entity that suffers.
• 21:55
  Speaker 1: It's the asset manager that goes from managing seven trillion
• 21:58
  Speaker 1: to managing six point nine nine trillion. Thousands of investors
• 22:02
  Speaker 1: get to make gains that they would never otherwise get
• 22:05
  Speaker 1: really really interesting. Let's talk about one of the most
• 22:08
  Speaker 1: popular investment vehicles out there, SPACs special purpose acquisition companies.
• 22:15
  Speaker 1: SABA has about five and a half billion dollars in
• 22:18
  Speaker 1: that space. Is that right? That sounds like a lot
• 22:20
  Speaker 1: of money. You're the fifth largest SPACK holder along with
• 22:23
  Speaker 1: peers like Citadel, Millennium d E share. Your approach is
• 22:28
  Speaker 1: different than how retail investors look at SPACs. Tell us
• 22:33
  Speaker 1: a little bit about what you guys do. Yeah, SPACs
• 22:36
  Speaker 1: are this amazing thing in that it's all over the
• 22:39
  Speaker 1: press whenever there's an acquisition. It's also critiqued, sometimes maligned
• 22:44
  Speaker 1: for being a product that that ought not to exist.
• 22:48
  Speaker 1: Um uh, in the in the number of offerings that exist.
• 22:52
  Speaker 1: So so in the last year there's generally been a
• 22:55
  Speaker 1: negative ting tinge to the to the coverage about SPACs,
• 23:00
  Speaker 1: and they've performed poorly. They've performed poorly when they do SPAC.
• 23:04
  Speaker 1: So what's important to understand with spacts is the life
• 23:07
  Speaker 1: cycle that they start by being extraordinarily safe. And by
• 23:11
  Speaker 1: that I mean when the I p O happens, the
• 23:14
  Speaker 1: money is taken into trust, the manager doesn't touch it,
• 23:18
  Speaker 1: and the trust must buy us T bills. So from
• 23:21
  Speaker 1: time zero to the day that they are converting into
• 23:24
  Speaker 1: the company that they're taking public, you have the risk
• 23:28
  Speaker 1: of T bills, but you have some mark to market
• 23:30
  Speaker 1: risk as sentiment goes up and down. That sometimes that
• 23:33
  Speaker 1: ten dollars that you pay for at I p O.
• 23:36
  Speaker 1: You know, back in the heady days of let's say Ark,
• 23:39
  Speaker 1: when arquestrating at a hundred and fifty and flying cars
• 23:42
  Speaker 1: were you know, we're exciting people's imaginations. Um even before
• 23:46
  Speaker 1: the spack manager would find someone that ten dollars are
• 23:49
  Speaker 1: traded eleven or twelve or even higher. UM Today you
• 23:53
  Speaker 1: can find and for the last year, you can find
• 23:55
  Speaker 1: many billions offered at a discount. Instead of ten dollars
• 23:59
  Speaker 1: you get to pay is something like and UM one
• 24:03
  Speaker 1: year later or even ten months later that for certain
• 24:07
  Speaker 1: will be worth ten dollars. So on top of that
• 24:09
  Speaker 1: you also get the yield that is in T bills,
• 24:12
  Speaker 1: which right now is another hundred forty basis points. And
• 24:15
  Speaker 1: so you could put together something where if you screened
• 24:18
  Speaker 1: for SPACs and you look for high quality managers, you
• 24:22
  Speaker 1: can still find a four and a half percent return,
• 24:25
  Speaker 1: which is a certain return. But on top of that,
• 24:27
  Speaker 1: in case they find a company to buy and the
• 24:30
  Speaker 1: market gets very excited about it, whether it's electric vehicles
• 24:33
  Speaker 1: or media companies or whatever it may be. UM, you
• 24:36
  Speaker 1: are a stockholder and you don't have to take only
• 24:39
  Speaker 1: ten dollars back. That goes to fifteen or to the moon.
• 24:41
  Speaker 1: That's that's your profit. And so I I really look
• 24:44
  Speaker 1: at spacts like an incredibly valuable product in these times
• 24:48
  Speaker 1: were worried about inflation, because it's a guaranteed return in
• 24:51
  Speaker 1: the fours plus an equity option for free and um,
• 24:55
  Speaker 1: it's really hard to find something this safe in the
• 24:58
  Speaker 1: history of specs back a before you know the environment
• 25:01
  Speaker 1: today where they're actually quite a bit safer. Not one
• 25:04
  Speaker 1: time in history could you not get back trust value.
• 25:07
  Speaker 1: You always have trust value to look to, and trust
• 25:09
  Speaker 1: value is us T bills. What happens if the announcement
• 25:12
  Speaker 1: comes out of the acquisition and the public doesn't like it,
• 25:16
  Speaker 1: and the spact trades at a discount, there is a
• 25:19
  Speaker 1: subsequent vote about that eventually. Isn't that there's a vote
• 25:22
  Speaker 1: You can vote for the spack to to do the
• 25:26
  Speaker 1: deal or against. But that is even a separable question
• 25:30
  Speaker 1: from can you vote to get your money back? So
• 25:32
  Speaker 1: you could say, I've support the deal, but give me
• 25:34
  Speaker 1: my trust value back, which should be your ten dollars,
• 25:37
  Speaker 1: let's say, plus the the yield that you made on
• 25:39
  Speaker 1: the T bills, so you always have the ability to
• 25:43
  Speaker 1: get your money back. And so then as an investor,
• 25:45
  Speaker 1: I have to think about, well, how the market is
• 25:48
  Speaker 1: not just driven by the way things ought to be,
• 25:50
  Speaker 1: even though it's T bills. If there's six hundred of
• 25:53
  Speaker 1: these running around trying to find companies to buy. There
• 25:56
  Speaker 1: could be a period where because of losses, one is
• 25:58
  Speaker 1: suffering in their portfolio. You you might dump your SPACs
• 26:01
  Speaker 1: and put pressure on that market. It's I have to
• 26:03
  Speaker 1: think about how cheap get spacts get, even if they're
• 26:06
  Speaker 1: basically the safest investment I know of T bills in
• 26:09
  Speaker 1: a box UM and UM with a ten, ten month,
• 26:14
  Speaker 1: eleven month average life. You know you're gonna get your
• 26:16
  Speaker 1: money back, but in the meantime you have to be
• 26:18
  Speaker 1: ready for some mark to market pain. Let's talk about
• 26:20
  Speaker 1: tail hedging and crash protection funds. How do you find
• 26:24
  Speaker 1: efficient tail protection and what's the difference between paid for
• 26:29
  Speaker 1: tail protection with a zero carry and more expensive tail protection. Yeah,
• 26:35
  Speaker 1: so I've been running tail protection funds since two thousand nine,
• 26:40
  Speaker 1: and um so I've seen many hundreds of investors and
• 26:44
  Speaker 1: heard from them. How are they thinking about it? How
• 26:46
  Speaker 1: much premium do they want to spend? Do they look
• 26:48
  Speaker 1: at it as an insurance policy where you know, just
• 26:50
  Speaker 1: because your car doesn't get stolen or house doesn't go
• 26:53
  Speaker 1: on fire, you're you're not thinking that something bad happened.
• 26:56
  Speaker 1: You bought a policy and you spent it and its
• 26:58
  Speaker 1: portfolio insurance and then their investors that say, well, look,
• 27:01
  Speaker 1: I don't have a budget for that. I have to
• 27:03
  Speaker 1: keep up with the joneses, I have to make my
• 27:05
  Speaker 1: expected return. So is there a way that since I'm
• 27:08
  Speaker 1: not going to do the first one can is there
• 27:10
  Speaker 1: a way that you can find something that will have
• 27:13
  Speaker 1: very low um negative carry or burn or bleed some
• 27:17
  Speaker 1: people call it and um and so in the credit
• 27:19
  Speaker 1: or of market, in the last two or three years,
• 27:22
  Speaker 1: there has been, in my view, way to have your
• 27:25
  Speaker 1: cake and eat it too, to have a very low
• 27:27
  Speaker 1: cost or no cost portfolio of tail protection and still
• 27:32
  Speaker 1: benefit and so in um, you know, this strategy was
• 27:37
  Speaker 1: incredibly profitable even though it didn't have the negative carry
• 27:40
  Speaker 1: that one assumes they need to get a big payout.
• 27:45
  Speaker 1: So that sounds a bit like a free free lunch.
• 27:48
  Speaker 1: How do you get tail protection with with no cost
• 27:52
  Speaker 1: to carry? What risks are you assuming in order to
• 27:56
  Speaker 1: execute that? Uh So, there there's an there's no free
• 28:01
  Speaker 1: lunch anywhere, not even at Bloomberg. Uh So, um, I'm
• 28:06
  Speaker 1: getting free lunch. At least we got that going for
• 28:09
  Speaker 1: So that's the only free lunch on Wall Street. Well,
• 28:12
  Speaker 1: so the free lunch is not free. You are you
• 28:15
  Speaker 1: are making a bet. But what I see now and
• 28:18
  Speaker 1: for the last few years in the credit space is
• 28:21
  Speaker 1: that there is not enough differentiation between safe companies and
• 28:26
  Speaker 1: less safe or safe and dangerous. And by that I
• 28:29
  Speaker 1: mean if you look at the credit spreads of fifty
• 28:33
  Speaker 1: different companies rated triple B or single A, some of
• 28:35
  Speaker 1: them are ultra safe. They go by the names of McDonald's, IBM, E,
• 28:39
  Speaker 1: T and T, you know, Verizon, Um, Disney and But
• 28:44
  Speaker 1: the thing is that banks, federal express banks make loans
• 28:48
  Speaker 1: to these companies when Disney, when when IBM, but Red
• 28:52
  Speaker 1: Hat or Philip Morris, Bud Jewel and so banks have exposures,
• 28:56
  Speaker 1: and that when they go out and buy CDs, they
• 28:58
  Speaker 1: are not They are not brilliant hedgehow manager saying what's
• 29:01
  Speaker 1: the next en round? Like Jim Chainos. They're saying, what's
• 29:05
  Speaker 1: in my book, and I need to hedge it. And
• 29:07
  Speaker 1: so the CDs spread on some of the best companies
• 29:11
  Speaker 1: in the world market caps between a hundred and three
• 29:14
  Speaker 1: hundred billion dollars um, trade at very similar levels. Because
• 29:18
  Speaker 1: of that upward pressure pushing up the spread to names
• 29:20
  Speaker 1: that they're the banks are not pushing up higher, and
• 29:23
  Speaker 1: so you can set up a portfolio where you go
• 29:25
  Speaker 1: long risk to the IBM s of the world and
• 29:28
  Speaker 1: take that carry and buy protection on companies that are
• 29:32
  Speaker 1: not as safe. And so, just to use the example
• 29:34
  Speaker 1: of I was amazed coming into the COVID environment where
• 29:39
  Speaker 1: McDonald's had the same credit spread as a double B
• 29:43
  Speaker 1: rated online travel company called Saber, and Saber double B
• 29:48
  Speaker 1: was trading at twenty five basis points and McDonald's trading
• 29:53
  Speaker 1: but if you pay twenty five enough times, it can
• 29:55
  Speaker 1: add up. So we we put on these trades. You know,
• 29:58
  Speaker 1: imagine a book of thirty or forty names. You're you're
• 30:00
  Speaker 1: selling the McDonald's and buying the Saber exactly. And and
• 30:04
  Speaker 1: of course Saber was negatively affected by COVID, but even
• 30:07
  Speaker 1: today Saber trades at five hundred and guess where McDonald's
• 30:10
  Speaker 1: trains back at. And so there is a free lunch,
• 30:15
  Speaker 1: so to speak, that I didn't see until two thousand,
• 30:17
  Speaker 1: nineteen or twenty, which is that credit when it got
• 30:20
  Speaker 1: ultra tight because people were so confident that the FED
• 30:23
  Speaker 1: had the markets back, and the FED did extraordinary things,
• 30:26
  Speaker 1: you know, since two thousand and eight that credit spreads
• 30:29
  Speaker 1: were too clumped together and one could pick through the portfolio,
• 30:33
  Speaker 1: find the names that would be good tail hedges and
• 30:35
  Speaker 1: the names that would be bad ones, and set up
• 30:38
  Speaker 1: that trade and it it's worked in better than I thought,
• 30:41
  Speaker 1: and it's working again in so to put some numbers
• 30:45
  Speaker 1: on that, I recall reading the first couple of months
• 30:48
  Speaker 1: of that fun was up like to start the year,
• 30:53
  Speaker 1: you gave a little bit back, but not a whole lot.
