Speaker 1: This is Master's in Business with Barry rid Holds on
Speaker 1: Bloomberg Radio.
Speaker 2: This week on the podcast, ed Heiman returns to talk
Speaker 2: about all things economic analysis, what's going on in the world,
Speaker 2: how he's built an incredible career. Oh my god, forty
Speaker 2: three times number one ranked in the Institutional Investor Survey
Speaker 2: in economics. That's just unprecedented, and I'll keep saying, no
Speaker 2: one will ever beat that that streak. Ed is a
Speaker 2: fascinating guy. He's built a fascinating company. He is one
Speaker 2: of those people who focuses on figuring out what's happening
Speaker 2: here and now and is less concerned about making forecasts
Speaker 2: about the future. His clients adore him. He helps keep
Speaker 2: them on the right side of the trade, and he's
Speaker 2: really just one of these legends and gems on Wall Street.
Speaker 2: I could keep going, but let me just stop and say,
Speaker 2: with no further ado my conversation with Isi ever coruse
Speaker 2: Ed Hyman, Great to see you, Great to see you.
Speaker 2: You know, the last time you would hear that number
Speaker 2: was something like thirty five times, all right, which was
Speaker 2: also unbeatable. That is a record that I don't believe
Speaker 2: we'll ever be topped. Before we get into the details
Speaker 2: of your career and your work. How on earth is
Speaker 2: anyone ranked number one for forty three consecutive times? That's amazing.
Speaker 1: I don't know.
Speaker 3: I've been really lucky in my career and I listened
Speaker 3: to your show all the time, and most people will
Speaker 3: say that good lucky, and frankly, if they've done a lot,
Speaker 3: they have to have been lucky. My greatest talent is work.
Speaker 3: I'm really a hard worker. I know how to work.
Speaker 3: I like working, and so that's maybe number one.
Speaker 2: Wouldn't you say that in fine which is such a
Speaker 2: competitive field hard work and intelligence, that's just table stakes
Speaker 2: to get into the game, isn't it.
Speaker 1: It is?
Speaker 3: But it's table stakes in every game, and it doesn't
Speaker 3: change much. And they are people I know that work
Speaker 3: harder than I do, and they do.
Speaker 2: Better, well, not better than forty three in a row.
Speaker 2: I like Peter Lynch's description of what made you successful?
Speaker 2: I think it was in his book One Up on
Speaker 2: Wall Street. Ed Heiman is much more practical than most economists.
Speaker 2: He's more interested in examining railroad cars than Laugher curves.
Speaker 2: What does that say about what makes you special and
Speaker 2: different from other economists?
Speaker 3: First, I like working, and I've worked to the point
Speaker 3: that I've found something I really enjoy doing. You know,
Speaker 3: that's maybe the second most important thing for anybody, for
Speaker 3: you or me. I have a real interest in helping people,
Speaker 3: which you know, some people have that interest and some
Speaker 3: people don't, but I do. And so I met Peter Lynch.
Speaker 3: Was it fifty years ago or forty years ago? I said,
Speaker 3: I got to help this guy, and he said, no, thanks.
Speaker 3: I said, wait a minute, I'll come back. And so
Speaker 3: I tried to find something that I could do that
Speaker 3: would be of interest to basically an equity investor. And he's,
Speaker 3: you know, maybe the best that's been around. And so
Speaker 3: he set me off in a direction that was practical
Speaker 3: and at that point, commissioned business that he generated was ginormous,
Speaker 3: I'm sure, and so I was incentivized, you know, monetarily
Speaker 3: to help him. I wouldn't put him as a mentor
Speaker 3: because I didn't spend that much time with him, but
Speaker 3: he definitely influenced my career in a practical way that
Speaker 3: I think has served me very well ever since then,
Speaker 3: because I'm always trying to find things that are practical,
Speaker 3: and now I happened like art Laugher. You mentioned the
Speaker 3: laugh recur, which I think is frankly pretty much a
Speaker 3: Stroker genius. But you know, it's not something that people
Speaker 3: make money off of every day. So I'm trying to
Speaker 3: mix both things that are intellectual and theoretical as well
Speaker 3: as things that they have a practical side to them.
Speaker 2: So let's talk a little bit about the genesis of
Speaker 2: that practical side. You get your BS and engineering from
Speaker 2: university to get asses right, so engineers tend to be
Speaker 2: pragmatic problem solvers, and then you get an MBA from MIT,
Speaker 2: so you have all of this very pragmatic experience as
Speaker 2: opposed to getting a PhD in economics, which tends to
Speaker 2: be a little more abstract and academic. How much of
Speaker 2: your rankings come from the fact that you have these
Speaker 2: very problem solving oriented academic background. How did that affect
Speaker 2: you a lot?
Speaker 3: You know, if you're hard working and you're trying to
Speaker 3: do things that people value and my client base, if
Speaker 3: you will, or institutional investors, I went all the time.
Speaker 2: So let's talk a little bit about the early days
Speaker 2: of your career. When you come out of school nineteen
Speaker 2: sixty nine to seventy one, you're an economic consultant at
Speaker 2: Data Resources. What did you do for those guys? That
Speaker 2: sounds kind of.
Speaker 3: Interesting whenever Auto, actually I wanted some coffee, I brought
Speaker 3: it to him.
Speaker 2: So you started as a very junior person.
Speaker 3: On the tone, I'm pretty junior, but at that point
Speaker 3: I had a pretty special knowledge of econometrics. At MIT,
Speaker 3: they had the first time sharing big mainframe, big mainframe,
Speaker 3: but you could share the data, share the computer programs.
Speaker 3: And the first real practical application was the Sage American
Speaker 3: Airlines ticket system, which is a time sharing where you
Speaker 3: get your tickets, and.
Speaker 2: That eventually became Saber, right Saber.
Speaker 3: And so I had done that at MIT, and Auto
Speaker 3: x Stein, who was a professor in the economics department
Speaker 3: at Harvard, he started a company that did that exact thing.
Speaker 2: They're right down the street from MIT.
Speaker 3: Right right there, And I was working for a professor
Speaker 3: named ed Ko who was a friend of Auto x Stein,
Speaker 3: and so they were talking and I got the job.
Speaker 3: So that was a stroke of good luck. Plus I
Speaker 3: was in the right spot at the right time.
Speaker 2: What was the data like back then, I'm thinking of
Speaker 2: punch cards and very rudimentary computing.
Speaker 3: It was before then and actually I did a lot
Speaker 3: of punch cards. You're too young for this.
Speaker 2: When I started college, punch cards and time shares were
Speaker 2: still a thing, but it was a fading thing and
Speaker 2: the newfangles technology was coming. You saw it on the horizon.
Speaker 3: I just jumped right over that card deck into data resources,
Speaker 3: where the data was in a computer you shared and
Speaker 3: have to carry the deck around, and it was a
Speaker 3: major step forward. Pretty much the same technology as today.
Speaker 3: We still use the Data Resources system constantly and the
Speaker 3: data is there. The only thing has changed is there's
Speaker 3: much more data.
Speaker 2: More data, faster, bigger. It just has obviously scaled up
Speaker 2: a lot since right then.
Speaker 3: So it's not just government data now there's a lot
Speaker 3: of industry data.
Speaker 2: Which you guys will talk a little bit about what
Speaker 2: ISI does in assembling its own data. Let's just continue
Speaker 2: along your career seventy two, you end up at CJ. Lawrence.
Speaker 2: Tell us what you did there, What was that work like?
Speaker 3: So at Data Resources, I worked with our clients and
Speaker 3: Otto Eckstein, who is a spectacular human being. He passed away,
Speaker 3: I think in his fifties, and he went from the
Speaker 3: cover of Time magazine to not being with us anymore.
Speaker 3: But he was a phenomenal person and he had this
Speaker 3: game plan. He would hire people out of school that
Speaker 3: seemed to be over the ball on the ball right,
Speaker 3: and they would work for data resources and take care
Speaker 3: of clients, and then a client would hire them.
Speaker 1: And he said that's great, and.
