WEBVTT - Liz Ann Sonders on Behavioral and Sentiment Measures in Markets

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news.

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<v Speaker 2>This is Master's in Business with Barry Ridholds on Bloomberg Radio.

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<v Speaker 2>This week on the podcast what Can I Say, I

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<v Speaker 2>have the delightful liz Anne Saunders on She is the

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<v Speaker 2>chief investment strategist and member of the firm's investment committee

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<v Speaker 2>at Schwab. The firm has eight and a half trillion

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<v Speaker 2>dollars on its platform. We've been working with Schwab for

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<v Speaker 2>a long time. Liz Anne was one of the earliest

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<v Speaker 2>guests on the show, and we reminisce a little bit

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<v Speaker 2>about that first appearance. I don't know what else to

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<v Speaker 2>say about her. She's so insightful and so knowledgeable and

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<v Speaker 2>has such a wonderful perch overseeing eight and a half

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<v Speaker 2>trillion dollars of both individual mom and pop investors advisors.

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<v Speaker 2>They're the biggest platform as a estonian for advisors. My disclosure,

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<v Speaker 2>my firm also uses them, and she just sees the

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<v Speaker 2>world from a place that not a lot of people

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<v Speaker 2>in the industry get to do. Not only do they

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<v Speaker 2>have a giant research team, but she gets to see

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<v Speaker 2>fun flows. She gets to see a huge amount of

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<v Speaker 2>activity from the inside, and she on a regular basis,

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<v Speaker 2>speaks to investors, speaks to advisors, speaks to institutions. She

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<v Speaker 2>is as much in the mix and the thick of

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<v Speaker 2>what's going on in the world of investing as anybody,

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<v Speaker 2>and that combination of her unique Perchin perspective and her

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<v Speaker 2>deep experience as either a fund manager or a strategist

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<v Speaker 2>for the past thirty eight years unparalleled in the world

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<v Speaker 2>of investing. I found this conversation to simply be delightful,

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<v Speaker 2>and I think you will also, with no further ado.

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<v Speaker 2>Charles Schwabs Liz Ann Saunders. I listened to the first

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<v Speaker 2>conversation we had. It's like the second year I was

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<v Speaker 2>doing this. It was twenty fifteen. You were great, I

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<v Speaker 2>was awful.

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<v Speaker 1>That was not the first time we met. I remember

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<v Speaker 1>that conversation nine years ago, but that was not the

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<v Speaker 1>first time we met.

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<v Speaker 2>The first time we met was my first time doing television.

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<v Speaker 2>I remember that in a tiny little room around a

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<v Speaker 2>round table with Larry Kudlow, and I'll never forget banging

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<v Speaker 2>down two die cokes, walking out the door to go

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<v Speaker 2>to the men's room, and the producer grabs me, let's go,

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<v Speaker 2>We're live, and that was it. I sat there for

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<v Speaker 2>an hour with my back teeth floating. And that I

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<v Speaker 2>remember a friend said, your fidgety, don't move around, don't

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<v Speaker 2>just pick a spot to look. And the spot was

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<v Speaker 2>your front teeth, which are perfect and white and still

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<v Speaker 2>perfect and white. Well, and I know why, well, I

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<v Speaker 2>know why.

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<v Speaker 1>In between that time that we first sat down and

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<v Speaker 1>did this and then this is a couple of years ago.

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<v Speaker 1>Now we live in Naples, Florida, and it was the

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<v Speaker 1>night before Thanksgiving. We walked out of a restaurant and

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<v Speaker 1>I just walked off the curb the wrong way. Oh,

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<v Speaker 1>and the first thing to hit the pavement, your teeth

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<v Speaker 1>was my teeth.

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<v Speaker 2>So those are not now.

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<v Speaker 1>Parts of it chipped, the part of the right front

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<v Speaker 1>tooth and the tooth next to it. And fortunately my

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<v Speaker 1>sister's next door neighbor was a dentist, and he went

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<v Speaker 1>in Thanksgiving morning and really and fixed it.

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<v Speaker 2>You know, I t boned a car. I was the

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<v Speaker 2>t boney right in front of my dentist's office. And

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<v Speaker 2>when I called the next morning, say hey, I chipped

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<v Speaker 2>my front tooth I needed fixed, they said, oh, you too.

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<v Speaker 2>There was a bad accident in front of that was me. Yeah,

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<v Speaker 2>that was me. My wife was really upset. I totaled

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<v Speaker 2>her car at like five miles an hour. An suv

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<v Speaker 2>plowed into.

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<v Speaker 1>Us totaled five miles an hour.

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<v Speaker 2>So I was making a left. The person behind me

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<v Speaker 2>thought I was going straight and tried to pass me

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<v Speaker 2>on the left. So literally I meant a left right

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<v Speaker 2>into them. And it's funny because that was a pandemic purchase,

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<v Speaker 2>a very inexpensive twenty seventeen Panamera fors which everybody walked away.

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<v Speaker 2>I mean, we were a little banged up, but you know,

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<v Speaker 2>a giant suv just crunched us. And what's terrible is

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<v Speaker 2>when you see the car afterwards and you see the

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<v Speaker 2>driver's door, like, holy cow, how did I just how

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<v Speaker 2>did it walk go in there? That was like geez.

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<v Speaker 2>Whenever people say you don't need to buy a new car,

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<v Speaker 2>it's like, I want the latest, greatest.

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<v Speaker 1>With airbags with one hundred and seventy seven arabs.

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<v Speaker 2>By the way airbags come down, you can't sit. It

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<v Speaker 2>was so disorienting because I'm trying to turn the wheel and.

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<v Speaker 1>I can't imagine driving in a car without a seatbelt on.

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<v Speaker 1>Before we started this ferry, we were talking about our

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<v Speaker 1>age and baby boomers. When I was brought home from

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<v Speaker 1>the hospital in nineteen sixty four, it was in my

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<v Speaker 1>mom's lap.

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<v Speaker 2>Okay, I'll tell you. I'll take that a step further.

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<v Speaker 2>My dad had this giant I'm trying to it was

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<v Speaker 2>an Impala, and we used to lie on the rear

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<v Speaker 2>deck under the back window, like if there's an accident,

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<v Speaker 2>you're a projectile right out.

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<v Speaker 1>We had a station wagon. We'd go from northern New

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<v Speaker 1>Jersey to Brooklyn to visit grandparents, and sleeping bags would

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<v Speaker 1>be laid out in the back.

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<v Speaker 2>And now you can't take a kid home from the

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<v Speaker 2>hospital without the right not just a car seat. It

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<v Speaker 2>has to be the right car.

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<v Speaker 1>I'm not saying what was going on back in the

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<v Speaker 1>sixties was the right thing.

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<v Speaker 2>It toughened you up. You go through a few windshields,

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<v Speaker 2>you know, you learn.

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<v Speaker 1>To dust your specially. I haven't had that.

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<v Speaker 2>All right, let's get serious. So everybody knows you as

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<v Speaker 2>the chief investment strategist at SCHWAB, But let's roll back

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<v Speaker 2>to the early part of your career. You get a

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<v Speaker 2>BA in economics and polysi from the University of Delaware.

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<v Speaker 2>What was the original career plan?

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<v Speaker 1>I didn't have one, none, well, not in college.

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<v Speaker 2>No.

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<v Speaker 1>In fact, what started as that double major ultimately morphed

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<v Speaker 1>into the official degree being in international relations. But to

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<v Speaker 1>be perfectly honest, I just decided to study a couple

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<v Speaker 1>different areas that were very broadbrush because I didn't know

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<v Speaker 1>what I wanted to do when I graduated international relations.

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<v Speaker 2>So you go to the Kennedy School and then become

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<v Speaker 2>a diplomat.

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<v Speaker 1>Well, you know, I thought about going to graduate school

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<v Speaker 1>right away for political science. I looked into American University,

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<v Speaker 1>and then I thought to myself, I don't know what

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<v Speaker 1>I want to do yet. So all I knew throughout

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<v Speaker 1>the latter part of my undergraduate years is that I

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<v Speaker 1>wanted to live and work in New York City. That

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<v Speaker 1>was the dream without a latch. Grow born in bay Ridge, Brooklyn,

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<v Speaker 1>then early part of childhood in Marstown, New Jersey, then

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<v Speaker 1>outside of Philadelphia and Westchester, Pennsylvania. Then of course went

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<v Speaker 1>to Delaware and then New York City for twelve years,

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<v Speaker 1>and then Connecticut. Raised our kids in Darien, Connecticut. And

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<v Speaker 1>now I'm based in Naples, Florida.

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<v Speaker 2>Right, do you have a little golf cart and your.

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<v Speaker 1>Put no golf cart now, but of Vespa.

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<v Speaker 2>Okay, oh that's fun. So you come out of college,

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<v Speaker 2>how did you end up at Avatar Associates working with

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<v Speaker 2>Marty's wide.

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<v Speaker 1>So I interviewed across the spectrum of industries, and they

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<v Speaker 1>were all interviews for grunt positions, entry level positions. But

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<v Speaker 1>I had interviews at a few Wall Street firms, both

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<v Speaker 1>large and small. I think I interviewed at a marketing

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<v Speaker 1>firm and ad agency because I didn't know what I

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<v Speaker 1>wanted to do. But I had some familiarity with Marty

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<v Speaker 1>because in college, one of the courses that I took

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<v Speaker 1>a requirement was, in addition to reading the Wall Street

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<v Speaker 1>Journal every day, was understanding what had happened in the

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<v Speaker 1>world of financial markets throughout the week. And I had

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<v Speaker 1>a professor give me a little sort of hint. He said, Hey,

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<v Speaker 1>just watch Wall Street Week on PBS on Friday nights

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<v Speaker 1>Closer Kaiser at eight thirty to nine o'clock. Then you know,

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<v Speaker 1>you go out and you start your weekend. And I did.

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<v Speaker 1>And Marty was on that show really from its inception

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<v Speaker 1>in the early nineteen seventies. And for those that remember

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<v Speaker 1>the show, you also remember that that predated anything that

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<v Speaker 1>exists Now.

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<v Speaker 2>That was the Orisontal for that show. Before there was

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<v Speaker 2>three or four different financial news networks.

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<v Speaker 1>And it was millions of viewers every week. It was

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<v Speaker 1>that eras version of Must see TV on the subject

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<v Speaker 1>of the market. So I had some familiarity, but in

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<v Speaker 1>advance of the interview, I also did more research on

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<v Speaker 1>Marty on his side of the organization, which was the

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<v Speaker 1>mutual fund, hedge fund, investment newsletter side, and then the

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<v Speaker 1>avatar side that I ultimately joined, which was the institutional

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<v Speaker 1>money management firm that Barry is a reminder in nineteen

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<v Speaker 1>eighty six, the process of doing research on a person

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<v Speaker 1>or a firm, there is just Google them. No, there

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<v Speaker 1>was no Google. There were no computers, there was no Internet.

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<v Speaker 1>So I was in the library with the microfiche machine

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<v Speaker 1>and literally turning the crank and reading newspaper articles. So

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<v Speaker 1>I had some background and had two interviews, and honestly,

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<v Speaker 1>just the voice inside my head said, this feels right.

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<v Speaker 2>You're there for thirteen years, nineteen eighty six to ninety nine.

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<v Speaker 2>That was the Great bullmarket. Tell us a little bit

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<v Speaker 2>what it was like during that period, and then we'll

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<v Speaker 2>talk about what it was like working with Marty's Y

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<v Speaker 2>for the late Great Marty's wife.

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<v Speaker 1>So again I was on the avatar side of this

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<v Speaker 1>Wyg Avatar broader organization, which was institutional money management, managing

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<v Speaker 1>money for a lot of large corporate plans and foundations

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<v Speaker 1>and endowments. And I was a portfolio manager, so I

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<v Speaker 1>was doing bottom up rec search and picking stocks. But

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<v Speaker 1>it was with the context of the top down analysis

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<v Speaker 1>that Marty brought to the picture I learned throughout that

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<v Speaker 1>thirteen years. And part of the reason why I took

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<v Speaker 1>advantage of an opportunity that presented itself to move over

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<v Speaker 1>to US Trust was I was much more interested in

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<v Speaker 1>and fascinated by the top down and not the bottom up.

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<v Speaker 1>I did love picking stocks, it just wasn't where my

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<v Speaker 1>passion was. So my observations were more keen on what

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<v Speaker 1>Marty and his models were doing in the context of

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<v Speaker 1>the big picture and monetary policy analysis and investor sentiment

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<v Speaker 1>and behavior, and that was where I really found my

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<v Speaker 1>passion was in that top down analysis.

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<v Speaker 2>So let's talk a little bit about Marty's Wig, one

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<v Speaker 2>of that era's most famous investors and traders. The technical

0:10:56.240 --> 0:11:01.000
<v Speaker 2>crew know him for the ZWYG thrust Indicationlater he created

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<v Speaker 2>the coal ratio. But he's also the guy who coined

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<v Speaker 2>the phrase don't fight the fed. Tell us a little

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<v Speaker 2>bit what it was like to work with Marty's why.

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<v Speaker 1>I adored Marty, you know, rest in peace. He was quirky.

0:11:16.720 --> 0:11:20.000
<v Speaker 1>He could have a temper, but never about the big stuff.

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<v Speaker 1>It was more about the little stuff. If he couldn't

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<v Speaker 1>find his pencil, and you know, he would toss a phone.

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<v Speaker 1>But he was really sort of warm and fuzzy, but

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<v Speaker 1>had that. He was always sort of anxious and nervous,

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<v Speaker 1>and a lot of people who just observed him from

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<v Speaker 1>afar took it as well, He's just bearish all the time.

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<v Speaker 1>It wasn't the case. I mean, he was essentially a

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<v Speaker 1>market timer, for lack of a better word. He was

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<v Speaker 1>an tactical acid allocator.

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<v Speaker 2>And one of the more rare successful market.

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<v Speaker 1>Times, unbelievably successful, and had to do with the discipline

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<v Speaker 1>of the models that he used and how he segmented

0:11:59.080 --> 0:12:03.839
<v Speaker 1>economical equids, investor liquidity, and then technicals and breath conditions

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<v Speaker 1>and understood how they melded together. And you know, it

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<v Speaker 1>wasn't The history of working for him wasn't without some

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<v Speaker 1>periods that he didn't quite nail, but the big ones

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<v Speaker 1>he really nailed.

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<v Speaker 2>When I was early in my career, I read the

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<v Speaker 2>book Winning on Wall Street, which I think came out

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<v Speaker 2>in like ninety five or ninety six.

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<v Speaker 1>Well, the original one came out earlier than that, but

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<v Speaker 1>there were there were additions that followed that, but it's

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<v Speaker 1>still a mustreet.

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<v Speaker 2>And my takeaway from that is market timing is one

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<v Speaker 2>part science where you're crunching numbers and looking at history,

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<v Speaker 2>but you can't get away from one part art where

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<v Speaker 2>after you're watching the markets for decades like him, there's

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<v Speaker 2>an intuitive feel where just something starts to smell wrong

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<v Speaker 2>and when the data lines up and your spidey sense

0:12:59.200 --> 0:13:03.319
<v Speaker 2>starts to tangle. And he never quite said it that way,

0:13:03.400 --> 0:13:06.600
<v Speaker 2>but I very much got the sense that all the

0:13:06.800 --> 0:13:09.600
<v Speaker 2>data was there to buttress the fact that, hey, I've

0:13:09.600 --> 0:13:12.440
<v Speaker 2>been watching markets for fifty years and something wicked this

0:13:12.480 --> 0:13:13.160
<v Speaker 2>way comes.

0:13:13.400 --> 0:13:17.720
<v Speaker 1>The gut instinct was extraordinary. It was always again in

0:13:17.760 --> 0:13:21.760
<v Speaker 1>the context of the models that he was very disciplined about,

0:13:21.840 --> 0:13:24.760
<v Speaker 1>but there was that just added little piece, and it

0:13:24.880 --> 0:13:28.280
<v Speaker 1>certainly came into play with regard to what essentially was

0:13:28.720 --> 0:13:29.520
<v Speaker 1>his crash call.

0:13:29.720 --> 0:13:32.720
<v Speaker 2>So let's talk about that. So he's a regular on

0:13:33.160 --> 0:13:36.560
<v Speaker 2>Wall Street Week with Lewis Rukeiser. I could still see

0:13:36.600 --> 0:13:39.240
<v Speaker 2>the dollar sign in the street, the s for the

0:13:39.280 --> 0:13:44.959
<v Speaker 2>street in the in the logo the Friday before Black Monday,

0:13:45.160 --> 0:13:47.840
<v Speaker 2>he goes on Rukeiser, what does he say.

0:13:47.800 --> 0:13:50.360
<v Speaker 1>For those that don't remember the show? And it's you

0:13:50.400 --> 0:13:53.240
<v Speaker 1>know what every other goes by? I still hear all

0:13:53.280 --> 0:13:55.680
<v Speaker 1>the time. Oh my gosh, I miss Wall Street Week.

0:13:55.720 --> 0:13:58.319
<v Speaker 1>I miss Lou? What was he like? What was Marty like?

0:13:59.080 --> 0:14:01.880
<v Speaker 1>And younger people just never heard of the show. They

0:14:01.920 --> 0:14:05.080
<v Speaker 1>have no idea who who short Kaiser is, and that's

0:14:05.559 --> 0:14:08.319
<v Speaker 1>kind of sad for somebody that's been around for as

0:14:08.320 --> 0:14:10.920
<v Speaker 1>long as I have. But the structure of the show

0:14:10.960 --> 0:14:12.880
<v Speaker 1>with Lou would come out. He would do ten minutes

0:14:13.000 --> 0:14:18.800
<v Speaker 1>or so of a monologue and it was really brilliant writing.