• 30:56
  Speaker 1: I think you finished the year up some crazy number
• 30:59
  Speaker 1: like that. So we we have different funds, and not
• 31:01
  Speaker 1: to speak about any any in particular. Those numbers are
• 31:04
  Speaker 1: are in the frame correct, So so pretty close to
• 31:09
  Speaker 1: a zero carry, pretty close to a free launch. You
• 31:11
  Speaker 1: are assuming some risk, but it sounds like not a
• 31:14
  Speaker 1: lot of risk. Well, you know, I'm agnostic as to
• 31:17
  Speaker 1: which which strategy is right. It's really up to the individual.
• 31:20
  Speaker 1: If you say, well, should everyone have insurance? Should we
• 31:23
  Speaker 1: walk around with uh? You know, insurance? Sometimes we're mandated.
• 31:26
  Speaker 1: You want to get a car, you need insurance. In portfolios,
• 31:29
  Speaker 1: you get this problem where people don't necessarily think they
• 31:33
  Speaker 1: have a budget for it. If there and if they
• 31:36
  Speaker 1: have that constraint, I think paid for tell protection is
• 31:39
  Speaker 1: a whole lot better than not having anything because look
• 31:42
  Speaker 1: at what's going on now in the market, and I've
• 31:44
  Speaker 1: been seeing for the last year, whether it's from state pensions.
• 31:47
  Speaker 1: We just got one on board last month. UM and
• 31:50
  Speaker 1: university endowments. Incredible desire for strategies that will pay off
• 31:55
  Speaker 1: when there's volatility. Quite quite interesting. Last question about about
• 32:00
  Speaker 1: SABA Capital Hedge Fund. Where did the name SABA come from? Uh? So,
• 32:05
  Speaker 1: I was at I was at Deutscha, and there were
• 32:08
  Speaker 1: a lot of Deutsche prop groups and I wanted to
• 32:11
  Speaker 1: to brand it. And so I was trying to think,
• 32:14
  Speaker 1: what's easy to say, easy to spell, and hasn't been
• 32:16
  Speaker 1: taken and there wasn't really much much left. And Saba
• 32:20
  Speaker 1: means grandfather in Hebrew. My mother was raised in Israel
• 32:25
  Speaker 1: after the Holocaust, and her father, my Saba, saved the family,
• 32:29
  Speaker 1: saved her, you know, and and saved a lot of
• 32:32
  Speaker 1: innocent people of Um hid them. So I really felt,
• 32:36
  Speaker 1: as a kid, an incredible debt to to him, and
• 32:40
  Speaker 1: I wanted to honor him by by calling it that.
• 32:43
  Speaker 1: So we named it that at Deutsche was called SABA
• 32:44
  Speaker 1: Principal Strategies, And when we lifted the team out in
• 32:47
  Speaker 1: oh nine, we we kept the name. So it's Saba capital.
• 32:50
  Speaker 1: And if I recall reading correctly, your your grandfather built
• 32:54
  Speaker 1: a double wall of false wall and on in order
• 32:57
  Speaker 1: to hide people from the Nazis that are looking for
• 33:01
  Speaker 1: people's children. Is that right? Yeah, So he was a
• 33:04
  Speaker 1: carpenter and um, he had a hardware store after the
• 33:07
  Speaker 1: war in Israel. He didn't have um any wealth of
• 33:10
  Speaker 1: significance to speak of, but he was he had a
• 33:13
  Speaker 1: lot of vision. And there was a moment. My mother
• 33:16
  Speaker 1: was born in July forty one in the war saw Ghetto,
• 33:19
  Speaker 1: and sometime around forty two he realized he needed to
• 33:23
  Speaker 1: get her out of there, and he got fake papers
• 33:26
  Speaker 1: that showed he was a gentile with his wife and um,
• 33:29
  Speaker 1: and my mother was hidden on a farm, and so um,
• 33:33
  Speaker 1: yes he's he was a real hero. And I actually,
• 33:35
  Speaker 1: just a month or two ago, got to take my
• 33:39
  Speaker 1: eldest daughter to Yad Vashem in Israel and and explained
• 33:43
  Speaker 1: to her a bit about the history, really really intriguing stuff.
• 33:47
  Speaker 1: So so it made a lot of sense to spin
• 33:49
  Speaker 1: out and be a free standing fund instead of being
• 33:53
  Speaker 1: part of a larger bank and all of the baggage
• 33:57
  Speaker 1: that comes with that. Yeah, I I I love my
• 33:59
  Speaker 1: time at Deutsche In. But I had taken on enough
• 34:01
  Speaker 1: responsibility that when my boss left and UH left the
• 34:05
  Speaker 1: bank and he's actually now the head of the vision
• 34:07
  Speaker 1: fund at soft Bank, I had to make a choice.
• 34:09
  Speaker 1: Am I going to be a manager or an investor?
• 34:12
  Speaker 1: And I chose investor. And that was in late oh seven,
• 34:14
  Speaker 1: and the spinout happened early or nine. And along the
• 34:17
  Speaker 1: way came Lehman Brothers, which was, you know, just a
• 34:21
  Speaker 1: mind blowing experience. I was at the New York Fed
• 34:24
  Speaker 1: the weekend Lehman failed, and you know, we lost quite
• 34:27
  Speaker 1: a bit of money in a eight like like most
• 34:28
  Speaker 1: desks are all desks, but um, but incredible, incredible experience
• 34:33
  Speaker 1: and lessons to well, what were you doing with the
• 34:35
  Speaker 1: New York Fed UH that weekend? It looks it's gonna
• 34:40
  Speaker 1: sound so silly, like they call us in um and
• 34:43
  Speaker 1: they wanted us to game out on the weekend. Um.
• 34:47
  Speaker 1: If Lehman was closed for business on Monday, if it
• 34:51
  Speaker 1: was done, UM, could you on Sunday, the day before,
• 34:55
  Speaker 1: could you unwind all sorts of trades contingent on them
• 34:58
  Speaker 1: not being there? Like, let's let's do a pre mortem.
• 35:01
  Speaker 1: What can we do to reduce the amount of counterparty exposure,
• 35:05
  Speaker 1: and it was really like dectures in the Titanic. I
• 35:07
  Speaker 1: think Deutsche Bank had hundreds of thousands of swaps facing Lehman,
• 35:12
  Speaker 1: and it was like we were able to that week
• 35:14
  Speaker 1: and unwind maybe a dozen of them. Really, And that's
• 35:17
  Speaker 1: before we start talking about one step removed, where you
• 35:20
  Speaker 1: have counterparties who then threw it off to Lehman on
• 35:22
  Speaker 1: top of it, or were you including that in that list? No,
• 35:25
  Speaker 1: just direct exposure was hundreds of thousands of rates, fcs
• 35:28
  Speaker 1: and credit swaps. I was in charge of credit, so
• 35:31
  Speaker 1: we were there. I was in a room of you know,
• 35:34
  Speaker 1: all the major banks sent their head of credit, and
• 35:36
  Speaker 1: there were other rooms had head of you know, mortgages
• 35:39
  Speaker 1: had CEO. But um I got in on a Saturday
• 35:42
  Speaker 1: at at one pm and I left maybe Sunday at
• 35:45
  Speaker 1: five am. So I've heard people complain that the FED
• 35:49
  Speaker 1: made a terrible mistake not rescuing Lehman. But no matter
• 35:53
  Speaker 1: how I've looked at Lehman Brothers, hold aside the fact
• 35:56
  Speaker 1: that they were technically insolvent, it sounds like it was
• 36:00
  Speaker 1: all but impossible for Lehman to be rescued. There was
• 36:03
  Speaker 1: just far too much risk, far too much exposure for everybody,
• 36:08
  Speaker 1: and it was really sort of a mercy killing, you know.
• 36:11
  Speaker 1: I think if the FED knew what was going to
• 36:14
  Speaker 1: happen in just the intervening days with A. I. G.
• 36:17
  Speaker 1: And the others, I think they would have rescued it.
• 36:19
  Speaker 1: The price tag would have been a drop in the
• 36:22
  Speaker 1: bucket compared to um what they eventually had to do
• 36:25
  Speaker 1: with all the different programs and everything that came after it.
• 36:28
  Speaker 1: So so I think that there was a moral imperative
• 36:32
  Speaker 1: they thought to not rewarding uh greed and treating risk
• 36:38
  Speaker 1: like it's always gonna get bailed out. But we learned
• 36:42
  Speaker 1: that the FED couldn't see in front of their nose,
• 36:44
  Speaker 1: because only days later we have Fannie and Freddie any
• 36:46
  Speaker 1: I G that needed massive bailouts, and so Barry. I
• 36:49
  Speaker 1: don't know the price tag, but whatever it was, I
• 36:51
  Speaker 1: think it was a tiny drop compared to the damage.
• 36:54
  Speaker 1: You know. I always thought a lot of people don't
• 36:57
  Speaker 1: remember that buff It made an offer to Fold to
• 37:02
  Speaker 1: bail out Lehman, and Fold rejected him, and ultimately Buffet
• 37:05
  Speaker 1: ended up taking a small piece of goldman Um. But
• 37:08
  Speaker 1: I always imagined that the conversation with Bernanke, and the
• 37:12
  Speaker 1: desk was, wait, he turned down Buffett's money, how can
• 37:16
  Speaker 1: we give money to this yachts if he turned down
• 37:20
  Speaker 1: Berkshire hath Away And I always felt that was the
• 37:23
  Speaker 1: moral hazard, that you an opportunity to save the firm
• 37:26
  Speaker 1: you refused, Sorry, we can't help you. Yeah, so they
• 37:30
  Speaker 1: did take money, if I'm not mistaken, from a Korean bank,
• 37:32
  Speaker 1: and I think it was just Buffet's terms were worse
• 37:36
  Speaker 1: than the Korean bank. But of course you're right, they
• 37:38
  Speaker 1: should have taken it from from both, because once in
• 37:41
  Speaker 1: a financial institution with such massive leverage starts to unravel,
• 37:44
  Speaker 1: it's uh, it's self fulfilling, it has its own the
• 37:47
  Speaker 1: decline has its own gravity. And you take it from
• 37:50
  Speaker 1: the Korean bank, and you take it from Buffett and
• 37:53
  Speaker 1: uh and you uh, you know, you count your blessings
• 37:56
  Speaker 1: that you didn't go under. This would have been after
• 37:58
  Speaker 1: he already rescued Solomon Brother. It's the financial sector. Goodhouse
• 38:02
  Speaker 1: king being seal of approval. Lehman might have might have
• 38:06
  Speaker 1: survived if he took the money from Buffett. Who knows. Yeah,
• 38:09
  Speaker 1: I don't think they had such large losses that couldn't
• 38:12
  Speaker 1: you couldn't put umpty empty back together again. But so
• 38:14
  Speaker 1: so you know, I was already h planning the hedge
• 38:17
  Speaker 1: fund from well before that. And so when I left
• 38:21
  Speaker 1: Deutsche Bank in February, around February, middle of February O nine.
