1 00:00:02,040 --> 00:00:06,000 Speaker 1: This is Master's in Business with Barry rid Holds on 2 00:00:06,240 --> 00:00:07,400 Speaker 1: Bloomberg Radio. 3 00:00:08,200 --> 00:00:11,680 Speaker 2: This week on the podcast, ed Heiman returns to talk 4 00:00:11,720 --> 00:00:16,000 Speaker 2: about all things economic analysis, what's going on in the world, 5 00:00:16,560 --> 00:00:21,160 Speaker 2: how he's built an incredible career. Oh my god, forty 6 00:00:21,200 --> 00:00:25,239 Speaker 2: three times number one ranked in the Institutional Investor Survey 7 00:00:25,360 --> 00:00:29,360 Speaker 2: in economics. That's just unprecedented, and I'll keep saying, no 8 00:00:29,400 --> 00:00:34,400 Speaker 2: one will ever beat that that streak. Ed is a 9 00:00:34,400 --> 00:00:38,519 Speaker 2: fascinating guy. He's built a fascinating company. He is one 10 00:00:38,560 --> 00:00:43,199 Speaker 2: of those people who focuses on figuring out what's happening 11 00:00:43,280 --> 00:00:47,280 Speaker 2: here and now and is less concerned about making forecasts 12 00:00:47,320 --> 00:00:51,800 Speaker 2: about the future. His clients adore him. He helps keep 13 00:00:51,840 --> 00:00:55,240 Speaker 2: them on the right side of the trade, and he's 14 00:00:55,400 --> 00:01:00,280 Speaker 2: really just one of these legends and gems on Wall Street. 15 00:01:00,880 --> 00:01:03,440 Speaker 2: I could keep going, but let me just stop and say, 16 00:01:03,480 --> 00:01:07,640 Speaker 2: with no further ado my conversation with Isi ever coruse 17 00:01:08,120 --> 00:01:11,119 Speaker 2: Ed Hyman, Great to see you, Great to see you. 18 00:01:11,120 --> 00:01:12,920 Speaker 2: You know, the last time you would hear that number 19 00:01:13,000 --> 00:01:15,679 Speaker 2: was something like thirty five times, all right, which was 20 00:01:15,720 --> 00:01:19,800 Speaker 2: also unbeatable. That is a record that I don't believe 21 00:01:20,080 --> 00:01:23,600 Speaker 2: we'll ever be topped. Before we get into the details 22 00:01:23,800 --> 00:01:27,800 Speaker 2: of your career and your work. How on earth is 23 00:01:27,880 --> 00:01:33,160 Speaker 2: anyone ranked number one for forty three consecutive times? That's amazing. 24 00:01:33,680 --> 00:01:34,240 Speaker 1: I don't know. 25 00:01:35,319 --> 00:01:38,240 Speaker 3: I've been really lucky in my career and I listened 26 00:01:38,240 --> 00:01:40,880 Speaker 3: to your show all the time, and most people will 27 00:01:40,880 --> 00:01:44,640 Speaker 3: say that good lucky, and frankly, if they've done a lot, 28 00:01:44,720 --> 00:01:48,200 Speaker 3: they have to have been lucky. My greatest talent is work. 29 00:01:49,720 --> 00:01:52,640 Speaker 3: I'm really a hard worker. I know how to work. 30 00:01:52,720 --> 00:01:56,800 Speaker 3: I like working, and so that's maybe number one. 31 00:01:57,680 --> 00:02:00,960 Speaker 2: Wouldn't you say that in fine which is such a 32 00:02:01,000 --> 00:02:05,800 Speaker 2: competitive field hard work and intelligence, that's just table stakes 33 00:02:05,800 --> 00:02:08,280 Speaker 2: to get into the game, isn't it. 34 00:02:08,280 --> 00:02:08,560 Speaker 1: It is? 35 00:02:08,600 --> 00:02:12,840 Speaker 3: But it's table stakes in every game, and it doesn't 36 00:02:12,919 --> 00:02:16,040 Speaker 3: change much. And they are people I know that work 37 00:02:16,080 --> 00:02:18,400 Speaker 3: harder than I do, and they do. 38 00:02:18,360 --> 00:02:21,200 Speaker 2: Better, well, not better than forty three in a row. 39 00:02:22,320 --> 00:02:26,679 Speaker 2: I like Peter Lynch's description of what made you successful? 40 00:02:26,800 --> 00:02:29,080 Speaker 2: I think it was in his book One Up on 41 00:02:29,080 --> 00:02:33,000 Speaker 2: Wall Street. Ed Heiman is much more practical than most economists. 42 00:02:33,440 --> 00:02:37,360 Speaker 2: He's more interested in examining railroad cars than Laugher curves. 43 00:02:38,040 --> 00:02:42,040 Speaker 2: What does that say about what makes you special and 44 00:02:42,080 --> 00:02:43,720 Speaker 2: different from other economists? 45 00:02:44,200 --> 00:02:48,000 Speaker 3: First, I like working, and I've worked to the point 46 00:02:48,000 --> 00:02:50,800 Speaker 3: that I've found something I really enjoy doing. You know, 47 00:02:50,840 --> 00:02:53,920 Speaker 3: that's maybe the second most important thing for anybody, for 48 00:02:54,000 --> 00:02:58,760 Speaker 3: you or me. I have a real interest in helping people, 49 00:02:58,960 --> 00:03:01,480 Speaker 3: which you know, some people have that interest and some 50 00:03:01,520 --> 00:03:05,720 Speaker 3: people don't, but I do. And so I met Peter Lynch. 51 00:03:06,240 --> 00:03:09,000 Speaker 3: Was it fifty years ago or forty years ago? I said, 52 00:03:09,560 --> 00:03:12,920 Speaker 3: I got to help this guy, and he said, no, thanks. 53 00:03:13,160 --> 00:03:16,240 Speaker 3: I said, wait a minute, I'll come back. And so 54 00:03:16,440 --> 00:03:19,160 Speaker 3: I tried to find something that I could do that 55 00:03:19,200 --> 00:03:23,760 Speaker 3: would be of interest to basically an equity investor. And he's, 56 00:03:23,840 --> 00:03:26,800 Speaker 3: you know, maybe the best that's been around. And so 57 00:03:27,560 --> 00:03:31,600 Speaker 3: he set me off in a direction that was practical 58 00:03:31,960 --> 00:03:36,920 Speaker 3: and at that point, commissioned business that he generated was ginormous, 59 00:03:37,000 --> 00:03:41,040 Speaker 3: I'm sure, and so I was incentivized, you know, monetarily 60 00:03:41,440 --> 00:03:43,960 Speaker 3: to help him. I wouldn't put him as a mentor 61 00:03:44,600 --> 00:03:47,040 Speaker 3: because I didn't spend that much time with him, but 62 00:03:47,080 --> 00:03:50,720 Speaker 3: he definitely influenced my career in a practical way that 63 00:03:50,840 --> 00:03:53,720 Speaker 3: I think has served me very well ever since then, 64 00:03:53,880 --> 00:03:56,960 Speaker 3: because I'm always trying to find things that are practical, 65 00:03:57,640 --> 00:03:59,720 Speaker 3: and now I happened like art Laugher. You mentioned the 66 00:03:59,800 --> 00:04:03,280 Speaker 3: laugh recur, which I think is frankly pretty much a 67 00:04:03,280 --> 00:04:06,839 Speaker 3: Stroker genius. But you know, it's not something that people 68 00:04:06,920 --> 00:04:09,160 Speaker 3: make money off of every day. So I'm trying to 69 00:04:09,320 --> 00:04:13,280 Speaker 3: mix both things that are intellectual and theoretical as well 70 00:04:13,320 --> 00:04:15,760 Speaker 3: as things that they have a practical side to them. 71 00:04:15,800 --> 00:04:18,200 Speaker 2: So let's talk a little bit about the genesis of 72 00:04:18,279 --> 00:04:21,960 Speaker 2: that practical side. You get your BS and engineering from 73 00:04:22,040 --> 00:04:25,760 Speaker 2: university to get asses right, so engineers tend to be 74 00:04:25,839 --> 00:04:31,360 Speaker 2: pragmatic problem solvers, and then you get an MBA from MIT, 75 00:04:31,400 --> 00:04:35,800 Speaker 2: so you have all of this very pragmatic experience as 76 00:04:35,839 --> 00:04:40,360 Speaker 2: opposed to getting a PhD in economics, which tends to 77 00:04:40,400 --> 00:04:43,960 Speaker 2: be a little more abstract and academic. How much of 78 00:04:44,640 --> 00:04:48,039 Speaker 2: your rankings come from the fact that you have these 79 00:04:48,360 --> 00:04:53,599 Speaker 2: very problem solving oriented academic background. How did that affect 80 00:04:53,600 --> 00:04:54,480 Speaker 2: you a lot? 81 00:04:55,040 --> 00:04:56,960 Speaker 3: You know, if you're hard working and you're trying to 82 00:04:57,000 --> 00:05:01,960 Speaker 3: do things that people value and my client base, if 83 00:05:02,000 --> 00:05:05,640 Speaker 3: you will, or institutional investors, I went all the time. 84 00:05:06,880 --> 00:05:09,960 Speaker 2: So let's talk a little bit about the early days 85 00:05:10,000 --> 00:05:12,679 Speaker 2: of your career. When you come out of school nineteen 86 00:05:12,760 --> 00:05:16,320 Speaker 2: sixty nine to seventy one, you're an economic consultant at 87 00:05:16,400 --> 00:05:19,920 Speaker 2: Data Resources. What did you do for those guys? That 88 00:05:20,279 --> 00:05:20,960 Speaker 2: sounds kind of. 89 00:05:20,920 --> 00:05:25,200 Speaker 3: Interesting whenever Auto, actually I wanted some coffee, I brought 90 00:05:25,200 --> 00:05:25,680 Speaker 3: it to him. 91 00:05:26,240 --> 00:05:29,320 Speaker 2: So you started as a very junior person. 92 00:05:29,360 --> 00:05:32,600 Speaker 3: On the tone, I'm pretty junior, but at that point 93 00:05:33,160 --> 00:05:38,559 Speaker 3: I had a pretty special knowledge of econometrics. At MIT, 94 00:05:38,760 --> 00:05:42,560 Speaker 3: they had the first time sharing big mainframe, big mainframe, 95 00:05:42,640 --> 00:05:45,919 Speaker 3: but you could share the data, share the computer programs. 96 00:05:46,680 --> 00:05:52,160 Speaker 3: And the first real practical application was the Sage American 97 00:05:52,200 --> 00:05:56,080 Speaker 3: Airlines ticket system, which is a time sharing where you 98 00:05:56,120 --> 00:05:57,520 Speaker 3: get your tickets, and. 99 00:05:57,279 --> 00:05:59,760 Speaker 2: That eventually became Saber, right Saber. 100 00:06:01,080 --> 00:06:04,400 Speaker 3: And so I had done that at MIT, and Auto 101 00:06:04,560 --> 00:06:07,719 Speaker 3: x Stein, who was a professor in the economics department 102 00:06:07,800 --> 00:06:12,640 Speaker 3: at Harvard, he started a company that did that exact thing. 103 00:06:12,839 --> 00:06:14,680 Speaker 2: They're right down the street from MIT. 104 00:06:14,680 --> 00:06:19,000 Speaker 3: Right right there, And I was working for a professor 105 00:06:19,080 --> 00:06:21,680 Speaker 3: named ed Ko who was a friend of Auto x Stein, 106 00:06:21,800 --> 00:06:23,840 Speaker 3: and so they were talking and I got the job. 107 00:06:24,080 --> 00:06:26,680 Speaker 3: So that was a stroke of good luck. Plus I 108 00:06:26,680 --> 00:06:28,000 Speaker 3: was in the right spot at the right time. 109 00:06:28,520 --> 00:06:31,159 Speaker 2: What was the data like back then, I'm thinking of 110 00:06:31,240 --> 00:06:34,000 Speaker 2: punch cards and very rudimentary computing. 111 00:06:34,120 --> 00:06:36,400 Speaker 3: It was before then and actually I did a lot 112 00:06:36,440 --> 00:06:39,560 Speaker 3: of punch cards. You're too young for this. 113 00:06:40,080 --> 00:06:43,840 Speaker 2: When I started college, punch cards and time shares were 114 00:06:43,880 --> 00:06:46,400 Speaker 2: still a thing, but it was a fading thing and 115 00:06:46,480 --> 00:06:50,599 Speaker 2: the newfangles technology was coming. You saw it on the horizon. 116 00:06:50,960 --> 00:06:55,400 Speaker 3: I just jumped right over that card deck into data resources, 117 00:06:55,400 --> 00:06:59,560 Speaker 3: where the data was in a computer you shared and 118 00:07:00,120 --> 00:07:03,600 Speaker 3: have to carry the deck around, and it was a 119 00:07:03,640 --> 00:07:07,560 Speaker 3: major step forward. Pretty much the same technology as today. 120 00:07:08,040 --> 00:07:12,040 Speaker 3: We still use the Data Resources system constantly and the 121 00:07:12,160 --> 00:07:14,360 Speaker 3: data is there. The only thing has changed is there's 122 00:07:14,560 --> 00:07:16,240 Speaker 3: much more data. 123 00:07:16,400 --> 00:07:20,080 Speaker 2: More data, faster, bigger. It just has obviously scaled up 124 00:07:20,080 --> 00:07:21,320 Speaker 2: a lot since right then. 125 00:07:21,440 --> 00:07:23,560 Speaker 3: So it's not just government data now there's a lot 126 00:07:23,600 --> 00:07:24,880 Speaker 3: of industry data. 127 00:07:25,120 --> 00:07:27,000 Speaker 2: Which you guys will talk a little bit about what 128 00:07:27,080 --> 00:07:31,040 Speaker 2: ISI does in assembling its own data. Let's just continue 129 00:07:31,040 --> 00:07:34,720 Speaker 2: along your career seventy two, you end up at CJ. Lawrence. 130 00:07:35,320 --> 00:07:38,000 Speaker 2: Tell us what you did there, What was that work like? 131 00:07:38,640 --> 00:07:45,000 Speaker 3: So at Data Resources, I worked with our clients and 132 00:07:45,440 --> 00:07:50,600 Speaker 3: Otto Eckstein, who is a spectacular human being. He passed away, 133 00:07:51,000 --> 00:07:53,040 Speaker 3: I think in his fifties, and he went from the 134 00:07:53,080 --> 00:07:56,280 Speaker 3: cover of Time magazine to not being with us anymore. 