Speaker 3: He just locked in as a client. They locked in
Speaker 3: as a client. So I remember telling him. I think
Speaker 3: I called him auto. I shouldn't have, but I did.
Speaker 3: I said otto, I said, I have a job, offer
Speaker 3: to go to work for one of our clients, c J. Lawrence,
Speaker 3: And he said, oh, ed, that's great. I kept waiting
Speaker 3: for the counter. So I remember he took me to
Speaker 3: lunch at Friendlies.
Speaker 2: For a fribble and some fries.
Speaker 3: But anyway, so that was how I got to C. J.
Speaker 1: Lawrence.
Speaker 2: Didn't they end up getting purchased by was it Deutsche Bank?
Speaker 1: By Deutsche Bank?
Speaker 2: Right? How did that affect your plans going forward? Did
Speaker 2: you want to go to a big bank or is
Speaker 2: that what led to the next step in your career?
Speaker 3: That was the next step, and that was is.
Speaker 2: I So that's ninety one. So you were you were CJ.
Speaker 2: Lawrence for a good, good while for twenty years as Wow,
Speaker 2: all right, so you found ISI group with some partners.
Speaker 2: Tell us a little bit about the plan for launching
Speaker 2: an independent economics research shop.
Speaker 3: So at that point I had a pretty big career.
Speaker 3: I'd been ranked I back in the seventies, if you
Speaker 3: can do the math, and I had a to.
Speaker 2: Be fair in the beginning, you were only like runner up.
Speaker 2: And secondly, you really weren't carrying your share of the workload.
Speaker 2: You were coming in second place. I mean, that's just no.
Speaker 1: You have to start somewhere.
Speaker 2: Start at number two and up.
Speaker 1: And it was easy.
Speaker 3: Transition to start my own shop. And I had a
Speaker 3: group of people and Jim Moltz ran CJ Lawrence and
Speaker 3: he was and still is like a father to me.
Speaker 3: So he was very helpful. We all could tell that
Speaker 3: it probably wasn't the best fit for somebody who liked
Speaker 3: working for small companies to work for a big bank.
Speaker 3: I told I told him. He said, okay, would you
Speaker 3: stay until we find a replacement for you? I said,
Speaker 3: of course. He came in one day he said that
Speaker 3: we've got some good news. We found a replacement for you.
Speaker 3: It's ed Yardinney. And I said, okay, that's great. I said, okay,
Speaker 3: if I sent an announcement out, he said, it's okay,
Speaker 3: I've already sent one out.
Speaker 2: Yordini was at Deutsche Bank for a long time until
Speaker 2: he launched Yordini Research.
Speaker 1: Yeah. He's very good.
Speaker 2: Really, he lives in the next town for me. We
Speaker 2: actually go out to dinner. Yeah, yeh, super nice guy.
Speaker 2: So let's talk a little bit about is I was
Speaker 2: both a research shop, but you also set up IS
Speaker 2: a funds management for investors and clients. Two different groups.
Speaker 2: How did they co exist under the same roof?
Speaker 3: It was Okay, It wasn't a great business. Frankly, it's
Speaker 3: not as strong as your business in the asset management business.
Speaker 3: I think I got up to maybe did get up
Speaker 3: to maybe three billion.
Speaker 2: Yeah, but your research side of the shop generated that
Speaker 2: was enough activity to make up for it. Yeah, that
Speaker 2: was I forget what what you call it the side hustle.
Speaker 2: Your side hustle was managing institutional right assets. Your real
Speaker 2: business is having the best perspective of what is happening
Speaker 2: this moment in the economy. And again, according to II,
Speaker 2: nobody does that better than you did. How long after
Speaker 2: you launched II did you get a sense that hey,
Speaker 2: we really have this figured out. We're providing research product
Speaker 2: that nobody else on the street seems to be doing.
Speaker 3: Actually, that had happened at CJ.
Speaker 1: Lawrence.
Speaker 3: You know, by the time I started is I had
Speaker 3: already gotten a strong following and knew what I was
Speaker 3: doing in that space, and so I just made a transition.
Speaker 3: At that point ninety ninety one or recession years and
Speaker 3: stop market, you know, had a pretty big drop, and
Speaker 3: I thought, well, this is a bad idea, your own coveny.
Speaker 2: It turns out to be the perfect time to start your.
Speaker 1: Own Nay, it is a perfect time.
Speaker 3: But you know that you learn that a little later,
Speaker 3: but it is a perfect time. At that point, I thought, well,
Speaker 3: if it doesn't work out better than what I was doing, right,
Speaker 3: So I had very low expectations. And then it turns out,
Speaker 3: you know, the market, if you go from ninety one forward,
Speaker 3: market just sort of went up and business was good.
Speaker 3: It was good basically until maybe twenty ten, and since
Speaker 3: then it's it's been very difficult.
Speaker 2: So you've seen changes in the seventies and eighties, right,
Speaker 2: you had the bull market in the nineties, the financial
Speaker 2: crisis in the two thousands, the twenty ten seemed totally
Speaker 2: uneventful other than the fact that you know, there was
Speaker 2: no yield on the fixed income side. And here we
Speaker 2: are in twenty twenties, first the pandemic, now the increase
Speaker 2: in rates. In your long career in Wall Street, is
Speaker 2: there ever a decade where something isn't blowing up or
Speaker 2: going crazy? Isn't that just the normal state of affair?
Speaker 2: I try to explain this to the younger guys in
Speaker 2: my office, like, Wow, this is crazy. It's like, no, no,
Speaker 2: something crazy is always going on.
Speaker 1: The crazy is always crazy, right, am I am?
Speaker 2: I like not overstating that, or I would.
Speaker 3: Say, you know, in a research response to you, So,
Speaker 3: I've been through thirteen FED tightening cycles, right, and everyone
Speaker 3: has had a financial shocker crisis Cutton, Illinois eighty four,
Speaker 3: for example, But every single one New York community bank
Speaker 3: it's just par for the course, might even not even
Speaker 3: quite par. But I mean, so I would be surprised
Speaker 3: if we don't have another one. It's part of the
Speaker 3: tightening cycle.
Speaker 2: I think, even if the FED is arguably done tightening,
Speaker 2: you think there's still more cockroaches coming out. Yeah, fascinating.
Speaker 3: But I would also say, trying to put things into
Speaker 3: a historic perspective that we might enjoy a decade from now.
Speaker 3: They'll curve still inverted, right, which is a tightening move.
Speaker 3: And every week the FED shrinks is balance sheet and
Speaker 3: it's doing about a trillion a year, which is not exactly.
Speaker 2: So you're saying, you're saying the financial conditions are tighter presently.
Speaker 2: Then people seem to realize.
Speaker 3: Not just the financial conditions, because the market's up so
Speaker 3: much and credit spreads are very tight. But I'm saying
Speaker 3: the FED tightening is probably ongoing. And bank deposits go
Speaker 3: down every week.
Speaker 2: Well, if I get five percent of money market, why
Speaker 2: I'm going to leave cash in a savings or checking account.
Speaker 3: So I think the FED is still in a tightening mode,
Speaker 3: which is why I think for example, New York Community
Speaker 3: Bank popped up, and if you are looking for it,
Speaker 3: which I am every two or three days, there's some
Speaker 3: story about a problem here or there. It could be
Speaker 3: a problem with the German banks and commercial real estate,
Speaker 3: for example.
Speaker 1: It's been a little backstory.
Speaker 2: Are you seeing this as a systemic issue or just isolated?
Speaker 3: I think the FED tightening, and also ECB has been tightening,
Speaker 3: says all the but I do think that every period
Speaker 3: has problems, and like you mentioned, the smooth sailing in
Speaker 3: the twenty tens.
Speaker 2: Didn't feel that way at the time.
Speaker 1: I remember the.
Speaker 2: You're blowing up in Greece right, right, there was a lot.
Speaker 1: Of stuff that was that. It seemed pretty bad.
Speaker 2: Right, you look at a stock chart, it's a little misleading.
Speaker 2: Oh we started down here and we ended up here.