• 38:24
  Speaker 1: By April one, O nine's only six weeks later, I
• 38:27
  Speaker 1: was already up and running with the fund that I
• 38:29
  Speaker 1: had been prepping. Uh Saba has had some spectacular trades.
• 38:33
  Speaker 1: Let's let's talk about some of your most successful ones.
• 38:37
  Speaker 1: I mentioned earlier. The Tail fund practically doubled in um
• 38:42
  Speaker 1: The fund itself was up thirty three percent in that year.
• 38:46
  Speaker 1: How does having one of your strategies up a hundred
• 38:51
  Speaker 1: percent affect how you think about trading? Do you just
• 38:54
  Speaker 1: leave it and and not interfere or are those sort
• 38:59
  Speaker 1: of returns do do the mean reversion light start flashing
• 39:03
  Speaker 1: and encourage you to start paring back a bit? Right?
• 39:07
  Speaker 1: So specifically in the tail fund, since investors in that
• 39:11
  Speaker 1: fund or using it for a purpose, or using it
• 39:12
  Speaker 1: for a hedge I don't want to be the one
• 39:14
  Speaker 1: to say, hey, the loads are in, let's let's take
• 39:17
  Speaker 1: it off. And you know, people's crystal balls are I
• 39:20
  Speaker 1: think always cloudy if if not worse. But in those
• 39:23
  Speaker 1: environments it's especially hard to see. I would say when
• 39:26
  Speaker 1: we talk about two, this is another one of those
• 39:29
  Speaker 1: hards to see environments. So I'm not generally tweaking that
• 39:32
  Speaker 1: too much. In our flagship fund where tail doesn't have
• 39:35
  Speaker 1: to be the biggest part or you know, and we
• 39:37
  Speaker 1: had very similar returns. Um we did find in that
• 39:41
  Speaker 1: environment incredible miss pricings, and so we were able to
• 39:45
  Speaker 1: monetize some of the tail protection and invest in the
• 39:48
  Speaker 1: then you know, most miss priced things, which was relationships
• 39:52
  Speaker 1: between the credit rutives and the bonds or various et fs. Basically,
• 39:56
  Speaker 1: the bond market broke, and Uh, there was an incredible
• 40:02
  Speaker 1: opportunity to do things that I didn't even think I'd
• 40:05
  Speaker 1: ever see again after a wait, really really intriguing. Let's
• 40:08
  Speaker 1: let's talk a little bit about Bruno excel a k A.
• 40:13
  Speaker 1: The London whale Uh, that trade lost over two billion
• 40:16
  Speaker 1: dollars for JP Morgan. You were on the other side
• 40:20
  Speaker 1: of that trade and ostensibly picked up some of that,
• 40:23
  Speaker 1: not all, but some of that two billion. Tell us
• 40:26
  Speaker 1: a little bit about the London whale trade, which I
• 40:29
  Speaker 1: recall reading you discussing at a conference before everything went
• 40:34
  Speaker 1: to hell, tell us about that, yes, and and the
• 40:36
  Speaker 1: eventual price tag what they had started the estimated too.
• 40:40
  Speaker 1: I think they acknowledged some number like six point six
• 40:42
  Speaker 1: billion ended up being even a lot worse. So I
• 40:45
  Speaker 1: am I noticed, being that we're looking very closely at
• 40:50
  Speaker 1: miss pricings in derivatives, I noticed that an older series
• 40:54
  Speaker 1: of the index, the creditor at of index, by the way,
• 40:56
  Speaker 1: I should say, is the most liquid product in fixed income,
• 41:00
  Speaker 1: certainly in credit. The the investment grade one trades about
• 41:03
  Speaker 1: fifty billion a day. It has basically zero bid offer cost.
• 41:07
  Speaker 1: You can get in and out very cleanly with in billions,
• 41:10
  Speaker 1: and that's why firms like Bridgewater and a q R
• 41:12
  Speaker 1: use it in enormous quantities. Back then, I noticed that
• 41:16
  Speaker 1: an older series one that was not current anymore, retained
• 41:20
  Speaker 1: having a lot of interest, and that interest all came
• 41:23
  Speaker 1: from one counterparty, according to market sources, and one counterparty
• 41:27
  Speaker 1: was kind of driving the interest in it. And one
• 41:29
  Speaker 1: thing that I noticed was that um it was priced
• 41:33
  Speaker 1: very differently than the others. So if you have just
• 41:35
  Speaker 1: imagine the SMP five hundred and it has an at
• 41:38
  Speaker 1: asset value of one, well it's gonna trade right at
• 41:40
  Speaker 1: one or someone's gonna arbitrage it. Now, if you have
• 41:42
  Speaker 1: the older series before they change three or four names.
• 41:45
  Speaker 1: If if the current series at one and the older
• 41:49
  Speaker 1: series that you know, point nine or something, that's that's
• 41:52
  Speaker 1: really strange that that you have this kind of difference, UM,
• 41:56
  Speaker 1: where the some of the parts is not the same
• 41:59
  Speaker 1: as the whole. And I and I noticed that it
• 42:00
  Speaker 1: was it was too low. You're able to buy credit
• 42:03
  Speaker 1: protection for too low a number comparing the pieces to
• 42:07
  Speaker 1: the whole. And I wanted to understand why. And through
• 42:10
  Speaker 1: a lot of work we started to see some strange patterns.
• 42:14
  Speaker 1: We knew that it was a trader in London that
• 42:17
  Speaker 1: had by all accounts of this there was it was
• 42:21
  Speaker 1: basically everybody against one and UM and we noticed patterns
• 42:26
  Speaker 1: where in the final days of a week, or particularly
• 42:30
  Speaker 1: the final days of a month, there would be unusual
• 42:32
  Speaker 1: trading which smelled like someone trying to mark market. You know,
• 42:36
  Speaker 1: I'm not saying that's what they did, but that's what
• 42:38
  Speaker 1: the data showed that there was something going on. And
• 42:41
  Speaker 1: so we took the other side. And as you said,
• 42:44
  Speaker 1: I went to speak at a conference for boys and
• 42:47
  Speaker 1: boys girls Harbor. I think the charity was called and
• 42:50
  Speaker 1: I wanted to come up with something accessible. I want
• 42:53
  Speaker 1: to talk about an index, not some weird single company.
• 42:56
  Speaker 1: I go to present and it's at JP Morgan. The
• 42:58
  Speaker 1: conference is held at JP Morgan, and I talked about
• 43:01
  Speaker 1: and I say, you know, you have this trader that's
• 43:03
  Speaker 1: really uh taking on everybody and and it's and we
• 43:06
  Speaker 1: can all do the same math, and why why is
• 43:07
  Speaker 1: it trading there? And uh. It took about six months
• 43:11
  Speaker 1: but eventually cost the bank six billion dollars. And so
• 43:15
  Speaker 1: despite you know Jamie Diamond highly regarded as one of
• 43:18
  Speaker 1: the great bank CEOs of all time, the idea that
• 43:21
  Speaker 1: the bank could have lost that much on, by the way,
• 43:24
  Speaker 1: a notional quantity. So that's the lost six billion, a
• 43:27
  Speaker 1: quantity probably three to four hundred billion, uh and out
• 43:31
  Speaker 1: of some London desk taking risk to us credit. It
• 43:34
  Speaker 1: really is mind blowing. And so when it all ended,
• 43:37
  Speaker 1: someone from JP Morgan came over to our office and
• 43:39
  Speaker 1: we were one of the larger people on the other side,
• 43:42
  Speaker 1: but as you said, we were not nearly their size.
• 43:45
  Speaker 1: UM came over with a piece of paper and said,
• 43:47
  Speaker 1: write down your number for letting us out. Of this trade,
• 43:50
  Speaker 1: and if you do, we're going to have an extra
• 43:52
  Speaker 1: great relationship from now on. Uh. I wrote the number
• 43:55
  Speaker 1: down we traded. It was we traded fifteen billion and
• 43:58
  Speaker 1: one one trade. That was the size we had. And um,
• 44:03
  Speaker 1: we have a good relationship with JP Morgan. I would
• 44:07
  Speaker 1: imagine you would after being on the other side of
• 44:09
  Speaker 1: that trade. Did they do that with all of their counterparties?
• 44:12
  Speaker 1: I think so? Um, Look, we weren't. It was nothing personal.
• 44:16
  Speaker 1: It's just someone's again like closed in fund, someone selling
• 44:18
  Speaker 1: a dollar for seventy five cents, and and it's that's
• 44:22
  Speaker 1: that's our bread and butter, and especially the the spacks.
• 44:26
  Speaker 1: It's it's a little easier because you know you're gonna
• 44:28
  Speaker 1: get any v back, But this one's tougher because you know,
• 44:31
  Speaker 1: we're tiny compared to JP Morgan and UH and so
• 44:34
  Speaker 1: we were one of four or five counterparties that were
• 44:37
  Speaker 1: quite large in the trade. We made a few hundred
• 44:39
  Speaker 1: million dollars from it. But um, but it was more
• 44:43
  Speaker 1: the detective work to find it than the than the
• 44:47
  Speaker 1: actual game that I think is is what stays with me. Huh,
• 44:50
  Speaker 1: really really quite fascinating. Let's talk a little bit about
• 44:53
  Speaker 1: ever Grand, which has become a bit of a debacle
• 44:57
  Speaker 1: over in China, tell us a little bit about your
• 44:59
  Speaker 1: involved in that. So I thought, Barry, we were gonna
• 45:02
  Speaker 1: only talk about my greatest trades, and now you're mentioning
• 45:05
  Speaker 1: a giant loss maker. So let's do it. Not well,
• 45:08
  Speaker 1: this is this is a great trade, just not a
• 45:11
  Speaker 1: positive one. Um No, it's only fair. So Evergrands stuck
• 45:16
  Speaker 1: out to us as really interesting because we run a
• 45:20
  Speaker 1: screen that says, show me the credit spread of a company,
• 45:24
  Speaker 1: what the you know, with the spread over treasuries or
• 45:27
  Speaker 1: library or sofur is, and and chart that against the
• 45:31
  Speaker 1: market cap of the company. So how big it is
• 45:34
  Speaker 1: and how volatile the stock is the you know, if
• 45:37
  Speaker 1: you look at the equity options. So if you look
• 45:39
  Speaker 1: for companies that have a credit spread like Evergrand of
• 45:42
  Speaker 1: over a thousand basis points, it did. It had that
• 45:45
  Speaker 1: credit spread when it was totally healthy, when it had
• 45:47
  Speaker 1: a market cap of forty billion dollars and holdings in
• 45:50
  Speaker 1: various entities that are not even in the real estate space,
• 45:53
  Speaker 1: like of like electric cars. You know, on top of
• 45:57
  Speaker 1: the being the behemoth in the needs property market, you
• 46:01
  Speaker 1: you have forty billion of equity, but you have a
• 46:03
  Speaker 1: credit spread of eleven d basis point that's basically unheard of,
• 46:06
  Speaker 1: and you have equity options that are trading at a
• 46:09
  Speaker 1: pretty attractive level. If you wanted to buy that bond,
• 46:12
  Speaker 1: you have eleven hundred basis points. And if you go
• 46:14
  Speaker 1: and spend that eleven hundred and equity puts, you can
• 46:17
  Speaker 1: hedge yourself quite a bit on the all the way
• 46:20
  Speaker 1: down from far down to you know, near zero. So
• 46:24
  Speaker 1: so why didn't that trade work out? So we didn't
• 46:26
  Speaker 1: hedge ourselves down to near zero? We we you know,
• 46:30
  Speaker 1: we thought that the We didn't think the company the
• 46:32
  Speaker 1: company was going to blow up, and we also um
• 46:36
  Speaker 1: thought that there would be decent recovery value and there
• 46:38
  Speaker 1: may still be by the way, but um, the way
• 46:41
  Speaker 1: everything went south so quickly. Um, we ended up having
• 46:45
  Speaker 1: not enough hedge on and it was it was a
• 46:47
  Speaker 1: loss making trade. But I would say even just it,
• 46:51
  Speaker 1: these kinds of screens can help identify things that become problems,
• 46:55
  Speaker 1: and we've we've seen that in a number of cases
• 46:57
  Speaker 1: where you know, the markets today Barry should be more
• 47:01
  Speaker 1: connected when you think about the passage of time and technology.