135 00:07:56,800 --> 00:07:59,680 Speaker 3: But he was a phenomenal person and he had this 136 00:07:59,760 --> 00:08:03,720 Speaker 3: game plan. He would hire people out of school that 137 00:08:04,200 --> 00:08:07,360 Speaker 3: seemed to be over the ball on the ball right, 138 00:08:07,440 --> 00:08:10,040 Speaker 3: and they would work for data resources and take care 139 00:08:10,040 --> 00:08:12,280 Speaker 3: of clients, and then a client would hire them. 140 00:08:12,560 --> 00:08:14,920 Speaker 1: And he said that's great, and. 141 00:08:14,840 --> 00:08:17,160 Speaker 3: He just locked in as a client. They locked in 142 00:08:17,160 --> 00:08:19,360 Speaker 3: as a client. So I remember telling him. I think 143 00:08:19,360 --> 00:08:21,840 Speaker 3: I called him auto. I shouldn't have, but I did. 144 00:08:22,320 --> 00:08:24,320 Speaker 3: I said otto, I said, I have a job, offer 145 00:08:24,960 --> 00:08:28,040 Speaker 3: to go to work for one of our clients, c J. Lawrence, 146 00:08:28,960 --> 00:08:33,080 Speaker 3: And he said, oh, ed, that's great. I kept waiting 147 00:08:33,080 --> 00:08:37,040 Speaker 3: for the counter. So I remember he took me to 148 00:08:37,120 --> 00:08:38,880 Speaker 3: lunch at Friendlies. 149 00:08:40,080 --> 00:08:43,120 Speaker 2: For a fribble and some fries. 150 00:08:43,360 --> 00:08:45,400 Speaker 3: But anyway, so that was how I got to C. J. 151 00:08:45,559 --> 00:08:45,920 Speaker 1: Lawrence. 152 00:08:46,040 --> 00:08:48,800 Speaker 2: Didn't they end up getting purchased by was it Deutsche Bank? 153 00:08:48,880 --> 00:08:49,680 Speaker 1: By Deutsche Bank? 154 00:08:49,800 --> 00:08:52,800 Speaker 2: Right? How did that affect your plans going forward? Did 155 00:08:52,800 --> 00:08:54,959 Speaker 2: you want to go to a big bank or is 156 00:08:55,000 --> 00:08:57,600 Speaker 2: that what led to the next step in your career? 157 00:08:57,720 --> 00:09:00,559 Speaker 3: That was the next step, and that was is. 158 00:09:00,760 --> 00:09:03,360 Speaker 2: I So that's ninety one. So you were you were CJ. 159 00:09:03,480 --> 00:09:06,200 Speaker 2: Lawrence for a good, good while for twenty years as Wow, 160 00:09:06,440 --> 00:09:10,040 Speaker 2: all right, so you found ISI group with some partners. 161 00:09:10,679 --> 00:09:13,720 Speaker 2: Tell us a little bit about the plan for launching 162 00:09:13,760 --> 00:09:16,320 Speaker 2: an independent economics research shop. 163 00:09:16,640 --> 00:09:19,280 Speaker 3: So at that point I had a pretty big career. 164 00:09:20,120 --> 00:09:24,200 Speaker 3: I'd been ranked I back in the seventies, if you 165 00:09:24,240 --> 00:09:26,880 Speaker 3: can do the math, and I had a to. 166 00:09:26,920 --> 00:09:30,280 Speaker 2: Be fair in the beginning, you were only like runner up. 167 00:09:30,400 --> 00:09:35,120 Speaker 2: And secondly, you really weren't carrying your share of the workload. 168 00:09:35,679 --> 00:09:38,080 Speaker 2: You were coming in second place. I mean, that's just no. 169 00:09:38,960 --> 00:09:40,559 Speaker 1: You have to start somewhere. 170 00:09:41,000 --> 00:09:42,800 Speaker 2: Start at number two and up. 171 00:09:43,120 --> 00:09:45,080 Speaker 1: And it was easy. 172 00:09:44,960 --> 00:09:48,280 Speaker 3: Transition to start my own shop. And I had a 173 00:09:48,320 --> 00:09:52,800 Speaker 3: group of people and Jim Moltz ran CJ Lawrence and 174 00:09:52,840 --> 00:09:55,320 Speaker 3: he was and still is like a father to me. 175 00:09:55,559 --> 00:09:58,880 Speaker 3: So he was very helpful. We all could tell that 176 00:09:59,040 --> 00:10:01,920 Speaker 3: it probably wasn't the best fit for somebody who liked 177 00:10:01,960 --> 00:10:05,199 Speaker 3: working for small companies to work for a big bank. 178 00:10:05,520 --> 00:10:08,760 Speaker 3: I told I told him. He said, okay, would you 179 00:10:08,800 --> 00:10:12,080 Speaker 3: stay until we find a replacement for you? I said, 180 00:10:12,120 --> 00:10:13,920 Speaker 3: of course. He came in one day he said that 181 00:10:14,000 --> 00:10:16,160 Speaker 3: we've got some good news. We found a replacement for you. 182 00:10:16,200 --> 00:10:22,120 Speaker 3: It's ed Yardinney. And I said, okay, that's great. I said, okay, 183 00:10:22,120 --> 00:10:24,840 Speaker 3: if I sent an announcement out, he said, it's okay, 184 00:10:24,880 --> 00:10:25,880 Speaker 3: I've already sent one out. 185 00:10:27,240 --> 00:10:29,840 Speaker 2: Yordini was at Deutsche Bank for a long time until 186 00:10:29,880 --> 00:10:31,920 Speaker 2: he launched Yordini Research. 187 00:10:32,040 --> 00:10:33,480 Speaker 1: Yeah. He's very good. 188 00:10:33,679 --> 00:10:35,360 Speaker 2: Really, he lives in the next town for me. We 189 00:10:35,559 --> 00:10:37,960 Speaker 2: actually go out to dinner. Yeah, yeh, super nice guy. 190 00:10:38,600 --> 00:10:41,679 Speaker 2: So let's talk a little bit about is I was 191 00:10:41,800 --> 00:10:44,520 Speaker 2: both a research shop, but you also set up IS 192 00:10:44,800 --> 00:10:48,960 Speaker 2: a funds management for investors and clients. Two different groups. 193 00:10:49,200 --> 00:10:51,120 Speaker 2: How did they co exist under the same roof? 194 00:10:51,400 --> 00:10:55,079 Speaker 3: It was Okay, It wasn't a great business. Frankly, it's 195 00:10:55,120 --> 00:10:58,600 Speaker 3: not as strong as your business in the asset management business. 196 00:10:58,760 --> 00:11:00,440 Speaker 3: I think I got up to maybe did get up 197 00:11:00,440 --> 00:11:01,480 Speaker 3: to maybe three billion. 198 00:11:01,640 --> 00:11:05,040 Speaker 2: Yeah, but your research side of the shop generated that 199 00:11:05,160 --> 00:11:07,240 Speaker 2: was enough activity to make up for it. Yeah, that 200 00:11:07,400 --> 00:11:10,720 Speaker 2: was I forget what what you call it the side hustle. 201 00:11:10,760 --> 00:11:14,679 Speaker 2: Your side hustle was managing institutional right assets. Your real 202 00:11:14,760 --> 00:11:19,360 Speaker 2: business is having the best perspective of what is happening 203 00:11:19,920 --> 00:11:23,160 Speaker 2: this moment in the economy. And again, according to II, 204 00:11:23,320 --> 00:11:27,600 Speaker 2: nobody does that better than you did. How long after 205 00:11:27,640 --> 00:11:30,680 Speaker 2: you launched II did you get a sense that hey, 206 00:11:30,720 --> 00:11:36,160 Speaker 2: we really have this figured out. We're providing research product 207 00:11:36,200 --> 00:11:38,240 Speaker 2: that nobody else on the street seems to be doing. 208 00:11:38,600 --> 00:11:40,360 Speaker 3: Actually, that had happened at CJ. 209 00:11:40,520 --> 00:11:40,960 Speaker 1: Lawrence. 210 00:11:41,600 --> 00:11:43,480 Speaker 3: You know, by the time I started is I had 211 00:11:43,520 --> 00:11:47,200 Speaker 3: already gotten a strong following and knew what I was 212 00:11:47,280 --> 00:11:50,880 Speaker 3: doing in that space, and so I just made a transition. 213 00:11:50,960 --> 00:11:54,360 Speaker 3: At that point ninety ninety one or recession years and 214 00:11:54,480 --> 00:11:57,240 Speaker 3: stop market, you know, had a pretty big drop, and 215 00:11:57,320 --> 00:12:00,640 Speaker 3: I thought, well, this is a bad idea, your own coveny. 216 00:12:00,640 --> 00:12:02,640 Speaker 2: It turns out to be the perfect time to start your. 217 00:12:02,520 --> 00:12:03,760 Speaker 1: Own Nay, it is a perfect time. 218 00:12:03,800 --> 00:12:06,800 Speaker 3: But you know that you learn that a little later, 219 00:12:07,240 --> 00:12:09,600 Speaker 3: but it is a perfect time. At that point, I thought, well, 220 00:12:09,679 --> 00:12:12,960 Speaker 3: if it doesn't work out better than what I was doing, right, 221 00:12:13,040 --> 00:12:15,720 Speaker 3: So I had very low expectations. And then it turns out, 222 00:12:16,160 --> 00:12:18,400 Speaker 3: you know, the market, if you go from ninety one forward, 223 00:12:18,800 --> 00:12:21,000 Speaker 3: market just sort of went up and business was good. 224 00:12:21,280 --> 00:12:24,600 Speaker 3: It was good basically until maybe twenty ten, and since 225 00:12:24,640 --> 00:12:26,800 Speaker 3: then it's it's been very difficult. 226 00:12:27,600 --> 00:12:30,600 Speaker 2: So you've seen changes in the seventies and eighties, right, 227 00:12:30,840 --> 00:12:34,280 Speaker 2: you had the bull market in the nineties, the financial 228 00:12:34,320 --> 00:12:39,400 Speaker 2: crisis in the two thousands, the twenty ten seemed totally 229 00:12:39,440 --> 00:12:41,920 Speaker 2: uneventful other than the fact that you know, there was 230 00:12:41,960 --> 00:12:44,720 Speaker 2: no yield on the fixed income side. And here we 231 00:12:44,800 --> 00:12:48,760 Speaker 2: are in twenty twenties, first the pandemic, now the increase 232 00:12:48,960 --> 00:12:52,200 Speaker 2: in rates. In your long career in Wall Street, is 233 00:12:52,200 --> 00:12:56,160 Speaker 2: there ever a decade where something isn't blowing up or 234 00:12:56,240 --> 00:12:59,880 Speaker 2: going crazy? Isn't that just the normal state of affair? 235 00:13:00,480 --> 00:13:02,319 Speaker 2: I try to explain this to the younger guys in 236 00:13:02,360 --> 00:13:05,160 Speaker 2: my office, like, Wow, this is crazy. It's like, no, no, 237 00:13:05,280 --> 00:13:07,000 Speaker 2: something crazy is always going on. 238 00:13:07,240 --> 00:13:09,280 Speaker 1: The crazy is always crazy, right, am I am? 239 00:13:09,360 --> 00:13:12,359 Speaker 2: I like not overstating that, or I would. 240 00:13:12,080 --> 00:13:15,360 Speaker 3: Say, you know, in a research response to you, So, 241 00:13:15,400 --> 00:13:19,719 Speaker 3: I've been through thirteen FED tightening cycles, right, and everyone 242 00:13:19,960 --> 00:13:24,480 Speaker 3: has had a financial shocker crisis Cutton, Illinois eighty four, 243 00:13:24,600 --> 00:13:28,240 Speaker 3: for example, But every single one New York community bank 244 00:13:28,559 --> 00:13:31,320 Speaker 3: it's just par for the course, might even not even 245 00:13:31,400 --> 00:13:34,239 Speaker 3: quite par. But I mean, so I would be surprised 246 00:13:34,320 --> 00:13:37,480 Speaker 3: if we don't have another one. It's part of the 247 00:13:37,520 --> 00:13:38,280 Speaker 3: tightening cycle. 248 00:13:38,480 --> 00:13:42,559 Speaker 2: I think, even if the FED is arguably done tightening, 249 00:13:42,960 --> 00:13:47,720 Speaker 2: you think there's still more cockroaches coming out. Yeah, fascinating. 250 00:13:47,760 --> 00:13:50,320 Speaker 3: But I would also say, trying to put things into 251 00:13:50,400 --> 00:13:54,160 Speaker 3: a historic perspective that we might enjoy a decade from now. 252 00:13:54,320 --> 00:13:57,680 Speaker 3: They'll curve still inverted, right, which is a tightening move. 253 00:13:57,760 --> 00:14:01,280 Speaker 3: And every week the FED shrinks is balance sheet and 254 00:14:01,320 --> 00:14:05,560 Speaker 3: it's doing about a trillion a year, which is not exactly. 255 00:14:05,360 --> 00:14:10,000 Speaker 2: So you're saying, you're saying the financial conditions are tighter presently. 256 00:14:10,080 --> 00:14:12,560 Speaker 2: Then people seem to realize. 257 00:14:12,280 --> 00:14:14,800 Speaker 3: Not just the financial conditions, because the market's up so 258 00:14:14,880 --> 00:14:17,720 Speaker 3: much and credit spreads are very tight. But I'm saying 259 00:14:17,760 --> 00:14:22,440 Speaker 3: the FED tightening is probably ongoing. And bank deposits go 260 00:14:22,520 --> 00:14:23,560 Speaker 3: down every week. 261 00:14:23,800 --> 00:14:25,760 Speaker 2: Well, if I get five percent of money market, why 262 00:14:25,800 --> 00:14:28,400 Speaker 2: I'm going to leave cash in a savings or checking account. 263 00:14:29,160 --> 00:14:31,880 Speaker 3: So I think the FED is still in a tightening mode, 264 00:14:32,000 --> 00:14:35,000 Speaker 3: which is why I think for example, New York Community 265 00:14:35,040 --> 00:14:38,320 Speaker 3: Bank popped up, and if you are looking for it, 266 00:14:38,720 --> 00:14:41,200 Speaker 3: which I am every two or three days, there's some 267 00:14:41,720 --> 00:14:44,280 Speaker 3: story about a problem here or there. It could be 268 00:14:44,320 --> 00:14:47,640 Speaker 3: a problem with the German banks and commercial real estate, 269 00:14:47,760 --> 00:14:48,320 Speaker 3: for example. 270 00:14:48,320 --> 00:14:49,880 Speaker 1: It's been a little backstory. 271 00:14:49,920 --> 00:14:53,480 Speaker 2: Are you seeing this as a systemic issue or just isolated? 272 00:14:54,200 --> 00:14:59,040 Speaker 3: I think the FED tightening, and also ECB has been tightening, 273 00:14:59,320 --> 00:15:02,600 Speaker 3: says all the but I do think that every period 274 00:15:02,880 --> 00:15:06,480 Speaker 3: has problems, and like you mentioned, the smooth sailing in 275 00:15:06,520 --> 00:15:08,040 Speaker 3: the twenty tens. 276 00:15:08,120 --> 00:15:09,360 Speaker 2: Didn't feel that way at the time. 277 00:15:09,440 --> 00:15:09,880 Speaker 1: I remember the. 278 00:15:10,520 --> 00:15:14,520 Speaker 2: You're blowing up in Greece right, right, there was a lot. 279 00:15:14,360 --> 00:15:16,120 Speaker 1: Of stuff that was that. It seemed pretty bad. 280 00:15:16,240 --> 00:15:18,360 Speaker 2: Right, you look at a stock chart, it's a little misleading. 281 00:15:18,400 --> 00:15:20,400 Speaker 2: Oh we started down here and we ended up here. 282 00:15:20,760 --> 00:15:24,600 Speaker 2: Must have been great, always climbing the wall. Worried. Right, 283 00:15:25,080 --> 00:15:28,160 Speaker 2: it seems like you're much less focused on the here 284 00:15:28,200 --> 00:15:31,280 Speaker 2: and now than predictions. So let's talk a little bit 285 00:15:31,320 --> 00:15:35,720 Speaker 2: about forecasts. How do you use them or not? How 286 00:15:35,800 --> 00:15:38,160 Speaker 2: do they fit into your research products? 