Speaker 2: Must have been great, always climbing the wall. Worried. Right,
Speaker 2: it seems like you're much less focused on the here
Speaker 2: and now than predictions. So let's talk a little bit
Speaker 2: about forecasts. How do you use them or not? How
Speaker 2: do they fit into your research products?
Speaker 3: Well, you have to do forecast. Maybe forecasting is impossible,
Speaker 3: it's certainly difficult, but you have to do it because
Speaker 3: in order to make money, you have to have some
Speaker 3: sense about where things are going. And the difficult thing
Speaker 3: is to know when to hold it, know when to
Speaker 3: fold it. So that's like a mosaic you put together
Speaker 3: and you come up with a view that's based on
Speaker 3: whatever you would like. I always would like to have
Speaker 3: pretty strong theoretical or intellectual framework that I'm uperating within
Speaker 3: and then see how things fit into that and sometimes
Speaker 3: they continue to fit in, and sometimes they don't, and
Speaker 3: there'll be plenty of times when they'll get bumped in
Speaker 3: the road. But I try and have a framework, so
Speaker 3: I'm not just reporting the latest data point. Put it
Speaker 3: into a perspective. That's helped me because I most often
Speaker 3: have a view that when I talk to people, they
Speaker 3: can understand where I'm coming from. Not only where I'm
Speaker 3: coming from, but why have a particular viewpoint.
Speaker 2: I want to talk about the thing that first caught
Speaker 2: my eye with the work that you do, starting with
Speaker 2: your survey of people in the real economy of businesses
Speaker 2: and sectors. Rather than just rely on economic data that
Speaker 2: comes out of the government or earnings, tell us about
Speaker 2: the surveys you created when you first started doing the
Speaker 2: sort of work you do.
Speaker 3: Early on, there was a business called Johns in red book.
Speaker 3: Don't write it down, but they surveyed retailers and.
Speaker 2: That was like a weekly thing.
Speaker 3: Right, It sound like a really good idea. I took
Speaker 3: that idea and took it to the limit. So now
Speaker 3: we survey about thirty industries, maybe three hundred companies in
Speaker 3: each industry, three hundred companies overall, thirty industries like retail
Speaker 3: for example, or autos, trucking companies, you name it. We
Speaker 3: do wine and spirit, hoostsalers. Right, we have a survey
Speaker 3: we do at the end of the year of Christmas
Speaker 3: tree sales. We survey the people that grow them, people
Speaker 3: that truck them, and the people that sell them in
Speaker 3: the cities.
Speaker 2: So you're getting like a real time snapshot of what's happening,
Speaker 2: not just across the economy, but within very specific subsectors.
Speaker 3: I'm sort of a contrarian at heart, is I don't
Speaker 3: trust government data.
Speaker 1: Right.
Speaker 3: It's also very difficult. How do you measure GDP two
Speaker 3: weeks or three weeks after the quarter ends, or retail
Speaker 3: sales eight days after the month ends?
Speaker 2: Too much data to assemble.
Speaker 3: If you think about it across the whole country and
Speaker 3: plumb it's the same way. How can you possibly Well.
Speaker 2: That's why they do three of them, the early release,
Speaker 2: the update, and then the final across three. It takes
Speaker 2: them three months to do GDP. But even that's difficult.
Speaker 2: So then on the other side, you're a practical person.
Speaker 2: If you meet somebody, say that runs a business, and
Speaker 2: you say house business, they'll always tell you with actually
Speaker 2: vivid detail, real granularity because they live it twenty four
Speaker 2: to seven. So if you can get a group of those,
Speaker 2: say a dozen, you have a pretty good leg up
Speaker 2: on what's happening in a particular sector. It's certainly different
Speaker 2: and in some ways it's more reliable than trying to
Speaker 2: measure retail sales, for example. So what's their incentive to participate?
Speaker 2: And to be honest, I'm always fascinated by this.
Speaker 3: So if they participate with us, I send them our research.
Speaker 2: So they get it for free, and that's not an
Speaker 2: inexpensive product. So in their space, they get to see
Speaker 2: what their competitors.
Speaker 3: Are saying, if not all of them bite, that's one incentive.
Speaker 3: The second incentive is they get to see the result.
Speaker 3: Trucking survey we do comes to mind. I think we
Speaker 3: have a dozen truckers, and boy, there really aren't any
Speaker 3: more than that country. They're only probably five big trucking companies.
Speaker 3: But we get a dozen trucking companies.
Speaker 2: They all want to see what the other truckers are saying.
Speaker 3: Yeah, and so you can imagine if you're in a
Speaker 3: business that has some homogeneity to it and you see
Speaker 3: the survey and it drops sharply, you say we're doing great.
Speaker 3: Or if your business drops sharply the other and the
Speaker 3: survey doesn't, you got hey, guys, we're doing something wrong here.
Speaker 3: Sometimes you do things and after a while you conclude
Speaker 3: it's not the best idea, so.
Speaker 2: You retired if it's not working, and you move on
Speaker 2: to the next.
Speaker 1: But this just keeps working.
Speaker 2: Year after year. So let me tell you, say, three other.
Speaker 1: Thing week after week.
Speaker 2: Right, you know, anytime we talk about economic data, I
Speaker 2: love the George Box quote. All models are wrong, but
Speaker 2: some are useful. It's an incredibly insightful insight into statistics
Speaker 2: and modeling. You obviously pick that up forty three years
Speaker 2: ago because you said, I don't want anything to do
Speaker 2: with government data. Let's build our own models. Let's do
Speaker 2: a real time assessment and try and keep it as
Speaker 2: close to objective reality, because the more and more you
Speaker 2: model stuff out, the more it diverges from what's happening.
Speaker 2: So weekly, real time it's as close as you're gonna
Speaker 2: get to the real thing. The other thing you did, though,
Speaker 2: that just really caught my eye, is you would take
Speaker 2: a chart and it was either a survey result or
Speaker 2: a stock chart or a bond whatever it was and
Speaker 2: you would hand mark these up with a sharpie and
Speaker 2: it just jumped off the page and it was one
Speaker 2: of the first things that I'm like, Wow, this is
Speaker 2: really fascinating. How on earth did that come about?
Speaker 3: So I don't think I've invented a single thing in
Speaker 3: my life.
Speaker 2: I give you credit for inventing that because before you
Speaker 2: I've never seen marked up shorts.
Speaker 1: Well, so that way, so let me explain.
Speaker 3: So on the company surveys, there was just one group
Speaker 3: that did a survey of retailers, which turns out what
Speaker 3: that was our first survey we did. It just worked out.
Speaker 3: But I really told the idea from this other group.
Speaker 3: I was working in this business and still in at CJ.
Speaker 3: Lawrence and the sales team, which is an important part
Speaker 3: of the way you operate. You have to generate ideas
Speaker 3: for them and get them to believe in you. They
Speaker 3: were taking my work and marking it up, meaning literally
Speaker 3: they would mark it up. So I thought, boy, if
Speaker 3: they're marking it up, I can do a better job
Speaker 3: marking it up than they are, And so I started
Speaker 3: doing that, and frankly, the rest is history.
Speaker 2: Amazing thing is when you look you can look at
Speaker 2: a million stock charts. But if you or whatever, but
Speaker 2: if you look at a chart and there's in a
Speaker 2: sharpie and bold script, it goes to it, you can't
Speaker 2: help but see it, and it it changes how you
Speaker 2: perceive that chart. It shows you what's important, it shows
Speaker 2: you what to focus on, but it it just draws
Speaker 2: you right into it. Was that a purposeful strategy or
Speaker 2: was this just something you were doing to show the
Speaker 2: guys in the office. No, no, you want to focus
Speaker 2: on this part, I would say the latter.
Speaker 3: But then you know if I'm working and that works
Speaker 3: for those guys, that approably works for other people like
Speaker 3: Peter Lynch.
Speaker 2: Right, So I think of you not as a pure economist,
Speaker 2: but as somebody who is both a business cycle expert
Speaker 2: and who has watched market cycles over the decades and
Speaker 2: has become an expert in market cycles. Is that a
Speaker 2: fair description to make?
