1 00:00:06,240 --> 00:00:09,160 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:09,200 --> 00:00:11,960 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:12,039 --> 00:00:15,560 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,640 --> 00:00:18,240 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:18,400 --> 00:00:21,160 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:21,280 --> 00:00:34,240 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Our 7 00:00:34,360 --> 00:00:38,160 Speaker 1: next guest, Clay Lowry, is managing director of Irack Creek 8 00:00:38,360 --> 00:00:43,159 Speaker 1: Global Advisors, based in Washington, d C. Mr Lowry previously 9 00:00:43,240 --> 00:00:46,160 Speaker 1: was the Assistant Secretary for International Affairs at the US 10 00:00:46,240 --> 00:00:49,760 Speaker 1: Treasury Department from two thousand and five to two thousand 11 00:00:49,920 --> 00:00:53,640 Speaker 1: and nine. He also chaired the Committee on Foreign Investment 12 00:00:53,800 --> 00:00:56,520 Speaker 1: in the United States. Now. This is the committee that 13 00:00:56,520 --> 00:01:00,160 Speaker 1: takes a look at international mergers and acquisitions that may 14 00:01:00,320 --> 00:01:04,520 Speaker 1: or may not affect national security interest. Clay Lowry, thank 15 00:01:04,520 --> 00:01:07,440 Speaker 1: you very much for being with us. First, tell us 16 00:01:07,680 --> 00:01:10,560 Speaker 1: what you're telling your clients, if you don't mind, because 17 00:01:10,560 --> 00:01:14,759 Speaker 1: you advise multinationals as well as financial institutions and investors, 18 00:01:15,000 --> 00:01:18,199 Speaker 1: what are you telling them about the on again, off again, 19 00:01:18,480 --> 00:01:23,839 Speaker 1: on again trade dispute, trade tariff dispute and confrontation between 20 00:01:23,880 --> 00:01:27,200 Speaker 1: the United States and China. Thanks for having me. And uh, 21 00:01:27,880 --> 00:01:29,840 Speaker 1: the essential thing that we've been telling people is to 22 00:01:29,920 --> 00:01:33,039 Speaker 1: keep your car seats buckled because and you see it 23 00:01:33,080 --> 00:01:36,040 Speaker 1: every day. I mean, there's it's slightly different every day 24 00:01:36,080 --> 00:01:41,800 Speaker 1: about um, how we're how the administration and to that matter, 25 00:01:41,880 --> 00:01:45,759 Speaker 1: the Chinese are retaliating, how each of that is going 26 00:01:45,880 --> 00:01:50,240 Speaker 1: to to work. And so this is actually just increased volatility. Um. 27 00:01:50,360 --> 00:01:53,440 Speaker 1: We've see that in in in the markets, which um 28 00:01:54,040 --> 00:01:56,560 Speaker 1: are not necessarily about the clients I have, but UM, 29 00:01:57,000 --> 00:01:58,880 Speaker 1: but you see that also and just kind of how 30 00:01:58,960 --> 00:02:02,320 Speaker 1: our sales going to be done, how is investment and 31 00:02:02,400 --> 00:02:05,440 Speaker 1: trade flow is going to be affected, and all of 32 00:02:05,440 --> 00:02:08,040 Speaker 1: this right now is there's a lot of uncertainty. And 33 00:02:08,080 --> 00:02:10,160 Speaker 1: so that's all we've just basically been saying is just 34 00:02:10,320 --> 00:02:13,440 Speaker 1: prepare for more uncertainty. And I think that you see 35 00:02:13,440 --> 00:02:16,280 Speaker 1: that with even the rhetoric coming out of the White House. 36 00:02:16,360 --> 00:02:18,280 Speaker 1: It kind of changes a little bit every other day. 37 00:02:18,480 --> 00:02:21,959 Speaker 1: And so that's kind of there's nothing else to prepare 38 00:02:22,000 --> 00:02:24,839 Speaker 1: for outside of uncertainty, because that's what you have, alright, Clay, 39 00:02:24,960 --> 00:02:28,160 Speaker 1: So our s buelts are buckled. We are duly prepared. 40 00:02:28,760 --> 00:02:30,920 Speaker 1: What I would want to know from you. You were 41 00:02:31,040 --> 00:02:33,960 Speaker 1: formerly the Assistant Secretary of for International Affairs at the 42 00:02:34,040 --> 00:02:37,520 Speaker 1: US Treasury Department. I'm wondering, can you offer us any 43 00:02:37,600 --> 00:02:42,080 Speaker 1: insight into the mechanics of imposing tariffs and what that 44 00:02:42,120 --> 00:02:44,680 Speaker 1: would entail so that we can have a better sense 45 00:02:44,800 --> 00:02:47,080 Speaker 1: of what would have to happen for some of the 46 00:02:47,280 --> 00:02:51,000 Speaker 1: proposals to be made a reality. Well to impose tariffs. 47 00:02:51,000 --> 00:02:54,000 Speaker 1: I mean, they basically outlined, the administration, that is, has 48 00:02:54,040 --> 00:02:56,440 Speaker 1: outlined what they would like to do in tariffs. There's 49 00:02:56,480 --> 00:03:00,440 Speaker 1: going to be a public comment period, um. And if 50 00:03:00,480 --> 00:03:02,840 Speaker 1: they decide to go forward with these tariffs, and they 51 00:03:03,040 --> 00:03:06,440 Speaker 1: you know, I assume that they will listen to public comment, um. 52 00:03:06,639 --> 00:03:09,640 Speaker 1: And uh they're obviously they say that they're trying to 53 00:03:09,639 --> 00:03:13,600 Speaker 1: also have negotiations with the Chinese. UM. But if they 54 00:03:13,639 --> 00:03:16,200 Speaker 1: put the tariffs on, then they basically it will be 55 00:03:16,360 --> 00:03:21,560 Speaker 1: at tax I mean on imports from China on specific items. Uh. 56 00:03:21,600 --> 00:03:24,960 Speaker 1: They've outlined items that they would put a tax on. 57 00:03:25,720 --> 00:03:28,920 Speaker 1: And uh, once they do that, when they start coming 58 00:03:28,960 --> 00:03:31,160 Speaker 1: over the border, they will have to put it. They 59 00:03:31,280 --> 00:03:35,119 Speaker 1: have to pay a duty the importer and at least 60 00:03:35,160 --> 00:03:39,080 Speaker 1: economically speaking, the importer would pass that on as it 61 00:03:39,120 --> 00:03:43,560 Speaker 1: goes down the line. Presumably that would either affect businesses 62 00:03:43,680 --> 00:03:47,960 Speaker 1: or consumers UM on those products that actually received that tax. 63 00:03:48,800 --> 00:03:52,520 Speaker 1: Clay Lowry, what about the importation of Chinese investment dollars 64 00:03:52,560 --> 00:03:56,120 Speaker 1: into the United States? Now, thank you for the that UM, 65 00:03:56,240 --> 00:03:59,200 Speaker 1: So that one is a little more uncertain. So they 66 00:04:00,080 --> 00:04:04,040 Speaker 1: UM in the President's memorandum basically outlining this, they said 67 00:04:04,040 --> 00:04:07,280 Speaker 1: that they were going to give the Treasury Department sixty 68 00:04:07,360 --> 00:04:10,360 Speaker 1: days to kind of report back on how they would 69 00:04:10,400 --> 00:04:14,360 Speaker 1: like to do see investment restrictions, UM, and we assume 70 00:04:14,400 --> 00:04:17,120 Speaker 1: their investments restrictions. Actually, the words they use the memorandum 71 00:04:17,160 --> 00:04:20,200 Speaker 1: are concerns about Chinese investments. So these are not national 72 00:04:20,240 --> 00:04:23,360 Speaker 1: security concerns. So national security concerns are handled through a 73 00:04:23,400 --> 00:04:28,599 Speaker 1: different mechanism, which is called Scythius UM. This is about 74 00:04:29,040 --> 00:04:34,120 Speaker 1: um in uh restrictions on specific investments that are outside 75 00:04:34,120 --> 00:04:37,600 Speaker 1: of national security that the Chinese are making. Now that 76 00:04:37,920 --> 00:04:41,200 Speaker 1: the issue here is this is not something the United 77 00:04:41,200 --> 00:04:44,559 Speaker 1: States has really done much of effect. I can't remember 78 00:04:44,600 --> 00:04:46,960 Speaker 1: an example in which we have done it, outside of 79 00:04:46,960 --> 00:04:49,680 Speaker 1: maybe if it's like a kind of a rogue regime 80 00:04:49,720 --> 00:04:52,359 Speaker 1: like Iran or something like that. So Because of that, 81 00:04:52,440 --> 00:04:56,040 Speaker 1: I think it's become uh the Treasure Department and others 82 00:04:56,080 --> 00:04:58,800 Speaker 1: in the administration are working on what a how do 83 00:04:58,839 --> 00:05:02,640 Speaker 1: you do this? What's the AUTHORI do you use? Um? Uh, 84 00:05:02,760 --> 00:05:06,080 Speaker 1: what are the legal implications if you use various authorities? 85 00:05:06,760 --> 00:05:10,480 Speaker 1: This is very different than tariffs, because tariffs we've we've 86 00:05:10,480 --> 00:05:17,160 Speaker 1: done throughout our history. Investment restrictions is a very different mechanism. 87 00:05:17,240 --> 00:05:20,080 Speaker 1: Do you get the sense, based on your conversations with 88 00:05:20,320 --> 00:05:25,720 Speaker 1: people who are in the administration or in the Treasury Department, uh, 89 00:05:26,000 --> 00:05:29,400 Speaker 1: that President Trump has a lot of company in his 90 00:05:29,640 --> 00:05:35,200 Speaker 1: sort of declarations of proposals for the tariffs. Do you 91 00:05:35,200 --> 00:05:39,839 Speaker 1: mean support from from from people who are inside the administration, 92 00:05:39,960 --> 00:05:43,360 Speaker 1: from people who are sort of uh career people and 93 00:05:43,400 --> 00:05:46,920 Speaker 1: see this as possibly helping uh, sort of even the 94 00:05:46,920 --> 00:05:51,200 Speaker 1: playing field. So I do think I think, actually, I 95 00:05:51,240 --> 00:05:53,520 Speaker 1: mean go beyond the administration. I think that if you 96 00:05:53,760 --> 00:05:58,240 Speaker 1: talk to a lot of people on Congress, within the administration, 97 00:05:58,560 --> 00:06:02,280 Speaker 1: even the business community, and uh the kind of academic 98 00:06:02,320 --> 00:06:04,720 Speaker 1: think tank community, I think that a lot of them 99 00:06:04,760 --> 00:06:06,880 Speaker 1: would say that they have a lot of sympathy for 100 00:06:06,960 --> 00:06:09,600 Speaker 1: what President Trump is trying to do. They believe that 101 00:06:09,839 --> 00:06:13,440 Speaker 1: China has been a poor actor in a number of 102 00:06:13,480 --> 00:06:17,760 Speaker 1: areas on trade and investment, and so um, there may 103 00:06:17,839 --> 00:06:20,440 Speaker 1: need to be some there's a desire for some sort 104 00:06:20,480 --> 00:06:24,640 Speaker 1: of uh more dramatic action. That being said, I think 105 00:06:24,680 --> 00:06:26,800 Speaker 1: that you would also hear from a lot of people 106 00:06:27,360 --> 00:06:31,720 Speaker 1: that that there's two major missing elements to what the 107 00:06:32,040 --> 00:06:36,440 Speaker 1: president has tried to do. First is, um, there doesn't 108 00:06:36,480 --> 00:06:38,200 Speaker 1: seem to be a strategy. What is it you want 109 00:06:38,200 --> 00:06:40,440 Speaker 1: to achieve? Is it? Is it? I mean the President 110 00:06:40,480 --> 00:06:43,520 Speaker 1: talks about lowering the trade deficit. That's kind of a 111 00:06:43,680 --> 00:06:47,640 Speaker 1: strange way to look at things. Is the idea to basically, 112 00:06:47,680 --> 00:06:50,240 Speaker 1: we want more market access for China, we want China 113 00:06:50,320 --> 00:06:52,920 Speaker 1: to treat more fairly. What is it exactly they want 114 00:06:52,960 --> 00:06:55,120 Speaker 1: to achieve? I think the Chinese are confused by that, 115 00:06:55,360 --> 00:06:57,200 Speaker 1: but I actually think that by the way, the business 116 00:06:57,200 --> 00:07:00,559 Speaker 1: community is totally confused by that. And then secondly, um, 117 00:07:00,839 --> 00:07:03,440 Speaker 1: is it would have made more sense And in fact, 118 00:07:03,480 --> 00:07:06,479 Speaker 1: you saw Larry Cudlow even saying this this morning, let's 119 00:07:06,600 --> 00:07:09,279 Speaker 1: try to build a coalition around us. There's a number 120 00:07:09,279 --> 00:07:11,640 Speaker 1: of countries around the world who are concerned about how 121 00:07:11,720 --> 00:07:16,080 Speaker 1: China has been interacting on trade and investment. But the administration, 122 00:07:16,520 --> 00:07:19,240 Speaker 1: which was warned about this over and over and over again, 123 00:07:19,680 --> 00:07:22,280 Speaker 1: go out and build a coalition. There are others that 124 00:07:22,320 --> 00:07:25,800 Speaker 1: are with you. What did they do? Instead? They attacked 125 00:07:25,840 --> 00:07:30,480 Speaker 1: those same countries on steel in uh and aluminum tariffs 126 00:07:30,520 --> 00:07:33,080 Speaker 1: which have which are supposed to be about national security, 127 00:07:34,000 --> 00:07:36,200 Speaker 1: and yet they attacked the countries that actually help us 128 00:07:36,200 --> 00:07:38,640 Speaker 1: on national security. And then secondly, they didn't go around 129 00:07:38,640 --> 00:07:42,040 Speaker 1: building a coalition against China so that China got the message. 130 00:07:42,120 --> 00:07:44,000 Speaker 1: It wasn't just the United States that had a problem 131 00:07:44,000 --> 00:07:47,280 Speaker 1: with China, it was actually the international community at large. 