WEBVTT - Ed Hyman on How Investors Should Use Economic Data 0:00:02.040 --> 0:00:06.000 This is Master's in Business with Barry rid Holds on 0:00:06.240 --> 0:00:07.400 Bloomberg Radio. 0:00:08.200 --> 0:00:11.680 This week on the podcast, ed Heiman returns to talk 0:00:11.720 --> 0:00:16.000 about all things economic analysis, what's going on in the world, 0:00:16.560 --> 0:00:21.160 how he's built an incredible career. Oh my god, forty 0:00:21.200 --> 0:00:25.239 three times number one ranked in the Institutional Investor Survey 0:00:25.360 --> 0:00:29.360 in economics. That's just unprecedented, and I'll keep saying, no 0:00:29.400 --> 0:00:34.400 one will ever beat that that streak. Ed is a 0:00:34.400 --> 0:00:38.519 fascinating guy. He's built a fascinating company. He is one 0:00:38.560 --> 0:00:43.199 of those people who focuses on figuring out what's happening 0:00:43.280 --> 0:00:47.280 here and now and is less concerned about making forecasts 0:00:47.320 --> 0:00:51.800 about the future. His clients adore him. He helps keep 0:00:51.840 --> 0:00:55.240 them on the right side of the trade, and he's 0:00:55.400 --> 0:01:00.280 really just one of these legends and gems on Wall Street. 0:01:00.880 --> 0:01:03.440 I could keep going, but let me just stop and say, 0:01:03.480 --> 0:01:07.640 with no further ado my conversation with Isi ever coruse 0:01:08.120 --> 0:01:11.119 Ed Hyman, Great to see you, Great to see you. 0:01:11.120 --> 0:01:12.920 You know, the last time you would hear that number 0:01:13.000 --> 0:01:15.679 was something like thirty five times, all right, which was 0:01:15.720 --> 0:01:19.800 also unbeatable. That is a record that I don't believe 0:01:20.080 --> 0:01:23.600 we'll ever be topped. Before we get into the details 0:01:23.800 --> 0:01:27.800 of your career and your work. How on earth is 0:01:27.880 --> 0:01:33.160 anyone ranked number one for forty three consecutive times? That's amazing. 0:01:33.680 --> 0:01:34.240 I don't know. 0:01:35.319 --> 0:01:38.240 I've been really lucky in my career and I listened 0:01:38.240 --> 0:01:40.880 to your show all the time, and most people will 0:01:40.880 --> 0:01:44.640 say that good lucky, and frankly, if they've done a lot, 0:01:44.720 --> 0:01:48.200 they have to have been lucky. My greatest talent is work. 0:01:49.720 --> 0:01:52.640 I'm really a hard worker. I know how to work. 0:01:52.720 --> 0:01:56.800 I like working, and so that's maybe number one. 0:01:57.680 --> 0:02:00.960 Wouldn't you say that in fine which is such a 0:02:01.000 --> 0:02:05.800 competitive field hard work and intelligence, that's just table stakes 0:02:05.800 --> 0:02:08.280 to get into the game, isn't it. 0:02:08.280 --> 0:02:08.560 It is? 0:02:08.600 --> 0:02:12.840 But it's table stakes in every game, and it doesn't 0:02:12.919 --> 0:02:16.040 change much. And they are people I know that work 0:02:16.080 --> 0:02:18.400 harder than I do, and they do. 0:02:18.360 --> 0:02:21.200 Better, well, not better than forty three in a row. 0:02:22.320 --> 0:02:26.679 I like Peter Lynch's description of what made you successful? 0:02:26.800 --> 0:02:29.080 I think it was in his book One Up on 0:02:29.080 --> 0:02:33.000 Wall Street. Ed Heiman is much more practical than most economists. 0:02:33.440 --> 0:02:37.360 He's more interested in examining railroad cars than Laugher curves. 0:02:38.040 --> 0:02:42.040 What does that say about what makes you special and 0:02:42.080 --> 0:02:43.720 different from other economists? 0:02:44.200 --> 0:02:48.000 First, I like working, and I've worked to the point 0:02:48.000 --> 0:02:50.800 that I've found something I really enjoy doing. You know, 0:02:50.840 --> 0:02:53.920 that's maybe the second most important thing for anybody, for 0:02:54.000 --> 0:02:58.760 you or me. I have a real interest in helping people, 0:02:58.960 --> 0:03:01.480 which you know, some people have that interest and some 0:03:01.520 --> 0:03:05.720 people don't, but I do. And so I met Peter Lynch. 