287 00:15:38,480 --> 00:15:42,080 Speaker 3: Well, you have to do forecast. Maybe forecasting is impossible, 288 00:15:42,360 --> 00:15:45,000 Speaker 3: it's certainly difficult, but you have to do it because 289 00:15:45,040 --> 00:15:47,440 Speaker 3: in order to make money, you have to have some 290 00:15:47,600 --> 00:15:50,400 Speaker 3: sense about where things are going. And the difficult thing 291 00:15:50,480 --> 00:15:52,120 Speaker 3: is to know when to hold it, know when to 292 00:15:52,160 --> 00:15:55,360 Speaker 3: fold it. So that's like a mosaic you put together 293 00:15:56,080 --> 00:15:58,480 Speaker 3: and you come up with a view that's based on 294 00:15:59,360 --> 00:16:02,440 Speaker 3: whatever you would like. I always would like to have 295 00:16:02,640 --> 00:16:07,200 Speaker 3: pretty strong theoretical or intellectual framework that I'm uperating within 296 00:16:07,360 --> 00:16:10,480 Speaker 3: and then see how things fit into that and sometimes 297 00:16:10,480 --> 00:16:13,080 Speaker 3: they continue to fit in, and sometimes they don't, and 298 00:16:13,120 --> 00:16:15,000 Speaker 3: there'll be plenty of times when they'll get bumped in 299 00:16:15,040 --> 00:16:17,880 Speaker 3: the road. But I try and have a framework, so 300 00:16:17,920 --> 00:16:21,520 Speaker 3: I'm not just reporting the latest data point. Put it 301 00:16:21,560 --> 00:16:25,080 Speaker 3: into a perspective. That's helped me because I most often 302 00:16:25,240 --> 00:16:26,800 Speaker 3: have a view that when I talk to people, they 303 00:16:26,800 --> 00:16:30,360 Speaker 3: can understand where I'm coming from. Not only where I'm 304 00:16:30,400 --> 00:16:33,320 Speaker 3: coming from, but why have a particular viewpoint. 305 00:16:33,480 --> 00:16:37,080 Speaker 2: I want to talk about the thing that first caught 306 00:16:37,240 --> 00:16:40,920 Speaker 2: my eye with the work that you do, starting with 307 00:16:41,360 --> 00:16:45,640 Speaker 2: your survey of people in the real economy of businesses 308 00:16:46,120 --> 00:16:50,240 Speaker 2: and sectors. Rather than just rely on economic data that 309 00:16:50,280 --> 00:16:53,200 Speaker 2: comes out of the government or earnings, tell us about 310 00:16:53,200 --> 00:16:56,560 Speaker 2: the surveys you created when you first started doing the 311 00:16:56,600 --> 00:16:57,480 Speaker 2: sort of work you do. 312 00:16:57,840 --> 00:17:00,760 Speaker 3: Early on, there was a business called Johns in red book. 313 00:17:01,680 --> 00:17:05,920 Speaker 3: Don't write it down, but they surveyed retailers and. 314 00:17:05,840 --> 00:17:07,000 Speaker 2: That was like a weekly thing. 315 00:17:07,119 --> 00:17:11,080 Speaker 3: Right, It sound like a really good idea. I took 316 00:17:11,080 --> 00:17:13,560 Speaker 3: that idea and took it to the limit. So now 317 00:17:13,600 --> 00:17:18,000 Speaker 3: we survey about thirty industries, maybe three hundred companies in 318 00:17:18,040 --> 00:17:23,200 Speaker 3: each industry, three hundred companies overall, thirty industries like retail 319 00:17:23,320 --> 00:17:27,600 Speaker 3: for example, or autos, trucking companies, you name it. We 320 00:17:27,720 --> 00:17:31,440 Speaker 3: do wine and spirit, hoostsalers. Right, we have a survey 321 00:17:31,560 --> 00:17:33,720 Speaker 3: we do at the end of the year of Christmas 322 00:17:33,760 --> 00:17:38,119 Speaker 3: tree sales. We survey the people that grow them, people 323 00:17:38,119 --> 00:17:40,520 Speaker 3: that truck them, and the people that sell them in 324 00:17:40,520 --> 00:17:41,080 Speaker 3: the cities. 325 00:17:41,359 --> 00:17:45,640 Speaker 2: So you're getting like a real time snapshot of what's happening, 326 00:17:45,720 --> 00:17:50,320 Speaker 2: not just across the economy, but within very specific subsectors. 327 00:17:50,960 --> 00:17:53,320 Speaker 3: I'm sort of a contrarian at heart, is I don't 328 00:17:53,359 --> 00:17:54,879 Speaker 3: trust government data. 329 00:17:55,560 --> 00:17:55,840 Speaker 1: Right. 330 00:17:56,000 --> 00:18:00,280 Speaker 3: It's also very difficult. How do you measure GDP two 331 00:18:00,359 --> 00:18:04,080 Speaker 3: weeks or three weeks after the quarter ends, or retail 332 00:18:04,160 --> 00:18:06,840 Speaker 3: sales eight days after the month ends? 333 00:18:06,920 --> 00:18:08,200 Speaker 2: Too much data to assemble. 334 00:18:08,720 --> 00:18:11,040 Speaker 3: If you think about it across the whole country and 335 00:18:11,119 --> 00:18:13,840 Speaker 3: plumb it's the same way. How can you possibly Well. 336 00:18:13,720 --> 00:18:16,520 Speaker 2: That's why they do three of them, the early release, 337 00:18:16,640 --> 00:18:19,280 Speaker 2: the update, and then the final across three. It takes 338 00:18:19,280 --> 00:18:21,960 Speaker 2: them three months to do GDP. But even that's difficult. 339 00:18:22,040 --> 00:18:25,040 Speaker 2: So then on the other side, you're a practical person. 340 00:18:25,840 --> 00:18:29,879 Speaker 2: If you meet somebody, say that runs a business, and 341 00:18:29,920 --> 00:18:34,000 Speaker 2: you say house business, they'll always tell you with actually 342 00:18:34,680 --> 00:18:39,199 Speaker 2: vivid detail, real granularity because they live it twenty four 343 00:18:39,240 --> 00:18:42,840 Speaker 2: to seven. So if you can get a group of those, 344 00:18:42,880 --> 00:18:45,600 Speaker 2: say a dozen, you have a pretty good leg up 345 00:18:45,960 --> 00:18:49,120 Speaker 2: on what's happening in a particular sector. It's certainly different 346 00:18:49,359 --> 00:18:51,960 Speaker 2: and in some ways it's more reliable than trying to 347 00:18:52,000 --> 00:18:56,840 Speaker 2: measure retail sales, for example. So what's their incentive to participate? 348 00:18:56,960 --> 00:18:59,680 Speaker 2: And to be honest, I'm always fascinated by this. 349 00:19:00,040 --> 00:19:03,640 Speaker 3: So if they participate with us, I send them our research. 350 00:19:03,720 --> 00:19:06,040 Speaker 2: So they get it for free, and that's not an 351 00:19:06,040 --> 00:19:09,800 Speaker 2: inexpensive product. So in their space, they get to see 352 00:19:09,800 --> 00:19:11,080 Speaker 2: what their competitors. 353 00:19:10,640 --> 00:19:14,760 Speaker 3: Are saying, if not all of them bite, that's one incentive. 354 00:19:15,119 --> 00:19:17,639 Speaker 3: The second incentive is they get to see the result. 355 00:19:18,200 --> 00:19:21,159 Speaker 3: Trucking survey we do comes to mind. I think we 356 00:19:21,200 --> 00:19:23,760 Speaker 3: have a dozen truckers, and boy, there really aren't any 357 00:19:23,800 --> 00:19:27,760 Speaker 3: more than that country. They're only probably five big trucking companies. 358 00:19:28,560 --> 00:19:30,560 Speaker 3: But we get a dozen trucking companies. 359 00:19:30,600 --> 00:19:32,640 Speaker 2: They all want to see what the other truckers are saying. 360 00:19:32,720 --> 00:19:35,199 Speaker 3: Yeah, and so you can imagine if you're in a 361 00:19:35,240 --> 00:19:39,160 Speaker 3: business that has some homogeneity to it and you see 362 00:19:39,160 --> 00:19:43,359 Speaker 3: the survey and it drops sharply, you say we're doing great. 363 00:19:44,080 --> 00:19:45,879 Speaker 3: Or if your business drops sharply the other and the 364 00:19:45,920 --> 00:19:49,560 Speaker 3: survey doesn't, you got hey, guys, we're doing something wrong here. 365 00:19:49,720 --> 00:19:52,919 Speaker 3: Sometimes you do things and after a while you conclude 366 00:19:52,960 --> 00:19:54,760 Speaker 3: it's not the best idea, so. 367 00:19:54,800 --> 00:19:56,879 Speaker 2: You retired if it's not working, and you move on 368 00:19:56,960 --> 00:19:57,480 Speaker 2: to the next. 369 00:19:57,840 --> 00:20:00,200 Speaker 1: But this just keeps working. 370 00:20:00,160 --> 00:20:02,320 Speaker 2: Year after year. So let me tell you, say, three other. 371 00:20:02,240 --> 00:20:03,680 Speaker 1: Thing week after week. 372 00:20:04,000 --> 00:20:06,840 Speaker 2: Right, you know, anytime we talk about economic data, I 373 00:20:06,960 --> 00:20:10,520 Speaker 2: love the George Box quote. All models are wrong, but 374 00:20:10,560 --> 00:20:15,160 Speaker 2: some are useful. It's an incredibly insightful insight into statistics 375 00:20:15,160 --> 00:20:18,600 Speaker 2: and modeling. You obviously pick that up forty three years 376 00:20:18,600 --> 00:20:21,199 Speaker 2: ago because you said, I don't want anything to do 377 00:20:21,280 --> 00:20:24,320 Speaker 2: with government data. Let's build our own models. Let's do 378 00:20:24,440 --> 00:20:27,080 Speaker 2: a real time assessment and try and keep it as 379 00:20:27,119 --> 00:20:30,439 Speaker 2: close to objective reality, because the more and more you 380 00:20:30,520 --> 00:20:34,320 Speaker 2: model stuff out, the more it diverges from what's happening. 381 00:20:34,359 --> 00:20:37,440 Speaker 2: So weekly, real time it's as close as you're gonna 382 00:20:37,440 --> 00:20:40,240 Speaker 2: get to the real thing. The other thing you did, though, 383 00:20:40,280 --> 00:20:43,080 Speaker 2: that just really caught my eye, is you would take 384 00:20:43,560 --> 00:20:46,159 Speaker 2: a chart and it was either a survey result or 385 00:20:46,200 --> 00:20:49,080 Speaker 2: a stock chart or a bond whatever it was and 386 00:20:49,160 --> 00:20:52,880 Speaker 2: you would hand mark these up with a sharpie and 387 00:20:53,200 --> 00:20:56,360 Speaker 2: it just jumped off the page and it was one 388 00:20:56,400 --> 00:20:58,800 Speaker 2: of the first things that I'm like, Wow, this is 389 00:20:58,840 --> 00:21:02,560 Speaker 2: really fascinating. How on earth did that come about? 390 00:21:02,840 --> 00:21:04,840 Speaker 3: So I don't think I've invented a single thing in 391 00:21:04,880 --> 00:21:05,359 Speaker 3: my life. 392 00:21:05,720 --> 00:21:08,600 Speaker 2: I give you credit for inventing that because before you 393 00:21:09,000 --> 00:21:12,320 Speaker 2: I've never seen marked up shorts. 394 00:21:12,480 --> 00:21:15,159 Speaker 1: Well, so that way, so let me explain. 395 00:21:15,280 --> 00:21:18,920 Speaker 3: So on the company surveys, there was just one group 396 00:21:18,960 --> 00:21:21,680 Speaker 3: that did a survey of retailers, which turns out what 397 00:21:21,800 --> 00:21:24,840 Speaker 3: that was our first survey we did. It just worked out. 398 00:21:24,880 --> 00:21:27,480 Speaker 3: But I really told the idea from this other group. 399 00:21:28,280 --> 00:21:31,399 Speaker 3: I was working in this business and still in at CJ. 400 00:21:31,520 --> 00:21:37,040 Speaker 3: Lawrence and the sales team, which is an important part 401 00:21:37,040 --> 00:21:40,320 Speaker 3: of the way you operate. You have to generate ideas 402 00:21:40,320 --> 00:21:43,280 Speaker 3: for them and get them to believe in you. They 403 00:21:43,280 --> 00:21:47,119 Speaker 3: were taking my work and marking it up, meaning literally 404 00:21:47,440 --> 00:21:51,199 Speaker 3: they would mark it up. So I thought, boy, if 405 00:21:51,200 --> 00:21:53,920 Speaker 3: they're marking it up, I can do a better job 406 00:21:53,960 --> 00:21:56,320 Speaker 3: marking it up than they are, And so I started 407 00:21:56,320 --> 00:21:59,440 Speaker 3: doing that, and frankly, the rest is history. 408 00:22:00,200 --> 00:22:01,800 Speaker 2: Amazing thing is when you look you can look at 409 00:22:01,800 --> 00:22:04,359 Speaker 2: a million stock charts. But if you or whatever, but 410 00:22:04,400 --> 00:22:06,399 Speaker 2: if you look at a chart and there's in a 411 00:22:06,520 --> 00:22:10,000 Speaker 2: sharpie and bold script, it goes to it, you can't 412 00:22:10,000 --> 00:22:13,119 Speaker 2: help but see it, and it it changes how you 413 00:22:13,200 --> 00:22:17,040 Speaker 2: perceive that chart. It shows you what's important, it shows 414 00:22:17,040 --> 00:22:19,639 Speaker 2: you what to focus on, but it it just draws 415 00:22:19,680 --> 00:22:23,280 Speaker 2: you right into it. Was that a purposeful strategy or 416 00:22:23,520 --> 00:22:26,760 Speaker 2: was this just something you were doing to show the 417 00:22:26,760 --> 00:22:28,600 Speaker 2: guys in the office. No, no, you want to focus 418 00:22:28,640 --> 00:22:30,240 Speaker 2: on this part, I would say the latter. 419 00:22:31,080 --> 00:22:33,760 Speaker 3: But then you know if I'm working and that works 420 00:22:33,800 --> 00:22:36,199 Speaker 3: for those guys, that approably works for other people like 421 00:22:36,240 --> 00:22:36,920 Speaker 3: Peter Lynch. 