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Rick Rieder on Fixed Income Investments · Masters in Business

• 0:00
  Speaker 1: M. This is mesters in business with very results on
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  Speaker 1: Bluebird Radio this week on the podcast what Can I Say?
• 0:11
  Speaker 1: Rick Reader runs fixed income at black Rock. He holds
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  Speaker 1: all sorts of fascinating titles. In addition to chief investment
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  Speaker 1: Officer for bonds, he helps to oversee two point five
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  Speaker 1: trillion dollars in various investments. And this is just a
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  Speaker 1: master class in how to manage assets. Think about your career,
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  Speaker 1: Understand the relationship between markets, between fixed income, the FED,
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  Speaker 1: the dollar sentiment, consumer spending, just everything is related. And
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  Speaker 1: understanding what matters when is the key to your success.
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  Speaker 1: If you're at all interested in electric school and investing,
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  Speaker 1: or fixed income or active and passive, this is just
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  Speaker 1: a master class as to how to do it right.
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  Speaker 1: I can keep babbling about how fascinating I found this discussion,
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  Speaker 1: but instead I will say, with no further ado, my
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  Speaker 1: conversation with Black Rocks Rick Reader, you have a fascinating background,
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  Speaker 1: and let's go all the way back to the beginning.
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  Speaker 1: You graduate Emory University with a degree in finance, you
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  Speaker 1: get an MBA from Wharton. Was fixed income always in
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  Speaker 1: the cards? I think it was ever in the cards? Actually? Yeah,
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  Speaker 1: So when I graduated Wharton. You know, I wasn't one
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  Speaker 1: of those people who had you know, my family was
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  Speaker 1: in Wall was on Wall Street, and I didn't really
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  Speaker 1: know what direction I was going in. And actually I
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  Speaker 1: was going to go and do something different. In fact,
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  Speaker 1: I was going to be a strategist financial analyst, to
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  Speaker 1: work for a bank and write research reports. And I
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  Speaker 1: was somebody convinced me to go into sales and trading,
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  Speaker 1: and I decided to do that. And I loved you know,
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  Speaker 1: they talked to me about I love sports, and you know,
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  Speaker 1: I love Mark Gets and anyway, I got into fixed
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  Speaker 1: income and I and I really liked the macro element
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  Speaker 1: to it. I really liked you know, how you think
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  Speaker 1: about big picture. And you know, one thing led to another.
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  Speaker 1: There was a job opening, and uh, like I said,
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  Speaker 1: I graduated, went to EF Hutton and nobody remembers anymore,
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  Speaker 1: which because were the greatest commercials of all time and people, yes,
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  Speaker 1: people are still remember them, and and then which was
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  Speaker 1: absorbed into Lehman, and I got lucky to go there
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  Speaker 1: and got a job in fixed income and and then
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  Speaker 1: the ball started rolling. But I probably two years prior
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  Speaker 1: to that or three years, probably didn't even know what
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  Speaker 1: fixed income was. So you spend what seven to oh
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  Speaker 1: eight at Lehman Brothers. That has to be one of
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  Speaker 1: the most exciting two decades at a specific place and
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  Speaker 1: a specific time anywhere on Wall Street. Tell us a
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  Speaker 1: little bit about that history. So, first of all, when
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  Speaker 1: I started, I mean I started this, it was the
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  Speaker 1: July market crashes. Nothing was going on that. Yeah, so
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  Speaker 1: market crashes, and then you know, we don't think that,
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  Speaker 1: you know, it doesn't look like if Hutton is gonna
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  Speaker 1: make it, potentially he's going to go out of business.
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  Speaker 1: They get absorbed. Lehman buys them as acquisition. It was
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  Speaker 1: so a Lehman paid a billion dollars free f Utton
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  Speaker 1: and m and they took I was very lucky. There
• 3:13
  Speaker 1: were thirty five of us in the training program and
• 3:15
  Speaker 1: it looked like we all were gonna get fired, and
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  Speaker 1: they took two of us. And I'm not sure how
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  Speaker 1: I made it through the strainer, but I um, I
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  Speaker 1: found somebody who I really liked on the mortgage department
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  Speaker 1: and the mortgage agency mortgage business and took a liking
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  Speaker 1: to me, and they went into the training program. And
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  Speaker 1: then you know, and then by the way it wasn't
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  Speaker 1: like the crises ended between and the recession on the
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  Speaker 1: SNL dynamics and then and and you know, all had
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  Speaker 1: a different stream to two thousand and two. By the way,
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  Speaker 1: team like every four years there was um and then
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  Speaker 1: you know, punctuating with obviously two thousand and eight. But boy,
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  Speaker 1: I mean I went through and I think I still
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  Speaker 1: have the scar tissue to this day of you know,
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  Speaker 1: all of these And by the way, I think it's
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  Speaker 1: an interesting cyclicality to markets that every four years you
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  Speaker 1: need to recalibrate. You know, people are comfortable, leverage builds
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  Speaker 1: and then and then and then all of a sudden,
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  Speaker 1: sometimes violently, it recalibrates. But I'll tell you, you know,
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  Speaker 1: going through it again in twenty two, you know, you
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  Speaker 1: just know that the next couple of years are going
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  Speaker 1: to be pretty good because you just reprice things again.
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  Speaker 1: But I'll tell you, going through those years, I'd love
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  Speaker 1: to skip those in my career. Mark your calendars. And
• 4:22
  Speaker 1: also maybe we should rename hundred year floods because every
• 4:26
  Speaker 1: time someone goes on this is a hundred year flood
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  Speaker 1: until four years or years. By the way, it's interesting
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  Speaker 1: that O two. You know why I didn't happen to
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  Speaker 1: know six, and so you think about what happened, Well,
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  Speaker 1: monetary policies stayed too easy. While I thought Jaron Greensman
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  Speaker 1: was incredible, you know, he kept policy too easy. Remember
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  Speaker 1: the housing market was starting a bubble. They should have
• 4:45
  Speaker 1: started tightening and oh six, and we should have had
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  Speaker 1: the recalibration of six, and the fact that it didn't
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  Speaker 1: probably created more pressure two years. Hence for sure that
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  Speaker 1: we can spend a lot of time talking about seven.
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  Speaker 1: Oh wait, we'll get to that later. So what departments
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  Speaker 1: did you work in at Lehman Brothers. You were there
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  Speaker 1: long enough. Eventually when you leave there, you're running the
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  Speaker 1: firm's global principal strategies team. So clearly that was quite
• 5:10
  Speaker 1: a successful career path. Tell us about the different departments
• 5:13
  Speaker 1: you are. So, I mean I started and while I
• 5:16
  Speaker 1: was going to go into mortgages, and that was where
• 5:18
  Speaker 1: I was taken out of the place from the training program.
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  Speaker 1: I went into a six month training program and Lehman
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  Speaker 1: and I found um the corporate bond business to be
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  Speaker 1: incredibly interesting and uh and I got to meet two
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  Speaker 1: people and you know how you learn in life that
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  Speaker 1: it's and I've learned over the years. It's all about
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  Speaker 1: the people and and gosh, I found two people who
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  Speaker 1: were extraordinarily uh. I mean, I thought smart, capable. I
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  Speaker 1: love their business. And so I started in corporate bonds,
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  Speaker 1: and then UM, I started trading international Yankee bonds, so
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  Speaker 1: foreign bonds denominating dollars. Did that for a while. Then
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  Speaker 1: I did crossover between investment grade and high yield, and
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  Speaker 1: then I ran UM. Then I round the corporate bond
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  Speaker 1: trading desk, and then uh did that for a while,
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  Speaker 1: I run right. Then I ran our credit business across
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  Speaker 1: emerging markets, money markets, UM, loans prefers, and then uh,
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  Speaker 1: and then I went to the principal strategies area before
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  Speaker 1: before I left in MAYO eight and uh, yeah, you
• 6:16
  Speaker 1: hit the bid. Yes, everything blew up, yeah, which you know, yeah,
• 6:22
  Speaker 1: which seemed depression, but it actually wasn't. Yeah, it was
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  Speaker 1: definitely dumb luck. And in fact it wasn't even luck
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  Speaker 1: because I left in O eight and I started my
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  Speaker 1: hedge fund. And if somebody said what would be the
• 6:33
  Speaker 1: worst month in history to start a credit hedge fund,
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  Speaker 1: May of oh eight may have been the one, or
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  Speaker 1: certainly closer. You know, part of why you know, I laughed.
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  Speaker 1: I brought my team with me. You know, this was
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  Speaker 1: an exciting point in time. The markets were bubbling and
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  Speaker 1: there and there were gonna be some opportunities and then
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  Speaker 1: it would turned out to be calamitous. And um I
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  Speaker 1: saw by the part of part of what we merged
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  Speaker 1: into black Rock in Mayo nine was we did you
• 6:56
  Speaker 1: know we had a tough go in O eight but
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  Speaker 1: then started to do well in oh nine, But we
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  Speaker 1: have an opportunity to move to black Rock. You mentioned,
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  Speaker 1: um luck, you very easily could have ended up in
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  Speaker 1: the NBS mortgage department at Lehman you were, you had
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  Speaker 1: half a foot there. How did you escape a fate
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  Speaker 1: worse than that? Well, I mean it was I mean,
• 7:16
  Speaker 1: you think about that, that that was eighty seven. It probably
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  Speaker 1: you know, it probably was a good twenty year runway
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  Speaker 1: after that. But I jokingly said, you could set the
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  Speaker 1: record on the on the racetrack, but if you don't
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  Speaker 1: make the turn at the end, if you hit the wall,
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  Speaker 1: it doesn't that is right. But I don't I found
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  Speaker 1: you know, I was a financial analyst and I was
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  Speaker 1: literally per you know where we talked about I was
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  Speaker 1: going to go and do that again. I loved looking
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  Speaker 1: at companies, both my parents who entrepreneurs. I loved how
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  Speaker 1: business has worked and to think in in you know,
• 7:45
  Speaker 1: for some reason, naturally in school, I had a really
• 7:48
  Speaker 1: tough go early in my school career because I didn't
• 7:50
  Speaker 1: really I didn't understand philosophy or psychology. But business always
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  Speaker 1: made a lot of sense to me. And looking at companies,
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  Speaker 1: analyzing them, figuring out how they drive cash flow and
• 7:59
  Speaker 1: the amount or liquidity was I mean, I found it
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  Speaker 1: phenomenally exciting. So anyway, so I did it. I did
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  Speaker 1: it for for a long time, and you know I
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  Speaker 1: still do this day, you know, being a being in credit,
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  Speaker 1: I think people underestimate like I don't. I don't really
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  Speaker 1: think top down analysis works. Like trying to analyze the
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  Speaker 1: economy from the top. I think it's too hard to
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  Speaker 1: do being understanding how companies drive inventory, hiring, capex, spend,
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  Speaker 1: and to this day, you know, when I have a
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  Speaker 1: view on the economy or usually a view on the
• 8:30
  Speaker 1: economy or inflation, it's usually driven because I read so
• 8:35
  Speaker 1: many corporate earnings reports and understand trying to understand why
• 8:39
  Speaker 1: they why they're cutting inventory, why are they laying off people? Anyway,
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  Speaker 1: So it's been Having a credit corporate background has been
• 8:46
  Speaker 1: hugely powerful because I tend every analysis we do big
• 8:49
  Speaker 1: picture starts, bottoms up and uh, and that's what informs
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  Speaker 1: I find that's the most effective way to inform your views.
• 8:55
  Speaker 1: Is that how you ran our three? Was? That? Was that? Yeah?
• 8:59
  Speaker 1: So the idea of being, you know that we could
• 9:01
  Speaker 1: analyze um dissect companies anywhere from senior securities secured down
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  Speaker 1: to down a distress. And we had we had a
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  Speaker 1: great team many many of which are still with me
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  Speaker 1: today that I'm super honored by. I have a lot
• 9:15
  Speaker 1: of us who worked together for twenty thirty years, a
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  Speaker 1: couple of over thirty years. But the idea being, you know,
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  Speaker 1: we were good at analyzing companies and could do it
• 9:24
  Speaker 1: across cap stock, different sectors, it's and globally and we
• 9:27
  Speaker 1: have a great team in Asia and Europe. So yeah,
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  Speaker 1: I mean that was the idea and uh and I
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  Speaker 1: say that's port of White's translated to a number of
• 9:34
  Speaker 1: people coming to black Rock and uh and being with
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  Speaker 1: me today. So let's talk a little bit about black Rock.
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  Speaker 1: You said black Rock absorbed our three. Tell us a
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  Speaker 1: little bit about how did that come about? Was that
• 9:45
  Speaker 1: something you were planning on doing, or the right opportunity
• 9:48
  Speaker 1: just came along and you said, I think I can
• 9:50
  Speaker 1: hang with you, fellas so um so. I had known
• 9:53
  Speaker 1: Larry Fink and Robed Computer, our CEO and president for
• 9:55
  Speaker 1: a number of years. In fact, the only other place
• 9:58
  Speaker 1: that I almost u most left Leman to go work
• 10:02
  Speaker 1: for was black Rock, and because I had such great
• 10:04
  Speaker 1: respect for the people running it, and there were actually
• 10:06
  Speaker 1: more people than that, but but Larry and the and
• 10:09
  Speaker 1: Rob being the the main drivers of the company. And
• 10:13
  Speaker 1: then uh, you know, after you know, I would say
• 10:16
  Speaker 1: the fall of oh nine, you know, going through that
• 10:18
  Speaker 1: darress around around Hedge, fond of being in uh you know,
• 10:21
  Speaker 1: it was a tough spot around the markets, coming under pressure.
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  Speaker 1: You know. We started talking and we were back and
• 10:27
  Speaker 1: forth having a conversation about coming to black Rock, and
• 10:30
  Speaker 1: and I remember Rob and Larry saying, we've been talking
• 10:32
  Speaker 1: about for years, why don't you do it now? And
• 10:35
  Speaker 1: I had a big team with me and and whatever reason,
• 10:37
  Speaker 1: I having worked at places for a long time, very loyal,
• 10:40
  Speaker 1: and I said, but I gotta bring my whole team,
• 10:42
  Speaker 1: and uh away I get. I was a massive honor
• 10:45
  Speaker 1: they you know, took forty two people and um, you know,
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  Speaker 1: like I say, many of whom are are still with
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  Speaker 1: us today. So yeah, the fact they were willing to
• 10:53
  Speaker 1: do that, and quite frankly, even at the time before
• 10:55
  Speaker 1: black Rock was this big, I felt like it was
• 10:59
  Speaker 1: much the episode or a finance and I thought I
• 11:01
  Speaker 1: wouldn't have gone to and you know, our hedgephone started
• 11:04
  Speaker 1: to do well again, and I wouldn't have done it
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  Speaker 1: anywhere else because I thought this was a place that, like,
• 11:10
  Speaker 1: how could you turn down the ability to be at
• 11:12
  Speaker 1: a place that was if you liked finance and you
• 11:14
  Speaker 1: liked what we did, this was a chance to work
• 11:17
  Speaker 1: somewhere that was you know, the epicenter is before it
• 11:19
  Speaker 1: got to be the size and scale it did. So
• 11:21
  Speaker 1: you've been at black Rock for well over a decade
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  Speaker 1: um you're running fixed income for them, Essentially, tell us
• 11:28
  Speaker 1: about what the process was from bringing over a team
• 11:32
  Speaker 1: from your hedge fund to Okay, now we're just gonna
• 11:36
  Speaker 1: talk into black Rock and see what we can do here. Yeah.