0:14:18.840 --> 0:14:22.600
<v Speaker 1>He wrote them all himself. There was humor, there was

0:14:23.160 --> 0:14:26.040
<v Speaker 1>great intelligence on what had happened in the market. There

0:14:26.120 --> 0:14:29.640
<v Speaker 1>was really important reminders around what matters and what doesn't.

0:14:29.720 --> 0:14:33.160
<v Speaker 1>And he was just sort of a calming force and influence,

0:14:33.240 --> 0:14:37.280
<v Speaker 1>especially during tumultuous times. But then he would walk over

0:14:37.360 --> 0:14:40.400
<v Speaker 1>to the table where at the table was Lou and

0:14:40.560 --> 0:14:44.240
<v Speaker 1>the three regular panelists that were on that evening, and

0:14:44.280 --> 0:14:49.760
<v Speaker 1>there was twenty one two three panelists on an ongoing basis,

0:14:49.800 --> 0:14:53.320
<v Speaker 1>and he would have a conversation with each panelist and

0:14:53.360 --> 0:14:56.280
<v Speaker 1>then all four would go over to the sofa area

0:14:56.400 --> 0:14:58.520
<v Speaker 1>and interview the special guest for that night. So this

0:14:58.640 --> 0:15:01.160
<v Speaker 1>was the middle part of the show show where he

0:15:01.280 --> 0:15:04.600
<v Speaker 1>was talking to the panelists, and Marty was his typical

0:15:06.600 --> 0:15:09.360
<v Speaker 1>and I think Lou asked him, and you can find

0:15:09.400 --> 0:15:10.080
<v Speaker 1>it on YouTube.

0:15:10.080 --> 0:15:10.560
<v Speaker 2>It's a.

0:15:13.160 --> 0:15:15.280
<v Speaker 1>Bunch of them, a bunch of them, are that's the

0:15:15.320 --> 0:15:15.840
<v Speaker 1>one to watch?

0:15:15.960 --> 0:15:17.880
<v Speaker 2>Yeah? Absolutely, And I.

0:15:17.800 --> 0:15:21.280
<v Speaker 1>Think Lou said, boy, you sound a little trouble. Do

0:15:21.280 --> 0:15:24.120
<v Speaker 1>you think we have a bear market? And Marty basically said, no,

0:15:24.320 --> 0:15:27.480
<v Speaker 1>I think the market's going to crash, And then he

0:15:27.560 --> 0:15:30.560
<v Speaker 1>went further to talk about the nature of what it

0:15:30.560 --> 0:15:33.520
<v Speaker 1>would look like, the probability that it would happen, but

0:15:33.560 --> 0:15:36.160
<v Speaker 1>then there would be a retest, but then once you

0:15:36.200 --> 0:15:38.920
<v Speaker 1>had the retest, the decent chance that you'd be off

0:15:38.920 --> 0:15:39.720
<v Speaker 1>to the races again.

0:15:39.760 --> 0:15:42.880
<v Speaker 2>Pretty much exactly exactly what happened. Like, It's not just oh,

0:15:42.880 --> 0:15:45.960
<v Speaker 2>the market's going to lose some points on Monday. He

0:15:46.040 --> 0:15:48.680
<v Speaker 2>laid out like the next six months and it's exactly

0:15:48.720 --> 0:15:49.720
<v Speaker 2>what happened.

0:15:49.480 --> 0:15:52.160
<v Speaker 1>And it had to do with the interest right backdrop

0:15:52.200 --> 0:15:56.640
<v Speaker 1>at the time and tighter monetary conditions, but also the

0:15:56.720 --> 0:16:01.280
<v Speaker 1>spidey sense to your point, around the the innovation of

0:16:01.320 --> 0:16:06.080
<v Speaker 1>the time of portfolio insurance and felt that that was

0:16:06.160 --> 0:16:09.080
<v Speaker 1>sort of unwinding and wasn't going to represent the insurance

0:16:09.080 --> 0:16:12.400
<v Speaker 1>that a lot of people thought. And he was on

0:16:12.960 --> 0:16:17.280
<v Speaker 1>that the hedge fund side of the dual organization so

0:16:18.080 --> 0:16:21.160
<v Speaker 1>could be could swing for the fences a bit more

0:16:21.720 --> 0:16:24.480
<v Speaker 1>than we could on the institutional side. And I don't

0:16:24.520 --> 0:16:29.120
<v Speaker 1>remember the exact percentages, but was very aggressively long heading

0:16:29.160 --> 0:16:33.840
<v Speaker 1>into what the pre crash peak was in August, and

0:16:33.880 --> 0:16:37.720
<v Speaker 1>then started aggressively both selling and moving to the short

0:16:37.760 --> 0:16:41.360
<v Speaker 1>side of things, heading right into the weekend before the crash.

0:16:41.400 --> 0:16:44.800
<v Speaker 1>And we did something similar on the institutional side, not

0:16:45.000 --> 0:16:48.800
<v Speaker 1>the same extreme, but close to fully invested to a

0:16:48.920 --> 0:16:50.360
<v Speaker 1>very very low equity exposure.

0:16:50.440 --> 0:16:54.080
<v Speaker 2>And people may not remember nineteen eighty seven was at

0:16:54.200 --> 0:16:57.480
<v Speaker 2>least up and through September was a robust year in

0:16:57.520 --> 0:16:59.920
<v Speaker 2>the market. We were up like thirty or forty percent,

0:17:00.400 --> 0:17:05.280
<v Speaker 2>like a really substantial gain, and despite the twenty two

0:17:05.400 --> 0:17:08.960
<v Speaker 2>point seven percent crash, I think we finished the year

0:17:09.080 --> 0:17:10.080
<v Speaker 2>like up one percent.

0:17:10.600 --> 0:17:12.159
<v Speaker 1>I think it was one point eight percent. And you

0:17:12.160 --> 0:17:15.840
<v Speaker 1>know what, Barry, I'm glad you mentioned that, So indulge

0:17:15.880 --> 0:17:18.720
<v Speaker 1>me if you would, on a tangent here. One of

0:17:18.720 --> 0:17:20.880
<v Speaker 1>the things that I have never done, and no one

0:17:20.880 --> 0:17:23.080
<v Speaker 1>at Schwab has ever asked me to do, is what

0:17:23.119 --> 0:17:25.600
<v Speaker 1>I think is the silly exercise of things like yourine

0:17:25.600 --> 0:17:30.080
<v Speaker 1>price targets. Now, in part that's a way for institutional

0:17:30.119 --> 0:17:33.560
<v Speaker 1>strategists to be measured against one another, and the sort

0:17:33.560 --> 0:17:37.800
<v Speaker 1>of narrative embedded in that I suppose might matter to institutions,

0:17:37.840 --> 0:17:40.520
<v Speaker 1>but our eight plus trillion dollars of client assets are

0:17:40.560 --> 0:17:44.000
<v Speaker 1>for the most part, individual investors. Nineteen eighty seven is

0:17:44.000 --> 0:17:46.640
<v Speaker 1>a perfect example of that. If I, at the beginning

0:17:46.720 --> 0:17:49.439
<v Speaker 1>of the year had said the market is going to

0:17:49.480 --> 0:17:52.840
<v Speaker 1>be up less than two percent, that might have sent

0:17:52.880 --> 0:17:54.919
<v Speaker 1>the impression that it was going to be kind of

0:17:54.920 --> 0:17:58.400
<v Speaker 1>a boring year and patted myself on the back at

0:17:58.400 --> 0:18:02.000
<v Speaker 1>the end of the year. But the path that the

0:18:02.040 --> 0:18:06.160
<v Speaker 1>market took to start at the year and then ended

0:18:06.240 --> 0:18:10.800
<v Speaker 1>up one point eight percent was nothing resembling what one

0:18:10.880 --> 0:18:13.719
<v Speaker 1>might infer if you had just heard the year end

0:18:13.760 --> 0:18:16.600
<v Speaker 1>price target of essentially a flat market.

0:18:17.320 --> 0:18:21.480
<v Speaker 2>So I love the mental exercise that Wes Gray of

0:18:21.560 --> 0:18:26.480
<v Speaker 2>Alpha Architect does. Hey, if you knew with perfect clarity,

0:18:26.560 --> 0:18:29.399
<v Speaker 2>if that bird landed on your shoulder and told you

0:18:29.480 --> 0:18:33.120
<v Speaker 2>here's where equity prices are going to be in ten years,

0:18:33.720 --> 0:18:39.119
<v Speaker 2>position your portfolio for that. He says, even God would

0:18:39.119 --> 0:18:43.160
<v Speaker 2>get fired as a portfolio manager because the drawdowns can

0:18:43.200 --> 0:18:47.520
<v Speaker 2>be so vicious. And what do you mean you're fully invested.

0:18:47.600 --> 0:18:50.639
<v Speaker 2>The market is down, you know, thirty forty percent? You

0:18:50.680 --> 0:18:51.159
<v Speaker 2>didn't see this.

0:18:51.160 --> 0:18:56.000
<v Speaker 1>When markets are going up, the benchmark is either an

0:18:56.040 --> 0:18:58.520
<v Speaker 1>index like the S and P five hundred, or you

0:18:58.560 --> 0:19:00.639
<v Speaker 1>know someone you know that's making even more money than

0:19:00.680 --> 0:19:04.399
<v Speaker 1>you are. But it's amazing how quickly the benchmark turns

0:19:04.440 --> 0:19:07.400
<v Speaker 1>into cash or a positive return when markets are going down.

0:19:07.760 --> 0:19:10.399
<v Speaker 2>So let's talk a little bit about a day in

0:19:10.440 --> 0:19:13.200
<v Speaker 2>the life of a chief investment strategist at an eight

0:19:13.280 --> 0:19:16.639
<v Speaker 2>trillion dollar firm. I have to assume every day is

0:19:16.640 --> 0:19:17.280
<v Speaker 2>a little different.

0:19:17.320 --> 0:19:18.960
<v Speaker 1>I was going to say, it depends on the day.

0:19:19.200 --> 0:19:21.560
<v Speaker 2>So take us through a typical day. What's it like.

0:19:21.760 --> 0:19:25.679
<v Speaker 1>Well, there is probably nothing typical about a day, but

0:19:26.160 --> 0:19:29.200
<v Speaker 1>on the rare occasion where I have a decent block

0:19:29.240 --> 0:19:33.919
<v Speaker 1>of time where I am not on camera or traveling,

0:19:34.240 --> 0:19:36.879
<v Speaker 1>I do a lot of research. I remember when my

0:19:37.040 --> 0:19:39.840
<v Speaker 1>daughter was in middle school and she's twenty four years

0:19:39.880 --> 0:19:42.040
<v Speaker 1>old analysis, and she's the youngest. It was a long

0:19:42.040 --> 0:19:43.959
<v Speaker 1>time ago. The school had a career day and I

0:19:44.040 --> 0:19:46.879
<v Speaker 1>was asked to come in as one of the representatives

0:19:46.920 --> 0:19:49.840
<v Speaker 1>to have kids rotate through the classroom. They assigned you

0:19:49.880 --> 0:19:52.399
<v Speaker 1>to and talk about what you do, particularly for a

0:19:52.480 --> 0:19:56.080
<v Speaker 1>job like mine. The directive from the principle was try

0:19:56.080 --> 0:19:58.760
<v Speaker 1>to get the seventh graders to understand what you do.

0:19:59.000 --> 0:20:02.120
<v Speaker 1>So I started by saying, well, basically, I read, write,

0:20:02.119 --> 0:20:05.760
<v Speaker 1>and talk. So that's what I spend my typical day

0:20:05.800 --> 0:20:08.440
<v Speaker 1>doing is some form of reading, writing and talking. And

0:20:08.600 --> 0:20:12.720
<v Speaker 1>the reading part is the digestion of just a fire

0:20:12.760 --> 0:20:17.320
<v Speaker 1>hose of information, proprietary research, internal Schwab research, all the

0:20:17.359 --> 0:20:20.359
<v Speaker 1>research that I get from the variety of research sources

0:20:21.080 --> 0:20:25.199
<v Speaker 1>that we have, analyzing data, analyzing every economic report that

0:20:25.240 --> 0:20:28.040
<v Speaker 1>comes in, everything happening in the market on a day

0:20:28.040 --> 0:20:30.800
<v Speaker 1>to day basis. Even though I don't take a trading approach,

0:20:31.000 --> 0:20:34.840
<v Speaker 1>just looking at technicals and breath statistics and leadership and

0:20:35.119 --> 0:20:39.600
<v Speaker 1>factor analysis, et cetera, et cetera. And then I spent

0:20:39.680 --> 0:20:42.199
<v Speaker 1>a lot of time both literally and figuratively, on the

0:20:42.280 --> 0:20:46.040
<v Speaker 1>road talking to our clients, both the retail clients as

0:20:46.040 --> 0:20:50.639
<v Speaker 1>well as advisor services. Now, in this post COVID environment,

0:20:50.800 --> 0:20:54.040
<v Speaker 1>it's not quite as much as used to be the

0:20:54.080 --> 0:20:56.679
<v Speaker 1>case in terms of travel to do in person events.

0:20:57.320 --> 0:20:59.880
<v Speaker 1>It's maybe sixty percent back in that direction, but we've

0:20:59.880 --> 0:21:01.080
<v Speaker 1>all adopted to the.

0:21:01.080 --> 0:21:02.720
<v Speaker 2>Use of Isn't that a better balance?

0:21:02.800 --> 0:21:06.040
<v Speaker 1>Doesn't it's a better balance, and it's efficient. I used

0:21:06.080 --> 0:21:08.600
<v Speaker 1>to I used to go over to Asia once or

0:21:08.640 --> 0:21:10.920
<v Speaker 1>twice a year to see many of our clients that

0:21:10.960 --> 0:21:14.560
<v Speaker 1>are based over there, and the trips would involve some

0:21:15.080 --> 0:21:19.879
<v Speaker 1>combination of Hong Kong, Shanghai, Beijing, maybe Singapore, and I

0:21:19.920 --> 0:21:22.960
<v Speaker 1>would do a breakfast event, a lunch event, a dinner event.

0:21:23.680 --> 0:21:25.680
<v Speaker 1>The dinner events might have up to one hundred and

0:21:25.680 --> 0:21:28.439
<v Speaker 1>fifty two hundred people, smaller other events, but at the

0:21:28.480 --> 0:21:31.760
<v Speaker 1>end of a trip it was a brutal travel trip.

0:21:31.800 --> 0:21:35.880
<v Speaker 1>I might have interacted in some form with several hundred clients.

0:21:36.000 --> 0:21:39.760
<v Speaker 1>I now do a quarterly webcast for those same clients,

0:21:39.920 --> 0:21:42.719
<v Speaker 1>and there have been webcasts on which we've had more

0:21:42.760 --> 0:21:46.200
<v Speaker 1>than five thousand. Wow, clients, So there is an efficiency

0:21:46.280 --> 0:21:48.760
<v Speaker 1>to continue to weave that in.

0:21:48.920 --> 0:21:52.840
<v Speaker 2>There's no substitute for the face to face. But sometimes

0:21:52.920 --> 0:21:56.399
<v Speaker 2>it's like, do I really need to go here to

0:21:56.440 --> 0:22:00.159
<v Speaker 2>meet with thirty people? It just seems so some of

0:22:00.240 --> 0:22:03.280
<v Speaker 2>the takeaway from a little bit of zoom, a little

0:22:03.320 --> 0:22:07.160
<v Speaker 2>bit of webcasts have become hey, we can be more

0:22:07.200 --> 0:22:11.520
<v Speaker 2>efficient and more productive. Absolutely, all these tools existed ten

0:22:11.640 --> 0:22:13.840
<v Speaker 2>years ago. The pandemic seems.

0:22:13.560 --> 0:22:18.560
<v Speaker 1>Fair for us to right. Absolutely. And then as you

0:22:18.600 --> 0:22:23.119
<v Speaker 1>and I sit here having this conversation, a relatively new

0:22:23.280 --> 0:22:26.480
<v Speaker 1>component of my day to day activity is I know,

0:22:26.640 --> 0:22:28.080
<v Speaker 1>co host a podcast.

0:22:28.240 --> 0:22:30.119
<v Speaker 2>I know that. How are you enjoying that?

0:22:30.400 --> 0:22:32.760
<v Speaker 1>Love it? Absolutely? Love it? So we launched it. I

0:22:32.760 --> 0:22:35.719
<v Speaker 1>think it was November of last year. I co hosted

0:22:35.840 --> 0:22:39.200
<v Speaker 1>with my colleague Kathy Jones, who was our chief fixed

0:22:39.240 --> 0:22:43.560
<v Speaker 1>income strategist, So she's my counterpart on the fixed income

0:22:43.600 --> 0:22:45.840
<v Speaker 1>side of things, where my bias is on the equity

0:22:45.920 --> 0:22:50.719
<v Speaker 1>side of things. And we have just very open, honest conversation,

0:22:50.920 --> 0:22:53.040
<v Speaker 1>sort of you're a fly on the wall hearing what

0:22:53.119 --> 0:22:56.040
<v Speaker 1>we would talk about. It's very unscripted about what's going

0:22:56.080 --> 0:22:58.240
<v Speaker 1>on in the markets, and we talk about the FED

0:22:58.359 --> 0:23:00.760
<v Speaker 1>and economic data and what's a head for the week.

0:23:01.000 --> 0:23:03.879
<v Speaker 1>And we typically also have guests both in weekly. You're

0:23:03.960 --> 0:23:07.639
<v Speaker 1>doing weekly, We're doing it weekly. It drops on Fridays.

