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Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: Welcome to the podcast. This is Barry Ridholts, and today

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Speaker 1: I have a very special guest, really somebody who is

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Speaker 1: a legend on Wall Street. Jack Rivkin, best known as

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Speaker 1: a managing director at Lehman Brothers, c I O at

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Speaker 1: new Berger and Berman, a partner at Ideal Labs, and

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Speaker 1: and now managing director at Altegri's. Jack is really a

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Speaker 1: legend and and the way his legend um forms is

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Speaker 1: he was hired to take Lehman Brothers research department, which

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Speaker 1: was literally dead last in the i I rankings, just

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Speaker 1: the worst research department on Wall Street. And he was

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Speaker 1: hired to improve that. And he did a lot of

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Speaker 1: things that actually turn out to be quite common today,

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Speaker 1: but back in the day when he was doing this,

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Speaker 1: it was relatively unheard of. He hired lots of women

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Speaker 1: and minorities. People just didn't do that way back when.

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Speaker 1: He also started tracking how people's research report was used

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Speaker 1: by the Street, how often people requested a specific analysts report,

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Speaker 1: how much revenue it generated, how much commission dollars had generated,

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Speaker 1: simple basic quantitative metrics to evaluate um the research product,

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Speaker 1: and we take all those things for granted today. He

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Speaker 1: was the first guy who did this. So not only

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Speaker 1: did he do a lot of for then, out of

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Speaker 1: the box hiring and outside of the box thinking, he

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Speaker 1: engaged in a lot of off campus retreats and lots

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Speaker 1: of stuff that were considered touchy feely back then and

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Speaker 1: again fairly common fair today. And over the course of

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Speaker 1: three years, he took Lehman Brothers Research from the worst

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Speaker 1: to the best on Wall Street, who was the number

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Speaker 1: one ranked research department. For his troubles, he was subsequently

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Speaker 1: fired by Dick Folds and his inner circles of yes men,

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Speaker 1: as I like to call it um, But he was

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Speaker 1: so successful. Jack was so successful in this that the process,

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Speaker 1: the methodologies, what he did became the basis of a

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Speaker 1: Harvard Business School case study. For those of you not

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Speaker 1: familiar with Harvard Business School, they teach through a series

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Speaker 1: of case studies. Here's how a manager, Here's how a CEO,

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Speaker 1: Here's how a company addressed a specific problem and solved it.

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Speaker 1: And so I actually met Jack through a mutual friend.

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Speaker 1: It was at a dinner with the famous art cassion

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Speaker 1: of Ubs and John Moulden where I met Jack, and

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Speaker 1: it turned out we had a lot of things in common,

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Speaker 1: even though he's got a few um years and a

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Speaker 1: few gray hairs on me. We're both fishermen. I ended

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Speaker 1: up in reducing Jack to to David ko Talk because

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Speaker 1: they're just same age, same you know, same sort of background,

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Speaker 1: same era. They hit it off swimmingly. Jack is now

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Speaker 1: a regular fixture at the Ko Talk Shadow Fed event,

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Speaker 1: which is every August up in Maine where a bunch

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Speaker 1: of fund managers and economists go fishing. Um Jack really

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Speaker 1: fit in very well. But he's a fascinating guy because

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Speaker 1: he then leaves, then leaves Lehman Brothers and ends up

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Speaker 1: at New Burger and Berman, where he's c I O

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Speaker 1: and does a phenomenal job there, to the point where

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Speaker 1: Lehman Brothers ultimately ends up buying New Burger and Berman.

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Speaker 1: And here's Jack, a guy who was fired um after

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Speaker 1: doing a great job, ends up working for the same

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Speaker 1: guys who fired him, and gently egresses himself out of

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Speaker 1: Lehman a second time. This this version is voluntary, and

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Speaker 1: it turns out to be quite fortuitous timing because he

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Speaker 1: le eaves just before Lehman collapses. I want to say

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Speaker 1: two years before everything hit the fan, and so uh,

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Speaker 1: he ended up really being one of those situations where

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Speaker 1: it was a fantastic firing and and did really well

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Speaker 1: for him. But Jack is one of these guys who's

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Speaker 1: just really savvy and down to earth again, another no

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Speaker 1: nonsense sort of guy who just tells it like it is.

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Speaker 1: And Amen, she's a delight to speak with. He's really

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Speaker 1: a charming fellow. I love the fact that he's seventy

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Speaker 1: or seventy one and has zero interest in retiring. He

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Speaker 1: loves what he does. When he was a partner at

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Speaker 1: Ideal l Abs, he's still a partner at Ideal Labs.

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Speaker 1: Really fascinated by finance, technology and software as well as biotech,

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Speaker 1: and we briefly talked about you know, printable organs and

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Speaker 1: principal bones and and things along those lines. It's it's

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Speaker 1: the areas that interest him I find quite fast and

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Speaker 1: and so I thought this conversation was really really interesting.

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Speaker 1: It's not as much inside baseball as I've threatened. For

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Speaker 1: a guy that the average investor may not know who

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Speaker 1: he is, he's been all over the street. He's got

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Speaker 1: just a phenomenal career, a great track record, and just

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Speaker 1: a deep, deep well of knowledge. So it was a

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Speaker 1: pleasure to sit with him and have him share some

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Speaker 1: of that. So I think I've babbled more than enough. Uh,

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Speaker 1: probably a minute longer than my usual babbling. Without further ado,

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Speaker 1: here's my conversation with Jack Rivkin. This is Masters in

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Speaker 1: Business with Barry Ridholts on Bloomberg Radio today. On the show,

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Speaker 1: I'm thrilled to have my friend Jack Rivkin, a person

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Speaker 1: you may not know who he is, again, another inside

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Speaker 1: baseball sort of person who people on the street certainly

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Speaker 1: know who he is. His his Let me just give

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Speaker 1: you a little flavor of his resume, because it's quite outstanding.

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Speaker 1: You began your career as research as a research analyst

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Speaker 1: back in ninety eight at a small firm called Mitchell Hushins.

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Speaker 1: Eventually become head of research there they get bought by

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Speaker 1: pain Webber and you work your way up the ladder

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Speaker 1: of Pain Weber, where you become research director, CFO, CEO

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Speaker 1: of the equity trading side, and eventually president of Pain

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Speaker 1: Webber Capital. Then you move over to Lehman Brothers in seven.

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Speaker 1: There are some other things in the middle, but I'm

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Speaker 1: just doing the highlights At Lehman Brothers. You famously took

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Speaker 1: them from first from worst to first famous right, and

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Speaker 1: eventually your tenure there was the subject of a Harvard

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Speaker 1: Business School case study describing exactly what goes in taking

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Speaker 1: a last place research firm turning it to a first

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Speaker 1: place firm. You were c I O, Chief Investment Officer

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Speaker 1: at New Burger Berman, and before that you were Director

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Speaker 1: of Global Research at Smith Barney. And currently you're a

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Speaker 1: director at Dale Carnegie Associates and on the Economic Club

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Speaker 1: of New York. Did did I miss any of the

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Speaker 1: big The only thing you missed were I have My

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Speaker 1: most fun is I'm a director of Ideal Lab. You

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Speaker 1: do very early stage investment pre venture capital. We start

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Speaker 1: with an idea and turn it into a company. There

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Speaker 1: you go. That's that's about as early stage as it gets.

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Speaker 1: So you've obviously had a very storied career on Wall Street.

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Speaker 1: You've worked in a lot of major firms. Um, what

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Speaker 1: were your early influences, what actually affected your early approach

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Speaker 1: to investing. Well, I had some very good mentors at

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Speaker 1: Mitchell Hutchens. There were three people that I worked with

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Speaker 1: for a long time and they made a difference in

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Speaker 1: my life. Don Mirren, who became CEO at Paint Webber

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Speaker 1: and then when they sold to UBS, he took over

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Speaker 1: a private equity operation there. Dave Williams, who, when he

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Speaker 1: left Mitchell Hutchins went to Alliance Capital and built Alliance

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Speaker 1: Capital up was not owner the Alliance Bernstein acquisition. And

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Speaker 1: Mike Johnston, who went to Capital Research and had a

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Speaker 1: long career there as well. They were very strong influences

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Speaker 1: on my care I left out earlier. You're from originally

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Speaker 1: from Oklahoma. That's right. How does a guy like you?

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Speaker 1: You went to college at Colorado, Colorado School of Mines

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Speaker 1: engineering degree. I went there to actually become a petroleum engineer,

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Speaker 1: but I really didn't like identifying rocks, so I switched

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Speaker 1: to metallurgy and got my engineering degree. Realized that I

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Speaker 1: didn't really want to be an engineer. I actually went

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Speaker 1: to work for Procter and Gamble out of out of

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Speaker 1: engineering school and then went back to business school. So

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Speaker 1: you end up at Harvard Business School. I ended up

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Speaker 1: at Harvard and from there, well, I went to Harvard

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Speaker 1: to become the world's expert in manufacturing. I was going

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Speaker 1: to go back and make better soap, and I realized

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Speaker 1: that there were other things going on in the world,

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Speaker 1: and one of them was Wall stre Did we really

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Speaker 1: need better soap? Soap has been pretty good for a while. Well,

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Speaker 1: but you could always make it better, at least that's

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Speaker 1: what they told. You can always sell more units of all, right,

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Speaker 1: So you end up. I end up on Wall Street.

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Speaker 1: And I gotta tell you, you know, growing up in Tulsa,

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Speaker 1: if anyone had told me I had go to New York,

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Speaker 1: I would have told them they were crazy anyone go

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Speaker 1: to that kind of a city. And then if they said,

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Speaker 1: and you're going to work on Wall Street, I would

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Speaker 1: have had to ask what that was. I had no

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Speaker 1: interest in finance, never, I had no clue. And Tulsa

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Speaker 1: was at that point the oil capital of the world.

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Speaker 1: Suddenly moved to Houston, so everyone was kind of focused

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Speaker 1: on that industry and taking those weird tests that you

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Speaker 1: do in high school, it said, well, maybe you ought

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Speaker 1: to think about being an engineer. So that's what I did.

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Speaker 1: But when I didn't like finding rocks and identifying them,

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Speaker 1: and when I found that there was more to life

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Speaker 1: than it was a great educational background, but there was

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Speaker 1: more going on out there, I moved on that's quite

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Speaker 1: quite fascinating. So you work your way through a number

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Speaker 1: of um a number of big firms. You've you've certainly

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Speaker 1: seen changes since. So you started in the late sixties,

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Speaker 1: which was pretty much the end of the post war rally. Yes,

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Speaker 1: so you had a twenty year run from forty six

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Speaker 1: to sixty six. The Dow I think started at someone

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Speaker 1: in the two hundreds, just about kissed a thousand in

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Speaker 1: nineteen six air under it and then for the next

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Speaker 1: sixteen years that's whoever got back over that level. No,

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Speaker 1: it never did. It was an interesting period of time.

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Speaker 1: It was a time we're actually doing analytical work and

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Speaker 1: coming up with specific investment decisions. Actually made a difference

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Speaker 1: because the market wasn't helping you at that time. No,

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Speaker 1: whin did you're back. You've had five major rallies, five

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Speaker 1: major selloffs, and by the time you were done back

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Speaker 1: in two you were essentially where you started. That's right.

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Speaker 1: So high inflation rates, so you could get ten year

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Speaker 1: treasury yielding twelve fourteen and and and free Fed funds rate.

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Speaker 1: The high the peak was twenty two point three percent

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Speaker 1: and twenty two point three percent as the Fed funds rate,

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Speaker 1: and we had one, and we had a whole lot

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Speaker 1: of inflation over that same pioge we did we did

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Speaker 1: that was that was a period where you paid a

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Speaker 1: lot of attention to the to the classic deep cyclicals

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Speaker 1: who were involved in commodities, and some of them made

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Speaker 1: a lot of money. Coming up, we continue our conversation

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Speaker 1: with Jack Rifkin and we discussed how he took the

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Speaker 1: last place research department of Lehman Brothers and made it

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Speaker 1: the best on Wall Street. You're listening to Masters in

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Speaker 1: Business with Barry rid Holts on Bloomberg Radio. I'm Barry

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Speaker 1: rid Holts. You're listening to Masters in Business on Bloomberg Radio.