Speaker 3: So if you do what I do well, you have
Speaker 3: to be market focused. You have to listen to the markets,
Speaker 3: You have to respect the markets, You have to learn
Speaker 3: from the markets. I look at the markets all the
Speaker 3: time on Bloomberg, but I mean I'm a junkie, probably
Speaker 3: look at the markets three or four times an hour. Right,
Speaker 3: And just as I'm sure you do frankly, and you
Speaker 3: let it sink in, you say, does that fit with
Speaker 3: my picture I have in my head about what should
Speaker 3: be happening.
Speaker 2: How do you separate the intra day noise from stuff
Speaker 2: that really matters? Because I started on a trading desk,
Speaker 2: so I was staring at the screen all day, and
Speaker 2: I have to force myself. You're looking at the market
Speaker 2: four times an hour. I'm forcing myself to look at
Speaker 2: the market less and less. I don't want to look
Speaker 2: at it constantly because it just makes me want to
Speaker 2: get in there and start trading.
Speaker 3: Each of us finds their own voice.
Speaker 1: I know.
Speaker 3: For me, being aware of what the markets are doing
Speaker 3: is part of my sauce. And so when I'm dealing
Speaker 3: with investors, obviously they're consumed by what's happening in the markets, right,
Speaker 3: And so it's not a foreign language to me at all.
Speaker 3: I think it helps me understand what I should be
Speaker 3: doing for a practical approach to what's happening. And I
Speaker 3: view myself as a business analyst.
Speaker 2: A business anist.
Speaker 3: So when I say business cycle, that that's significant. Right
Speaker 3: on a business cycle, you're part of the business cycle.
Speaker 3: Or the financial markets. I remember early on in my career,
Speaker 3: I'd met a guy and then they had an article
Speaker 3: about him in the Wall Street Journal. The market was
Speaker 3: doing something and he said, it's just too much money
Speaker 3: and irresponsible hands. I thought to myself, this guy's a loser,
Speaker 3: and how did his career work out? Not well, too
Speaker 3: much money in irresponsible hands or the state of the
Speaker 3: world every day anyway? Isn't that how it is? How
Speaker 3: useful is that as a market insight?
Speaker 1: Yeah? Not useful.
Speaker 2: I want to share a quote from your Lions who
Speaker 2: puts this up online and someone asked him about Ed
Speaker 2: Heyman and he responded ed, Heyman sticks to his core
Speaker 2: mission of providing high quality and independent research. He helps
Speaker 2: portfolio managers make sense of the world. He sorts through
Speaker 2: the reams of economic data and government surveys to provide
Speaker 2: an objective and independent assessment. That's that's the high praise
Speaker 2: from a client. Does that sound like the goals that
Speaker 2: you're aiming for?
Speaker 1: Is that is that from my wife? Or well?
Speaker 2: No, that was from a client who actually answered a
Speaker 2: question about you.
Speaker 3: That is high, high praise, and obviously that's what I
Speaker 3: want to do. I also part of My job is
Speaker 3: to connect the dots, to look at one hundred different
Speaker 3: observations and find the three that have an important message.
Speaker 3: And sometimes I get I get the right three, and
Speaker 3: some I don't. It's something that people can understand, and
Speaker 3: when it doesn't work out, then I move on to
Speaker 3: another perspective.
Speaker 2: Huh, really interesting. So let's talk a little bit about
Speaker 2: the state of the economy today, and let's start with
Speaker 2: where's our recession in twenty two? I just kept hearing
Speaker 2: there's a recession coming in twenty three. Here comes a recession.
Speaker 2: What do you make of the economist's consensus? That seems
Speaker 2: to have been pretty wrong for I don't know, eight
Speaker 2: ten quarters in a row.
Speaker 1: I'm a student of history.
Speaker 3: The last cycle, for example, it took eighteen months, but
Speaker 3: when the yokur inverted to when the recession started in
Speaker 3: two thousand and eight, eighteen months. During a good part
Speaker 3: of that, the S and P went up twenty percent
Speaker 3: right and peaked eight weeks before the great recession hit.
Speaker 3: You don't know it's happened until it happens.
Speaker 2: As a student of history, you know it's not when
Speaker 2: the yield curve inverts, it's when it begins to uninvert
Speaker 2: that bad things start to happen.
Speaker 3: But that takes a long time, and you can see
Speaker 3: once you get that perspective, you can see real estate
Speaker 3: projects they get started and it takes probably eighteen months
Speaker 3: for them to finish up. That's just one example of
Speaker 3: why it takes so long. It takes a while for
Speaker 3: increase in interest rates to actually get into the system
Speaker 3: because people first they're living off low interest rates. It
Speaker 3: takes a while for people to get a seven percent
Speaker 3: mortgage whereas now they have a three percent mortgage. But
Speaker 3: aside from that, the practical observation is it takes a
Speaker 3: long time. It takes so long that people give up
Speaker 3: on it. So Bernank in OK seven concluded we weren't
Speaker 3: going to have a recession.
Speaker 2: That was the subprime is contained. I remember it was
Speaker 2: just contained contains the planet Earth. Once you the rest
Speaker 2: of the solar system was fine.
Speaker 3: But boy, you mentioned rein Hard and rogue Off. Sure,
Speaker 3: they wrote a piece in early eight how silly it
Speaker 3: was that people had concluded it was different this time.
Speaker 3: But that's what had happened, and so we're in that
Speaker 3: phase now. I think the recession might not start for
Speaker 3: another six months. In life. There's a certain combination of
Speaker 3: being confident and being humble. You know, you have to
Speaker 3: be humble, but you have to have a certain amount
Speaker 3: of self confidence that you know what's happening. So I
Speaker 3: think we're just going through the normal lags. At dinner
Speaker 3: the other night and with clients, no one expected a recession,
Speaker 3: no one.
Speaker 2: That's a reversal from a year ago.
Speaker 1: Everyone expected recession.
Speaker 2: So I want to talk about inflation. But before I
Speaker 2: get to that, obviously the Federal Reserve has a big
Speaker 2: impact on the economy. They raised what are we five
Speaker 2: hundred and twenty five basis points in eighteen months. You
Speaker 2: got to go back to Paul Volker to see a
Speaker 2: rate hike that radical and that quickly if the higher
Speaker 2: for longer argument wins out and the Fed does not
Speaker 2: cut rates from here, and some people are now talking
Speaker 2: about raising rates from here, that sounds like that's a
Speaker 2: pretty sure fire strategy for a recession. Is that a
Speaker 2: fair assessment?
Speaker 3: Is a fair The economy is booming.
Speaker 2: It is booming. It's booming, I mean, but you're yet
Speaker 2: you're saying into this year we could see a recession.
Speaker 3: Right, It looks okay until it's not it's the leg
Speaker 3: it's the lag latter part of seven. Even though housing
Speaker 3: was imploding, right, the economy was okay, and I mentioned
Speaker 3: the SMP had a big rally and people were saying, well,
Speaker 3: it's different as time, et cetera. At the same time,
Speaker 3: I don't want to get too crazy about things. I
Speaker 3: don't want to make a fool of myself, right, and
Speaker 3: so I'm just saying it's coming, and confident or hopeful.
Speaker 3: It's the confident that when it starts to hit, I
Speaker 3: won't be the last person to know, right. I mean,
Speaker 3: I have a whole set of indicators that I think
Speaker 3: will help me know when a recession is starting to hit.
Speaker 3: It's not hitting now. I mean, economy is booming. It's
Speaker 3: probably booming. It's a little strong. We do these companies
Speaker 3: serve A fifty is as expected? They got up to sixty.
Speaker 3: Last week they were forty nine, so forty five is
Speaker 3: recession territory. So they've cooled off quite a bit.
Speaker 2: So if we see, as some people are talking about
Speaker 2: June or maybe even May, rate cuts, don't assume you're
Speaker 2: not going to get rate cuts in an election year.
Speaker 2: There have been rate changes every presidential election going back
Speaker 2: forty years, just about if the Fed cuts rates in May,
Speaker 2: cuts rates in June, cuts rates in July or September,
Speaker 2: can we avoid a recession in twenty four or twenty five?