0:23:07.800 --> 0:23:11.600
<v Speaker 1>It's audio only, so we can have external guests, internal guests.

0:23:12.280 --> 0:23:16.200
<v Speaker 1>Any people can be wherever they are, and a wide

0:23:16.520 --> 0:23:20.280
<v Speaker 1>range of guests that we have had. We had Claudia

0:23:20.440 --> 0:23:24.320
<v Speaker 1>som we had al Rabel talking about commercial real estate.

0:23:24.480 --> 0:23:28.040
<v Speaker 1>We had Dolly Lenz of real estate fame talking about

0:23:28.040 --> 0:23:30.879
<v Speaker 1>residential real estate. We've had internal guests like our own

0:23:30.960 --> 0:23:34.280
<v Speaker 1>Mike Townshend talking about what's going on in Washington. So

0:23:34.560 --> 0:23:35.879
<v Speaker 1>that's been an absolute blast.

0:23:36.040 --> 0:23:39.480
<v Speaker 2>Isn't this not to toot my own horn, but isn't

0:23:39.480 --> 0:23:44.720
<v Speaker 2>this just such a pleasant formatte not three minutes? There's

0:23:44.720 --> 0:23:48.080
<v Speaker 2>no camera in your face. You know, the world is

0:23:48.240 --> 0:23:52.359
<v Speaker 2>not black and white, and investing, especially has so many

0:23:52.400 --> 0:23:57.560
<v Speaker 2>shades of gray, and to develop really have a decent

0:23:57.760 --> 0:24:02.680
<v Speaker 2>explanation as to what's going on five minutes really is tight.

0:24:03.600 --> 0:24:07.919
<v Speaker 2>Write it really is so to go into that sounds

0:24:07.920 --> 0:24:10.199
<v Speaker 2>great and I love that description of what you do

0:24:10.359 --> 0:24:14.800
<v Speaker 2>is reading, writing and talking is really is great. I

0:24:14.880 --> 0:24:19.399
<v Speaker 2>wanted to ask you something you mentioned all of the

0:24:19.520 --> 0:24:24.320
<v Speaker 2>internal schwab clients, you have advisors, you have individual clients

0:24:25.000 --> 0:24:27.560
<v Speaker 2>like I would love to be let loose on that

0:24:27.760 --> 0:24:32.920
<v Speaker 2>data to see what they do in response to markets.

0:24:32.920 --> 0:24:36.080
<v Speaker 2>How do you look at the behavior of whether it's

0:24:36.119 --> 0:24:39.960
<v Speaker 2>professional or institutional or just mom and pop traders. Do

0:24:40.040 --> 0:24:44.080
<v Speaker 2>you guys monitor that and say, here's the sentiment. It

0:24:44.160 --> 0:24:46.119
<v Speaker 2>looks like people are starting to get really panic.

0:24:46.240 --> 0:24:48.959
<v Speaker 1>We do, and there are a variety of forms that

0:24:49.000 --> 0:24:53.160
<v Speaker 1>we disseminate that type of information out into the public sphere,

0:24:53.200 --> 0:24:57.680
<v Speaker 1>which is not something I do formally. There are groups

0:24:57.720 --> 0:25:00.960
<v Speaker 1>that put that together, but I have access to the information,

0:25:01.200 --> 0:25:03.520
<v Speaker 1>and you're right, particularly as it relates to the sentiment

0:25:03.520 --> 0:25:05.679
<v Speaker 1>in side of things. I have been a sentiment watcher

0:25:05.760 --> 0:25:08.080
<v Speaker 1>for my thirty eight years in this business, learning a

0:25:08.119 --> 0:25:11.560
<v Speaker 1>lot about the power of sentiment from Marty's wig. But

0:25:11.640 --> 0:25:15.200
<v Speaker 1>I think it's important to look at both attitudinal measures

0:25:15.200 --> 0:25:19.240
<v Speaker 1>of sentiment and behavioral measures of sentiment. And behavioral measures.

0:25:19.280 --> 0:25:21.520
<v Speaker 1>With eight plus trillion dollars of client.

0:25:21.280 --> 0:25:24.480
<v Speaker 2>Assets, someone's going to be acting in it's.

0:25:23.920 --> 0:25:28.080
<v Speaker 1>Probably a pretty good eye into the sort of psyche

0:25:28.280 --> 0:25:32.480
<v Speaker 1>and behavior of individual investors. So it is absolutely something

0:25:32.520 --> 0:25:35.080
<v Speaker 1>that I incorporate in the analysis. It's in addition to

0:25:35.680 --> 0:25:39.520
<v Speaker 1>broader metrics that go beyond just schwab things like fundflows

0:25:39.520 --> 0:25:42.600
<v Speaker 1>and obviously the put call ratio and other ways to

0:25:42.720 --> 0:25:45.679
<v Speaker 1>measure the behavior of investors. But it's in conjunction with

0:25:45.760 --> 0:25:50.000
<v Speaker 1>those more attitudinal measures, and that comes from sources like

0:25:50.080 --> 0:25:54.040
<v Speaker 1>AAII American Association of Individual Investors. But frankly, a lot

0:25:54.080 --> 0:25:57.879
<v Speaker 1>of the attitudinal measures of sentiment I pick up just

0:25:58.000 --> 0:26:01.800
<v Speaker 1>from talking to our clients on the road. That's where

0:26:01.840 --> 0:26:05.239
<v Speaker 1>the spidey sense that the gut feel comes in. And

0:26:05.240 --> 0:26:09.320
<v Speaker 1>now being very active on social media too, particularly Twitter

0:26:09.520 --> 0:26:12.879
<v Speaker 1>slash x. By the way, I am not active on

0:26:12.960 --> 0:26:19.080
<v Speaker 1>either Instagram or Facebook. However, a very troubling, huge rash

0:26:19.240 --> 0:26:24.200
<v Speaker 1>of impostors on those platforms of me not just trying

0:26:24.240 --> 0:26:25.240
<v Speaker 1>to get followers.

0:26:25.320 --> 0:26:26.760
<v Speaker 2>Yeah, I was kind of surprised you.

0:26:26.640 --> 0:26:28.760
<v Speaker 1>Were kitching pitching things like.

0:26:28.760 --> 0:26:30.320
<v Speaker 2>Your big bitcoin advocate.

0:26:30.720 --> 0:26:33.440
<v Speaker 1>Apparently that is not me, by the way.

0:26:33.880 --> 0:26:36.240
<v Speaker 2>Not on Facebook, I'm not on.

0:26:36.320 --> 0:26:38.680
<v Speaker 1>I'm not active on Facebook. I'm not And I've had

0:26:38.680 --> 0:26:40.439
<v Speaker 1>a rash of impostors on Twitter.

0:26:40.560 --> 0:26:44.080
<v Speaker 2>I was about to say, you know, Elon Musk is

0:26:44.200 --> 0:26:48.560
<v Speaker 2>touting groc as their AI and I would never subscribe

0:26:48.600 --> 0:26:52.600
<v Speaker 2>to that until they were able to demonstrate, Hey, groc

0:26:52.680 --> 0:26:55.320
<v Speaker 2>has gotten rid of all the spam bots, and it's

0:26:55.320 --> 0:27:00.440
<v Speaker 2>gotten rid of all the like I'm constantly reporting fake backes.

0:27:00.520 --> 0:27:07.000
<v Speaker 2>I'm sure, and how c not. It's so easy to identify. Well,

0:27:07.040 --> 0:27:09.840
<v Speaker 2>if a I can't do that, then it is worthless.

0:27:10.119 --> 0:27:13.160
<v Speaker 1>It is, and it drives me crazy.

0:27:13.000 --> 0:27:14.679
<v Speaker 2>That it's gone away anyway.

0:27:14.680 --> 0:27:20.320
<v Speaker 1>Twitter, somebody will think it's me, right, and it's somebody.

0:27:20.440 --> 0:27:24.040
<v Speaker 1>It's an account with you know, seven followers and nine

0:27:24.520 --> 0:27:27.680
<v Speaker 1>not not that, not that I'm on you know, Taylor Swift,

0:27:27.840 --> 0:27:28.680
<v Speaker 1>but to.

0:27:28.800 --> 0:27:33.959
<v Speaker 2>Be fair, your call on doge coin using the handle

0:27:34.160 --> 0:27:38.639
<v Speaker 2>lizen Sunder's nine seven three one four six nine it

0:27:38.680 --> 0:27:39.440
<v Speaker 2>was pretty well.

0:27:39.280 --> 0:27:41.760
<v Speaker 1>Time good for her, for her, for him or it

0:27:42.040 --> 0:27:46.360
<v Speaker 1>or whatever. It's a North Korean Yeah, no, so for

0:27:46.359 --> 0:27:49.480
<v Speaker 1>for people who might not have been following the actual me,

0:27:49.640 --> 0:27:53.440
<v Speaker 1>it's at Las Anne Sanders. There's there's no e at

0:27:53.440 --> 0:27:55.800
<v Speaker 1>the end of a hand. There's Saunders is not spelled

0:27:55.800 --> 0:27:59.639
<v Speaker 1>with a Z. There's no numbers added to it, there's

0:28:00.400 --> 0:28:02.359
<v Speaker 1>It drives me crazy, and.

0:28:02.320 --> 0:28:05.440
<v Speaker 2>It's it should be one of those things that are

0:28:05.560 --> 0:28:10.600
<v Speaker 2>just so easy to fix, and he is otherwise distracted,

0:28:11.160 --> 0:28:14.520
<v Speaker 2>So it is something that yeah, that's pretty good. And

0:28:14.600 --> 0:28:17.719
<v Speaker 2>I remember when you first when we when we spoke

0:28:17.840 --> 0:28:18.919
<v Speaker 2>last time twenty fifteen, I.

0:28:18.920 --> 0:28:22.600
<v Speaker 1>Think I had just joined Twitter. Yeah.

0:28:22.640 --> 0:28:25.760
<v Speaker 2>And for people who don't follow liz Ane Saunders, but

0:28:25.840 --> 0:28:28.760
<v Speaker 2>you should, and I retweet you on a regular basis.

0:28:29.000 --> 0:28:32.440
<v Speaker 2>You put up some really nice charts, some good tables.

0:28:32.840 --> 0:28:37.159
<v Speaker 2>Everything is databased, everything is fact oriented. It's none of

0:28:37.200 --> 0:28:39.040
<v Speaker 2>the stuff that I see from you. And this is

0:28:39.040 --> 0:28:42.400
<v Speaker 2>why I appreciate your feed. Is you know, I really

0:28:42.400 --> 0:28:44.720
<v Speaker 2>think the market has another leg up here about ten

0:28:44.720 --> 0:28:46.760
<v Speaker 2>to fifteen percent. Then we get a pull up.

0:28:46.800 --> 0:28:48.800
<v Speaker 1>There's none of that, there's no bit just because I

0:28:48.840 --> 0:28:51.560
<v Speaker 1>you know why, I don't know. I can't do that.

0:28:51.480 --> 0:28:54.760
<v Speaker 1>That's right, and by the way, nobody knows. Nobody can

0:28:54.800 --> 0:28:57.240
<v Speaker 1>do that. It's not what we know that matters, meaning

0:28:57.240 --> 0:28:59.080
<v Speaker 1>about the future, what the market's going to do. It's

0:28:59.120 --> 0:29:02.240
<v Speaker 1>what we do along the way. It's as simple as that.

0:29:02.560 --> 0:29:05.400
<v Speaker 2>It's a little bit of a stoic philosophy. You can't

0:29:05.400 --> 0:29:08.840
<v Speaker 2>control the world. All you can control is your reibator,

0:29:08.960 --> 0:29:12.640
<v Speaker 2>what happened, your behavior, And that's very challenging for people

0:29:12.680 --> 0:29:13.360
<v Speaker 2>to accept.

0:29:14.200 --> 0:29:18.920
<v Speaker 1>Fear and greed are really really powerful emotions, especially as

0:29:18.920 --> 0:29:22.160
<v Speaker 1>it relates to our money, because we care a lot

0:29:22.160 --> 0:29:22.800
<v Speaker 1>about our money.

0:29:22.920 --> 0:29:25.320
<v Speaker 2>So let's talk about fear and greed. Let's talk about

0:29:25.360 --> 0:29:29.600
<v Speaker 2>twenty twenty two and twenty twenty three. Twenty two was

0:29:29.640 --> 0:29:34.440
<v Speaker 2>a tough year. We had double digit declines in fixed

0:29:34.480 --> 0:29:38.920
<v Speaker 2>income and equities. I think the SMP was down about

0:29:39.120 --> 0:29:42.080
<v Speaker 2>almost twenty percent. Then NAZAK was down about thirty percent.

0:29:42.800 --> 0:29:46.840
<v Speaker 2>What was twenty twenty two like for you? Dealing with

0:29:46.880 --> 0:29:49.600
<v Speaker 2>a lot of clients and investors concerned about what was

0:29:49.640 --> 0:29:49.960
<v Speaker 2>going on?

0:29:50.000 --> 0:29:52.200
<v Speaker 1>You know, one of the most interesting things about twenty

0:29:52.280 --> 0:29:56.880
<v Speaker 1>twenty two was to tie this into the sentiment conversation

0:29:56.960 --> 0:30:00.600
<v Speaker 1>that we just had and the differential times between behavioral

0:30:00.680 --> 0:30:04.200
<v Speaker 1>measures of sentiment and additudinal measures of sentiment. I'm sure

0:30:04.240 --> 0:30:07.320
<v Speaker 1>you remember the first big wush down into June of

0:30:07.360 --> 0:30:11.200
<v Speaker 1>twenty twenty two that at the time was the hope

0:30:11.240 --> 0:30:14.200
<v Speaker 1>for Okay, maybe this is the wash out point, in

0:30:14.240 --> 0:30:18.760
<v Speaker 1>part because some sentiment measures were at extremes AAII. I

0:30:18.760 --> 0:30:22.280
<v Speaker 1>don't remember whether it was exactly around the low of June,

0:30:22.280 --> 0:30:26.280
<v Speaker 1>but sometime in that spring early summer period, the percentage

0:30:26.320 --> 0:30:31.080
<v Speaker 1>of bears in the weekly AAII survey went to a

0:30:31.160 --> 0:30:34.480
<v Speaker 1>record high and commensurately, the percentage of bulls went to

0:30:34.560 --> 0:30:38.960
<v Speaker 1>a record low, but it wasn't matched by the behavioral measures.

0:30:39.200 --> 0:30:42.240
<v Speaker 1>In fact, AAII, in addition to their weekly or you

0:30:42.280 --> 0:30:44.600
<v Speaker 1>bullish or you bearish? Are your Neutral survey, they also

0:30:44.720 --> 0:30:46.680
<v Speaker 1>track the equity exposure of their same.

0:30:46.600 --> 0:30:48.360
<v Speaker 2>Time My favorite data point of that.

0:30:48.720 --> 0:30:51.720
<v Speaker 1>And at the time where you had record high bearishness

0:30:51.760 --> 0:30:55.360
<v Speaker 1>record low bullishness, the equity exposure was only slightly often

0:30:55.440 --> 0:30:58.600
<v Speaker 1>all time high. So that was a classic example of

0:30:58.760 --> 0:31:01.280
<v Speaker 1>what they what they're saying, and what they're doing are

0:31:01.480 --> 0:31:05.400
<v Speaker 1>sort of diametrically opposed. Fast forward to the October twenty

0:31:05.480 --> 0:31:08.479
<v Speaker 1>twenty two period, there was a little more of that

0:31:09.040 --> 0:31:11.840
<v Speaker 1>across the spectrum, wash out the puke phase as I

0:31:12.000 --> 0:31:15.920
<v Speaker 1>like to call it, using a very technical term. That

0:31:16.240 --> 0:31:21.080
<v Speaker 1>was also a period where because the Magnificent seven or

0:31:21.120 --> 0:31:23.600
<v Speaker 1>the Grade eight, you know that the small handful of

0:31:23.640 --> 0:31:27.959
<v Speaker 1>ten now right now it's getting shrunk, that those stocks

0:31:27.960 --> 0:31:31.400
<v Speaker 1>were dragging performance down. But what was interesting about the

0:31:31.440 --> 0:31:34.080
<v Speaker 1>October low was what was going on under the surface.

0:31:34.800 --> 0:31:38.160
<v Speaker 1>So the indexes at the October low had taken out

0:31:38.160 --> 0:31:40.560
<v Speaker 1>their June low, but under the surface you were seeing

0:31:40.640 --> 0:31:44.239
<v Speaker 1>much improved breadth. You know, positive divergence, to use that

0:31:44.360 --> 0:31:49.080
<v Speaker 1>technical term, and that was a more compelling point in

0:31:49.120 --> 0:31:52.880
<v Speaker 1>the market. Again, the message from us wasn't the bottom

0:31:52.960 --> 0:31:57.080
<v Speaker 1>is in, but the message was this looks more compelling

0:31:57.480 --> 0:32:00.760
<v Speaker 1>than what was happening in June because you had that

0:32:00.960 --> 0:32:04.040
<v Speaker 1>sort of double wash out in sentiment and you had

0:32:04.080 --> 0:32:08.560
<v Speaker 1>that under the surface improvement in breadth where even though

0:32:09.040 --> 0:32:12.200
<v Speaker 1>you know the generals were retreating, there were more soldiers

0:32:12.640 --> 0:32:13.960
<v Speaker 1>kind of approaching the front line.