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Speaker 1: My guest today is Jack Rivkin. He's chief investment officer

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Speaker 1: at Altegri's Associates and has a very storied career on

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Speaker 1: Wall Street. Worked at UH in very senior positions, head

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Speaker 1: of research, CFO, et cetera, at and a number of

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Speaker 1: large firms. But what you're really is it fair to

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Speaker 1: say what you're best known for is the work you

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Speaker 1: did at Lehman Brothers in its heyday? Is that a

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Speaker 1: fair statement? I I think that's close to a fair statement,

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Speaker 1: and it was definitely something unusual that happened there, and

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Speaker 1: we touched a lot of people and it made a difference.

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Speaker 1: So so let's stay back and talk about this. U.

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Speaker 1: By the way, you and I first met some years

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Speaker 1: ago and after I we had met, and you're just

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Speaker 1: a very ordinary guy, very humble. Like when one meets

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Speaker 1: Jack Rifken, one is not does not come away with wow,

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Speaker 1: that guy has an unbelievable resume. So so what a

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Speaker 1: nice guy. And I just happened to mention it to somebody.

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Speaker 1: By the way, I met a guy named Jack Rifken,

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Speaker 1: Jack Rivken. Do you know who Jack Rifken is? Yeah,

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Speaker 1: he's this guy. No, no, no, you should go google

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Speaker 1: Jack Rifken. So I google you, and upcomes the Harvard

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Speaker 1: Business School case study on what you did at Lehman

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Speaker 1: Brothers from I want to say seven to the early

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Speaker 1: that's right. So so essentially at the time, Lehman Brothers

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Speaker 1: was a fifth or sixth um largest investment bank, maybe

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Speaker 1: even a little smaller than that, with the research department

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Speaker 1: that someone called the laughing stock of Wall Street. Not well,

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Speaker 1: it was not highly regarded, essentially last place in every ranking.

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Speaker 1: And so who recruited you to run their research upon

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Speaker 1: actually a guy named Jeff Laine who had an influence

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Speaker 1: on several things later in my life. He was CEO

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Speaker 1: at New Burger when I went there as CEO at

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Speaker 1: his request, and this was kind of an offer that

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Speaker 1: was hard to refuse. First, it was sort of a

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Speaker 1: blank slate. I could I could do. I could apply

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Speaker 1: everything that I had learned to a something that really

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Speaker 1: needed to be reformed, and it truly needed to be reformed,

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Speaker 1: and there were incentives put in place to take it

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Speaker 1: up to somewhere in the top five. And that was

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Speaker 1: our that was really our goal. And really that five

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Speaker 1: year plan took you about three years to put into

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Speaker 1: a That was the surprise. I was surprised at that

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Speaker 1: as well, that we managed to do that in three years.

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Speaker 1: And so let's talk a little bit about the how

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Speaker 1: did you end up? What did you do to change

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Speaker 1: the staffing, the culture, and the quality of the work there. Well,

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Speaker 1: it was it was fairly easy in the sense that

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Speaker 1: I could make changes to everything. There was nothing that

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Speaker 1: was sacred. And in fact, in the case they talked

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Speaker 1: about the possibility that we could have actually brought in

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Speaker 1: a Wigia board and fired everybody, and nobody would have known.

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Speaker 1: Sometimes people wonder if that's actually what goes on in

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Speaker 1: research departments anyway. Well, the very famous monkey throwing darts

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Speaker 1: at a stop pages on the wall. That's absolutely right,

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Speaker 1: not that far off. So so what what changes aside

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Speaker 1: from the wholesale changes from what wasn't working? What did

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Speaker 1: you actually do? It was two things. Primarily, one was measuring.

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Speaker 1: We measured everything, and we measured it very openly. Whether

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Speaker 1: it was a number of calls and analysts made, what

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Speaker 1: their track records were on their stocks, the quality of

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Speaker 1: their written work, all of the contact they had with

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Speaker 1: the salesforce, the contact with the clients, all of anything

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Speaker 1: we could measure, we did, and we posted it. We

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Speaker 1: posted it so everybody could see it. Now, analysts aren't

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Speaker 1: tend to be competitive, so you're posting who makes the

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Speaker 1: most calls, who writes the best report, who writes the

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Speaker 1: most reports, who has the most feedback coming from the salesforce,

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Speaker 1: how are they getting rated by the clients? All of

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Speaker 1: those things people saw. No one wanted to be at

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Speaker 1: the bottom of the list. So you created a somewhat

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Speaker 1: competitive environment. But against the background of it was spelled

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Speaker 1: out and we tried to make it as collegial as possible.

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Speaker 1: I instituted a rule that's at any time you were

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Speaker 1: out with a client and you talked about what you

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Speaker 1: were doing, and even in your reports, you had to

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Speaker 1: mention two other analysts in the department. Now, that started

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Speaker 1: out with people saying, well why do I do this?

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Speaker 1: I said, Number one, someone's going to mention you. You're

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Speaker 1: gonna get better known. Number two. Ultimately, you're going to

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Speaker 1: have to find out a reason why you're mentioning an analyst.

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Speaker 1: So it's gonna make you a better analyst as well.

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Speaker 1: So so all of these quantitative metrics and this transparency,

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Speaker 1: this is pretty common stuff these days. It wasn't then.

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Speaker 1: So so that was you guys were really operating a

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Speaker 1: little outside of the box and shaking things up well.

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Speaker 1: And we operated even more outside the box. We used

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Speaker 1: to have off sites that were bizarre. We did strange things,

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Speaker 1: face painting, uh. We We had people coming in talking

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Speaker 1: about left brain, right brain. We had people coming in

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Speaker 1: providing sports analogies to how you run a successful organization.

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Speaker 1: We did a lot with these folks. We put them

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Speaker 1: through a lot of training as well. Even the older analysts,

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Speaker 1: we would we would put them in a group and

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Speaker 1: have someone who was let's say we had an analyst

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Speaker 1: who was making the most calls that analysts would talk about,

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Speaker 1: Here's what I do, Here's how I do it, Here's

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Speaker 1: how I get off the phone to make the next call,

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Speaker 1: here is what I concentrate on, etcetera. We had one

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Speaker 1: of our analysts, who was a very good balance sheet person,

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Speaker 1: go through with all the other analysts. First, that meant

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Speaker 1: they were recognized internally, and secondly they were conveying information

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Speaker 1: and other people said, Hey, I'm surrounded by some good

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Speaker 1: folks here. And this did not really happen at other

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Speaker 1: Wall Street Research. It was not happening as much. There

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Speaker 1: was another element that worked for us that was different.

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Speaker 1: We had a fair amount of gender arbitrage. I guess

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Speaker 1: that's the way I'd put it, meaning that you brought

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Speaker 1: in a lot of women, brought in a lot of women,

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Speaker 1: well they were mail and and the women. In terms

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Speaker 1: of market share of ranked analysts, we had the highest

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Speaker 1: market share by a lot. Now why did they come

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Speaker 1: there to work? Because we created an environment where one

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Speaker 1: they felt that they were recognized to that it was

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Speaker 1: totally based on merit. There was no nothing in the

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Speaker 1: way of compensation difference, and we supported, We created an

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Speaker 1: environment was supported if they had kids, let's deal with that,

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Speaker 1: if if they need to take a break, time off, office,

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Speaker 1: at home, whatever you wanted to do. And because we're

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Speaker 1: measuring everything, we knew people were working or they weren't.

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Speaker 1: It also became a very collegial environment. And that work.

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Speaker 1: Now the reason Harvard wrote a case on it is

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Speaker 1: because it applied outside of just a research effort. It

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Speaker 1: was taught in the Management of Service Organizations course as

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Speaker 1: they kind of standard for right. And I still go

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Speaker 1: up there, you know here it is. You know, it's

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Speaker 1: twenty years later and they're still teaching the course. That

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Speaker 1: that's quite fascinating. When we continue our conversation, we'll discuss

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Speaker 1: how Jack actually got fired from Lehman Brothers despite taking

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Speaker 1: them to the top of the institutional rankings. I'm Barry Rihults.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. You're

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Speaker 1: listening to Masters in Business with Barry rid Holts on

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Speaker 1: Bloomberg Radio. This is Masters in Business on Bloomberg Radio.

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Speaker 1: I'm Barry rid Holtz. Today we're speaking with Jack Rivkin,

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Speaker 1: who is currently Chief Investment officer of Altegri's associates. But

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Speaker 1: he has a very storied background and career. He worked

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Speaker 1: as the head of research at Lehman Brothers, the chief

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Speaker 1: investment officer for new Burger and Berman. You were at

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Speaker 1: Smith Barney, you are at a number of places, a

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Speaker 1: very storied um background and incredibly knowledgeable about how things

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Speaker 1: work in the world of finance. Earlier, we were talking

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Speaker 1: about how you had taken Lehman Brothers back in the

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Speaker 1: nineteen eighties from the worst research department, a laughing stock

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Speaker 1: on Wall Street, to the number one ranked institutional research department,

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Speaker 1: and for your troubles you were rewarded. How you listed

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Speaker 1: every place I had worked. Some people could say, well,

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Speaker 1: he couldn't hold a job, Well, this was an instance

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Speaker 1: where I clearly couldn't hold it. All those other jobs

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Speaker 1: you had been recruited away and hired away this one,

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Speaker 1: it was not quite the case there. Three years into it,

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Speaker 1: we were number one in research. I then moved from

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Speaker 1: being head of research to running the whole equity division,

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Speaker 1: and we were actually doing extremely well. But it happened

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Speaker 1: to be a time when the fixed income markets weren't

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Speaker 1: doing well. If you go back that was a period

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Speaker 1: of crisis SNLS. There were all these kinds of problems

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Speaker 1: and fixed income, which was the core of Lehman, was

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Speaker 1: not doing quite as well. And we were really kicking it.

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Speaker 1: We were doing extremely well, and I don't think that

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Speaker 1: went over well. And I had a different management style.

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Speaker 1: Lehman was a pretty buttoned up management style, and I

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Speaker 1: had casual fridays and all these offside, very loosey goosey

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Speaker 1: with But by the way, a lot of the stuff

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Speaker 1: you talked about, it's pretty standard operating procedure today today

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Speaker 1: in in a number of management courses and a number

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Speaker 1: of service oriented industries. But back then it was not.

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Speaker 1: People looked at you a little, hey, what is this crazy?

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Speaker 1: It was this crazy guy and what is he doing here? Well,

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Speaker 1: what what we were doing was producing results, but it

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Speaker 1: was not being done. And what I'd call the button down,

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Speaker 1: this is the way we're going to operate. And the

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Speaker 1: guy running the fixed income operation at that time was

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Speaker 1: a West Point grad. He had a certain way of

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Speaker 1: doing business. He was totally opposed to casual fridays and

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Speaker 1: he said, you know, I, I I just don't believe in

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Speaker 1: wearing doctors into work. And I said, well, what's important

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Speaker 1: are the results, not the numbers. That's it. And the

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Speaker 1: numbers were pretty good, but I didn't fit. So who

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Speaker 1: ultimately fired you? Was it Dick Fold or was it

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Speaker 1: Dick was in the office, Dick was in in the meeting.

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Speaker 1: It was Dick and Chris Pettitt, who was the guy

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Speaker 1: running the fixed income operation at that Hey, you're making

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Speaker 1: too much money on the equity side, and we don't

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Speaker 1: like what you're doing. You gotta go. Well you could

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Speaker 1: see how that ultimately were strange because I I you know,

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Speaker 1: they said, well, we're going to have to make a

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Speaker 1: change here and I I said, well, let's talk a

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Speaker 1: little bit about why. And they said, well, we just

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Speaker 1: feel it's necessary. It just as important. They wouldn't go

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Speaker 1: into it. There was no argument on that, and and okay,

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Speaker 1: so it was going to happen. That's fine. So it

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Speaker 1: then became let me negotiate the best exit I possibly could,

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Speaker 1: and I get maybe because they felt guilty or whatever.