Speaker 3: Might avoid it anyway, But monetary policy works with long legs, the.
Speaker 2: Long invariable lang is so hard to get away from,
Speaker 2: right And guess, although you see it in real estate first,
Speaker 2: it seems that seems to be whether the rubber meets
Speaker 2: the road or do you see other sectors get hit
Speaker 2: before that?
Speaker 3: You know, I'll look for wherever it is. But real
Speaker 3: estate right now, the commercial real estate space, there's a
Speaker 3: story probably every two or three days about some problem
Speaker 3: here or there. So that problem hadn't gone away. It
Speaker 3: just takes a while for it to work itself out.
Speaker 3: Ninety eight with a recession coming up a couple of
Speaker 3: years later, one you had LTCM, which long term what
Speaker 3: is it?
Speaker 2: Long term capital management?
Speaker 3: And I'm not even sure I knew what it was
Speaker 3: at the time at the time before it hit, Actually
Speaker 3: I knew pretty well what it was.
Speaker 2: But you had no idea they were hunting one hundred
Speaker 2: to one leverage.
Speaker 3: No, apparently they didn't either. But anyway, you know, that
Speaker 3: you know, darn near blew up the global financial system
Speaker 3: right out of the blue.
Speaker 2: An early warning shot, right, if only anyone who paid attention,
Speaker 2: maybe eight or nine might not have happened.
Speaker 3: And then you had the Asia crisis in the same year,
Speaker 3: and then you had Russia. And these are not things
Speaker 3: that you would.
Speaker 1: Have thought of.
Speaker 3: First off, if asked what could be a problem in
Speaker 3: ninety eight.
Speaker 2: Ninety was the was the tie Boy crisis ninety seven?
Speaker 1: And I think, yeah, maybe maybe not?
Speaker 2: I said Russia, which al ended up blowing up LTCM
Speaker 2: in ninety eight. Also, right, So you had two major
Speaker 2: events and two considerative views. Well right, right, And the
Speaker 2: market continued going higher until the commy hit in a recession.
Speaker 2: So I'm just sort of pushing ahead. Commedy's doing fine.
Speaker 3: Now. I don't think I'm adding a lot of value
Speaker 3: on this topic, but I'm just waiting to see, you know,
Speaker 3: if we actually get into our recession. In the meantime,
Speaker 3: inflation is coming down, So.
Speaker 2: Let's talk about inflation, because I feel like lots of
Speaker 2: economists got that wrong. Also, And when you look at
Speaker 2: I'm trying to figure out a polite way to say this,
Speaker 2: when you look at the well known economists who came
Speaker 2: of age during the inflationary nineteen seventies. I'm thinking of
Speaker 2: like Larry Summers, former Treasury secretary. They see inflation as structural.
Speaker 2: They see it very similar in nineteen seventies, and I
Speaker 2: get the sense that the transitory nature and granted transitory
Speaker 2: took a little longer than people expected. But again that
Speaker 2: long and variable lag. Inflation peaked in June of twenty
Speaker 2: twenty two. It's come down. Your pal ed Yardini says, historically,
Speaker 2: as fast as inflation goes up, it tends to come
Speaker 2: down very symmetrically. You had a huge and rapid rise,
Speaker 2: and you've had a pretty rapid fall off from nine
Speaker 2: percent to three percent. So one question is why did
Speaker 2: so many people seem to get this wrong?
Speaker 1: You tell me very I don't know.
Speaker 2: I mean, I'm playing pop psychologists and say, well, if
Speaker 2: you were a seventies era economist, well, you're just going
Speaker 2: back to your roots and not looking at the supply
Speaker 2: shide shock and supply chains and all these pandemic related
Speaker 2: issues that unwound more organically than I think people expected.
Speaker 3: So in the seventies, I'm at MIT and they have
Speaker 3: a debate posted on the bulletin board between Milton Friedman
Speaker 3: and Paul Samuelson. Right, not sure who they are, but
Speaker 3: I'll go and they're probably twenty kids in the room.
Speaker 2: That's unbelievable.
Speaker 3: I was blown away because they both were incredible intellects.
Speaker 2: Samuelson eventually wins the Nobel Prize.
Speaker 3: Right, Freeman doesn't do badly either, another giant absolutely anyway.
Speaker 3: So I really got into his logic, and he became
Speaker 3: in the seventies a very major figure.
Speaker 2: One hundred percent inflation is and always will be a
Speaker 2: monetary phenomena.
Speaker 3: And then he had, you know, extreme views on capitalism,
Speaker 3: which are not popular now at this point, he's not woke,
Speaker 3: sort of Larry Summers of the world, who I think
Speaker 3: is brilliant. They've sort of pushed away from that, but
Speaker 3: I haven't.
Speaker 2: And well, I bet you've pushed away on some of
Speaker 2: the stuff. I was always surprised that sort of the
Speaker 2: free market absolute stuff like we don't need an FDA.
Speaker 2: If baby formula kills a baby, well then well then
Speaker 2: they'll change the formula or they'll go out of business.
Speaker 2: I mean, I think that.
Speaker 1: Was that's a little extreme.
Speaker 2: I understand what he was saying intellectually, but I think
Speaker 2: the way it came across just did not resonant with
Speaker 2: even with a lot of economists, but no doubt one
Speaker 2: of the most influential economists of the past century. Right.
Speaker 3: And so in the seventies, the money supply would accelerate,
Speaker 3: maybe ten to fifteen percent, and then inflation would accelerate.
Speaker 3: And it happened three times. And by the third time,
Speaker 3: Freeman was a major figure on Wall Street. When the
Speaker 3: mighty supply numbers would come out on Thursday afternoon trading floors,
Speaker 3: which I was on a trading floor waiting for the numbers,
Speaker 3: they would erupt up thirty billion, only up two billion
Speaker 3: or whatever I mean it was. It was something else,
Speaker 3: and so I bought that. And so in the in
Speaker 3: the eight in the seventies, inflation you could see it
Speaker 3: coming and see it going away, right, And and this
Speaker 3: time money growth got up to thirty percent, and inflation
Speaker 3: took off. And now money growth is slightly negative. I'm
Speaker 3: in the case that inflation is going away. Plus you know,
Speaker 3: take everything into account, like you mentioned, the supply chain issues, transitory,
Speaker 3: those things are there. Demand destruction is there because prices
Speaker 3: go up, so much and you don't want to buy
Speaker 3: it if it goes up anymore, et cetera.
Speaker 2: Commodity traders love to say the cure for high prices
Speaker 2: is high crisis, right. I mean I heard that my
Speaker 2: whole uh, my whole career. So so let's talk a
Speaker 2: little bit about you as as watching money supply. I again,
Speaker 2: I tell the young guys in my office. You know,
Speaker 2: back in the day, the Fed didn't announce the change
Speaker 2: in rate polo. See, they certainly didn't hold a press conference.
Speaker 2: You found out about changes and interest rates when the
Speaker 2: bond market told you interest rates are Now this tell
Speaker 2: us about that era. I'm assuming that's in part why
Speaker 2: you're watching things like money supply.
Speaker 3: Well, I've always watched the money supply, and the FED
Speaker 3: can operate through interest rates, or through the money supply,
Speaker 3: or through Joe boning the markets, which they do. Now
Speaker 3: you can see them saying we're not going to cut rates.
Speaker 3: So they are going to cut rates. So that's been
Speaker 3: a familiar territory for me for fifty years.
Speaker 2: Really.
Speaker 3: In the early part, Volker said he liked to keep
Speaker 3: his cards close to his vest, and he had a
Speaker 3: big vest, so tall Paul Tall, full and so that
Speaker 3: was that, and then the German Central Bank. I'm going
Speaker 3: to better that, I'm going to give the market a
Speaker 3: fake out. I'm going to indicate I'm not going to
Speaker 3: do this, and then I'll do it, because you get
Speaker 3: more bang for your buck if you really surprise the markets.
Speaker 3: But now we're in a situation where the FED is
Speaker 3: totally transparent and they have what a dozen people a
Speaker 3: week right coming on what they're doing.