0:03:06.240 --> 0:03:09.000 Was it fifty years ago or forty years ago? I said, 0:03:09.560 --> 0:03:12.920 I got to help this guy, and he said, no, thanks. 0:03:13.160 --> 0:03:16.240 I said, wait a minute, I'll come back. And so 0:03:16.440 --> 0:03:19.160 I tried to find something that I could do that 0:03:19.200 --> 0:03:23.760 would be of interest to basically an equity investor. And he's, 0:03:23.840 --> 0:03:26.800 you know, maybe the best that's been around. And so 0:03:27.560 --> 0:03:31.600 he set me off in a direction that was practical 0:03:31.960 --> 0:03:36.920 and at that point, commissioned business that he generated was ginormous, 0:03:37.000 --> 0:03:41.040 I'm sure, and so I was incentivized, you know, monetarily 0:03:41.440 --> 0:03:43.960 to help him. I wouldn't put him as a mentor 0:03:44.600 --> 0:03:47.040 because I didn't spend that much time with him, but 0:03:47.080 --> 0:03:50.720 he definitely influenced my career in a practical way that 0:03:50.840 --> 0:03:53.720 I think has served me very well ever since then, 0:03:53.880 --> 0:03:56.960 because I'm always trying to find things that are practical, 0:03:57.640 --> 0:03:59.720 and now I happened like art Laugher. You mentioned the 0:03:59.800 --> 0:04:03.280 laugh recur, which I think is frankly pretty much a 0:04:03.280 --> 0:04:06.839 Stroker genius. But you know, it's not something that people 0:04:06.920 --> 0:04:09.160 make money off of every day. So I'm trying to 0:04:09.320 --> 0:04:13.280 mix both things that are intellectual and theoretical as well 0:04:13.320 --> 0:04:15.760 as things that they have a practical side to them. 0:04:15.800 --> 0:04:18.200 So let's talk a little bit about the genesis of 0:04:18.279 --> 0:04:21.960 that practical side. You get your BS and engineering from 0:04:22.040 --> 0:04:25.760 university to get asses right, so engineers tend to be 0:04:25.839 --> 0:04:31.360 pragmatic problem solvers, and then you get an MBA from MIT, 0:04:31.400 --> 0:04:35.800 so you have all of this very pragmatic experience as 0:04:35.839 --> 0:04:40.360 opposed to getting a PhD in economics, which tends to 0:04:40.400 --> 0:04:43.960 be a little more abstract and academic. How much of 0:04:44.640 --> 0:04:48.039 your rankings come from the fact that you have these 0:04:48.360 --> 0:04:53.599 very problem solving oriented academic background. How did that affect 0:04:53.600 --> 0:04:54.480 you a lot? 0:04:55.040 --> 0:04:56.960 You know, if you're hard working and you're trying to 0:04:57.000 --> 0:05:01.960 do things that people value and my client base, if 0:05:02.000 --> 0:05:05.640 you will, or institutional investors, I went all the time. 0:05:06.880 --> 0:05:09.960 So let's talk a little bit about the early days 0:05:10.000 --> 0:05:12.679 of your career. When you come out of school nineteen 0:05:12.760 --> 0:05:16.320 sixty nine to seventy one, you're an economic consultant at 0:05:16.400 --> 0:05:19.920 Data Resources. What did you do for those guys? That 0:05:20.279 --> 0:05:20.960 sounds kind of. 0:05:20.920 --> 0:05:25.200 Interesting whenever Auto, actually I wanted some coffee, I brought 0:05:25.200 --> 0:05:25.680 it to him. 0:05:26.240 --> 0:05:29.320 So you started as a very junior person. 0:05:29.360 --> 0:05:32.600 On the tone, I'm pretty junior, but at that point 0:05:33.160 --> 0:05:38.559 I had a pretty special knowledge of econometrics. At MIT, 0:05:38.760 --> 0:05:42.560 they had the first time sharing big mainframe, big mainframe, 0:05:42.640 --> 0:05:45.919 but you could share the data, share the computer programs. 