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Speaker 1: It was a pretty good exit. It gave me a

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Speaker 1: lot of flexibility of things to do, and uh, I

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Speaker 1: still have lots of friends at Lehman, And of course

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Speaker 1: I came back involved with Lehman because new Burger. So

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Speaker 1: you ended up as chief investment officer at new berglan Berman.

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Speaker 1: So this is you leave Lean Well, No. Nine two

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Speaker 1: is when I Yes, ninety two is when I left Lehman.

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Speaker 1: And I was trying to actually with a guy named

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Speaker 1: Jim Freeman. We were going to actually raise a merchant

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Speaker 1: banking front. And I went to Sandy Wild to raise

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Speaker 1: some money and he said, why don't you come over

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Speaker 1: here and help us on the research. And then at

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Speaker 1: that point they had Smith Barney. Yes, they had Smith Barney.

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Speaker 1: And I said, no, I'm raising this fun And I

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Speaker 1: asked him, I said, well, when are you going to

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Speaker 1: buy Lehman? And he said, oh, they hate me, I

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Speaker 1: hate them. It's not gonna happen. I said, well, if

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Speaker 1: you ever do give me a call, there are a

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Speaker 1: couple of people there. I'm prepared to shoot for you.

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Speaker 1: So that two months later I get a call saying, well,

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Speaker 1: we're not buying Lehman, but we're buying the retail division

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Speaker 1: and we're buying the asset management business Smith Martin of

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Speaker 1: Jerson Lehman. They and they were adding it to the

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Speaker 1: Smith Barney. So they loved the Lehman research. Why don't

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Speaker 1: you come in and get a Susan, I said, I'm

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Speaker 1: raising this fun and to Sandy's credit, he said, okay,

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Speaker 1: you come over here and help us, and I'll give

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Speaker 1: you the money. The money he he gave was first

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Speaker 1: Travelers Investment Group money and then the City Group Investments

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Speaker 1: and I I was there during the dot com era.

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Speaker 1: I spent two years on the research side and then

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Speaker 1: moved into the investment group and ran a group of

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Speaker 1: folks doing venture capital and portfolio myself. And it was

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Speaker 1: during the dot com era. It was a great time

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Speaker 1: to be there. And I retired from that in two

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Speaker 1: thousand one. I tried to retire in the said no,

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Speaker 1: you gotta stick around. But I sold everything that I

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Speaker 1: thought I could sell, so there wasn't much left to do.

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Speaker 1: But I stuck around, retired with the intention of spending

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Speaker 1: a lot of time in the venture world. And then

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Speaker 1: I get a call from my friend from the Lehman days,

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Speaker 1: Jeff Lane, who was running Newberger Berman, and said, why

429
00:25:59,680 --> 00:26:02,639
Speaker 1: don't you I'm here at ce IO coming up. We

430
00:26:02,760 --> 00:26:06,439
Speaker 1: continue our conversation with Jack Rivkin discussing the world of

431
00:26:06,600 --> 00:26:10,960
Speaker 1: venture capital, investing, managed futures and Hedge Funds. You're listening

432
00:26:11,000 --> 00:26:15,000
Speaker 1: to Masters in Business with Barry Ridholts on Bloomberg Radio.

433
00:26:20,480 --> 00:26:23,960
Speaker 1: This is Masters in Business on Bloomberg Radio. I'm Barry

434
00:26:24,040 --> 00:26:27,159
Speaker 1: rid Holts. Today I'm speaking with Jack Rivkin, who is

435
00:26:27,280 --> 00:26:32,720
Speaker 1: currently head of Research and and principal at Altegri's Associates.

436
00:26:32,760 --> 00:26:35,600
Speaker 1: Is that correct? Or chief in pretty close chief Investment

437
00:26:35,680 --> 00:26:40,560
Speaker 1: ce IO, and earlier we were discussing um your career.

438
00:26:40,640 --> 00:26:44,199
Speaker 1: You had run the research department at Smith Barney and

439
00:26:44,320 --> 00:26:48,720
Speaker 1: before that at Lehman Brothers, and then eventually became chief

440
00:26:48,760 --> 00:26:52,840
Speaker 1: investment officer at new Berger and Berman. Along the way,

441
00:26:52,920 --> 00:26:56,400
Speaker 1: you were pretty active in the venture capital markets as well.

442
00:26:56,520 --> 00:27:00,920
Speaker 1: You were head of um VC cap it at Pain

443
00:27:01,000 --> 00:27:03,960
Speaker 1: Webber Is that right? Yes, I started up their merchant

444
00:27:04,000 --> 00:27:09,000
Speaker 1: banking capital operation. And you also are a principal City

445
00:27:09,040 --> 00:27:11,960
Speaker 1: Group at City Group and your principal at Ideal Apps

446
00:27:12,480 --> 00:27:15,359
Speaker 1: that does very early stage investing. Talk a little bit

447
00:27:15,400 --> 00:27:18,520
Speaker 1: about what the world of venture capital is like. Well,

448
00:27:18,560 --> 00:27:22,159
Speaker 1: the world of venture capital has changed fairly dramatically, but

449
00:27:22,280 --> 00:27:26,640
Speaker 1: it's primarily driven by Moore's law. If we're doubling processing

450
00:27:26,720 --> 00:27:29,560
Speaker 1: speeds every eighteen months, just think about that. That means

451
00:27:29,560 --> 00:27:32,520
Speaker 1: in ten years, whatever you're doing is sixty or four

452
00:27:32,560 --> 00:27:35,440
Speaker 1: times faster than it was ten years previously. And I

453
00:27:35,520 --> 00:27:37,720
Speaker 1: don't think we can imagine all the things you can

454
00:27:37,760 --> 00:27:41,119
Speaker 1: do with that. But there are folks out there, primarily

455
00:27:41,160 --> 00:27:43,520
Speaker 1: on the West coast and maybe up a little north

456
00:27:43,560 --> 00:27:47,560
Speaker 1: of here and that's right, who are figuring out things

457
00:27:47,840 --> 00:27:53,520
Speaker 1: to do and it's exciting. What what about the biotech side,

458
00:27:53,320 --> 00:27:56,919
Speaker 1: I think, particularly with what we see going on with

459
00:27:57,000 --> 00:28:00,679
Speaker 1: healthcare costs and whether it's sim cell re search or

460
00:28:00,800 --> 00:28:06,280
Speaker 1: brain research or any of this effort, the opportunities are phenomenal,

461
00:28:06,480 --> 00:28:09,120
Speaker 1: just just fascinating. You know, it's changing the world. It's

462
00:28:09,160 --> 00:28:12,560
Speaker 1: really tough to make a bet against human ingenuity. There's

463
00:28:12,560 --> 00:28:16,919
Speaker 1: so many fascinating new technologies coming out all the time.

464
00:28:17,440 --> 00:28:20,639
Speaker 1: It's hard to keep up with the pace of of innovation.

465
00:28:20,760 --> 00:28:23,199
Speaker 1: And what you have to do is find some smart

466
00:28:23,280 --> 00:28:27,320
Speaker 1: people who are driven and have a little bit of

467
00:28:27,520 --> 00:28:31,399
Speaker 1: something that relates to management and what they're doing, and

468
00:28:31,480 --> 00:28:34,280
Speaker 1: you can do wonderful things in the world. And the

469
00:28:34,359 --> 00:28:38,200
Speaker 1: great thing is we've got another country out there called China,

470
00:28:38,480 --> 00:28:41,880
Speaker 1: billion million people. My guess is the i Q spread

471
00:28:41,960 --> 00:28:44,320
Speaker 1: is the same as it is here. So you're talking

472
00:28:44,360 --> 00:28:46,480
Speaker 1: about an equivalent at the high end of the i

473
00:28:46,600 --> 00:28:49,720
Speaker 1: Q equal to the whole US population. They're going to

474
00:28:49,800 --> 00:28:52,640
Speaker 1: get there as well. And so what about all the

475
00:28:52,680 --> 00:28:55,360
Speaker 1: problems of it's a communist country and they're building these

476
00:28:55,360 --> 00:28:58,120
Speaker 1: ghost cities and you know all the problems that people

477
00:28:58,160 --> 00:29:00,760
Speaker 1: have been talking about China for the past cup of years.

478
00:29:00,960 --> 00:29:03,959
Speaker 1: Is that just something they work through or well, I

479
00:29:04,000 --> 00:29:06,400
Speaker 1: don't think you can work through it. I think there

480
00:29:06,440 --> 00:29:09,560
Speaker 1: will be some elements of disruption there. But the fact

481
00:29:09,640 --> 00:29:12,200
Speaker 1: is you have a group of very smart people there

482
00:29:12,280 --> 00:29:15,440
Speaker 1: at one end of that spectrum, and those folks have

483
00:29:15,560 --> 00:29:19,120
Speaker 1: always had to be entrepreneurs in a communist system. If

484
00:29:19,160 --> 00:29:22,160
Speaker 1: you're going to survive in that system and maybe to

485
00:29:22,240 --> 00:29:25,840
Speaker 1: some extent, thrive, you have to become an entrepreneur. May

486
00:29:25,840 --> 00:29:28,560
Speaker 1: not be the entrepreneur that we think about, but you're

487
00:29:28,600 --> 00:29:31,160
Speaker 1: having to think about what can I do, what can

488
00:29:31,200 --> 00:29:35,600
Speaker 1: I make use of that gets me beyond what's happening

489
00:29:35,680 --> 00:29:39,920
Speaker 1: in a bureaucratic controlled system, and a big segment of

490
00:29:39,920 --> 00:29:42,640
Speaker 1: the population does that. So let's talk a little bit

491
00:29:42,680 --> 00:29:46,400
Speaker 1: about other stuff you've done. In addition to venture capital,

492
00:29:46,560 --> 00:29:51,400
Speaker 1: there's been a lot of other alternative investments, hedge funds, futures.

493
00:29:51,760 --> 00:29:54,000
Speaker 1: Let's that's sort of my that's a bit of my

494
00:29:54,080 --> 00:29:57,960
Speaker 1: new life. Although I go back to having called on A. W.

495
00:29:58,200 --> 00:30:01,320
Speaker 1: Jones in the early days of one of the first

496
00:30:01,320 --> 00:30:06,480
Speaker 1: hedge funds that existed. But that's Alfred Jones, the essentially

497
00:30:06,640 --> 00:30:09,440
Speaker 1: the first He was at the first hedge fund. Are

498
00:30:09,440 --> 00:30:11,360
Speaker 1: you going to tell me that you knew Mr Jones

499
00:30:11,360 --> 00:30:13,720
Speaker 1: is no. No. The person I dealt with there was

500
00:30:13,760 --> 00:30:17,240
Speaker 1: a guy named Tony Healy who was also a legend

501
00:30:17,400 --> 00:30:20,880
Speaker 1: as well. And uh, they were true hedge funds. They

502
00:30:20,880 --> 00:30:25,600
Speaker 1: were actually actually they actually did hedges. They weren't leveraged funds.