422 00:22:37,400 --> 00:22:42,120 Speaker 2: Right, So I think of you not as a pure economist, 423 00:22:42,280 --> 00:22:46,400 Speaker 2: but as somebody who is both a business cycle expert 424 00:22:47,119 --> 00:22:51,560 Speaker 2: and who has watched market cycles over the decades and 425 00:22:51,640 --> 00:22:55,119 Speaker 2: has become an expert in market cycles. Is that a 426 00:22:55,160 --> 00:22:57,040 Speaker 2: fair description to make? 427 00:22:57,560 --> 00:23:00,360 Speaker 3: So if you do what I do well, you have 428 00:23:00,440 --> 00:23:03,920 Speaker 3: to be market focused. You have to listen to the markets, 429 00:23:04,200 --> 00:23:06,840 Speaker 3: You have to respect the markets, You have to learn 430 00:23:06,880 --> 00:23:09,800 Speaker 3: from the markets. I look at the markets all the 431 00:23:09,880 --> 00:23:15,280 Speaker 3: time on Bloomberg, but I mean I'm a junkie, probably 432 00:23:15,280 --> 00:23:18,760 Speaker 3: look at the markets three or four times an hour. Right, 433 00:23:18,800 --> 00:23:22,000 Speaker 3: And just as I'm sure you do frankly, and you 434 00:23:22,240 --> 00:23:24,199 Speaker 3: let it sink in, you say, does that fit with 435 00:23:24,280 --> 00:23:26,280 Speaker 3: my picture I have in my head about what should 436 00:23:26,280 --> 00:23:26,760 Speaker 3: be happening. 437 00:23:27,000 --> 00:23:30,840 Speaker 2: How do you separate the intra day noise from stuff 438 00:23:30,840 --> 00:23:34,560 Speaker 2: that really matters? Because I started on a trading desk, 439 00:23:34,680 --> 00:23:36,959 Speaker 2: so I was staring at the screen all day, and 440 00:23:37,040 --> 00:23:40,520 Speaker 2: I have to force myself. You're looking at the market 441 00:23:40,560 --> 00:23:43,520 Speaker 2: four times an hour. I'm forcing myself to look at 442 00:23:43,520 --> 00:23:46,160 Speaker 2: the market less and less. I don't want to look 443 00:23:46,160 --> 00:23:48,440 Speaker 2: at it constantly because it just makes me want to 444 00:23:48,480 --> 00:23:49,639 Speaker 2: get in there and start trading. 445 00:23:50,480 --> 00:23:52,320 Speaker 3: Each of us finds their own voice. 446 00:23:52,680 --> 00:23:52,919 Speaker 1: I know. 447 00:23:53,040 --> 00:23:55,879 Speaker 3: For me, being aware of what the markets are doing 448 00:23:56,720 --> 00:23:59,760 Speaker 3: is part of my sauce. And so when I'm dealing 449 00:23:59,800 --> 00:24:05,080 Speaker 3: with investors, obviously they're consumed by what's happening in the markets, right, 450 00:24:05,160 --> 00:24:08,320 Speaker 3: And so it's not a foreign language to me at all. 451 00:24:08,560 --> 00:24:11,199 Speaker 3: I think it helps me understand what I should be 452 00:24:11,240 --> 00:24:14,879 Speaker 3: doing for a practical approach to what's happening. And I 453 00:24:14,960 --> 00:24:17,800 Speaker 3: view myself as a business analyst. 454 00:24:18,080 --> 00:24:18,959 Speaker 2: A business anist. 455 00:24:19,240 --> 00:24:23,120 Speaker 3: So when I say business cycle, that that's significant. Right 456 00:24:23,160 --> 00:24:26,040 Speaker 3: on a business cycle, you're part of the business cycle. 457 00:24:26,440 --> 00:24:29,760 Speaker 3: Or the financial markets. I remember early on in my career, 458 00:24:30,200 --> 00:24:32,359 Speaker 3: I'd met a guy and then they had an article 459 00:24:32,560 --> 00:24:34,840 Speaker 3: about him in the Wall Street Journal. The market was 460 00:24:34,840 --> 00:24:37,359 Speaker 3: doing something and he said, it's just too much money 461 00:24:37,400 --> 00:24:41,479 Speaker 3: and irresponsible hands. I thought to myself, this guy's a loser, 462 00:24:42,560 --> 00:24:45,680 Speaker 3: and how did his career work out? Not well, too 463 00:24:45,760 --> 00:24:49,720 Speaker 3: much money in irresponsible hands or the state of the 464 00:24:49,760 --> 00:24:53,160 Speaker 3: world every day anyway? Isn't that how it is? How 465 00:24:53,240 --> 00:24:55,200 Speaker 3: useful is that as a market insight? 466 00:24:55,440 --> 00:24:56,880 Speaker 1: Yeah? Not useful. 467 00:24:57,320 --> 00:25:00,760 Speaker 2: I want to share a quote from your Lions who 468 00:25:00,800 --> 00:25:04,600 Speaker 2: puts this up online and someone asked him about Ed 469 00:25:04,680 --> 00:25:08,560 Speaker 2: Heyman and he responded ed, Heyman sticks to his core 470 00:25:08,680 --> 00:25:13,719 Speaker 2: mission of providing high quality and independent research. He helps 471 00:25:13,800 --> 00:25:18,920 Speaker 2: portfolio managers make sense of the world. He sorts through 472 00:25:19,080 --> 00:25:23,440 Speaker 2: the reams of economic data and government surveys to provide 473 00:25:23,480 --> 00:25:28,240 Speaker 2: an objective and independent assessment. That's that's the high praise 474 00:25:28,280 --> 00:25:31,320 Speaker 2: from a client. Does that sound like the goals that 475 00:25:31,400 --> 00:25:33,080 Speaker 2: you're aiming for? 476 00:25:33,880 --> 00:25:36,480 Speaker 1: Is that is that from my wife? Or well? 477 00:25:36,600 --> 00:25:39,359 Speaker 2: No, that was from a client who actually answered a 478 00:25:39,440 --> 00:25:40,280 Speaker 2: question about you. 479 00:25:40,760 --> 00:25:43,840 Speaker 3: That is high, high praise, and obviously that's what I 480 00:25:43,920 --> 00:25:46,879 Speaker 3: want to do. I also part of My job is 481 00:25:46,880 --> 00:25:49,879 Speaker 3: to connect the dots, to look at one hundred different 482 00:25:49,920 --> 00:25:54,119 Speaker 3: observations and find the three that have an important message. 483 00:25:54,880 --> 00:25:57,240 Speaker 3: And sometimes I get I get the right three, and 484 00:25:57,320 --> 00:26:00,399 Speaker 3: some I don't. It's something that people can understand, and 485 00:26:00,440 --> 00:26:01,879 Speaker 3: when it doesn't work out, then I move on to 486 00:26:01,920 --> 00:26:02,879 Speaker 3: another perspective. 487 00:26:03,080 --> 00:26:06,639 Speaker 2: Huh, really interesting. So let's talk a little bit about 488 00:26:06,720 --> 00:26:09,800 Speaker 2: the state of the economy today, and let's start with 489 00:26:10,520 --> 00:26:13,800 Speaker 2: where's our recession in twenty two? I just kept hearing 490 00:26:14,280 --> 00:26:18,720 Speaker 2: there's a recession coming in twenty three. Here comes a recession. 491 00:26:18,880 --> 00:26:22,800 Speaker 2: What do you make of the economist's consensus? That seems 492 00:26:22,800 --> 00:26:25,240 Speaker 2: to have been pretty wrong for I don't know, eight 493 00:26:25,280 --> 00:26:26,440 Speaker 2: ten quarters in a row. 494 00:26:26,880 --> 00:26:28,080 Speaker 1: I'm a student of history. 495 00:26:28,280 --> 00:26:32,440 Speaker 3: The last cycle, for example, it took eighteen months, but 496 00:26:32,560 --> 00:26:35,840 Speaker 3: when the yokur inverted to when the recession started in 497 00:26:35,840 --> 00:26:39,040 Speaker 3: two thousand and eight, eighteen months. During a good part 498 00:26:39,040 --> 00:26:40,840 Speaker 3: of that, the S and P went up twenty percent 499 00:26:41,480 --> 00:26:45,240 Speaker 3: right and peaked eight weeks before the great recession hit. 500 00:26:45,720 --> 00:26:47,920 Speaker 3: You don't know it's happened until it happens. 501 00:26:48,240 --> 00:26:50,480 Speaker 2: As a student of history, you know it's not when 502 00:26:50,520 --> 00:26:54,840 Speaker 2: the yield curve inverts, it's when it begins to uninvert 503 00:26:55,000 --> 00:26:56,919 Speaker 2: that bad things start to happen. 504 00:26:57,200 --> 00:26:59,760 Speaker 3: But that takes a long time, and you can see 505 00:27:00,040 --> 00:27:03,560 Speaker 3: once you get that perspective, you can see real estate 506 00:27:03,920 --> 00:27:07,760 Speaker 3: projects they get started and it takes probably eighteen months 507 00:27:07,800 --> 00:27:10,439 Speaker 3: for them to finish up. That's just one example of 508 00:27:10,480 --> 00:27:13,040 Speaker 3: why it takes so long. It takes a while for 509 00:27:13,160 --> 00:27:15,520 Speaker 3: increase in interest rates to actually get into the system 510 00:27:15,560 --> 00:27:18,879 Speaker 3: because people first they're living off low interest rates. It 511 00:27:18,880 --> 00:27:21,080 Speaker 3: takes a while for people to get a seven percent 512 00:27:21,119 --> 00:27:24,120 Speaker 3: mortgage whereas now they have a three percent mortgage. But 513 00:27:24,160 --> 00:27:28,119 Speaker 3: aside from that, the practical observation is it takes a 514 00:27:28,200 --> 00:27:30,560 Speaker 3: long time. It takes so long that people give up 515 00:27:30,560 --> 00:27:34,600 Speaker 3: on it. So Bernank in OK seven concluded we weren't 516 00:27:34,600 --> 00:27:35,520 Speaker 3: going to have a recession. 517 00:27:35,960 --> 00:27:40,720 Speaker 2: That was the subprime is contained. I remember it was 518 00:27:40,800 --> 00:27:44,080 Speaker 2: just contained contains the planet Earth. Once you the rest 519 00:27:44,080 --> 00:27:45,680 Speaker 2: of the solar system was fine. 520 00:27:45,960 --> 00:27:49,359 Speaker 3: But boy, you mentioned rein Hard and rogue Off. Sure, 521 00:27:49,960 --> 00:27:52,760 Speaker 3: they wrote a piece in early eight how silly it 522 00:27:52,920 --> 00:27:55,600 Speaker 3: was that people had concluded it was different this time. 523 00:27:55,960 --> 00:27:58,320 Speaker 3: But that's what had happened, and so we're in that 524 00:27:58,400 --> 00:28:01,280 Speaker 3: phase now. I think the recession might not start for 525 00:28:01,280 --> 00:28:04,960 Speaker 3: another six months. In life. There's a certain combination of 526 00:28:05,080 --> 00:28:09,480 Speaker 3: being confident and being humble. You know, you have to 527 00:28:09,520 --> 00:28:11,560 Speaker 3: be humble, but you have to have a certain amount 528 00:28:11,600 --> 00:28:14,280 Speaker 3: of self confidence that you know what's happening. So I 529 00:28:14,560 --> 00:28:17,399 Speaker 3: think we're just going through the normal lags. At dinner 530 00:28:17,440 --> 00:28:20,920 Speaker 3: the other night and with clients, no one expected a recession, 531 00:28:21,240 --> 00:28:21,680 Speaker 3: no one. 532 00:28:21,920 --> 00:28:23,720 Speaker 2: That's a reversal from a year ago. 533 00:28:23,920 --> 00:28:25,280 Speaker 1: Everyone expected recession. 534 00:28:25,520 --> 00:28:27,720 Speaker 2: So I want to talk about inflation. But before I 535 00:28:27,840 --> 00:28:31,640 Speaker 2: get to that, obviously the Federal Reserve has a big 536 00:28:31,680 --> 00:28:35,080 Speaker 2: impact on the economy. They raised what are we five 537 00:28:35,160 --> 00:28:37,960 Speaker 2: hundred and twenty five basis points in eighteen months. You 538 00:28:38,040 --> 00:28:40,240 Speaker 2: got to go back to Paul Volker to see a 539 00:28:40,360 --> 00:28:44,400 Speaker 2: rate hike that radical and that quickly if the higher 540 00:28:44,440 --> 00:28:49,239 Speaker 2: for longer argument wins out and the Fed does not 541 00:28:49,360 --> 00:28:51,600 Speaker 2: cut rates from here, and some people are now talking 542 00:28:51,640 --> 00:28:55,440 Speaker 2: about raising rates from here, that sounds like that's a 543 00:28:55,480 --> 00:28:59,920 Speaker 2: pretty sure fire strategy for a recession. Is that a 544 00:29:00,160 --> 00:29:01,040 Speaker 2: fair assessment? 545 00:29:01,120 --> 00:29:04,000 Speaker 3: Is a fair The economy is booming. 546 00:29:04,280 --> 00:29:06,920 Speaker 2: It is booming. It's booming, I mean, but you're yet 547 00:29:06,960 --> 00:29:09,600 Speaker 2: you're saying into this year we could see a recession. 548 00:29:09,920 --> 00:29:13,760 Speaker 3: Right, It looks okay until it's not it's the leg 549 00:29:14,280 --> 00:29:17,440 Speaker 3: it's the lag latter part of seven. Even though housing 550 00:29:17,560 --> 00:29:20,880 Speaker 3: was imploding, right, the economy was okay, and I mentioned 551 00:29:20,880 --> 00:29:23,760 Speaker 3: the SMP had a big rally and people were saying, well, 552 00:29:23,760 --> 00:29:26,800 Speaker 3: it's different as time, et cetera. At the same time, 553 00:29:27,440 --> 00:29:30,520 Speaker 3: I don't want to get too crazy about things. I 554 00:29:30,520 --> 00:29:33,160 Speaker 3: don't want to make a fool of myself, right, and 555 00:29:33,240 --> 00:29:36,680 Speaker 3: so I'm just saying it's coming, and confident or hopeful. 556 00:29:36,800 --> 00:29:39,840 Speaker 3: It's the confident that when it starts to hit, I 557 00:29:39,840 --> 00:29:42,480 Speaker 3: won't be the last person to know, right. I mean, 558 00:29:42,600 --> 00:29:45,280 Speaker 3: I have a whole set of indicators that I think 559 00:29:45,280 --> 00:29:48,000 Speaker 3: will help me know when a recession is starting to hit. 560 00:29:48,080 --> 00:29:51,400 Speaker 3: It's not hitting now. I mean, economy is booming. It's 561 00:29:51,400 --> 00:29:54,160 Speaker 3: probably booming. It's a little strong. We do these companies 562 00:29:54,200 --> 00:29:57,640 Speaker 3: serve A fifty is as expected? They got up to sixty. 