0:32:14.120 --> 0:32:19.160
<v Speaker 2>And the October twenty twenty two lows were slightly below

0:32:19.320 --> 0:32:23.720
<v Speaker 2>the June lows. And so the technicians will say that's

0:32:24.480 --> 0:32:28.760
<v Speaker 2>a double bottom, but I recall seeing some people say, uh, oh,

0:32:29.240 --> 0:32:31.480
<v Speaker 2>we're going to start a whole new leg down over here,

0:32:31.520 --> 0:32:34.400
<v Speaker 2>and it's hard to see that with sentiment that negatively.

0:32:34.560 --> 0:32:36.920
<v Speaker 1>Not only that, but again the fact that breadth under

0:32:36.920 --> 0:32:38.080
<v Speaker 1>the surface was truth.

0:32:38.320 --> 0:32:41.600
<v Speaker 2>Yeah, And you know, same thing at my firm. We're

0:32:41.640 --> 0:32:45.080
<v Speaker 2>not market timers, we're not traders. In my personal account,

0:32:45.160 --> 0:32:48.000
<v Speaker 2>I went out and bought a bunch of QQQ calls

0:32:48.080 --> 0:32:51.240
<v Speaker 2>and Spider calls just to play around, and Russell two

0:32:51.240 --> 0:32:55.800
<v Speaker 2>thousand calls. Spiders did well, Russell's did nothing, and the

0:32:55.920 --> 0:32:59.520
<v Speaker 2>cues crushed it. Over the next year. But that has

0:32:59.600 --> 0:33:03.200
<v Speaker 2>to be a challenging period. What sort of halls and

0:33:03.960 --> 0:33:07.120
<v Speaker 2>do you get panicky conversations with investors?

0:33:07.240 --> 0:33:12.400
<v Speaker 1>You know, one of the differentiations that I've observed over

0:33:12.440 --> 0:33:16.120
<v Speaker 1>my many years at Schwab is during some of the

0:33:16.200 --> 0:33:21.160
<v Speaker 1>really tumultuous eras twenty twenty two, maybe not as significant

0:33:21.240 --> 0:33:24.840
<v Speaker 1>as the COVID decline or certainly the global financial crisis,

0:33:25.000 --> 0:33:30.000
<v Speaker 1>is there is a pretty direct correlation between the ability

0:33:30.080 --> 0:33:34.320
<v Speaker 1>with the withstand volatility and tough market environments with whether

0:33:34.440 --> 0:33:38.160
<v Speaker 1>you sort of have a discipline strategic acid allocation plan

0:33:38.480 --> 0:33:41.760
<v Speaker 1>versus more of the day traders, the wing it kind.

0:33:41.840 --> 0:33:47.239
<v Speaker 1>That's where you see the bigger emotional swings versus our

0:33:47.400 --> 0:33:49.800
<v Speaker 1>clients that have taken that what we sometimes call an

0:33:49.840 --> 0:33:54.320
<v Speaker 1>advised approach, where they've got that long term plan, they

0:33:54.360 --> 0:33:58.080
<v Speaker 1>have a financial plan, they've got a strategic acid allocation

0:33:58.240 --> 0:34:02.600
<v Speaker 1>structure that is tied to everything personally about them, that

0:34:02.640 --> 0:34:07.720
<v Speaker 1>they have the disciplines around diversification, periodic rebalancing, and they

0:34:07.760 --> 0:34:10.560
<v Speaker 1>tend to ride through the tougher times much better than

0:34:10.600 --> 0:34:12.799
<v Speaker 1>the kind of wing it type investors.

0:34:12.840 --> 0:34:15.359
<v Speaker 2>So let's flip it on its head. Twenty twenty three

0:34:15.800 --> 0:34:18.360
<v Speaker 2>S and P five hundred up almost twenty five percent,

0:34:18.440 --> 0:34:21.520
<v Speaker 2>and nas deck up more than double that. What do

0:34:21.560 --> 0:34:26.839
<v Speaker 2>you do with people who suddenly become uber bullish and hey,

0:34:26.960 --> 0:34:30.040
<v Speaker 2>this is this is a new something. We have to

0:34:30.040 --> 0:34:31.480
<v Speaker 2>be in it to win it. How do you call

0:34:31.520 --> 0:34:31.920
<v Speaker 2>it that?

0:34:32.120 --> 0:34:36.440
<v Speaker 1>You're like, last year was so dominant by such a

0:34:36.480 --> 0:34:39.400
<v Speaker 1>small handful of names. It got less extreme as the

0:34:39.640 --> 0:34:43.960
<v Speaker 1>as the year concluded. But at around the midpoint of

0:34:44.120 --> 0:34:47.520
<v Speaker 1>last year, you not only had the Magnificent seven accounting

0:34:47.560 --> 0:34:50.680
<v Speaker 1>for more than all the performance, but you had a

0:34:50.719 --> 0:34:55.000
<v Speaker 1>record low percentage of the index outperforming the index itself, and.

0:34:55.000 --> 0:34:59.160
<v Speaker 2>Forty five stocks did better than twenty five percent one

0:34:59.200 --> 0:35:00.640
<v Speaker 2>hundred and forty four STO and the S and P

0:35:00.719 --> 0:35:04.600
<v Speaker 2>five hundred if I'm remembering correctly, right, output.

0:35:04.360 --> 0:35:07.520
<v Speaker 1>Wells way, which is low to look at that. So

0:35:08.200 --> 0:35:13.120
<v Speaker 1>at the low point of last year, even today, if

0:35:13.120 --> 0:35:15.799
<v Speaker 1>you look at the percentage of the SMP that has

0:35:15.840 --> 0:35:19.000
<v Speaker 1>outperformed the index over the past twelve months, it's only

0:35:19.040 --> 0:35:22.120
<v Speaker 1>twelve percent. That's close to an all time low.

0:35:22.480 --> 0:35:24.239
<v Speaker 2>If give me those numbers again, twelve to.

0:35:24.239 --> 0:35:27.040
<v Speaker 1>Twelve percent of the overall S and P five hundred.

0:35:27.280 --> 0:35:29.880
<v Speaker 2>So you're talking sixty stocks.

0:35:29.480 --> 0:35:31.919
<v Speaker 1>Right have outperformed the S and P over the prior

0:35:31.960 --> 0:35:35.040
<v Speaker 1>twelve months. Now, if you start to shorten that twelve months,

0:35:35.320 --> 0:35:39.720
<v Speaker 1>it gets better. So right now it's around forty percent

0:35:40.200 --> 0:35:43.080
<v Speaker 1>of the index has outperformed the index over the past month.

0:35:43.880 --> 0:35:47.600
<v Speaker 2>Really, that's much broader. All we hear is people saying

0:35:48.120 --> 0:35:50.400
<v Speaker 2>the market is narrowing. This is how bulls end.

0:35:50.560 --> 0:35:51.760
<v Speaker 1>It's just it's broadening.

0:35:51.880 --> 0:35:52.799
<v Speaker 2>It's going the other way.

0:35:52.920 --> 0:35:56.960
<v Speaker 1>So even justice, yes, it is even just among the

0:35:57.000 --> 0:36:00.359
<v Speaker 1>magnificent seven. Now last year, so that Moniker came because

0:36:00.400 --> 0:36:02.640
<v Speaker 1>those were the seven largest stocks right in the SMPN

0:36:02.680 --> 0:36:05.319
<v Speaker 1>and the Nasdaq. They're not the seventh largest anymore. Six

0:36:05.400 --> 0:36:07.440
<v Speaker 1>of them are still the sixth largest, but Tesla has

0:36:07.520 --> 0:36:09.560
<v Speaker 1>dropped down. It's kind of bouncing between the ninth and

0:36:09.600 --> 0:36:13.000
<v Speaker 1>the ten spot. So leap frogging Tesla has been. Berkshire, Hathaway, Eli,

0:36:13.040 --> 0:36:16.080
<v Speaker 1>Lilly and Broadcom has been, you know, kind of breathing

0:36:16.160 --> 0:36:20.120
<v Speaker 1>down Tesla's neck. Last year, they were the seven largest

0:36:20.160 --> 0:36:23.080
<v Speaker 1>stocks consistently throughout the year. They weren't the seven best performers,

0:36:23.080 --> 0:36:25.920
<v Speaker 1>but they were all strong performers double and triple digit.

0:36:25.960 --> 0:36:28.200
<v Speaker 1>You only had to go down to the sixty third

0:36:28.280 --> 0:36:31.160
<v Speaker 1>ranking within the S and P five hundred to capture

0:36:31.200 --> 0:36:33.640
<v Speaker 1>all seven of those names year to date. As you

0:36:33.719 --> 0:36:37.719
<v Speaker 1>and I are recording this, three of the seven stocks

0:36:38.160 --> 0:36:42.080
<v Speaker 1>are ranked year to date performance in the bottom quintile,

0:36:42.320 --> 0:36:44.880
<v Speaker 1>so they four of them have three of them have

0:36:44.920 --> 0:36:49.960
<v Speaker 1>a four handle in terms of the ranking. So that's Tesla, Apple,

0:36:50.239 --> 0:36:53.160
<v Speaker 1>and Alphabet. Now Nvidia is still the best proing stock.

0:36:53.200 --> 0:36:57.000
<v Speaker 1>But you've got this massive spread in terms of performance

0:36:57.719 --> 0:37:00.080
<v Speaker 1>among just that group of names, and you have the

0:37:00.200 --> 0:37:04.439
<v Speaker 1>sort of stealthy breakouts happening in areas like industrials, even

0:37:04.480 --> 0:37:07.680
<v Speaker 1>to some degree in financials.

0:37:07.200 --> 0:37:10.720
<v Speaker 2>And which have been a giant laggered for right forever.

0:37:10.800 --> 0:37:15.120
<v Speaker 1>But you know, sectors and groups and categories, there's rotation.

0:37:15.280 --> 0:37:18.160
<v Speaker 1>I think all l sqel's that's a healthy thing. I

0:37:18.160 --> 0:37:20.399
<v Speaker 1>think still a bit more work needs to be done.

0:37:20.440 --> 0:37:22.360
<v Speaker 1>But in terms of back to the original part of

0:37:22.400 --> 0:37:24.480
<v Speaker 1>your question, you know, how do you navigate this? First

0:37:24.480 --> 0:37:27.600
<v Speaker 1>of all, understand what's actually going on in the market,

0:37:27.600 --> 0:37:31.200
<v Speaker 1>and understand that indexes can often paint a very different

0:37:31.239 --> 0:37:34.279
<v Speaker 1>picture versus if you look under the surface. And that's

0:37:34.280 --> 0:37:37.359
<v Speaker 1>why in my latest report I said that this may

0:37:37.400 --> 0:37:39.239
<v Speaker 1>be more of a duck market than a bull market.

0:37:39.440 --> 0:37:42.760
<v Speaker 2>That's that's a quite literally a question I have explained.

0:37:42.800 --> 0:37:45.680
<v Speaker 2>I love the metaphor of a duck explained.

0:37:45.280 --> 0:37:48.040
<v Speaker 1>So it was I guess is the quote originally is

0:37:48.080 --> 0:37:51.120
<v Speaker 1>attributed to Michael Kaine, who's talked about a duck being

0:37:51.280 --> 0:37:54.440
<v Speaker 1>very calm on the surface but paddling like the dickens underneath.

0:37:54.480 --> 0:37:57.239
<v Speaker 1>And to put some numbers behind what I mean in

0:37:57.280 --> 0:37:59.360
<v Speaker 1>this context, that both the S and P and the

0:37:59.440 --> 0:38:02.920
<v Speaker 1>Nasdaq are still trading around all time highs with in

0:38:02.960 --> 0:38:05.239
<v Speaker 1>the case of the S and P, no more than

0:38:05.280 --> 0:38:07.799
<v Speaker 1>a two percent draw down from a year to date

0:38:07.880 --> 0:38:10.160
<v Speaker 1>high maximum draw down. It's a little bit worse is

0:38:10.200 --> 0:38:12.719
<v Speaker 1>three percent for the Nasdaq, but that's at the index level.

0:38:12.800 --> 0:38:15.040
<v Speaker 1>Let me just use the Nasdaq as an example of this,

0:38:15.560 --> 0:38:17.200
<v Speaker 1>and as you and I are doing this first week

0:38:17.480 --> 0:38:19.719
<v Speaker 1>in March, we're not very far into the year, but

0:38:19.840 --> 0:38:25.239
<v Speaker 1>the average member Nasdaq member maximum draw down from year

0:38:25.239 --> 0:38:27.160
<v Speaker 1>to date highs is negative twenty two percent.

0:38:27.280 --> 0:38:28.320
<v Speaker 2>That's big, it's big.

0:38:28.440 --> 0:38:31.000
<v Speaker 1>That's bear market level decline. So there's a lot more

0:38:31.800 --> 0:38:35.759
<v Speaker 1>churn going on under the surface. And I think, especially

0:38:36.000 --> 0:38:38.399
<v Speaker 1>in this environment, you want to understand what's going on

0:38:38.480 --> 0:38:42.160
<v Speaker 1>under the surface, not just make assumptions about the market

0:38:42.719 --> 0:38:46.000
<v Speaker 1>at the index level because of what has been that

0:38:46.120 --> 0:38:49.720
<v Speaker 1>bias in terms of performance to just a relatively small

0:38:49.719 --> 0:38:50.680
<v Speaker 1>handful of names.

0:38:50.800 --> 0:38:53.520
<v Speaker 2>So those data points that you bring up are really

0:38:53.640 --> 0:38:58.000
<v Speaker 2>quite interesting because there has been an increasing chorus of

0:38:58.040 --> 0:39:05.080
<v Speaker 2>people talking about passive flows and indexing are destroying price discovery.

0:39:05.960 --> 0:39:09.280
<v Speaker 2>David Ihorn a few weeks ago said passive is destroying

0:39:09.400 --> 0:39:13.880
<v Speaker 2>value and it's damaging market structure. You're essentially making the

0:39:13.920 --> 0:39:18.160
<v Speaker 2>case that there's plenty of price discovery, that it's not uniform,

0:39:18.520 --> 0:39:22.760
<v Speaker 2>that money isn't just flowing into names blindly. If Apple,

0:39:23.000 --> 0:39:28.520
<v Speaker 2>Alphabet and Tesla are in the bottom quintile of performers

0:39:28.840 --> 0:39:32.439
<v Speaker 2>when they are amongst the top ten biggest stocks, that

0:39:32.520 --> 0:39:36.120
<v Speaker 2>really contradicts Oh no, means there's.

0:39:34.640 --> 0:39:36.520
<v Speaker 1>Just there's other stuff going on.

0:39:36.640 --> 0:39:39.280
<v Speaker 2>It's not just fun now houses.

0:39:39.800 --> 0:39:43.000
<v Speaker 1>Passive did just surpass active in terms of the amount

0:39:43.080 --> 0:39:47.600
<v Speaker 1>of money in passive ETFs and funds versus active. That

0:39:47.760 --> 0:39:50.840
<v Speaker 1>just happened at the end of twenty twenty three. But

0:39:51.239 --> 0:39:55.680
<v Speaker 1>dispersion is up and correlations are way down, and I

0:39:55.719 --> 0:39:58.799
<v Speaker 1>think that that's supportive of activity, and that is not

0:39:59.120 --> 0:40:02.400
<v Speaker 1>me saying sell all your passive vehicles and back up

0:40:02.440 --> 0:40:05.160
<v Speaker 1>the truck and load up on active. We have always

0:40:05.200 --> 0:40:08.360
<v Speaker 1>for years thought there's a home for both active and

0:40:08.400 --> 0:40:12.680
<v Speaker 1>power and settle in portfolios. The point is more that

0:40:13.000 --> 0:40:17.840
<v Speaker 1>active in general and broadly has just not been playing

0:40:17.840 --> 0:40:21.040
<v Speaker 1>on a level playing field with passive. I think that's improving,

0:40:21.080 --> 0:40:23.920
<v Speaker 1>and it's your right. There is price discovery again. A

0:40:23.960 --> 0:40:25.560
<v Speaker 1>lot of that has to do with the return of

0:40:25.600 --> 0:40:28.320
<v Speaker 1>the risk free rate and an environment in the zerp.

0:40:28.120 --> 0:40:31.120
<v Speaker 2>Era competition with bonds, you mean, and just.

0:40:31.360 --> 0:40:33.960
<v Speaker 1>You know, the zerp Era zero percent interest rate. That

0:40:34.200 --> 0:40:38.280
<v Speaker 1>was the support for zombie companies and companies that really

0:40:38.400 --> 0:40:43.319
<v Speaker 1>had no business you know, existing. And I think with

0:40:43.440 --> 0:40:46.239
<v Speaker 1>that return of the risk free rate, it is it

0:40:46.239 --> 0:40:49.640
<v Speaker 1>has brought about more price discovery. It is represented a

0:40:49.760 --> 0:40:54.200
<v Speaker 1>reconnection of fundamentals to prices. Not every day, not every week.

0:40:54.320 --> 0:40:58.360
<v Speaker 1>You still get these you know, captriven concentration problems in

0:40:58.400 --> 0:41:01.279
<v Speaker 1>the market like last year, but that's starting to ease

0:41:01.320 --> 0:41:04.240
<v Speaker 1>a bit. And if you're only looking at the index

0:41:04.360 --> 0:41:07.600
<v Speaker 1>level and you see certain ugly days, I think the

0:41:07.640 --> 0:41:12.759
<v Speaker 1>real story, which is arguably a more optimistic story, can

0:41:12.800 --> 0:41:15.080
<v Speaker 1>often be found under the surface, not on the surface.