132 00:07:47,680 --> 00:07:50,080 Speaker 1: And for whatever reason, the administration decided not to take 133 00:07:50,120 --> 00:07:53,560 Speaker 1: those tactics. But maybe maybe that maybe given what you 134 00:07:53,600 --> 00:07:55,920 Speaker 1: saw from Larry Cudlo, maybe he's deciding that this is 135 00:07:56,520 --> 00:07:58,880 Speaker 1: maybe they need to make a small change and how 136 00:07:58,920 --> 00:08:03,080 Speaker 1: they're d to approach the president strategy. Clay Lowry, thank 137 00:08:03,080 --> 00:08:05,080 Speaker 1: you so much for being with us. Clay Lowry, Managing 138 00:08:05,080 --> 00:08:08,960 Speaker 1: director at Rock Creek Global Advisors, former Assistant Secretary for 139 00:08:09,000 --> 00:08:27,400 Speaker 1: International Affairs at the US Treasury Department. In an era 140 00:08:27,560 --> 00:08:32,679 Speaker 1: when electronic trading is moving into everything from bonds to currencies, 141 00:08:32,720 --> 00:08:35,720 Speaker 1: Goldman Sacks has been steadily trying to chart out a 142 00:08:35,840 --> 00:08:39,600 Speaker 1: new identity for itself and the latest is a move 143 00:08:39,720 --> 00:08:45,040 Speaker 1: into commercial banking. UH, territory frankly dominated by JP Morgan 144 00:08:45,120 --> 00:08:47,960 Speaker 1: and other behemoth banks. Showing us now to talk about 145 00:08:48,000 --> 00:08:51,400 Speaker 1: that is Brian klein Hansel. He's an equity research analystic 146 00:08:51,480 --> 00:08:55,240 Speaker 1: managing director at Keith, Briette and Woods in New York. Brian, 147 00:08:55,280 --> 00:08:57,320 Speaker 1: thank you so much for being with us. So I 148 00:08:57,360 --> 00:08:59,480 Speaker 1: just first want to get a sense of what Goldman 149 00:08:59,559 --> 00:09:03,040 Speaker 1: Sachs is trying to do with commercial banking and what's 150 00:09:03,040 --> 00:09:07,200 Speaker 1: attractive to the bank about this business. Yeah, thanks for 151 00:09:07,200 --> 00:09:09,720 Speaker 1: having me Sea. What Goldman is looking to do is 152 00:09:09,800 --> 00:09:12,880 Speaker 1: really too deepen the relationships that they have with their 153 00:09:12,920 --> 00:09:15,960 Speaker 1: corporate clients already. So the relationship that they have today 154 00:09:16,080 --> 00:09:18,680 Speaker 1: is more from an advisory perspective when you think about 155 00:09:18,760 --> 00:09:22,199 Speaker 1: advising on potential M and A UM, and what they're 156 00:09:22,240 --> 00:09:24,840 Speaker 1: trying to do now is be more of a bank 157 00:09:25,120 --> 00:09:28,280 Speaker 1: to these corporate clients. By that, I mean looking to 158 00:09:29,400 --> 00:09:32,720 Speaker 1: do more lending with these corporate clients UM as well 159 00:09:32,760 --> 00:09:36,360 Speaker 1: as capturing deposits that these corporations may have. So there 160 00:09:36,400 --> 00:09:39,199 Speaker 1: really are trying to build out the bank around this 161 00:09:39,360 --> 00:09:43,840 Speaker 1: existing relationship. So UH, one question is why. I mean, 162 00:09:44,160 --> 00:09:46,280 Speaker 1: the other banks have such a toe hold into this, 163 00:09:46,559 --> 00:09:50,640 Speaker 1: and notoriously, lending is a capital intensive business that kind 164 00:09:50,640 --> 00:09:52,600 Speaker 1: of moves away from the M and A and the 165 00:09:52,640 --> 00:09:56,559 Speaker 1: investment banking that Goldman sax is known for. Yeah, that's 166 00:09:56,559 --> 00:09:58,720 Speaker 1: a good question. We also have as well. I mean, 167 00:09:59,160 --> 00:10:02,760 Speaker 1: really point of time that this what Goldman laid out 168 00:10:02,840 --> 00:10:06,320 Speaker 1: was a strategy to increase revenues. It was one environment 169 00:10:06,440 --> 00:10:09,320 Speaker 1: when revenues were challenged, so this is one way to 170 00:10:09,360 --> 00:10:14,600 Speaker 1: grow revenues. But it is a very competitive UM industry overall. 171 00:10:14,679 --> 00:10:18,439 Speaker 1: In commercial banking. It's an area where Goldman Sachs themselves 172 00:10:18,679 --> 00:10:21,959 Speaker 1: have little history relative to the other big banks that 173 00:10:22,040 --> 00:10:24,720 Speaker 1: kind of dominate the space. So it is an area 174 00:10:24,840 --> 00:10:29,160 Speaker 1: we could potentially see incremental revenues come through. It's just 175 00:10:29,240 --> 00:10:31,800 Speaker 1: it's going to be a very hard, hard fought to 176 00:10:31,840 --> 00:10:34,480 Speaker 1: win those type of revenues. So the other thing it 177 00:10:34,559 --> 00:10:38,319 Speaker 1: does it helps UM act as a ballast relative to 178 00:10:38,360 --> 00:10:41,839 Speaker 1: the trading business. Volatility over the last five years has 179 00:10:41,880 --> 00:10:44,560 Speaker 1: been fairly low UM, so this is an area we 180 00:10:44,600 --> 00:10:47,760 Speaker 1: could see recurring revenues come from with less volatility that 181 00:10:47,840 --> 00:10:49,720 Speaker 1: you do in the trading business. So you can see 182 00:10:49,720 --> 00:10:52,319 Speaker 1: how it could make sense longer term. It's as we 183 00:10:52,400 --> 00:10:55,520 Speaker 1: do questioned their ability and executing the strategy long term. 184 00:10:56,120 --> 00:10:59,599 Speaker 1: Can you speak specifically about David Solomon and what he 185 00:11:00,000 --> 00:11:03,480 Speaker 1: things to this strategy. Well, he does have a background 186 00:11:03,800 --> 00:11:05,680 Speaker 1: in a lot of the areas, so he comes up 187 00:11:05,679 --> 00:11:08,320 Speaker 1: to the advisory side in the investment bank, so he 188 00:11:08,360 --> 00:11:11,559 Speaker 1: does have a lot of relationships with the senior executives 189 00:11:11,559 --> 00:11:14,960 Speaker 1: at these corporations. Um. Where it fails to see there's 190 00:11:14,960 --> 00:11:17,120 Speaker 1: a bridge right now is that a lot of these 191 00:11:17,160 --> 00:11:19,400 Speaker 1: decisions are made by treasurers. So we'll have to see 192 00:11:19,440 --> 00:11:22,640 Speaker 1: if he can bridge that gap between the CEO down 193 00:11:22,679 --> 00:11:25,319 Speaker 1: to the treasurer um. But he does have a background 194 00:11:25,559 --> 00:11:28,080 Speaker 1: within the investment bank and have the relationships with the 195 00:11:28,120 --> 00:11:31,240 Speaker 1: corporations themselves, so that's the positive. And a lot of 196 00:11:31,240 --> 00:11:34,080 Speaker 1: the other new strategies, he does have a foot and 197 00:11:34,120 --> 00:11:36,760 Speaker 1: a lot of those strategies, whether it was the Marcus initiative, 198 00:11:36,800 --> 00:11:41,520 Speaker 1: which is their kind of retail consumer lending platform, so 199 00:11:41,559 --> 00:11:44,560 Speaker 1: he's been more of a key proponent for that platform. 