0:05:46.680 --> 0:05:52.160 And the first real practical application was the Sage American 0:05:52.200 --> 0:05:56.080 Airlines ticket system, which is a time sharing where you 0:05:56.120 --> 0:05:57.520 get your tickets, and. 0:05:57.279 --> 0:05:59.760 That eventually became Saber, right Saber. 0:06:01.080 --> 0:06:04.400 And so I had done that at MIT, and Auto 0:06:04.560 --> 0:06:07.719 x Stein, who was a professor in the economics department 0:06:07.800 --> 0:06:12.640 at Harvard, he started a company that did that exact thing. 0:06:12.839 --> 0:06:14.680 They're right down the street from MIT. 0:06:14.680 --> 0:06:19.000 Right right there, And I was working for a professor 0:06:19.080 --> 0:06:21.680 named ed Ko who was a friend of Auto x Stein, 0:06:21.800 --> 0:06:23.840 and so they were talking and I got the job. 0:06:24.080 --> 0:06:26.680 So that was a stroke of good luck. Plus I 0:06:26.680 --> 0:06:28.000 was in the right spot at the right time. 0:06:28.520 --> 0:06:31.159 What was the data like back then, I'm thinking of 0:06:31.240 --> 0:06:34.000 punch cards and very rudimentary computing. 0:06:34.120 --> 0:06:36.400 It was before then and actually I did a lot 0:06:36.440 --> 0:06:39.560 of punch cards. You're too young for this. 0:06:40.080 --> 0:06:43.840 When I started college, punch cards and time shares were 0:06:43.880 --> 0:06:46.400 still a thing, but it was a fading thing and 0:06:46.480 --> 0:06:50.599 the newfangles technology was coming. You saw it on the horizon. 0:06:50.960 --> 0:06:55.400 I just jumped right over that card deck into data resources, 0:06:55.400 --> 0:06:59.560 where the data was in a computer you shared and 0:07:00.120 --> 0:07:03.600 have to carry the deck around, and it was a 0:07:03.640 --> 0:07:07.560 major step forward. Pretty much the same technology as today. 0:07:08.040 --> 0:07:12.040 We still use the Data Resources system constantly and the 0:07:12.160 --> 0:07:14.360 data is there. The only thing has changed is there's 0:07:14.560 --> 0:07:16.240 much more data. 0:07:16.400 --> 0:07:20.080 More data, faster, bigger. It just has obviously scaled up 0:07:20.080 --> 0:07:21.320 a lot since right then. 0:07:21.440 --> 0:07:23.560 So it's not just government data now there's a lot 0:07:23.600 --> 0:07:24.880 of industry data. 0:07:25.120 --> 0:07:27.000 Which you guys will talk a little bit about what 0:07:27.080 --> 0:07:31.040 ISI does in assembling its own data. Let's just continue 0:07:31.040 --> 0:07:34.720 along your career seventy two, you end up at CJ. Lawrence. 0:07:35.320 --> 0:07:38.000 Tell us what you did there, What was that work like? 0:07:38.640 --> 0:07:45.000 So at Data Resources, I worked with our clients and 0:07:45.440 --> 0:07:50.600 Otto Eckstein, who is a spectacular human being. He passed away, 0:07:51.000 --> 0:07:53.040 I think in his fifties, and he went from the 0:07:53.080 --> 0:07:56.280 cover of Time magazine to not being with us anymore. 0:07:56.800 --> 0:07:59.680 But he was a phenomenal person and he had this 0:07:59.760 --> 0:08:03.720 game plan. He would hire people out of school that 0:08:04.200 --> 0:08:07.360 seemed to be over the ball on the ball right, 0:08:07.440 --> 0:08:10.040 and they would work for data resources and take care 0:08:10.040 --> 0:08:12.280 of clients, and then a client would hire them. 0:08:12.560 --> 0:08:14.920 And he said that's great, and. 0:08:14.840 --> 0:08:17.160 He just locked in as a client. They locked in 0:08:17.160 --> 0:08:19.360 as a client. So I remember telling him. I think 0:08:19.360 --> 0:08:21.840 I called him auto. I shouldn't have, but I did. 0:08:22.320 --> 0:08:24.320 I said otto, I said, I have a job, offer 0:08:24.960 --> 0:08:28.040 to go to work for one of our clients, c J. Lawrence, 0:08:28.960 --> 0:08:33.080 And he said, oh, ed, that's great. I kept waiting 0:08:33.080 --> 0:08:37.040 for the counter. So I remember he took me to 0:08:37.120 --> 0:08:38.880 lunch at Friendlies. 0:08:40.080 --> 0:08:43.120 For a fribble and some fries. 