• 11:40
  Speaker 1: So I mean the idea coming over is we're gonna
• 11:42
  Speaker 1: we're gonna work operate our hedgephone and work and work
• 11:45
  Speaker 1: within the credit business at black Rock and somebody ended
• 11:48
  Speaker 1: up leaving the firm. Who was the who was the
• 11:50
  Speaker 1: c i O. And UH anyway opened up opened up
• 11:54
  Speaker 1: a spot for me, and you know, I was huge
• 11:55
  Speaker 1: on it to be chosen to do it. So that
• 11:58
  Speaker 1: was that twelve thirteen years ago, and uh, which was
• 12:02
  Speaker 1: mine ten. So you're there for six months and Larry says, hey,
• 12:05
  Speaker 1: I think it was. It must have been. It's been
• 12:09
  Speaker 1: August of thinking through it, August at ten. And I
• 12:14
  Speaker 1: know it was a little bit of trepidation I was
• 12:16
  Speaker 1: at the time. It was still a big place, and
• 12:18
  Speaker 1: it was a little bit of trepidation. But it's been
• 12:19
  Speaker 1: incredibly exciting, and like I said, I have so many
• 12:22
  Speaker 1: of the team had come with me, and I got
• 12:24
  Speaker 1: to know some really great people across the organization. So
• 12:27
  Speaker 1: you know, I was honored to do it. And you know,
• 12:29
  Speaker 1: I've always been investing in different parts of fixed income,
• 12:33
  Speaker 1: and the heritage of Black Rock was in the mortgage business,
• 12:36
  Speaker 1: but I was my background was in credit, but we
• 12:38
  Speaker 1: had so many talented people in mortgages and that obviously
• 12:41
  Speaker 1: a huge part of the fixed income market that I
• 12:43
  Speaker 1: felt like that team, you know, could take my shallow
• 12:47
  Speaker 1: knowledge to the hopefully to the next level. And um,
• 12:50
  Speaker 1: so then I became I became c I O then
• 12:53
  Speaker 1: and uh yeah, I guess I've been doing it for
• 12:55
  Speaker 1: over a decade now. It was pretty unbelievable. So let's
• 12:58
  Speaker 1: go over all your titles. Your Chief and Stment Officer,
• 13:00
  Speaker 1: you run global fixed Income, your head of the Global
• 13:03
  Speaker 1: Allocation Investment team. Um, you're also on one of the
• 13:07
  Speaker 1: executive management teams and some sudden they on the Global
• 13:10
  Speaker 1: Executive Committee. Alright, so it sounds like you have a busy,
• 13:14
  Speaker 1: uh busy day, Like how do you spend your time?
• 13:17
  Speaker 1: What takes up the most hours during the day? And
• 13:21
  Speaker 1: is it I know a lot of these things meet
• 13:23
  Speaker 1: once a week or months once a month. It's not
• 13:25
  Speaker 1: like they're eighty hour week jobs. But it sounds like
• 13:28
  Speaker 1: a lot's on your plate. We haven't even talked about
• 13:31
  Speaker 1: the various funds you run. So I mean, I got
• 13:34
  Speaker 1: up at three forty five in the morning, Is that true? Yeah?
• 13:36
  Speaker 1: I thought I was earlier. You know, I think you know,
• 13:41
  Speaker 1: people always set of young people are coming to the business.
• 13:43
  Speaker 1: You know, why are you coming in a finance You
• 13:45
  Speaker 1: gotta really love it, And you know, I love the
• 13:47
  Speaker 1: business and I love. You know, it's dynamic. So I
• 13:49
  Speaker 1: get up at three forty five. Uh, you work out
• 13:53
  Speaker 1: and but but I literally the first thing I do
• 13:55
  Speaker 1: is I check every market around the world and see
• 13:57
  Speaker 1: where things are. And you know, I pretty much go
• 14:00
  Speaker 1: you know, whether it's dinners or what have you. I'm
• 14:02
  Speaker 1: I go to uh, you know, pretty late in the evening.
• 14:04
  Speaker 1: But I'm I'm pretty turned on by the markets. And
• 14:07
  Speaker 1: you know, obviously, our business so in depends on the
• 14:10
  Speaker 1: meeting you're in. Obviously, people drive what we do. I
• 14:13
  Speaker 1: mean it's not we're not running an industrial company. I
• 14:16
  Speaker 1: mean it's people drive what we do. So a lot
• 14:18
  Speaker 1: of those meetings are talking to people, you know, strategy meetings,
• 14:22
  Speaker 1: who are we hiring, what businesses do we need to grow?
• 14:25
  Speaker 1: You know, where what do you think the next opportunity is?
• 14:28
  Speaker 1: And markets. Much of how Black Rock evolved is, you know,
• 14:30
  Speaker 1: trying to be pressent about what is the next evolution
• 14:33
  Speaker 1: of what clients are looking for. So a lot of
• 14:36
  Speaker 1: those meetings are about, you know, trying to anticipate where
• 14:39
  Speaker 1: things going. I mean, I have to say the first thing.
• 14:42
  Speaker 1: Then maybe I wasn't very good at it earlier in
• 14:44
  Speaker 1: my career, but you start to think about, particularly on
• 14:46
  Speaker 1: the asset management side, like you know, you gotta you know,
• 14:50
  Speaker 1: take in what you're getting today, but you've gotta have
• 14:52
  Speaker 1: one eye on where we're going. And I think in
• 14:53
  Speaker 1: all those meetings, just trying to think through get in
• 14:56
  Speaker 1: front of where we're going, whether that's markets, positioning, our
• 14:59
  Speaker 1: business people, strategies, etcetera. So you've been with black Rock
• 15:04
  Speaker 1: since the financial crisis back in oh nine, did you
• 15:08
  Speaker 1: ever stop and think, oh, yeah, in a decade or so,
• 15:11
  Speaker 1: will be eight nine, ten trillion dollars. Was that ever
• 15:14
  Speaker 1: in the realm of possibilities? No. I mean at the time,
• 15:18
  Speaker 1: I remember when I came over, and then soon there
• 15:20
  Speaker 1: after the firm bought b G I and the I
• 15:21
  Speaker 1: shares business. But gosh, the the thought that you know,
• 15:26
  Speaker 1: grow into the scale that we've grown and grown into
• 15:28
  Speaker 1: never would have even been a consideration. You know. I
• 15:30
  Speaker 1: will say, you know, Larry and and Rob and the
• 15:33
  Speaker 1: whole operating committee and the executive committee, the firm are
• 15:36
  Speaker 1: very thoughtful about where opportunities are and they've they've built
• 15:39
  Speaker 1: the business piece by piece over the years, you know,
• 15:42
  Speaker 1: And I think there's something that's really important about you know,
• 15:45
  Speaker 1: we run our franchise around a what is the client
• 15:48
  Speaker 1: look more of be the risk systems. So the Laddin
• 15:51
  Speaker 1: risk system is when I remember when I which is
• 15:53
  Speaker 1: unique and specific to black Rock and not an off
• 15:55
  Speaker 1: the shelf piece of software totally, which is run by
• 15:58
  Speaker 1: many insurance going engine funds who use the Laddin and
• 16:01
  Speaker 1: it's a it's a commercial enterprise for the firm. But
• 16:04
  Speaker 1: I remember when I came to black Rock and I
• 16:06
  Speaker 1: got to you, and I knew about a Laddin when
• 16:09
  Speaker 1: I was when a Krafrankla was on the sell side
• 16:11
  Speaker 1: and because remember the Lehman had the Lehman Act and
• 16:15
  Speaker 1: that was the benchmark. But but but what happened. A
• 16:18
  Speaker 1: Laddin was able to take it and bring it alive
• 16:20
  Speaker 1: in terms of how do you manage money? And you know,
• 16:23
  Speaker 1: it's really been extraordinary around if you if you can
• 16:26
  Speaker 1: analyze your risk and you think about optimizing your return,
• 16:29
  Speaker 1: you could build you know, how do you look at
• 16:31
  Speaker 1: correlations diversification? And I remember I was like a kid
• 16:34
  Speaker 1: in a candic store when I first started, and I said, wow,
• 16:36
  Speaker 1: this isn't this is powerful? I mean if and I said,
• 16:38
  Speaker 1: it's the clients all the time, we could make you know,
• 16:41
  Speaker 1: the wrong decision on markets, But it's never that we
• 16:44
  Speaker 1: don't know what we own or what that decision, the
• 16:47
  Speaker 1: implications of that decision given our risk system, and that's
• 16:50
  Speaker 1: been a unique benefit to the firm, and I think
• 16:53
  Speaker 1: that's part of how we've grown so much. Is gosh,
• 16:56
  Speaker 1: if if you can make good you know, hopefully more
• 16:58
  Speaker 1: good calls than not, but you know exactly how they're
• 17:01
  Speaker 1: going to interplay within a portfolio, hugely powerful. So no
• 17:04
  Speaker 1: one bats a thousand. But what you're saying is the
• 17:08
  Speaker 1: process and managing the information flow is every bit as
• 17:12
  Speaker 1: important as the decision process itself a d I mean
• 17:16
  Speaker 1: a hundred percent. And you know, when clients invests with
• 17:19
  Speaker 1: you or rating agencies or consultants evaluate your business, it's
• 17:24
  Speaker 1: all about what is your process? Is it repeatable and
• 17:26
  Speaker 1: you're not gonna embarrass them or cost them or coross
• 17:29
  Speaker 1: the money. And you know, we built the franchise around
• 17:33
  Speaker 1: thoughtful investing. You know we're you know, we don't swing
• 17:36
  Speaker 1: for the fences on one uh investment theme. It's always
• 17:40
  Speaker 1: try and build diversification, try and do it thoughtfully, and
• 17:42
  Speaker 1: try and be consistent return without creating real pressure on
• 17:47
  Speaker 1: the downside, and I you know, I think that's particularly
• 17:49
  Speaker 1: fixed income. You know, it's not the equity market. And
• 17:52
  Speaker 1: I run you know, some big equity portfolios. You know
• 17:54
  Speaker 1: different fixed income is convex to the downside. You either
• 17:58
  Speaker 1: get part and either pay you back or they don't
• 18:01
  Speaker 1: return of capital. And so along the way, are you
• 18:05
  Speaker 1: clipping enough coupon to get their equities? You're trying to
• 18:08
  Speaker 1: get convexity to the upside. But to have have risk
• 18:11
  Speaker 1: system and a process, a repeatable process, you know, particularly
• 18:14
  Speaker 1: my business, I don't fixed income. I say it in
• 18:16
  Speaker 1: my funds, a lot of my funds. It's make a
• 18:18
  Speaker 1: little bit of money a lot of times. And as
• 18:20
  Speaker 1: opposed to let's swing for the fences, let's just do it,
• 18:22
  Speaker 1: use relative value, use all your tools, use your tools
• 18:25
  Speaker 1: around the world, do it over and over and over again.
• 18:28
  Speaker 1: And I think that that models repeatable and and uh,
• 18:30
  Speaker 1: you know, people aren't shocked to the downside, which I think,
• 18:33
  Speaker 1: particularly fixed income is the key. So let's talk a
• 18:36
  Speaker 1: little bit about that. I think most public investors know
• 18:39
  Speaker 1: about Black Rock from an equity perspective, but the company's
• 18:43
  Speaker 1: history is deeply rooted and fixed docom didn't it start
• 18:46
  Speaker 1: as a bomb shop catering to pension funds and foundations.
• 18:50
  Speaker 1: Isn't that the genesis it is? I mean it started
• 18:52
  Speaker 1: as largely mortgages, fixed income bond shop and uh, you know,
• 18:57
  Speaker 1: created closed end funds. And by it's very much, I
• 19:00
  Speaker 1: mean Larry and Rob and the and the management seems
• 19:03
  Speaker 1: origin was in fixed income and I'm sorry Larry and Rob,
• 19:07
  Speaker 1: Larry Fink and Rob Compito. It's our CEO and president
• 19:10
  Speaker 1: and there. But then over the years, you know, through
• 19:13
  Speaker 1: an acquisition and their merger with Meryll Lynch Investment Management,
• 19:16
  Speaker 1: all of a sudden became a big equity house and
• 19:19
  Speaker 1: to this stay where equities are bigger than the than
• 19:21
  Speaker 1: fixed income today and uh, and some of that is
• 19:24
  Speaker 1: is equities appreciate over over time and the end compounded
• 19:28
  Speaker 1: return works in the in the equity market. But now
• 19:31
  Speaker 1: you know, our equity business is UM is larger than
• 19:34
  Speaker 1: our fixed income while both are are pretty good scale.
• 19:37
  Speaker 1: I mean, in fact, one of the business I run
• 19:38
  Speaker 1: our Global Allocation fund that is more of an equity
• 19:41
  Speaker 1: fund UM. You know, again with a with a bit
• 19:44
  Speaker 1: of different the way you run that different than you
• 19:46
  Speaker 1: run a bond fund. So academically we know that the
• 19:50
  Speaker 1: passive side of equities over long periods of time tends
• 19:54
  Speaker 1: to be a lot of people's best bet, but that
• 19:57
  Speaker 1: isn't true. And fixed income there is alpha, There is
• 20:02
  Speaker 1: above benchmark returns to be generated by active selection of
• 20:07
  Speaker 1: credit quality, duration and specific bonds tell us a little
• 20:11
  Speaker 1: bit about how you approach fixed income investing and given
• 20:16
  Speaker 1: the massive scale of black rock, how do you take
• 20:19
  Speaker 1: advantage of that? So not many people know that that
• 20:21
  Speaker 1: most firms actually outperform in fixed income, and really that's
• 20:26
  Speaker 1: not widely known. No, I don't think so. And but
• 20:29
  Speaker 1: it's because the passive equity side, there's just so much
• 20:33
  Speaker 1: academic literature, and as soon as you dip your toe
• 20:36
  Speaker 1: into the research on fixed income side, because if you
• 20:39
  Speaker 1: think about a fixed income passive index, you own everything,
• 20:43
  Speaker 1: and a lot of it is not necessarily great. So
• 20:47
  Speaker 1: getting rid of the junk, focusing on duration and credit
• 20:50
  Speaker 1: quality right away, you're ahead of the game. Well that's
• 20:52
  Speaker 1: my pitch. So yeah, it's yeah, I know it's so.
• 20:57
  Speaker 1: First of all, that is exactly right. I mean, I'll
• 20:59
  Speaker 1: start with thing and equities. There are I think the
• 21:01
  Speaker 1: number is in the hundred equities different different securities globally,
• 21:07
  Speaker 1: I think there's forty five thousand in fixed income. So
• 21:11
  Speaker 1: your point about the ability to write and the ability
• 21:14
  Speaker 1: to say, gosh, you know, there's a lot of stuff
• 21:17
  Speaker 1: in fixed income that for a variety of reasons, central
• 21:20
  Speaker 1: bank owns it, a pension fund owns it, insurance companies
• 21:22
  Speaker 1: own it. It has no value and but it's you know,
• 21:25
  Speaker 1: it's been in a in a portfolio for a long time.
• 21:27
  Speaker 1: It's stuck there. So so one of the beauties of
• 21:30
  Speaker 1: fixed income is a finding one of the forty x
• 21:32
  Speaker 1: thousand securities using your tools, by the way, times using
• 21:36
  Speaker 1: your liquidity, being able to buy mes, you know, being
• 21:39
  Speaker 1: you know, buying subordinated debt, buying uh, you know what
• 21:42
  Speaker 1: are functionally capital notes. But there are so many tools
• 21:45
  Speaker 1: at your disposal. And let alone how much duration you're taking,
• 21:49
  Speaker 1: how much interest, how much, how much credit rate you're taking, illiquidity, etcetera.
• 21:53
  Speaker 1: There are so many tools to try and outperform and listen.
• 21:55
  Speaker 1: One of the one of the secrets of fixed income
• 21:58
  Speaker 1: is you generally try and area more than the index.