563 00:29:58,040 --> 00:30:01,720 Speaker 3: Last week they were forty nine, so forty five is 564 00:30:01,960 --> 00:30:04,840 Speaker 3: recession territory. So they've cooled off quite a bit. 565 00:30:05,160 --> 00:30:08,000 Speaker 2: So if we see, as some people are talking about 566 00:30:08,240 --> 00:30:11,760 Speaker 2: June or maybe even May, rate cuts, don't assume you're 567 00:30:11,800 --> 00:30:13,520 Speaker 2: not going to get rate cuts in an election year. 568 00:30:13,560 --> 00:30:17,520 Speaker 2: There have been rate changes every presidential election going back 569 00:30:17,920 --> 00:30:22,000 Speaker 2: forty years, just about if the Fed cuts rates in May, 570 00:30:22,040 --> 00:30:25,800 Speaker 2: cuts rates in June, cuts rates in July or September, 571 00:30:26,560 --> 00:30:29,760 Speaker 2: can we avoid a recession in twenty four or twenty five? 572 00:30:30,360 --> 00:30:35,560 Speaker 3: Might avoid it anyway, But monetary policy works with long legs, the. 573 00:30:35,600 --> 00:30:39,720 Speaker 2: Long invariable lang is so hard to get away from, 574 00:30:39,880 --> 00:30:43,240 Speaker 2: right And guess, although you see it in real estate first, 575 00:30:43,360 --> 00:30:45,640 Speaker 2: it seems that seems to be whether the rubber meets 576 00:30:45,680 --> 00:30:49,280 Speaker 2: the road or do you see other sectors get hit 577 00:30:49,800 --> 00:30:50,360 Speaker 2: before that? 578 00:30:50,520 --> 00:30:54,080 Speaker 3: You know, I'll look for wherever it is. But real 579 00:30:54,160 --> 00:30:58,560 Speaker 3: estate right now, the commercial real estate space, there's a 580 00:30:58,640 --> 00:31:01,840 Speaker 3: story probably every two or three days about some problem 581 00:31:01,880 --> 00:31:04,560 Speaker 3: here or there. So that problem hadn't gone away. It 582 00:31:04,680 --> 00:31:07,160 Speaker 3: just takes a while for it to work itself out. 583 00:31:07,840 --> 00:31:11,560 Speaker 3: Ninety eight with a recession coming up a couple of 584 00:31:11,640 --> 00:31:18,239 Speaker 3: years later, one you had LTCM, which long term what 585 00:31:18,320 --> 00:31:18,560 Speaker 3: is it? 586 00:31:19,360 --> 00:31:20,720 Speaker 2: Long term capital management? 587 00:31:21,240 --> 00:31:24,040 Speaker 3: And I'm not even sure I knew what it was 588 00:31:24,440 --> 00:31:27,280 Speaker 3: at the time at the time before it hit, Actually 589 00:31:27,280 --> 00:31:28,680 Speaker 3: I knew pretty well what it was. 590 00:31:28,840 --> 00:31:30,800 Speaker 2: But you had no idea they were hunting one hundred 591 00:31:30,800 --> 00:31:31,600 Speaker 2: to one leverage. 592 00:31:31,720 --> 00:31:36,880 Speaker 3: No, apparently they didn't either. But anyway, you know, that 593 00:31:37,160 --> 00:31:39,680 Speaker 3: you know, darn near blew up the global financial system 594 00:31:39,880 --> 00:31:40,920 Speaker 3: right out of the blue. 595 00:31:41,240 --> 00:31:45,160 Speaker 2: An early warning shot, right, if only anyone who paid attention, 596 00:31:45,440 --> 00:31:47,440 Speaker 2: maybe eight or nine might not have happened. 597 00:31:47,720 --> 00:31:50,760 Speaker 3: And then you had the Asia crisis in the same year, 598 00:31:50,840 --> 00:31:54,360 Speaker 3: and then you had Russia. And these are not things 599 00:31:54,360 --> 00:31:54,920 Speaker 3: that you would. 600 00:31:54,720 --> 00:31:55,120 Speaker 1: Have thought of. 601 00:31:55,240 --> 00:31:58,400 Speaker 3: First off, if asked what could be a problem in 602 00:31:58,600 --> 00:31:59,080 Speaker 3: ninety eight. 603 00:31:59,080 --> 00:32:03,120 Speaker 2: Ninety was the was the tie Boy crisis ninety seven? 604 00:32:03,280 --> 00:32:04,720 Speaker 1: And I think, yeah, maybe maybe not? 605 00:32:04,840 --> 00:32:09,120 Speaker 2: I said Russia, which al ended up blowing up LTCM 606 00:32:09,120 --> 00:32:12,680 Speaker 2: in ninety eight. Also, right, So you had two major 607 00:32:12,760 --> 00:32:15,920 Speaker 2: events and two considerative views. Well right, right, And the 608 00:32:16,000 --> 00:32:19,400 Speaker 2: market continued going higher until the commy hit in a recession. 609 00:32:20,920 --> 00:32:24,720 Speaker 2: So I'm just sort of pushing ahead. Commedy's doing fine. 610 00:32:24,760 --> 00:32:26,959 Speaker 3: Now. I don't think I'm adding a lot of value 611 00:32:27,000 --> 00:32:30,800 Speaker 3: on this topic, but I'm just waiting to see, you know, 612 00:32:30,920 --> 00:32:34,080 Speaker 3: if we actually get into our recession. In the meantime, 613 00:32:35,080 --> 00:32:36,600 Speaker 3: inflation is coming down, So. 614 00:32:36,680 --> 00:32:40,680 Speaker 2: Let's talk about inflation, because I feel like lots of 615 00:32:40,960 --> 00:32:45,480 Speaker 2: economists got that wrong. Also, And when you look at 616 00:32:45,640 --> 00:32:48,480 Speaker 2: I'm trying to figure out a polite way to say this, 617 00:32:49,080 --> 00:32:53,160 Speaker 2: when you look at the well known economists who came 618 00:32:53,200 --> 00:32:57,959 Speaker 2: of age during the inflationary nineteen seventies. I'm thinking of 619 00:32:58,080 --> 00:33:04,840 Speaker 2: like Larry Summers, former Treasury secretary. They see inflation as structural. 620 00:33:05,040 --> 00:33:08,280 Speaker 2: They see it very similar in nineteen seventies, and I 621 00:33:08,360 --> 00:33:13,120 Speaker 2: get the sense that the transitory nature and granted transitory 622 00:33:13,160 --> 00:33:15,840 Speaker 2: took a little longer than people expected. But again that 623 00:33:16,280 --> 00:33:20,360 Speaker 2: long and variable lag. Inflation peaked in June of twenty 624 00:33:20,400 --> 00:33:24,800 Speaker 2: twenty two. It's come down. Your pal ed Yardini says, historically, 625 00:33:25,200 --> 00:33:27,640 Speaker 2: as fast as inflation goes up, it tends to come 626 00:33:27,680 --> 00:33:32,200 Speaker 2: down very symmetrically. You had a huge and rapid rise, 627 00:33:32,240 --> 00:33:35,440 Speaker 2: and you've had a pretty rapid fall off from nine 628 00:33:35,480 --> 00:33:39,720 Speaker 2: percent to three percent. So one question is why did 629 00:33:39,760 --> 00:33:41,960 Speaker 2: so many people seem to get this wrong? 630 00:33:42,480 --> 00:33:44,000 Speaker 1: You tell me very I don't know. 631 00:33:44,080 --> 00:33:46,520 Speaker 2: I mean, I'm playing pop psychologists and say, well, if 632 00:33:46,560 --> 00:33:49,520 Speaker 2: you were a seventies era economist, well, you're just going 633 00:33:49,560 --> 00:33:52,920 Speaker 2: back to your roots and not looking at the supply 634 00:33:53,040 --> 00:33:57,840 Speaker 2: shide shock and supply chains and all these pandemic related 635 00:33:58,000 --> 00:34:02,600 Speaker 2: issues that unwound more organically than I think people expected. 636 00:34:03,040 --> 00:34:07,360 Speaker 3: So in the seventies, I'm at MIT and they have 637 00:34:07,640 --> 00:34:11,480 Speaker 3: a debate posted on the bulletin board between Milton Friedman 638 00:34:12,320 --> 00:34:16,360 Speaker 3: and Paul Samuelson. Right, not sure who they are, but 639 00:34:16,400 --> 00:34:19,720 Speaker 3: I'll go and they're probably twenty kids in the room. 640 00:34:19,840 --> 00:34:20,839 Speaker 2: That's unbelievable. 641 00:34:20,880 --> 00:34:24,880 Speaker 3: I was blown away because they both were incredible intellects. 642 00:34:25,000 --> 00:34:27,080 Speaker 2: Samuelson eventually wins the Nobel Prize. 643 00:34:27,160 --> 00:34:32,800 Speaker 3: Right, Freeman doesn't do badly either, another giant absolutely anyway. 644 00:34:32,880 --> 00:34:36,760 Speaker 3: So I really got into his logic, and he became 645 00:34:36,800 --> 00:34:39,480 Speaker 3: in the seventies a very major figure. 646 00:34:39,520 --> 00:34:42,680 Speaker 2: One hundred percent inflation is and always will be a 647 00:34:42,719 --> 00:34:43,719 Speaker 2: monetary phenomena. 648 00:34:44,239 --> 00:34:47,480 Speaker 3: And then he had, you know, extreme views on capitalism, 649 00:34:47,640 --> 00:34:51,359 Speaker 3: which are not popular now at this point, he's not woke, 650 00:34:51,880 --> 00:34:54,600 Speaker 3: sort of Larry Summers of the world, who I think 651 00:34:54,719 --> 00:35:00,279 Speaker 3: is brilliant. They've sort of pushed away from that, but 652 00:35:00,400 --> 00:35:01,080 Speaker 3: I haven't. 653 00:35:01,880 --> 00:35:04,200 Speaker 2: And well, I bet you've pushed away on some of 654 00:35:04,239 --> 00:35:08,160 Speaker 2: the stuff. I was always surprised that sort of the 655 00:35:08,160 --> 00:35:11,680 Speaker 2: free market absolute stuff like we don't need an FDA. 656 00:35:11,880 --> 00:35:15,640 Speaker 2: If baby formula kills a baby, well then well then 657 00:35:15,680 --> 00:35:18,000 Speaker 2: they'll change the formula or they'll go out of business. 658 00:35:18,040 --> 00:35:19,479 Speaker 2: I mean, I think that. 659 00:35:19,520 --> 00:35:20,680 Speaker 1: Was that's a little extreme. 660 00:35:20,880 --> 00:35:24,239 Speaker 2: I understand what he was saying intellectually, but I think 661 00:35:24,280 --> 00:35:26,799 Speaker 2: the way it came across just did not resonant with 662 00:35:27,280 --> 00:35:30,359 Speaker 2: even with a lot of economists, but no doubt one 663 00:35:30,360 --> 00:35:33,960 Speaker 2: of the most influential economists of the past century. Right. 664 00:35:34,000 --> 00:35:37,840 Speaker 3: And so in the seventies, the money supply would accelerate, 665 00:35:38,520 --> 00:35:42,040 Speaker 3: maybe ten to fifteen percent, and then inflation would accelerate. 666 00:35:42,480 --> 00:35:46,480 Speaker 3: And it happened three times. And by the third time, 667 00:35:47,040 --> 00:35:50,719 Speaker 3: Freeman was a major figure on Wall Street. When the 668 00:35:50,760 --> 00:35:54,520 Speaker 3: mighty supply numbers would come out on Thursday afternoon trading floors, 669 00:35:54,600 --> 00:35:57,480 Speaker 3: which I was on a trading floor waiting for the numbers, 670 00:35:57,680 --> 00:36:02,560 Speaker 3: they would erupt up thirty billion, only up two billion 671 00:36:02,680 --> 00:36:05,360 Speaker 3: or whatever I mean it was. It was something else, 672 00:36:06,200 --> 00:36:10,120 Speaker 3: and so I bought that. And so in the in 673 00:36:10,160 --> 00:36:14,040 Speaker 3: the eight in the seventies, inflation you could see it 674 00:36:14,080 --> 00:36:16,920 Speaker 3: coming and see it going away, right, And and this 675 00:36:17,040 --> 00:36:20,640 Speaker 3: time money growth got up to thirty percent, and inflation 676 00:36:21,120 --> 00:36:23,680 Speaker 3: took off. And now money growth is slightly negative. I'm 677 00:36:23,719 --> 00:36:26,759 Speaker 3: in the case that inflation is going away. Plus you know, 678 00:36:26,800 --> 00:36:31,440 Speaker 3: take everything into account, like you mentioned, the supply chain issues, transitory, 679 00:36:31,600 --> 00:36:34,960 Speaker 3: those things are there. Demand destruction is there because prices 680 00:36:34,960 --> 00:36:37,640 Speaker 3: go up, so much and you don't want to buy 681 00:36:37,680 --> 00:36:39,760 Speaker 3: it if it goes up anymore, et cetera. 682 00:36:40,160 --> 00:36:43,280 Speaker 2: Commodity traders love to say the cure for high prices 683 00:36:43,440 --> 00:36:46,279 Speaker 2: is high crisis, right. I mean I heard that my 684 00:36:46,320 --> 00:36:48,960 Speaker 2: whole uh, my whole career. So so let's talk a 685 00:36:49,000 --> 00:36:53,600 Speaker 2: little bit about you as as watching money supply. I again, 686 00:36:53,680 --> 00:36:56,279 Speaker 2: I tell the young guys in my office. You know, 687 00:36:56,400 --> 00:36:59,400 Speaker 2: back in the day, the Fed didn't announce the change 688 00:36:59,400 --> 00:37:03,360 Speaker 2: in rate polo. See, they certainly didn't hold a press conference. 689 00:37:03,880 --> 00:37:07,160 Speaker 2: You found out about changes and interest rates when the 690 00:37:07,200 --> 00:37:10,600 Speaker 2: bond market told you interest rates are Now this tell 691 00:37:10,640 --> 00:37:14,719 Speaker 2: us about that era. I'm assuming that's in part why 692 00:37:14,760 --> 00:37:16,920 Speaker 2: you're watching things like money supply. 693 00:37:17,000 --> 00:37:19,080 Speaker 3: Well, I've always watched the money supply, and the FED 694 00:37:19,160 --> 00:37:23,720 Speaker 3: can operate through interest rates, or through the money supply, 695 00:37:23,960 --> 00:37:26,839 Speaker 3: or through Joe boning the markets, which they do. Now 696 00:37:26,880 --> 00:37:28,640 Speaker 3: you can see them saying we're not going to cut rates. 697 00:37:28,640 --> 00:37:30,799 Speaker 3: So they are going to cut rates. So that's been 698 00:37:31,120 --> 00:37:34,120 Speaker 3: a familiar territory for me for fifty years. 699 00:37:34,400 --> 00:37:34,760 Speaker 2: Really. 700 00:37:35,239 --> 00:37:38,120 Speaker 3: In the early part, Volker said he liked to keep 701 00:37:38,160 --> 00:37:40,200 Speaker 3: his cards close to his vest, and he had a 702 00:37:40,200 --> 00:37:43,440 Speaker 3: big vest, so tall Paul Tall, full and so that 703 00:37:43,560 --> 00:37:47,319 Speaker 3: was that, and then the German Central Bank. I'm going 704 00:37:47,360 --> 00:37:49,960 Speaker 3: to better that, I'm going to give the market a 705 00:37:50,000 --> 00:37:52,600 Speaker 3: fake out. I'm going to indicate I'm not going to 706 00:37:52,680 --> 00:37:54,719 Speaker 3: do this, and then I'll do it, because you get 707 00:37:54,760 --> 00:37:57,480 Speaker 3: more bang for your buck if you really surprise the markets. 