0:41:15.760 --> 0:41:20.160
<v Speaker 2>That's some really fascinating stuff. And I love that perspective

0:41:20.200 --> 0:41:22.960
<v Speaker 2>of here's what the chatter is saying, but when we

0:41:23.000 --> 0:41:25.879
<v Speaker 2>look at the data, it's telling you something else. All Right,

0:41:25.960 --> 0:41:27.480
<v Speaker 2>last question on Schwab.

0:41:27.800 --> 0:41:31.880
<v Speaker 1>You've been there, I think later twenty four years.

0:41:31.680 --> 0:41:35.839
<v Speaker 2>So your next year is twenty five years. Yes, that longevity,

0:41:36.000 --> 0:41:37.319
<v Speaker 2>first of all, is unusual.

0:41:37.560 --> 0:41:40.400
<v Speaker 1>Well two for all intents and purposes. Two jobs and

0:41:40.560 --> 0:41:44.000
<v Speaker 1>thirty eight years not too bad. So that's not common

0:41:44.040 --> 0:41:44.680
<v Speaker 1>on Wall Street.

0:41:44.719 --> 0:41:50.439
<v Speaker 2>I think it's definitely increasingly rare. The question is, tell

0:41:50.520 --> 0:41:54.440
<v Speaker 2>us what's kept you at one place for a quarter

0:41:54.480 --> 0:41:55.279
<v Speaker 2>of a century.

0:41:56.040 --> 0:41:57.400
<v Speaker 1>A lot of it has to do with the culture.

0:41:58.600 --> 0:42:02.200
<v Speaker 1>And I give tremendous amount of credit to the man

0:42:02.280 --> 0:42:06.319
<v Speaker 1>behind the firmly Chuck Schwab, and who is still with us,

0:42:06.320 --> 0:42:10.680
<v Speaker 1>and he's still a pretty active chairman, and I know

0:42:10.840 --> 0:42:15.600
<v Speaker 1>him personally as well as professionally, and his vision of

0:42:15.640 --> 0:42:19.279
<v Speaker 1>what Schwab should be and has turned into is it

0:42:19.320 --> 0:42:22.719
<v Speaker 1>really I think separates us from maybe the typical Wall

0:42:22.719 --> 0:42:26.799
<v Speaker 1>Street firm, because you know, our sort of marketing tagline

0:42:26.800 --> 0:42:30.600
<v Speaker 1>of sorts of through clients' eyes is actually legitimate. And

0:42:30.680 --> 0:42:33.839
<v Speaker 1>I think the perspective of the individual investor, what they

0:42:34.080 --> 0:42:37.160
<v Speaker 1>maybe not want, but what we know they probably needs.

0:42:37.239 --> 0:42:40.520
<v Speaker 1>Just very different than the institutional world, and I think

0:42:40.560 --> 0:42:45.960
<v Speaker 1>approaching investing through the eyes of individual investors is just

0:42:46.080 --> 0:42:51.000
<v Speaker 1>a different ballgame. And there was nobody that preceded me

0:42:51.040 --> 0:42:53.880
<v Speaker 1>in this role. So when Schwab acquired US Trust in

0:42:53.960 --> 0:42:56.080
<v Speaker 1>two thousand, it was only ten months after I had

0:42:56.160 --> 0:43:01.799
<v Speaker 1>joined US Trust, Chuck and and our CEO at the time,

0:43:01.880 --> 0:43:03.960
<v Speaker 1>Dave Patrick, came to New York to meet all the

0:43:04.080 --> 0:43:06.840
<v Speaker 1>US Trust executives and they sat down with me and said,

0:43:06.880 --> 0:43:09.719
<v Speaker 1>we want to create this role of chief investment strategist

0:43:10.040 --> 0:43:14.040
<v Speaker 1>any interest I'm making a longer conversation very short. I said, yep,

0:43:14.120 --> 0:43:16.680
<v Speaker 1>hell count me in. And the rest is sort of history.

0:43:16.680 --> 0:43:19.360
<v Speaker 1>But they gave me a lot of free rain to

0:43:20.760 --> 0:43:24.840
<v Speaker 1>sort of create this role, but with my full knowledge

0:43:24.880 --> 0:43:27.520
<v Speaker 1>based on what I know was their mission around the

0:43:27.640 --> 0:43:31.000
<v Speaker 1>organization of this is through individual client size, and that's

0:43:31.280 --> 0:43:33.000
<v Speaker 1>a reason why we don't try to do things like

0:43:33.040 --> 0:43:36.640
<v Speaker 1>market timing or year end price target. It's about long

0:43:36.719 --> 0:43:43.440
<v Speaker 1>term planning and strategic acid allocation and just understanding how

0:43:43.719 --> 0:43:46.640
<v Speaker 1>markets work and how behavior comes into the mix. So

0:43:46.680 --> 0:43:50.560
<v Speaker 1>it's just been a great platform for me and I

0:43:50.600 --> 0:43:52.680
<v Speaker 1>love it. I hope I'm there for a.

0:43:52.560 --> 0:43:54.200
<v Speaker 2>Lot another twenty five years.

0:43:54.239 --> 0:43:57.840
<v Speaker 1>Well, boy, that would be interesting. So let me she

0:43:58.120 --> 0:43:58.799
<v Speaker 1>my mom's age.

0:43:58.800 --> 0:44:03.200
<v Speaker 2>Then you mentioned the culture at Schwab. Let me share

0:44:03.440 --> 0:44:06.799
<v Speaker 2>a perspective. I don't know if I ever shared this

0:44:06.880 --> 0:44:13.120
<v Speaker 2>with you. So my firm launched in twenty thirteen with

0:44:13.320 --> 0:44:17.120
<v Speaker 2>very little money. TD was our custodian.

0:44:18.040 --> 0:44:21.360
<v Speaker 1>I think i've heard of TD right now, part.

0:44:21.160 --> 0:44:25.840
<v Speaker 2>Of Schwab and the first couple, and we just the

0:44:25.920 --> 0:44:29.280
<v Speaker 2>reason we did that is our prior firm. The clients

0:44:29.320 --> 0:44:32.200
<v Speaker 2>were custody to TD, and it made it just a

0:44:32.239 --> 0:44:36.080
<v Speaker 2>single letter, you know, LA, in order to transfer the

0:44:36.400 --> 0:44:40.399
<v Speaker 2>accounts over. And it took us about a year or two.

0:44:41.280 --> 0:44:45.359
<v Speaker 2>After you hear it for the hundredth time, where we

0:44:45.400 --> 0:44:47.520
<v Speaker 2>would go on a road trip. So we were a

0:44:47.560 --> 0:44:50.719
<v Speaker 2>small shop, but you know, between our media exposure and

0:44:50.760 --> 0:44:54.279
<v Speaker 2>everything else, had a national footprint and we would go

0:44:54.360 --> 0:44:58.960
<v Speaker 2>to Seattle or San Francisco or Chicago or Austin, Texas

0:44:59.440 --> 0:45:02.959
<v Speaker 2>And do you hear it like the nineteenth time, Hey,

0:45:03.000 --> 0:45:05.919
<v Speaker 2>we love you guys. I would love to have you

0:45:06.120 --> 0:45:09.919
<v Speaker 2>manage our portfolio. But we've been with Schwab and we're

0:45:09.920 --> 0:45:12.799
<v Speaker 2>not leaving them as our custodian. Let us know as

0:45:12.840 --> 0:45:15.120
<v Speaker 2>soon as Schwab is one of your platforms. You know,

0:45:15.280 --> 0:45:17.319
<v Speaker 2>you can only only have to hit me over the

0:45:17.320 --> 0:45:20.520
<v Speaker 2>head with a hammer fourteen times before I'm like, hey,

0:45:20.800 --> 0:45:24.680
<v Speaker 2>maybe I may. And now we have I think we have.

0:45:24.840 --> 0:45:26.719
<v Speaker 2>I'm doing this off the top of my head. You know,

0:45:26.880 --> 0:45:31.520
<v Speaker 2>four billion plus on the Schwab platform from essentially nothing

0:45:32.200 --> 0:45:34.439
<v Speaker 2>years ago. Well, you guys have won a great part.

0:45:34.520 --> 0:45:37.200
<v Speaker 2>You know. I don't again, I always like to disclose things,

0:45:37.239 --> 0:45:42.560
<v Speaker 2>but it was it was dumbfounding in the beginning, where

0:45:42.560 --> 0:45:44.920
<v Speaker 2>it's like I don't understand they're a custodian.

0:45:45.000 --> 0:45:47.960
<v Speaker 1>Why now it's a partnership. I'm glad you use that.

0:45:48.040 --> 0:45:51.520
<v Speaker 2>That's what we ended up learning is oh, the culture

0:45:51.560 --> 0:45:54.880
<v Speaker 2>at Schwab and the way they do things. This isn't

0:45:55.120 --> 0:45:57.239
<v Speaker 2>just hey, leave your money with us. We'll send you

0:45:57.280 --> 0:46:00.200
<v Speaker 2>a statement every quarter and that was it. It's a

0:46:00.360 --> 0:46:05.800
<v Speaker 2>very different relationship. And to Chuck's credit, you guys created

0:46:05.840 --> 0:46:11.080
<v Speaker 2>something that did not exist amongst most custodians beforehand. Am

0:46:11.120 --> 0:46:12.080
<v Speaker 2>I over now?

0:46:12.080 --> 0:46:14.560
<v Speaker 1>No, no, not at all. And we are you know,

0:46:14.640 --> 0:46:18.960
<v Speaker 1>by far the largest in terms of not just custodying

0:46:19.000 --> 0:46:23.600
<v Speaker 1>assets for the RAA community, but representing that partnership in

0:46:23.760 --> 0:46:29.960
<v Speaker 1>everything from research and trading and succession planning. It is.

0:46:30.200 --> 0:46:32.040
<v Speaker 1>It's an important part of our business for sure.

0:46:32.360 --> 0:46:34.880
<v Speaker 2>Let's talk a little bit about the markets and the

0:46:34.920 --> 0:46:38.520
<v Speaker 2>economy today, starting with all right, we're at all time

0:46:38.600 --> 0:46:41.040
<v Speaker 2>highs and the Nasdaq where at all time highs in

0:46:41.080 --> 0:46:43.640
<v Speaker 2>the s and P five hundred. I've heard a bunch

0:46:43.719 --> 0:46:45.759
<v Speaker 2>of people on TV come out and say, oh, you know,

0:46:46.120 --> 0:46:50.160
<v Speaker 2>this makes me nervous. What does the data say about

0:46:50.239 --> 0:46:55.040
<v Speaker 2>what all time highs in broad indexes mean for the

0:46:55.080 --> 0:46:56.480
<v Speaker 2>next couple of quarters.

0:46:56.680 --> 0:46:59.440
<v Speaker 1>Well, it starts to years that have a lot of

0:46:59.480 --> 0:47:04.359
<v Speaker 1>momentum do tend to carry through. But there's with any

0:47:04.440 --> 0:47:06.839
<v Speaker 1>data point like that, if you're looking at aggregate data

0:47:06.880 --> 0:47:10.600
<v Speaker 1>or averages, there are always exceptions to those roles. And

0:47:10.640 --> 0:47:12.560
<v Speaker 1>as we already talked about, there's been a lot more

0:47:12.640 --> 0:47:14.440
<v Speaker 1>churn under the surface and when you pick up if

0:47:14.480 --> 0:47:17.160
<v Speaker 1>you're only looking at index level. But to say that

0:47:17.200 --> 0:47:20.000
<v Speaker 1>this has been a unique cycle, both on the market

0:47:20.000 --> 0:47:22.000
<v Speaker 1>side of things and the economy side of things, is

0:47:22.000 --> 0:47:25.160
<v Speaker 1>the ultimate understatement. And I think that to be an

0:47:25.200 --> 0:47:28.640
<v Speaker 1>analyst of the market and one of the nice things

0:47:29.000 --> 0:47:31.640
<v Speaker 1>for me as strategists at SCHWAB is that I get

0:47:31.640 --> 0:47:34.279
<v Speaker 1>to wear the two hats of both market strategists but

0:47:34.320 --> 0:47:37.360
<v Speaker 1>also economist. We don't have a separate chief economist, and

0:47:37.440 --> 0:47:40.160
<v Speaker 1>I like that because I get to marry the views.

0:47:40.200 --> 0:47:43.120
<v Speaker 1>I'm not beholden to somebody else's view on the economy.

0:47:43.200 --> 0:47:47.400
<v Speaker 1>And on that front, the nature of this economic cycle

0:47:47.400 --> 0:47:50.160
<v Speaker 1>helps to explain why we've had so many funky things

0:47:50.200 --> 0:47:52.759
<v Speaker 1>happen in terms of the market cycle, and it's we've

0:47:52.800 --> 0:47:56.880
<v Speaker 1>been using the rolling recessions terminology because that's actually what

0:47:57.000 --> 0:47:59.759
<v Speaker 1>has happened in the early part of the pandemic during

0:47:59.760 --> 0:48:04.360
<v Speaker 1>this stimulus fueled piece of that cycle, that all of

0:48:04.360 --> 0:48:06.920
<v Speaker 1>that stimulus was essentially funneled into the goods side of

0:48:06.920 --> 0:48:09.560
<v Speaker 1>the economy because we had no access to services. That

0:48:09.840 --> 0:48:12.000
<v Speaker 1>was the breeding ground of the inflation problem with which

0:48:12.000 --> 0:48:15.880
<v Speaker 1>we're still dealing. But we subsequently went into recession like

0:48:15.920 --> 0:48:19.680
<v Speaker 1>conditions for many of those goods oriented categories like manufacturing

0:48:19.680 --> 0:48:22.759
<v Speaker 1>and housing. Housing related a lot of consumer oriented products

0:48:22.760 --> 0:48:26.000
<v Speaker 1>and goods that were big beneficiaries of the lockdown phase.

0:48:26.200 --> 0:48:30.400
<v Speaker 1>And we've gone from hyperinflation to disinflation to some deflation

0:48:30.760 --> 0:48:33.120
<v Speaker 1>based on certain categories of goods. But of course we've

0:48:33.120 --> 0:48:35.520
<v Speaker 1>had the later pickup and off setting strength on the

0:48:35.560 --> 0:48:38.799
<v Speaker 1>services side, and you've seen that roll through in terms

0:48:38.840 --> 0:48:43.360
<v Speaker 1>of market behavior too, And it just makes this backdrop

0:48:43.560 --> 0:48:47.640
<v Speaker 1>kind of an apple compared to history's oranges, and I

0:48:47.680 --> 0:48:50.480
<v Speaker 1>think we have to be mindful of that when trying

0:48:50.520 --> 0:48:52.560
<v Speaker 1>to gage where we are in the market cycle, where

0:48:52.600 --> 0:48:56.359
<v Speaker 1>we are in the economic cycle. It's just a very

0:48:56.440 --> 0:48:57.080
<v Speaker 1>unique period.

0:48:57.320 --> 0:49:02.000
<v Speaker 2>Any other historical parallels that come up, I personally hate

0:49:02.080 --> 0:49:06.680
<v Speaker 2>the nineteen seventies parallel, because you certainly know the employment picture,

0:49:06.760 --> 0:49:11.120
<v Speaker 2>the inflation picture, the geopolitics, everything was just so much

0:49:11.239 --> 0:49:13.000
<v Speaker 2>worse than what we're dealing with.

0:49:13.120 --> 0:49:16.600
<v Speaker 1>It a very very different backdrop relative to the nineteen seventies.

0:49:16.640 --> 0:49:20.440
<v Speaker 1>I guess the only comparison that we're witnessing right now

0:49:20.560 --> 0:49:22.560
<v Speaker 1>is the desire on the part of the Fed and

0:49:22.600 --> 0:49:26.160
<v Speaker 1>maybe Powell in particular, to not repeat the mistakes of

0:49:26.200 --> 0:49:30.360
<v Speaker 1>the nineteen seventies in terms of monetary policy premature, you know,

0:49:30.480 --> 0:49:34.080
<v Speaker 1>hanging of the victory banner, easing policy, only to see

0:49:34.280 --> 0:49:37.520
<v Speaker 1>inflation sort of its head again. So I think that

0:49:38.239 --> 0:49:41.040
<v Speaker 1>is maybe one similarity in terms of what the playbook

0:49:41.160 --> 0:49:43.520
<v Speaker 1>is for the FED. But I totally agree with you

0:49:43.600 --> 0:49:46.520
<v Speaker 1>that the nature of what was driving inflation, the backdrop

0:49:46.520 --> 0:49:51.000
<v Speaker 1>in terms of geopolitics and demographics and labor versus capital

0:49:51.239 --> 0:49:53.760
<v Speaker 1>is not a mirror of what we're experiencing right now.

0:49:53.800 --> 0:49:56.880
<v Speaker 1>But I think the FED took some lessons from the

0:49:56.960 --> 0:49:58.040
<v Speaker 1>mistakes back in that.

0:49:58.040 --> 0:50:02.200
<v Speaker 2>Era if you're looking for parallels, and I think you're right,

0:50:02.680 --> 0:50:06.600
<v Speaker 2>this is totally unique, but the immediate period after war

0:50:06.680 --> 0:50:10.520
<v Speaker 2>war is kind of similar. You have all these gis

0:50:10.560 --> 0:50:13.600
<v Speaker 2>returning and all this pent up. Hey, we couldn't do

0:50:13.680 --> 0:50:18.000
<v Speaker 2>all these things, and a spike in inflation that came down,

0:50:18.560 --> 0:50:22.160
<v Speaker 2>unemployment collapse because you had all these people coming back

0:50:22.560 --> 0:50:23.040
<v Speaker 2>to work.