• 22:01
  Speaker 1: You generally want your income in a fund to be
• 22:04
  Speaker 1: above the index. Can you manage that through downturns and
• 22:07
  Speaker 1: so when you get a downturn like twenty two or
• 22:10
  Speaker 1: oh eight or what have you, it is you know,
• 22:12
  Speaker 1: can you manage the downside because it's it's generally if
• 22:15
  Speaker 1: you can get more yield than the benchmark, you're gonna
• 22:18
  Speaker 1: outperform over time. And so managing that risk and making
• 22:22
  Speaker 1: sure by the way, you know, they're they're crises and
• 22:24
  Speaker 1: individual companies there is exhaugen, a shock that hits, but
• 22:28
  Speaker 1: managing that downside so that one expression doesn't hurt you.
• 22:32
  Speaker 1: You know, you can run a good a good business
• 22:34
  Speaker 1: that outperforms um, you know, almost every year. So let's
• 22:38
  Speaker 1: delve into that a little more deeply. It can't be
• 22:41
  Speaker 1: just as simple as let me buy the highest yielding stuff,
• 22:45
  Speaker 1: because there's a lot of They used to call them
• 22:48
  Speaker 1: junk bonds, now we call them high yield bonds. How
• 22:51
  Speaker 1: do you decide what is a high quality high yield
• 22:55
  Speaker 1: and how do you make the decision I'm not comfortable
• 22:58
  Speaker 1: with this credit risk rail lative to the return it's
• 23:01
  Speaker 1: gonna throw off. What's that process like? You know, it's
• 23:04
  Speaker 1: funny because today is an interesting you don't see this
• 23:06
  Speaker 1: very often, but much of the double B high yield
• 23:08
  Speaker 1: market is better quality the triple B investment grade market,
• 23:11
  Speaker 1: and that is because companies have been operating as double
• 23:15
  Speaker 1: bees for a long time. A number of them are
• 23:17
  Speaker 1: moving up to investment grade or are inspired to move
• 23:20
  Speaker 1: up to investment grade. Where a number of companies and
• 23:22
  Speaker 1: triple B that are at the lowest end of investment
• 23:25
  Speaker 1: grade and maybe on the deceleration. So that's an odd
• 23:28
  Speaker 1: institutional corek tour that higher quality, higher yieldings stuff has
• 23:32
  Speaker 1: a lower rating. That's at the end of the day,
• 23:35
  Speaker 1: there's so many metrics. You know, debt de but your
• 23:37
  Speaker 1: interest coverage, there's so many metrics that we dig in.
• 23:40
  Speaker 1: What industry you're in, what's your liquidity, You've got to
• 23:43
  Speaker 1: really dig in. I mean, if you're a double A
• 23:45
  Speaker 1: rated company, I generally don't do a lot of you know,
• 23:48
  Speaker 1: thorough analysis. But if it's single B, I'm doing we're
• 23:51
  Speaker 1: doing an awful lot of work. So you know, when
• 23:54
  Speaker 1: we look across fixed income and you know, beauty of
• 23:56
  Speaker 1: having big teams around the world, you know, I tend
• 23:59
  Speaker 1: to say, okay, I want be an X amount mortgages
• 24:01
  Speaker 1: on a the X amount credit and then let the
• 24:04
  Speaker 1: teams dig in and then you know, think about I'll
• 24:06
  Speaker 1: give a good example. Today the high yield market has
• 24:08
  Speaker 1: because people need the yield, are looking for the yield.
• 24:11
  Speaker 1: The high yield market is compressed to the investment grade market.
• 24:14
  Speaker 1: I don't want to take the beta risk in a
• 24:15
  Speaker 1: lot of high yield today. If I get functionallycent return
• 24:21
  Speaker 1: investment grade, I can sleep a whole lot better at night.
• 24:24
  Speaker 1: And then maybe I take some risk in emerging market.
• 24:26
  Speaker 1: So what have you? So it's all about relative value.
• 24:29
  Speaker 1: Are you getting paid for the risk today? So think
• 24:31
  Speaker 1: about you know, where's a stress and fix in commercial
• 24:34
  Speaker 1: real estate is tricky today? Do I want to go
• 24:36
  Speaker 1: and get that yield today? Probably not? You know, whereas
• 24:39
  Speaker 1: you know, parts of credit card um auto finance are
• 24:44
  Speaker 1: more attractive. So it is constantly trying to think about
• 24:47
  Speaker 1: where do you want to be in the capital stack,
• 24:48
  Speaker 1: Where do you want to be in sector? Where you
• 24:50
  Speaker 1: wanna be in the world, Like last year, did you
• 24:52
  Speaker 1: want to hang out in Europe? Probably not this year.
• 24:55
  Speaker 1: You know, fuel prices are lower, the economy stabilizing, China's growing,
• 24:59
  Speaker 1: you know, we're liifting money internationally. So every year, it's
• 25:02
  Speaker 1: part of why the business so fun is every year,
• 25:04
  Speaker 1: every month, every week, you know, the menu changes and
• 25:08
  Speaker 1: the opportunity set changes. We'll talk a little bit about
• 25:10
  Speaker 1: the inverted yield curve later, but since you mentioned getting
• 25:14
  Speaker 1: return on the risk you take, how do you think
• 25:16
  Speaker 1: about duration when the three month treasury is more or
• 25:21
  Speaker 1: less the same or better than the tenure. So you know,
• 25:25
  Speaker 1: think about last year. I mean I know, every every
• 25:27
  Speaker 1: media event or any any thing we did externally, I
• 25:30
  Speaker 1: talked about how much and it was always people said,
• 25:32
  Speaker 1: how much cash you running? And we're running a lot
• 25:34
  Speaker 1: of cash in my career on meaning non investment but
• 25:38
  Speaker 1: literally keeping a point oh five. Well, but as as
• 25:44
  Speaker 1: a year ago, right, as right. But then you know,
• 25:46
  Speaker 1: the front of the yeel curve started to move up,
• 25:49
  Speaker 1: and it became pretty clear all the central banks in
• 25:51
  Speaker 1: the developed markets were behind the curve. They're gonna have
• 25:54
  Speaker 1: to start raising Your pricer term is going to be negative.
• 25:57
  Speaker 1: Stay as short as possible, hold as much cash as possible.
• 26:00
  Speaker 1: And by the way, zero was a pretty good answer
• 26:03
  Speaker 1: for your for your return in twenty two. So if
• 26:06
  Speaker 1: we were getting zero or care or getting our income
• 26:09
  Speaker 1: at the short end of the Yelk curve, that was
• 26:11
  Speaker 1: nirvana because we weren't taking such interest rate risk. Today
• 26:15
  Speaker 1: it's a little bit different because now we're approaching the
• 26:18
  Speaker 1: end of by the way, it's not definitive, but we're
• 26:21
  Speaker 1: probably approaching a point where that's central, where the Fed's
• 26:23
  Speaker 1: gonna pause. Europe still got a bit more to go. Um,
• 26:26
  Speaker 1: So now we can take a little bit more risk,
• 26:28
  Speaker 1: you know, push it a bit further out the yel curve,
• 26:30
  Speaker 1: because now our aspiration is, gosh, these yields they think about.
• 26:35
  Speaker 1: You know, today the one to three year part of
• 26:37
  Speaker 1: the act, the short end of the yield curve gets
• 26:39
  Speaker 1: you four and a half percent. The average for the
• 26:41
  Speaker 1: last ten years was one, and that was one point four.
• 26:45
  Speaker 1: We're getting we can allow lock in four and a
• 26:47
  Speaker 1: half and maybe the economy is coming off the central
• 26:50
  Speaker 1: bank not in twenty three, but we'll start to ease.
• 26:53
  Speaker 1: And now there's a discussion about, gosh, maybe I can
• 26:55
  Speaker 1: lock these yields in for longer, and so maybe I'll
• 26:57
  Speaker 1: take a little bit of downside and push my maturities
• 27:01
  Speaker 1: a bit further on the yolker. We've been out from
• 27:03
  Speaker 1: one to three. You don't mean ten, you mean so three, four, five? Correct?
• 27:08
  Speaker 1: I mean, that's that's been to me that's the sweet
• 27:10
  Speaker 1: spot and the biggest I think the biggest opportunity today
• 27:13
  Speaker 1: is sell interest rate volatility. You think about in my career,
• 27:16
  Speaker 1: I've never seen this before. We had a FED that
• 27:18
  Speaker 1: moved four seventy five basis point moves in a row.
• 27:21
  Speaker 1: Interest rate volatility. You had to go back to Vulka
• 27:24
  Speaker 1: to see that, right, Yes, but but I was still
• 27:26
  Speaker 1: in college, so I wasn't. But but now, I mean
• 27:30
  Speaker 1: this massive move and now what's gonna happen is we're
• 27:33
  Speaker 1: gonna pause. Interest rate volatili can come down things like mortgages,
• 27:36
  Speaker 1: Like we didn't own many mortgages last year. Is in
• 27:39
  Speaker 1: our tactical portfolios? You know, why would you own negative
• 27:43
  Speaker 1: interest rate shock, negative conduction? So now FED coming into
• 27:46
  Speaker 1: a pause, interest rate volatility comes down things like agency
• 27:51
  Speaker 1: mortgages fit a portfolio that gets you a little bit
• 27:53
  Speaker 1: longer on the yield curve. So let's think about that
• 27:55
  Speaker 1: that we spiked up to about seven percent, it's pulled
• 27:58
  Speaker 1: back to about us and a half more or less.
• 28:01
  Speaker 1: Mortgage are the expectations that, hey, that's when mortgage rates
• 28:05
  Speaker 1: are going to be for a long time. So mbs
• 28:08
  Speaker 1: are starting to get attractive. Yeah, I mean, now you
• 28:11
  Speaker 1: can buy assets that are like mortgages, but first of all,
• 28:15
  Speaker 1: they're extremely liquid, and so whenever we build a portfolio,
• 28:18
  Speaker 1: we think about every security has a tail to it,
• 28:20
  Speaker 1: So you think about what what is it doing for you?
• 28:22
  Speaker 1: How much yield is it getting you, how much risk,
• 28:24
  Speaker 1: how much beta, how much illiquidity, And so you try
• 28:27
  Speaker 1: and take all those tails and say, okay, which ones
• 28:30
  Speaker 1: why am I willing to take? And which ones do
• 28:31
  Speaker 1: I want to extract? Mortgages today last year, I don't
• 28:34
  Speaker 1: want to take that interest rate volatility. Now, boy, if
• 28:38
  Speaker 1: I think rate volatility can come down, I'll take some
• 28:41
  Speaker 1: mortgage risk. Their super liquid um. They fit the portfolio
• 28:44
  Speaker 1: nicely because you know, having such liquidity through those assets.
• 28:48
  Speaker 1: Now I can buy a little bit of emerging markets
• 28:50
  Speaker 1: which are less liquid and more vulatable, but you also
• 28:52
  Speaker 1: get me more yield. So it's very very different portfolio
• 28:56
  Speaker 1: positioning today than than quite frankly three months ago. Before
• 28:59
  Speaker 1: we eve the subject of black Rock, I feel like
• 29:02
  Speaker 1: we have to talk about the funds you manage on
• 29:05
  Speaker 1: their behalf, many of which have been awarded morning Star
• 29:10
  Speaker 1: Gold Medals, as well as you've received a number of
• 29:14
  Speaker 1: recognitions about your funds. Let's talk a little bit about
• 29:17
  Speaker 1: strategic income Global opportunity total return and strategic global Opportunity
• 29:24
  Speaker 1: totally return. I'm messing up those names. Tell us about
• 29:26
  Speaker 1: your funds. Yeah, I mean, you know about honored to
• 29:29
  Speaker 1: run some some pretty great funds in our strategic income
• 29:32
  Speaker 1: opportunities is a flexible unconstrained funds, so unconstrained. You know,
• 29:36
  Speaker 1: when you think about fixing them, when you say they're unconstrained,
• 29:38
  Speaker 1: it sounds like you're hanging from the chandeliers. Taken risk, unconstrained, unconstrained.
• 29:43
  Speaker 1: This means I can take less risk because you know
• 29:45
  Speaker 1: the point you made earlier about gosh, I don't have
• 29:47
  Speaker 1: to be tethered to an index on what you want.
• 29:50
  Speaker 1: I can hedge. I can hedge my portfolio freely. Like
• 29:52
  Speaker 1: last year. You can use the dollar, I can use
• 29:55
  Speaker 1: I can get short in in some areas. So unconstrained.
• 29:58
  Speaker 1: What we're trying to do is create insistent return over
• 30:01
  Speaker 1: time and so regardless of of the exterior market. Yeah
• 30:05
  Speaker 1: we did. We didn't make money last year. We were down,
• 30:08
  Speaker 1: but we beat the aggregate index I think seven under
• 30:10
  Speaker 1: a fifty basis points. You know, years like that, if
• 30:12
  Speaker 1: you recognize the regime and you lose less. What was
• 30:16
  Speaker 1: the act down last year, Yeah, that's the worst year
• 30:19
  Speaker 1: in forty years. Yeah, And so you know, being able
• 30:21
  Speaker 1: to recognize that use some hedges run a lot of
• 30:24
  Speaker 1: cash um and then you know, stay in the short
• 30:27
  Speaker 1: end of the yield curve. And then today it's a
• 30:29
  Speaker 1: little different. So the ability to be flexible and tactical
• 30:32
  Speaker 1: is unbelievable in fixing them. And I think much of
• 30:34
  Speaker 1: the future fixed income is can you marry to you know,
• 30:38
  Speaker 1: think about the growth of ice shares and passive can
• 30:40
  Speaker 1: you marry an opportunistic tactical portfolio? By the way, lets
• 30:44
  Speaker 1: us invest around the world when things like emerging markets
• 30:47
  Speaker 1: become a truck. So anyway, s i AL has grown
• 30:49
  Speaker 1: quite a bit over the years, and uh, you know,
• 30:51
  Speaker 1: it's been honored to to uh have a number of
• 30:53
  Speaker 1: awards to it. But I think it's just creating consistent return.
• 30:56
  Speaker 1: So quite frankly, people can get yield and then focus
• 30:59
  Speaker 1: on the other areas where to take risk, equities, etcetera
• 31:02
  Speaker 1: private equity venture. You know, our Global Allocation Fund is
• 31:07
  Speaker 1: more of an unconstrained but more with an equity tilt
• 31:09
  Speaker 1: and that's been super fun to run that. That's a
• 31:12
  Speaker 1: blended portfolio stocks and yeah. So so traditionally would be
• 31:16
  Speaker 1: sixty forty equity debt, but with an eye towards you
• 31:20
  Speaker 1: can be international, you can be domestic. Last few years
• 31:23
  Speaker 1: we've run global allocation much more with the U S bend.
• 31:25
  Speaker 1: You think about the incredible growth of US technology that
• 31:29
  Speaker 1: was something to to ride for a while. Now we're
• 31:31
  Speaker 1: shifting at more international places like China, Europe, etcetera, that
• 31:36
  Speaker 1: are really growing and that valuations are cheaper. So that
• 31:39
  Speaker 1: the thing about that fund a we could toggle from
• 31:42
  Speaker 1: equity to debt. We could use a little bit of
• 31:44
  Speaker 1: illiquidity around some privates. You know, now we're doing something
• 31:48
  Speaker 1: in global alm that it's hard to do in other funds.