708 00:37:57,640 --> 00:37:59,840 Speaker 3: But now we're in a situation where the FED is 709 00:38:00,160 --> 00:38:04,480 Speaker 3: totally transparent and they have what a dozen people a 710 00:38:04,520 --> 00:38:08,400 Speaker 3: week right coming on what they're doing. 711 00:38:08,360 --> 00:38:12,719 Speaker 2: Speeches, transcripts, q and as. I mean, it's such a 712 00:38:12,760 --> 00:38:17,399 Speaker 2: different world than the nineteen seventies or eighties. Does that 713 00:38:17,440 --> 00:38:20,080 Speaker 2: make it easier to track what they're doing? Or is 714 00:38:20,120 --> 00:38:23,480 Speaker 2: it harder because now everybody sees the same story at once. 715 00:38:23,600 --> 00:38:26,840 Speaker 3: It doesn't strike me as any particularly harder. Or the 716 00:38:26,920 --> 00:38:31,080 Speaker 3: question is what's the impact. So, for example, you mentioned 717 00:38:31,080 --> 00:38:34,799 Speaker 3: the BEG increasing interest rates five hundred and twenty five 718 00:38:34,800 --> 00:38:38,120 Speaker 3: basis points, you correctly point out in addition to that, 719 00:38:38,320 --> 00:38:41,000 Speaker 3: the FED has shrunk the balance sheet a trallion dollars. 720 00:38:41,120 --> 00:38:45,200 Speaker 2: They went from quantitative easing to quantitative tightening, meaning they're 721 00:38:45,239 --> 00:38:48,040 Speaker 2: no longer buying bonds, are now selling. 722 00:38:47,800 --> 00:38:48,719 Speaker 1: Bonds big time. 723 00:38:49,040 --> 00:38:53,520 Speaker 3: And so a general rule of thumb that Bernanke's talked 724 00:38:53,520 --> 00:38:56,799 Speaker 3: about Bill Dudley that was the chairman of the New 725 00:38:56,880 --> 00:39:00,120 Speaker 3: York Fed. Is that a trayon dollars is in the 726 00:39:00,120 --> 00:39:03,799 Speaker 3: neighborhood of one hundred basis points on the fund rate. 727 00:39:04,040 --> 00:39:06,959 Speaker 2: In other words, buying or selling a trillion dollars worth 728 00:39:06,960 --> 00:39:10,480 Speaker 2: of bonds is the equivalent of one hundred bases A 729 00:39:10,520 --> 00:39:12,480 Speaker 2: percentage higher, a percentage lower, and rates. 730 00:39:12,600 --> 00:39:15,719 Speaker 3: Right, So I think the fund rate is about six 731 00:39:15,760 --> 00:39:18,440 Speaker 3: and a half percent because it's five and a half 732 00:39:18,480 --> 00:39:20,319 Speaker 3: and they've shrunk the balance sheet by a tray in. 733 00:39:20,640 --> 00:39:23,960 Speaker 2: So historically six and a half percent is pretty average 734 00:39:23,960 --> 00:39:26,400 Speaker 2: if you go back fifty years. But if you go 735 00:39:26,560 --> 00:39:28,759 Speaker 2: back to two thousand, six and a half percent cent 736 00:39:28,880 --> 00:39:30,000 Speaker 2: really high, right. 737 00:39:30,040 --> 00:39:34,160 Speaker 3: And there's some rates like consumer credit card rates are 738 00:39:34,200 --> 00:39:36,120 Speaker 3: up to twenty one percent or twenty two. 739 00:39:36,239 --> 00:39:39,080 Speaker 2: Which seems a bit stiff. 740 00:39:39,760 --> 00:39:43,440 Speaker 3: It's prohibitive. And I think used car rates are fifteen 741 00:39:43,520 --> 00:39:45,840 Speaker 3: or sixteen. I mean, there are some rates mortgage mortgage 742 00:39:45,920 --> 00:39:48,920 Speaker 3: rates are up to seven percent, so there are some 743 00:39:49,080 --> 00:39:53,040 Speaker 3: rates that are high. But then there's also the mystical 744 00:39:53,200 --> 00:39:56,040 Speaker 3: about the mind supply, you know, how does that impact 745 00:39:56,480 --> 00:40:00,200 Speaker 3: And then they also mystical about the Yelkur you know, 746 00:40:00,239 --> 00:40:04,120 Speaker 3: when it's inverted as a negative signal, it basically tells 747 00:40:04,160 --> 00:40:07,560 Speaker 3: you that the fund rate is high because it's higher 748 00:40:07,600 --> 00:40:09,919 Speaker 3: than bond yields. So you have all three of those 749 00:40:10,080 --> 00:40:14,280 Speaker 3: conditions in place, and at the moment the economy's fine. 750 00:40:14,520 --> 00:40:17,680 Speaker 3: So the average person says, look, it didn't work, and 751 00:40:17,719 --> 00:40:19,120 Speaker 3: I say, just wait. 752 00:40:19,040 --> 00:40:23,280 Speaker 2: You have to be patience. Speaking of transparent Jerome Powell 753 00:40:23,400 --> 00:40:27,000 Speaker 2: shows up on sixty Minutes for a long Q and A. First, 754 00:40:27,320 --> 00:40:30,040 Speaker 2: did you get to see him on idea? What was 755 00:40:30,080 --> 00:40:35,600 Speaker 2: your thoughts on how he described the economy, the state 756 00:40:35,640 --> 00:40:39,480 Speaker 2: of the world rates, What was your takeaway? Seems like 757 00:40:39,480 --> 00:40:40,640 Speaker 2: a pretty impressive guy. 758 00:40:41,200 --> 00:40:41,840 Speaker 1: I agree. 759 00:40:41,920 --> 00:40:45,160 Speaker 3: He's very easy on the eyes. He's easy to listen 760 00:40:45,239 --> 00:40:45,360 Speaker 3: to it. 761 00:40:45,560 --> 00:40:47,960 Speaker 2: He looks like a central doesn't he. 762 00:40:48,400 --> 00:40:50,880 Speaker 3: That maybe one of the reasons that he got appointed. 763 00:40:50,640 --> 00:40:55,319 Speaker 2: Straight from central casting. I mean, yeah, but very very 764 00:40:55,400 --> 00:40:58,800 Speaker 2: thoughtful and reassuring in a lot of ways. 765 00:40:59,040 --> 00:41:03,080 Speaker 3: So the only thing that I disagree with him on 766 00:41:04,480 --> 00:41:07,799 Speaker 3: is he presents the case that the economy is doing 767 00:41:07,840 --> 00:41:11,040 Speaker 3: this now. Therefore it means that mantre policy is either 768 00:41:11,360 --> 00:41:14,480 Speaker 3: tight or loose, And I said, no, that doesn't work 769 00:41:14,520 --> 00:41:16,320 Speaker 3: that way. You have to wait a year and a 770 00:41:16,360 --> 00:41:19,000 Speaker 3: half to find out. And that's what makes it so 771 00:41:19,280 --> 00:41:22,360 Speaker 3: difficult to do Mantrey policy because what you do today 772 00:41:22,719 --> 00:41:26,719 Speaker 3: is like turning a tanker takes I don't know, ten 773 00:41:26,760 --> 00:41:29,239 Speaker 3: miles or so to turn it, and it takes a 774 00:41:29,400 --> 00:41:31,120 Speaker 3: year and a half from martre policy. 775 00:41:31,280 --> 00:41:37,160 Speaker 2: So when was the last tightening was July twenty twenty three, 776 00:41:37,440 --> 00:41:41,400 Speaker 2: So we're still we're still six months away from feeling 777 00:41:41,440 --> 00:41:45,799 Speaker 2: the effect of what they six months, probably longer than that, 778 00:41:46,560 --> 00:41:49,920 Speaker 2: where till the end of twenty twenty four we haven't 779 00:41:50,000 --> 00:41:54,759 Speaker 2: fully felt the impact of the last hikes correct and 780 00:41:55,000 --> 00:41:58,839 Speaker 2: the heel curve inverted in late twenty two, so we're 781 00:41:58,840 --> 00:42:02,759 Speaker 2: about fourteen or fifteen months. What's the average eighteen is 782 00:42:03,080 --> 00:42:06,759 Speaker 2: from inversion to recess to recession eighteen months. That's a 783 00:42:06,760 --> 00:42:07,239 Speaker 2: long time. 784 00:42:07,360 --> 00:42:12,080 Speaker 3: And this, you know, Milston Freeman, I'm saying the Obviously 785 00:42:12,160 --> 00:42:16,400 Speaker 3: he was very smart and he didn't say they're long lags. 786 00:42:16,840 --> 00:42:21,520 Speaker 3: He said they're long and variable lags. And sometimes I 787 00:42:21,520 --> 00:42:23,400 Speaker 3: get a little trigger, like I mentioned I think I 788 00:42:23,640 --> 00:42:27,040 Speaker 3: think I mentioned eighteen months five times too, like I said. 789 00:42:26,840 --> 00:42:29,440 Speaker 2: But he would tell you it's six to thirty six months, 790 00:42:29,560 --> 00:42:30,919 Speaker 2: not eighteen months, right. 791 00:42:31,400 --> 00:42:33,879 Speaker 3: And so I mean it could last longer than eighteen months, 792 00:42:33,880 --> 00:42:36,760 Speaker 3: which would take you and then you have the election 793 00:42:36,840 --> 00:42:41,080 Speaker 3: coming up, right, and at this point, there's really nothing 794 00:42:41,120 --> 00:42:44,320 Speaker 3: that fit can do to influence the economy, you know, 795 00:42:44,440 --> 00:42:46,279 Speaker 3: during November of this year. 796 00:42:46,640 --> 00:42:50,440 Speaker 2: So someone else recently commented, I'm glad you brought that up. 797 00:42:50,960 --> 00:42:53,400 Speaker 2: So you have a number of So he had the 798 00:42:53,440 --> 00:42:56,319 Speaker 2: Cares Act one, two, and three, and each of them, 799 00:42:56,440 --> 00:42:58,960 Speaker 2: the first two under Trump, the third one under Biden. 800 00:42:59,239 --> 00:43:02,080 Speaker 2: Each of them just a ton of fiscal stimulus into 801 00:43:02,120 --> 00:43:07,319 Speaker 2: the economy all at once. A lot of the recent legislation, 802 00:43:07,520 --> 00:43:12,719 Speaker 2: so the Infrastructure Bill, Semiconductor Bill, the Inflation Reduction Bill, 803 00:43:13,160 --> 00:43:17,480 Speaker 2: all three of these are like ten year legislations that 804 00:43:17,520 --> 00:43:21,160 Speaker 2: they have a lot of discretion as to how that 805 00:43:21,200 --> 00:43:23,520 Speaker 2: gets meted out. Now, you can't dump all of it 806 00:43:23,560 --> 00:43:26,080 Speaker 2: into hey it's an election year, spend the whole thing, 807 00:43:26,480 --> 00:43:29,360 Speaker 2: because they're all much longer term projects. But I was 808 00:43:29,400 --> 00:43:33,200 Speaker 2: always in the impression that the White House can goose 809 00:43:33,239 --> 00:43:36,200 Speaker 2: the economy a little bit if they planned to head 810 00:43:36,320 --> 00:43:41,040 Speaker 2: the year before and pass some legislation. Is that oversimplifying this? 811 00:43:41,320 --> 00:43:44,920 Speaker 3: I don't think so, And I would be surprised if 812 00:43:44,920 --> 00:43:47,400 Speaker 3: there's not some of that going on little thumb on 813 00:43:47,440 --> 00:43:50,440 Speaker 3: the scale, and the same probably is true. 814 00:43:51,440 --> 00:43:52,759 Speaker 1: For energy prices. 815 00:43:53,719 --> 00:43:56,759 Speaker 3: Really well, if you can you know influence, You know 816 00:43:56,840 --> 00:43:59,520 Speaker 3: our friends in Saudi Arabia or the Middle East. 817 00:44:01,200 --> 00:44:03,680 Speaker 2: You got a warrant between Russian and Ukraine, you got 818 00:44:03,719 --> 00:44:05,920 Speaker 2: a hot war in the Middle East. It's kind of 819 00:44:05,960 --> 00:44:09,240 Speaker 2: amazing that oil prices aren't ninety two dollars. 820 00:44:10,160 --> 00:44:12,680 Speaker 3: It is unless you look at the fact that the 821 00:44:12,719 --> 00:44:16,160 Speaker 3: money supply growth has gone from thirty percent down to 822 00:44:16,239 --> 00:44:20,200 Speaker 3: minus two, right. And I'd also say in a practical way, 823 00:44:20,560 --> 00:44:24,160 Speaker 3: because I find the money supply story it gets old 824 00:44:24,480 --> 00:44:28,720 Speaker 3: after a few months, eighteen months, people say forget off. 825 00:44:28,560 --> 00:44:31,399 Speaker 2: Already, like you're gonna miss the end. It's like leaven 826 00:44:31,480 --> 00:44:33,239 Speaker 2: before the ninth ending of the game. You don't know 827 00:44:33,280 --> 00:44:34,000 Speaker 2: what's gonna happen. 828 00:44:34,840 --> 00:44:38,720 Speaker 3: But I think you know, China is a major factor 829 00:44:38,800 --> 00:44:43,399 Speaker 3: in this, and China's economy is still pretty soft. We 830 00:44:43,600 --> 00:44:48,160 Speaker 3: survey twenty one companies that have sales in China, and 831 00:44:48,200 --> 00:44:52,719 Speaker 3: that survey this past week was thirty one. I mean 832 00:44:52,840 --> 00:44:57,040 Speaker 3: way below forty five, way below forty five. That percession 833 00:44:58,160 --> 00:45:01,759 Speaker 3: our survey is forty nine. And it's only been this 834 00:45:01,920 --> 00:45:05,040 Speaker 3: low thirty one for a few weeks during the pandemic. 835 00:45:05,480 --> 00:45:09,520 Speaker 3: Really in China. Wow, So that's one measure before you 836 00:45:09,560 --> 00:45:09,879 Speaker 3: move on. 837 00:45:09,840 --> 00:45:12,040 Speaker 2: To the next measure. Let's stay with China. This is 838 00:45:12,080 --> 00:45:15,880 Speaker 2: the second largest economy in the world. It's the industrial 839 00:45:17,000 --> 00:45:21,040 Speaker 2: heartland of the global economy. If they're deep in a recession, 840 00:45:21,560 --> 00:45:23,720 Speaker 2: like I know, we used to say the US catches 841 00:45:23,760 --> 00:45:26,359 Speaker 2: a cold and the whole world gets pneumonia. But has 842 00:45:26,400 --> 00:45:29,719 Speaker 2: that changed over the past fifty years. If China is 843 00:45:29,800 --> 00:45:32,920 Speaker 2: deep in a recession, are they dragging the rest of 844 00:45:32,960 --> 00:45:35,719 Speaker 2: the world down with them? Or are they a reflection 845 00:45:36,360 --> 00:45:40,760 Speaker 2: of a slowing Europe and a soft South America and Africa. 