• 47:05
  Speaker 1: But when I was at Deutsche Bank, the credit and
• 47:08
  Speaker 1: equity departments were on different floors and they spoke to
• 47:11
  Speaker 1: each other, but you had this segmentation, and you assume
• 47:13
  Speaker 1: over time things will get more and more connected. But
• 47:17
  Speaker 1: it requires different disciplines, different mandates, and so sometimes you
• 47:21
  Speaker 1: can get a very high credit spread and a low
• 47:22
  Speaker 1: equity of vol or a very low credit spread and
• 47:25
  Speaker 1: a very high equity of vault, and that might point
• 47:26
  Speaker 1: to UM something that that can lead to, whether it's
• 47:30
  Speaker 1: us doing the r V or someone saying I see
• 47:33
  Speaker 1: a short here, I see along here, And so I
• 47:35
  Speaker 1: really do love UM looking across markets for clues. And
• 47:40
  Speaker 1: the reason I asked you about ever grand is I
• 47:42
  Speaker 1: began my career on a trading desk, and anybody who
• 47:45
  Speaker 1: only talked about the winners and never talked about their losers,
• 47:49
  Speaker 1: I know they were full crap, and I can pay
• 47:51
  Speaker 1: any attention. But people who are really UM skilled and
• 47:56
  Speaker 1: polished traders, their losses are a badge of honor and
• 48:00
  Speaker 1: they treat it that way. And so that's why I
• 48:02
  Speaker 1: had to ask you about that. Following the London whale,
• 48:05
  Speaker 1: let's talk about a couple of other things you do
• 48:07
  Speaker 1: that I think are really really interesting. You mentioned closed
• 48:13
  Speaker 1: and funds. Uh and some mispricings in that space in
• 48:17
  Speaker 1: my prep for this, and and you might have referenced
• 48:19
  Speaker 1: this to me. Um Bill Ackman was a Deutsche banklin
• 48:23
  Speaker 1: for a long time. He has some closed and funds,
• 48:26
  Speaker 1: some of which run at a pretty substantial discount to
• 48:29
  Speaker 1: n A V. Tell us a little bit about trading
• 48:32
  Speaker 1: with Acman. Sure, so I I met Acman and oh
• 48:36
  Speaker 1: two and Uh I went to go see him after
• 48:39
  Speaker 1: we had done some trades in NB I A the
• 48:42
  Speaker 1: bond insure and UH defunct bond insure. Basically, Uh, so
• 48:49
  Speaker 1: I went to his office and uh there were boxes
• 48:52
  Speaker 1: piles to the ceiling. They were full. They were with
• 48:55
  Speaker 1: offer show of the work he had done on n
• 48:57
  Speaker 1: B I A. And so I saw first hand how
• 49:01
  Speaker 1: he understood that UM aside from and looking at investing
• 49:05
  Speaker 1: that h you know, is this an attractive stock god
• 49:08
  Speaker 1: to go up twenty or thirty percent? He also understands
• 49:11
  Speaker 1: when there's potentially ways to make fifty times your money
• 49:14
  Speaker 1: or twenty times your money, like he did in n BIA.
• 49:17
  Speaker 1: And he's done in general growth and coupang and you know,
• 49:20
  Speaker 1: things like that his closed end fund because it happened
• 49:24
  Speaker 1: to have launched at a time where he hit a
• 49:26
  Speaker 1: draw down. As all investors you know, great and not
• 49:29
  Speaker 1: so great do. UM. His closed end fund has stayed
• 49:33
  Speaker 1: at a very large discount. So I talked to before
• 49:35
  Speaker 1: about buying stuff at eight eight five cents in the dollar.
• 49:37
  Speaker 1: Bill Ackman's fund trading at about sixty eight cents in
• 49:40
  Speaker 1: the dollar. But that's not something that we as activists
• 49:44
  Speaker 1: can can take on because he's already set the rules
• 49:47
  Speaker 1: so that he has the majority of the voting rights.
• 49:49
  Speaker 1: So there wouldn't be a way too for the activist
• 49:51
  Speaker 1: to have an activist UM couldn't force a result on him. Yeah.
• 49:55
  Speaker 1: But at the same time, you know, he has, to
• 49:57
  Speaker 1: his credit, bought back a lot of the stock and UM.
• 50:01
  Speaker 1: And he's also UM uh you know, done quite well
• 50:03
  Speaker 1: over the last few years. Uh leave leave aside. Uh
• 50:06
  Speaker 1: you know a recent trade that he exited. UM. But
• 50:09
  Speaker 1: he's he's been an amazing investor. UM. He's really, in
• 50:13
  Speaker 1: my view, amazing for understanding asymmetry because I've seen whether
• 50:17
  Speaker 1: it's Enron with UM. You know, the incredible work Jim
• 50:21
  Speaker 1: Chainos did to UM to find Enron. If you go
• 50:24
  Speaker 1: in short of stock and you make it a three
• 50:25
  Speaker 1: percent position and it goes to zero. Okay, you made
• 50:28
  Speaker 1: three percent, but credit derivatives if you bought protection and
• 50:32
  Speaker 1: end run and you you only have to pay one percent.
• 50:34
  Speaker 1: Even after ken Lay was out, it only cost one
• 50:37
  Speaker 1: percent a year for five years. A year later it's
• 50:39
  Speaker 1: gone and you you turned one point of premium into
• 50:42
  Speaker 1: about ninety five points. You made ninety five times your money.
• 50:45
  Speaker 1: That kind of payoff profile is a different skill set
• 50:48
  Speaker 1: than the skill set of analyzing companies. And I see
• 50:51
  Speaker 1: examples where people get things right, whether it's Enron or Lehman,
• 50:54
  Speaker 1: but they but it didn't change, it didn't change their
• 50:58
  Speaker 1: the outcome for their fund that year. And I think
• 51:00
  Speaker 1: Acman a number of times has shown he really gets
• 51:03
  Speaker 1: a symmetry. Now his clothes End fund is is at
• 51:05
  Speaker 1: a very big discount, and if one we're looking for
• 51:08
  Speaker 1: a top quality manager to be able to buy in
• 51:11
  Speaker 1: at that discount, I think um is really compelling. But
• 51:16
  Speaker 1: there's nothing we as activists can do to our the
• 51:18
  Speaker 1: discount really interesting. So I mentioned earlier your tail funds. Uh,
• 51:22
  Speaker 1: there are some pretty famous people who run similar or
• 51:26
  Speaker 1: I guess not so similar tail funds. Let's talk about
• 51:29
  Speaker 1: now seemed teleb and spitz Nagels funds um Int Integral Integral.
• 51:35
  Speaker 1: I don't remember the name of the fund. How does
• 51:38
  Speaker 1: their approach differ or is similar to your approach? Yeah?
• 51:42
  Speaker 1: So universe universe But uh so, look I'm here. You
• 51:48
  Speaker 1: want to have good stories, you want to hear here
• 51:51
  Speaker 1: the so I I've never I've never been at first
• 51:56
  Speaker 1: of all, let me say before I say nerve been
• 51:57
  Speaker 1: a fan of that seemed to his I Q is
• 52:01
  Speaker 1: twice as high as mine. Brilliant, brilliant, the smartest guy
• 52:05
  Speaker 1: in the world, just ask him. Okay, and but he
• 52:08
  Speaker 1: but he happens to be but he happens to be
• 52:09
  Speaker 1: super smart. Um, I don't smart. But anyway, but you
• 52:13
  Speaker 1: know I had I had a couple of experiences from
• 52:15
  Speaker 1: afar or from clothes. I'll share with you so we
• 52:18
  Speaker 1: can have a little fun. And so I'm at Deutsche
• 52:20
  Speaker 1: Bank and I'm still a pretty young guyme speaking at
• 52:22
  Speaker 1: a conference that we're having in Barcelona. And he's the
• 52:25
  Speaker 1: lunch speaker. Okay, I'm the Deutsche whatever speaker, and he's
• 52:29
  Speaker 1: the entertainment for lunch. And and so we've been all
• 52:33
  Speaker 1: given in our in our satchels, his book Fooled by Randomness,
• 52:36
  Speaker 1: which is a legendar, it's a crisis. I had not
• 52:39
  Speaker 1: read it, so so there he's showing up. I'm sitting
• 52:42
  Speaker 1: with them at some cocktails and um, and I read
• 52:45
  Speaker 1: the flap Jacket. And Peter Bernstein, who was one of
• 52:49
  Speaker 1: my has written one of the great books about about
• 52:51
  Speaker 1: risk and finance, Against the Gods. I mean when I
• 52:54
  Speaker 1: just say those words and I want to reread it
• 52:57
  Speaker 1: when I got out. Absolutely so, Teleb somehow has gotten
• 53:02
  Speaker 1: Bernstein to say the most wonderful things about Fooled by Randomness?
• 53:06
  Speaker 1: And so what am I going to say to Toleb?
• 53:07
  Speaker 1: I don't know him. He sits down and I say,
• 53:09
  Speaker 1: you know, I haven't read your book. But but Peter
• 53:12
  Speaker 1: Bernstein on the five Jacket, he said, you know, he
• 53:14
  Speaker 1: said something that was so strong, and I really loved
• 53:16
  Speaker 1: Against the Gods. Now there's a range of answers that
• 53:19
  Speaker 1: one can say, thank you appreciated. I hope you enjoyed
• 53:23
  Speaker 1: the book. Can do you have any others? Barry? Because
• 53:25
  Speaker 1: I'll tell you what's not in the range. How dare
• 53:28
  Speaker 1: you not read my book? Okay, that's that's in the range,
• 53:31
  Speaker 1: But it's not the range. When someone says that to
• 53:33
  Speaker 1: another person at that venue, and I'm from Deutscha and
• 53:36
  Speaker 1: common decency, he says, Peter Bernstein is not a very
• 53:39
  Speaker 1: intelligent man, which by the way, could not be further
• 53:43
  Speaker 1: from the truth even if it were true. So so
• 53:46
  Speaker 1: that the the the hubrist, the arrogance, the so so anyway,
• 53:50
  Speaker 1: so look fleds fast forward the number of years. I'm
• 53:53
  Speaker 1: now at a different Japing Morgan conference, not talking about
• 53:56
  Speaker 1: the London Well, they've had me back and I'm speaking,
• 53:59
  Speaker 1: and I get off the stage, and now they're introducing
• 54:00
  Speaker 1: to Seem to Live and instead of you know, with me,
• 54:03
  Speaker 1: they're like, okay, he played chess, he's Deutsche Bank whatever.
• 54:06
  Speaker 1: With to Leb, they say he speaks twenty six languages,
• 54:09
  Speaker 1: and they say a fifty other things, and he's given
• 54:11
  Speaker 1: it to them, and he speaks twenty six languages. Every
• 54:13
  Speaker 1: put your hands together. When he Seemed to Leb, he
• 54:15
  Speaker 1: gets up and he says, I have to make a correction.
• 54:18
  Speaker 1: I speak twenty seven languages. But he's not kidding. He's
• 54:21
  Speaker 1: he needs to make that correction, and so I I
• 54:24
  Speaker 1: he's brilliant, But you know, I have to tell these
• 54:26
  Speaker 1: two stories because we gotta keep it interesting. On to Universa.