• 31:50
  Speaker 1: Building up our carrying income. You can use that use
• 31:52
  Speaker 1: fixed income to get their use quality assets, but then
• 31:55
  Speaker 1: take some risk in in equities to try and beat
• 31:58
  Speaker 1: the index in UM in a fur globolication. And then
• 32:02
  Speaker 1: you know the other funds on to take too long
• 32:03
  Speaker 1: on them. But total return gives you more of You
• 32:06
  Speaker 1: know that if you were building a sixty forty portfolio,
• 32:09
  Speaker 1: they should get you the forty and get you the
• 32:11
  Speaker 1: the fixed income. You know, try and outperform the egg
• 32:14
  Speaker 1: every year, but closer to the egg. And then our
• 32:17
  Speaker 1: strategic global fund allows us to use the international markets
• 32:20
  Speaker 1: more aggressively. Last black Rock question before I jump to
• 32:25
  Speaker 1: uh talking about interest rates and the FED and the economy.
• 32:31
  Speaker 1: At Rick reader on Twitter, you have your own Twitter feed.
• 32:34
  Speaker 1: That is really unusual for a person with your role
• 32:38
  Speaker 1: in a firm as large and buttoned down as black Rock.
• 32:42
  Speaker 1: Tell us a little bit about what you do on
• 32:45
  Speaker 1: Twitter and how is it getting that through legal and compliance?
• 32:49
  Speaker 1: So well, first of all, anything I tweetd goes through
• 32:52
  Speaker 1: legal and compliance before it gets out there. The first part.
• 32:54
  Speaker 1: Second part, So I use an incredible amount. I do
• 32:57
  Speaker 1: these monthly calls, I do these write ups. I use
• 33:00
  Speaker 1: immense amount of data and analysis. And you know, when
• 33:04
  Speaker 1: I do my monthly calls, I literally locked myself literally
• 33:08
  Speaker 1: in a room for for one weekend a month, and
• 33:12
  Speaker 1: it's brutal putting those together. I do a quarterly and
• 33:15
  Speaker 1: it's just a solid fifty hours of work to get
• 33:19
  Speaker 1: But you know, I've learned in my career that you've
• 33:22
  Speaker 1: got to take a step back and think about, you know,
• 33:24
  Speaker 1: instead of following dollar yen. Every second you gotta think
• 33:26
  Speaker 1: about why is dollar yen doing it's doing, try and
• 33:28
  Speaker 1: assimilate it all into a cogent set of thoughts. So
• 33:31
  Speaker 1: I need a weekend to do it. My wife hates it,
• 33:34
  Speaker 1: but the it's not the most socially ingratiating weekend of
• 33:37
  Speaker 1: my of my life. But I have to do it,
• 33:39
  Speaker 1: and and I go through and I put it all together.
• 33:41
  Speaker 1: I use immense amounts of data and analysis, stare at graphs, tables,
• 33:45
  Speaker 1: and then all of a sudden you get these aha moments. Literally,
• 33:48
  Speaker 1: you know, I could sit there for six hours, like
• 33:50
  Speaker 1: now I get it. Now, I get why high yield
• 33:52
  Speaker 1: trades here in Europe and it doesn't in the U
• 33:54
  Speaker 1: S and what what cross currency basis, et cetera. Takes
• 33:57
  Speaker 1: a while to assimilate it all. The reason why Twitter,
• 34:00
  Speaker 1: and maybe I'm not the perfect specimen for for Twitter
• 34:04
  Speaker 1: is you know, my tweets tend to be have five
• 34:06
  Speaker 1: or six a long thread to them with graphs, and
• 34:09
  Speaker 1: it's not a perfect you know in the world that
• 34:11
  Speaker 1: wants now, they're very useful. It's it's a rare insight
• 34:15
  Speaker 1: to somebody in your role as to what you're thinking,
• 34:19
  Speaker 1: um strong recommend Rick Reader at Rick Reader on Twitter
• 34:24
  Speaker 1: if you're interested in fixed income and want to get
• 34:26
  Speaker 1: a sense of a person's Even though it goes through compliance,
• 34:30
  Speaker 1: it all looks like real time. It doesn't look like
• 34:35
  Speaker 1: it's been massage to death by legal you've said, in fact,
• 34:39
  Speaker 1: some of my questions will come up with a pretty
• 34:42
  Speaker 1: blunts and they're just your tweets asking you what you
• 34:44
  Speaker 1: were thinking. So I find that fascinating that you're able
• 34:48
  Speaker 1: to Was there any pushback when you first said, Hey,
• 34:51
  Speaker 1: I want to go on Twitter and do this? So
• 34:52
  Speaker 1: my biggest reservation is, you know, I think the world.
• 34:56
  Speaker 1: You know, it's pretty hard to think about. You know,
• 34:58
  Speaker 1: what are you doing with duration? Oh, here's a hundred
• 34:59
  Speaker 1: and forty character whatever, the number of characters right to eighty.
• 35:03
  Speaker 1: Now so now, so how do you do that effectively?
• 35:05
  Speaker 1: And I've never been able to do it effectively. I
• 35:07
  Speaker 1: always want to here's my hypothesis, here's my ultimate thesis
• 35:10
  Speaker 1: around what we're doing with it. But you can do
• 35:13
  Speaker 1: it if as long as you can get a few
• 35:14
  Speaker 1: thoughts out there and then maybe people look deeper into
• 35:17
  Speaker 1: what you're thinking, it can be a really effective mechanism
• 35:19
  Speaker 1: to here's my conclusion. And it's different because usually you
• 35:22
  Speaker 1: build up the conclusion there. I tend to find here's
• 35:24
  Speaker 1: my conclusion, and maybe I can give you a couple
• 35:27
  Speaker 1: of snippets to how to do it. But it's a
• 35:29
  Speaker 1: super effective mechanism to get out there. And um so
• 35:32
  Speaker 1: I read a lot on Twitter. I find it's because,
• 35:34
  Speaker 1: like you say, it's instantaneous opinion and the new tape,
• 35:38
  Speaker 1: I think so so I spent a lot of time,
• 35:40
  Speaker 1: so it's been effective to be out there with it.
• 35:42
  Speaker 1: So let's talk a little bit about where we are today.
• 35:46
  Speaker 1: I mentioned previously Vulcar taking rates up in two from two,
• 35:53
  Speaker 1: we've pretty much enjoyed a spectacular forty year bullmarket in bonds.
• 36:00
  Speaker 1: Is that bullmarket over so? I mean, it certainly didn't
• 36:04
  Speaker 1: work last year? The uh so, I think, you know,
• 36:07
  Speaker 1: I think we are. I mean I was looking at
• 36:09
  Speaker 1: it that how the rates market, the Fed funds rate
• 36:12
  Speaker 1: looks like a mountain range over time, you know, it
• 36:14
  Speaker 1: spikes higher and then it comes to come down the
• 36:16
  Speaker 1: other side. Economy slows, then you come down the other side,
• 36:18
  Speaker 1: and then a couple of years goes by you start
• 36:20
  Speaker 1: to move up again. And then you come down the
• 36:22
  Speaker 1: other side. I don't think we're coming down the other
• 36:24
  Speaker 1: side today. Of so, I don't think usually when rates
• 36:28
  Speaker 1: move up this much, economy slows and we're coming I
• 36:30
  Speaker 1: think this is gonna be We're gonna stay on the
• 36:32
  Speaker 1: top of the mountain range for a while. And I
• 36:34
  Speaker 1: think the FED is going to let this this restricted
• 36:37
  Speaker 1: policy percolate through the system. And I think people underestimate
• 36:41
  Speaker 1: US economy is the most adaptive, reflective, and it will
• 36:44
  Speaker 1: adjust and you're seeing it in the interest rate parts
• 36:47
  Speaker 1: of the economy like housing, like automobiles, etcetera. So listen,
• 36:51
  Speaker 1: I think I think, you know, I think we're gonna
• 36:53
  Speaker 1: see a rally in in in interest rates probably in
• 36:56
  Speaker 1: two thousand and twenty four and twenty five, because I
• 36:58
  Speaker 1: think ray will go back, the tenure treasure will go
• 37:01
  Speaker 1: back to two and a half percent. Yeah. And I
• 37:05
  Speaker 1: because you think about what is potential growth in the
• 37:08
  Speaker 1: US and in the world. Growth follows the demographic curve
• 37:12
  Speaker 1: incredibly closely, and you think about the world we live
• 37:15
  Speaker 1: in that's different than the eighties. You know, when you
• 37:17
  Speaker 1: had explosive baby boomer, you know that was starting to
• 37:20
  Speaker 1: enter the workforce, et cetera following now and by the way,
• 37:24
  Speaker 1: COVID accelerated this. You've had a fertility issue, and you
• 37:28
  Speaker 1: think about Japan, China going through a demographic difficult period.
• 37:32
  Speaker 1: US is a slower period then, So what happens is
• 37:36
  Speaker 1: growth follows a demographic curve? Does it come off it
• 37:38
  Speaker 1: when you have a shock, a pandemic of financial crisis,
• 37:41
  Speaker 1: huge stimulus goes in. I think we're going back to
• 37:43
  Speaker 1: a low two's percent tenure because I think GDP will
• 37:47
  Speaker 1: operate at you know, one and a half to two,
• 37:51
  Speaker 1: by the way, lower in Europe, lower in Japan than that.
• 37:54
  Speaker 1: So I think rates are going back, so as the
• 37:56
  Speaker 1: bull market in bonds as a secular move from the
• 37:59
  Speaker 1: eighties and nine over. But I think if you said
• 38:02
  Speaker 1: to me, part of why you've seen this huge move
• 38:04
  Speaker 1: of people, I want to lock these rates in four
• 38:06
  Speaker 1: and a half is nirvana, you know, if you don't
• 38:08
  Speaker 1: have to take a lot of interest rate this. If
• 38:10
  Speaker 1: I can get five and get six we talked about,
• 38:12
  Speaker 1: you know, my strategic income fund. I'm trying to keep
• 38:14
  Speaker 1: a steady six in that portfolio. Boy, if I can
• 38:17
  Speaker 1: get six and we're going to two two and a half,
• 38:19
  Speaker 1: you know that's what we're playing for this year. Just
• 38:21
  Speaker 1: sort of ride a central bank that is gonna pause.
• 38:25
  Speaker 1: And by the way, I may still move right up
• 38:27
  Speaker 1: a little bit more than we are today, but can
• 38:29
  Speaker 1: you ride through it with um, you know, it's not
• 38:31
  Speaker 1: gonna be like last year. So it's a good market
• 38:33
  Speaker 1: for fixed income and then I think it'll get to
• 38:35
  Speaker 1: a better market. So let's talk about something you actually tweeted.
• 38:39
  Speaker 1: Quote how far the Fed goes, how willing the f
• 38:42
  Speaker 1: O m C is to overshoot to ensure inflation comes
• 38:46
  Speaker 1: markedly lower will determine how uneven, how unpredictable this deflation
• 38:52
  Speaker 1: of inflation will be in the months ahead. That's a
• 38:56
  Speaker 1: fabulous tweet. Tell us what you're thinking. They're translate for
• 39:00
  Speaker 1: the average listeners. I agree with that, guys, so the
• 39:04
  Speaker 1: so I'm not sure that but anyway, So the one
• 39:07
  Speaker 1: thing that I think is real, the U S economy
• 39:11
  Speaker 1: is very different than it was in the eighties nineties.
• 39:13
  Speaker 1: We are now two thirds of the economy consumption is
• 39:15
  Speaker 1: a service economy. We never had that. It used to
• 39:18
  Speaker 1: be a goods oriented economy. When you moved interest rates,
• 39:20
  Speaker 1: the economy recalibrated quickly because the goods oriented economy, interest sensitive,
• 39:25
  Speaker 1: cyclically oriented. Think about healthcare, you know, think about the
• 39:29
  Speaker 1: jobs market today. All the jobs are being created healthcare, education,
• 39:33
  Speaker 1: not hugely cyclical, not interest rates sensitive, um. And then
• 39:37
  Speaker 1: obviously leisure, hospitality, where there is some cyclicality to it.
• 39:42
  Speaker 1: But my view is the FED has gotten to a
• 39:44
  Speaker 1: level that is restrictive. And now the question is, when
• 39:46
  Speaker 1: you have an economy like this, do you bludge in
• 39:49
  Speaker 1: the interest rate sensitive parts of the economy real estate,
• 39:51
  Speaker 1: the automobile market, um, but parts of how you finance
• 39:55
  Speaker 1: big durable goods do you bludge in that to try
• 39:58
  Speaker 1: and help the overall bring inflation down? My senses, the
• 40:02
  Speaker 1: fed's gone far enough, doesn't need to overtighten, and if
• 40:06
  Speaker 1: it does, it will create exogenous shock. You know, the
• 40:09
  Speaker 1: leverage in the system builds. You know, you see it
• 40:11
  Speaker 1: in places, particularly real estate today. You know, the Feds
• 40:15
  Speaker 1: gotta be careful about no, not going too far. And
• 40:18
  Speaker 1: and you know the one thing that I'm really really
• 40:20
  Speaker 1: sensitive to. You know, there's something really powerful. It's happened.
• 40:23
  Speaker 1: All the jobs being created today are the lower wage
• 40:25
  Speaker 1: jobs in this country, all of the ones you talk
• 40:28
  Speaker 1: about healthcare, education, leisure, hospitality, hotel, etcetera. Now you're closing
• 40:32
  Speaker 1: the income gap. It took twenty years to close the
• 40:35
  Speaker 1: income gap. You know, you're getting capital going to labor
• 40:37
  Speaker 1: that is hugely powerful. The layoffs are happening a finance technology,
• 40:41
  Speaker 1: the higher income jobs, and they're just unwinding some overhiring
• 40:44
  Speaker 1: over the past. So think about what you know. The
• 40:46
  Speaker 1: reason why I think the FED should pause is let
• 40:49
  Speaker 1: this play out. You know, if net disposable income for
• 40:53
  Speaker 1: lower income, lower wage earners stays higher in kind of
• 40:56
  Speaker 1: with a with a consumption basket is food, energy, rent,
• 40:59
  Speaker 1: it's not a bad thing that that inflation is a
• 41:02
  Speaker 1: bit higher as long as wages for lower income or higher.
• 41:05
  Speaker 1: So I think the system is recalibrating. Economy is recalibrating,
• 41:08
  Speaker 1: It will recalibrate, and I don't think the FED should
• 41:10
  Speaker 1: overdo it, you know, to take two to three million
• 41:13
  Speaker 1: people out of work or more or more than that,
• 41:16
  Speaker 1: you know, and particularly those will be lower wage jobs.
• 41:18
  Speaker 1: To take that, I don't think it makes any sense.
• 41:21
  Speaker 1: I could not possibly agree with you more. And I
• 41:24
  Speaker 1: have to bring up what you just said about the
• 41:26
  Speaker 1: United States being a services based economy. A large part
• 41:30
  Speaker 1: of the reason we had this inflation spike was we
• 41:33
  Speaker 1: shifted to goods during the lockdown. Now that's over and
• 41:37
  Speaker 1: we're going back. Shouldn't this unwine happen naturally? Why does
• 41:43
  Speaker 1: the Fed seem to be at risk at least according
• 41:46
  Speaker 1: to the bond market of overtightening, they were late to
• 41:50
  Speaker 1: recognize inflation? Are they late to recognize that inflation peaks
• 41:54
  Speaker 1: six months ago? So? I think to one I might
• 41:56
  Speaker 1: I think the one mistake that the Fed mate is that,
• 41:58
  Speaker 1: like you said, they were too late, and I think
• 42:00
  Speaker 1: they could have been the historically. Isn't that true? Yeah?
• 42:03
  Speaker 1: But I think the reason why they were too late
• 42:06
  Speaker 1: is because you have, I mean thinking about vaccine happened
• 42:09
  Speaker 1: and all of a sudden you change the economic paradigm
• 42:11
  Speaker 1: so darned fast and that and and you know, one
• 42:13
  Speaker 1: of the things that's hugely important for the FED is credibility.