846 00:45:41,239 --> 00:45:45,160 Speaker 3: One question is why are they slowing? And another question 847 00:45:45,280 --> 00:45:48,319 Speaker 3: is what's the implication of them slowing. The first part 848 00:45:48,440 --> 00:45:52,600 Speaker 3: is more complicated why they're slowing. But the property market 849 00:45:53,160 --> 00:45:56,960 Speaker 3: in China apparently is a real mess giant and going 850 00:45:57,000 --> 00:45:59,880 Speaker 3: to stay that way for a long time decades. 851 00:46:00,080 --> 00:46:02,000 Speaker 2: Right when you say a long time, this isn't fifth 852 00:46:02,080 --> 00:46:05,680 Speaker 2: And this is like a deep structural problem they created 853 00:46:05,719 --> 00:46:06,520 Speaker 2: by ourselves. 854 00:46:06,640 --> 00:46:10,960 Speaker 3: I'm seventy eight, so let's not talk in decades, you. 855 00:46:10,920 --> 00:46:14,360 Speaker 2: Know what, not your lifetime, maybe not my lifetime. I 856 00:46:14,920 --> 00:46:16,840 Speaker 2: only have. You know, you only have a decade or 857 00:46:16,920 --> 00:46:19,799 Speaker 2: so on me. I'm not. I don't know if I'm 858 00:46:19,840 --> 00:46:22,160 Speaker 2: ever going to see a robust real estate market in 859 00:46:22,200 --> 00:46:23,360 Speaker 2: my lifetime in China. 860 00:46:23,480 --> 00:46:25,600 Speaker 3: Yeah, well, you know, I'm not a big fan of 861 00:46:25,640 --> 00:46:31,000 Speaker 3: long term forecasting. But anyway, it's pretty tough in China now. 862 00:46:31,520 --> 00:46:33,560 Speaker 3: And you know, one of the other things I do 863 00:46:34,239 --> 00:46:38,279 Speaker 3: is I talk to clients relentlessly, and when I get 864 00:46:38,280 --> 00:46:40,719 Speaker 3: to talk to somebody who's just back from China, I 865 00:46:40,840 --> 00:46:44,560 Speaker 3: really grow them. And what I'm hearing now is that 866 00:46:44,640 --> 00:46:48,799 Speaker 3: the locals in China are not optimistic. They're pretty down 867 00:46:48,800 --> 00:46:52,480 Speaker 3: in the dumps. Animal spirits are pretty somber, which you're 868 00:46:52,520 --> 00:46:55,680 Speaker 3: not surprising. But I'm just saying, if you talk to 869 00:46:55,680 --> 00:46:58,120 Speaker 3: people here in the States, you know, things seem to 870 00:46:58,120 --> 00:46:59,520 Speaker 3: be the way rights direction. 871 00:47:00,000 --> 00:47:04,360 Speaker 2: And she turned around and say, all right, here's a 872 00:47:04,360 --> 00:47:07,200 Speaker 2: whole new plan and we're gonna the US just did 873 00:47:07,200 --> 00:47:09,960 Speaker 2: a giant fiscal stimulus or three, We're going to do 874 00:47:10,000 --> 00:47:10,520 Speaker 2: one also. 875 00:47:10,880 --> 00:47:16,680 Speaker 3: So I'm a team player, and I love working with people, 876 00:47:16,760 --> 00:47:19,160 Speaker 3: working with our clients, and I love working with our 877 00:47:19,160 --> 00:47:23,439 Speaker 3: research team and our research team, if I may sure 878 00:47:23,719 --> 00:47:26,279 Speaker 3: them on the back is the number one team on 879 00:47:26,320 --> 00:47:28,479 Speaker 3: the street is now the second year in a row. 880 00:47:28,719 --> 00:47:31,480 Speaker 3: We have a really good research team and we have 881 00:47:31,560 --> 00:47:36,480 Speaker 3: an analyst, a research team that covers China, Neo Wang. 882 00:47:36,719 --> 00:47:39,879 Speaker 3: He's Chinese. He knows what he's talking about. So far, 883 00:47:40,160 --> 00:47:44,560 Speaker 3: they haven't done anything dramatic. Say, she has not done something. 884 00:47:45,280 --> 00:47:47,600 Speaker 3: I thought by now he would have done something. But 885 00:47:47,680 --> 00:47:51,280 Speaker 3: he has a kind of surprising right. So let's China 886 00:47:51,360 --> 00:47:53,960 Speaker 3: is its own entity. What else do you see in 887 00:47:54,000 --> 00:47:57,799 Speaker 3: the global economy that's worth mentioning? Europe seems to be 888 00:47:57,880 --> 00:47:59,239 Speaker 3: unable to get out of its own way. 889 00:48:00,360 --> 00:48:01,680 Speaker 1: Europe is weak. 890 00:48:01,800 --> 00:48:05,440 Speaker 3: So we do a survey of twenty eight companies in 891 00:48:05,480 --> 00:48:09,800 Speaker 3: Europe and that survey is thirty five. Also is almost 892 00:48:09,840 --> 00:48:12,040 Speaker 3: as soft as China, almost as soft ast China, not 893 00:48:12,040 --> 00:48:17,120 Speaker 3: as it's soft, and they have problems, you know themselves, 894 00:48:17,600 --> 00:48:19,399 Speaker 3: And so you have hindsight is. 895 00:48:19,320 --> 00:48:23,080 Speaker 2: Great, but always twenty twenty. 896 00:48:23,200 --> 00:48:25,800 Speaker 3: But now you know, sitting here with you, we're trying 897 00:48:25,840 --> 00:48:30,080 Speaker 3: to look through the fog, and we talked about China. 898 00:48:30,160 --> 00:48:34,440 Speaker 3: Looks like China's second biggest economy in the world is 899 00:48:34,560 --> 00:48:39,279 Speaker 3: not doing well, not strong. And then Europe is not 900 00:48:39,320 --> 00:48:43,240 Speaker 3: strong either, and no one is. There's no particular physical 901 00:48:43,320 --> 00:48:48,960 Speaker 3: stimulus there, central bank there, the ECB, they're still tight, 902 00:48:49,320 --> 00:48:51,160 Speaker 3: not as tight as the Fed, but they're still tight. 903 00:48:51,200 --> 00:48:55,719 Speaker 3: Invertedial curve contraction and bank loans and money. So you know, 904 00:48:55,760 --> 00:48:57,840 Speaker 3: we might look back at this and say that was simple. 905 00:48:58,120 --> 00:49:01,960 Speaker 3: The royal economy was soft and the course inflation came down, 906 00:49:02,120 --> 00:49:05,120 Speaker 3: which I think is at the moment. I think inflation 907 00:49:05,239 --> 00:49:09,440 Speaker 3: coming down has been the most important aspect in the 908 00:49:09,480 --> 00:49:12,800 Speaker 3: past year for getting the markets to turn around, getting 909 00:49:12,800 --> 00:49:15,880 Speaker 3: the Fed to pause talk about rate cuts, increasing the 910 00:49:15,880 --> 00:49:19,960 Speaker 3: odds of a soft landing because inflation is going away. 911 00:49:20,200 --> 00:49:22,399 Speaker 2: So the last question I'm going to ask you about 912 00:49:22,440 --> 00:49:25,320 Speaker 2: the state of the economy today or in the near future. 913 00:49:26,000 --> 00:49:29,440 Speaker 2: What else should we be paying attention to if we 914 00:49:29,600 --> 00:49:33,279 Speaker 2: want to see the signs that either the US is 915 00:49:33,360 --> 00:49:37,400 Speaker 2: sliding into a recession or accelerating out of it and 916 00:49:37,960 --> 00:49:39,879 Speaker 2: is going to avoid a recession. What are the most 917 00:49:39,920 --> 00:49:43,439 Speaker 2: important signposts investors should be looking at. 918 00:49:43,680 --> 00:49:48,640 Speaker 3: So I watched our company surveys the most closely. Now, 919 00:49:48,960 --> 00:49:53,440 Speaker 3: your viewers or listeners, they don't have that, but so 920 00:49:53,520 --> 00:49:57,919 Speaker 3: that's that influences me the most. And right now they're 921 00:49:57,960 --> 00:50:00,880 Speaker 3: they're okay, they're not great, but you know, they're definitely 922 00:50:00,960 --> 00:50:05,760 Speaker 3: not recession. Secondly, the best government data are the weekly 923 00:50:05,920 --> 00:50:10,799 Speaker 3: unemployment claims, and they are strong as garlic. I mean, 924 00:50:10,920 --> 00:50:12,719 Speaker 3: I get a headache. 925 00:50:13,000 --> 00:50:16,440 Speaker 2: We've had a short you know, we have not had enough. 926 00:50:16,920 --> 00:50:19,479 Speaker 2: It's so funny when we looked at inflation. We didn't 927 00:50:19,480 --> 00:50:21,719 Speaker 2: have enough chips for cars, we hadn't enough houses. We 928 00:50:21,800 --> 00:50:25,120 Speaker 2: underbuilt houses for a decade, and we don't have enough workers. 929 00:50:25,160 --> 00:50:28,479 Speaker 2: We don't have enough labor. This has very much been 930 00:50:28,800 --> 00:50:35,400 Speaker 2: a lack of supply driving inflation. And how do you 931 00:50:35,440 --> 00:50:39,520 Speaker 2: get above three and a half four percent unemployment if 932 00:50:39,520 --> 00:50:40,640 Speaker 2: there aren't enough bodies? 933 00:50:41,360 --> 00:50:43,960 Speaker 3: So that to wig in the economy. But it's I 934 00:50:43,960 --> 00:50:46,520 Speaker 3: think you put your finger on it perfectly. We've had 935 00:50:46,600 --> 00:50:50,279 Speaker 3: an unusual lack of supply at the same time we've 936 00:50:50,280 --> 00:50:54,839 Speaker 3: had an unusual increase in monetary and physical stimulus. It's 937 00:50:55,000 --> 00:50:58,480 Speaker 3: like it created a great economy but also created a 938 00:50:58,560 --> 00:50:59,959 Speaker 3: real bad inflation problem. 939 00:51:00,440 --> 00:51:03,040 Speaker 2: And a number of people warned about the inflation. I 940 00:51:03,080 --> 00:51:06,480 Speaker 2: remember Professor Jeremy Siegel saying we've never had this much 941 00:51:06,520 --> 00:51:10,040 Speaker 2: fiscal stimulus without a huge inflation spike, and people looked 942 00:51:10,040 --> 00:51:13,160 Speaker 2: at him. In like twenty twenty one, like he had 943 00:51:13,160 --> 00:51:15,719 Speaker 2: two heads and he turned out to be yeah right, 944 00:51:16,040 --> 00:51:19,280 Speaker 2: all right, So enough of the US and global economy 945 00:51:19,719 --> 00:51:21,840 Speaker 2: before I get to my favorite questions. I have to 946 00:51:21,880 --> 00:51:25,839 Speaker 2: throw a curve ball at you. The International Tennis Hall 947 00:51:25,880 --> 00:51:29,200 Speaker 2: of Fame. What do you do with the International Tennis 948 00:51:29,239 --> 00:51:29,880 Speaker 2: Hall of Fame? 949 00:51:30,160 --> 00:51:31,360 Speaker 1: So I love tennis. 950 00:51:32,040 --> 00:51:34,799 Speaker 2: I picked up the game less than ten years ago 951 00:51:34,840 --> 00:51:37,200 Speaker 2: and fell in love with it. Also, it's wonderful. I'm 952 00:51:37,200 --> 00:51:39,360 Speaker 2: a lousy player. I've been playing, I guess since I 953 00:51:39,400 --> 00:51:42,640 Speaker 2: was about twenty years old, and I know how to 954 00:51:42,640 --> 00:51:46,120 Speaker 2: play tennis. I've been trying to play golf recently, and 955 00:51:46,440 --> 00:51:48,240 Speaker 2: I can see that I don't know how to play golf, 956 00:51:48,640 --> 00:51:53,080 Speaker 2: but tennis, and I love tennis, right, And so years back, 957 00:51:53,280 --> 00:51:55,160 Speaker 2: a friend of mine was on the board of the 958 00:51:55,200 --> 00:51:57,680 Speaker 2: Tennis Hall of Fame, and so I got on and 959 00:51:57,800 --> 00:52:00,759 Speaker 2: I was on there for maybe a decade. But I'm 960 00:52:00,800 --> 00:52:04,080 Speaker 2: still fascinated by the game. And boy, the players now 961 00:52:04,200 --> 00:52:08,200 Speaker 2: are unbelieved, unbelievable, and the depth of the players like 962 00:52:08,320 --> 00:52:12,600 Speaker 2: al Charez came along and that looks like he's beatable. Unbelievable, 963 00:52:12,640 --> 00:52:15,080 Speaker 2: really really interesting. All right, So let's jump to our 964 00:52:15,120 --> 00:52:18,440 Speaker 2: favorite questions that we ask all of our guests, starting 965 00:52:18,480 --> 00:52:21,040 Speaker 2: with what's keeping you entertained these days? What are you 966 00:52:21,120 --> 00:52:23,120 Speaker 2: streaming or watching or listening to. 967 00:52:23,840 --> 00:52:28,400 Speaker 3: I don't stream at all, not really. You know, I'm 968 00:52:28,480 --> 00:52:34,879 Speaker 3: a big consumer of business news anything. You know, I'd 969 00:52:34,880 --> 00:52:37,200 Speaker 3: be embarrassed to tell you how much time I spend 970 00:52:37,520 --> 00:52:38,520 Speaker 3: listening to Bloomberg. 971 00:52:38,800 --> 00:52:41,080 Speaker 1: Right, it's a real treasure. 972 00:52:41,320 --> 00:52:44,520 Speaker 2: Well, it's geared towards you and your clients. It's not 973 00:52:44,560 --> 00:52:49,440 Speaker 2: a coincidence that that's the target market institutional investors. 974 00:52:49,680 --> 00:52:51,799 Speaker 3: So I'm all over that. I read probably a dozen 975 00:52:51,840 --> 00:52:55,520 Speaker 3: newspapers a day, and the amount of news coming out. 976 00:52:55,680 --> 00:52:57,520 Speaker 2: Is just it's a fire hose. 977 00:52:57,600 --> 00:53:00,879 Speaker 3: It's a fire hose, and frankly, it made my job 978 00:53:01,920 --> 00:53:05,520 Speaker 3: much much more difficult because it's so hard to add value. 979 00:53:05,719 --> 00:53:08,200 Speaker 3: I mean, it's very difficult to add value, and so 980 00:53:08,239 --> 00:53:12,520 Speaker 3: I'm always intently aware of that that I have to 981 00:53:12,960 --> 00:53:15,800 Speaker 3: pick and choose what I try and put in front 982 00:53:15,840 --> 00:53:18,280 Speaker 3: of people because it's just redundant. 