503
00:30:25,640 --> 00:30:29,600
Speaker 1: They were actually making decisions on buying and selling securities

504
00:30:29,920 --> 00:30:33,200
Speaker 1: and thinking about risk, even in those early days. This

505
00:30:33,360 --> 00:30:37,320
Speaker 1: is back in the sixties as well, but coming out

506
00:30:37,520 --> 00:30:42,200
Speaker 1: of of New New Burger, where I actually stayed on

507
00:30:42,360 --> 00:30:45,040
Speaker 1: the mutual fund board for a long time after having

508
00:30:45,080 --> 00:30:50,080
Speaker 1: been c i O there, I actually got involved with

509
00:30:50,120 --> 00:30:53,239
Speaker 1: a couple of private equity firms as what's called an

510
00:30:53,320 --> 00:30:57,200
Speaker 1: executive advisor. What that meant is if they found something

511
00:30:57,200 --> 00:30:59,560
Speaker 1: that we're looking at where they thought I might have expertise,

512
00:31:00,320 --> 00:31:04,640
Speaker 1: I would get involved. And I did get involved very

513
00:31:04,760 --> 00:31:08,520
Speaker 1: rigorously going back to two thousand twelve in the possible

514
00:31:08,560 --> 00:31:12,479
Speaker 1: acquisition of Altegrists out of an insurance company, and I

515
00:31:12,520 --> 00:31:17,480
Speaker 1: was intrigued had been intrigued to some extent by alternative

516
00:31:17,560 --> 00:31:21,480
Speaker 1: investments and how liquid alternatives were becoming a part of

517
00:31:21,520 --> 00:31:25,960
Speaker 1: the program there. And I like the people, I like

518
00:31:26,080 --> 00:31:28,640
Speaker 1: the process, and I thought it would help build some

519
00:31:28,760 --> 00:31:32,760
Speaker 1: brain cells as well. And I after the deal was closed,

520
00:31:32,800 --> 00:31:35,280
Speaker 1: I went in as chairman of the company. We were

521
00:31:35,280 --> 00:31:38,560
Speaker 1: looking for a C I O. Really couldn't find someone

522
00:31:38,640 --> 00:31:41,280
Speaker 1: who could deal as broadly as I would have liked.

523
00:31:41,760 --> 00:31:44,160
Speaker 1: So I pulled a Dick Jeney, I said I can

524
00:31:44,240 --> 00:31:47,560
Speaker 1: do this, and and actually they took a vote. I

525
00:31:47,600 --> 00:31:50,000
Speaker 1: don't know how close it was, but I ended up

526
00:31:50,040 --> 00:31:54,200
Speaker 1: as c I O. And it's been a great experience.

527
00:31:54,280 --> 00:31:57,440
Speaker 1: I think it is an area that is doing some

528
00:31:58,040 --> 00:32:02,120
Speaker 1: under really interesting thing. You have to be careful, and

529
00:32:02,600 --> 00:32:05,440
Speaker 1: you have to be careful about what strategies at what time,

530
00:32:05,520 --> 00:32:08,840
Speaker 1: which gets to the concept of managed futures versus lawn

531
00:32:08,840 --> 00:32:11,200
Speaker 1: short equity or a lawn short fixed income. There's a

532
00:32:11,280 --> 00:32:13,800
Speaker 1: lot of varieties, so we're going way off into the

533
00:32:13,800 --> 00:32:17,840
Speaker 1: weeds in terms of a little more complex financial product.

534
00:32:19,200 --> 00:32:22,080
Speaker 1: Let's talk about how the world has evolved over the

535
00:32:22,120 --> 00:32:25,240
Speaker 1: course of your career, because you started out the world

536
00:32:25,320 --> 00:32:27,960
Speaker 1: was a whole lot simpler. You were an equity analyst

537
00:32:28,360 --> 00:32:31,760
Speaker 1: in the late sixties, you were looking at balance sheets.

538
00:32:31,800 --> 00:32:37,000
Speaker 1: This is really Graham and Dodd fundamental research, and now

539
00:32:37,200 --> 00:32:42,320
Speaker 1: it's the polar opposite into the schedule spectrum of complex

540
00:32:42,640 --> 00:32:46,840
Speaker 1: hedged products, etcetera. Is it the world has changed so

541
00:32:46,920 --> 00:32:50,560
Speaker 1: much that that's what drew you there, or Hey, this

542
00:32:50,600 --> 00:32:53,120
Speaker 1: looks like something I haven't played in before. Let's have

543
00:32:53,160 --> 00:32:55,720
Speaker 1: a little fun with this. This is intriguing stuff. Well,

544
00:32:55,760 --> 00:32:59,040
Speaker 1: it's a combination. It was something that had not been

545
00:32:59,080 --> 00:33:02,200
Speaker 1: at the core of what doing. But it was absolutely

546
00:33:02,240 --> 00:33:05,000
Speaker 1: the case that if you look at the right kind

547
00:33:05,000 --> 00:33:08,600
Speaker 1: of hedge funds, they're doing the fundamental research. They're just

548
00:33:09,040 --> 00:33:12,280
Speaker 1: they've just got so much information coming at them that

549
00:33:12,400 --> 00:33:14,920
Speaker 1: they can do things that we couldn't do back in

550
00:33:15,040 --> 00:33:19,280
Speaker 1: the the early days here as well. And that intrigued me.

551
00:33:19,600 --> 00:33:21,920
Speaker 1: That intrigued me, and it also intrigued me that we're

552
00:33:21,960 --> 00:33:25,840
Speaker 1: moving toward risk is what you ought to be managing

553
00:33:26,040 --> 00:33:30,320
Speaker 1: as opposed to what are my returns? It's what level

554
00:33:30,360 --> 00:33:33,840
Speaker 1: of risk. Am I willing to take here to satisfy

555
00:33:33,920 --> 00:33:38,320
Speaker 1: whatever goals I have? And those strategies look like they

556
00:33:38,360 --> 00:33:44,440
Speaker 1: can fit into modifying or accepting an element of risk

557
00:33:44,520 --> 00:33:47,280
Speaker 1: in a portfolio. Risk risk has always been with us.

558
00:33:47,360 --> 00:33:53,640
Speaker 1: The traditional response is a sixty fortyfolio, so you have

559
00:33:53,720 --> 00:33:56,760
Speaker 1: an anchor of bonds, and when stocks are gonna shell

560
00:33:56,800 --> 00:34:00,479
Speaker 1: act like we've seen earlier this year, the bond uh

561
00:34:00,840 --> 00:34:03,520
Speaker 1: typically go the other way, so it takes a little

562
00:34:03,520 --> 00:34:06,520
Speaker 1: bit of the sting out of the drop um. For

563
00:34:06,600 --> 00:34:09,000
Speaker 1: the average person, is this the sort of thing that

564
00:34:10,000 --> 00:34:13,120
Speaker 1: makes sense? Or they are they better off with a

565
00:34:13,160 --> 00:34:18,160
Speaker 1: traditional asset allocation model? Or who's the intended client for

566
00:34:18,280 --> 00:34:22,239
Speaker 1: a sophisticated I think the client the client can't be

567
00:34:22,600 --> 00:34:27,520
Speaker 1: it's ultimately the end investor. But it is complex and

568
00:34:27,640 --> 00:34:30,480
Speaker 1: one has to really think about how you want to

569
00:34:30,520 --> 00:34:34,359
Speaker 1: allocate among all the asset classes that you've got available here.

570
00:34:34,640 --> 00:34:37,760
Speaker 1: And I think it takes an intermediary. It takes someone

571
00:34:37,800 --> 00:34:41,640
Speaker 1: who's operating as an advisor of some sort, who is

572
00:34:41,680 --> 00:34:44,600
Speaker 1: actually paying attention to risk and what their client is

573
00:34:44,640 --> 00:34:48,080
Speaker 1: saying they want to achieve over the next twenty years,

574
00:34:48,120 --> 00:34:51,680
Speaker 1: and it's prepared to spend some time on that and

575
00:34:51,840 --> 00:34:57,759
Speaker 1: actually incorporate hedged product or to modify the amount of

576
00:34:57,880 --> 00:35:00,600
Speaker 1: risk that their client is going to be set GEK two.

577
00:35:01,120 --> 00:35:05,320
Speaker 1: But for an individual investor to make these decisions around

578
00:35:05,440 --> 00:35:09,319
Speaker 1: the particularly the liquid product that is out there, I

579
00:35:09,360 --> 00:35:12,840
Speaker 1: think you need help. It's complicated. It is complex stuff.

580
00:35:13,239 --> 00:35:15,680
Speaker 1: And and before we run out of time, let's just

581
00:35:15,719 --> 00:35:18,160
Speaker 1: talk a little bit about what sort of stuff you're

582
00:35:18,160 --> 00:35:20,720
Speaker 1: seeing on the venture sides, because I know you're still

583
00:35:21,120 --> 00:35:24,560
Speaker 1: active in early stage investing. What's out there that's kind

584
00:35:24,560 --> 00:35:28,760
Speaker 1: of fascinating. Well, this may seem actually old now because

585
00:35:28,800 --> 00:35:31,080
Speaker 1: it's in the news, but I think three D printing

586
00:35:31,160 --> 00:35:34,680
Speaker 1: bringing three D printing down to the individual, where you

587
00:35:34,760 --> 00:35:37,600
Speaker 1: get to a device that costs you a two hundred

588
00:35:37,640 --> 00:35:41,480
Speaker 1: bucks and you can print out a lot of different

589
00:35:41,520 --> 00:35:44,399
Speaker 1: things based on what someone is coming to you. Three

590
00:35:44,480 --> 00:35:47,600
Speaker 1: D printing. We we've also I'm still involved in some

591
00:35:47,719 --> 00:35:51,880
Speaker 1: elements around climate change, not climate change specifically, but some

592
00:35:51,960 --> 00:35:56,200
Speaker 1: of the different ways to create or store energy. Moving

593
00:35:56,239 --> 00:35:59,440
Speaker 1: a little bit into the healthcare area, which I think

594
00:35:59,760 --> 00:36:04,000
Speaker 1: is such a need. You know you mentioned three D

595
00:36:04,080 --> 00:36:08,160
Speaker 1: printing and healthcare. I saw too fascinating stories on that.

596
00:36:08,840 --> 00:36:12,279
Speaker 1: One was a group of doctors in Europe that had

597
00:36:12,360 --> 00:36:16,279
Speaker 1: an inoperable tumor on a relatively young kid, and they

598
00:36:16,360 --> 00:36:18,399
Speaker 1: were able to take the m R I and CAT

599
00:36:18,480 --> 00:36:23,120
Speaker 1: scans of this tumor printed in three D so they

600
00:36:23,160 --> 00:36:26,720
Speaker 1: could see how the tumor was interfering with what veins

601
00:36:26,760 --> 00:36:31,759
Speaker 1: and what arteries, and and repeated practice surgeries in order

602
00:36:31,800 --> 00:36:35,680
Speaker 1: to get to it, and eventually they operate on this

603
00:36:35,760 --> 00:36:39,080
Speaker 1: inoperable tumor and save this boy's life. The other thing

604
00:36:39,080 --> 00:36:41,440
Speaker 1: which is astonishing that I was just reading about the

605
00:36:41,440 --> 00:36:47,080
Speaker 1: other day is using three D printing to print biological output,

606
00:36:47,600 --> 00:36:49,920
Speaker 1: so they could print part of a kidney or print

607
00:36:50,000 --> 00:36:54,640
Speaker 1: part of a That's astonishing, astonishing happening. And I've I've

608
00:36:54,640 --> 00:36:57,480
Speaker 1: actually been up to New York stem Cell Foundation and

609
00:36:57,520 --> 00:37:00,920
Speaker 1: they're they're printing bones, but they're printing bone that actually

610
00:37:01,200 --> 00:37:04,879
Speaker 1: have you know, veins running through them. You're actually it's

611
00:37:04,920 --> 00:37:09,560
Speaker 1: not a dead piece of calcium. It's an actual bone,

612
00:37:09,640 --> 00:37:14,200
Speaker 1: a growing, living, living, a living bone. Thank you Jack

613
00:37:14,239 --> 00:37:16,240
Speaker 1: for spending so much time with us. We've been speaking

614
00:37:16,239 --> 00:37:19,640
Speaker 1: with Jack Rivkin, managing director at Altegris. Be sure and

615
00:37:19,719 --> 00:37:22,640
Speaker 1: check out our podcast extras where we continue the conversation

616
00:37:23,040 --> 00:37:26,920
Speaker 1: you could see that at Bloomberg dot com or at iTunes.

617
00:37:27,320 --> 00:37:30,360
Speaker 1: Check out all of our past conversations are archived at

618
00:37:30,440 --> 00:37:34,480
Speaker 1: both those locations, or follow me on Twitter at Ridholts.