0:50:24.040 --> 0:50:27.320
<v Speaker 1>It's not perfect, no, but I think you're right. It

0:50:27.480 --> 0:50:30.160
<v Speaker 1>was a military war, not a health war, which was

0:50:30.200 --> 0:50:32.279
<v Speaker 1>the case this time, but had some of those same

0:50:32.400 --> 0:50:37.480
<v Speaker 1>characteristics in terms of supply demand imbalances and the drivers

0:50:37.600 --> 0:50:42.520
<v Speaker 1>of inflation. Obviously, there are plenty of differences, not least

0:50:42.560 --> 0:50:45.719
<v Speaker 1>being what happened on the other side of it, with

0:50:45.760 --> 0:50:49.399
<v Speaker 1>which you know, massive amount of military personnel coming back

0:50:49.440 --> 0:50:52.919
<v Speaker 1>into the private sector and into the civilian workforce, and

0:50:53.280 --> 0:50:57.359
<v Speaker 1>the rebuilding of the global infrastructure. That is one era

0:50:57.520 --> 0:51:01.200
<v Speaker 1>that I have used often as a reference point, with

0:51:01.320 --> 0:51:04.160
<v Speaker 1>that differential being military war versus health war.

0:51:04.280 --> 0:51:06.600
<v Speaker 2>So let's talk about some of the other differentials because

0:51:06.680 --> 0:51:10.200
<v Speaker 2>I think they're informative. Not only did we bring a

0:51:10.200 --> 0:51:14.440
<v Speaker 2>lot of technological usage forward or things that existed. Look,

0:51:14.440 --> 0:51:18.200
<v Speaker 2>we've had FaceTime for fifteen years. It's not like it's new,

0:51:18.239 --> 0:51:21.839
<v Speaker 2>and screen shares and other things like that, but they

0:51:21.920 --> 0:51:23.560
<v Speaker 2>just became more widely adopted.

0:51:24.120 --> 0:51:26.640
<v Speaker 1>It was forced adoption because we have no choice. We

0:51:26.680 --> 0:51:27.440
<v Speaker 1>had no choice.

0:51:27.520 --> 0:51:32.000
<v Speaker 2>But today we have office buildings that are not running

0:51:32.040 --> 0:51:36.680
<v Speaker 2>full documency. Return to office has been you know, we're

0:51:37.120 --> 0:51:40.160
<v Speaker 2>sixty percent seventy percent back. You have a lot of

0:51:40.200 --> 0:51:42.440
<v Speaker 2>hybrid work, you have a lot of people working from home.

0:51:43.120 --> 0:51:45.960
<v Speaker 2>How does this affect how you perceive the economy? What

0:51:45.960 --> 0:51:50.080
<v Speaker 2>does this mean for things like hey, commercial or residential

0:51:50.080 --> 0:51:50.920
<v Speaker 2>real estate investment?

0:51:51.000 --> 0:51:54.239
<v Speaker 1>Yes, so commercial real estate tends to get thought of

0:51:54.440 --> 0:51:57.800
<v Speaker 1>too monolithically. Commercial real estate is a very broad category, obviously,

0:51:57.840 --> 0:52:01.040
<v Speaker 1>and it's inclusive of not just the world of offices,

0:52:01.160 --> 0:52:05.000
<v Speaker 1>but you know, multi family residential and warehousing and retail

0:52:05.239 --> 0:52:09.280
<v Speaker 1>and healthcare facilities, et cetera. So we can't paint commercial

0:52:09.320 --> 0:52:12.360
<v Speaker 1>real estate with one broad brush or segments within SIRI

0:52:12.520 --> 0:52:16.920
<v Speaker 1>that are quite healthy versus say office, and even withinn office,

0:52:16.960 --> 0:52:20.480
<v Speaker 1>of course, big differentials in terms of urban versus suburban.

0:52:20.719 --> 0:52:23.760
<v Speaker 1>Certain regions in the country are doing much better. There's

0:52:23.880 --> 0:52:27.239
<v Speaker 1>the different parts of the country have larger percent that

0:52:27.280 --> 0:52:30.560
<v Speaker 1>have gone back into that more typical office structure. And

0:52:30.600 --> 0:52:33.960
<v Speaker 1>then of course the exposure to commercial real estate, which

0:52:34.000 --> 0:52:37.400
<v Speaker 1>is yes down into the smaller regional banks, many of

0:52:37.400 --> 0:52:40.919
<v Speaker 1>the same banks that suffered the most from last year's

0:52:41.000 --> 0:52:44.960
<v Speaker 1>mini banking crisis. But even there there's you know, a

0:52:45.080 --> 0:52:49.000
<v Speaker 1>vast array in terms of maturity schedules and what type

0:52:49.000 --> 0:52:52.600
<v Speaker 1>of commercial real estates exposure. On our podcast, one of

0:52:52.640 --> 0:52:55.200
<v Speaker 1>the recent guests that we had on that I interviewed

0:52:55.200 --> 0:52:57.400
<v Speaker 1>as actually a friend of mine, Al Rabel, who is

0:52:57.440 --> 0:53:00.000
<v Speaker 1>the founder and CEO of kan Anderson, a big, huge

0:53:00.200 --> 0:53:04.399
<v Speaker 1>private equity private real estate company, and although they're specifically

0:53:04.400 --> 0:53:08.799
<v Speaker 1>more involved in student housing and senior housing, he's an

0:53:08.840 --> 0:53:12.440
<v Speaker 1>expert more broadly, and I asked him at the outset

0:53:12.480 --> 0:53:14.920
<v Speaker 1>of the interview, I said, let me ask you an expert,

0:53:14.960 --> 0:53:17.080
<v Speaker 1>and I'm not an expert, a question about how I've

0:53:17.120 --> 0:53:20.080
<v Speaker 1>been terming it, how I've been describing it and feel

0:53:20.120 --> 0:53:22.359
<v Speaker 1>free to tell me you're dead wrong, Lezanne. I think

0:53:22.360 --> 0:53:24.879
<v Speaker 1>it's this is not a Lemanesque kind of problem. It's

0:53:24.920 --> 0:53:27.360
<v Speaker 1>more of a slow moving trade wreck or a simmering

0:53:27.360 --> 0:53:30.040
<v Speaker 1>problem over time. And fortunately for me, he said, yes,

0:53:30.160 --> 0:53:32.960
<v Speaker 1>that's I think an app to descriptive. That doesn't mean

0:53:33.000 --> 0:53:35.080
<v Speaker 1>the problems aren't still ahead of us, but it's over

0:53:35.120 --> 0:53:38.719
<v Speaker 1>a more graduated period of time, and with some of

0:53:38.719 --> 0:53:41.000
<v Speaker 1>the carnage will come opportunities. And that was maybe a

0:53:41.040 --> 0:53:44.120
<v Speaker 1>more interesting part of the conversation is some of the

0:53:44.600 --> 0:53:47.920
<v Speaker 1>sort of distressed firms looking at this as an eventual

0:53:47.960 --> 0:53:51.520
<v Speaker 1>opportunity to come in and acquire some of these properties,

0:53:51.760 --> 0:53:54.920
<v Speaker 1>you know, significant discounts. So with carnage comes opportunity.

0:53:55.280 --> 0:53:58.239
<v Speaker 2>I'm glad you brought up private equity because during the

0:53:58.280 --> 0:54:02.239
<v Speaker 2>era of zero interest rates, when you couldn't really find

0:54:02.239 --> 0:54:06.640
<v Speaker 2>any sort of yield in the public markets, private equity,

0:54:06.880 --> 0:54:11.359
<v Speaker 2>private debt venture right, pretty good numbers. Seven eight nine

0:54:11.400 --> 0:54:15.759
<v Speaker 2>percent yield versus two three percent. Now that the risk

0:54:15.800 --> 0:54:20.399
<v Speaker 2>free rate is in the threes or fours, and muni

0:54:20.520 --> 0:54:23.000
<v Speaker 2>bonds are giving you the tax equivalent of, depending on

0:54:23.040 --> 0:54:26.600
<v Speaker 2>the state, six seven eight percent yield, how do you

0:54:26.640 --> 0:54:28.240
<v Speaker 2>think about private equity.

0:54:28.600 --> 0:54:31.280
<v Speaker 1>Yeah, it's not my area. So I'm going to answer

0:54:31.280 --> 0:54:36.000
<v Speaker 1>the question by tying it back to something that is

0:54:36.800 --> 0:54:40.160
<v Speaker 1>I spend more time thinking about. To the point you

0:54:40.280 --> 0:54:44.120
<v Speaker 1>made in the early part of asking that question was

0:54:44.600 --> 0:54:48.000
<v Speaker 1>what was a shift in the zero interest rate environment

0:54:48.280 --> 0:54:52.000
<v Speaker 1>by many investors that were looking for anything resembling a

0:54:52.040 --> 0:54:56.240
<v Speaker 1>decent yield, and it forced them just out the risk spectrum,

0:54:56.760 --> 0:55:00.320
<v Speaker 1>whether it was two riskier segments of the fixed income market,

0:55:00.600 --> 0:55:04.320
<v Speaker 1>or into the publicly traded equity markets, or to your point,

0:55:04.400 --> 0:55:07.800
<v Speaker 1>into the private markets, be a private equity or venture.

0:55:07.880 --> 0:55:11.839
<v Speaker 1>And for many of investors, they weren't really comfortable with

0:55:11.880 --> 0:55:13.840
<v Speaker 1>that kind of risk. And it's not just the risk,

0:55:14.000 --> 0:55:17.840
<v Speaker 1>but for many investors it's the transparency and liquidity that

0:55:17.920 --> 0:55:20.480
<v Speaker 1>they had to give up. Now we have an environment

0:55:20.680 --> 0:55:25.480
<v Speaker 1>wherein essentially hold to maturity risk free treasuries and things

0:55:25.520 --> 0:55:28.280
<v Speaker 1>like you know, money market funds, A lot of money

0:55:28.320 --> 0:55:31.480
<v Speaker 1>has has gone back in that direction. On that note,

0:55:31.480 --> 0:55:33.719
<v Speaker 1>and this is somewhat tangential, but I think it's important.

0:55:33.880 --> 0:55:37.120
<v Speaker 1>Too many people view the six trillion dollars that's sitting

0:55:37.200 --> 0:55:40.680
<v Speaker 1>in money markets as some maybe not imminent, but some

0:55:40.960 --> 0:55:44.000
<v Speaker 1>huge source of funding for the equity.

0:55:43.600 --> 0:55:45.160
<v Speaker 2>Market ysh on the sideline.

0:55:45.200 --> 0:55:49.160
<v Speaker 1>On the sidelines, I think a lot of that money

0:55:49.200 --> 0:55:52.719
<v Speaker 1>is actually probably fairly sticky. It's money that represents the

0:55:52.760 --> 0:55:57.640
<v Speaker 1>cash needs or the liquidity side of acid allocation and

0:55:57.800 --> 0:56:02.480
<v Speaker 1>isn't sitting there just waiting to go into riskier assets,

0:56:02.560 --> 0:56:05.359
<v Speaker 1>be it public equity markets or a private I think

0:56:05.440 --> 0:56:07.480
<v Speaker 1>a lot of that is probably fairly sticky.

0:56:07.640 --> 0:56:12.040
<v Speaker 2>And it migrated to money market funds because of the

0:56:12.120 --> 0:56:16.880
<v Speaker 2>five whatever five point three percent yields after a drought

0:56:17.000 --> 0:56:20.000
<v Speaker 2>of decades of not getting any sort of fields. Hey,

0:56:20.120 --> 0:56:25.800
<v Speaker 2>I could earn a real rate of return, relatively risk free. Great,

0:56:25.960 --> 0:56:30.480
<v Speaker 2>I'm gonna reduce my risk profile and capture some of this.

0:56:30.560 --> 0:56:31.160
<v Speaker 1>That's a great thing.

0:56:31.440 --> 0:56:35.040
<v Speaker 2>I've never really understood that cash on the sideline. The

0:56:35.120 --> 0:56:37.879
<v Speaker 2>other thing that's related, and you might see it from

0:56:37.920 --> 0:56:42.080
<v Speaker 2>your perch at Schwab. Whenever we people talk about fun flows,

0:56:42.480 --> 0:56:45.719
<v Speaker 2>look at all this money flowing into equity funds or

0:56:45.760 --> 0:56:49.480
<v Speaker 2>flowing out. It seems like it's a year behind what

0:56:49.560 --> 0:56:53.040
<v Speaker 2>the market's doing. The market crashes and then there are

0:56:53.120 --> 0:56:56.359
<v Speaker 2>fun flows out Look at twenty one or twenty three.

0:56:56.880 --> 0:56:59.200
<v Speaker 2>Even as the market is rallying, the funds are flowing

0:56:59.200 --> 0:56:59.360
<v Speaker 2>in the.

0:56:59.320 --> 0:57:02.560
<v Speaker 1>Opposite, performance chasing up and down. That's you know, as

0:57:02.600 --> 0:57:03.640
<v Speaker 1>old as the day is long.

0:57:04.520 --> 0:57:06.959
<v Speaker 2>It's just that simple. It's just performance chasing.

0:57:07.160 --> 0:57:09.480
<v Speaker 1>You know. The other thing about the six trillion dollars

0:57:09.480 --> 0:57:11.920
<v Speaker 1>that's in money market funds is yes, that's an all

0:57:11.960 --> 0:57:16.240
<v Speaker 1>time record in level terms, but relative to total stock

0:57:16.240 --> 0:57:19.400
<v Speaker 1>market capitalization, it's nowhere near a record. So you have

0:57:19.440 --> 0:57:22.120
<v Speaker 1>to be careful. First of all. Number one, I think

0:57:22.120 --> 0:57:24.800
<v Speaker 1>it's a mistake to our point that we just made

0:57:24.880 --> 0:57:27.080
<v Speaker 1>that this is not sort of short term cash on

0:57:27.120 --> 0:57:30.120
<v Speaker 1>the sidelines, that it's just itching to jump over under

0:57:30.120 --> 0:57:32.200
<v Speaker 1>the equity side of things. But even if you make

0:57:32.240 --> 0:57:35.200
<v Speaker 1>that assumption, the firepower has to be put in the

0:57:35.240 --> 0:57:39.560
<v Speaker 1>context of share of market capitalization, and there it's nowhere

0:57:39.560 --> 0:57:40.640
<v Speaker 1>near a record high.

0:57:40.720 --> 0:57:43.640
<v Speaker 2>That's really interesting. So we've talked a little bit about

0:57:43.680 --> 0:57:48.240
<v Speaker 2>the FED. We haven't really delved into too much about inflation.

0:57:48.440 --> 0:57:51.720
<v Speaker 2>You hinted at it before, and CPI peaked in June

0:57:51.760 --> 0:57:54.440
<v Speaker 2>twenty twenty two. How do you look at where we

0:57:54.480 --> 0:57:57.800
<v Speaker 2>are today in the first quarter of twenty four and

0:57:58.080 --> 0:57:59.959
<v Speaker 2>what does that mean for people's ports.

0:58:00.600 --> 0:58:05.320
<v Speaker 1>So we think the disinflation trend is still largely intact,

0:58:05.600 --> 0:58:09.080
<v Speaker 1>but it doesn't mean it is linear and we'll quickly

0:58:09.080 --> 0:58:12.400
<v Speaker 1>get down to the FEDS two percent target. Obviously, there's

0:58:12.440 --> 0:58:16.240
<v Speaker 1>a lot of components within inflation metrics, not to mention

0:58:16.560 --> 0:58:19.280
<v Speaker 1>lots of ways of measuring inflation. And we can talk

0:58:19.320 --> 0:58:22.640
<v Speaker 1>about the FED Preferred measure of PCE, and then there's

0:58:22.720 --> 0:58:26.600
<v Speaker 1>core PCE or supercore supercore, you know, X shelter, and

0:58:26.640 --> 0:58:29.280
<v Speaker 1>there's the differentials in terms of how things like the

0:58:29.280 --> 0:58:33.160
<v Speaker 1>shelter components are measured and calculated and what share they

0:58:33.200 --> 0:58:37.320
<v Speaker 1>represent of metrics like CPI versus PCE. I'd say one

0:58:37.360 --> 0:58:39.920
<v Speaker 1>of the more important things that has happened this year

0:58:40.360 --> 0:58:43.720
<v Speaker 1>is number one, Powell and other members of the FED

0:58:44.240 --> 0:58:48.080
<v Speaker 1>have emphasized more the rates of change, the three month

0:58:48.160 --> 0:58:50.440
<v Speaker 1>rate of change, the six month rate of change, and

0:58:50.480 --> 0:58:54.680
<v Speaker 1>then specifically in the sixty minute interview that Powell did

0:58:55.240 --> 0:58:59.200
<v Speaker 1>following the January FOMC meeting, he started talking more about

0:58:59.200 --> 0:59:01.320
<v Speaker 1>the twelve month right change. I think that that was

0:59:01.360 --> 0:59:04.640
<v Speaker 1>a way to almost quantify the notion that they want

0:59:04.680 --> 0:59:07.840
<v Speaker 1>to make sure that if in one inflation comes down

0:59:07.920 --> 0:59:12.080
<v Speaker 1>to or near the target, that there's sustainability to that

0:59:12.080 --> 0:59:14.760
<v Speaker 1>that it's not just sort of a quick shot down

0:59:14.840 --> 0:59:17.400
<v Speaker 1>and they fear the risk of it moving back up again.

0:59:17.680 --> 0:59:21.640
<v Speaker 1>In terms of what's happened very recently is that not

0:59:21.720 --> 0:59:25.880
<v Speaker 1>only did we have the hotter than expected January CPI report,

0:59:26.040 --> 0:59:29.960
<v Speaker 1>for both CPI and PCE, the three month rate of

0:59:30.080 --> 0:59:32.400
<v Speaker 1>change has turned back up, the six month rate of

0:59:32.480 --> 0:59:35.040
<v Speaker 1>change has turned backed up. The twelve month hasn't yet.