983 00:53:18,680 --> 00:53:21,359 Speaker 2: Is that why you said the twenty tens were such 984 00:53:21,400 --> 00:53:25,000 Speaker 2: a challenging decade running a research shop because of the 985 00:53:25,200 --> 00:53:29,120 Speaker 2: just massive amounts of well news coming out. 986 00:53:29,480 --> 00:53:33,160 Speaker 3: It's not that really for that one thing in twenty 987 00:53:33,200 --> 00:53:36,240 Speaker 3: ten that was the peak of this of my business, 988 00:53:36,280 --> 00:53:42,040 Speaker 3: and the dynamic has been active to passive. Active managers 989 00:53:42,640 --> 00:53:46,200 Speaker 3: use my work and use my firm's work. 990 00:53:46,320 --> 00:53:50,000 Speaker 2: So is that shrinks a little bit. It's gonna that 991 00:53:50,080 --> 00:53:51,680 Speaker 2: much less demand from that side. 992 00:53:52,160 --> 00:53:56,560 Speaker 3: It's now fifty to fifty, fifty percent active, fifty percent 993 00:53:56,680 --> 00:53:57,279 Speaker 3: passive in. 994 00:53:57,320 --> 00:54:01,640 Speaker 2: Etf some mutual funds, but not overall in the toet equity. 995 00:54:01,200 --> 00:54:04,000 Speaker 3: Markets total equity markets, really fifty to fifty. 996 00:54:04,080 --> 00:54:06,239 Speaker 2: That's a big number. I keep reading so much low, 997 00:54:06,360 --> 00:54:07,640 Speaker 2: like twenty five and thirty. 998 00:54:08,360 --> 00:54:10,880 Speaker 3: Well, anyway, whatever it is, right, it takes. But you 999 00:54:10,920 --> 00:54:15,560 Speaker 3: know it's always taking, you know, audience away from and 1000 00:54:15,880 --> 00:54:18,880 Speaker 3: trading volumes away, and then the sense for share of 1001 00:54:18,880 --> 00:54:21,759 Speaker 3: and trading sure has come down. John, So it's a 1002 00:54:21,840 --> 00:54:25,800 Speaker 3: much more difficult business than it was. Let's talk about 1003 00:54:25,840 --> 00:54:29,680 Speaker 3: mentors who helped shape your career. It's a good question, Barry, 1004 00:54:29,760 --> 00:54:32,680 Speaker 3: because I think for anybody a big part of their 1005 00:54:32,920 --> 00:54:36,759 Speaker 3: success depends on this working out in a positive way. 1006 00:54:37,840 --> 00:54:41,399 Speaker 3: My first job was working for Professor Otto Eckstein, who 1007 00:54:41,480 --> 00:54:45,640 Speaker 3: was Council Economic Advisor's cover of Time magazine, taught the 1008 00:54:45,680 --> 00:54:49,760 Speaker 3: freshman course at Harvard, A wonderful person, a wonderful family person, 1009 00:54:50,680 --> 00:54:53,839 Speaker 3: and I was just lucky working for this guy. 1010 00:54:54,080 --> 00:54:55,920 Speaker 2: Usually influential in going and. 1011 00:54:56,680 --> 00:54:59,839 Speaker 3: He's also extremely hard working. I remember he would come 1012 00:54:59,840 --> 00:55:01,719 Speaker 3: back from a trip to Europe and he would have 1013 00:55:01,760 --> 00:55:06,680 Speaker 3: written a whole paper. I thought, my on vacation, No 1014 00:55:07,160 --> 00:55:10,480 Speaker 3: on business coming back a business trip from Europe. He 1015 00:55:10,600 --> 00:55:15,440 Speaker 3: was always working and he was just a fine person. 1016 00:55:15,600 --> 00:55:19,799 Speaker 3: And I know, whatever positive attributes I have, I picked 1017 00:55:19,880 --> 00:55:21,680 Speaker 3: up a lot from him. And then I went to 1018 00:55:21,719 --> 00:55:26,720 Speaker 3: work for C. J. Lawrence and Jim Olt ran that firm. 1019 00:55:26,760 --> 00:55:30,000 Speaker 3: He was my boss, and I just scored big a 1020 00:55:30,080 --> 00:55:33,440 Speaker 3: second time prince of a person, a great intellect, a 1021 00:55:33,560 --> 00:55:36,919 Speaker 3: very serious investor, a good macro guy, but a real 1022 00:55:37,320 --> 00:55:42,880 Speaker 3: stock person. And he was very helpful to me in 1023 00:55:43,520 --> 00:55:47,680 Speaker 3: culture ethics. Just a great role model. And then I 1024 00:55:47,719 --> 00:55:51,759 Speaker 3: worked for myself. That was a pretty low point. 1025 00:55:50,840 --> 00:55:52,759 Speaker 2: But that seemed to have worked out. I seemed to 1026 00:55:52,800 --> 00:55:56,040 Speaker 2: work worked out. Okay, let's talk about books. What are 1027 00:55:56,040 --> 00:55:58,360 Speaker 2: some of your favorites? What have you read recently? 1028 00:55:59,040 --> 00:56:03,800 Speaker 3: Is a book called Truck and it's a It's a fiction. 1029 00:56:04,320 --> 00:56:07,439 Speaker 3: I haven't read a fiction, I don't know thirty years. 1030 00:56:08,120 --> 00:56:10,400 Speaker 2: I know the feeling and I read it. 1031 00:56:10,239 --> 00:56:12,799 Speaker 3: It was It just was delightful and I learned a 1032 00:56:12,840 --> 00:56:16,080 Speaker 3: lot from it, and it made me think a lot 1033 00:56:16,080 --> 00:56:19,560 Speaker 3: of it's written about the depression and going up to 1034 00:56:19,600 --> 00:56:23,320 Speaker 3: it and after that, and it's made me think differently 1035 00:56:23,360 --> 00:56:26,319 Speaker 3: about the Depression than I did before. And now I 1036 00:56:26,360 --> 00:56:30,440 Speaker 3: read my buddy Ed Yordini's trying to make out like 1037 00:56:30,480 --> 00:56:36,080 Speaker 3: we're headed to a new roaring twenties period. But that's 1038 00:56:36,120 --> 00:56:39,359 Speaker 3: a good read. Recently, Chip Wars. 1039 00:56:39,719 --> 00:56:41,839 Speaker 2: Is a mush read, fascinating book. 1040 00:56:42,000 --> 00:56:45,640 Speaker 3: Fascinating book, you know, brings up you know, you think 1041 00:56:45,680 --> 00:56:49,600 Speaker 3: about Taiwan and China, Taiwan and China, Taiwan and China, 1042 00:56:49,840 --> 00:56:53,520 Speaker 3: and you know what could happen there. Henry Kissinger has 1043 00:56:53,560 --> 00:56:56,920 Speaker 3: a book out about leaders. It's actually all the leaders 1044 00:56:56,960 --> 00:56:59,560 Speaker 3: he worked with, and it's. 1045 00:56:59,360 --> 00:57:01,399 Speaker 1: A interesting read. 1046 00:57:01,440 --> 00:57:04,840 Speaker 3: But you know the ones that have been most influential 1047 00:57:05,760 --> 00:57:10,920 Speaker 3: in a long term for anybody in this business. Reminiscence 1048 00:57:10,960 --> 00:57:14,680 Speaker 3: of a stock Operator. Sure by what the Jesse livermore right? 1049 00:57:15,400 --> 00:57:17,640 Speaker 3: I mean, you have to read that. Hopefully you read 1050 00:57:17,640 --> 00:57:18,360 Speaker 3: it when you're young. 1051 00:57:18,520 --> 00:57:21,160 Speaker 2: It's amazing how fresh it still is today. You would 1052 00:57:21,160 --> 00:57:22,520 Speaker 2: think it's dated, but it's not. 1053 00:57:23,120 --> 00:57:25,240 Speaker 3: So Those are some of the books I've been trafficking 1054 00:57:25,240 --> 00:57:27,800 Speaker 3: in but I read. One thing I've found is that 1055 00:57:27,960 --> 00:57:29,760 Speaker 3: people that do well read a lot. 1056 00:57:29,640 --> 00:57:33,400 Speaker 2: No doubt about that. Our final two questions, what sort 1057 00:57:33,440 --> 00:57:36,120 Speaker 2: of advice would you give to a recent college grad 1058 00:57:36,560 --> 00:57:39,880 Speaker 2: who is interested in a career in either investing or 1059 00:57:40,160 --> 00:57:41,200 Speaker 2: economic research. 1060 00:57:41,560 --> 00:57:44,160 Speaker 3: The most important advice I can give people is to 1061 00:57:44,200 --> 00:57:49,080 Speaker 3: work hard. Boy, that sounds superficial, but I'm sure that is. 1062 00:57:49,160 --> 00:57:53,919 Speaker 3: You know, everybody you can think about, that's the common denominator. 1063 00:57:54,080 --> 00:57:56,200 Speaker 3: So for a young person, they just have to work 1064 00:57:56,240 --> 00:57:59,160 Speaker 3: hard at finding their voice, finding their path. 1065 00:58:00,280 --> 00:58:00,920 Speaker 1: I was lucky. 1066 00:58:01,280 --> 00:58:03,840 Speaker 3: I found it easily. You know, I can see some 1067 00:58:03,880 --> 00:58:07,040 Speaker 3: young people don't find it easily. So that's you got 1068 00:58:07,080 --> 00:58:09,040 Speaker 3: to work hard. And first you got to work hard 1069 00:58:09,160 --> 00:58:11,800 Speaker 3: finding your path. And then once you find it that 1070 00:58:11,880 --> 00:58:15,120 Speaker 3: it's easy. Frankly, I think you found your path and. 1071 00:58:15,080 --> 00:58:16,920 Speaker 2: That just meanwhile, but I eventually got here. 1072 00:58:16,920 --> 00:58:17,600 Speaker 1: You got it right. 1073 00:58:18,120 --> 00:58:22,800 Speaker 3: And now in terms of this business being the best business, yeah, 1074 00:58:23,160 --> 00:58:25,000 Speaker 3: you know as well as I do. It's an enormously 1075 00:58:25,080 --> 00:58:29,120 Speaker 3: interesting field. And I get up in the morning, I 1076 00:58:29,160 --> 00:58:31,600 Speaker 3: sort of jump out of bed. The first thing I 1077 00:58:31,720 --> 00:58:34,840 Speaker 3: do is I start reading my Bloomberg to see what. 1078 00:58:34,840 --> 00:58:39,120 Speaker 2: Happened that's really fabulous. Let's jump to our final question. 1079 00:58:39,760 --> 00:58:41,960 Speaker 2: What do you know about the world of investing today 1080 00:58:42,040 --> 00:58:45,520 Speaker 2: that you wish you knew back in nineteen seventy when 1081 00:58:45,520 --> 00:58:47,680 Speaker 2: you were first getting started fifty years ago? 1082 00:58:47,920 --> 00:58:50,960 Speaker 3: You know, this is one I've gotten before, and I 1083 00:58:51,000 --> 00:58:54,080 Speaker 3: think about it, nothing comes to mind. I'm surely yeah, 1084 00:58:54,120 --> 00:58:55,000 Speaker 3: I'm sure. 1085 00:58:54,640 --> 00:58:57,160 Speaker 2: Nothing would have helped you out that you know today. Gee, 1086 00:58:57,160 --> 00:58:59,920 Speaker 2: if only I knew fifty years ago that I shouldn't 1087 00:59:00,040 --> 00:59:00,560 Speaker 2: do this. 1088 00:59:00,560 --> 00:59:02,120 Speaker 1: Well, you know you can do that. You say, you 1089 00:59:02,160 --> 00:59:03,920 Speaker 1: know what you know? I should have you know got. 1090 00:59:03,880 --> 00:59:06,840 Speaker 2: I mean by Amazon at the IP right, I mean 1091 00:59:07,240 --> 00:59:10,640 Speaker 2: what what? What knowledge do you have now? What wisdom 1092 00:59:10,680 --> 00:59:13,080 Speaker 2: have you acquired? Hey? That would have been useful? 1093 00:59:13,200 --> 00:59:16,280 Speaker 3: Well, nothing comes to mind. Maybe I'm just brain dead. 1094 00:59:16,640 --> 00:59:20,400 Speaker 2: No, that's fascinating because what you're really saying is it's 1095 00:59:20,520 --> 00:59:24,320 Speaker 2: the it's the road, not the destination. It's what you 1096 00:59:24,440 --> 00:59:27,000 Speaker 2: learned along the way and when you learned it. 1097 00:59:27,200 --> 00:59:30,160 Speaker 3: What I think is a better question now, maybe for me, 1098 00:59:30,320 --> 00:59:32,920 Speaker 3: but maybe for even a young person, is if you 1099 00:59:32,960 --> 00:59:35,360 Speaker 3: go out a decade from now and you want to 1100 00:59:35,400 --> 00:59:37,760 Speaker 3: look back at your life, what do you want to see? 1101 00:59:38,000 --> 00:59:40,080 Speaker 3: That's an open slate. You can make that happen. 1102 00:59:40,480 --> 00:59:42,800 Speaker 2: And that's a question you can think about at any 1103 00:59:42,840 --> 00:59:44,320 Speaker 2: point in your your. 1104 00:59:44,280 --> 00:59:46,800 Speaker 3: Pre litional and so right now that's what I think 1105 00:59:46,840 --> 00:59:49,560 Speaker 3: about the most, and nothing just jumps out at me. 1106 00:59:49,920 --> 00:59:52,200 Speaker 3: I knew I was going to enjoy doing this with you. 1107 00:59:52,440 --> 00:59:55,360 Speaker 2: Well, I always enjoy chatting with you. It's always a delight. 1108 00:59:55,760 --> 00:59:57,240 Speaker 1: So may people do it in another decade. 1109 00:59:57,520 --> 00:59:59,800 Speaker 2: I'm not going to wait another decade. We'll do it 1110 01:00:00,000 --> 01:00:02,920 Speaker 2: sooner than that. Thanks Ed for being so generous with 1111 01:00:02,960 --> 01:00:06,000 Speaker 2: your time. We have been speaking with Ed Hyman. He 1112 01:00:06,320 --> 01:00:10,960 Speaker 2: is the chairman and co founder of ISI Evicor. If 1113 01:00:11,000 --> 01:00:13,720 Speaker 2: you enjoy this conversation, well check out any of the 1114 01:00:13,960 --> 01:00:18,320 Speaker 2: five hundred we've done over the past ten years. You 1115 01:00:18,360 --> 01:00:23,760 Speaker 2: can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you 1116 01:00:23,880 --> 01:00:27,040 Speaker 2: find your favorite podcasts. Be sure and check out my 1117 01:00:27,160 --> 01:00:30,360 Speaker 2: new podcast at the Money, where I sit down for 1118 01:00:30,400 --> 01:00:33,720 Speaker 2: a quick Q and A for ten minutes to chat 1119 01:00:33,760 --> 01:00:38,120 Speaker 2: with an expert about issues that affect your money, earning it, 1120 01:00:38,200 --> 01:00:41,920 Speaker 2: spending it, and mostly investing it. Find that wherever you 1121 01:00:41,960 --> 01:00:45,440 Speaker 2: get your favorite podcasts, and in the Masters and Business 1122 01:00:45,800 --> 01:00:48,720 Speaker 2: podcast feed. I would be remiss if I did not 1123 01:00:48,800 --> 01:00:51,960 Speaker 2: thank the crack team that helps put these conversations together 1124 01:00:52,440 --> 01:00:57,360 Speaker 2: each week. Sebastian Escobar is my audio engineer. Attikavalbrun is 1125 01:00:57,400 --> 01:01:00,800 Speaker 2: my project manager. Sean Russo is my head of research. 1126 01:01:00,920 --> 01:01:04,960 Speaker 2: Anna Luke is my producer. Sage Bauman is the head 1127 01:01:05,000 --> 01:01:09,400 Speaker 2: of podcasts at Bloomberg. I'm Barry Riddholtz. You've been listening 1128 01:01:09,440 --> 01:01:14,040 Speaker 2: to your Master's in Business on Bloomberg Radio.