200 00:11:44,600 --> 00:11:46,520 Speaker 1: So a lot of the areas where the bank has 201 00:11:46,559 --> 00:11:50,240 Speaker 1: been trying to grow outside of the traditional trading UM 202 00:11:50,440 --> 00:11:53,760 Speaker 1: channels are areas that he's either helped to develop or 203 00:11:53,800 --> 00:11:56,719 Speaker 1: where he's worked previously, so he does have a good 204 00:11:56,720 --> 00:11:59,679 Speaker 1: background in these businesses. You know, Brian, I'm struck by 205 00:11:59,679 --> 00:12:04,280 Speaker 1: this that Goldman Sachs is expanding into new territories, whether 206 00:12:04,320 --> 00:12:07,040 Speaker 1: it's the markets platform that focuses on consumer lending, or 207 00:12:07,040 --> 00:12:10,040 Speaker 1: whether it's commercial banking. And this sort of is echoed 208 00:12:10,160 --> 00:12:12,760 Speaker 1: by Jamie Diamond over at JP Morgan with the investor 209 00:12:12,840 --> 00:12:16,240 Speaker 1: letter that he put out, which basically says, we're expanding everywhere, 210 00:12:16,480 --> 00:12:19,520 Speaker 1: anywhere you can go, we want to be There is 211 00:12:19,520 --> 00:12:22,440 Speaker 1: there a concern at all on behalf of analysts like 212 00:12:22,480 --> 00:12:25,680 Speaker 1: yourself that some of these banks are perhaps moving outside 213 00:12:25,679 --> 00:12:28,880 Speaker 1: their wheelhouse and getting too diffuse and possibly could increase 214 00:12:29,120 --> 00:12:33,839 Speaker 1: the risks of underperforming more broadly as they expand. Yeah, 215 00:12:33,880 --> 00:12:35,280 Speaker 1: I mean we think there is. I think Goldman is 216 00:12:35,320 --> 00:12:40,200 Speaker 1: a fairly good example of expanding into the consumer business 217 00:12:40,320 --> 00:12:44,160 Speaker 1: at a period where you've had generally what we consider 218 00:12:44,240 --> 00:12:47,319 Speaker 1: benign credit conditions, meaning that you're not taking a lot 219 00:12:47,360 --> 00:12:50,160 Speaker 1: of losses on the loans that you're making in the 220 00:12:50,240 --> 00:12:55,240 Speaker 1: consumer business. Um, but that's been fairly you know, five 221 00:12:55,320 --> 00:12:58,079 Speaker 1: years of low losses. That could change at any point 222 00:12:58,080 --> 00:13:00,520 Speaker 1: in time, and if you don't have a history in 223 00:13:00,600 --> 00:13:03,400 Speaker 1: that business, it could all of a sudden become very 224 00:13:03,520 --> 00:13:07,880 Speaker 1: challenged to matt manage credit managerings being its revenues in 225 00:13:08,000 --> 00:13:10,000 Speaker 1: those businesses. So it does seem to be what we 226 00:13:10,000 --> 00:13:14,000 Speaker 1: would call late cycle growth in the consumer business. It 227 00:13:14,080 --> 00:13:17,360 Speaker 1: does raise yellow flags at this point, not necessarily red 228 00:13:17,440 --> 00:13:19,800 Speaker 1: flags to us and to investors, but it is an 229 00:13:19,840 --> 00:13:22,600 Speaker 1: area where you're trying to grow um and we would 230 00:13:22,679 --> 00:13:25,480 Speaker 1: argue that they're trying to grow aggressively in an area 231 00:13:25,480 --> 00:13:27,880 Speaker 1: where there is little history for the company. So I mean, 232 00:13:27,920 --> 00:13:29,800 Speaker 1: certainly is a yellow flag at this point in time. 233 00:13:30,400 --> 00:13:33,080 Speaker 1: Just a quick point Brian that if we see increase 234 00:13:33,120 --> 00:13:36,040 Speaker 1: in interest rates, won't this help the bond trading business, 235 00:13:36,120 --> 00:13:39,960 Speaker 1: And in a sense Goldman Sachs looking to expand in 236 00:13:40,120 --> 00:13:43,960 Speaker 1: areas that maybe it is a little too late to 237 00:13:44,000 --> 00:13:46,880 Speaker 1: the party and maybe just focus on what it does 238 00:13:47,000 --> 00:13:50,560 Speaker 1: best and wait for the cycle to turn. I mean, 239 00:13:50,600 --> 00:13:53,080 Speaker 1: it certainly could. So. A lot of the revenues are 240 00:13:53,120 --> 00:13:55,840 Speaker 1: generated in the bond trading business are based on the 241 00:13:55,840 --> 00:13:58,000 Speaker 1: steepness of the Yelk curve. So as long as the 242 00:13:58,040 --> 00:14:01,320 Speaker 1: long end keeps moving, us the short term rates and 243 00:14:01,320 --> 00:14:03,680 Speaker 1: that's generally a positive for the trading business. That also 244 00:14:03,720 --> 00:14:07,599 Speaker 1: could mean I think we want from a corporation perspective 245 00:14:08,360 --> 00:14:11,679 Speaker 1: is are they committed to this business? And that's exactly 246 00:14:11,720 --> 00:14:14,160 Speaker 1: to your point. If you see a big pick up 247 00:14:14,240 --> 00:14:17,479 Speaker 1: in trading revenues, are they going to still want to 248 00:14:17,559 --> 00:14:21,680 Speaker 1: maintain these lending relationships in this commercial banking relationship blogger 249 00:14:21,800 --> 00:14:25,560 Speaker 1: term or really simply switch back to being more focused 250 00:14:25,600 --> 00:14:27,560 Speaker 1: on trading. I think at this point in time, the 251 00:14:27,600 --> 00:14:29,960 Speaker 1: fact that they really haven't built out the commercial bank, 252 00:14:30,040 --> 00:14:32,040 Speaker 1: I think it's gonna be a challenge for them to 253 00:14:32,120 --> 00:14:35,400 Speaker 1: grow commercial banking clients as a result. And I think 254 00:14:35,440 --> 00:14:37,560 Speaker 1: that's the risk, and I think all the corporations will 255 00:14:37,600 --> 00:14:39,640 Speaker 1: be asking the same question, is you know how what 256 00:14:39,840 --> 00:14:41,520 Speaker 1: it are you to this business that you want to 257 00:14:41,520 --> 00:14:44,680 Speaker 1: take our um business from us. I want to thank 258 00:14:44,680 --> 00:14:47,280 Speaker 1: you very much for spending time with us. Brian Klein 259 00:14:47,360 --> 00:14:51,960 Speaker 1: Hazel Handel is equity research channelist for Keep Briette and Wood. 260 00:14:51,960 --> 00:15:10,640 Speaker 1: Speaking about Goldman Sachs right now, I want to turn 261 00:15:10,680 --> 00:15:15,000 Speaker 1: our attention to Hugh Son, Bloomberg Finance reporter. He just 262 00:15:15,000 --> 00:15:17,840 Speaker 1: wrote a phenomenal story for Bloomberg Markets Magazine which we're 263 00:15:17,840 --> 00:15:20,520 Speaker 1: gonna get to in a second. But before we go there, Hugh, 264 00:15:20,600 --> 00:15:24,280 Speaker 1: I know you've got a deep knowledge of JP Morgan, 265 00:15:24,440 --> 00:15:26,640 Speaker 1: and given the fact that they just had their annual 266 00:15:26,640 --> 00:15:29,760 Speaker 1: meeting and released their annual letter to shareholders, you know, 267 00:15:29,840 --> 00:15:33,440 Speaker 1: what's your big takeaway for what JP Morgan's goal is 268 00:15:33,480 --> 00:15:36,480 Speaker 1: in the year ahead? And this solidifies UM. Thank you 269 00:15:36,520 --> 00:15:39,160 Speaker 1: for having me. This solidifies UM something that I've been 270 00:15:39,280 --> 00:15:41,320 Speaker 1: that's been sort of coalescing in the back of my 271 00:15:41,360 --> 00:15:44,240 Speaker 1: mind for