619
00:37:34,600 --> 00:37:37,759
Speaker 1: I'm Barry Rihults. You're listening to Masters in Business on

620
00:37:37,920 --> 00:37:43,080
Speaker 1: Bloomberg Radio. This is Barry Ridholts, and this is our

621
00:37:43,160 --> 00:37:48,720
Speaker 1: Masters in Business weekly series where I find some very smart,

622
00:37:48,880 --> 00:37:54,560
Speaker 1: influential person who's work and ideas have really dramatically influenced

623
00:37:54,600 --> 00:37:59,280
Speaker 1: the market, uh or society or business over the past

624
00:37:59,280 --> 00:38:02,520
Speaker 1: few years. And today I'm thrilled to have my friend

625
00:38:02,560 --> 00:38:06,520
Speaker 1: and fishing buddy Jack Rivkin, who's now with Altegris. And

626
00:38:06,600 --> 00:38:09,120
Speaker 1: if you listen to the early part of the show,

627
00:38:09,719 --> 00:38:12,200
Speaker 1: pretty much couldn't hold the job and just kicked around

628
00:38:12,840 --> 00:38:16,400
Speaker 1: Wall Street, from Lehman to City to pain Webber to

629
00:38:16,520 --> 00:38:20,000
Speaker 1: new Berger and Burnman. Eventually somebody was nice and took

630
00:38:20,040 --> 00:38:22,479
Speaker 1: him in. And you know, it's really funny that that

631
00:38:22,880 --> 00:38:26,359
Speaker 1: the story I told early on. You know, I just

632
00:38:26,440 --> 00:38:29,960
Speaker 1: realized exactly John Maulden introduced us. That's that's what That's

633
00:38:29,960 --> 00:38:32,840
Speaker 1: how we met at a dinner that John was in

634
00:38:32,920 --> 00:38:38,080
Speaker 1: town for and I remember having a conversation you and

635
00:38:38,160 --> 00:38:41,279
Speaker 1: I briefly talked about fishing. I had a conversation. It

636
00:38:41,360 --> 00:38:44,120
Speaker 1: might have been David Kotok said, I met a guy

637
00:38:44,320 --> 00:38:47,760
Speaker 1: very interested, Jack Rifken, fisherman. Oh you met Jack Rivkin,

638
00:38:48,440 --> 00:38:51,360
Speaker 1: And uh yeah, I just told you. She goes you

639
00:38:51,440 --> 00:38:55,440
Speaker 1: know who Jack Rivkin is, right, some guy. I just no, No,

640
00:38:55,520 --> 00:38:59,720
Speaker 1: you don't understand. You go he's the one. Go Google.

641
00:39:00,920 --> 00:39:03,800
Speaker 1: So I google you, and holy cow, look at this. Wow,

642
00:39:03,880 --> 00:39:07,720
Speaker 1: this guy has worked everywhere. The Harvard Business case study

643
00:39:07,800 --> 00:39:10,239
Speaker 1: comes up, which is, oh, that's the first time that's

644
00:39:10,280 --> 00:39:13,040
Speaker 1: ever happened. And Ko Talk is another one who's a

645
00:39:13,120 --> 00:39:15,880
Speaker 1: huge fisherman. I put you two guys in touch and

646
00:39:15,920 --> 00:39:18,960
Speaker 1: we ended up we're fishing as much as we can.

647
00:39:19,560 --> 00:39:21,399
Speaker 1: Not as much as I would like, but as much

648
00:39:21,440 --> 00:39:24,560
Speaker 1: as we can. It isn't so every year Ko Talk

649
00:39:24,640 --> 00:39:29,280
Speaker 1: host the it's called the Shadow Federal Reserve UM fishing Trip.

650
00:39:29,360 --> 00:39:32,560
Speaker 1: We're informally known as Camp ko Talk. And this is

651
00:39:32,640 --> 00:39:35,520
Speaker 1: up in the wilds of Maine and it's just God's country.

652
00:39:35,520 --> 00:39:38,680
Speaker 1: It's as gorgeous an area. Every time I'm sitting in

653
00:39:38,719 --> 00:39:41,600
Speaker 1: a canoe on a lake there and you just look around, geez,

654
00:39:41,680 --> 00:39:44,719
Speaker 1: this is there's nobody around from miles You're in the

655
00:39:44,760 --> 00:39:48,960
Speaker 1: middle of this pristine like people don't even think that

656
00:39:49,080 --> 00:39:53,240
Speaker 1: sort of stuff is left anymore. That's it's just incredible.

657
00:39:53,680 --> 00:39:56,440
Speaker 1: And a lot of the guys who go there actually

658
00:39:56,960 --> 00:39:59,520
Speaker 1: work with some of the nature conservancy to keep that

659
00:39:59,640 --> 00:40:04,200
Speaker 1: land absolutely wild and pristine, and there's just they ain't

660
00:40:04,200 --> 00:40:06,640
Speaker 1: making any more of it, and there's less and less

661
00:40:06,719 --> 00:40:10,080
Speaker 1: of it all the time. It's really quite amazing. So

662
00:40:10,200 --> 00:40:14,080
Speaker 1: so that's how we met um. And you do a

663
00:40:14,160 --> 00:40:16,640
Speaker 1: lot of fly fishing, don't you. I do what my

664
00:40:16,640 --> 00:40:18,839
Speaker 1: My father put a fly rod in my hand when

665
00:40:18,840 --> 00:40:21,680
Speaker 1: I was five years old, and now it had a

666
00:40:21,719 --> 00:40:24,920
Speaker 1: hook with a worm on the hook, but it was

667
00:40:24,960 --> 00:40:27,359
Speaker 1: still a fly rod. It was still a fly rod,

668
00:40:27,480 --> 00:40:30,920
Speaker 1: and at five that's what you needed if you're actually

669
00:40:30,920 --> 00:40:34,560
Speaker 1: going to catch a fish. But from then on that's

670
00:40:34,680 --> 00:40:37,680
Speaker 1: what I've done. That's my sport. So it's funny because

671
00:40:37,719 --> 00:40:40,800
Speaker 1: I was never a fly fisherman, but as a kid,

672
00:40:40,920 --> 00:40:44,279
Speaker 1: we used to spend our summer's upstate New York and

673
00:40:44,320 --> 00:40:47,160
Speaker 1: back in the day when there wasn't air conditioning everywhere.

674
00:40:47,520 --> 00:40:50,640
Speaker 1: I'm old enough to growing up where there was in

675
00:40:50,760 --> 00:40:54,040
Speaker 1: central air in everybody's house, so he would work during

676
00:40:54,040 --> 00:40:55,920
Speaker 1: the week and come up Thursday night and spend the

677
00:40:55,920 --> 00:40:58,360
Speaker 1: whole weekend with us and then go back down. So

678
00:40:58,400 --> 00:41:01,560
Speaker 1: it's three day weekends over the sun and same thing.

679
00:41:01,680 --> 00:41:04,200
Speaker 1: I recall getting up at four thirty five o'clock in

680
00:41:04,239 --> 00:41:08,400
Speaker 1: the morning, driving to the Liberty Diner for breakfast, and

681
00:41:08,440 --> 00:41:11,160
Speaker 1: then we're on the lake at six six thirty and

682
00:41:11,200 --> 00:41:13,640
Speaker 1: it was either Swan Lake or one of his other

683
00:41:13,760 --> 00:41:17,279
Speaker 1: lakes upstate. And as a kid, that's what you did. Well,

684
00:41:17,360 --> 00:41:20,440
Speaker 1: that's that's what I did, except it was Lake Spavanaugh

685
00:41:20,640 --> 00:41:24,560
Speaker 1: and Spring Creek right outside of Tulsa, and we get

686
00:41:24,640 --> 00:41:27,160
Speaker 1: up early, we'd find someplace to add breakfast, and then

687
00:41:27,239 --> 00:41:29,960
Speaker 1: we were on the water. There's nothing like that. And

688
00:41:30,000 --> 00:41:33,719
Speaker 1: you know, it's funny because there are always these life

689
00:41:33,760 --> 00:41:37,920
Speaker 1: lessons to be learned, and if you're fishing, the lesson

690
00:41:37,960 --> 00:41:41,879
Speaker 1: you learn is patients patients, which certainly doesn't hurt as

691
00:41:41,920 --> 00:41:46,360
Speaker 1: an investor to have. And I'm not a naturally patient person,

692
00:41:46,760 --> 00:41:49,400
Speaker 1: so that was a little bit of struggle learning to

693
00:41:49,480 --> 00:41:53,120
Speaker 1: have that. But what what sort of life lessons did

694
00:41:53,120 --> 00:42:00,480
Speaker 1: you take from Tulsa, Oklahoma. Well, one was that, um,

695
00:42:00,560 --> 00:42:05,399
Speaker 1: you don't learn much when your mouth is open. So

696
00:42:05,600 --> 00:42:09,040
Speaker 1: I did a lot of listening. And my father and

697
00:42:09,080 --> 00:42:12,640
Speaker 1: actually my grandfather encouraged that they were both photographers. They

698
00:42:12,640 --> 00:42:15,839
Speaker 1: made their livings as photographers, so they were and they

699
00:42:15,840 --> 00:42:20,680
Speaker 1: were photographing nature, but they were photographing human nature as well,

700
00:42:20,800 --> 00:42:25,799
Speaker 1: weddings and you name it. And uh. I used to

701
00:42:25,840 --> 00:42:28,680
Speaker 1: love going into my father's when he was in the

702
00:42:28,760 --> 00:42:32,400
Speaker 1: dark room and the smell of hypo and sitting there

703
00:42:32,480 --> 00:42:38,960
Speaker 1: quietly while he was creating these phenomenal things that there

704
00:42:39,000 --> 00:42:41,880
Speaker 1: were blank sheets and then suddenly there was a picture

705
00:42:41,920 --> 00:42:44,480
Speaker 1: there that was that was what I saw, And there

706
00:42:44,520 --> 00:42:48,480
Speaker 1: was a lot of patients and silence associated that, and

707
00:42:48,520 --> 00:42:51,120
Speaker 1: then when you said something it tended to be a

708
00:42:51,120 --> 00:42:55,080
Speaker 1: little bit more profound. Yeah. I I learned the patients

709
00:42:55,160 --> 00:42:57,799
Speaker 1: side of things over time. It took a while to

710
00:42:57,880 --> 00:43:00,759
Speaker 1: learn that the keeping a mouth shut. I still don't

711
00:43:00,800 --> 00:43:04,759
Speaker 1: have that. I'm working on it. Um. So let's talk

712
00:43:04,800 --> 00:43:06,880
Speaker 1: a little bit about some of the things we didn't

713
00:43:06,880 --> 00:43:11,720
Speaker 1: get to during the broadcast segment. So Dick Fault pretty

714
00:43:11,760 --> 00:43:14,480
Speaker 1: much fired you. Yes he was in the room you

715
00:43:14,480 --> 00:43:17,719
Speaker 1: you politely said, but he was known for sitting in

716
00:43:17,719 --> 00:43:20,160
Speaker 1: the corner and having his henchmen do his bidding. That

717
00:43:20,280 --> 00:43:22,839
Speaker 1: wasn't well. I guess if you need me there, I'll

718
00:43:22,880 --> 00:43:25,759
Speaker 1: be there. But essentially it was between you and the

719
00:43:25,760 --> 00:43:28,280
Speaker 1: head of fixed income, and Dick said, we're a fixed

720
00:43:28,320 --> 00:43:30,560
Speaker 1: incomes to the shop. This guy Jack has to go.

721
00:43:31,160 --> 00:43:33,120
Speaker 1: If it's between the two of you, I'll choose you.