Speaker 2: Speeches, transcripts, q and as. I mean, it's such a
Speaker 2: different world than the nineteen seventies or eighties. Does that
Speaker 2: make it easier to track what they're doing? Or is
Speaker 2: it harder because now everybody sees the same story at once.
Speaker 3: It doesn't strike me as any particularly harder. Or the
Speaker 3: question is what's the impact. So, for example, you mentioned
Speaker 3: the BEG increasing interest rates five hundred and twenty five
Speaker 3: basis points, you correctly point out in addition to that,
Speaker 3: the FED has shrunk the balance sheet a trallion dollars.
Speaker 2: They went from quantitative easing to quantitative tightening, meaning they're
Speaker 2: no longer buying bonds, are now selling.
Speaker 1: Bonds big time.
Speaker 3: And so a general rule of thumb that Bernanke's talked
Speaker 3: about Bill Dudley that was the chairman of the New
Speaker 3: York Fed. Is that a trayon dollars is in the
Speaker 3: neighborhood of one hundred basis points on the fund rate.
Speaker 2: In other words, buying or selling a trillion dollars worth
Speaker 2: of bonds is the equivalent of one hundred bases A
Speaker 2: percentage higher, a percentage lower, and rates.
Speaker 3: Right, So I think the fund rate is about six
Speaker 3: and a half percent because it's five and a half
Speaker 3: and they've shrunk the balance sheet by a tray in.
Speaker 2: So historically six and a half percent is pretty average
Speaker 2: if you go back fifty years. But if you go
Speaker 2: back to two thousand, six and a half percent cent
Speaker 2: really high, right.
Speaker 3: And there's some rates like consumer credit card rates are
Speaker 3: up to twenty one percent or twenty two.
Speaker 2: Which seems a bit stiff.
Speaker 3: It's prohibitive. And I think used car rates are fifteen
Speaker 3: or sixteen. I mean, there are some rates mortgage mortgage
Speaker 3: rates are up to seven percent, so there are some
Speaker 3: rates that are high. But then there's also the mystical
Speaker 3: about the mind supply, you know, how does that impact
Speaker 3: And then they also mystical about the Yelkur you know,
Speaker 3: when it's inverted as a negative signal, it basically tells
Speaker 3: you that the fund rate is high because it's higher
Speaker 3: than bond yields. So you have all three of those
Speaker 3: conditions in place, and at the moment the economy's fine.
Speaker 3: So the average person says, look, it didn't work, and
Speaker 3: I say, just wait.
Speaker 2: You have to be patience. Speaking of transparent Jerome Powell
Speaker 2: shows up on sixty Minutes for a long Q and A. First,
Speaker 2: did you get to see him on idea? What was
Speaker 2: your thoughts on how he described the economy, the state
Speaker 2: of the world rates, What was your takeaway? Seems like
Speaker 2: a pretty impressive guy.
Speaker 1: I agree.
Speaker 3: He's very easy on the eyes. He's easy to listen
Speaker 3: to it.
Speaker 2: He looks like a central doesn't he.
Speaker 3: That maybe one of the reasons that he got appointed.
Speaker 2: Straight from central casting. I mean, yeah, but very very
Speaker 2: thoughtful and reassuring in a lot of ways.
Speaker 3: So the only thing that I disagree with him on
Speaker 3: is he presents the case that the economy is doing
Speaker 3: this now. Therefore it means that mantre policy is either
Speaker 3: tight or loose, And I said, no, that doesn't work
Speaker 3: that way. You have to wait a year and a
Speaker 3: half to find out. And that's what makes it so
Speaker 3: difficult to do Mantrey policy because what you do today
Speaker 3: is like turning a tanker takes I don't know, ten
Speaker 3: miles or so to turn it, and it takes a
Speaker 3: year and a half from martre policy.
Speaker 2: So when was the last tightening was July twenty twenty three,
Speaker 2: So we're still we're still six months away from feeling
Speaker 2: the effect of what they six months, probably longer than that,
Speaker 2: where till the end of twenty twenty four we haven't
Speaker 2: fully felt the impact of the last hikes correct and
Speaker 2: the heel curve inverted in late twenty two, so we're
Speaker 2: about fourteen or fifteen months. What's the average eighteen is
Speaker 2: from inversion to recess to recession eighteen months. That's a
Speaker 2: long time.
Speaker 3: And this, you know, Milston Freeman, I'm saying the Obviously
Speaker 3: he was very smart and he didn't say they're long lags.
Speaker 3: He said they're long and variable lags. And sometimes I
Speaker 3: get a little trigger, like I mentioned I think I
Speaker 3: think I mentioned eighteen months five times too, like I said.
Speaker 2: But he would tell you it's six to thirty six months,
Speaker 2: not eighteen months, right.
Speaker 3: And so I mean it could last longer than eighteen months,
Speaker 3: which would take you and then you have the election
Speaker 3: coming up, right, and at this point, there's really nothing
Speaker 3: that fit can do to influence the economy, you know,
Speaker 3: during November of this year.
Speaker 2: So someone else recently commented, I'm glad you brought that up.
Speaker 2: So you have a number of So he had the
Speaker 2: Cares Act one, two, and three, and each of them,
Speaker 2: the first two under Trump, the third one under Biden.
Speaker 2: Each of them just a ton of fiscal stimulus into
Speaker 2: the economy all at once. A lot of the recent legislation,
Speaker 2: so the Infrastructure Bill, Semiconductor Bill, the Inflation Reduction Bill,
Speaker 2: all three of these are like ten year legislations that
Speaker 2: they have a lot of discretion as to how that
Speaker 2: gets meted out. Now, you can't dump all of it
Speaker 2: into hey it's an election year, spend the whole thing,
Speaker 2: because they're all much longer term projects. But I was
Speaker 2: always in the impression that the White House can goose
Speaker 2: the economy a little bit if they planned to head
Speaker 2: the year before and pass some legislation. Is that oversimplifying this?
Speaker 3: I don't think so, And I would be surprised if
Speaker 3: there's not some of that going on little thumb on
Speaker 3: the scale, and the same probably is true.
Speaker 1: For energy prices.
Speaker 3: Really well, if you can you know influence, You know
Speaker 3: our friends in Saudi Arabia or the Middle East.
Speaker 2: You got a warrant between Russian and Ukraine, you got
Speaker 2: a hot war in the Middle East. It's kind of
Speaker 2: amazing that oil prices aren't ninety two dollars.
Speaker 3: It is unless you look at the fact that the
Speaker 3: money supply growth has gone from thirty percent down to
Speaker 3: minus two, right. And I'd also say in a practical way,
Speaker 3: because I find the money supply story it gets old
Speaker 3: after a few months, eighteen months, people say forget off.
Speaker 2: Already, like you're gonna miss the end. It's like leaven
Speaker 2: before the ninth ending of the game. You don't know
Speaker 2: what's gonna happen.
Speaker 3: But I think you know, China is a major factor
Speaker 3: in this, and China's economy is still pretty soft. We
Speaker 3: survey twenty one companies that have sales in China, and
Speaker 3: that survey this past week was thirty one. I mean
Speaker 3: way below forty five, way below forty five. That percession
Speaker 3: our survey is forty nine. And it's only been this
Speaker 3: low thirty one for a few weeks during the pandemic.
Speaker 3: Really in China. Wow, So that's one measure before you
Speaker 3: move on.
Speaker 2: To the next measure. Let's stay with China. This is
Speaker 2: the second largest economy in the world. It's the industrial
Speaker 2: heartland of the global economy. If they're deep in a recession,
Speaker 2: like I know, we used to say the US catches
Speaker 2: a cold and the whole world gets pneumonia. But has
Speaker 2: that changed over the past fifty years. If China is
Speaker 2: deep in a recession, are they dragging the rest of
Speaker 2: the world down with them? Or are they a reflection
Speaker 2: of a slowing Europe and a soft South America and Africa.
Speaker 3: One question is why are they slowing? And another question
Speaker 3: is what's the implication of them slowing. The first part
Speaker 3: is more complicated why they're slowing. But the property market
Speaker 3: in China apparently is a real mess giant and going
Speaker 3: to stay that way for a long time decades.