• 54:30
  Speaker 1: They have said to Bloomberg effect, to Eric Schatzker in
• 54:33
  Speaker 1: too many other places, that they made four thousand, one
• 54:37
  Speaker 1: d and forty four percent in thousand. Okay, but is
• 54:42
  Speaker 1: that that's a trade annualized, that's not their total return
• 54:47
  Speaker 1: for the year. They can't possibly be talking about those numbers. Well,
• 54:51
  Speaker 1: so that's a thing. If I'm talking fahrenheit and all
• 54:54
  Speaker 1: of a sudden, you want to talk forget Celsie's, you
• 54:56
  Speaker 1: want to talk Vin, you want to talk Kelvin, you
• 54:58
  Speaker 1: gotta say Kelvin. So there, because you end up having
• 55:01
  Speaker 1: false expectations and reporting you know by the you know,
• 55:04
  Speaker 1: innocent journalists. But they were not saying annualized. What they
• 55:08
  Speaker 1: are saying is we spend premium as we go. So
• 55:13
  Speaker 1: we spend let's say it's twenty basis points a month,
• 55:15
  Speaker 1: so point to twelve months, will every three months, will
• 55:19
  Speaker 1: spend sixty basis points, will spend two point four percent
• 55:21
  Speaker 1: a year. And on that that you know batch of protection.
• 55:26
  Speaker 1: We we paid twenty cents on we got back forty
• 55:29
  Speaker 1: times or money. We got eight points, So twenty cents
• 55:32
  Speaker 1: went to eight points. Now the batch beforehand, and the
• 55:35
  Speaker 1: batch before that and before that that expired worthless. Did
• 55:39
  Speaker 1: you see them say they lost a hundred percent? The
• 55:40
  Speaker 1: lost er h percent. So we have investors to say, well,
• 55:43
  Speaker 1: how do you make four thousand percent? I mean, my
• 55:45
  Speaker 1: god like people make forty our legends. So if you
• 55:48
  Speaker 1: run around not just miss quoted about four thousand, but
• 55:52
  Speaker 1: affirmatively talking about it, I think you're doing the investment
• 55:55
  Speaker 1: space at disservice to talk about returns like that. When
• 55:57
  Speaker 1: we talk about our returns and in the way that
• 56:00
  Speaker 1: we've talked about them, it's all the exact same way
• 56:02
  Speaker 1: that we know returns to be, which is return on
• 56:04
  Speaker 1: assets UM, not return on the return you made on
• 56:07
  Speaker 1: the a U M, not return on an options trade
• 56:10
  Speaker 1: you did UM. And so I did it for fun.
• 56:12
  Speaker 1: I looked under their framework of what the return was
• 56:15
  Speaker 1: for us. It was not four thousand percent, but because
• 56:18
  Speaker 1: we had very little negative carry, just like we were
• 56:20
  Speaker 1: talking about before, it was actually twelve I remember. But
• 56:24
  Speaker 1: it's a gobbledea economy. Sure the SEC would bless those
• 56:27
  Speaker 1: sort of numbers in a public document. They'd be thrilled.
• 56:30
  Speaker 1: I can't speak to that, but we you know, for
• 56:34
  Speaker 1: we it's a silly way to boast about your returns,
• 56:37
  Speaker 1: I think so. So, so let's talk about another big brain.
• 56:42
  Speaker 1: Nobody bust my chops better than Cliff Assens. I love
• 56:46
  Speaker 1: mixing it up with him on Twitter. Um, not because
• 56:50
  Speaker 1: I expect to win, but if I could survive fifteen
• 56:53
  Speaker 1: rounds with him, that that's a victory. That's more than
• 56:56
  Speaker 1: a part of victory. It's like, all right, I defended
• 56:58
  Speaker 1: my position. We just ad greed, but at least he
• 57:01
  Speaker 1: didn't say, you're an idiot, go away. And I love Cliff.
• 57:04
  Speaker 1: I find him to be endlessly amusing. Sometimes he and
• 57:07
  Speaker 1: to Leb get into these bizarre fights. Tell us a
• 57:11
  Speaker 1: little bit about what you've seen with Asthnes and to
• 57:14
  Speaker 1: Leb doing battle. Yeah, so you picked another guy who's
• 57:18
  Speaker 1: twice as smart as me, but he handles it with
• 57:20
  Speaker 1: grace and humility. How how bright he is, and he's
• 57:22
  Speaker 1: and he sounds like a vaudeville comedian. He's one of
• 57:25
  Speaker 1: my favorite people to listen to. So so he wrote
• 57:28
  Speaker 1: a paper that tail protection is is not additive to portfolios,
• 57:32
  Speaker 1: and that caused to Leb to really critique not only
• 57:36
  Speaker 1: the paper but also a QRS returns. And they got
• 57:39
  Speaker 1: into a big Twitter spat, which Cliff seems to seems
• 57:42
  Speaker 1: to do every now and again. And I was reading
• 57:43
  Speaker 1: it really as an outsider looking in, but as being
• 57:46
  Speaker 1: an expert in some of this, and I feel like, um,
• 57:50
  Speaker 1: some of the some of the praise that teleb was
• 57:53
  Speaker 1: giving himself was you can't just look at what this
• 57:57
  Speaker 1: two percent that we invested out of your hundreds sense
• 58:00
  Speaker 1: you took two and bought the tele protection did He says, well,
• 58:04
  Speaker 1: what did it allow you to do with your sixty
• 58:06
  Speaker 1: forty plan? Instead of being sixty forty equities bonds? You
• 58:10
  Speaker 1: could go ninety eight or ninety seven equities and two
• 58:14
  Speaker 1: percent me. And because of me, you've got to have
• 58:16
  Speaker 1: all these stocks that beat bonds, you know, mercilessly until uh,
• 58:21
  Speaker 1: you know, for for quite a long time with the SMP.
• 58:23
  Speaker 1: And he picked the smpino less and so so when
• 58:27
  Speaker 1: he was comparing the apples to apples, he was taking
• 58:29
  Speaker 1: the gains that his tail protection allowed by adding on
• 58:34
  Speaker 1: top of it the gains of SMP over over treasuries.
• 58:37
  Speaker 1: But he has the benefit of seeing that this was
• 58:40
  Speaker 1: a world or SMP app into have beaten treasuries. What
• 58:43
  Speaker 1: if SMP had done worse than treasuries that wouldn't be true,
• 58:45
  Speaker 1: which which they did for long periods of time over
• 58:48
  Speaker 1: the past forty years. Yeah. So it's a little bit
• 58:50
  Speaker 1: like like why when people have that intuitive understanding of
• 58:53
  Speaker 1: why the Monty Hall problem works, why does that behind
• 58:56
  Speaker 1: the door there's a prize, behind one door, there's a
• 58:59
  Speaker 1: lion the and the the guy shows you, the host
• 59:02
  Speaker 1: shows you the empty door, do you make the switch?
• 59:04
  Speaker 1: It's because the host already knows that there's nothing behind
• 59:07
  Speaker 1: that door, and so you already know that anything you
• 59:10
  Speaker 1: can say that allowed you to have more SMP risk
• 59:12
  Speaker 1: into the biggest SMP rally after the fact, you know.
• 59:16
  Speaker 1: So I think, um, uh, maybe I kind of am
• 59:19
  Speaker 1: in between because I think if Cliff is saying that
• 59:23
  Speaker 1: tail production is not worth it, well I beg to
• 59:24
  Speaker 1: differ there. But um, but they had Yeah, you're right,
• 59:27
  Speaker 1: they had quite a quite a big spat something that
• 59:29
  Speaker 1: I I've thus far, um you know, managed to avoid
• 59:33
  Speaker 1: uh in my my career. Yet you're inserting yourself right
• 59:36
  Speaker 1: into the middle of it. Well, you know, I came
• 59:38
  Speaker 1: on your show and I wanted to make it interesting.
• 59:39
  Speaker 1: So yeah, I appreciate that. I really appreciate that. So,
• 59:42
  Speaker 1: so you've mentioned certain phrases which are really books that
• 59:46
  Speaker 1: Tolb has written. We've talked offline. We've talked about the
• 59:50
  Speaker 1: fragility of certain institutions, certain sectors, um and and certain
• 59:55
  Speaker 1: investment strategies, as well as the advantages of skin in
• 59:59
  Speaker 1: the game. These are two really big concepts that to
• 1:00:02
  Speaker 1: Leb has champions. Tell us a little bit about both
• 1:00:06
  Speaker 1: of those issues relative to the world of investment. Yeah,
• 1:00:10
  Speaker 1: so look, um, I think that skin in the game
• 1:00:14
  Speaker 1: so the head fund manager having enough exposure so that
• 1:00:18
  Speaker 1: if the fund is going to do very poorly, and
• 1:00:20
  Speaker 1: we've seen a number of funds this year even you
• 1:00:22
  Speaker 1: know news breaking today about a fund that is down
• 1:00:25
  Speaker 1: this year. That the you want, um not from a
• 1:00:28
  Speaker 1: shot and Freud perspective, but just from a equity, equity
• 1:00:31
  Speaker 1: and fairness perspective. You want the manager to have a
• 1:00:35
  Speaker 1: lot of money invested in their funds so that they're
• 1:00:37
  Speaker 1: treating that fund like they with their own personal net
• 1:00:39
  Speaker 1: worth and not literally and and I am no one
• 1:00:43
  Speaker 1: forced me to do it, but I've had effectively all
• 1:00:46
  Speaker 1: of my net worth, uh that is in investments in
• 1:00:49
  Speaker 1: SAVA funds because I want to eat my own cooking.
• 1:00:52
  Speaker 1: I want to have skin in the game. I think
• 1:00:53
  Speaker 1: it sets the right example. And also, you know, it's
• 1:00:55
  Speaker 1: not so bad to be able to invest without fees
• 1:00:57
  Speaker 1: in a fund which at the moment my my my
• 1:01:00
  Speaker 1: own fund is the only one that is not charging
• 1:01:02
  Speaker 1: me fees. So um. So I've and I have a
• 1:01:04
  Speaker 1: number of different strategies. So I've really put skin in
• 1:01:08
  Speaker 1: the game into practice by having something in the upper
• 1:01:11
  Speaker 1: ninety percent of of my of my network now. But
• 1:01:14
  Speaker 1: there have been times where I see venture tech and
• 1:01:17
  Speaker 1: all sorts of growth stocks going up a lot, which
• 1:01:19
  Speaker 1: is not my expertise, and I wonder it should I
• 1:01:21
  Speaker 1: diversify And so I'm having these thoughts right now Verry,
• 1:01:24
  Speaker 1: like should I into this giant swoon um, you know,
• 1:01:27
  Speaker 1: diversify a bid into things with other managers or index
• 1:01:30
  Speaker 1: funds that I don't have any personal domain expertise like tech.
• 1:01:34
  Speaker 1: But um, thus far um. I've really ate my own cooking.
• 1:01:38
  Speaker 1: And the last few years it tasted very good. There
• 1:01:41
  Speaker 1: have been years where it didn't. Uh. And I think
• 1:01:44
  Speaker 1: to the second point about fragility, you do see a
• 1:01:46
  Speaker 1: lot of funds that go through periods where they're amazing,
• 1:01:50
  Speaker 1: and then they'll hit a bump, and if the bump
• 1:01:52
  Speaker 1: lasts more than a year or year and a half,
• 1:01:54
  Speaker 1: sometimes they're just done. And without mentioning any names, there
• 1:01:57
  Speaker 1: are long list of funds that were more than ten
• 1:02:00
  Speaker 1: Allien had some kind of style drift issue or some
• 1:02:03
  Speaker 1: whatever issue and UM, and they're over in a year.
• 1:02:06
  Speaker 1: And I think, UM, it is a fragile business. We're
• 1:02:09
  Speaker 1: seeing a fund now trying to figure out what to do.