a little while now, which is UM. You know, 272 00:15:44,320 --> 00:15:47,720 Speaker 1: they're they're the aggressors in this space. UM. So for 273 00:15:47,760 --> 00:15:51,560 Speaker 1: an example, UM, JP Morgan. You know, they gave some 274 00:15:51,600 --> 00:15:54,240 Speaker 1: comments about what they were gonna do with UM online, 275 00:15:54,240 --> 00:15:58,560 Speaker 1: brookeradge and UM. This is on their investor day Febru 276 00:15:59,600 --> 00:16:01,920 Speaker 1: and all of a sudden you see Charles Schwab and 277 00:16:02,360 --> 00:16:07,160 Speaker 1: a few other UM sort of broken stocks UM move 278 00:16:07,240 --> 00:16:10,080 Speaker 1: up by five percent. And that's because the markets interpreted 279 00:16:10,120 --> 00:16:14,120 Speaker 1: that they weren't going to aggressively go into UM. You know, 280 00:16:14,480 --> 00:16:21,040 Speaker 1: UH free online robo advising just one example of you know, 281 00:16:21,480 --> 00:16:25,360 Speaker 1: of their impact in the market. So wherever you look 282 00:16:25,400 --> 00:16:29,520 Speaker 1: in finance, they are the aggressives, whether it's deposits, fixed income, 283 00:16:29,800 --> 00:16:33,040 Speaker 1: credit cards, Trust Advisory. I could go on and on, 284 00:16:33,840 --> 00:16:36,640 Speaker 1: and in my mind what was coalescing is just sort 285 00:16:36,640 --> 00:16:38,520 Speaker 1: of this idea that they are kind of becoming the 286 00:16:38,560 --> 00:16:43,960 Speaker 1: Amazon of of finance. Okay, they want to be the 287 00:16:44,000 --> 00:16:47,600 Speaker 1: Amazon of finance. Can we say that there are a 288 00:16:47,680 --> 00:16:51,120 Speaker 1: variety of competitors who might have a different view about 289 00:16:51,160 --> 00:16:55,680 Speaker 1: the um in the banking space, Well, I mean there 290 00:16:55,720 --> 00:17:00,440 Speaker 1: are City Bank there as well as Fargo. There's a 291 00:17:00,480 --> 00:17:03,600 Speaker 1: Bank of America, Morgan Stanley done very well with their 292 00:17:03,640 --> 00:17:06,760 Speaker 1: wealth management division, which is now trying to get to 293 00:17:06,800 --> 00:17:09,240 Speaker 1: commercial banking. I bring it up only because you know, 294 00:17:09,280 --> 00:17:12,919 Speaker 1: we've heard before about the one stop shop. Absolutely, and 295 00:17:12,960 --> 00:17:15,639 Speaker 1: you should be skeptical. Sure, yeah, And you know, I 296 00:17:15,720 --> 00:17:18,679 Speaker 1: note that one of the quotes from Jamie Diamond is 297 00:17:18,720 --> 00:17:22,480 Speaker 1: talking about bureaucracy, right, and he's not a seemingly not 298 00:17:22,600 --> 00:17:26,080 Speaker 1: a fan of bureaucracy. And I mean, I gotta say 299 00:17:26,160 --> 00:17:28,320 Speaker 1: you ever hear anybody say that they are a fan 300 00:17:28,359 --> 00:17:31,240 Speaker 1: of bureaucracy, that they think it's just wonderful and great 301 00:17:31,280 --> 00:17:34,600 Speaker 1: and it helps me wonderful businesses. Well, how are you 302 00:17:34,640 --> 00:17:37,199 Speaker 1: going to manage all these wonderful new initiatives if you 303 00:17:37,240 --> 00:17:40,399 Speaker 1: don't have a bureaucracy that can actually execute. Yeah, I 304 00:17:40,440 --> 00:17:42,639 Speaker 1: mean so a lot lots of good points. I would 305 00:17:42,640 --> 00:17:48,040 Speaker 1: say there's a reason why, um, other other members, other 306 00:17:48,840 --> 00:17:54,240 Speaker 1: financial players are watching Jamie Morgan and and and it 307 00:17:54,320 --> 00:17:56,080 Speaker 1: stems from a lot of the adventus they have. They 308 00:17:56,080 --> 00:18:00,320 Speaker 1: have the highest r o E, they have most deposits. Um, 309 00:18:00,359 --> 00:18:04,800 Speaker 1: they have Jamie Diamond, who's you know who doesn't He 310 00:18:04,880 --> 00:18:09,400 Speaker 1: doesn't deliberate before entering markets suggressfully at times as much 311 00:18:09,440 --> 00:18:13,280 Speaker 1: as others. Um as an analyst talk to relate to me, 312 00:18:13,359 --> 00:18:15,560 Speaker 1: you know, he says, other other banks are happy to 313 00:18:15,640 --> 00:18:18,400 Speaker 1: let JP Morgan go first in some instances. And so 314 00:18:19,760 --> 00:18:23,000 Speaker 1: you know, um, whether or not you know the other 315 00:18:23,160 --> 00:18:24,840 Speaker 1: the other banks, it's not as that they're going to 316 00:18:24,920 --> 00:18:28,359 Speaker 1: go away. But the JP Morgan, if you look at 317 00:18:28,440 --> 00:18:30,159 Speaker 1: you know, if you if you read the letter, they 318 00:18:30,200 --> 00:18:34,000 Speaker 1: see opportunity everywhere, even in places they're they're already number one. 319 00:18:34,840 --> 00:18:36,639 Speaker 1: What does that tell you? That tells me if they 320 00:18:36,640 --> 00:18:39,480 Speaker 1: want to rally their troops and have some ambition as 321 00:18:39,480 --> 00:18:42,240 Speaker 1: they plow forward and take over the world. I do 322 00:18:42,280 --> 00:18:43,720 Speaker 1: want to I do want to get a sense though 323 00:18:43,800 --> 00:18:46,399 Speaker 1: you know, they have brought ambitions in China or Asia 324 00:18:46,440 --> 00:18:48,920 Speaker 1: Born broadly, they have brought ambitions even in fixed income 325 00:18:48,920 --> 00:18:52,000 Speaker 1: currencies and commodities. UH, in wealth management they want to 326 00:18:52,200 --> 00:18:55,000 Speaker 1: manage money for very rich people. Who doesn't UM, But 327 00:18:55,119 --> 00:18:56,760 Speaker 1: I do want to talk a little bit about some 328 00:18:56,840 --> 00:19:00,560 Speaker 1: more fundamental challenges that JP Morgan faces along with the 329 00:19:00,600 --> 00:19:01,919 Speaker 1: rest of the banks. And this goes to really what 330 00:19:01,960 --> 00:19:05,160 Speaker 1: you wrote about, uh in the Bloomberg Markets article, which 331 00:19:05,280 --> 00:19:10,560 Speaker 1: is the technological infrastructure of these banks is becoming increasingly crucial. 