0:08:43.360 --> 0:08:45.400 But anyway, so that was how I got to C. J. 0:08:45.559 --> 0:08:45.920 Lawrence. 0:08:46.040 --> 0:08:48.800 Didn't they end up getting purchased by was it Deutsche Bank? 0:08:48.880 --> 0:08:49.680 By Deutsche Bank? 0:08:49.800 --> 0:08:52.800 Right? How did that affect your plans going forward? Did 0:08:52.800 --> 0:08:54.959 you want to go to a big bank or is 0:08:55.000 --> 0:08:57.600 that what led to the next step in your career? 0:08:57.720 --> 0:09:00.559 That was the next step, and that was is. 0:09:00.760 --> 0:09:03.360 I So that's ninety one. So you were you were CJ. 0:09:03.480 --> 0:09:06.200 Lawrence for a good, good while for twenty years as Wow, 0:09:06.440 --> 0:09:10.040 all right, so you found ISI group with some partners. 0:09:10.679 --> 0:09:13.720 Tell us a little bit about the plan for launching 0:09:13.760 --> 0:09:16.320 an independent economics research shop. 0:09:16.640 --> 0:09:19.280 So at that point I had a pretty big career. 0:09:20.120 --> 0:09:24.200 I'd been ranked I back in the seventies, if you 0:09:24.240 --> 0:09:26.880 can do the math, and I had a to. 0:09:26.920 --> 0:09:30.280 Be fair in the beginning, you were only like runner up. 0:09:30.400 --> 0:09:35.120 And secondly, you really weren't carrying your share of the workload. 0:09:35.679 --> 0:09:38.080 You were coming in second place. I mean, that's just no. 0:09:38.960 --> 0:09:40.559 You have to start somewhere. 0:09:41.000 --> 0:09:42.800 Start at number two and up. 0:09:43.120 --> 0:09:45.080 And it was easy. 0:09:44.960 --> 0:09:48.280 Transition to start my own shop. And I had a 0:09:48.320 --> 0:09:52.800 group of people and Jim Moltz ran CJ Lawrence and 0:09:52.840 --> 0:09:55.320 he was and still is like a father to me. 0:09:55.559 --> 0:09:58.880 So he was very helpful. We all could tell that 0:09:59.040 --> 0:10:01.920 it probably wasn't the best fit for somebody who liked 0:10:01.960 --> 0:10:05.199 working for small companies to work for a big bank. 0:10:05.520 --> 0:10:08.760 I told I told him. He said, okay, would you 0:10:08.800 --> 0:10:12.080 stay until we find a replacement for you? I said, 0:10:12.120 --> 0:10:13.920 of course. He came in one day he said that 0:10:14.000 --> 0:10:16.160 we've got some good news. We found a replacement for you. 0:10:16.200 --> 0:10:22.120 It's ed Yardinney. And I said, okay, that's great. I said, okay, 0:10:22.120 --> 0:10:24.840 if I sent an announcement out, he said, it's okay, 0:10:24.880 --> 0:10:25.880 I've already sent one out. 0:10:27.240 --> 0:10:29.840 Yordini was at Deutsche Bank for a long time until 0:10:29.880 --> 0:10:31.920 he launched Yordini Research. 0:10:32.040 --> 0:10:33.480 Yeah. He's very good. 0:10:33.679 --> 0:10:35.360 Really, he lives in the next town for me. We 0:10:35.559 --> 0:10:37.960 actually go out to dinner. Yeah, yeh, super nice guy. 0:10:38.600 --> 0:10:41.679 So let's talk a little bit about is I was 0:10:41.800 --> 0:10:44.520 both a research shop, but you also set up IS 0:10:44.800 --> 0:10:48.960 a funds management for investors and clients. Two different groups. 0:10:49.200 --> 0:10:51.120 How did they co exist under the same roof? 0:10:51.400 --> 0:10:55.079 It was Okay, It wasn't a great business. Frankly, it's 0:10:55.120 --> 0:10:58.600 not as strong as your business in the asset management business. 0:10:58.760 --> 0:11:00.440 I think I got up to maybe did get up 0:11:00.440 --> 0:11:01.480 to maybe three billion. 0:11:01.640 --> 0:11:05.040 Yeah, but your research side of the shop generated that 0:11:05.160 --> 0:11:07.240 was enough activity to make up for it. Yeah, that 0:11:07.400 --> 0:11:10.720 was I forget what what you call it the side hustle. 