• 1:02:11
  Speaker 1: Should it launch a new fund, should it shut down
• 1:02:13
  Speaker 1: the old one after a long success and then and
• 1:02:15
  Speaker 1: then a failure? And I think that UM. Having been
• 1:02:19
  Speaker 1: through draw downs myself, I went through a period from
• 1:02:23
  Speaker 1: the time Mario Drag said trust me, it's enough, and
• 1:02:26
  Speaker 1: I should have trusted him. So from that period of
• 1:02:29
  Speaker 1: let's say June two twelve to maybe June two, I couldn't,
• 1:02:34
  Speaker 1: you know, I couldn't get anything right and UM. And
• 1:02:36
  Speaker 1: to be able to come through that and out the
• 1:02:38
  Speaker 1: other side, UM and not succumbed to the to the
• 1:02:42
  Speaker 1: fragility problem with hedge funds is actually something I'm more
• 1:02:45
  Speaker 1: proud of than the than the good years we've had.
• 1:02:47
  Speaker 1: And I can maybe even if you like, tell you
• 1:02:49
  Speaker 1: a bit about why I think we survived. Sure, go ahead,
• 1:02:53
  Speaker 1: Why why do you think you survived? I think the
• 1:02:55
  Speaker 1: first thing is you have to love what you're doing.
• 1:02:57
  Speaker 1: And I think back to that three year drawing own,
• 1:03:00
  Speaker 1: and it was not severe. The losses were not severe
• 1:03:02
  Speaker 1: per year. It just took a long time. UM, I
• 1:03:05
  Speaker 1: loved even then coming into work. I love the markets.
• 1:03:08
  Speaker 1: I'm a just you're junkie. It's the greatest puzzle. It's
• 1:03:13
  Speaker 1: it's it's it's a game, but it's important. It's it's
• 1:03:16
  Speaker 1: it's people's financial future. And um, I love it. I
• 1:03:19
  Speaker 1: love it, and it it made it it's it's especially
• 1:03:22
  Speaker 1: fun when you're winning. But it made it very tolerable
• 1:03:25
  Speaker 1: even when I when I was in and I have
• 1:03:27
  Speaker 1: a great competitive drive to um to not give up.
• 1:03:29
  Speaker 1: And maybe some of that is the fortitude even just
• 1:03:32
  Speaker 1: from thinking about my grandfather and so forth. UM. And
• 1:03:35
  Speaker 1: then and then secondly, you have to be so thankful
• 1:03:39
  Speaker 1: for where you are that you you could be in
• 1:03:40
  Speaker 1: an industry that has this type of compensation that when
• 1:03:45
  Speaker 1: times are tough, you need to actually um dig into
• 1:03:48
  Speaker 1: your pocket and and fund the business a little bit.
• 1:03:50
  Speaker 1: And I think there's some managers when the going got
• 1:03:53
  Speaker 1: rough and they didn't have bonuses to pay people. They
• 1:03:56
  Speaker 1: you know, it folded and when in our draw downs,
• 1:03:59
  Speaker 1: we went through some periods where I was willing to
• 1:04:01
  Speaker 1: invest back into the firm, earn nothing in those years
• 1:04:04
  Speaker 1: for myself, but knowing that, UM, I have all the
• 1:04:07
  Speaker 1: upside of things turned around, and I think it's surprising
• 1:04:10
  Speaker 1: to me that more institutions don't make that investment, even
• 1:04:14
  Speaker 1: if it doesn't look amazing in that exact moment, but
• 1:04:18
  Speaker 1: they there's a lot of enterprise value that is there
• 1:04:21
  Speaker 1: for that turnaround. And UM, and so uh, you know
• 1:04:25
  Speaker 1: that's my antidote to fragility is actually UM to invest
• 1:04:29
  Speaker 1: and those draw downs, I'm going to assume we're fairly modest.
• 1:04:33
  Speaker 1: You weren't cut in half and trying to think about
• 1:04:35
  Speaker 1: how do I get back over that high water mark.
• 1:04:38
  Speaker 1: I'm assuming you had faith in the process and said
• 1:04:42
  Speaker 1: the environment is changing and we just have to ride
• 1:04:44
  Speaker 1: this out. Yeah, three three percent, six percent nine survival. Yeah.
• 1:04:50
  Speaker 1: And also, um, the other thing is in my world,
• 1:04:52
  Speaker 1: so the credit market could not be more different than
• 1:04:55
  Speaker 1: the equity market in a way that people I think
• 1:04:58
  Speaker 1: don't appreciate. So let me tell you so if I'm
• 1:05:00
  Speaker 1: short and credit spreads are going tighter and tighter. So
• 1:05:03
  Speaker 1: now let's say the spread on hy yold is to
• 1:05:06
  Speaker 1: an a half percent or three, there is a boundary
• 1:05:08
  Speaker 1: condition where it's not going to go below x. There's
• 1:05:10
  Speaker 1: still gonna be a couple of faults. Whereas if you're
• 1:05:13
  Speaker 1: short of stock and I think game stop, the stock doubles,
• 1:05:17
  Speaker 1: you have to recognize your risk more than doubled, or
• 1:05:20
  Speaker 1: at least doubled, because now you have twice the market value.
• 1:05:22
  Speaker 1: And the more it goes up, the bigger position is.
• 1:05:24
  Speaker 1: The more credit protection, the more shorting bonds, let's say,
• 1:05:28
  Speaker 1: goes against you, the smaller your exposure is. And so
• 1:05:31
  Speaker 1: one of the things about credit is it's a it's
• 1:05:34
  Speaker 1: an accordion. There's a boundary um and and in those
• 1:05:38
  Speaker 1: moments where owning volatility and owning protection was not um
• 1:05:42
  Speaker 1: the best thing to have, credit spreads were ultra low
• 1:05:44
  Speaker 1: and really you just couldn't lose much more. And maybe
• 1:05:46
  Speaker 1: that's part of where the confidence came from. So so
• 1:05:49
  Speaker 1: let's talk about you mentioned equity. Let's talk about another
• 1:05:53
  Speaker 1: fund that did spectacularly well in but seems to have stumbled.
• 1:05:59
  Speaker 1: And there's no clear path to recovery right now ARC.
• 1:06:04
  Speaker 1: And and by the way, I'm not part of the
• 1:06:06
  Speaker 1: Schaudenfreud crew who don't like her. I think she's really
• 1:06:10
  Speaker 1: interesting and innovative and has the um, you know, conviction
• 1:06:14
  Speaker 1: and confidence in her beliefs. In she was the top
• 1:06:18
  Speaker 1: performing fund I think a hundred and sixties something that
• 1:06:21
  Speaker 1: no one was even close. Number two was like fifty
• 1:06:24
  Speaker 1: percentage points under her. But since the fun peaked, it's
• 1:06:29
  Speaker 1: been almost straight down. She sold off. I think she's
• 1:06:32
  Speaker 1: excess of sixty down, maybe even sent down, and filled
• 1:06:37
  Speaker 1: with things like tele aduc and Netflix and um Tesla.
• 1:06:41
  Speaker 1: A lot of the big winners became big win losers.
• 1:06:44
  Speaker 1: I don't remember she's in Netflix, but certainly Tesla tell
• 1:06:47
  Speaker 1: doc um the bitcoin five hundred thousand, call the fifty
• 1:06:52
  Speaker 1: percent a year for the next five year call. Uh.
• 1:06:56
  Speaker 1: She seems to have lost her way. What are your
• 1:06:59
  Speaker 1: thoughts of about that sort of self confidence heading into
• 1:07:04
  Speaker 1: what's been a reopening buzz all. Yeah, So we're actually
• 1:07:08
  Speaker 1: tracking ARC quite closely because the ARC portfolio is not
• 1:07:12
  Speaker 1: altogether different than the list of companies that SPACs are requiring.
• 1:07:16
  Speaker 1: They're all future innovative unprofitable tech companies, I think flying
• 1:07:22
  Speaker 1: cars and UM. And so we've we've seen what happened
• 1:07:27
  Speaker 1: to ARC. And one thing we like about about SPACs
• 1:07:30
  Speaker 1: is that all the deals that will be struck here
• 1:07:33
  Speaker 1: from now on are gonna be struck at the current market,
• 1:07:35
  Speaker 1: whereas in in ARC you're really hoping for it to
• 1:07:38
  Speaker 1: return to the glory days of of the past. UM.
• 1:07:42
  Speaker 1: But I think there are some good deals that can
• 1:07:44
  Speaker 1: be made in this more difficult environment. And so those
• 1:07:46
  Speaker 1: warrants you own in a spack or struck at the market,
• 1:07:49
  Speaker 1: they're not out of the money. If you think about
• 1:07:51
  Speaker 1: if you had along dated option on on ARC, that's
• 1:07:53
  Speaker 1: very far out of the money. Now. Now, as far
• 1:07:55
  Speaker 1: as her confidence, I do witness you know, if someone's
• 1:08:01
  Speaker 1: down that much, this is a humbling market. And it's
• 1:08:06
  Speaker 1: not particular to Cathy would but I think I've seen
• 1:08:08
  Speaker 1: a number of cases where people are way too confident
• 1:08:11
  Speaker 1: about the future, and if they were up fifty would
• 1:08:13
  Speaker 1: be one thing. If you're down, probably there's there's an
• 1:08:16
  Speaker 1: extra dose of humility. So one thing I thought was
• 1:08:18
  Speaker 1: kind of uh telling, there was in February she um spoke,
• 1:08:24
  Speaker 1: I don't remember which which program was on and said, um,
• 1:08:28
  Speaker 1: some of those calls that you mentioned very about bitcoin,
• 1:08:31
  Speaker 1: uh and make a year. And by the way, you know,
• 1:08:35
  Speaker 1: great claim should be backed by a great evidence, such
• 1:08:37
  Speaker 1: Carl Sagan. So I didn't. I didn't see the evidence.
• 1:08:39
  Speaker 1: But but but she said also that something that really
• 1:08:43
  Speaker 1: kind of it's a pet peeve of mine. She said,
• 1:08:44
  Speaker 1: the lows for ARC were in January, and this is
• 1:08:47
  Speaker 1: in February. I guess what happened within two days? Another
• 1:08:50
  Speaker 1: leg down. So you know, you want to say something
• 1:08:53
  Speaker 1: about what will happen in five years. We were not
• 1:08:55
  Speaker 1: going to remember in five years whether you're right or wrong,
• 1:08:58
  Speaker 1: but we're gonna remember when the thing you said and
• 1:09:00
  Speaker 1: happen happens the next day. And I saw it also
• 1:09:02
  Speaker 1: a few weeks ago one of the big banks said
• 1:09:06
  Speaker 1: oil will not be lower than a hundred for the
• 1:09:09
  Speaker 1: remainder of the decade. We we don't want to beat
• 1:09:11
  Speaker 1: up on JP Morgan because they were on the other side,
• 1:09:13
  Speaker 1: but I saw that hundred dollar in oil trade. Um,
• 1:09:16
  Speaker 1: you'll never see below hundred. What did it take three
• 1:09:18
  Speaker 1: days to break below hundred? I actually think that one
• 1:09:20
  Speaker 1: was the next day tree day in true day. So
• 1:09:23
  Speaker 1: so you know, don't say what's not gonna happen for
• 1:09:24
  Speaker 1: three thousand days or whatever, and and and get it
• 1:09:27
  Speaker 1: wrong the next day. There should be a Murphy's Laws.
• 1:09:29
  Speaker 1: There should be some someone should name the what that
• 1:09:31
  Speaker 1: law is, where if you say it, you're damning yourself.
• 1:09:33
  Speaker 1: So so I see way too much hubris over confidence,
• 1:09:37
  Speaker 1: even in the face of giant losses. And it really
• 1:09:41
  Speaker 1: it kind of drives me crazy because when I get asked, well,
• 1:09:44
  Speaker 1: what does your crystal ball tell you? I say, first
• 1:09:46
  Speaker 1: of all, this is the wrong time, you know, it's foggy.