• 42:16
  Speaker 1: They laid out a path that they were going to
• 42:18
  Speaker 1: keep interest rates low and QUI in place for an
• 42:21
  Speaker 1: extended period of time, and then it was hard to
• 42:23
  Speaker 1: change it. Anyway it was. It was it was an
• 42:25
  Speaker 1: argument for maybe they should stop playing with their cards
• 42:28
  Speaker 1: on the table, so or am I it's funny to
• 42:33
  Speaker 1: say that, because listen, I think we've gotten the place
• 42:35
  Speaker 1: where there's they're actually too much communication. Like right now
• 42:38
  Speaker 1: you have the SEP, the dots, now you now you
• 42:40
  Speaker 1: have the press conferences, now you have one of the
• 42:43
  Speaker 1: real tools of monetary policy is to be able to
• 42:45
  Speaker 1: react and be adaptive to the economy as as it is.
• 42:49
  Speaker 1: So listen, I don't think they I don't think they
• 42:51
  Speaker 1: should overtighten be I think when they get to this
• 42:53
  Speaker 1: place or where they are today, I don't think they
• 42:55
  Speaker 1: have to communicate every single step of the way. They've
• 42:58
  Speaker 1: done a good job of transparent CRNCY. But now I
• 43:01
  Speaker 1: think you want to keep your tools of you know,
• 43:04
  Speaker 1: I can, I can surprise if I need to. Yeah,
• 43:06
  Speaker 1: And by the by the way, surprise is you know,
• 43:08
  Speaker 1: if you're trying to shock an economy, you drop interest
• 43:11
  Speaker 1: rates really quickly. But if you don't have the art
• 43:13
  Speaker 1: of surprise and to be able to shock the system,
• 43:16
  Speaker 1: the system doesn't react to it fast. The FED has
• 43:19
  Speaker 1: lost the art of surprise. That that's really kind of intriguing.
• 43:23
  Speaker 1: You know, you mentioned how quickly the vaccines came on.
• 43:27
  Speaker 1: My favorite stat from from the Lows in March till
• 43:31
  Speaker 1: the end of the year, the equity markets gained six
• 43:35
  Speaker 1: That should have been a heads up to the FED
• 43:36
  Speaker 1: that hey, we need to forget taking rates to five percent?
• 43:41
  Speaker 1: Can we get off zero? Can we start to normalize rates?
• 43:44
  Speaker 1: And sometimes the bond market tells you various concerns going on.
• 43:49
  Speaker 1: Sometimes you're gonna listen to the equity market. But let
• 43:51
  Speaker 1: me bring it back to the bond market. There seems
• 43:54
  Speaker 1: to be a disagreement between the Federal Reserve and the
• 43:57
  Speaker 1: bond market. The bond market is saying, hey, we see
• 44:00
  Speaker 1: a recession coming. We think you're gonna cut rates. In
• 44:05
  Speaker 1: j pal is saying no, I think we're are going
• 44:08
  Speaker 1: to go up and stay up for longer. How do
• 44:10
  Speaker 1: you reconcile these two differences. So it's a fascinating dynamic
• 44:14
  Speaker 1: that's playing in the markets today. So I don't think
• 44:16
  Speaker 1: most of the people, you know, economists, people that follow
• 44:19
  Speaker 1: the FED, that listen to what the Feds saying, I
• 44:22
  Speaker 1: don't think anybody believes that Fed's gonna cut rates in
• 44:24
  Speaker 1: two three. When the FED says we're not, I mean,
• 44:28
  Speaker 1: and all the FED presidents governors come out and say
• 44:31
  Speaker 1: we're not, then I think you have to take them
• 44:32
  Speaker 1: withut the word why is the market doing this? You know,
• 44:35
  Speaker 1: I've learned in my career that the technicals are as important,
• 44:39
  Speaker 1: if not more important, than the fundamentals. What's happening now
• 44:42
  Speaker 1: that kind of the discussion we had before about money
• 44:45
  Speaker 1: flowing in because people locking in these yields, much of
• 44:48
  Speaker 1: that money is not necessarily looking at what is the
• 44:50
  Speaker 1: one year, one year forward, the two year two year forward.
• 44:52
  Speaker 1: They're saying I can lock in four and a half.
• 44:54
  Speaker 1: I So what's happening is people are sitting on immense
• 44:58
  Speaker 1: amounts of cash and decade of zero and suddenly four
• 45:03
  Speaker 1: percent looks fantastic totally, So what is it doing? It
• 45:05
  Speaker 1: actually prices your forward curve in a bit because people say,
• 45:08
  Speaker 1: you know what, I'm willing to take that. By the way,
• 45:11
  Speaker 1: you know, the risk is that all of a sudden
• 45:12
  Speaker 1: you have some shock to the system. Economy does slow
• 45:14
  Speaker 1: and maybe they do move, but people are willing to say, gosh,
• 45:17
  Speaker 1: I'll underwrite that easy thing that's probably not priced right
• 45:20
  Speaker 1: because I need to lock these yields in. And by
• 45:22
  Speaker 1: the way, I spent much of last year sitting on
• 45:25
  Speaker 1: my hands and you know, trying to protect my downside.
• 45:28
  Speaker 1: Now these bonds are attractive, so I think it is
• 45:30
  Speaker 1: a technical condition that's that's driven the market to price
• 45:33
  Speaker 1: in that ease today. So let's talk a little bit
• 45:36
  Speaker 1: about some of the technical conditions that I recall you
• 45:39
  Speaker 1: discussing in the fourth quarter of and there were two
• 45:44
  Speaker 1: statements you said that have stayed with me. Let's start
• 45:49
  Speaker 1: with the more amusing one. October two. This is some
• 45:53
  Speaker 1: of the wildest fixed income trading I've seen in my
• 45:56
  Speaker 1: entire career. And I remember, I think that was the
• 45:59
  Speaker 1: September a CPI came out in October, and then we
• 46:01
  Speaker 1: got the job state as well tell us about what
• 46:04
  Speaker 1: was going on in October. So it was pretty and mean,
• 46:06
  Speaker 1: it's pretty wild. I mean, so you think about by
• 46:09
  Speaker 1: the way, when you think about two twenty two, and
• 46:12
  Speaker 1: part of you know, the FED deserves some blame for
• 46:14
  Speaker 1: taking too long, but you also at a war that
• 46:17
  Speaker 1: was who thought you'd shock fuel prices and who in
• 46:21
  Speaker 1: food prices? I mean, what is it? Russian Ukraine account
• 46:23
  Speaker 1: for twelve percent of the calories in the world. Giant
• 46:26
  Speaker 1: we bread basket and basket after the US and all
• 46:30
  Speaker 1: of a sudden, what we thought would look like inflation
• 46:33
  Speaker 1: would start to moderate or at least stabilize. We took
• 46:35
  Speaker 1: a whole another leg higher, and then, like you say,
• 46:38
  Speaker 1: in September October, we started getting these point course, cp
• 46:42
  Speaker 1: I was printing a point six for two straight months,
• 46:45
  Speaker 1: you know, so so annualizing that's over seven and all
• 46:49
  Speaker 1: of a sudden, like, oh my god, this FED may
• 46:51
  Speaker 1: have to go significantly further. And by the way, at
• 46:54
  Speaker 1: the same time, employment was was extraordinarily strong and is today.
• 46:59
  Speaker 1: And I still think people don't recognize there's not enough
• 47:02
  Speaker 1: people for the jobs today. There's still a deficit in
• 47:05
  Speaker 1: all those sectors we talked about earlier. So so the
• 47:07
  Speaker 1: FED should keep raising rates. That'll get bodies and jobs.
• 47:10
  Speaker 1: Oh wait, they can't create more people to fill those jobs.
• 47:14
  Speaker 1: They can't create more semiconductors, they can't build more houses.
• 47:18
  Speaker 1: At a certain point, the FED should really just declare
• 47:21
  Speaker 1: victory and go home. So I think, you know, you know,
• 47:24
  Speaker 1: it's interesting how like every every committee, like the FED, etcetera,
• 47:27
  Speaker 1: there's always this I can tweak it a little bit,
• 47:30
  Speaker 1: and I think at the I think at this point
• 47:32
  Speaker 1: it's time and the system recalibrates. I mean a number
• 47:35
  Speaker 1: of times that FED has to come to the fore
• 47:39
  Speaker 1: when you have a financial crisis, when you have a pandemic,
• 47:41
  Speaker 1: and then I think you've gotta go, you know, get
• 47:43
  Speaker 1: to the back page of the newspaper versus the front
• 47:46
  Speaker 1: and let the system do what it's gonna do, because
• 47:49
  Speaker 1: the more that you create the news. If you think
• 47:52
  Speaker 1: about if you're a big CEO c Ione, I'm thinking
• 47:53
  Speaker 1: about capex spend long term hiring plans. Do I need
• 47:57
  Speaker 1: to have the FED as one of the risk factors
• 48:00
  Speaker 1: in I don't think so. And I don't think we
• 48:02
  Speaker 1: need to keep the economy will do its job of
• 48:05
  Speaker 1: keeping the system on on on pace. And you think
• 48:09
  Speaker 1: about we just happen the last couple of years, like
• 48:11
  Speaker 1: you said, goods economy to service economy, the number of
• 48:13
  Speaker 1: people job shifts extraordinary of how it played out. Anyway,
• 48:17
  Speaker 1: I think there's a time that you need the Central
• 48:19
  Speaker 1: Bank to be on the front page. But I think
• 48:20
  Speaker 1: we're leaving that new story. You mentioned green Spin earlier,
• 48:24
  Speaker 1: and I had the same sense that you know, he
• 48:29
  Speaker 1: had a great career, and then the last couple of
• 48:31
  Speaker 1: innings helped to really ding his reputation because he stayed
• 48:37
  Speaker 1: on the front page for too long and didn't say no, no,
• 48:40
  Speaker 1: the system's fine. I'm going to step back and let
• 48:42
  Speaker 1: things play out the way they should on their own. So, man,
• 48:45
  Speaker 1: if you go back in the anlds of time, I
• 48:47
  Speaker 1: think Alan Greenspan may have been, at least in my generation,
• 48:50
  Speaker 1: the best central banker I've ever seen. Certain I'm on
• 48:53
  Speaker 1: the other side of that trade sold to you. I'm sure,
• 48:56
  Speaker 1: Alan green all right, and we'll continue to be I
• 48:59
  Speaker 1: have long put I will write calls, whatever you need
• 49:02
  Speaker 1: to do. I'll take the out of the maestro training, alright.
• 49:05
  Speaker 1: So so but make your case, alright. So, I mean,
• 49:08
  Speaker 1: I watched them for years and and I've seen very
• 49:11
  Speaker 1: few people, including getting the honor presenting to him many times,
• 49:14
  Speaker 1: I've seen, I mean, the way he analyzed the day
• 49:16
  Speaker 1: of the way he reacted to the day of the
• 49:18
  Speaker 1: way he commanded policy. I'll never forget when when Greenspan
• 49:21
  Speaker 1: said we're going this way you he had immense credibility
• 49:24
  Speaker 1: to execute it. Listen, I think, but I think your
• 49:28
  Speaker 1: point is the last year or two it was it
• 49:32
  Speaker 1: didn't make a lot of sense for and I think
• 49:34
  Speaker 1: people knew subprime in the mortgage crisis, the mortgage wasn't crisis.
• 49:37
  Speaker 1: The mortgage dynamic, the housing dynamic was was creating a
• 49:41
  Speaker 1: problem that would put a you know, put a real
• 49:44
  Speaker 1: damper on what was I think an immaculate um central banker.
• 49:49
  Speaker 1: So you mentioned credibility. Does the current FED insistence on
• 49:55
  Speaker 1: taking us up to five five and a quarter? Is
• 49:58
  Speaker 1: that sort of third Hey, we're gonna we're gonna have
• 50:02
  Speaker 1: stable rates, we're gonna have full employment, and we also
• 50:05
  Speaker 1: have to maintain our credibility. Is that a third mandate
• 50:09
  Speaker 1: for the FED? I mean, you know, part of why
• 50:12
  Speaker 1: and I say the FED stays in policy later, is
• 50:15
  Speaker 1: credibility is such a big deal. Once you lose credibility.
• 50:18
  Speaker 1: It's part of what I think they've done a really
• 50:19
  Speaker 1: good job of communication. You think about how the few
• 50:22
  Speaker 1: number of dissents when you get an f O MC decision,
• 50:25
  Speaker 1: think about yeah, and there's opinions from the different officials
• 50:28
  Speaker 1: that speak, but they're generally on the same page. And
• 50:32
  Speaker 1: that that I think is really effective. Listen, I think
• 50:35
  Speaker 1: once you lose credibility, then you're all of a sudden
• 50:38
  Speaker 1: your your monetary policy. Because moral suasion and how you
• 50:40
  Speaker 1: think about where you want to guide the system is
• 50:43
  Speaker 1: usually important. By the way, if you guide this the
• 50:46
  Speaker 1: system into finite a way, and this is part of
• 50:49
  Speaker 1: the idea of like go away for a bit, stop
• 50:51
  Speaker 1: defining every single you know, I think quite franking. I
• 50:54
  Speaker 1: think these sep the dot plot is crazy, Like why
• 50:58
  Speaker 1: do you need to tell the world where we're gonna
• 50:59
  Speaker 1: be two years? Hence you don't know where you're gonna
• 51:01
  Speaker 1: be two years? Hence why do you need the price
• 51:03
  Speaker 1: the treasury market to the two year forward or the
• 51:06
  Speaker 1: three or four work? You don't know where and you
• 51:07
  Speaker 1: know they're back to year sense that you need the
• 51:09
  Speaker 1: ability to surprise when necessary totally and if you pin
• 51:12
  Speaker 1: yourself and even in the past the Fed has pinned
• 51:15
  Speaker 1: therese ups to a date and say we're going to
• 51:17
  Speaker 1: move that that's crazy or to or do you know
• 51:20
  Speaker 1: one number like core PC is the most important, But
• 51:23
  Speaker 1: why would you pin yourself to core PC because there's
• 51:26
  Speaker 1: weird nuance that happens. You have to look at the abstract,
• 51:30
  Speaker 1: give yourself some flexibility, allow the system to do what
• 51:33
  Speaker 1: it's gonna do, and create normal volatility to markets as
• 51:37
  Speaker 1: opposed to defining you have to be here. You mentioned
• 51:40
  Speaker 1: core PC. I'm trying to remember was it Bernankee or
• 51:43
  Speaker 1: green Span that liked the GDP deflator as their inflation managumer,
• 51:48
  Speaker 1: I don't remember which, Um, And they're not always it's
• 51:51
  Speaker 1: kind of surprising they're not always the same. Last year,
• 51:55
  Speaker 1: for example, I always love to throw charts up to
• 51:58
  Speaker 1: shock people. Oil was negative for everything ran up an
• 52:03
  Speaker 1: anticipation of the wartime chatter, and then by the time
• 52:07
  Speaker 1: we got to the fourth quarter, it was red, which
• 52:09
  Speaker 1: is kind of stunning. Um, what do you think is
• 52:13
  Speaker 1: the best measure of inflation? And have we seen peak inflation?
• 52:17
  Speaker 1: Are we? Are we over the hump? I think so?
• 52:19
  Speaker 1: I mean so, you know, I'm always you know, what
• 52:22
  Speaker 1: do I look at I look at a core PC
• 52:24
  Speaker 1: is is important? I look at wages a lot um.
• 52:27
  Speaker 1: I look at the commodity markets. You know, a ton
• 52:31
  Speaker 1: of copper, lumber, natural gas all way off their highs. Yes.