0:11:10.760 --> 0:11:14.679 Your side hustle was managing institutional right assets. Your real 0:11:14.760 --> 0:11:19.360 business is having the best perspective of what is happening 0:11:19.920 --> 0:11:23.160 this moment in the economy. And again, according to II, 0:11:23.320 --> 0:11:27.600 nobody does that better than you did. How long after 0:11:27.640 --> 0:11:30.680 you launched II did you get a sense that hey, 0:11:30.720 --> 0:11:36.160 we really have this figured out. We're providing research product 0:11:36.200 --> 0:11:38.240 that nobody else on the street seems to be doing. 0:11:38.600 --> 0:11:40.360 Actually, that had happened at CJ. 0:11:40.520 --> 0:11:40.960 Lawrence. 0:11:41.600 --> 0:11:43.480 You know, by the time I started is I had 0:11:43.520 --> 0:11:47.200 already gotten a strong following and knew what I was 0:11:47.280 --> 0:11:50.880 doing in that space, and so I just made a transition. 0:11:50.960 --> 0:11:54.360 At that point ninety ninety one or recession years and 0:11:54.480 --> 0:11:57.240 stop market, you know, had a pretty big drop, and 0:11:57.320 --> 0:12:00.640 I thought, well, this is a bad idea, your own coveny. 0:12:00.640 --> 0:12:02.640 It turns out to be the perfect time to start your. 0:12:02.520 --> 0:12:03.760 Own Nay, it is a perfect time. 0:12:03.800 --> 0:12:06.800 But you know that you learn that a little later, 0:12:07.240 --> 0:12:09.600 but it is a perfect time. At that point, I thought, well, 0:12:09.679 --> 0:12:12.960 if it doesn't work out better than what I was doing, right, 0:12:13.040 --> 0:12:15.720 So I had very low expectations. And then it turns out, 0:12:16.160 --> 0:12:18.400 you know, the market, if you go from ninety one forward, 0:12:18.800 --> 0:12:21.000 market just sort of went up and business was good. 0:12:21.280 --> 0:12:24.600 It was good basically until maybe twenty ten, and since 0:12:24.640 --> 0:12:26.800 then it's it's been very difficult. 0:12:27.600 --> 0:12:30.600 So you've seen changes in the seventies and eighties, right, 0:12:30.840 --> 0:12:34.280 you had the bull market in the nineties, the financial 0:12:34.320 --> 0:12:39.400 crisis in the two thousands, the twenty ten seemed totally 0:12:39.440 --> 0:12:41.920 uneventful other than the fact that you know, there was 0:12:41.960 --> 0:12:44.720 no yield on the fixed income side. And here we 0:12:44.800 --> 0:12:48.760 are in twenty twenties, first the pandemic, now the increase 0:12:48.960 --> 0:12:52.200 in rates. In your long career in Wall Street, is 0:12:52.200 --> 0:12:56.160 there ever a decade where something isn't blowing up or 0:12:56.240 --> 0:12:59.880 going crazy? Isn't that just the normal state of affair? 0:13:00.480 --> 0:13:02.319 I try to explain this to the younger guys in 0:13:02.360 --> 0:13:05.160 my office, like, Wow, this is crazy. It's like, no, no, 0:13:05.280 --> 0:13:07.000 something crazy is always going on. 0:13:07.240 --> 0:13:09.280 The crazy is always crazy, right, am I am? 0:13:09.360 --> 0:13:12.359 I like not overstating that, or I would. 0:13:12.080 --> 0:13:15.360 Say, you know, in a research response to you, So, 0:13:15.400 --> 0:13:19.719 I've been through thirteen FED tightening cycles, right, and everyone 0:13:19.960 --> 0:13:24.480 has had a financial shocker crisis Cutton, Illinois eighty four, 0:13:24.600 --> 0:13:28.240 for example, But every single one New York community bank 0:13:28.559 --> 0:13:31.320 it's just par for the course, might even not even 0:13:31.400 --> 0:13:34.239 quite par. But I mean, so I would be surprised 0:13:34.320 --> 0:13:37.480 if we don't have another one. It's part of the 0:13:37.520 --> 0:13:38.280 tightening cycle. 0:13:38.480 --> 0:13:42.559 I think, even if the FED is arguably done tightening, 0:13:42.960 --> 0:13:47.720 you think there's still more cockroaches coming out. Yeah, fascinating. 