• 1:09:50
  Speaker 1: It should be like, like people get so used to
• 1:09:54
  Speaker 1: recency bias. What's been true for the last month, what's
• 1:09:57
  Speaker 1: been true for the last three years? Extrapolating for a yeah,
• 1:10:00
  Speaker 1: and we're now in the world. Maybe you're supposed to
• 1:10:02
  Speaker 1: look at charts in the nineteen seventies and uh, you
• 1:10:04
  Speaker 1: know we're talking given more inflation is and we should
• 1:10:07
  Speaker 1: all be super humble because prediction is a very hard business.
• 1:10:10
  Speaker 1: And I think the problem is that people who predict
• 1:10:13
  Speaker 1: the loudest, you know, get the most attention. And and
• 1:10:17
  Speaker 1: it's um uh, boy, is a tough sledding right now.
• 1:10:20
  Speaker 1: This market is so challenging. So so there are two
• 1:10:22
  Speaker 1: other um post pandemic issues I wanted to talk to
• 1:10:27
  Speaker 1: you about. One is the meme stocks um game stop
• 1:10:31
  Speaker 1: amc Robin Hood. Uh, tell us a little bit about
• 1:10:36
  Speaker 1: what you were thinking with those? Were you trading those?
• 1:10:39
  Speaker 1: Were you on either side of that trade? And were
• 1:10:43
  Speaker 1: these just people board at home or or what's going
• 1:10:45
  Speaker 1: on with this? I think there's a lot. There's a
• 1:10:49
  Speaker 1: lot to the story. Um. And Uh, you know, we've
• 1:10:53
  Speaker 1: seen cases where somebody's too short and they didn't realize
• 1:10:56
  Speaker 1: being too short can create its own problem, and that
• 1:10:59
  Speaker 1: could be the entire your investment thesis is is if
• 1:11:02
  Speaker 1: we push it up high enough, they have to be
• 1:11:04
  Speaker 1: be squeezed out and um, and it more more becomes
• 1:11:07
  Speaker 1: a supply demand thing. Um. But but I also see
• 1:11:11
  Speaker 1: that in one right around the time that people are
• 1:11:14
  Speaker 1: getting stimulus checks and you know, the the rise of
• 1:11:17
  Speaker 1: and you see n f t s taking off and
• 1:11:19
  Speaker 1: crypto taking off even another leg higher, that there's basically
• 1:11:23
  Speaker 1: been a degradation in the importance of what something ought
• 1:11:28
  Speaker 1: to be worth, what the value ought to be, and
• 1:11:31
  Speaker 1: the price of something is much more determined by the
• 1:11:34
  Speaker 1: physics of it. The puh, the push and the pull
• 1:11:38
  Speaker 1: and and and not about economic models, more about physical models.
• 1:11:41
  Speaker 1: And so so you see the combination of people buying
• 1:11:44
  Speaker 1: out of the money call options, whether it's with their
• 1:11:46
  Speaker 1: stimulus checks or their net worth, and it working. And
• 1:11:49
  Speaker 1: I saw you in the heart of game stuff. So
• 1:11:52
  Speaker 1: we were basically uninvolved. But I couldn't resist Barry when
• 1:11:55
  Speaker 1: like maybe game stop was three fifty, I was. I
• 1:11:57
  Speaker 1: was actually using to fine h a brush because I
• 1:12:00
  Speaker 1: knew if I lost money and this would be embarrassing.
• 1:12:02
  Speaker 1: So I was I did it too small and and
• 1:12:04
  Speaker 1: waited for too too good a level and didn't get
• 1:12:07
  Speaker 1: any kind of reasonable size. But there was a day
• 1:12:09
  Speaker 1: where like the game stop was near the highs were
• 1:12:12
  Speaker 1: a call for three weeks a hundred percent out of
• 1:12:14
  Speaker 1: the money, like game stops at three eight. But the
• 1:12:16
  Speaker 1: eight hundred call is that such an astronomical number that
• 1:12:19
  Speaker 1: it costs like a hundred and fifty points or something,
• 1:12:22
  Speaker 1: And the vall literally broke people's computers. They couldn't they
• 1:12:25
  Speaker 1: couldn't do pn L that night because it was the
• 1:12:27
  Speaker 1: vault was some four digit number. And so I don't
• 1:12:30
  Speaker 1: think those investors are sophisticated on on equity options. But
• 1:12:34
  Speaker 1: but for many of them it worked, and it was
• 1:12:36
  Speaker 1: it was a you know, it was an incredible moment.
• 1:12:40
  Speaker 1: But it reminds me that that love of call options
• 1:12:43
  Speaker 1: started last the summer before um soft Bank set up
• 1:12:47
  Speaker 1: an entity to trade short term call options on the
• 1:12:49
  Speaker 1: tech names they liked, and the sellers of these options,
• 1:12:53
  Speaker 1: as sellers of all, whether it's puts or calls, you know,
• 1:12:56
  Speaker 1: basically blew up during COVID short vall funds that had
• 1:12:59
  Speaker 1: done incredibly well when there was no volume, not surprisingly
• 1:13:03
  Speaker 1: blew up. And so you didn't have the supply, you
• 1:13:05
  Speaker 1: had the demand. And so I see today um. You know,
• 1:13:08
  Speaker 1: n f T s are kind of like an option.
• 1:13:09
  Speaker 1: They have an asymmetric payout that people are in love
• 1:13:12
  Speaker 1: with option like payouts and um and as a consequence,
• 1:13:16
  Speaker 1: volt is elevated even in the nine times even last year.
• 1:13:19
  Speaker 1: You know, Barry, you've been. You probably know way more
• 1:13:21
  Speaker 1: about the VIX and the history of it than I do.
• 1:13:24
  Speaker 1: But the VIX never really went below twenty last year
• 1:13:27
  Speaker 1: for more than a day or two. Even in tranquil
• 1:13:28
  Speaker 1: times go back five years earlier, twenty was like a
• 1:13:32
  Speaker 1: read alert. You know, all we're in a we're in
• 1:13:34
  Speaker 1: a correction or a bear market, but we've been between
• 1:13:36
  Speaker 1: twenty and forty since COVID, and I think these volatile
• 1:13:40
  Speaker 1: times are going to stay with us. One last question
• 1:13:44
  Speaker 1: before we get to our favorite question, which is you
• 1:13:47
  Speaker 1: hired Stephanie Rule at Deutsche Bank and she tells me
• 1:13:52
  Speaker 1: that you had a business as a New York City
• 1:13:55
  Speaker 1: dog walker. So you have to tell us about hiring
• 1:14:00
  Speaker 1: and dog walker? What the hell is that, Barry? This
• 1:14:03
  Speaker 1: is this is low. You've really gotte low. I'm trying
• 1:14:05
  Speaker 1: to go high and uh, you gotta Okay. So I
• 1:14:09
  Speaker 1: was thirteen. My parents wouldn't let me watch TV and
• 1:14:12
  Speaker 1: the Sony Watchman had come out, and uh, black and
• 1:14:15
  Speaker 1: white TV about two by two, and this is the
• 1:14:18
  Speaker 1: nineteen eighties, and so I thought if I had some money,
• 1:14:20
  Speaker 1: I could buy one for a hundred dollars. And um,
• 1:14:23
  Speaker 1: So I used to walk dogs. I grew up on
• 1:14:24
  Speaker 1: the Upper West Side, uh, which was not the safe
• 1:14:27
  Speaker 1: place it is today back then in the in the
• 1:14:29
  Speaker 1: late eighties. And um, and I tell my kids that
• 1:14:32
  Speaker 1: in one instance I had one of those extended Alisha's.
• 1:14:36
  Speaker 1: The dog ran ahead, ran into the elevator, elevator closed,
• 1:14:39
  Speaker 1: and it started going up and I'm holding this big
• 1:14:41
  Speaker 1: plastic thing that I can't even get rid of, and
• 1:14:44
  Speaker 1: it gets pulled from my hand, and it seemed like
• 1:14:47
  Speaker 1: way too many seconds. It's up in the corner of
• 1:14:50
  Speaker 1: the elevator door, and I'm thinking the dog is dead
• 1:14:53
  Speaker 1: because the elevator went up and came down, you know,
• 1:14:56
  Speaker 1: bouncing around. But it was totally okay. So my my
• 1:14:58
  Speaker 1: dog like career was literally the almost uh ended in
• 1:15:02
  Speaker 1: in one in one cut. Um. But I um, when
• 1:15:05
  Speaker 1: I when I was a kid, I did that. But
• 1:15:07
  Speaker 1: two years later I was working as a summer intern
• 1:15:10
  Speaker 1: and after school at Marylynch, so um. Stephanie really got
• 1:15:13
  Speaker 1: me with that one. She is basically one of the
• 1:15:16
  Speaker 1: best things that ever happened to me. At Deutsche Banks,
• 1:15:19
  Speaker 1: I knew a credit sueez. She was so good as
• 1:15:21
  Speaker 1: my salesperson that I would forego that benefit to have
• 1:15:25
  Speaker 1: her at the bank, and I helped bring her in. Huh.
• 1:15:28
  Speaker 1: That's that's really interesting. All right, Let's jump to our
• 1:15:30
  Speaker 1: favorite questions that we ask all of our guests, starting
• 1:15:34
  Speaker 1: with tell us what you've been streaming these days on
• 1:15:36
  Speaker 1: your two by two sony uh TV man? Whatever that was?
• 1:15:41
  Speaker 1: I remember that was like a Dick Tracy watch almost.
• 1:15:44
  Speaker 1: Um what are you watching on Netflix or Amazon Prime
• 1:15:47
  Speaker 1: or whatever? Sure, so um uh, I definitely watched my
• 1:15:51
  Speaker 1: favorite bit of TV. I'm doing with one eye, so
• 1:15:53
  Speaker 1: i'm you know, the other I'm I'm at least when
• 1:15:57
  Speaker 1: my kids are asleep. I'm definitely following the markets at
• 1:16:00
  Speaker 1: you're closest here. But I just finished the first six
• 1:16:02
  Speaker 1: episodes of Slow Horses with Gary Old. I just started
• 1:16:05
  Speaker 1: that this week. I have to tell you there are
• 1:16:08
  Speaker 1: so many lines of his that are just so quotable,
• 1:16:11
  Speaker 1: and they're they're just there. I think the writing is
• 1:16:14
  Speaker 1: brilliant and m and the show I'd give it an
• 1:16:17
  Speaker 1: a minus, but his lines are in a plus. Um.
• 1:16:20
  Speaker 1: So that that's what I finished. I'm about to start
• 1:16:22
  Speaker 1: season two of Tehran and my wife is from Tehran,
• 1:16:26
  Speaker 1: and in season one, right in the heart of COVID
• 1:16:29
  Speaker 1: before Apple started uh streaming it, um, it was a
• 1:16:34
  Speaker 1: an Israeli show in Farsi and sometimes in Hebrew and
• 1:16:38
  Speaker 1: so um so my COVID memory is my in laws
• 1:16:42
  Speaker 1: and my wife doing simultaneous translation for me. Because there
• 1:16:45
  Speaker 1: were no English subtitles. I certainly couldn't understand the Farsi
• 1:16:49
  Speaker 1: and so we that was a really nice family activity.
• 1:16:51
  Speaker 1: And I thought that was really a great show. Huh.
• 1:16:54
  Speaker 1: Have you watched another Israeli show, Fouda? I have. I've
• 1:16:58
  Speaker 1: actually met the cast. I think it is very good.