• 52:35
  Speaker 1: And and by the way, by the way, if you
• 52:37
  Speaker 1: if you take and we looked at this stat the
• 52:39
  Speaker 1: other day, if use car prices and shelter are coming down,
• 52:43
  Speaker 1: which we know they're coming down. If they come down,
• 52:46
  Speaker 1: if they continue to come down, everything else can stay
• 52:48
  Speaker 1: four to five and you still get in the mid
• 52:49
  Speaker 1: to high twos, so meaning it's pretty it'd be pretty
• 52:52
  Speaker 1: hard for us not to have seen the peak. But
• 52:55
  Speaker 1: you know one thing that I you know part of
• 52:57
  Speaker 1: you know, I always in my business we try and
• 52:58
  Speaker 1: thinking what are your constancy you could have value the variables.
• 53:01
  Speaker 1: Inflation is a hard one to think about the constants.
• 53:03
  Speaker 1: And if you don't, you know, part of why I
• 53:05
  Speaker 1: read inventory numbers at retailers, what's the you know you're
• 53:08
  Speaker 1: talking about Semi's earlier. I think you have to think
• 53:10
  Speaker 1: about the whole construct of what's driving top line revenue
• 53:14
  Speaker 1: for companies. You know you're seeing Tesla logist, did you
• 53:17
  Speaker 1: see companies all of a sudden they're dropping big cuts
• 53:22
  Speaker 1: that substantial. You know when you see retailers, the targets
• 53:25
  Speaker 1: and Walmarts, you see you know they're change in terms
• 53:28
  Speaker 1: of dropping price, and you're seeing customers that are actually
• 53:32
  Speaker 1: now shifting using more couponing, trading down, buying in higher
• 53:35
  Speaker 1: quantity as opposed so they can get scale and purchase.
• 53:39
  Speaker 1: That's real and that means inflation is coming down. And
• 53:42
  Speaker 1: all these things factor into what do you build into
• 53:45
  Speaker 1: what's happening in inflation because that one is hard to say.
• 53:47
  Speaker 1: This is the number, and by the way, I think
• 53:49
  Speaker 1: markets do that, like the employment cost index, like that's
• 53:52
  Speaker 1: the number, and then it goes to this one. I said,
• 53:54
  Speaker 1: I think markets like to have superficial information to drive
• 53:58
  Speaker 1: big picture thoughts. So let's dick with inflation for a
• 54:01
  Speaker 1: little bit, because you've touched on so many really interesting areas.
• 54:05
  Speaker 1: One of my favorite aspects of where I think the
• 54:09
  Speaker 1: CPI model is wrong is the cost of apartment rentals.
• 54:14
  Speaker 1: And I get the sense the FED understands this, BLS
• 54:17
  Speaker 1: understands this. The Cleveland Fed just created this new measure
• 54:21
  Speaker 1: of owner's equivalent rent that looks at renewals, but you
• 54:26
  Speaker 1: also things like Zilo apartment rental listings, and Apartment list
• 54:31
  Speaker 1: is another index that tracks this. It seems that everywhere
• 54:36
  Speaker 1: we look we see apartment rental prices coming down faster
• 54:42
  Speaker 1: than the b L s C p I model is showing.
• 54:45
  Speaker 1: How do you calibrate all models wrong but most are useful?
• 54:50
  Speaker 1: Said George Box. How do you calibrate a model that
• 54:53
  Speaker 1: has issues that we think we the FED understands what
• 54:55
  Speaker 1: the issues are, and yet are still acting as if
• 54:59
  Speaker 1: um the model is dead right. So one of the
• 55:02
  Speaker 1: things I always thinking about we're investing, and I say
• 55:04
  Speaker 1: to our teams all the time, We're not in the
• 55:05
  Speaker 1: business of being right. We're in the business of generating
• 55:07
  Speaker 1: return for clients. So what happens? So we've we have
• 55:11
  Speaker 1: incredible AI data assimilation where we look at billions of
• 55:15
  Speaker 1: prices and trying to where is inflation going? But the
• 55:18
  Speaker 1: markets focus on core CPI, so you've got to try
• 55:22
  Speaker 1: and put together what are the markets going to react
• 55:24
  Speaker 1: to it. Oftentimes it's much more important to me to
• 55:26
  Speaker 1: understand what is the psychology of markets than it is
• 55:30
  Speaker 1: understanding you know, what is like where are we really going?
• 55:33
  Speaker 1: Because you get leads and lags, apartment being the big one,
• 55:36
  Speaker 1: there are huge lags in terms of when an apartment
• 55:40
  Speaker 1: gets into in the reduction and prices. So you know,
• 55:43
  Speaker 1: we try and think through all of that, and you know,
• 55:45
  Speaker 1: at the end of the day, you know, part of
• 55:47
  Speaker 1: what I'm trying to think through is it's less important
• 55:49
  Speaker 1: to me to be right six months. Hence, but if
• 55:52
  Speaker 1: the markets are going to focus on this core CPI
• 55:54
  Speaker 1: report for the next two to three months, and maybe
• 55:56
  Speaker 1: the FED is going to focus on core pc that
• 55:58
  Speaker 1: I put at the top end of my priority set
• 56:01
  Speaker 1: because I've got to buy and sell within the market,
• 56:03
  Speaker 1: and so I spend a lot more time trying to
• 56:05
  Speaker 1: think through what's the market reaction function and what is
• 56:08
  Speaker 1: the data the markets tuned into because that changes over time.
• 56:11
  Speaker 1: So you're always providing insight and advice to clients. But
• 56:15
  Speaker 1: if you had ten minutes alone with Jerome Palell, what
• 56:19
  Speaker 1: sort of advice would you give him? So I would say,
• 56:22
  Speaker 1: I'm I'm a big fan, but I think the say so,
• 56:25
  Speaker 1: I think I'm list so, but I'd like I say,
• 56:28
  Speaker 1: you know, with all the due respect, I thought last
• 56:31
  Speaker 1: year it was crazy around keeping or the year of
• 56:34
  Speaker 1: keeping rates easy for too long and doing que I
• 56:36
  Speaker 1: mean in January last year add billion a month going
• 56:38
  Speaker 1: into the system. Certainly zero way too long. You could
• 56:41
  Speaker 1: argue how far you'd go, but zero wasn't That was wrong, Listen.
• 56:45
  Speaker 1: I think one of the things that he has brought
• 56:46
  Speaker 1: to the fund that I think it's been extraordinaries collaboration
• 56:49
  Speaker 1: and you know, a collaborative decision making that across and
• 56:53
  Speaker 1: taking in tremendous amounts of information. The thing that I
• 56:56
  Speaker 1: would you know that I always say, let's say, and
• 56:59
  Speaker 1: I've said this before, or if the Federal Reserve said
• 57:01
  Speaker 1: the funds rate is going to be two percent for
• 57:02
  Speaker 1: the next five years with the system operate better or worse.
• 57:06
  Speaker 1: And if if you were a CEO or CFO and said, Okay,
• 57:09
  Speaker 1: I know, I gotta figure out what my inventory level is,
• 57:12
  Speaker 1: what my supply chain dynamics, but I know they're gonna
• 57:14
  Speaker 1: be able to fund myself off of a relatively constant
• 57:18
  Speaker 1: interest rate, certainly the risk free rate. There is huge
• 57:21
  Speaker 1: power in that. And I think people will underestimate this.
• 57:24
  Speaker 1: Get us back on the curve and get us back
• 57:26
  Speaker 1: on a I tweak it less than they do until
• 57:29
  Speaker 1: you need to, and then you move decisively. And I
• 57:32
  Speaker 1: think one of the things we've learned, you know that
• 57:34
  Speaker 1: central bankers have done a good job with is when
• 57:37
  Speaker 1: you need to move, be decisive and and and get
• 57:40
  Speaker 1: it and tell people this is where we're going, and
• 57:42
  Speaker 1: shocked the system when when you do it, but let
• 57:45
  Speaker 1: him know now we're going. And I think that's powerful.
• 57:48
  Speaker 1: But then otherwise back off and let let the system
• 57:51
  Speaker 1: with the system is gonna do. By the way, it's
• 57:53
  Speaker 1: harder in Argentina because you get you get a little
• 57:57
  Speaker 1: you don't have. I mean, we have such a tech, chnology, innovation,
• 58:01
  Speaker 1: adaptive human and thinking about I did a presentation. I
• 58:04
  Speaker 1: showed what it was thirty years ago. They used to
• 58:06
  Speaker 1: look for a job in the classified needs circle and
• 58:08
  Speaker 1: go get a job. Now you think about getting a
• 58:10
  Speaker 1: job today with all of the immense online you have
• 58:13
  Speaker 1: fluidity of employment. That's that we're watching play out if
• 58:17
  Speaker 1: that doesn't need to do that much other than the
• 58:19
  Speaker 1: shocked period, talk about the impact of a loss of
• 58:22
  Speaker 1: credibility of a central bank. It's apples and oranges between
• 58:26
  Speaker 1: the US and Argentina, which, by the way, I'm always
• 58:29
  Speaker 1: shocked when the parade of FED haters come out and
• 58:32
  Speaker 1: it's like, we're gonna be Zimbabwe. The dollar is going
• 58:35
  Speaker 1: to be worthless. Talk about getting a trade degrees wrong.
• 58:40
  Speaker 1: Let's talk about the dollar. Since I mentioned Argentina and Zimbabwe,
• 58:44
  Speaker 1: the dollar for the past decade has been the only
• 58:48
  Speaker 1: game in town that seemed to have topped out in two.
• 58:53
  Speaker 1: How do you think about the strength of the US
• 58:55
  Speaker 1: dollar relative to fixed income equity US versus emerging mark
• 59:00
  Speaker 1: gets What is the role of the dollar in your process?
• 59:04
  Speaker 1: So for I mean, well, two was the only hedge
• 59:06
  Speaker 1: we had, I mean literally, yeah, So two thousand two.
• 59:09
  Speaker 1: You think about normally interest rates work against beat against
• 59:12
  Speaker 1: your risk assets. You know, normally, volatility markets we use
• 59:15
  Speaker 1: a lot of you know, think about call options, put options,
• 59:17
  Speaker 1: the equity market when volatility spikes. Not a good hedge.
• 59:20
  Speaker 1: It's too expensive because everybody's trying to buy insurance. The
• 59:23
  Speaker 1: dollar was a good one because you knew that as
• 59:26
  Speaker 1: as the central bank was gonna tighten, the dollar was
• 59:27
  Speaker 1: gonna appreciate and risk was gonna have a hard time. Today.
• 59:31
  Speaker 1: You know, I would argue, we're on the other side
• 59:32
  Speaker 1: of that mountain we talked about in the dollar doesn't
• 59:34
  Speaker 1: need to appreciate, and actually, you know, you could start
• 59:37
  Speaker 1: to do things because the volatility markets have come down.
• 59:39
  Speaker 1: I think there's one important thing with the dollar. You know,
• 59:42
  Speaker 1: we're gonna go through a potential debt ceiling crisis issue.
• 59:47
  Speaker 1: There were dollars of reserve currency in the world. I
• 59:49
  Speaker 1: don't think people really understand it's two thirds of the
• 59:53
  Speaker 1: trade flow in the world. It's roughly two thirds three
• 59:56
  Speaker 1: quarters of the liabilities in the world. It's the collateral
• 59:59
  Speaker 1: us treasures that call lateral in the world that is
• 1:00:01
  Speaker 1: underneath you know, most transactions in the world. The dollar
• 1:00:05
  Speaker 1: is such a critical dynamic. We're gonna go through and
• 1:00:07
  Speaker 1: always find like when do you set up for these trades?
• 1:00:11
  Speaker 1: When he set up for position your portfolio. We're gonna
• 1:00:13
  Speaker 1: go through, you know, sometime three to six months from
• 1:00:16
  Speaker 1: now what could be an incredibly volatile period, and then
• 1:00:18
  Speaker 1: the dollar becomes you know, your your lever and how
• 1:00:22
  Speaker 1: you think about that is going to change and uh
• 1:00:25
  Speaker 1: and evolve. And like I said, it's crazy that we'd
• 1:00:28
  Speaker 1: ever because of the immense benefits that accruiting. Why would
• 1:00:31
  Speaker 1: anyone ever put our exorbitant privilege at risk to score
• 1:00:35
  Speaker 1: political points. All those people really are are deserving of
• 1:00:39
  Speaker 1: our disdain and should be called out for their recklessness
• 1:00:42
  Speaker 1: and ir responsibility. But let's hold the politics side. The
• 1:00:46
  Speaker 1: last question I have in the state of the fixed
• 1:00:50
  Speaker 1: income world is you mentioned since since we talked about dollar,
• 1:00:55
  Speaker 1: we have to talk about emerging market. Last year you
• 1:00:58
  Speaker 1: said you're starting to become more constructive on emerging markets
• 1:01:02
  Speaker 1: and more balanced obviously on the U. S. Dollar. You know,
• 1:01:05
  Speaker 1: it has looked like em was going to be the
• 1:01:08
  Speaker 1: next part of the world to do well for the
• 1:01:11
  Speaker 1: better part of a decade. And the tires spin and
• 1:01:14
  Speaker 1: there's no traction is three the year e M finally
• 1:01:19
  Speaker 1: starts rewarding investors. So, I mean, one of the things
• 1:01:22
  Speaker 1: I've learned over my career running emerging market business for
• 1:01:25
  Speaker 1: a long time is you have to take em and
• 1:01:28
  Speaker 1: dissect the asset class. I mean, there's sometimes no and
• 1:01:32
  Speaker 1: so you know the difference between Mexico and Argentina and
• 1:01:35
  Speaker 1: South Africa to Turkey is immense. And so part of
• 1:01:39
  Speaker 1: what we try and think through is where are we
• 1:01:41
  Speaker 1: comfortable today when we're we are taking more risk in
• 1:01:45
  Speaker 1: UH and you know, building some income in emerging markets.
• 1:01:48
  Speaker 1: But gosh, you know there are places today that that listen,
• 1:01:52
  Speaker 1: We're not doing a lot in Turkey, We're not doing
• 1:01:53
  Speaker 1: a lot in South Africa. But you know, Mexico. You
• 1:01:56
  Speaker 1: think about who the beneficiary for a world that's becoming
• 1:01:58
  Speaker 1: more regionalized, and who is you know, the US's partner
• 1:02:02
  Speaker 1: in Mexico is interesting. Brazil has done a pretty about
• 1:02:05
  Speaker 1: central banks and has done a pretty good job. Brazil
• 1:02:09
  Speaker 1: is a is a good place Indonesia. So there are
• 1:02:10
  Speaker 1: places and the way we've grown and by the way,
• 1:02:13
  Speaker 1: there's some corporates that are domiciled in these countries that
• 1:02:16
  Speaker 1: are often times better credit than the sovereign. So we've
• 1:02:19
  Speaker 1: worked on we've increased our emerging market exposure, but I
• 1:02:22
  Speaker 1: would say we're doing it in a way that is
• 1:02:25
  Speaker 1: less emerging market volatility um sensitive to it. Another example
• 1:02:32
  Speaker 1: of where active has an advantage over passive is choosing
• 1:02:36
  Speaker 1: your country of both equity and fixed income. Yeah, and
• 1:02:40
  Speaker 1: then one thing I will say, you know, active is
• 1:02:42
  Speaker 1: going to live with passive for forever and the growth
• 1:02:44
  Speaker 1: of you know, we obviously you know, are proud of
• 1:02:47
  Speaker 1: the I shares. Development people can, fixed income, you can,
• 1:02:50
  Speaker 1: I use a ton of them. So passive has a place.