0:13:47.760 --> 0:13:50.320 But I would also say, trying to put things into 0:13:50.400 --> 0:13:54.160 a historic perspective that we might enjoy a decade from now. 0:13:54.320 --> 0:13:57.680 They'll curve still inverted, right, which is a tightening move. 0:13:57.760 --> 0:14:01.280 And every week the FED shrinks is balance sheet and 0:14:01.320 --> 0:14:05.560 it's doing about a trillion a year, which is not exactly. 0:14:05.360 --> 0:14:10.000 So you're saying, you're saying the financial conditions are tighter presently. 0:14:10.080 --> 0:14:12.560 Then people seem to realize. 0:14:12.280 --> 0:14:14.800 Not just the financial conditions, because the market's up so 0:14:14.880 --> 0:14:17.720 much and credit spreads are very tight. But I'm saying 0:14:17.760 --> 0:14:22.440 the FED tightening is probably ongoing. And bank deposits go 0:14:22.520 --> 0:14:23.560 down every week. 0:14:23.800 --> 0:14:25.760 Well, if I get five percent of money market, why 0:14:25.800 --> 0:14:28.400 I'm going to leave cash in a savings or checking account. 0:14:29.160 --> 0:14:31.880 So I think the FED is still in a tightening mode, 0:14:32.000 --> 0:14:35.000 which is why I think for example, New York Community 0:14:35.040 --> 0:14:38.320 Bank popped up, and if you are looking for it, 0:14:38.720 --> 0:14:41.200 which I am every two or three days, there's some 0:14:41.720 --> 0:14:44.280 story about a problem here or there. It could be 0:14:44.320 --> 0:14:47.640 a problem with the German banks and commercial real estate, 0:14:47.760 --> 0:14:48.320 for example. 0:14:48.320 --> 0:14:49.880 It's been a little backstory. 0:14:49.920 --> 0:14:53.480 Are you seeing this as a systemic issue or just isolated? 0:14:54.200 --> 0:14:59.040 I think the FED tightening, and also ECB has been tightening, 0:14:59.320 --> 0:15:02.600 says all the but I do think that every period 0:15:02.880 --> 0:15:06.480 has problems, and like you mentioned, the smooth sailing in 0:15:06.520 --> 0:15:08.040 the twenty tens. 0:15:08.120 --> 0:15:09.360 Didn't feel that way at the time. 0:15:09.440 --> 0:15:09.880 I remember the. 0:15:10.520 --> 0:15:14.520 You're blowing up in Greece right, right, there was a lot. 0:15:14.360 --> 0:15:16.120 Of stuff that was that. It seemed pretty bad. 0:15:16.240 --> 0:15:18.360 Right, you look at a stock chart, it's a little misleading. 0:15:18.400 --> 0:15:20.400 Oh we started down here and we ended up here. 0:15:20.760 --> 0:15:24.600 Must have been great, always climbing the wall. Worried. Right, 0:15:25.080 --> 0:15:28.160 it seems like you're much less focused on the here 0:15:28.200 --> 0:15:31.280 and now than predictions. So let's talk a little bit 0:15:31.320 --> 0:15:35.720 about forecasts. How do you use them or not? How 0:15:35.800 --> 0:15:38.160 do they fit into your research products? 0:15:38.480 --> 0:15:42.080 Well, you have to do forecast. Maybe forecasting is impossible, 0:15:42.360 --> 0:15:45.000 it's certainly difficult, but you have to do it because 0:15:45.040 --> 0:15:47.440 in order to make money, you have to have some 0:15:47.600 --> 0:15:50.400 sense about where things are going. And the difficult thing 0:15:50.480 --> 0:15:52.120 is to know when to hold it, know when to 0:15:52.160 --> 0:15:55.360 fold it. So that's like a mosaic you put together 0:15:56.080 --> 0:15:58.480 and you come up with a view that's based on 0:15:59.360 --> 0:16:02.440 whatever you would like. I always would like to have 0:16:02.640 --> 0:16:07.200 pretty strong theoretical or intellectual framework that I'm uperating within 0:16:07.360 --> 0:16:10.480 and then see how things fit into that and sometimes 0:16:10.480 --> 0:16:13.080 they continue to fit in, and sometimes they don't, and 0:16:13.120 --> 0:16:15.000 there'll be plenty of times when they'll get bumped in 0:16:15.040 --> 0:16:17.880 the road. But I try and have a framework, so 0:16:17.920 --> 0:16:21.520 I'm not just reporting the latest data point. Put it 0:16:21.560 --> 0:16:25.080 into a perspective. That's helped me because I most often 0:16:25.240 --> 0:16:26.800 have a view that when I talk to people, they 0:16:26.800 --> 0:16:30.360 can understand where I'm coming from. Not only where I'm 0:16:30.400 --> 0:16:33.320 coming from, but why have a particular viewpoint. 