332 00:19:10,760 --> 00:19:13,840 Speaker 1: And in that race, who's winning? So yeah, I mean 333 00:19:13,960 --> 00:19:16,280 Speaker 1: that the story we wrote, UM, you know, sort of 334 00:19:16,280 --> 00:19:20,120 Speaker 1: an epic tail UM and it's online right now about 335 00:19:20,240 --> 00:19:23,919 Speaker 1: the arms technological arms race in you know, arguably the 336 00:19:23,960 --> 00:19:27,480 Speaker 1: most iconic trading market UM in the world, which is 337 00:19:27,520 --> 00:19:31,639 Speaker 1: the stock market. UM. This is another instance in which 338 00:19:31,960 --> 00:19:36,400 Speaker 1: the advantages of scale become greater and greater over time. UH. 339 00:19:36,440 --> 00:19:39,080 Speaker 1: And and one reason why people are concerned about Japan 340 00:19:39,119 --> 00:19:43,880 Speaker 1: Morgan's entry into the space. UM when you have when 341 00:19:43,880 --> 00:19:45,960 Speaker 1: you have a leading you know, so it's sort of 342 00:19:46,000 --> 00:19:49,159 Speaker 1: top The thing that's said is that only people in 343 00:19:49,200 --> 00:19:52,639 Speaker 1: the top three inequities make any money. Why is that? 344 00:19:52,640 --> 00:19:54,280 Speaker 1: That's because if if you're not on the top three 345 00:19:54,840 --> 00:19:58,240 Speaker 1: you're essentially subsidizing the business. And in order to spend 346 00:19:58,760 --> 00:20:03,040 Speaker 1: enough money in enough money on technology to remain current, UM, 347 00:20:03,119 --> 00:20:05,040 Speaker 1: you need to be making a lot of money. And 348 00:20:05,119 --> 00:20:06,960 Speaker 1: if you're not in the top three, you're you're essentially 349 00:20:07,000 --> 00:20:09,560 Speaker 1: not clearing the hurdle to make enough money to invest 350 00:20:09,680 --> 00:20:12,400 Speaker 1: to be relevant tomorrow. And that's what you've seen happen 351 00:20:12,480 --> 00:20:14,840 Speaker 1: to a lot of players. Top players like Credit Sweets, 352 00:20:14,840 --> 00:20:16,879 Speaker 1: who was maybe number two or number one just a 353 00:20:16,880 --> 00:20:20,280 Speaker 1: few years ago, fallen a lot since then. UM. JP 354 00:20:20,359 --> 00:20:22,880 Speaker 1: Morgan is has you know, grown by leaps and bounds, 355 00:20:23,160 --> 00:20:25,800 Speaker 1: UM in this space. You know, Goldman Sacks was number 356 00:20:25,800 --> 00:20:28,000 Speaker 1: one just a few years ago. They had thirteen billion 357 00:20:28,000 --> 00:20:31,320 Speaker 1: in inequities revenue in two thousand and nine, I want 358 00:20:31,359 --> 00:20:34,479 Speaker 1: to say a high water mark. This last year they 359 00:20:34,520 --> 00:20:38,640 Speaker 1: had about half of that. What did Jamie Diamonds non 360 00:20:39,160 --> 00:20:43,640 Speaker 1: JP Morgan chase ambitions? You know, I mean every time 361 00:20:43,680 --> 00:20:46,639 Speaker 1: he he goes, he rattles off on these long, you 362 00:20:46,640 --> 00:20:50,399 Speaker 1: know letters about what the United States should do. UM. 363 00:20:50,480 --> 00:20:52,479 Speaker 1: You know you have to think and ask yourself, as 364 00:20:52,480 --> 00:20:55,439 Speaker 1: this guy eventually want to be president, and UM, you 365 00:20:55,440 --> 00:20:57,480 Speaker 1: know he said on the record, you know, look, I 366 00:20:57,240 --> 00:20:59,320 Speaker 1: I'd love to be President's never gonna happen. I'm not 367 00:20:59,320 --> 00:21:01,800 Speaker 1: gonna run. And so you know, you think he's going 368 00:21:01,840 --> 00:21:03,959 Speaker 1: to be involved in some way in in the public 369 00:21:04,920 --> 00:21:07,639 Speaker 1: discussion because he seems to be and it seems to 370 00:21:07,680 --> 00:21:10,280 Speaker 1: be genuine on some level that he's passionate about these 371 00:21:10,280 --> 00:21:15,600 Speaker 1: big picture problems that that the country faces. So just 372 00:21:15,600 --> 00:21:20,080 Speaker 1: just moving forward with respect of the technological arms race. UM. 373 00:21:20,240 --> 00:21:22,640 Speaker 1: Do you have a sense of who's winning? Yeah, look 374 00:21:22,720 --> 00:21:26,119 Speaker 1: so JP Morgan UM. In many ways, it's it's a 375 00:21:26,119 --> 00:21:28,919 Speaker 1: three way race between JP Morgan, Goldman Sachs, and Morgan Stanley. 376 00:21:28,960 --> 00:21:31,520 Speaker 1: Morgan Stanley has for the past few years been number 377 00:21:31,560 --> 00:21:35,280 Speaker 1: one because they have this lineage UM in essentially the 378 00:21:35,320 --> 00:21:38,439 Speaker 1: type of technology, the type of trading that has become 379 00:21:39,000 --> 00:21:43,119 Speaker 1: in vogue as you know, quants UH quant hedge funds 380 00:21:43,160 --> 00:21:46,960 Speaker 1: are really the only UM asset class taking in tons 381 00:21:46,960 --> 00:21:48,760 Speaker 1: and tons of money in the past few years to 382 00:21:48,920 --> 00:21:52,880 Speaker 1: signal rentech. Those guys have just amazing track records UM 383 00:21:52,960 --> 00:21:55,720 Speaker 1: and so Morgan Stanley was best position for that, and 384 00:21:56,119 --> 00:21:58,760 Speaker 1: JP Morgan came in a few years ago decided to 385 00:21:58,760 --> 00:22:01,240 Speaker 1: make a huge investment. You know, people talk about JP 386 00:22:01,320 --> 00:22:03,000 Speaker 1: Morgan like they're the army. You know, when they want 387 00:22:03,000 --> 00:22:04,919 Speaker 1: to invest, they're going to do so and come in 388 00:22:05,040 --> 00:22:08,640 Speaker 1: guns blazing. And then you know, golden sacks never count 389 00:22:08,680 --> 00:22:11,880 Speaker 1: golden sacks out right. Those guys are you know, or devious. 390 00:22:11,920 --> 00:22:15,360 Speaker 1: And when they decide to um turn around and and 391 00:22:15,359 --> 00:22:18,240 Speaker 1: and and strategically shift, they're going to commit to it. 392 00:22:19,480 --> 00:22:23,080 Speaker 1: And so between those three they're all making huge strides 393 00:22:23,400 --> 00:22:27,240 Speaker 1: right now. It's Morgan Stanley and JP Morgan who you 394 00:22:27,280 --> 00:22:30,200 Speaker 1: are priming with if you are a quantitedge fund. Thanks 395 00:22:30,280 --> 00:22:32,439 Speaker 1: very much for being with us. Hughs On, our finance 396 00:22:32,480 --> 00:22:35,320 Speaker 1: reporter for Bloomberg News. You can follow Hugh on Twitter 397 00:22:35,720 --> 00:22:56,000 Speaker 1: at Hugh Underscore on s o N. Peter Lynch, famed 398 00:22:56,040 --> 00:23:00,760 Speaker 1: investor from Fidelity whose book One Up on Wall Street 399 00:23:00,760 --> 00:23:04,240 Speaker 1: taught investors about something called invest in what you know. 400 00:23:04,880 --> 00:23:10,280 Speaker 1: Sir John Templeton, famed investor, described the maximum point of 401 00:23:10,480 --> 00:23:16,560 Speaker 1: pessimism as something as a psychological ally in his investing thesis. 402 00:23:17,000 --> 00:23:19,240 Speaker 1: Here to help us talk a little bit more about 403 00:23:19,320 --> 00:23:22,000 Speaker 1: these topics and how to apply them to your portfolio 404 00:23:22,119 --> 00:23:25,080 Speaker 1: and to making money or rather not losing money, is 405 00:23:25,119 --> 00:23:28,680 Speaker 1: Cole Smeed. He is managing director and co portfolio manager 406 00:23:28,960 --> 00:23:32,240 Speaker 1: of a SMED Capital Management. They are based in Seattle. 