• 1:02:53
  Speaker 1: But then the ability to use it as active man
• 1:02:55
  Speaker 1: in your in your process is you. And by the way,
• 1:02:57
  Speaker 1: parts of em are hugely effective. Been using UH and
• 1:03:00
  Speaker 1: we've been doing a bunch of dead and equity to
• 1:03:02
  Speaker 1: get into merging markets where at times getting scale is
• 1:03:05
  Speaker 1: hard on the individual securities. Before I let you go,
• 1:03:08
  Speaker 1: we have to talk a little bit about Lehman Brothers.
• 1:03:12
  Speaker 1: You started there in what was black Monday like at
• 1:03:18
  Speaker 1: Lehman Brothers, who bet then we're really known as a
• 1:03:21
  Speaker 1: fixed income shop. Tell us what that experience was like
• 1:03:24
  Speaker 1: and did it leave any marks? So I'll tell you.
• 1:03:27
  Speaker 1: You know, every time we'll a couple of interesting things
• 1:03:29
  Speaker 1: I think about that. I mean, every time you go
• 1:03:31
  Speaker 1: through one of these crises, you think about music crisis
• 1:03:34
  Speaker 1: don't happen the same way the second time, you know,
• 1:03:36
  Speaker 1: so usually and by the way, usually regulations solves Yesterday's
• 1:03:40
  Speaker 1: every general fights the last one totally and so that
• 1:03:43
  Speaker 1: you know that was and how but you know still
• 1:03:45
  Speaker 1: to this day, black Monday, you know, wears on you,
• 1:03:48
  Speaker 1: by the way, including on Mondays. There's a reason that
• 1:03:51
  Speaker 1: Monday's happened because a liquidity etcetera. That tends to be
• 1:03:54
  Speaker 1: a war news all the stress over the weekend news
• 1:03:57
  Speaker 1: comes out and it just built totally. But one thing
• 1:04:00
  Speaker 1: I've realized over been doing this almost thirty six years
• 1:04:03
  Speaker 1: now is you gotta put you know, think about those crises,
• 1:04:06
  Speaker 1: think about how do you manage the risk of it,
• 1:04:08
  Speaker 1: what's the downside, what's the odds of it happening? And
• 1:04:11
  Speaker 1: then you know you still have to invest and you
• 1:04:13
  Speaker 1: still have to take risk. And one of the things
• 1:04:14
  Speaker 1: I've found that I've tried to fight against for my
• 1:04:16
  Speaker 1: whole career is you know, the longer you get you've
• 1:04:20
  Speaker 1: done this and the more crises you see you know
• 1:04:23
  Speaker 1: less you you know when you get punched in the stomach,
• 1:04:24
  Speaker 1: like it doesn't feel good, Like I gotta like to
• 1:04:26
  Speaker 1: do less of that. And you've gotta think about we're
• 1:04:28
  Speaker 1: still in the business of taking risk. How do you
• 1:04:30
  Speaker 1: manage those things effectively that you've got your tail risk downside?
• 1:04:34
  Speaker 1: So to this day, you know there are things like
• 1:04:36
  Speaker 1: I've been through, whether it's gosh, years of trading Korea
• 1:04:39
  Speaker 1: and you know, every time there's something in North Korea,
• 1:04:41
  Speaker 1: think about, i' my god, we got a hedge that
• 1:04:42
  Speaker 1: And I've learned over my career, gosh, I spent more
• 1:04:45
  Speaker 1: basis point buying insurance and think about if I just
• 1:04:48
  Speaker 1: run my portfolio the right way, stop buying so much
• 1:04:51
  Speaker 1: insurance because you'll figure out how to get returned to zero.
• 1:04:54
  Speaker 1: And but you've got to think about those things and
• 1:04:56
  Speaker 1: what are what are the risk and what is the
• 1:04:58
  Speaker 1: hedge that could that could work relative it it doesn't
• 1:05:00
  Speaker 1: cost you that much, or or how can I run
• 1:05:02
  Speaker 1: my portfolio taking those risks? So fast forward from eight seven, uh,
• 1:05:08
  Speaker 1: twenty years now it's oh five real estate sort of
• 1:05:12
  Speaker 1: peaks and price and oh six and volume, the mbs
• 1:05:16
  Speaker 1: that was a big part of of not what you
• 1:05:18
  Speaker 1: were working with, but generally Lehman Brothers starts to rollovers,
• 1:05:21
  Speaker 1: it starts to be stress. We see the derivatives begin
• 1:05:25
  Speaker 1: to play out. When did you start to smell things
• 1:05:28
  Speaker 1: were going off the rails at Lehman Brothers. Well, I
• 1:05:32
  Speaker 1: didn't write that you're there and you just thought that
• 1:05:34
  Speaker 1: this would be another thing. I mean, I mean I
• 1:05:36
  Speaker 1: left in Mayo eight. If I, by the way, if
• 1:05:38
  Speaker 1: I thought there was any issue there or any other place,
• 1:05:40
  Speaker 1: then I wouldn't have started a hedge fund. Let me
• 1:05:42
  Speaker 1: think about the volatility that I would have created. We're
• 1:05:44
  Speaker 1: betting on the other side. Yeah, but no, I mean
• 1:05:47
  Speaker 1: the Nate. First of all, I was doing credit, and
• 1:05:49
  Speaker 1: as a credit hedge fund, it's pretty hard to run
• 1:05:51
  Speaker 1: big shorts in credit, so you know, so I didn't
• 1:05:54
  Speaker 1: I didn't think there was an issue. What I think was,
• 1:05:58
  Speaker 1: you know, it was it was hard to leave at
• 1:06:00
  Speaker 1: the time, and we get back to the discussion of
• 1:06:02
  Speaker 1: Greenspan and or Treasury that it was hard to believe
• 1:06:06
  Speaker 1: that you knew from O six oh seven subprime was
• 1:06:10
  Speaker 1: was a problem, and you knew the housing froth was
• 1:06:14
  Speaker 1: so extreme, But then it just kept going. I mean, remember,
• 1:06:16
  Speaker 1: you know seven, you know we thought, okay, you know
• 1:06:19
  Speaker 1: there's gonna be regulars is gonna be changed, the central
• 1:06:22
  Speaker 1: bank will move and you never think you never thought
• 1:06:25
  Speaker 1: that you would, you know, policymakers would ignore all of
• 1:06:29
  Speaker 1: these signals along the way, and then we'd go down
• 1:06:32
  Speaker 1: what was this tumultuous point in time you know, started
• 1:06:35
  Speaker 1: with Bear Stearns and then all of a sudden, financial
• 1:06:37
  Speaker 1: institutions are levered entities once the dominoes start to fall,
• 1:06:41
  Speaker 1: and you know, you have whether it's derivatives, you have
• 1:06:44
  Speaker 1: intertwined financial intertwined financial system once the domino start to fall,
• 1:06:48
  Speaker 1: and you think about what would have happened to other
• 1:06:51
  Speaker 1: firms as well. So listen, I mean, I you know
• 1:06:54
  Speaker 1: this went on for longer. Oh six, oh seven felt
• 1:06:57
  Speaker 1: certainly oh seven felt a little queasy about like why
• 1:07:01
  Speaker 1: is nothing happening? And you had this incredibly over zealous
• 1:07:04
  Speaker 1: housing market. I mean, you know, I don't think that
• 1:07:06
  Speaker 1: will ever happen again, because I think policymakers will react
• 1:07:09
  Speaker 1: to that a whole lot, one would hope. So you
• 1:07:12
  Speaker 1: spend two decades and Lehman Brothers. Do you spend much
• 1:07:15
  Speaker 1: time with the guerrilla yes, and and yeah, I mean
• 1:07:19
  Speaker 1: in a lot of respect for them, and uh, listen,
• 1:07:22
  Speaker 1: I think their decisions that I think anybody in their career,
• 1:07:24
  Speaker 1: anybody's running a company or a business, would like to
• 1:07:27
  Speaker 1: have back. But but listen, I'm and you know, the
• 1:07:29
  Speaker 1: firm had a really really good track record for a
• 1:07:31
  Speaker 1: lot of years. That's that's the pretty by the way,
• 1:07:34
  Speaker 1: including going through the crisis crisis, you know, a long
• 1:07:38
  Speaker 1: time capital management they were they were on the right
• 1:07:41
  Speaker 1: side of yea unlike back. Yeah, so I think, you know,
• 1:07:44
  Speaker 1: the track record was pretty good. And you know what's sad.
• 1:07:46
  Speaker 1: I mean, I find it's sad and that you know,
• 1:07:49
  Speaker 1: there were a lot of amazing people at bear sterns
• 1:07:52
  Speaker 1: Levan Brothers, a bunch of places that, by the way,
• 1:07:54
  Speaker 1: many of those people go into, you know, have fruitful
• 1:07:56
  Speaker 1: careers and other in other worlds. But you know, it's
• 1:07:59
  Speaker 1: sad that that. You know. My my pet theory on
• 1:08:02
  Speaker 1: on where Dick Fold went off the rails was rejecting
• 1:08:06
  Speaker 1: the offer from Warren Buffett Layton oh eight. I think
• 1:08:10
  Speaker 1: when the time came to think about who do we
• 1:08:12
  Speaker 1: bail out and who do we set an example? Gee,
• 1:08:15
  Speaker 1: Warren Buffett offered you a few billion dollars. How do
• 1:08:19
  Speaker 1: you say no to warrant? That's the you know, the
• 1:08:21
  Speaker 1: finance good housekeeping seal of approval. Goldman took money from
• 1:08:25
  Speaker 1: Warren at an even higher rate, and it basically removed
• 1:08:29
  Speaker 1: them off the table. For Hey, do we have to
• 1:08:32
  Speaker 1: worry about Goldman had Fold taken Warren's money. I think
• 1:08:36
  Speaker 1: this might have ended differently. Maybe, yeah, probably, I mean
• 1:08:39
  Speaker 1: I say, they're there are decisions that get made, and
• 1:08:42
  Speaker 1: you know, I'm sure not everyone was. You know, it's
• 1:08:45
  Speaker 1: the right war and ultimately but but yeah, so you're
• 1:08:47
  Speaker 1: at Lehman for twenty years and you decide I'm going
• 1:08:51
  Speaker 1: to set up a credit hedge funds. I want to
• 1:08:54
  Speaker 1: go on on my own. Even though we started, we
• 1:08:58
  Speaker 1: we saw the Bear Starns hedge funds UM run into trouble.
• 1:09:01
  Speaker 1: There was clearly froth in the housing market and the
• 1:09:04
  Speaker 1: early signs of a crack in the NBS foundation. As
• 1:09:09
  Speaker 1: you're getting ready to launch, are you thinking, hey, maybe
• 1:09:11
  Speaker 1: this is a bad idea or what's Leban has been
• 1:09:14
  Speaker 1: good to me for twenty years? Tell us about your
• 1:09:17
  Speaker 1: thought process. I mean, you know we thought, you know,
• 1:09:20
  Speaker 1: first of all, I have a strong passion around it.
• 1:09:22
  Speaker 1: And by the way, we started coming to called our
• 1:09:23
  Speaker 1: three capital and so our three people think it's My
• 1:09:26
  Speaker 1: initials actually was for reading, writing, and arithmetic, and so
• 1:09:29
  Speaker 1: part one of the things I was super excited about
• 1:09:32
  Speaker 1: was to start a fond and actually proceeds we're gonna
• 1:09:35
  Speaker 1: go into urban education in the country. But I thought
• 1:09:38
  Speaker 1: this was I had a great, great team, many of
• 1:09:40
  Speaker 1: which you're still with me today. And I thought, and
• 1:09:42
  Speaker 1: I had asked the firm about it two years prior,
• 1:09:45
  Speaker 1: about gosh, I'd love to go and try and do
• 1:09:46
  Speaker 1: this on my own. We've got permission in advance. Well, no,
• 1:09:50
  Speaker 1: I asked the firm a couple of years ago, and
• 1:09:52
  Speaker 1: I probably should have gone and done it. And anyway,
• 1:09:54
  Speaker 1: that to me, I mean at the beginning of Oh
• 1:09:56
  Speaker 1: struck me as my god, there's gonna be volatility, is
• 1:09:58
  Speaker 1: gonna be opportunity. We got a really good team. Let's
• 1:10:01
  Speaker 1: you know, let's go strike out on our own and
• 1:10:02
  Speaker 1: do this, and and so you know, it was an
• 1:10:06
  Speaker 1: exciting point in time to do it. Like I said,
• 1:10:07
  Speaker 1: I didn't think the system would come to an end
• 1:10:10
  Speaker 1: as as it. I certainly wouldn't have done it if
• 1:10:13
  Speaker 1: I thought that that were the case. You tied me
• 1:10:15
  Speaker 1: up for a perfect segue into a curve bowl question.
• 1:10:19
  Speaker 1: You mentioned three rs, reading, writing, arithmetic. You serve as
• 1:10:23
  Speaker 1: the National Leadership Council of Communities and Schools and the
• 1:10:27
  Speaker 1: Educational Foundation UH in Newark. Tell us a little bit
• 1:10:31
  Speaker 1: about the work you do with community schools and less
• 1:10:34
  Speaker 1: affluent neighborhoods. So I mean less of all than so
• 1:10:37
  Speaker 1: I was on the National Leadership So my my biggest
• 1:10:40
  Speaker 1: endeavors today I cheer the board of North Star Academy,
• 1:10:43
  Speaker 1: which is where fourteen schools in Newark, New Jersey charter
• 1:10:46
  Speaker 1: schools that I think I'm biased. I think it's the
• 1:10:48
  Speaker 1: highest performing set of schools in the country. I'm super,
• 1:10:51
  Speaker 1: super proud of what the team does there and how
• 1:10:53
  Speaker 1: we've been able to build that. And I started something
• 1:10:55
  Speaker 1: called Graduation Generation Atlanta, which put together City of Atlanta, Communities,
• 1:11:00
  Speaker 1: communities and schools, and h Emory University to try and
• 1:11:03
  Speaker 1: create the whole package around around a student from social work, tutoring, mentoring, healthcare.
• 1:11:11
  Speaker 1: So anyway, though those are big drivers of of you know,
• 1:11:15
  Speaker 1: my passion of my life is giving people, particularly in
• 1:11:18
  Speaker 1: urban education. You know, giving him a kickstart and a
• 1:11:21
  Speaker 1: chance to succeed. And we've watched it, you know, in
• 1:11:23
  Speaker 1: our schools, in it in Newark. I mean it's extraordinary
• 1:11:26
  Speaker 1: included what's your affiliation with Newark? So early on somebody
• 1:11:31
  Speaker 1: asked me to get involved with the Harlem Children Zone,
• 1:11:33
  Speaker 1: which is an extraordinary place. I lived in New Jersey
• 1:11:36
  Speaker 1: and I said, I gosh, I'd left. Something comes up
• 1:11:37
  Speaker 1: in New Jersey. And then this opportunity came up in
• 1:11:40
  Speaker 1: Newark and I got to meet, uh, somebody named Norman Atkins,
• 1:11:43
  Speaker 1: who's I think is one of the best educators in
• 1:11:45
  Speaker 1: the world. And any I was motivated by we doing
• 1:11:47
  Speaker 1: it's just one school at the time. Cory Booker was
• 1:11:50
  Speaker 1: on our board at the time It's one school and
• 1:11:53
  Speaker 1: then uh, and then we got ability to grow to
• 1:11:55
  Speaker 1: the point now where six thousand kids, big part of
• 1:11:58
  Speaker 1: the population of new work with extre straordinary performance from
• 1:12:02
  Speaker 1: from our schools, in our in our students, I mean,
• 1:12:04
  Speaker 1: the number of students we send in the ivy leagues
• 1:12:06
  Speaker 1: and graduate to colleges is incredible. I don't know, it's
• 1:12:10
  Speaker 1: a Knwich has a reputation of not having a great
• 1:12:12
  Speaker 1: school system. What's the impact of this council on neighboring schools.