Speaker 2: Right when you say a long time, this isn't fifth
Speaker 2: And this is like a deep structural problem they created
Speaker 2: by ourselves.
Speaker 3: I'm seventy eight, so let's not talk in decades, you.
Speaker 2: Know what, not your lifetime, maybe not my lifetime. I
Speaker 2: only have. You know, you only have a decade or
Speaker 2: so on me. I'm not. I don't know if I'm
Speaker 2: ever going to see a robust real estate market in
Speaker 2: my lifetime in China.
Speaker 3: Yeah, well, you know, I'm not a big fan of
Speaker 3: long term forecasting. But anyway, it's pretty tough in China now.
Speaker 3: And you know, one of the other things I do
Speaker 3: is I talk to clients relentlessly, and when I get
Speaker 3: to talk to somebody who's just back from China, I
Speaker 3: really grow them. And what I'm hearing now is that
Speaker 3: the locals in China are not optimistic. They're pretty down
Speaker 3: in the dumps. Animal spirits are pretty somber, which you're
Speaker 3: not surprising. But I'm just saying, if you talk to
Speaker 3: people here in the States, you know, things seem to
Speaker 3: be the way rights direction.
Speaker 2: And she turned around and say, all right, here's a
Speaker 2: whole new plan and we're gonna the US just did
Speaker 2: a giant fiscal stimulus or three, We're going to do
Speaker 2: one also.
Speaker 3: So I'm a team player, and I love working with people,
Speaker 3: working with our clients, and I love working with our
Speaker 3: research team and our research team, if I may sure
Speaker 3: them on the back is the number one team on
Speaker 3: the street is now the second year in a row.
Speaker 3: We have a really good research team and we have
Speaker 3: an analyst, a research team that covers China, Neo Wang.
Speaker 3: He's Chinese. He knows what he's talking about. So far,
Speaker 3: they haven't done anything dramatic. Say, she has not done something.
Speaker 3: I thought by now he would have done something. But
Speaker 3: he has a kind of surprising right. So let's China
Speaker 3: is its own entity. What else do you see in
Speaker 3: the global economy that's worth mentioning? Europe seems to be
Speaker 3: unable to get out of its own way.
Speaker 1: Europe is weak.
Speaker 3: So we do a survey of twenty eight companies in
Speaker 3: Europe and that survey is thirty five. Also is almost
Speaker 3: as soft as China, almost as soft ast China, not
Speaker 3: as it's soft, and they have problems, you know themselves,
Speaker 3: And so you have hindsight is.
Speaker 2: Great, but always twenty twenty.
Speaker 3: But now you know, sitting here with you, we're trying
Speaker 3: to look through the fog, and we talked about China.
Speaker 3: Looks like China's second biggest economy in the world is
Speaker 3: not doing well, not strong. And then Europe is not
Speaker 3: strong either, and no one is. There's no particular physical
Speaker 3: stimulus there, central bank there, the ECB, they're still tight,
Speaker 3: not as tight as the Fed, but they're still tight.
Speaker 3: Invertedial curve contraction and bank loans and money. So you know,
Speaker 3: we might look back at this and say that was simple.
Speaker 3: The royal economy was soft and the course inflation came down,
Speaker 3: which I think is at the moment. I think inflation
Speaker 3: coming down has been the most important aspect in the
Speaker 3: past year for getting the markets to turn around, getting
Speaker 3: the Fed to pause talk about rate cuts, increasing the
Speaker 3: odds of a soft landing because inflation is going away.
Speaker 2: So the last question I'm going to ask you about
Speaker 2: the state of the economy today or in the near future.
Speaker 2: What else should we be paying attention to if we
Speaker 2: want to see the signs that either the US is
Speaker 2: sliding into a recession or accelerating out of it and
Speaker 2: is going to avoid a recession. What are the most
Speaker 2: important signposts investors should be looking at.
Speaker 3: So I watched our company surveys the most closely. Now,
Speaker 3: your viewers or listeners, they don't have that, but so
Speaker 3: that's that influences me the most. And right now they're
Speaker 3: they're okay, they're not great, but you know, they're definitely
Speaker 3: not recession. Secondly, the best government data are the weekly
Speaker 3: unemployment claims, and they are strong as garlic. I mean,
Speaker 3: I get a headache.
Speaker 2: We've had a short you know, we have not had enough.
Speaker 2: It's so funny when we looked at inflation. We didn't
Speaker 2: have enough chips for cars, we hadn't enough houses. We
Speaker 2: underbuilt houses for a decade, and we don't have enough workers.
Speaker 2: We don't have enough labor. This has very much been
Speaker 2: a lack of supply driving inflation. And how do you
Speaker 2: get above three and a half four percent unemployment if
Speaker 2: there aren't enough bodies?
Speaker 3: So that to wig in the economy. But it's I
Speaker 3: think you put your finger on it perfectly. We've had
Speaker 3: an unusual lack of supply at the same time we've
Speaker 3: had an unusual increase in monetary and physical stimulus. It's
Speaker 3: like it created a great economy but also created a
Speaker 3: real bad inflation problem.
Speaker 2: And a number of people warned about the inflation. I
Speaker 2: remember Professor Jeremy Siegel saying we've never had this much
Speaker 2: fiscal stimulus without a huge inflation spike, and people looked
Speaker 2: at him. In like twenty twenty one, like he had
Speaker 2: two heads and he turned out to be yeah right,
Speaker 2: all right, So enough of the US and global economy
Speaker 2: before I get to my favorite questions. I have to
Speaker 2: throw a curve ball at you. The International Tennis Hall
Speaker 2: of Fame. What do you do with the International Tennis
Speaker 2: Hall of Fame?
Speaker 1: So I love tennis.
Speaker 2: I picked up the game less than ten years ago
Speaker 2: and fell in love with it. Also, it's wonderful. I'm
Speaker 2: a lousy player. I've been playing, I guess since I
Speaker 2: was about twenty years old, and I know how to
Speaker 2: play tennis. I've been trying to play golf recently, and
Speaker 2: I can see that I don't know how to play golf,
Speaker 2: but tennis, and I love tennis, right, And so years back,
Speaker 2: a friend of mine was on the board of the
Speaker 2: Tennis Hall of Fame, and so I got on and
Speaker 2: I was on there for maybe a decade. But I'm
Speaker 2: still fascinated by the game. And boy, the players now
Speaker 2: are unbelieved, unbelievable, and the depth of the players like
Speaker 2: al Charez came along and that looks like he's beatable. Unbelievable,
Speaker 2: really really interesting. All right, So let's jump to our
Speaker 2: favorite questions that we ask all of our guests, starting
Speaker 2: with what's keeping you entertained these days? What are you
Speaker 2: streaming or watching or listening to.
Speaker 3: I don't stream at all, not really. You know, I'm
Speaker 3: a big consumer of business news anything. You know, I'd
Speaker 3: be embarrassed to tell you how much time I spend
Speaker 3: listening to Bloomberg.
Speaker 1: Right, it's a real treasure.
Speaker 2: Well, it's geared towards you and your clients. It's not
Speaker 2: a coincidence that that's the target market institutional investors.
Speaker 3: So I'm all over that. I read probably a dozen
Speaker 3: newspapers a day, and the amount of news coming out.
Speaker 2: Is just it's a fire hose.
Speaker 3: It's a fire hose, and frankly, it made my job
Speaker 3: much much more difficult because it's so hard to add value.
Speaker 3: I mean, it's very difficult to add value, and so
Speaker 3: I'm always intently aware of that that I have to
Speaker 3: pick and choose what I try and put in front
Speaker 3: of people because it's just redundant.
Speaker 2: Is that why you said the twenty tens were such
Speaker 2: a challenging decade running a research shop because of the
Speaker 2: just massive amounts of well news coming out.
Speaker 3: It's not that really for that one thing in twenty
Speaker 3: ten that was the peak of this of my business,
Speaker 3: and the dynamic has been active to passive. Active managers
Speaker 3: use my work and use my firm's work.