407 00:23:32,320 --> 00:23:35,200 Speaker 1: He helps to manage more than two point two billion 408 00:23:35,240 --> 00:23:38,199 Speaker 1: dollars of customer assets. Cole, thank you very much for 409 00:23:38,280 --> 00:23:41,200 Speaker 1: being with us. Maybe just draw on both of those 410 00:23:41,200 --> 00:23:46,000 Speaker 1: famed investors and their description of how to use what 411 00:23:46,200 --> 00:23:50,880 Speaker 1: some might describe as common sense without common emotion when 412 00:23:50,880 --> 00:23:55,119 Speaker 1: it comes to investing. Well, yeah, I mean and Lynch 413 00:23:55,320 --> 00:23:57,800 Speaker 1: and in Templeton are you well thought of, But there 414 00:23:57,840 --> 00:24:01,359 Speaker 1: are many other investors that have applied, um to your point, 415 00:24:01,440 --> 00:24:07,080 Speaker 1: PIM good psychological discipline in investing. Um, the most common 416 00:24:07,119 --> 00:24:09,240 Speaker 1: thing we would say as a firmer, I would say 417 00:24:09,280 --> 00:24:13,440 Speaker 1: it as as someone that that works in this field. Um, 418 00:24:13,520 --> 00:24:15,920 Speaker 1: you have to be willing to do something different. So 419 00:24:16,200 --> 00:24:18,399 Speaker 1: you know, even if you, as Lynch said, you know, 420 00:24:18,440 --> 00:24:20,840 Speaker 1: you invest in what you know, Um, you want to 421 00:24:20,880 --> 00:24:22,719 Speaker 1: get a good price and that usually has to be 422 00:24:22,760 --> 00:24:26,239 Speaker 1: something different. So um. So it's the beauty of it 423 00:24:26,280 --> 00:24:28,560 Speaker 1: today is in many ways the field is just as 424 00:24:28,560 --> 00:24:31,879 Speaker 1: new as it's ever been because of what most people 425 00:24:31,960 --> 00:24:34,960 Speaker 1: think are the roadblocks to be a successful stock picker, 426 00:24:35,160 --> 00:24:38,959 Speaker 1: as Templeton and Lynch were. Okay, so let's talk about 427 00:24:39,200 --> 00:24:41,880 Speaker 1: why you think it's successful or it's a good time 428 00:24:41,920 --> 00:24:46,120 Speaker 1: to be a stock picker despite some of the roadblocks. Yeah, 429 00:24:46,280 --> 00:24:49,280 Speaker 1: it's a great, great question, Lisa. I'm actually gonna, I'm gonna, 430 00:24:49,320 --> 00:24:51,639 Speaker 1: I'm gonna put a shameless PIM plug in here. I 431 00:24:51,720 --> 00:24:53,879 Speaker 1: was listening to the surveillance. I think this is about 432 00:24:54,160 --> 00:24:56,960 Speaker 1: six seven weeks ago. Pim. You'd recommended a book by 433 00:24:56,960 --> 00:24:59,760 Speaker 1: the title, uh it was called The Heart of the Matter, Okay, 434 00:24:59,760 --> 00:25:01,880 Speaker 1: and talked about kind of the risks the doctors had 435 00:25:01,880 --> 00:25:03,600 Speaker 1: taken in the in the fields and the study of 436 00:25:03,680 --> 00:25:05,719 Speaker 1: the Heart. And I read it and it was a 437 00:25:05,760 --> 00:25:09,600 Speaker 1: great book. I appreciate the recommendation. But one thing that 438 00:25:09,600 --> 00:25:11,679 Speaker 1: I pulled out of it, there's a great picture of today. 439 00:25:12,160 --> 00:25:15,199 Speaker 1: In the eighteenth century, one of one big problem was 440 00:25:15,600 --> 00:25:18,760 Speaker 1: when people get aneurisms, how to deal with those. In 441 00:25:18,800 --> 00:25:21,600 Speaker 1: the eighteenth century up until about seventeen eighty, we dealt 442 00:25:21,640 --> 00:25:24,679 Speaker 1: with those by two ways. We either um one blood 443 00:25:24,720 --> 00:25:27,679 Speaker 1: let or two. If it was aneurism you've got in 444 00:25:27,680 --> 00:25:30,120 Speaker 1: your leg, we just you know, we would effectively cut 445 00:25:30,119 --> 00:25:32,360 Speaker 1: off your leg. We'd amputate it. And that same thing 446 00:25:32,359 --> 00:25:35,359 Speaker 1: as going on in the investing field today. For example, 447 00:25:35,560 --> 00:25:38,080 Speaker 1: we are blood letting blood letting was done to reduce 448 00:25:38,119 --> 00:25:43,840 Speaker 1: pressure and effectively reduced workload. Welcome to passive investing as 449 00:25:43,840 --> 00:25:46,920 Speaker 1: its practice. It doesn't mean it's improving the the underlying 450 00:25:46,960 --> 00:25:50,159 Speaker 1: patient's health, but it's accepted much like blood letting was 451 00:25:50,200 --> 00:25:52,240 Speaker 1: in the eighteenth century. The other thing that we're doing 452 00:25:52,240 --> 00:25:55,760 Speaker 1: today is institutions have cut themselves off from public equities altogether. 453 00:25:55,800 --> 00:25:58,840 Speaker 1: I call it institutional amputation. The question, though, is is 454 00:25:58,840 --> 00:26:01,960 Speaker 1: it helping the underlying investors to meet their needs or 455 00:26:01,960 --> 00:26:04,479 Speaker 1: the institution to meet their goals? And and it doesn't 456 00:26:04,480 --> 00:26:07,720 Speaker 1: spell as though it is. Well Cole all right, First 457 00:26:07,760 --> 00:26:10,240 Speaker 1: of all, thanks thanks for the comment about the book, 458 00:26:10,240 --> 00:26:12,240 Speaker 1: and I'll give you a couple others. The Heart Healers 459 00:26:13,000 --> 00:26:16,359 Speaker 1: is another great book by James Forrester. Uh. The other book, 460 00:26:16,400 --> 00:26:20,360 Speaker 1: The Matter of the Heart, is by Thomas Morris. And 461 00:26:20,400 --> 00:26:22,320 Speaker 1: one of the things that I took take away from 462 00:26:22,359 --> 00:26:25,800 Speaker 1: both of those books is we're talking about people who 463 00:26:25,840 --> 00:26:30,600 Speaker 1: are mavericks and misfits because they are willing to do 464 00:26:30,760 --> 00:26:35,320 Speaker 1: something and to behave in a way that is not conventional, 465 00:26:36,200 --> 00:26:40,520 Speaker 1: because they are willing to take risks that then result 466 00:26:40,640 --> 00:26:44,439 Speaker 1: in some empirical response. In other words, it's tested in 467 00:26:44,520 --> 00:26:47,680 Speaker 1: the real world. And you know, we like to say 468 00:26:47,720 --> 00:26:50,640 Speaker 1: they eat their own you know, cooking. In that case, 469 00:26:50,720 --> 00:26:54,120 Speaker 1: it's meat capital. What are you people doing right now 470 00:26:54,160 --> 00:26:58,040 Speaker 1: perhaps to take advantage of all this volatility and the 471 00:26:58,160 --> 00:27:01,959 Speaker 1: downtrend that we're seeing recently in docks. Sure, So so 472 00:27:02,080 --> 00:27:04,679 Speaker 1: to what I call it, what I cavy out this 473 00:27:04,800 --> 00:27:07,200 Speaker 1: under is I put it under the heading of how 474 00:27:07,240 --> 00:27:10,720 Speaker 1: can we improve the health of the underlying patient, or, 475 00:27:10,920 --> 00:27:13,800 Speaker 1: as John Hunter did with aneurysms, how can we improve 476 00:27:13,840 --> 00:27:17,159 Speaker 1: the