• 1:12:18
  Speaker 1: How do you elevate the entire um educational system? So,
• 1:12:22
  Speaker 1: I mean a big deal around and I've learned this
• 1:12:23
  Speaker 1: in my career. It's part of why, part of why
• 1:12:25
  Speaker 1: north Star was so near and due to my heart.
• 1:12:27
  Speaker 1: We call it and there's a number of books are
• 1:12:29
  Speaker 1: our lead director Um Paul Bambreck started. It's called Driven
• 1:12:33
  Speaker 1: by Data is one of the most famous books in
• 1:12:35
  Speaker 1: education for a long time. We analyze the data where
• 1:12:38
  Speaker 1: students performing, where they're not performing, Where how are we
• 1:12:41
  Speaker 1: doing in in in literacy, in literacy versus math, versus science,
• 1:12:46
  Speaker 1: And we study it and we're maniacal about the data.
• 1:12:49
  Speaker 1: Where are we not fulfilling the needs? And then and
• 1:12:52
  Speaker 1: then we adjust relative to that. So what we're doing
• 1:12:55
  Speaker 1: investing and that it's been really successful. And by the way,
• 1:12:57
  Speaker 1: it's permeated not just the city of Newark, but in
• 1:13:00
  Speaker 1: many countries around the world. They're using, you know, sort
• 1:13:03
  Speaker 1: of our methodology around data analysis and making sure we're
• 1:13:07
  Speaker 1: keeping our kids up to a level or in trying
• 1:13:09
  Speaker 1: to the number of of our students that take a
• 1:13:11
  Speaker 1: p exams and succeed is just extraordinary. So I know,
• 1:13:15
  Speaker 1: I'm super proud of you. Know. What the team does
• 1:13:16
  Speaker 1: around it really interesting. I know I only have you
• 1:13:20
  Speaker 1: for a limited amount of time, So let me jump
• 1:13:22
  Speaker 1: to my favorite questions that I asked all of our guests,
• 1:13:26
  Speaker 1: starting with tell us what you've been streaming these days?
• 1:13:29
  Speaker 1: What's been keeping you entertained? So I I do. I mean,
• 1:13:33
  Speaker 1: because I'm going at work million miles a minute, every
• 1:13:35
  Speaker 1: minute of the day, I tend them I releases on sports,
• 1:13:39
  Speaker 1: I mean, I watched tons of sports when I get home,
• 1:13:41
  Speaker 1: I like, I love to watch that San Francisco game
• 1:13:44
  Speaker 1: was just that. Yeah, that one I didn't spend a
• 1:13:46
  Speaker 1: lot of time watching, but I watch a lot of sports.
• 1:13:48
  Speaker 1: I'm particularly intrigued, as you would imagine. I like a
• 1:13:51
  Speaker 1: lot of the show's. ESPN does a ton of shows
• 1:13:54
  Speaker 1: on getting into people's mentality and how do they win?
• 1:13:57
  Speaker 1: And some Michael Jordan's There Was a Man That Wasn't
• 1:14:00
  Speaker 1: amazing series, wasn't it? Maybe the best I've ever seen.
• 1:14:03
  Speaker 1: But I love understanding what drives people, how they how
• 1:14:06
  Speaker 1: they get to the next level. Similarly, when I read
• 1:14:08
  Speaker 1: books about how how do you get to business to
• 1:14:11
  Speaker 1: the next level, but that that's what I watch a
• 1:14:13
  Speaker 1: load of those. And then so did you get around
• 1:14:15
  Speaker 1: to seeing Drive for Survive to Survive? About F one?
• 1:14:19
  Speaker 1: It's so, it's so funny because I went to F
• 1:14:21
  Speaker 1: one last year and we talked about it. I still
• 1:14:22
  Speaker 1: haven't watched it. I gotta watch that. It's shockingly interesting.
• 1:14:26
  Speaker 1: And they just rolled out a new one on tennis,
• 1:14:30
  Speaker 1: and then there's a third one coming that they started
• 1:14:33
  Speaker 1: on golf just as the Dubai League begin. Yeah, it's
• 1:14:37
  Speaker 1: They do a really good job of making people you
• 1:14:40
  Speaker 1: probably haven't. I mean, we we've all heard of a
• 1:14:43
  Speaker 1: handful of names, but it's that, you know, the up
• 1:14:47
  Speaker 1: and coming tier that's so interesting. Um, Netflix does some
• 1:14:51
  Speaker 1: really interesting sports stuff. Yeah, it's fun. So so let's
• 1:14:54
  Speaker 1: talk about mentors who helped to shape your career. So so,
• 1:15:00
  Speaker 1: first of all, the person who hired me I lamed
• 1:15:01
  Speaker 1: many years ago, a guy named Bart McDade. His was
• 1:15:04
  Speaker 1: extraordinary and making. I mean I still do this day,
• 1:15:07
  Speaker 1: I think about what would Bart doing that. He just
• 1:15:09
  Speaker 1: had this incredibility trade invest people, have confidence in people,
• 1:15:14
  Speaker 1: let them make mistakes. Uh not too big and uh
• 1:15:18
  Speaker 1: but anyway, his he taught me a ton of men.
• 1:15:20
  Speaker 1: He taught me more. He's one of my best friends
• 1:15:21
  Speaker 1: today and and he was extraordinant. But I have also
• 1:15:23
  Speaker 1: learned from the best investors in the world, have a
• 1:15:26
  Speaker 1: great honor get to know David Tepper's that, Dan Druccon, Miller's,
• 1:15:29
  Speaker 1: Paul Tutor Jones, and I've learned a bunch from each
• 1:15:32
  Speaker 1: of them. And you know a few things about investing,
• 1:15:35
  Speaker 1: you know, like separating the news from the noise. Some
• 1:15:38
  Speaker 1: of those people are extraordinary. You know, we live in
• 1:15:40
  Speaker 1: a world where which about earlier things like Twitter, etcetera.
• 1:15:43
  Speaker 1: We live in a world where it's constant soundbites. Those
• 1:15:46
  Speaker 1: people have an incredible ability separate the news from the noise.
• 1:15:50
  Speaker 1: You know, interesting, interesting that matters. And those people have
• 1:15:53
  Speaker 1: been really really helpful to me in terms of thinking,
• 1:15:56
  Speaker 1: you know, getting to understand how they think about things,
• 1:15:58
  Speaker 1: and you know what what drives persistent success. Let's talk
• 1:16:02
  Speaker 1: about books. What are you reading now? What are some
• 1:16:04
  Speaker 1: of your favorites. So I read a lot of books
• 1:16:06
  Speaker 1: on technology, and i'm today I say, let's less a
• 1:16:10
  Speaker 1: book that I'm reading today, But I can't read enough
• 1:16:14
  Speaker 1: about deep research papers on artificial intelligence that including the
• 1:16:19
  Speaker 1: chat GBT, and I'm spending a bunch of time this
• 1:16:21
  Speaker 1: weekend playing around without to understand it, but that I
• 1:16:24
  Speaker 1: mean technology to me. And the best book I ever
• 1:16:26
  Speaker 1: read was The Second Machine Age that talked about where
• 1:16:30
  Speaker 1: technology was gonna go. And now I'm all about what
• 1:16:33
  Speaker 1: is the next evolution of technology? And like I said,
• 1:16:35
  Speaker 1: I think this AI is going to change the world
• 1:16:37
  Speaker 1: in many ways. But I also like to read. I'd
• 1:16:40
  Speaker 1: like to read books on things like good, Degrade, etcetera.
• 1:16:44
  Speaker 1: That are you know that how companies ran their businesses
• 1:16:48
  Speaker 1: um and how momentum changes things like the tipping point
• 1:16:52
  Speaker 1: Maxim and Malcolm Gladwell. I think it's extraordinary, So the
• 1:16:55
  Speaker 1: whole myriad of them. And I actually started reading some
• 1:16:57
  Speaker 1: books when I just finished permiss and to Feel, which
• 1:17:01
  Speaker 1: is a book from from Yale. You know, our students
• 1:17:05
  Speaker 1: in our schools undergo a lot of stress, particularly during COVID,
• 1:17:09
  Speaker 1: and this is how emotion and letting emotion out allows
• 1:17:12
  Speaker 1: you to be more effective and deal with some of
• 1:17:14
  Speaker 1: the stresses. And so there's a lot of cool things
• 1:17:15
  Speaker 1: that have been investigating over the last last few months,
• 1:17:18
  Speaker 1: really interesting. Our last two questions, what sort of advice
• 1:17:22
  Speaker 1: would you give to a recent college grad who was
• 1:17:25
  Speaker 1: interested in a career in fixed income. I mean the
• 1:17:30
  Speaker 1: first thing I meant, if you really, I mean a
• 1:17:31
  Speaker 1: lot of people I watched them in the industry do
• 1:17:32
  Speaker 1: it because I hear it's a way to make a
• 1:17:34
  Speaker 1: lot of money or a way to make money. And
• 1:17:36
  Speaker 1: I just think that be by watching people come in
• 1:17:38
  Speaker 1: and then they leave because they're not driven by and
• 1:17:40
  Speaker 1: make sure you're driven by it. And then I think
• 1:17:44
  Speaker 1: most people that come into this business or any business,
• 1:17:46
  Speaker 1: always feel like they follow the person who did it
• 1:17:49
  Speaker 1: well right before them. And you know, what was the
• 1:17:52
  Speaker 1: hot firm, what's the hot firm, what's the hot area,
• 1:17:55
  Speaker 1: and anything about what markets have taught me. Usually don't
• 1:17:58
  Speaker 1: want to buy the hot thing. You want to buy
• 1:17:59
  Speaker 1: the thing that's that's maybe trending down and that may
• 1:18:02
  Speaker 1: come back, but it's you know, I I remember when
• 1:18:05
  Speaker 1: I was interviewing you appreciate this that I Drexel was
• 1:18:08
  Speaker 1: the hard front was a part firm that was impossible
• 1:18:10
  Speaker 1: to get into, and of course I didn't get a
• 1:18:11
  Speaker 1: job there, thank god. And they are a bit of those.
• 1:18:14
  Speaker 1: But the but I know why people always on what's
• 1:18:17
  Speaker 1: in front of me today, but think about where are
• 1:18:20
  Speaker 1: we going longer term, and then where's the area that
• 1:18:23
  Speaker 1: maybe I can grow as opposed to the place that
• 1:18:26
  Speaker 1: maybe has already figured it out, or or the area
• 1:18:28
  Speaker 1: that's already figured out. I think people you are, particularly
• 1:18:31
  Speaker 1: coming out of school, you know, I tend to all
• 1:18:34
  Speaker 1: move in one direction. Was amazing, Like the interview when
• 1:18:36
  Speaker 1: I was at Wharton. How everybody want to interview with
• 1:18:38
  Speaker 1: the exact same places the market, No, and be thoughtful
• 1:18:43
  Speaker 1: about you know, where do you go? And it's so
• 1:18:45
  Speaker 1: much about people, But do you find the right person,
• 1:18:48
  Speaker 1: the right mentor the right group that you fit in
• 1:18:50
  Speaker 1: with culturally as opposed to gosh, this seems to be
• 1:18:53
  Speaker 1: the path that worked for somebody else. And our final question,
• 1:18:56
  Speaker 1: what do you know about the world of investing today?
• 1:18:59
  Speaker 1: You will us you knew thirty six years ago when
• 1:19:02
  Speaker 1: you were first getting started. So I mean I've talked
• 1:19:05
  Speaker 1: about One of them was just you know, taking a
• 1:19:06
  Speaker 1: step back and letting the superficial work work its way through,
• 1:19:10
  Speaker 1: you know. I you know, when I first came into
• 1:19:12
  Speaker 1: the business, I used to want to read everything, and
• 1:19:15
  Speaker 1: it's like if the more I read, the smarter I'm
• 1:19:17
  Speaker 1: gonna be. And now I've really tried to boil it
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  Speaker 1: down to the things that I think are going to
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  Speaker 1: be the most relevant, the researchers that I think are
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  Speaker 1: the best, and do a lot of the work on
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  Speaker 1: my own. Like you know, people the research, the information
• 1:19:29
  Speaker 1: that gets out there, it's usually homogenized, and it's usually
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  Speaker 1: you know, if somebody else already had the idea, it's
• 1:19:36
  Speaker 1: probably been expressing the markets. So I try and do it.
• 1:19:40
  Speaker 1: You know, I find like if I can do the
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  Speaker 1: work organically and come up with my own ideas. You know,
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  Speaker 1: a lot of people go, you know, every night to
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  Speaker 1: round table dinners and listen to other people's opinion, and
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  Speaker 1: I tend to believe while I'm wrong a ton, I
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  Speaker 1: feel like if I can do my own work and
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  Speaker 1: my own analysis, then I'd probably come to a better conclusion,
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  Speaker 1: especially if it's already been played out in the market.
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  Speaker 1: So there's there's a bunch of things like that that
• 1:20:02
  Speaker 1: that I've learned over over my career. And then one
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  Speaker 1: last thing I will say is I learned in my
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  Speaker 1: career similar to why I struggled earlier my academic career,
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  Speaker 1: is you have to prepare for everything you do. I
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  Speaker 1: used to think like you just come in and do
• 1:20:14
  Speaker 1: it like I did well in school early on, and
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  Speaker 1: then I started to not do well because you can't
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  Speaker 1: just you know, you didn't. You can't over intellectualize it.
• 1:20:22
  Speaker 1: You've got to prepare. And I find today that now
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  Speaker 1: every single thing I do, I spent a lot of
• 1:20:27
  Speaker 1: time preparing for it. And similar to the way I
• 1:20:30
  Speaker 1: finally got better at college was you know, you got
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  Speaker 1: to do the work and put in the preparation. But
• 1:20:35
  Speaker 1: I find that young people that come in, you know,
• 1:20:37
  Speaker 1: every day, and they think, you know, think I just
• 1:20:39
  Speaker 1: read this and I can do it. It's all about
• 1:20:41
  Speaker 1: the preparation and I've learned a bunch about that over
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  Speaker 1: the years. We were talking yesterday about simple but hard,
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  Speaker 1: Like people think it's easy. It's like, no, no, it's simple,
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  Speaker 1: but it's a lot of blood, sweat and tears, and
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  Speaker 1: that's the hard part. Really fascinating, Rick, thank you for
• 1:20:56
  Speaker 1: being so generous with your time. This was this was tremendous.
• 1:21:00
  Speaker 1: We have been speaking with Rick Reader. He is the
• 1:21:02
  Speaker 1: chief Investment Officer for fixed income at black Rock, as
• 1:21:06
  Speaker 1: well as holding a number of other titles. If you
• 1:21:09
  Speaker 1: enjoy this conversation, be sure and check any of the
• 1:21:13
  Speaker 1: other four d and ninety two such discussions we've had
• 1:21:16
  Speaker 1: over the past eight years. You can find those at YouTube, iTunes, Spotify,
• 1:21:22
  Speaker 1: or wherever you get your podcast from. Be sure to
• 1:21:25
  Speaker 1: sign up for my daily reads at Ridhalts dot com.
• 1:21:28
  Speaker 1: Follow me on Twitter at Rihalts. I would be remiss
• 1:21:31
  Speaker 1: if I did not thank the crack team that helps
• 1:21:33
  Speaker 1: us put these conversations together each week. Justin Milner is
• 1:21:38
  Speaker 1: my audio engineer. Sean Russo is my head of research.
• 1:21:41
  Speaker 1: A Tika val Bron is my project manager. Paris Wald
• 1:21:45
  Speaker 1: is my producer. I'm Barry Rihalts. You've been listening to
• 1:21:49
  Speaker 1: Masters and Business on Bloomberg Radio.