722
00:43:33,200 --> 00:43:36,000
Speaker 1: And he's gone, right, And and this was a guy

723
00:43:36,080 --> 00:43:39,760
Speaker 1: that he'd worked with at the old Lehman for lots

724
00:43:39,800 --> 00:43:42,239
Speaker 1: of years and had they had done a very good

725
00:43:42,320 --> 00:43:44,759
Speaker 1: job on the fixed income side. They had built quite

726
00:43:44,760 --> 00:43:48,200
Speaker 1: an operation there and there one of the biggest fixed

727
00:43:48,200 --> 00:43:52,120
Speaker 1: income shops they were and and commercial paper that was

728
00:43:52,320 --> 00:43:54,480
Speaker 1: that was where all of this group that was now

729
00:43:54,560 --> 00:43:59,600
Speaker 1: running fixed income and Lehman came from. And that was

730
00:43:59,640 --> 00:44:02,440
Speaker 1: sort of the end of it. But I I continued

731
00:44:02,560 --> 00:44:05,759
Speaker 1: to actually get along with Dick. And the next time

732
00:44:05,800 --> 00:44:08,719
Speaker 1: I ran into him, I had joined the Economic Club

733
00:44:08,760 --> 00:44:10,920
Speaker 1: of New York and I was on the membership committee

734
00:44:11,120 --> 00:44:14,560
Speaker 1: and he applied for membership, and so I called him.

735
00:44:14,600 --> 00:44:19,680
Speaker 1: I was so sorry. It was great, but that's not

736
00:44:19,719 --> 00:44:23,240
Speaker 1: what happened. I called him up and and he returned

737
00:44:23,280 --> 00:44:26,759
Speaker 1: the call. He called back and I said, Dick, I

738
00:44:26,800 --> 00:44:29,799
Speaker 1: see you've applied for the Economic Club of New York

739
00:44:29,840 --> 00:44:32,560
Speaker 1: and I'm on the membership committee, and I said, my

740
00:44:32,719 --> 00:44:35,560
Speaker 1: job is to make sure that you can spell economics.

741
00:44:36,440 --> 00:44:40,319
Speaker 1: And he laughed and said, he said, I'll never I'll

742
00:44:40,360 --> 00:44:45,320
Speaker 1: never forget how you handled yourself when we made that mistake.

743
00:44:46,480 --> 00:44:49,440
Speaker 1: That's what he said. Really, that's a very nice I mean,

744
00:44:49,440 --> 00:44:52,239
Speaker 1: it was it was pretty clear. Look, you know, not

745
00:44:52,400 --> 00:44:55,359
Speaker 1: everybody figures that out. It took me till I was,

746
00:44:56,040 --> 00:44:59,200
Speaker 1: I want to say, mid forties to learn, hey, when

747
00:44:59,239 --> 00:45:02,000
Speaker 1: you leave, and if you were leaving on your own terms,

748
00:45:02,560 --> 00:45:07,160
Speaker 1: how you exit and exit gracefully really leaves a taste

749
00:45:07,160 --> 00:45:10,400
Speaker 1: in people's mouths. And you know, the past few places

750
00:45:10,440 --> 00:45:14,399
Speaker 1: I've left, I've actually learned that lesson that. I think

751
00:45:14,400 --> 00:45:16,919
Speaker 1: a lot of people learned much younger than me. But

752
00:45:17,040 --> 00:45:19,839
Speaker 1: it's it's always nice when someone says something like that

753
00:45:19,920 --> 00:45:22,280
Speaker 1: and said, it was very nice. You were a gentleman,

754
00:45:22,320 --> 00:45:25,640
Speaker 1: and we appreciate it was very nice. And then subsequently

755
00:45:25,840 --> 00:45:29,319
Speaker 1: I was at New Burger and who comes knocking on

756
00:45:29,360 --> 00:45:33,200
Speaker 1: the door but Lehman, and it was he was there,

757
00:45:33,280 --> 00:45:37,520
Speaker 1: and and again I talked to Joe Gregory and all

758
00:45:37,520 --> 00:45:40,000
Speaker 1: those guys, and they said, you know, I hope you've

759
00:45:40,000 --> 00:45:43,120
Speaker 1: got no hard feelings. You know, let's let's make a

760
00:45:43,120 --> 00:45:46,480
Speaker 1: go of this. And obviously you gave the thumbs up

761
00:45:46,520 --> 00:45:49,080
Speaker 1: to you know, if you were a vindictive character, you

762
00:45:49,120 --> 00:45:52,920
Speaker 1: would have submarined his Economics Club of New York membership,

763
00:45:53,480 --> 00:45:57,240
Speaker 1: and they had to know that you were not harboring

764
00:45:57,280 --> 00:45:59,879
Speaker 1: any will at that point. No, it was just one

765
00:45:59,880 --> 00:46:04,720
Speaker 1: of those sayings that that happened. It is a small street,

766
00:46:04,960 --> 00:46:10,200
Speaker 1: and it pays, it pays to actually makes realize that

767
00:46:10,239 --> 00:46:12,680
Speaker 1: it's a small street and there's no place to hide,

768
00:46:13,000 --> 00:46:17,400
Speaker 1: and there's always something that is good about of person.

769
00:46:17,440 --> 00:46:21,160
Speaker 1: Now maybe that comes from my Dale Carnegie sort of experience.

770
00:46:21,320 --> 00:46:23,360
Speaker 1: Your job as a manager to find the good and

771
00:46:23,440 --> 00:46:25,480
Speaker 1: bring it out and bring it out even the worst.

772
00:46:25,719 --> 00:46:29,359
Speaker 1: That's right. That's right. And Dick Fold was and is

773
00:46:29,400 --> 00:46:36,040
Speaker 1: he's still a real gentleman. He was a tough guy. Yeah,

774
00:46:36,120 --> 00:46:39,480
Speaker 1: but that's right. This is family radio, so I can't

775
00:46:39,560 --> 00:46:42,160
Speaker 1: use some of those phrases. But he had a reputation

776
00:46:42,200 --> 00:46:46,279
Speaker 1: of really, you know, bare knuckle no bs sort of

777
00:46:46,480 --> 00:46:48,200
Speaker 1: you don't want to be on the wrong side of him. No,

778
00:46:48,400 --> 00:46:50,040
Speaker 1: you did not want to be on the wrong side

779
00:46:50,040 --> 00:46:52,880
Speaker 1: of him. But frankly, I think with a lot of

780
00:46:52,960 --> 00:46:57,320
Speaker 1: CEOs that's the case. It makes it very difficult to

781
00:46:57,680 --> 00:47:02,040
Speaker 1: actually have large organization and move forward because there is

782
00:47:02,120 --> 00:47:04,600
Speaker 1: this fear. There is this fear, and there's also an

783
00:47:04,600 --> 00:47:08,239
Speaker 1: attitude I'm CEO, I'm in charge here. I have to

784
00:47:08,239 --> 00:47:11,839
Speaker 1: make decisions and I'm going to make them. But that's

785
00:47:11,840 --> 00:47:15,160
Speaker 1: a bottleneck. They lose something, to lose something because the

786
00:47:15,239 --> 00:47:18,160
Speaker 1: people instead of thinking about what they're doing is the

787
00:47:18,200 --> 00:47:21,880
Speaker 1: inverted pyramid where there at the bottom and they're supposed

788
00:47:21,920 --> 00:47:24,960
Speaker 1: to be supporting everybody working for them, as opposed to

789
00:47:25,000 --> 00:47:30,399
Speaker 1: at the top telling everybody what to do. I think

790
00:47:30,480 --> 00:47:33,239
Speaker 1: that's part of the problem with what's going on with

791
00:47:33,280 --> 00:47:36,080
Speaker 1: a lot of companies in the country now. And I

792
00:47:36,120 --> 00:47:39,839
Speaker 1: would tell you that that sort of you know, when

793
00:47:39,840 --> 00:47:42,080
Speaker 1: you rule by fear a little bit, and I don't

794
00:47:42,080 --> 00:47:44,359
Speaker 1: want to say Lehman was ruled by fear, but when

795
00:47:44,400 --> 00:47:46,560
Speaker 1: you have that reputation of being a tough s O

796
00:47:46,680 --> 00:47:49,560
Speaker 1: B and no one wants to bring you bad news,

797
00:47:50,040 --> 00:47:54,320
Speaker 1: you end up surrounded by yes men. So I suspect

798
00:47:54,400 --> 00:47:56,800
Speaker 1: Lehman could have been saved a year or two before

799
00:47:56,800 --> 00:48:02,480
Speaker 1: it collapsed and people saw problems, but nobody wanted to either.

800
00:48:02,560 --> 00:48:05,000
Speaker 1: It wasn't in anybody's interest if I go and tell Dick,

801
00:48:05,040 --> 00:48:07,200
Speaker 1: this is going to collapse. And in fact, I think

802
00:48:07,239 --> 00:48:12,399
Speaker 1: the story was some mortgage backed analysts and Lehman said, hey,

803
00:48:12,440 --> 00:48:15,040
Speaker 1: we're sitting on all this paper. It's a disaster. We

804
00:48:15,080 --> 00:48:17,080
Speaker 1: have to deal with this, and ultimately he was fired.

805
00:48:17,640 --> 00:48:20,760
Speaker 1: I wouldn't. I don't know that that could be apocryphal,

806
00:48:20,800 --> 00:48:23,640
Speaker 1: but it could also be very true as well. And

807
00:48:23,680 --> 00:48:28,960
Speaker 1: you you come to believe your own stuff pr spines,

808
00:48:29,600 --> 00:48:32,520
Speaker 1: and again you're surrounding yourself by people who are people

809
00:48:32,560 --> 00:48:36,480
Speaker 1: are reinforcing that. Then you think we're going to get

810
00:48:36,520 --> 00:48:40,080
Speaker 1: through this, and historically Lehman got through some very tough

811
00:48:40,160 --> 00:48:45,000
Speaker 1: periods previously. You could make its right, that's right. So

812
00:48:45,160 --> 00:48:48,600
Speaker 1: you make a case that they actually went bankrupt a

813
00:48:48,600 --> 00:48:52,480
Speaker 1: few times before, but because of the way they pulled

814
00:48:52,520 --> 00:48:56,560
Speaker 1: together and somebody bailing him out, whether it was American

815
00:48:56,680 --> 00:48:59,839
Speaker 1: Express or actually in the ninety eight crisis, the FED

816
00:49:00,840 --> 00:49:04,600
Speaker 1: bailed everybody out, I mean long term capital management. But

817
00:49:04,719 --> 00:49:08,839
Speaker 1: I think they were one of the smaller exposed. Um

818
00:49:09,040 --> 00:49:11,719
Speaker 1: they were. I don't think it was potentially fatal in them,

819
00:49:11,760 --> 00:49:14,080
Speaker 1: but it was, but they were, they were leveraged, they

820
00:49:14,080 --> 00:49:16,880
Speaker 1: were as leveraged then as a as a broker dealer

821
00:49:16,960 --> 00:49:20,839
Speaker 1: as they were when the end finally came as well.

822
00:49:21,000 --> 00:49:23,520
Speaker 1: I think by the time we rolled around to oh

823
00:49:23,560 --> 00:49:27,440
Speaker 1: six oh seven, because of that last five years, the

824
00:49:27,520 --> 00:49:30,479
Speaker 1: leverage just ran out of control from across the board

825
00:49:30,840 --> 00:49:34,440
Speaker 1: six and they were, you know, it was across the board,

826
00:49:34,480 --> 00:49:38,319
Speaker 1: but they were so heavily in the commercial paper and

827
00:49:38,360 --> 00:49:42,000
Speaker 1: the mortgage back area that they were at ground zero.

828
00:49:42,200 --> 00:49:45,520
Speaker 1: You know, it wasn't just people misunderstand People seemed to

829
00:49:45,560 --> 00:49:49,080
Speaker 1: think that Lehman Brothers fell and then all the dominoes

830
00:49:49,640 --> 00:49:52,640
Speaker 1: went after it. I'm fond of saying, you know, Lehman

831
00:49:52,800 --> 00:49:56,200
Speaker 1: was the first trailer in the trailer park that the

832
00:49:56,239 --> 00:49:59,480
Speaker 1: tornado came through. But it was gonna take everybody else.