0:16:33.480 --> 0:16:37.080 I want to talk about the thing that first caught 0:16:37.240 --> 0:16:40.920 my eye with the work that you do, starting with 0:16:41.360 --> 0:16:45.640 your survey of people in the real economy of businesses 0:16:46.120 --> 0:16:50.240 and sectors. Rather than just rely on economic data that 0:16:50.280 --> 0:16:53.200 comes out of the government or earnings, tell us about 0:16:53.200 --> 0:16:56.560 the surveys you created when you first started doing the 0:16:56.600 --> 0:16:57.480 sort of work you do. 0:16:57.840 --> 0:17:00.760 Early on, there was a business called Johns in red book. 0:17:01.680 --> 0:17:05.920 Don't write it down, but they surveyed retailers and. 0:17:05.840 --> 0:17:07.000 That was like a weekly thing. 0:17:07.119 --> 0:17:11.080 Right, It sound like a really good idea. I took 0:17:11.080 --> 0:17:13.560 that idea and took it to the limit. So now 0:17:13.600 --> 0:17:18.000 we survey about thirty industries, maybe three hundred companies in 0:17:18.040 --> 0:17:23.200 each industry, three hundred companies overall, thirty industries like retail 0:17:23.320 --> 0:17:27.600 for example, or autos, trucking companies, you name it. We 0:17:27.720 --> 0:17:31.440 do wine and spirit, hoostsalers. Right, we have a survey 0:17:31.560 --> 0:17:33.720 we do at the end of the year of Christmas 0:17:33.760 --> 0:17:38.119 tree sales. We survey the people that grow them, people 0:17:38.119 --> 0:17:40.520 that truck them, and the people that sell them in 0:17:40.520 --> 0:17:41.080 the cities. 0:17:41.359 --> 0:17:45.640 So you're getting like a real time snapshot of what's happening, 0:17:45.720 --> 0:17:50.320 not just across the economy, but within very specific subsectors. 0:17:50.960 --> 0:17:53.320 I'm sort of a contrarian at heart, is I don't 0:17:53.359 --> 0:17:54.879 trust government data. 0:17:55.560 --> 0:17:55.840 Right. 0:17:56.000 --> 0:18:00.280 It's also very difficult. How do you measure GDP two 0:18:00.359 --> 0:18:04.080 weeks or three weeks after the quarter ends, or retail 0:18:04.160 --> 0:18:06.840 sales eight days after the month ends? 0:18:06.920 --> 0:18:08.200 Too much data to assemble. 0:18:08.720 --> 0:18:11.040 If you think about it across the whole country and 0:18:11.119 --> 0:18:13.840 plumb it's the same way. How can you possibly Well. 0:18:13.720 --> 0:18:16.520 That's why they do three of them, the early release, 0:18:16.640 --> 0:18:19.280 the update, and then the final across three. It takes 0:18:19.280 --> 0:18:21.960 them three months to do GDP. But even that's difficult. 0:18:22.040 --> 0:18:25.040 So then on the other side, you're a practical person. 0:18:25.840 --> 0:18:29.879 If you meet somebody, say that runs a business, and 0:18:29.920 --> 0:18:34.000 you say house business, they'll always tell you with actually 0:18:34.680 --> 0:18:39.199 vivid detail, real granularity because they live it twenty four 0:18:39.240 --> 0:18:42.840 to seven. So if you can get a group of those, 0:18:42.880 --> 0:18:45.600 say a dozen, you have a pretty good leg up 0:18:45.960 --> 0:18:49.120 on what's happening in a particular sector. It's certainly different 0:18:49.359 --> 0:18:51.960 and in some ways it's more reliable than trying to 0:18:52.000 --> 0:18:56.840 measure retail sales, for example. So what's their incentive to participate? 0:18:56.960 --> 0:18:59.680 And to be honest, I'm always fascinated by this. 0:19:00.040 --> 0:19:03.640 So if they participate with us, I send them our research. 