0:59:35.400 --> 0:59:37.720
<v Speaker 1>But based on how these things work, if three month

0:59:37.800 --> 0:59:40.320
<v Speaker 1>is moving up, six month is moving up, twelve month

0:59:40.360 --> 0:59:43.439
<v Speaker 1>is probably going to start moving up. And that's part

0:59:43.440 --> 0:59:46.520
<v Speaker 1>and parcel of why the shift has occurred from a

0:59:46.560 --> 0:59:49.000
<v Speaker 1>March start to then it was a May start. Maybe

0:59:49.000 --> 0:59:52.400
<v Speaker 1>it's not until June, and you've really condensed the expectation

0:59:52.520 --> 0:59:54.400
<v Speaker 1>around the number of rate HIGs. Not to mention that

0:59:54.440 --> 0:59:57.200
<v Speaker 1>there are a few strategists out there more recently that

0:59:57.280 --> 0:59:59.840
<v Speaker 1>are saying maybe they don't cut it all this year.

1:00:00.000 --> 1:00:02.440
<v Speaker 1>I think the market definitely was way over at SKIS

1:00:02.480 --> 1:00:04.880
<v Speaker 1>earlier in the year when it expected not just a

1:00:04.880 --> 1:00:07.720
<v Speaker 1>March start, but six rate cuts. There was just nothing

1:00:07.760 --> 1:00:09.600
<v Speaker 1>in the data that the Fed is supposed to be

1:00:09.640 --> 1:00:12.440
<v Speaker 1>monitoring on either side of their dual mandate that suggested

1:00:12.600 --> 1:00:14.680
<v Speaker 1>such an aggressive pivot and I would also say to

1:00:14.680 --> 1:00:16.240
<v Speaker 1>a lot of investors. I was saying at the time,

1:00:16.320 --> 1:00:19.240
<v Speaker 1>be careful what you wish for. If you think after

1:00:19.320 --> 1:00:22.400
<v Speaker 1>the most aggressive tightening cycle in forty years that in

1:00:22.480 --> 1:00:24.560
<v Speaker 1>short order they're going to pivot to an aggressive rate

1:00:24.560 --> 1:00:28.240
<v Speaker 1>cutting cycle, the background conditions supporting that are probably not

1:00:28.320 --> 1:00:30.760
<v Speaker 1>what you would want to see, either as an economic

1:00:30.840 --> 1:00:33.200
<v Speaker 1>participant or as a market participant.

1:00:32.920 --> 1:00:36.200
<v Speaker 2>So you wear an economics hat. I have this discussion

1:00:36.240 --> 1:00:39.800
<v Speaker 2>all the time with people. Someone said, imagine how great

1:00:39.840 --> 1:00:42.880
<v Speaker 2>the economy would be if oil was thirty dollars a barrel,

1:00:43.280 --> 1:00:46.400
<v Speaker 2>And I said, hey, if you want thirty dollars barrel oil,

1:00:46.600 --> 1:00:49.560
<v Speaker 2>you need a really deep recession. Yeah, global, it doesn't

1:00:49.640 --> 1:00:54.000
<v Speaker 2>happen out of context the idea of careful what you

1:00:54.040 --> 1:00:56.880
<v Speaker 2>wish for, you want six rate cuts. That means the

1:00:56.960 --> 1:01:01.840
<v Speaker 2>economy is recession, is having a hard time. So since

1:01:01.960 --> 1:01:05.680
<v Speaker 2>since we have you wearing the economists hat, where's my recession?

1:01:05.720 --> 1:01:06.720
<v Speaker 2>I was promised.

1:01:06.400 --> 1:01:08.600
<v Speaker 1>Recesses, so we had the rolling recessions, but I.

1:01:08.520 --> 1:01:10.720
<v Speaker 2>Was promised a full recession in twenty two and then

1:01:10.800 --> 1:01:14.560
<v Speaker 2>twenty three, and not only did we not have recession,

1:01:15.240 --> 1:01:21.720
<v Speaker 2>unemployment fell to the mid threes. GDP is robust. When

1:01:21.800 --> 1:01:25.480
<v Speaker 2>you look around the world, this isn't all right. Everybody

1:01:25.640 --> 1:01:28.720
<v Speaker 2>is with the cleanest shirt in the hamper. It's not

1:01:28.920 --> 1:01:31.960
<v Speaker 2>that we have a robust growth economy and the rest

1:01:32.000 --> 1:01:33.800
<v Speaker 2>of the world that doesn't seem to be.

1:01:33.960 --> 1:01:36.480
<v Speaker 1>So here's what happened. It's in the context of this

1:01:36.560 --> 1:01:39.520
<v Speaker 1>whole notion of the roll through when we had the

1:01:40.040 --> 1:01:44.000
<v Speaker 1>individual sectoral recessions in manufacturing and housing and housing related

1:01:44.040 --> 1:01:46.840
<v Speaker 1>and a lot of consumer and products, and it did

1:01:47.000 --> 1:01:49.920
<v Speaker 1>end up with negative GDP for the first six months

1:01:49.920 --> 1:01:52.280
<v Speaker 1>of twenty twenty two. The reason why.

1:01:52.320 --> 1:01:55.360
<v Speaker 2>Negative not a real basis On a nominal basis, it was.

1:01:55.400 --> 1:01:57.880
<v Speaker 1>It wasn't but you had and not that back to

1:01:57.920 --> 1:02:01.200
<v Speaker 1>back negative GDP quarters is the definition of a recession.

1:02:01.240 --> 1:02:03.560
<v Speaker 1>It's not. It never has been the definition of a recession.

1:02:03.640 --> 1:02:04.480
<v Speaker 2>Thank you for saying that.

1:02:05.320 --> 1:02:08.240
<v Speaker 1>When people say, well, the traditional or the typical, it's not.

1:02:08.440 --> 1:02:11.320
<v Speaker 1>The NBER has been the official arbiters of recession since

1:02:11.320 --> 1:02:13.840
<v Speaker 1>the mid nineteen seventies, and two quarters in a row

1:02:13.840 --> 1:02:17.000
<v Speaker 1>of negative GDP has never been the definition. The key

1:02:17.520 --> 1:02:21.240
<v Speaker 1>line perhaps within that much more comprehensive definition that the

1:02:21.360 --> 1:02:25.320
<v Speaker 1>NBER uses, that helps to explain why six months of

1:02:25.360 --> 1:02:29.480
<v Speaker 1>negative GDP ultimately wasn't declarative recession. Again, not because it

1:02:29.560 --> 1:02:32.360
<v Speaker 1>was two quarters in a row. But the key part

1:02:32.400 --> 1:02:36.880
<v Speaker 1>of the NBER's definition is spread across the economy. The

1:02:36.920 --> 1:02:39.760
<v Speaker 1>weakness that led to the first half of twenty twenty

1:02:39.840 --> 1:02:43.080
<v Speaker 1>two having no real growth in the economy was concentrated.

1:02:43.120 --> 1:02:45.680
<v Speaker 1>It was concentrated on the good side of the economy.

1:02:45.720 --> 1:02:49.440
<v Speaker 1>Manufacturing we had the offsetting strength, and services service is

1:02:49.480 --> 1:02:52.440
<v Speaker 1>a larger employer by far, helping to explain the resilience

1:02:52.480 --> 1:02:55.800
<v Speaker 1>in the labor market. The services components of inflation are

1:02:55.880 --> 1:02:59.800
<v Speaker 1>stickier by nature, including the shelter components, helping to explain

1:02:59.800 --> 1:03:04.320
<v Speaker 1>the roll through in inflation. And again it's just another

1:03:04.360 --> 1:03:07.520
<v Speaker 1>example of a unique nature of this cycle. So I

1:03:07.560 --> 1:03:10.520
<v Speaker 1>think when I look forward, I think, okay, So if

1:03:10.560 --> 1:03:13.160
<v Speaker 1>and when services has their day in the clouds and

1:03:13.840 --> 1:03:15.960
<v Speaker 1>we start to see more than just some cracks that

1:03:15.960 --> 1:03:19.560
<v Speaker 1>we've started to see, like an ism services employment component.

1:03:19.600 --> 1:03:23.160
<v Speaker 1>Going back into contraction territory, what you may get is

1:03:23.200 --> 1:03:26.400
<v Speaker 1>you have a roll through of recoveries in areas or

1:03:26.440 --> 1:03:29.120
<v Speaker 1>at least stabilization that have already taken their hits. A

1:03:29.160 --> 1:03:31.640
<v Speaker 1>lot of people have you no landing as best case scenario,

1:03:32.000 --> 1:03:33.920
<v Speaker 1>there's going to be a landing, you know, at some

1:03:34.000 --> 1:03:37.080
<v Speaker 1>point the plane lands. But I do think a near

1:03:37.200 --> 1:03:40.280
<v Speaker 1>term no landing scenario might also mean a no cutting scenario.

1:03:40.880 --> 1:03:42.800
<v Speaker 1>And then the question, which I don't know that I

1:03:42.800 --> 1:03:46.080
<v Speaker 1>have an answer to, is what exactly has been propelling

1:03:46.160 --> 1:03:49.600
<v Speaker 1>the stock market? Is it the prospect of easier monetary policy?

1:03:50.040 --> 1:03:52.400
<v Speaker 1>Or is it that growth has more than hung in

1:03:52.440 --> 1:03:55.200
<v Speaker 1>there and that translates to better top line growth that

1:03:55.240 --> 1:03:57.320
<v Speaker 1>are bottom line growth. Maybe a little bit of both,

1:03:57.360 --> 1:04:00.040
<v Speaker 1>but it's hard to sort of isolate one or the

1:04:00.160 --> 1:04:01.120
<v Speaker 1>other is the key driver.

1:04:01.280 --> 1:04:04.640
<v Speaker 2>I'm so glad you brought that up, because anytime I'm

1:04:04.680 --> 1:04:07.320
<v Speaker 2>at a dinner party, i'm out a barbecue, I'm somewhere,

1:04:07.840 --> 1:04:13.400
<v Speaker 2>and the dominant narrative is thrown at me. So what

1:04:13.520 --> 1:04:16.280
<v Speaker 2>happens to the markets if the FED doesn't cut sooner

1:04:16.360 --> 1:04:19.760
<v Speaker 2>or later? And my answer is always, why do you

1:04:19.960 --> 1:04:23.640
<v Speaker 2>think that whatever that news headline is is what's driving

1:04:23.720 --> 1:04:26.720
<v Speaker 2>the markets? First of all, it is one hundred factors.

1:04:26.320 --> 1:04:28.120
<v Speaker 1>Or a million a million factors, right?

1:04:28.240 --> 1:04:32.440
<v Speaker 2>And second, just because it's on TV or online or

1:04:32.440 --> 1:04:34.800
<v Speaker 2>in the newspapers, doesn't I love that?

1:04:34.920 --> 1:04:38.360
<v Speaker 1>And I, you know, I know it's the job of journalists.

1:04:38.400 --> 1:04:40.680
<v Speaker 1>If I if I'm doing an interview on the phone

1:04:40.720 --> 1:04:43.960
<v Speaker 1>with a print reporter, if I'm going on a TV program,

1:04:44.000 --> 1:04:46.880
<v Speaker 1>and especially if questions are concentrated around what the market

1:04:46.960 --> 1:04:49.920
<v Speaker 1>is doing you know that particular day, right, and the

1:04:50.040 --> 1:04:52.720
<v Speaker 1>question is always some form of you know, what drove

1:04:52.800 --> 1:04:56.320
<v Speaker 1>the market today or what turned the market at you know, midday,

1:04:56.520 --> 1:04:59.280
<v Speaker 1>as if the market is sort of this inanimate thing

1:04:59.320 --> 1:05:03.520
<v Speaker 1>that just sits around waiting for one particular news headline,

1:05:03.680 --> 1:05:07.880
<v Speaker 1>And on any given day, any given week, if you

1:05:08.040 --> 1:05:10.840
<v Speaker 1>just change the sign on what the market was doing,

1:05:11.480 --> 1:05:13.800
<v Speaker 1>I could come up with plenty of things to point

1:05:13.880 --> 1:05:16.520
<v Speaker 1>to to say, this is why the market boomed today,

1:05:16.600 --> 1:05:18.080
<v Speaker 1>or this is why the market went down.

1:05:18.240 --> 1:05:20.520
<v Speaker 2>It is kind of silly, but no one likes the answer.

1:05:20.960 --> 1:05:21.600
<v Speaker 2>How do I know?

1:05:21.880 --> 1:05:22.080
<v Speaker 1>Right?

1:05:22.200 --> 1:05:23.200
<v Speaker 2>People are not satisfied.

1:05:23.640 --> 1:05:27.000
<v Speaker 1>I try more often than not to answer questions, especially

1:05:27.040 --> 1:05:29.200
<v Speaker 1>that are about sort of what's the market going to

1:05:29.280 --> 1:05:32.000
<v Speaker 1>do with I have no idea? And then sometimes I

1:05:32.080 --> 1:05:34.640
<v Speaker 1>pause for a fact that, well, that's the truth. I

1:05:34.680 --> 1:05:36.720
<v Speaker 1>assume you're going to have follow up questions for me,

1:05:36.760 --> 1:05:39.439
<v Speaker 1>and that's not what the listeners of the viewers want

1:05:39.440 --> 1:05:42.520
<v Speaker 1>to hear. I don't know, But anyone answering that question,

1:05:42.680 --> 1:05:43.960
<v Speaker 1>that's the honest answer.

1:05:44.920 --> 1:05:48.480
<v Speaker 2>Undred percent, And people don't realize that makes the matters worse.

1:05:48.960 --> 1:05:53.040
<v Speaker 2>The journalist writes up the story, someone else writes the headline,

1:05:53.440 --> 1:05:57.440
<v Speaker 2>and they're looking for the clickiest, most slations thing to

1:05:57.520 --> 1:05:59.920
<v Speaker 2>pull out. How many times have you read a story

1:06:00.080 --> 1:06:01.840
<v Speaker 2>where you read the headline.

1:06:01.800 --> 1:06:03.880
<v Speaker 1>And the story is, what's we're going to do with it?

1:06:04.000 --> 1:06:07.640
<v Speaker 2>Right? It's really true. I don't know is probably the

1:06:07.680 --> 1:06:11.440
<v Speaker 2>most underused phrase on Wall Street, and it really should

1:06:11.520 --> 1:06:14.400
<v Speaker 2>be because you know, first of all, it's great when

1:06:14.400 --> 1:06:17.360
<v Speaker 2>you're doing on live TV you get a question, so

1:06:17.600 --> 1:06:20.960
<v Speaker 2>where's the marketing to be in a year? How am

1:06:20.960 --> 1:06:22.480
<v Speaker 2>I supposed to know? Nobody knows?

1:06:23.080 --> 1:06:26.560
<v Speaker 1>It's and again, like nineteen eighty seven's example, even if

1:06:26.600 --> 1:06:29.760
<v Speaker 1>you nailed nineteen eighty seven and said flat, the market's

1:06:29.800 --> 1:06:31.160
<v Speaker 1>not going to do anything, No one's going to be, Oh,

1:06:31.240 --> 1:06:33.000
<v Speaker 1>yes it is. The market is going to do a lot.

1:06:33.120 --> 1:06:34.840
<v Speaker 1>It's right, it's not going to end the year with

1:06:34.960 --> 1:06:35.800
<v Speaker 1>much to show for it.

1:06:35.880 --> 1:06:39.720
<v Speaker 2>That's really funny. So, given everything we've said about the markets,

1:06:39.760 --> 1:06:43.080
<v Speaker 2>the duck paddling underneath, what's going on below the surface,

1:06:43.960 --> 1:06:49.760
<v Speaker 2>how should investors think about forward expectations, what should they

1:06:49.800 --> 1:06:52.640
<v Speaker 2>think about, Hey, you know we've been seeing the twenty

1:06:52.720 --> 1:06:55.280
<v Speaker 2>tens the market. What do we averaged thirteen fourteen percent

1:06:55.320 --> 1:06:58.280
<v Speaker 2>a year, even with some bad quarters in that the

1:06:58.320 --> 1:07:02.160
<v Speaker 2>rest of twenty twenty was amazing, twenty one was huge,

1:07:02.240 --> 1:07:05.400
<v Speaker 2>twenty three was huge. Here we are starting out twenty

1:07:05.480 --> 1:07:10.200
<v Speaker 2>four strong. At what point should investors begin to moderate

1:07:10.400 --> 1:07:11.640
<v Speaker 2>return expectations.

1:07:11.960 --> 1:07:15.480
<v Speaker 1>The discipline of rebalancing keeps you in gear in perpetuity

1:07:15.520 --> 1:07:17.880
<v Speaker 1>without having to figure out, Okay, is this the moment

1:07:17.920 --> 1:07:20.000
<v Speaker 1>I want to lessen risk on my portfolio or take

1:07:20.040 --> 1:07:22.160
<v Speaker 1>more risk in my portfolio? But I think the two

1:07:22.240 --> 1:07:25.760
<v Speaker 1>key risks right now have more to do with called

1:07:25.760 --> 1:07:29.000
<v Speaker 1>the internals of the market than anything out there that

1:07:29.040 --> 1:07:32.640
<v Speaker 1>we're observing as risk. Obviously, you know, geopolitics and the

1:07:32.720 --> 1:07:36.240
<v Speaker 1>election and black Swan risks are always the potential. But

1:07:36.320 --> 1:07:40.240
<v Speaker 1>I think sentiment and valuation now the one important caveat

1:07:40.320 --> 1:07:43.240
<v Speaker 1>around saying sentiment and valuation are a risk in this case,

1:07:43.320 --> 1:07:48.080
<v Speaker 1>meaning sentiment's scotten pretty frothy both attitudinal measures and behavioral measures,

1:07:48.200 --> 1:07:51.640
<v Speaker 1>and valuation is fairly stretched. Is the important caveat is

1:07:51.840 --> 1:07:55.760
<v Speaker 1>neither even at extremes represents anything resembling market timing tool.