• 1:17:02
  Speaker 1: I've seen all those shows. Um, I can't watch it
• 1:17:05
  Speaker 1: before you go to bed because you just like so
• 1:17:07
  Speaker 1: stressed out. It's the it's the most suspenseful, exciting thing
• 1:17:10
  Speaker 1: on TV. Yeah, yeah, really interesting. Tell us about some
• 1:17:14
  Speaker 1: of your mentors who helped shape your career. So my
• 1:17:18
  Speaker 1: start is because a woman who went to Hunter Elementary
• 1:17:21
  Speaker 1: School as a kid put up an ad at Hunter
• 1:17:24
  Speaker 1: and it's Dyvesant where I went looking for someone to
• 1:17:27
  Speaker 1: come in after school and help her arrange meetings and
• 1:17:30
  Speaker 1: put you know, cards in uh in folders and listen
• 1:17:34
  Speaker 1: to uh read stock research in my spare time. So
• 1:17:37
  Speaker 1: that was Jeanine Crane. I'm still close with her to
• 1:17:40
  Speaker 1: this day. She was a high net worth broker at
• 1:17:42
  Speaker 1: Meryl and I worked there from fifteen to seventeen. And
• 1:17:45
  Speaker 1: then the great David DeLucia from a Wars poker who
• 1:17:49
  Speaker 1: ran the junk bond desk at Goldman, the chess player
• 1:17:52
  Speaker 1: who gave me my start at Goldman was an incredible
• 1:17:55
  Speaker 1: mentor to me. But you know, Barry, I I think
• 1:17:58
  Speaker 1: the importance of having some that you can ask those
• 1:18:00
  Speaker 1: questions too, and why did this happen? And what do
• 1:18:03
  Speaker 1: you think? And why did you sell this? Are so
• 1:18:05
  Speaker 1: crucial when you're young. But when I got into credit
• 1:18:07
  Speaker 1: ord of January night i joined Deutsche, I'm still only
• 1:18:13
  Speaker 1: years old, and um there's no one to really learn
• 1:18:17
  Speaker 1: about credit orders from because it's the things brand new.
• 1:18:19
  Speaker 1: And my my two bosses actually left the bank six
• 1:18:22
  Speaker 1: months after I started. So I really was alone in
• 1:18:25
  Speaker 1: the wilderness during LTCM in Russia and it was it
• 1:18:28
  Speaker 1: was a it was an incredible experience. I was the
• 1:18:31
  Speaker 1: most junior person on the desk and the most senior
• 1:18:33
  Speaker 1: because it became a group of one and they let
• 1:18:35
  Speaker 1: me in hire some people and the rest is history. Interesting.
• 1:18:40
  Speaker 1: Let's talk about books. What are some of your favorites
• 1:18:43
  Speaker 1: and what are you reading right now? Uh? Well, so
• 1:18:46
  Speaker 1: I'm gonna read I'm about to reread Against the Gods.
• 1:18:49
  Speaker 1: Now that we had this awesome conversation about Peter Bernstein, Um,
• 1:18:54
  Speaker 1: I'm not that into reading the latest book. Um, so
• 1:18:59
  Speaker 1: I've gone back and read some books that I should
• 1:19:01
  Speaker 1: have read before. So this uh, the last few months,
• 1:19:04
  Speaker 1: I read The Powerbroker by Caro and um just feeling
• 1:19:08
  Speaker 1: a little bit uh interested in my own personal history
• 1:19:12
  Speaker 1: um and this trip to Yad Vashem. Quite recently I
• 1:19:16
  Speaker 1: reread Man Search for Meaning by Victor Frankel. UM. But
• 1:19:20
  Speaker 1: a few years ago a book that is kind of
• 1:19:22
  Speaker 1: one of those books like that that people in our
• 1:19:25
  Speaker 1: community read about different topics about whether it's finance related
• 1:19:29
  Speaker 1: or or skill versus uh, nurture nature. Uh. There's a
• 1:19:35
  Speaker 1: book called Range by David Epstein that I thought had
• 1:19:38
  Speaker 1: some really interesting chapters that I was unfamiliar with. Whether
• 1:19:41
  Speaker 1: it's the spatial disaster is a little familiar with, or
• 1:19:45
  Speaker 1: violinists of the eighteenth century. It's it's really a tourtive force. Um.
• 1:19:49
  Speaker 1: You can get the basic ideas from it pretty quickly.
• 1:19:51
  Speaker 1: But I quite enjoyed it. Huh. Really interesting. You mentioned
• 1:19:55
  Speaker 1: Liars Poker before. I just reread it for the first
• 1:19:58
  Speaker 1: time in like thirty years when I had Michael Lewis
• 1:20:02
  Speaker 1: on recently, and it's surprising how well it holds up
• 1:20:06
  Speaker 1: over time. And there's a book I'm gonna recommend to you,
• 1:20:08
  Speaker 1: because I get a sense of your likes and dislikes.
• 1:20:12
  Speaker 1: Have you ever read godal escher Bach. It seems like
• 1:20:16
  Speaker 1: that's right up your alley. So I tried to read
• 1:20:18
  Speaker 1: it as a college student, and I kept trying because
• 1:20:20
  Speaker 1: I knew this, well, this is a book that's people
• 1:20:23
  Speaker 1: who think, you know that they can understand complicated things
• 1:20:26
  Speaker 1: should read and I am. I loved parts of it.
• 1:20:28
  Speaker 1: I'm I need to need to give it another look
• 1:20:31
  Speaker 1: because it's been thirty years. I literally had the same experience.
• 1:20:35
  Speaker 1: I fought through it in college and said, I got
• 1:20:37
  Speaker 1: to reread it, and it's on my list to reread
• 1:20:40
  Speaker 1: same same exact things. Um. Last two questions, what sort
• 1:20:43
  Speaker 1: of advice would you give to a recent college grad
• 1:20:46
  Speaker 1: who was interested in a career? Uh in finance. You know,
• 1:20:51
  Speaker 1: I had people over the years very frequently at Deutscha
• 1:20:55
  Speaker 1: asked me. Let's say they were summer intern that wanted
• 1:20:58
  Speaker 1: to get a full time job, or as a person
• 1:20:59
  Speaker 1: in operations that wanted to get a trading job. And
• 1:21:03
  Speaker 1: they'd say, at the end of the summer or at
• 1:21:04
  Speaker 1: the at the end of some period, how do I
• 1:21:06
  Speaker 1: get a job on the trading desk? And I would sometimes,
• 1:21:09
  Speaker 1: and we we were pretty good about actually giving those opportunities.
• 1:21:13
  Speaker 1: I'd say to the person who didn't deserve it, let's say, well,
• 1:21:17
  Speaker 1: you know, we have this seven thirty meeting where all
• 1:21:19
  Speaker 1: the traders go over their top positions and the salesforce
• 1:21:21
  Speaker 1: asked questions, why haven't I seen you in those meetings? Oh?
• 1:21:25
  Speaker 1: I you know, I didn't my job starts at date,
• 1:21:28
  Speaker 1: or that's I didn't know I could go to those meetings,
• 1:21:30
  Speaker 1: you know. And there's decisions like that, like should you
• 1:21:32
  Speaker 1: go to that meeting or should you read the week's
• 1:21:34
  Speaker 1: research and ask a question, even if you work in operations,
• 1:21:37
  Speaker 1: or even if you're a summer intern and a reasonable
• 1:21:40
  Speaker 1: person on the other end will should look at that
• 1:21:43
  Speaker 1: with loving eyes. And I feel like some people want it,
• 1:21:46
  Speaker 1: but they don't do the things they need to do
• 1:21:48
  Speaker 1: to deserve it. And if it's if it's about business,
• 1:21:52
  Speaker 1: there's almost nothing that would be too aggressive for someone
• 1:21:54
  Speaker 1: to do, like showing up at a meeting they weren't
• 1:21:57
  Speaker 1: invited to that fifty people are in. It's not a
• 1:21:59
  Speaker 1: secret meeting. And I think young people who want to
• 1:22:01
  Speaker 1: get ahead, um, who want to be doing something different,
• 1:22:05
  Speaker 1: need to uh do those things and our final question,
• 1:22:09
  Speaker 1: what do you know about the world of investing today
• 1:22:12
  Speaker 1: you wish you knew back when you were first getting
• 1:22:15
  Speaker 1: started as an investor. I mean, this is an amazing
• 1:22:20
  Speaker 1: question as an investor that has to think about when
• 1:22:24
  Speaker 1: is it cheap enough? How what's the discount one needs
• 1:22:27
  Speaker 1: on a spack or on a closed in fund, or
• 1:22:29
  Speaker 1: the mispricing between a credit and an equity to put
• 1:22:33
  Speaker 1: on a trade. I think that, um, if I could
• 1:22:37
  Speaker 1: go back, I would tell myself that my imagination for
• 1:22:41
  Speaker 1: how crazy things could get is not enough. You know,
• 1:22:44
  Speaker 1: if you think about, like if you took the government
• 1:22:47
  Speaker 1: bond traders of pre O eight and sent them to
• 1:22:50
  Speaker 1: the moon and left them there for years, and brought
• 1:22:52
  Speaker 1: them back and tell them that interest rates, oh you're back,
• 1:22:55
  Speaker 1: you know, here's your you know, uh, here's your newspaper.
• 1:22:58
  Speaker 1: Interest rates are negative. I think to them would think
• 1:23:00
  Speaker 1: like you're playing a prank on them. We have we
• 1:23:02
  Speaker 1: have Swiss rates negative to fifty years, like it's not
• 1:23:05
  Speaker 1: just a three month bond, like fifty thirty years negative
• 1:23:07
  Speaker 1: and and so so I think the market never will
• 1:23:11
  Speaker 1: cease to surprise and people who get tracked into recency
• 1:23:17
  Speaker 1: bias and this is the way things are, and this
• 1:23:19
  Speaker 1: is the way they'll be. They're not imaginative enough about
• 1:23:22
  Speaker 1: what can happen, and it's it's those extraordinary things that
• 1:23:25
  Speaker 1: happened where the real amazing payouts are. You know, maybe
• 1:23:29
  Speaker 1: an example now something that hasn't worked instead is there
• 1:23:31
  Speaker 1: are probably some currency pegs that people assume are going
• 1:23:34
  Speaker 1: to be there forever and you know, you just have
• 1:23:37
  Speaker 1: to be right one time in a hundred years and
• 1:23:39
  Speaker 1: you're gonna get paid back five dred times or a
• 1:23:41
  Speaker 1: hundred times and things. I think, Uh, with what's happened
• 1:23:45
  Speaker 1: now with with Ukraine and Russia and COVID and China
• 1:23:48
  Speaker 1: and inflation, I think we're in a world where the
• 1:23:50
  Speaker 1: impossible can be possible and we should think creatively about
• 1:23:55
  Speaker 1: um a range of outcomes instead of what's the central
• 1:23:58
  Speaker 1: what's the central theory? Thank you o As for being
• 1:24:00
  Speaker 1: so generous with your time. We have been speaking with
• 1:24:03
  Speaker 1: BoA's Weinstein, founder of Saba Capital. If you enjoy this conversation,
• 1:24:08
  Speaker 1: we'll be sure and check out any of the four
• 1:24:10
  Speaker 1: hundred previous ones we've done over the past eight years.
• 1:24:14
  Speaker 1: You can find those at iTunes, Spotify, wherever you find
• 1:24:17
  Speaker 1: your favorite podcasts. We love your comments, feedback and suggestions
• 1:24:21
  Speaker 1: right to us at might be podcast at Bloomberg dot net.
• 1:24:26
  Speaker 1: Follow me on Twitter at rid Halts. Check out my
• 1:24:28
  Speaker 1: daily reads at Dholts dot com. I would be remiss
• 1:24:32
  Speaker 1: if I did not thank the correct team that helps
• 1:24:34
  Speaker 1: put these conversations together each week. Mohammed Ramaui is my
• 1:24:38
  Speaker 1: audio engineer. Sean Russo is my head of research. Paris
• 1:24:42
  Speaker 1: Wald is our producer. Batika val Brund is our project manager.
• 1:24:48
  Speaker 1: I'm Barry Results. You've been listening to Master's in Business
• 1:24:52
  Speaker 1: on Bloomberg Radia