Speaker 2: So is that shrinks a little bit. It's gonna that
Speaker 2: much less demand from that side.
Speaker 3: It's now fifty to fifty, fifty percent active, fifty percent
Speaker 3: passive in.
Speaker 2: Etf some mutual funds, but not overall in the toet equity.
Speaker 3: Markets total equity markets, really fifty to fifty.
Speaker 2: That's a big number. I keep reading so much low,
Speaker 2: like twenty five and thirty.
Speaker 3: Well, anyway, whatever it is, right, it takes. But you
Speaker 3: know it's always taking, you know, audience away from and
Speaker 3: trading volumes away, and then the sense for share of
Speaker 3: and trading sure has come down. John, So it's a
Speaker 3: much more difficult business than it was. Let's talk about
Speaker 3: mentors who helped shape your career. It's a good question, Barry,
Speaker 3: because I think for anybody a big part of their
Speaker 3: success depends on this working out in a positive way.
Speaker 3: My first job was working for Professor Otto Eckstein, who
Speaker 3: was Council Economic Advisor's cover of Time magazine, taught the
Speaker 3: freshman course at Harvard, A wonderful person, a wonderful family person,
Speaker 3: and I was just lucky working for this guy.
Speaker 2: Usually influential in going and.
Speaker 3: He's also extremely hard working. I remember he would come
Speaker 3: back from a trip to Europe and he would have
Speaker 3: written a whole paper. I thought, my on vacation, No
Speaker 3: on business coming back a business trip from Europe. He
Speaker 3: was always working and he was just a fine person.
Speaker 3: And I know, whatever positive attributes I have, I picked
Speaker 3: up a lot from him. And then I went to
Speaker 3: work for C. J. Lawrence and Jim Olt ran that firm.
Speaker 3: He was my boss, and I just scored big a
Speaker 3: second time prince of a person, a great intellect, a
Speaker 3: very serious investor, a good macro guy, but a real
Speaker 3: stock person. And he was very helpful to me in
Speaker 3: culture ethics. Just a great role model. And then I
Speaker 3: worked for myself. That was a pretty low point.
Speaker 2: But that seemed to have worked out. I seemed to
Speaker 2: work worked out. Okay, let's talk about books. What are
Speaker 2: some of your favorites? What have you read recently?
Speaker 3: Is a book called Truck and it's a It's a fiction.
Speaker 3: I haven't read a fiction, I don't know thirty years.
Speaker 2: I know the feeling and I read it.
Speaker 3: It was It just was delightful and I learned a
Speaker 3: lot from it, and it made me think a lot
Speaker 3: of it's written about the depression and going up to
Speaker 3: it and after that, and it's made me think differently
Speaker 3: about the Depression than I did before. And now I
Speaker 3: read my buddy Ed Yordini's trying to make out like
Speaker 3: we're headed to a new roaring twenties period. But that's
Speaker 3: a good read. Recently, Chip Wars.
Speaker 2: Is a mush read, fascinating book.
Speaker 3: Fascinating book, you know, brings up you know, you think
Speaker 3: about Taiwan and China, Taiwan and China, Taiwan and China,
Speaker 3: and you know what could happen there. Henry Kissinger has
Speaker 3: a book out about leaders. It's actually all the leaders
Speaker 3: he worked with, and it's.
Speaker 1: A interesting read.
Speaker 3: But you know the ones that have been most influential
Speaker 3: in a long term for anybody in this business. Reminiscence
Speaker 3: of a stock Operator. Sure by what the Jesse livermore right?
Speaker 3: I mean, you have to read that. Hopefully you read
Speaker 3: it when you're young.
Speaker 2: It's amazing how fresh it still is today. You would
Speaker 2: think it's dated, but it's not.
Speaker 3: So Those are some of the books I've been trafficking
Speaker 3: in but I read. One thing I've found is that
Speaker 3: people that do well read a lot.
Speaker 2: No doubt about that. Our final two questions, what sort
Speaker 2: of advice would you give to a recent college grad
Speaker 2: who is interested in a career in either investing or
Speaker 2: economic research.
Speaker 3: The most important advice I can give people is to
Speaker 3: work hard. Boy, that sounds superficial, but I'm sure that is.
Speaker 3: You know, everybody you can think about, that's the common denominator.
Speaker 3: So for a young person, they just have to work
Speaker 3: hard at finding their voice, finding their path.
Speaker 1: I was lucky.
Speaker 3: I found it easily. You know, I can see some
Speaker 3: young people don't find it easily. So that's you got
Speaker 3: to work hard. And first you got to work hard
Speaker 3: finding your path. And then once you find it that
Speaker 3: it's easy. Frankly, I think you found your path and.
Speaker 2: That just meanwhile, but I eventually got here.
Speaker 1: You got it right.
Speaker 3: And now in terms of this business being the best business, yeah,
Speaker 3: you know as well as I do. It's an enormously
Speaker 3: interesting field. And I get up in the morning, I
Speaker 3: sort of jump out of bed. The first thing I
Speaker 3: do is I start reading my Bloomberg to see what.
Speaker 2: Happened that's really fabulous. Let's jump to our final question.
Speaker 2: What do you know about the world of investing today
Speaker 2: that you wish you knew back in nineteen seventy when
Speaker 2: you were first getting started fifty years ago?
Speaker 3: You know, this is one I've gotten before, and I
Speaker 3: think about it, nothing comes to mind. I'm surely yeah,
Speaker 3: I'm sure.
Speaker 2: Nothing would have helped you out that you know today. Gee,
Speaker 2: if only I knew fifty years ago that I shouldn't
Speaker 2: do this.
Speaker 1: Well, you know you can do that. You say, you
Speaker 1: know what you know? I should have you know got.
Speaker 2: I mean by Amazon at the IP right, I mean
Speaker 2: what what? What knowledge do you have now? What wisdom
Speaker 2: have you acquired? Hey? That would have been useful?
Speaker 3: Well, nothing comes to mind. Maybe I'm just brain dead.
Speaker 2: No, that's fascinating because what you're really saying is it's
Speaker 2: the it's the road, not the destination. It's what you
Speaker 2: learned along the way and when you learned it.
Speaker 3: What I think is a better question now, maybe for me,
Speaker 3: but maybe for even a young person, is if you
Speaker 3: go out a decade from now and you want to
Speaker 3: look back at your life, what do you want to see?
Speaker 3: That's an open slate. You can make that happen.
Speaker 2: And that's a question you can think about at any
Speaker 2: point in your your.
Speaker 3: Pre litional and so right now that's what I think
Speaker 3: about the most, and nothing just jumps out at me.
Speaker 3: I knew I was going to enjoy doing this with you.
Speaker 2: Well, I always enjoy chatting with you. It's always a delight.
Speaker 1: So may people do it in another decade.
Speaker 2: I'm not going to wait another decade. We'll do it
Speaker 2: sooner than that. Thanks Ed for being so generous with
Speaker 2: your time. We have been speaking with Ed Hyman. He
Speaker 2: is the chairman and co founder of ISI Evicor. If
Speaker 2: you enjoy this conversation, well check out any of the
Speaker 2: five hundred we've done over the past ten years. You
Speaker 2: can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you
Speaker 2: find your favorite podcasts. Be sure and check out my
Speaker 2: new podcast at the Money, where I sit down for
Speaker 2: a quick Q and A for ten minutes to chat
Speaker 2: with an expert about issues that affect your money, earning it,
Speaker 2: spending it, and mostly investing it. Find that wherever you
Speaker 2: get your favorite podcasts, and in the Masters and Business
Speaker 2: podcast feed. I would be remiss if I did not
Speaker 2: thank the crack team that helps put these conversations together
Speaker 2: each week. Sebastian Escobar is my audio engineer. Attikavalbrun is
Speaker 2: my project manager. Sean Russo is my head of research.
Speaker 2: Anna Luke is my producer. Sage Bauman is the head
Speaker 2: of podcasts at Bloomberg. I'm Barry Riddholtz. You've been listening
Speaker 2: to your Master's in Business on Bloomberg Radio.