quality of life. So, for example, um, if blood 477 00:27:17,200 --> 00:27:19,760 Speaker 1: letting is what some people would do, let's examine blood 478 00:27:19,800 --> 00:27:23,560 Speaker 1: letting today. In effect, blood letting is nothing bigger than 479 00:27:23,720 --> 00:27:27,800 Speaker 1: a big tech bet. Okay, if big tech does not 480 00:27:27,920 --> 00:27:31,119 Speaker 1: do wealth for blood letters, returns will be very poor. 481 00:27:31,119 --> 00:27:33,000 Speaker 1: So there's kind of too risk one that they could 482 00:27:33,040 --> 00:27:35,760 Speaker 1: do poorly in returns. Uh. And in those big cap 483 00:27:35,800 --> 00:27:38,960 Speaker 1: tech stalks that are well liked, well adored, well followed, 484 00:27:39,000 --> 00:27:42,080 Speaker 1: well covered by the street, and something that is not unique, 485 00:27:42,080 --> 00:27:44,280 Speaker 1: as you pointed out, it's not different, um, But the 486 00:27:44,280 --> 00:27:46,080 Speaker 1: flip side would be that you'd have to be asking 487 00:27:46,080 --> 00:27:48,919 Speaker 1: for a greater encore than they've just had, the problem is, 488 00:27:49,080 --> 00:27:51,880 Speaker 1: if you look statistically speaking, Um, you know, they've had 489 00:27:51,960 --> 00:27:54,280 Speaker 1: quite a great run. And the question is how how 490 00:27:54,320 --> 00:27:56,359 Speaker 1: often does that happen? You know, these things are cycles. 491 00:27:56,440 --> 00:27:59,520 Speaker 1: Humans are humans. So I'd say from from that context, 492 00:27:59,640 --> 00:28:02,280 Speaker 1: it just doesn't look like it's improving the underlying health 493 00:28:02,800 --> 00:28:05,280 Speaker 1: of the patient or the quality of life versus. Hey, 494 00:28:05,359 --> 00:28:08,600 Speaker 1: let's go into places like retail in media, which is 495 00:28:08,600 --> 00:28:13,000 Speaker 1: getting excoriated in this environment despite the volatility you mentioned. 496 00:28:12,960 --> 00:28:16,399 Speaker 1: There's merit there, there's there's there's returns that could be had, 497 00:28:16,880 --> 00:28:19,280 Speaker 1: but you have to be willing to not blood let 498 00:28:19,400 --> 00:28:22,199 Speaker 1: in this market environment, which, as we can see, you know, 499 00:28:22,240 --> 00:28:25,960 Speaker 1: the flows are just horridly the opposite way that people 500 00:28:26,000 --> 00:28:27,960 Speaker 1: want to blood let. And the question is how often 501 00:28:27,960 --> 00:28:30,240 Speaker 1: does everybody want to do something does it benefit the 502 00:28:30,280 --> 00:28:33,080 Speaker 1: underlying client? I want to push back a little bit 503 00:28:33,080 --> 00:28:37,119 Speaker 1: because the underlying patient, frankly, has done brilliantly by investing 504 00:28:37,160 --> 00:28:39,880 Speaker 1: in e t f s and passive funds, the track 505 00:28:39,960 --> 00:28:43,440 Speaker 1: equities and risk your debt over the number of years. 506 00:28:43,760 --> 00:28:45,960 Speaker 1: So I'm just trying to figure out, you know, how 507 00:28:46,000 --> 00:28:49,240 Speaker 1: do you convince people that now is different when frankly, 508 00:28:49,280 --> 00:28:52,680 Speaker 1: active managers have been saying that for years. Yeah, well, 509 00:28:52,760 --> 00:28:55,680 Speaker 1: when we you can track. This is Dalbard produces studies 510 00:28:55,720 --> 00:28:58,880 Speaker 1: looking at what does the active investor do versus what 511 00:28:58,920 --> 00:29:01,360 Speaker 1: did the passive investor do over the same time periods 512 00:29:01,760 --> 00:29:04,719 Speaker 1: and the longer the time period. Dal Bar's work shows 513 00:29:04,800 --> 00:29:07,400 Speaker 1: that the active investor one when and that what they're 514 00:29:07,440 --> 00:29:10,040 Speaker 1: tracking is what did the underlying client do, not necessarily 515 00:29:10,080 --> 00:29:11,760 Speaker 1: what the funds did and or if they poured in 516 00:29:11,840 --> 00:29:13,920 Speaker 1: the top they pulled out the low that affects the 517 00:29:13,960 --> 00:29:17,760 Speaker 1: investor return. Um So, so the longer, according to dal 518 00:29:17,800 --> 00:29:21,440 Speaker 1: Bar study, the longer the duration of the investor, the 519 00:29:21,560 --> 00:29:25,360 Speaker 1: more alpha they gained over being a past investor when 520 00:29:25,360 --> 00:29:27,880 Speaker 1: they chose to be active. Okay, so we work in 521 00:29:27,920 --> 00:29:30,680 Speaker 1: long duration time periods. I know no one that is 522 00:29:30,720 --> 00:29:32,920 Speaker 1: trying to invest for the next three years to fulfill 523 00:29:32,960 --> 00:29:37,360 Speaker 1: their needs of their life. We're talking ten you know, 524 00:29:37,360 --> 00:29:40,520 Speaker 1: in my case, god willing fifty plus years. But I 525 00:29:40,560 --> 00:29:43,880 Speaker 1: say that because you know this idea that um you know, 526 00:29:43,880 --> 00:29:46,200 Speaker 1: oh it's for example, dal Bar studies show that it's 527 00:29:46,240 --> 00:29:48,520 Speaker 1: worked better to be a past investor last three years. 528 00:29:48,680 --> 00:29:50,600 Speaker 1: So my question is that that's just a placebo effect. 529 00:29:50,640 --> 00:29:53,560 Speaker 1: The old thing is, do not confuse uh, do not 530 00:29:53,640 --> 00:29:56,800 Speaker 1: confuse brains with a bull market, and I would argue, 531 00:29:56,920 --> 00:29:59,120 Speaker 1: much like you said, it's been great returns. The only 532 00:29:59,160 --> 00:30:03,040 Speaker 1: problem is wearing a bowl market. What does a tough 533 00:30:03,080 --> 00:30:05,560 Speaker 1: market look like? And the question is is the blood 534 00:30:05,600 --> 00:30:07,640 Speaker 1: letting going to be the appropriate thing for people to 535 00:30:07,680 --> 00:30:10,680 Speaker 1: do in a terrible market? Cold Smide, thank you so 536 00:30:10,760 --> 00:30:12,960 Speaker 1: much for being with us. Cole Smide, Managing director and 537 00:30:13,000 --> 00:30:17,160 Speaker 1: co portfolio manager at Smide Capital Management, with two point 538 00:30:17,200 --> 00:30:23,000 Speaker 1: two billion dollars under management, making the case for active investors. 539 00:30:26,280 --> 00:30:28,840 Speaker 1: Thanks for listening to the Bloomberg P and L podcast. 540 00:30:29,160 --> 00:30:33,080 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 541 00:30:33,200 --> 00:30:36,640 Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm 542 00:30:36,680 --> 00:30:40,720 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 543 00:30:40,800 --> 00:30:43,400 Speaker 1: It's one before the podcast. You can always catch us 544 00:30:43,440 --> 00:30:45,040 Speaker 1: worldwide on Bloomberg Radio.