0:19:03.720 --> 0:19:06.040 So they get it for free, and that's not an 0:19:06.040 --> 0:19:09.800 inexpensive product. So in their space, they get to see 0:19:09.800 --> 0:19:11.080 what their competitors. 0:19:10.640 --> 0:19:14.760 Are saying, if not all of them bite, that's one incentive. 0:19:15.119 --> 0:19:17.639 The second incentive is they get to see the result. 0:19:18.200 --> 0:19:21.159 Trucking survey we do comes to mind. I think we 0:19:21.200 --> 0:19:23.760 have a dozen truckers, and boy, there really aren't any 0:19:23.800 --> 0:19:27.760 more than that country. They're only probably five big trucking companies. 0:19:28.560 --> 0:19:30.560 But we get a dozen trucking companies. 0:19:30.600 --> 0:19:32.640 They all want to see what the other truckers are saying. 0:19:32.720 --> 0:19:35.199 Yeah, and so you can imagine if you're in a 0:19:35.240 --> 0:19:39.160 business that has some homogeneity to it and you see 0:19:39.160 --> 0:19:43.359 the survey and it drops sharply, you say we're doing great. 0:19:44.080 --> 0:19:45.879 Or if your business drops sharply the other and the 0:19:45.920 --> 0:19:49.560 survey doesn't, you got hey, guys, we're doing something wrong here. 0:19:49.720 --> 0:19:52.919 Sometimes you do things and after a while you conclude 0:19:52.960 --> 0:19:54.760 it's not the best idea, so. 0:19:54.800 --> 0:19:56.879 You retired if it's not working, and you move on 0:19:56.960 --> 0:19:57.480 to the next. 0:19:57.840 --> 0:20:00.200 But this just keeps working. 0:20:00.160 --> 0:20:02.320 Year after year. So let me tell you, say, three other. 0:20:02.240 --> 0:20:03.680 Thing week after week. 0:20:04.000 --> 0:20:06.840 Right, you know, anytime we talk about economic data, I 0:20:06.960 --> 0:20:10.520 love the George Box quote. All models are wrong, but 0:20:10.560 --> 0:20:15.160 some are useful. It's an incredibly insightful insight into statistics 0:20:15.160 --> 0:20:18.600 and modeling. You obviously pick that up forty three years 0:20:18.600 --> 0:20:21.199 ago because you said, I don't want anything to do 0:20:21.280 --> 0:20:24.320 with government data. Let's build our own models. Let's do 0:20:24.440 --> 0:20:27.080 a real time assessment and try and keep it as 0:20:27.119 --> 0:20:30.439 close to objective reality, because the more and more you 0:20:30.520 --> 0:20:34.320 model stuff out, the more it diverges from what's happening. 0:20:34.359 --> 0:20:37.440 So weekly, real time it's as close as you're gonna 0:20:37.440 --> 0:20:40.240 get to the real thing. The other thing you did, though, 0:20:40.280 --> 0:20:43.080 that just really caught my eye, is you would take 0:20:43.560 --> 0:20:46.159 a chart and it was either a survey result or 0:20:46.200 --> 0:20:49.080 a stock chart or a bond whatever it was and 0:20:49.160 --> 0:20:52.880 you would hand mark these up with a sharpie and 0:20:53.200 --> 0:20:56.360 it just jumped off the page and it was one 0:20:56.400 --> 0:20:58.800 of the first things that I'm like, Wow, this is 0:20:58.840 --> 0:21:02.560 really fascinating. How on earth did that come about? 0:21:02.840 --> 0:21:04.840 So I don't think I've invented a single thing in 0:21:04.880 --> 0:21:05.359 my life. 0:21:05.720 --> 0:21:08.600 I give you credit for inventing that because before you 0:21:09.000 --> 0:21:12.320 I've never seen marked up shorts. 0:21:12.480 --> 0:21:15.159 Well, so that way, so let me explain. 0:21:15.280 --> 0:21:18.920 So on the company surveys, there was just one group 0:21:18.960 --> 0:21:21.680 that did a survey of retailers, which turns out what 0:21:21.800 --> 0:21:24.840 that was our first survey we did. It just worked out. 0:21:24.880 --> 0:21:27.480 But I really told the idea from this other group. 0:21:28.280 --> 0:21:31.399 I was working in this business and still in at CJ. 0:21:31.520 --> 0:21:37.040 Lawrence and the sales team, which is an important part 0:21:37.040 --> 0:21:40.320