833
00:49:59,480 --> 00:50:02,480
Speaker 1: It was gonna take everybody, wasn't It wasn't But for

834
00:50:02,640 --> 00:50:05,440
Speaker 1: if we only save Lehman, everything would have been fine.

835
00:50:05,800 --> 00:50:08,560
Speaker 1: They were all going down. They were all heavily exposed,

836
00:50:08,680 --> 00:50:10,720
Speaker 1: they were all heavily leveraged. They all had a huge

837
00:50:11,480 --> 00:50:16,000
Speaker 1: derivative bet on housing, which when sour, Lehman just it

838
00:50:16,160 --> 00:50:18,880
Speaker 1: was such a big focus of their business. In fact,

839
00:50:19,400 --> 00:50:24,120
Speaker 1: when Bear Sterns wobbles, when Bear Sterns had its problem

840
00:50:24,200 --> 00:50:27,880
Speaker 1: in March of oh eight. Lehman Brothers immediately got hit

841
00:50:27,960 --> 00:50:31,160
Speaker 1: afterwards because it didn't take a lot of traders a

842
00:50:31,160 --> 00:50:33,640
Speaker 1: whole lot of brain power to say, hey, who looks

843
00:50:33,680 --> 00:50:36,720
Speaker 1: the most like bad, who's got a lot of fixed income,

844
00:50:36,719 --> 00:50:39,320
Speaker 1: who's got a lot of mortgage exposure, and who doesn't

845
00:50:39,320 --> 00:50:42,600
Speaker 1: have a lot of other bigger departments that could subsidize

846
00:50:42,680 --> 00:50:45,400
Speaker 1: that if if need be. And they were the obvious

847
00:50:45,440 --> 00:50:47,759
Speaker 1: they were, There were the obvious ones, and I I

848
00:50:48,200 --> 00:50:51,120
Speaker 1: don't think that it was realized by Treasury and the

849
00:50:51,200 --> 00:50:55,360
Speaker 1: Fed of their importance in the short term in the

850
00:50:55,400 --> 00:50:58,520
Speaker 1: commercial paper market as well in the short term paper.

851
00:50:58,680 --> 00:51:01,920
Speaker 1: That's right, And and once Bear and Lehman were no

852
00:51:02,000 --> 00:51:05,680
Speaker 1: longer you lost a huge amount of liquidity that was

853
00:51:05,960 --> 00:51:10,080
Speaker 1: used to fund Corporate America. There's an argument to be made, Hey,

854
00:51:10,120 --> 00:51:13,280
Speaker 1: why are you rolling over six month paper to fund

855
00:51:13,400 --> 00:51:17,520
Speaker 1: five and ten year obligations. That's a different conversation, and

856
00:51:17,520 --> 00:51:21,040
Speaker 1: that's that's that gets to the FED. That gets to Okay,

857
00:51:21,080 --> 00:51:23,840
Speaker 1: do I have a put here or not? Is the

858
00:51:24,040 --> 00:51:27,560
Speaker 1: is the FED going to allow this to happen? And

859
00:51:28,120 --> 00:51:32,680
Speaker 1: that introduces moral hazarded, introduces all kinds of things. There's

860
00:51:32,719 --> 00:51:35,839
Speaker 1: an argument that the FED really didn't and let's talk

861
00:51:35,880 --> 00:51:38,479
Speaker 1: about the FED, but there's an argument that the FED

862
00:51:38,560 --> 00:51:41,320
Speaker 1: really didn't have a lot of jurisdiction over Baron Lehman

863
00:51:41,760 --> 00:51:46,600
Speaker 1: and wall Street. There we're really supervising City and Bank

864
00:51:46,640 --> 00:51:51,560
Speaker 1: America and Wells Fargoing and all the other depository banks

865
00:51:51,560 --> 00:51:54,399
Speaker 1: that would go to the discount window to borrow from

866
00:51:54,400 --> 00:51:58,520
Speaker 1: the Fed. But the bear Stearns and Merrill Lynches really

867
00:51:58,800 --> 00:52:02,040
Speaker 1: weren't banks, then, No, they weren't banks, but they were.

868
00:52:02,560 --> 00:52:06,600
Speaker 1: They were. There was the shadow making at that time

869
00:52:06,640 --> 00:52:10,440
Speaker 1: as well, and they were They were doing everything and

870
00:52:10,480 --> 00:52:14,120
Speaker 1: more that the banks were doing, and they were not

871
00:52:14,600 --> 00:52:17,279
Speaker 1: being watched. So they were doing what the banks were doing,

872
00:52:17,320 --> 00:52:20,520
Speaker 1: but they were doing with more leverage and less regulation

873
00:52:20,560 --> 00:52:24,640
Speaker 1: and less supervision. Well, how could that possibly go wrong? Yeah,

874
00:52:24,840 --> 00:52:28,239
Speaker 1: that's right. I'm sure that self regulation works. Great, I'm

875
00:52:28,239 --> 00:52:31,000
Speaker 1: sure that'll be fine. You could make a case though,

876
00:52:31,239 --> 00:52:37,160
Speaker 1: that if Lehman hadn't gone, would the Fed and would

877
00:52:37,200 --> 00:52:41,680
Speaker 1: Treasury have had the degrees of freedom that they had

878
00:52:42,320 --> 00:52:47,000
Speaker 1: to bail people out to rack actually put money to work.

879
00:52:47,160 --> 00:52:50,120
Speaker 1: Did it have to get to to get dead enough

880
00:52:50,320 --> 00:52:56,040
Speaker 1: for them to so yeah, so let's let's talk a

881
00:52:56,080 --> 00:52:58,600
Speaker 1: little bit about the bailouts and about what the FEDS

882
00:52:58,640 --> 00:53:02,480
Speaker 1: reaction has been. The most of the bailouts we can

883
00:53:02,600 --> 00:53:05,719
Speaker 1: place at the footstep of Treasury, but you know, the

884
00:53:05,800 --> 00:53:08,840
Speaker 1: FED facilitated the bail out of long term Capital Management,

885
00:53:10,280 --> 00:53:15,200
Speaker 1: which Roger Lowenstein very famously said, if only banks had

886
00:53:15,200 --> 00:53:19,560
Speaker 1: been reintroduced to the concept of bad loans biting them

887
00:53:19,640 --> 00:53:23,279
Speaker 1: instead of oh, look we managed to trade away out

888
00:53:23,280 --> 00:53:28,120
Speaker 1: of this. That was. And then we look at um,

889
00:53:28,239 --> 00:53:34,320
Speaker 1: the bailout of essentially facilitating JP Morgan's purchase of bear Sterns.

890
00:53:35,000 --> 00:53:37,799
Speaker 1: Without the twenty nine billion dollar guarantee the FED, that

891
00:53:37,920 --> 00:53:42,560
Speaker 1: theoretically wouldn't have happened. Although my pet thesis is the

892
00:53:42,600 --> 00:53:47,520
Speaker 1: biggest counterparty exposure to bear Sterns derivative book was JP Morgan.

893
00:53:48,400 --> 00:53:51,200
Speaker 1: And if Ben Bernanci was a better poker player, he

894
00:53:51,239 --> 00:53:53,799
Speaker 1: could have gone to Jamie Diamond and said, hey, listen,

895
00:53:53,880 --> 00:53:56,000
Speaker 1: I know you want thirty billion dollars, but here's what

896
00:53:56,040 --> 00:53:57,880
Speaker 1: we're gonna do. We're not going to give you a dime,

897
00:53:58,440 --> 00:54:01,839
Speaker 1: and if you're smart, you'll do this because if they

898
00:54:01,880 --> 00:54:04,640
Speaker 1: blow up, they're going to take you down. And the

899
00:54:04,719 --> 00:54:06,799
Speaker 1: next time you have this conversation, both of us will

900
00:54:06,800 --> 00:54:09,120
Speaker 1: be in front of Congress with a right hand raise.

901
00:54:09,200 --> 00:54:12,279
Speaker 1: Then I'll be recounting this conversation and when we're done,

902
00:54:12,280 --> 00:54:15,120
Speaker 1: they'll take you off in shackles. Well, but I think

903
00:54:15,239 --> 00:54:18,680
Speaker 1: the reason he didn't do that because he was he

904
00:54:18,800 --> 00:54:23,560
Speaker 1: was afraid. This is a supposition that his job was

905
00:54:23,600 --> 00:54:27,840
Speaker 1: at risk as well. If burn Aki said we're not

906
00:54:27,960 --> 00:54:31,719
Speaker 1: doing this, We're gonna let something bad happen here. Hey,

907
00:54:31,719 --> 00:54:34,279
Speaker 1: you guys made a bad loan, It's on you. Yeah,

908
00:54:34,400 --> 00:54:37,040
Speaker 1: but who are they going to look to? Who is

909
00:54:37,080 --> 00:54:39,719
Speaker 1: Congress going to look to? And the FED is is

910
00:54:39,840 --> 00:54:43,919
Speaker 1: always and continues to be concerned about who actually has

911
00:54:44,000 --> 00:54:48,680
Speaker 1: oversight of what they're doing, and they don't want more oversight.

912
00:54:49,360 --> 00:54:51,920
Speaker 1: So some of what they do and some of what

913
00:54:52,040 --> 00:54:56,439
Speaker 1: they've done here is job preservation in my view. So

914
00:54:56,719 --> 00:54:59,320
Speaker 1: the FED doesn't want to be bailing people out because

915
00:54:59,360 --> 00:55:03,120
Speaker 1: they don't want responsibility for why are we involved with

916
00:55:03,160 --> 00:55:06,600
Speaker 1: an insurance company. We're supposed to be regulating banks. Why

917
00:55:06,680 --> 00:55:10,879
Speaker 1: is the Federal Reserve participating in the Baila you're saying

918
00:55:10,920 --> 00:55:12,480
Speaker 1: they don't want to do that. They want to stick

919
00:55:12,520 --> 00:55:15,839
Speaker 1: to their knitting worry about banks and and everybody else

920
00:55:15,880 --> 00:55:19,319
Speaker 1: can worry about their own thing. Well, the problem is

921
00:55:19,400 --> 00:55:24,200
Speaker 1: they can't do that because no matter people look to

922
00:55:24,280 --> 00:55:28,160
Speaker 1: the FED, whatever goes wrong financially, it ultimately comes back

923
00:55:28,200 --> 00:55:31,279
Speaker 1: to the Fed, and certainly out of Congress and out

924
00:55:31,320 --> 00:55:34,680
Speaker 1: of the administration as well. It's not our fault. It's

925
00:55:34,760 --> 00:55:37,160
Speaker 1: because the Fed didn't do the thing that they were

926
00:55:37,200 --> 00:55:40,760
Speaker 1: supposed to do. The FED didn't pack our parachute correctly,

927
00:55:40,800 --> 00:55:44,080
Speaker 1: and that's why. That's it. So people have been pretty

928
00:55:44,080 --> 00:55:47,920
Speaker 1: critical of Ben Bernanke and the Federal Reserve in general,

929
00:55:48,280 --> 00:55:52,000
Speaker 1: but you've been pretty supportive of saying, hey, you guys

930
00:55:52,080 --> 00:55:55,640
Speaker 1: may not love what was done, but think about the alternative.

931
00:55:55,719 --> 00:55:58,560
Speaker 1: That's it. It is think about the alternative, and it's

932
00:55:58,600 --> 00:56:04,720
Speaker 1: think about an unwillingness to take the risk of the alternative.