1:07:56.600 --> 1:07:59.480
<v Speaker 1>As we all learned in the nineteen nineties, valuation can

1:07:59.520 --> 1:08:01.680
<v Speaker 1>get stress and sentiment can get stretched, and that can

1:08:01.760 --> 1:08:04.680
<v Speaker 1>last for years. What it does is set up maybe

1:08:04.680 --> 1:08:07.160
<v Speaker 1>a risk factor to the extent there's a negative catalyst

1:08:07.240 --> 1:08:08.960
<v Speaker 1>when you sort of have everyone on one side of

1:08:08.960 --> 1:08:11.520
<v Speaker 1>the boat and your priced for perfection. But again, that

1:08:11.600 --> 1:08:14.480
<v Speaker 1>environment can last. But I would certainly put both of

1:08:14.480 --> 1:08:17.320
<v Speaker 1>those in the risk column. In terms of what could

1:08:17.400 --> 1:08:20.440
<v Speaker 1>the potential negative catalyst be that could cause a contrarian

1:08:20.479 --> 1:08:24.240
<v Speaker 1>move relative to optimistic sentiment, well, we've already talked about

1:08:24.240 --> 1:08:26.840
<v Speaker 1>a lot of them. It could be something outsized in

1:08:26.920 --> 1:08:30.880
<v Speaker 1>terms of inflation or the Fed policy. You know, reaction function,

1:08:31.160 --> 1:08:34.560
<v Speaker 1>geopolitics is ever present. Given that twenty twenty three was

1:08:34.600 --> 1:08:37.320
<v Speaker 1>a very low volatility year, you've got the likelihood of

1:08:37.360 --> 1:08:39.800
<v Speaker 1>mean reversion, and you throw the election into the mix

1:08:39.800 --> 1:08:43.559
<v Speaker 1>as a potential volatility driver. I don't think that's a stretch. Otherwise,

1:08:43.600 --> 1:08:45.919
<v Speaker 1>I think you stay up in quality within the equity

1:08:46.000 --> 1:08:49.120
<v Speaker 1>portion of the portfolio. I think factor based investing makes

1:08:49.160 --> 1:08:52.280
<v Speaker 1>a lot more sense than monolithic groups of stocks or

1:08:52.360 --> 1:08:55.840
<v Speaker 1>even maybe at the sector level investing based on characteristics

1:08:55.880 --> 1:08:59.160
<v Speaker 1>and looking for quality companies with strong balance sheets and

1:08:59.280 --> 1:09:02.679
<v Speaker 1>ample interest coverage and strong free cash flow and positive

1:09:02.680 --> 1:09:06.760
<v Speaker 1>earnings trends and revisions, and apply that analysis across the

1:09:06.840 --> 1:09:09.200
<v Speaker 1>spectrum of sectors and even cap ranges.

1:09:09.439 --> 1:09:13.719
<v Speaker 2>Really informative and insightful. Let's jump to our speed round

1:09:13.840 --> 1:09:16.519
<v Speaker 2>our favorite questions that we ask all of our guests,

1:09:17.040 --> 1:09:19.800
<v Speaker 2>starting with tell us what's entertaining you? What are you

1:09:19.840 --> 1:09:22.400
<v Speaker 2>watching or listening or streaming these days?

1:09:22.720 --> 1:09:25.040
<v Speaker 1>So I don't read a lot of books. Every once

1:09:25.080 --> 1:09:26.760
<v Speaker 1>in a while i'll listen to them, but I'm a

1:09:26.840 --> 1:09:30.840
<v Speaker 1>big podcast listener. Aside from our own and yours, I've

1:09:30.840 --> 1:09:32.400
<v Speaker 1>always been a fan of mass.

1:09:32.200 --> 1:09:34.280
<v Speaker 2>I always tell people you don't have to mention.

1:09:34.240 --> 1:09:36.960
<v Speaker 1>No, no, I've been a regular listener of Masters in

1:09:37.000 --> 1:09:39.600
<v Speaker 1>Business in podcast form and listening to you on the

1:09:39.760 --> 1:09:42.880
<v Speaker 1>on the radio. So even in the beginning, I'm a

1:09:42.920 --> 1:09:45.479
<v Speaker 1>longtime fan. Now well, because I was a guest sort

1:09:45.479 --> 1:09:46.680
<v Speaker 1>of in the beginning, you.

1:09:46.640 --> 1:09:49.120
<v Speaker 2>Weren't sort of. You were one of the early guests.

1:09:49.360 --> 1:09:52.200
<v Speaker 2>When I couldn't get anyone on, I worked my way

1:09:52.200 --> 1:09:53.800
<v Speaker 2>through my personal phone book.

1:09:54.520 --> 1:09:57.400
<v Speaker 1>And then when you couldn't get anybody on, you got

1:09:57.400 --> 1:09:57.720
<v Speaker 1>me on.

1:09:58.160 --> 1:10:03.840
<v Speaker 2>Yeah, no, no, seriously, the general response to requests was no.

1:10:04.680 --> 1:10:08.000
<v Speaker 2>When I asked somebody I knew personally, I don't mean

1:10:08.040 --> 1:10:11.479
<v Speaker 2>you weren't anybody when I asked someone I knew. All Right,

1:10:11.520 --> 1:10:14.240
<v Speaker 2>I'll do you a favor, because really, nobody's paying attention

1:10:14.320 --> 1:10:16.960
<v Speaker 2>to this. That was then now it's ten millions.

1:10:17.120 --> 1:10:19.439
<v Speaker 1>But I am, but I am. I am a fan.

1:10:19.720 --> 1:10:22.760
<v Speaker 1>Grant Williams has a few podcasts and he always has

1:10:22.920 --> 1:10:24.880
<v Speaker 1>really fascinating guests.

1:10:24.520 --> 1:10:27.559
<v Speaker 2>On very eclectic Mix, very eclectic mix.

1:10:27.640 --> 1:10:31.120
<v Speaker 1>But I like that it's often macro focused. And there's

1:10:31.120 --> 1:10:33.760
<v Speaker 1>a number of other podcasts sporadically that I'll listen to

1:10:33.920 --> 1:10:37.160
<v Speaker 1>outside of the world of finance. I'm a big SmartLess fan.

1:10:37.479 --> 1:10:37.960
<v Speaker 2>Oh sure.

1:10:38.080 --> 1:10:40.600
<v Speaker 1>I mean they're just so funny and so lovely and

1:10:40.640 --> 1:10:41.360
<v Speaker 1>brilliant and.

1:10:41.320 --> 1:10:44.719
<v Speaker 2>I think they just saw yourself for an ungodly amount

1:10:44.720 --> 1:10:46.160
<v Speaker 2>of money to them. Yeah.

1:10:47.520 --> 1:10:50.960
<v Speaker 1>Yeah's and then streaming. I guess the one that I'm

1:10:51.000 --> 1:10:56.400
<v Speaker 1>in the midst of now is Feud Capodi versus the Swans. Really, yes,

1:10:56.880 --> 1:10:59.640
<v Speaker 1>so it's it's not a documentary, but it's you know,

1:10:59.680 --> 1:11:03.080
<v Speaker 1>based on true stories, but with great actors playing parts,

1:11:03.200 --> 1:11:05.519
<v Speaker 1>and it's multi episode and so that's that's a good

1:11:05.520 --> 1:11:06.639
<v Speaker 1>one that I'm into right now.

1:11:06.720 --> 1:11:08.679
<v Speaker 2>So I kind of know the answer to this question,

1:11:08.720 --> 1:11:10.960
<v Speaker 2>but I want to ask in any way for anyone

1:11:11.040 --> 1:11:14.000
<v Speaker 2>listening this deep into the podcast, tell us about your

1:11:14.000 --> 1:11:16.519
<v Speaker 2>early mentors who shaped your career.

1:11:16.680 --> 1:11:21.760
<v Speaker 1>So Marty's why clearly obviously LUCIERU Kaiser in terms of

1:11:21.800 --> 1:11:25.680
<v Speaker 1>my entree into the world of television and learning what

1:11:25.720 --> 1:11:28.960
<v Speaker 1>matters and what doesn't matter. And I got it, Chuck Schwab.

1:11:28.920 --> 1:11:31.679
<v Speaker 2>I know you said you're you're too busy reading research

1:11:31.720 --> 1:11:34.200
<v Speaker 2>reports to read a lot of books in addition to

1:11:34.439 --> 1:11:37.160
<v Speaker 2>Winning on Wall Street by Marty's why, any other books

1:11:37.200 --> 1:11:38.360
<v Speaker 2>you would recommend to someone?

1:11:38.360 --> 1:11:41.200
<v Speaker 1>And yes, So one of the best books I ever

1:11:41.240 --> 1:11:43.639
<v Speaker 1>got about investing was given to be my Marty when

1:11:43.680 --> 1:11:45.920
<v Speaker 1>I started the business in nineteen eighty six. And it's

1:11:45.960 --> 1:11:47.840
<v Speaker 1>a little book. It's paperback. A lot of people have

1:11:47.880 --> 1:11:50.639
<v Speaker 1>probably heard of it, but Reminiscences of a stock Court.

1:11:50.880 --> 1:11:53.479
<v Speaker 1>It's just so fabulous and I also like and it's

1:11:53.479 --> 1:11:56.680
<v Speaker 1>similar in its sort of size and structure with paperback.

1:11:56.920 --> 1:11:58.160
<v Speaker 1>Where are the customer's yachts?

1:11:58.200 --> 1:11:58.679
<v Speaker 2>Uh huh?

1:11:58.720 --> 1:12:00.880
<v Speaker 1>So those are my two. And then you know Winning

1:12:00.880 --> 1:12:03.240
<v Speaker 1>on Wall Street. You know I gotta plug Marty's book

1:12:03.280 --> 1:12:06.960
<v Speaker 1>and that still resonates even today right now at times

1:12:07.000 --> 1:12:09.680
<v Speaker 1>I'm listening to a book and I'll listen to, you know,

1:12:09.720 --> 1:12:11.640
<v Speaker 1>fifteen minutes at a time, and then not listen to

1:12:11.680 --> 1:12:14.240
<v Speaker 1>it for months and months. Is by Nathaniel Philbrick, and

1:12:14.280 --> 1:12:17.400
<v Speaker 1>it's just the history of Nantucket, where OHI is my place.

1:12:17.439 --> 1:12:20.400
<v Speaker 1>I spent parts of the summer and about the era

1:12:20.520 --> 1:12:23.400
<v Speaker 1>from the sixteen hundreds into the seventeen hundreds when it

1:12:23.400 --> 1:12:27.280
<v Speaker 1>was the whaling capital of the world. And so that's it.

1:12:27.520 --> 1:12:29.879
<v Speaker 2>I'm going to share a book with you only because

1:12:30.080 --> 1:12:33.759
<v Speaker 2>you are now in Naples. I just finished reading Bubble

1:12:33.800 --> 1:12:38.160
<v Speaker 2>in the Sun, the History of Florida real Estate Booms

1:12:38.200 --> 1:12:43.200
<v Speaker 2>and Busts, and the theory is the Florida real estate

1:12:43.240 --> 1:12:47.679
<v Speaker 2>boom in the twenties is the biggest migration in US history,

1:12:48.320 --> 1:12:51.439
<v Speaker 2>and it's collapse was one of the factors that led

1:12:51.479 --> 1:12:56.680
<v Speaker 2>to the Great Depression. It's an deeply researched, absolutely fascinating

1:12:56.720 --> 1:12:58.920
<v Speaker 2>All right, good, I think you get add it to

1:12:58.960 --> 1:13:03.040
<v Speaker 2>my list. Two questions. What sort of advice would you

1:13:03.080 --> 1:13:06.880
<v Speaker 2>give to a recent college grad interested in going into

1:13:07.080 --> 1:13:08.440
<v Speaker 2>finance or investment?

1:13:08.760 --> 1:13:11.559
<v Speaker 1>I would say, and This is advice I would give

1:13:11.800 --> 1:13:15.360
<v Speaker 1>to a college grad going really into just about any industry,

1:13:15.800 --> 1:13:18.160
<v Speaker 1>but I think maybe finance a little bit more. Too

1:13:18.160 --> 1:13:21.000
<v Speaker 1>many college grads then coming into finance, it's about, well,

1:13:21.040 --> 1:13:23.320
<v Speaker 1>what did I learn in college? What courses did I take?

1:13:23.520 --> 1:13:26.400
<v Speaker 1>To be early? Honest, it doesn't matter. You're not bringing

1:13:26.640 --> 1:13:29.240
<v Speaker 1>something into the mix that the company doesn't already know.

1:13:29.439 --> 1:13:32.080
<v Speaker 1>So the more broad advice I always give to people

1:13:32.120 --> 1:13:34.720
<v Speaker 1>who are starting out and they're going through the interview processes,

1:13:34.840 --> 1:13:37.720
<v Speaker 1>there always seems to be this strong desire to come

1:13:37.760 --> 1:13:41.480
<v Speaker 1>across as interesting, be interested, focus more on being interested

1:13:41.680 --> 1:13:42.639
<v Speaker 1>than being interesting.

1:13:42.840 --> 1:13:46.680
<v Speaker 2>Huh. Good advice. And our final question, what do you

1:13:46.720 --> 1:13:49.479
<v Speaker 2>know about the world of investing today? You wish you

1:13:49.560 --> 1:13:53.840
<v Speaker 2>knew thirty six years ago when you were first getting started.

1:13:53.640 --> 1:13:55.880
<v Speaker 1>To start early and young.

1:13:55.920 --> 1:13:58.840
<v Speaker 2>Start early and young. The magic of compounding, the.

1:13:58.800 --> 1:14:02.519
<v Speaker 1>Magic of compounding. And even if it means sacrificing a

1:14:02.560 --> 1:14:05.639
<v Speaker 1>little of the pleasures when you're much younger and you're

1:14:05.680 --> 1:14:08.639
<v Speaker 1>trying to divide a very small amount of money into

1:14:08.720 --> 1:14:13.080
<v Speaker 1>you know, fun versus savings versus work, is starting early

1:14:13.439 --> 1:14:15.920
<v Speaker 1>is just so powerful, even if it's just putting it

1:14:15.960 --> 1:14:17.560
<v Speaker 1>in some version of Savings.

1:14:17.840 --> 1:14:21.320
<v Speaker 2>Liz Anne, this has been just absolutely delightful. Thank you

1:14:21.760 --> 1:14:24.320
<v Speaker 2>so much for being so generous with your time and

1:14:24.479 --> 1:14:29.599
<v Speaker 2>allowing me to really improve on our first conversation, which

1:14:30.120 --> 1:14:32.640
<v Speaker 2>in preparation for this I listened to and was just

1:14:32.760 --> 1:14:33.720
<v Speaker 2>utterly mortified.

1:14:33.840 --> 1:14:37.320
<v Speaker 1>Oh I disagree with you, diose to you because I

1:14:37.320 --> 1:14:40.320
<v Speaker 1>didn't listen to the whole thing at your suggestion. I

1:14:40.400 --> 1:14:44.160
<v Speaker 1>listened to the first five or ten minutes, and I

1:14:44.200 --> 1:14:45.839
<v Speaker 1>still remember it like it was yesterday.

1:14:46.120 --> 1:14:51.320
<v Speaker 2>I remember sitting in that darkened room around that round table, you,

1:14:51.400 --> 1:14:55.040
<v Speaker 2>me and Larry literally my first television appearance. I want

1:14:55.040 --> 1:15:00.200
<v Speaker 2>to say that was like three something crazy. So anyway,

1:15:00.200 --> 1:15:04.320
<v Speaker 2>we have been speaking with the delightful Liz and no

1:15:04.520 --> 1:15:09.600
<v Speaker 2>E Saunders, chief investment strategist at Schwab, helping to oversee

1:15:09.840 --> 1:15:14.320
<v Speaker 2>over eight trillion dollars on their platform. If you enjoy

1:15:14.439 --> 1:15:17.320
<v Speaker 2>this conversation well, be sure to check out any of

1:15:17.360 --> 1:15:21.559
<v Speaker 2>our previous five hundred discussions we've had over the past

1:15:21.600 --> 1:15:26.760
<v Speaker 2>ten years. You can find those at iTunes, Spotify, YouTube,

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<v Speaker 2>wherever you find your favorite podcasts. Be sure to check

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<v Speaker 2>out my new podcast at the Money, short ten minute

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<v Speaker 2>Questions and Answers with experts about your money. I'm really

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<v Speaker 2>enjoying doing this podcast to just get to the meet

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<v Speaker 2>of an issue ten minutes. You can find those in

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<v Speaker 2>your master's and business speed. I would be remiss if

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<v Speaker 2>I did not thank the craft team that helps us

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<v Speaker 2>put these conversations together each week. Robert Bragg is my

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<v Speaker 2>audio engineer at tik of Albron is my project manager.

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<v Speaker 2>Anna Luke is my producer. Sean Russo is my researcher.

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<v Speaker 2>I'm Barry Radolts. You've been listening to Masters in Business

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<v Speaker 2>on Bloomberg Radio.