933
00:56:04,960 --> 00:56:07,879
Speaker 1: So what they did, some people don't like, and they

934
00:56:07,960 --> 00:56:10,879
Speaker 1: wonder if it's actually done any good at all. So

935
00:56:10,880 --> 00:56:16,919
Speaker 1: so let's get let's get really specific. So October oh eight,

936
00:56:17,280 --> 00:56:21,719
Speaker 1: Congress doesn't pass the TARP program, and the markets have

937
00:56:21,880 --> 00:56:25,440
Speaker 1: their worst week ever on a on a point basis

938
00:56:25,800 --> 00:56:28,239
Speaker 1: and a percentage basis, one of the worst weeks ever,

939
00:56:28,920 --> 00:56:33,799
Speaker 1: and ultimately the Treasury passes TARP and then the FED

940
00:56:33,920 --> 00:56:38,520
Speaker 1: begins a number of liquidity programs to thaw out the

941
00:56:38,600 --> 00:56:41,239
Speaker 1: frozen credit markets. You know, when you have the head

942
00:56:41,280 --> 00:56:45,560
Speaker 1: of McDonald's and ge and Ford calling the White House

943
00:56:45,600 --> 00:56:48,280
Speaker 1: and say, hey, I'm not gonna make payroll next month,

944
00:56:48,680 --> 00:56:52,120
Speaker 1: not because we don't have the cash, but the cash

945
00:56:52,120 --> 00:56:55,520
Speaker 1: flow is gone. There's there's everything is frozen solid. The

946
00:56:55,760 --> 00:56:59,680
Speaker 1: normal flow of capital is completely disrupted. You gotta do

947
00:56:59,800 --> 00:57:03,279
Speaker 1: something and who who was going to do it? So

948
00:57:03,600 --> 00:57:07,359
Speaker 1: the White House calls the Paulson calls Bernanke and said, hey,

949
00:57:07,400 --> 00:57:10,799
Speaker 1: we have real trouble. What can we do to fix this?

950
00:57:12,040 --> 00:57:15,280
Speaker 1: And and they have to respond. They have the response

951
00:57:15,320 --> 00:57:19,000
Speaker 1: they have no choice, and and they've made the argument

952
00:57:19,080 --> 00:57:21,720
Speaker 1: and it may be valid that they've had no choice

953
00:57:21,840 --> 00:57:24,959
Speaker 1: all the way along here that QUI was not enough,

954
00:57:25,640 --> 00:57:28,680
Speaker 1: they had to go to QUE two was not enough,

955
00:57:28,720 --> 00:57:31,480
Speaker 1: they had to go to que three. And now we're

956
00:57:31,520 --> 00:57:34,920
Speaker 1: they do believe now, I think at least they have

957
00:57:35,120 --> 00:57:38,160
Speaker 1: until we've had all these problems in Europe, and we

958
00:57:38,200 --> 00:57:40,480
Speaker 1: can talk about that a little bit. Let's let's talk

959
00:57:40,480 --> 00:57:43,920
Speaker 1: about that. So so before before we leave the FED,

960
00:57:44,480 --> 00:57:46,919
Speaker 1: you know, the complaint is so now we have QUI

961
00:57:47,080 --> 00:57:49,560
Speaker 1: four and every time the market is a is he

962
00:57:49,640 --> 00:57:53,720
Speaker 1: fit and drops were not even down ten percent. Now

963
00:57:53,760 --> 00:57:56,000
Speaker 1: we're gonna have QUE five and QUE six and kwe

964
00:57:56,120 --> 00:57:59,600
Speaker 1: and finley, are we on a permanent state of QI? Now?

965
00:57:59,600 --> 00:58:03,680
Speaker 1: I don't leave that. I think eventually the Fed just

966
00:58:03,800 --> 00:58:06,640
Speaker 1: lets these you know, the average duration of seven years.

967
00:58:06,640 --> 00:58:10,120
Speaker 1: You just let it roll off. You eventually get money

968
00:58:10,160 --> 00:58:12,120
Speaker 1: back for the bonds, and they turn it over to

969
00:58:12,160 --> 00:58:15,760
Speaker 1: Treasury and everybody is is happy and goes on their way.

970
00:58:15,800 --> 00:58:18,920
Speaker 1: So it's not like, how are we going to get

971
00:58:18,920 --> 00:58:21,080
Speaker 1: out of this? Well, you let seven years go by,

972
00:58:21,080 --> 00:58:24,520
Speaker 1: and that's that's right, and you get out of a

973
00:58:24,560 --> 00:58:28,440
Speaker 1: lot of it here. And in the meantime some evidence

974
00:58:28,560 --> 00:58:32,640
Speaker 1: that the economy is doing okay, not doing great, but

975
00:58:33,240 --> 00:58:35,640
Speaker 1: maybe it's in a period where there's a little more

976
00:58:35,680 --> 00:58:40,440
Speaker 1: opportunity for self sustaining. But the Fed is also sitting

977
00:58:40,520 --> 00:58:45,920
Speaker 1: there truly believing that they're it. It's certainly not Congress, right, Well,

978
00:58:45,920 --> 00:58:48,800
Speaker 1: that's not administration. That's the other thing is when you

979
00:58:48,840 --> 00:58:52,600
Speaker 1: have a Congress that refuses to do what Congress normally does,

980
00:58:53,280 --> 00:58:58,280
Speaker 1: which is, look if if if this current administration had

981
00:58:58,320 --> 00:59:02,040
Speaker 1: the same sort of fiscal not monetary, but fiscal stimulus

982
00:59:02,400 --> 00:59:06,320
Speaker 1: as the previous administration. This would be a much healthier

983
00:59:06,360 --> 00:59:12,760
Speaker 1: economy use higher employment, higher wages, lower unemployment, and GDP

984
00:59:12,920 --> 00:59:15,600
Speaker 1: would probably be a full percent higher than where it was.

985
00:59:16,360 --> 00:59:18,600
Speaker 1: It would be In the meantime, the FED is having

986
00:59:18,640 --> 00:59:22,880
Speaker 1: to deal looking at the employment numbers, and the employment

987
00:59:22,960 --> 00:59:27,160
Speaker 1: numbers to extend people say they're not good are driven

988
00:59:27,200 --> 00:59:30,400
Speaker 1: by the sixteen to twenty four year olds. That's where

989
00:59:30,440 --> 00:59:33,440
Speaker 1: the unemployment is high. You know, sixteen and the nineteen

990
00:59:33,480 --> 00:59:36,920
Speaker 1: it's it's pretty high for the twenty to twenty four

991
00:59:37,000 --> 00:59:40,800
Speaker 1: year olds as well. And and is it really the

992
00:59:40,840 --> 00:59:49,000
Speaker 1: Fed's responsibility to have a policy that actually allows you

993
00:59:49,040 --> 00:59:53,360
Speaker 1: to employ teenagers and the under educated or is that

994
00:59:53,480 --> 00:59:56,720
Speaker 1: somebody else's responsibility. I don't think it's the FED. Most

995
00:59:56,720 --> 01:00:01,280
Speaker 1: people would say it's Congress's responsibility. So the next question is, so,

996
01:00:01,320 --> 01:00:06,960
Speaker 1: here's the fascinating counter argument. If the FED did less,

997
01:00:07,760 --> 01:00:10,640
Speaker 1: then the economy would be worse. We'd slip into a

998
01:00:10,680 --> 01:00:14,760
Speaker 1: recession and all the people who are refusing to participate

999
01:00:15,240 --> 01:00:19,080
Speaker 1: in the normal economic state stimulus get tossed out of

1000
01:00:19,080 --> 01:00:22,280
Speaker 1: office and a new crop comes in. But instead the

1001
01:00:22,800 --> 01:00:26,760
Speaker 1: FED is essentially enabling and do nothing Congress because the

1002
01:00:26,840 --> 01:00:31,720
Speaker 1: repercussions for their do nothingness, and that's happened. That that's

1003
01:00:31,720 --> 01:00:39,280
Speaker 1: absolutely right, that monetary stimulus leads to no fiscal activity,

1004
01:00:39,360 --> 01:00:42,000
Speaker 1: and that's the period that we're in now. I think

1005
01:00:42,000 --> 01:00:46,080
Speaker 1: in Europe, maybe there's a different experiment going on here.

1006
01:00:46,720 --> 01:00:49,120
Speaker 1: One could make the case that in spite of Droggy

1007
01:00:49,240 --> 01:00:54,160
Speaker 1: saying will do everything we can do, I think he's

1008
01:00:54,200 --> 01:00:57,000
Speaker 1: saying that he certainly hasn't done it, and he hasn't

1009
01:00:57,000 --> 01:01:00,440
Speaker 1: got the tools to do it. And he's calling for

1010
01:01:00,560 --> 01:01:06,240
Speaker 1: both reform and stimulus coming out of the European countries

1011
01:01:06,760 --> 01:01:08,720
Speaker 1: and he's trying to make that work. So we've got

1012
01:01:08,760 --> 01:01:12,920
Speaker 1: this other experiment that we were watching to say, Okay,

1013
01:01:12,960 --> 01:01:15,240
Speaker 1: well this is what the FED could have done. Now

1014
01:01:15,360 --> 01:01:18,919
Speaker 1: Dragging maybe feels more secure in his current job than

1015
01:01:19,440 --> 01:01:23,640
Speaker 1: the FED members did, but that's that's a different experiment

1016
01:01:23,680 --> 01:01:26,840
Speaker 1: that's happening in Europe. I look at that the statement,

1017
01:01:26,880 --> 01:01:29,600
Speaker 1: and I think what he really wants to say is, hey,

1018
01:01:29,640 --> 01:01:32,760
Speaker 1: we need some fiscal stimulus. Yes, but I can't say that.

1019
01:01:33,120 --> 01:01:36,560
Speaker 1: So I'm gonna call for fiscal stimulus and reform and

1020
01:01:36,760 --> 01:01:39,880
Speaker 1: let people argue about a little of both can hurt.

1021
01:01:40,320 --> 01:01:44,240
Speaker 1: But in the meantime, you know, Europe, it continues to

1022
01:01:44,280 --> 01:01:48,120
Speaker 1: be weak. Um, you look at the euro. They've the

1023
01:01:48,160 --> 01:01:51,640
Speaker 1: one thing that they've managed to do over in Europe

1024
01:01:51,680 --> 01:01:54,960
Speaker 1: is actually get the euro to fall. So we have

1025
01:01:55,040 --> 01:01:59,160
Speaker 1: the dollarate multi year highs, which is good for us

1026
01:01:59,200 --> 01:02:03,520
Speaker 1: as consumers of oil, which is now at multi year lows. Um.

1027
01:02:03,560 --> 01:02:06,800
Speaker 1: And if you travel abroad, hey, burger in London is

1028
01:02:06,840 --> 01:02:09,480
Speaker 1: no longer forty seven dollars. That's and that's not a

1029
01:02:09,520 --> 01:02:11,280
Speaker 1: made up number. That's the last time I was there,

1030
01:02:11,640 --> 01:02:14,560
Speaker 1: I had a burger somewhere it was forty seven dollars.

1031
01:02:14,640 --> 01:02:17,600
Speaker 1: Was the exchange rate was so awful. So now that's

1032
01:02:17,720 --> 01:02:20,640
Speaker 1: changed a bit. It's changed a bit. And there are

1033
01:02:20,680 --> 01:02:24,640
Speaker 1: some people. I was at a all day meeting with

1034
01:02:24,840 --> 01:02:27,880
Speaker 1: one of our managers and it was Chatham House, So

1035
01:02:27,960 --> 01:02:31,280
Speaker 1: I can't really talk about who said this. Adam House

1036
01:02:31,360 --> 01:02:34,400
Speaker 1: rules means you can describe what was said, but you

1037
01:02:34,480 --> 01:02:37,320
Speaker 1: cannot identify the person by name. Identify You could say

1038
01:02:37,360 --> 01:02:40,600
Speaker 1: a manager who specialized in fixed income, but that's I

1039
01:02:40,640 --> 01:02:44,160
Speaker 1: can say. I can say a manager who actually pays

1040
01:02:44,200 --> 01:02:49,200
Speaker 1: a lot of attention to foreign exchange, believes that ultimately

1041
01:02:49,520 --> 01:02:54,920
Speaker 1: will see the euro at one parity with the dollar

1042
01:02:55,560 --> 01:02:58,360
Speaker 1: dollar for dollar, and if he had to bet over

1043
01:02:58,520 --> 01:03:04,680
Speaker 1: under one or eight. So keep in mind, the euro

1044
01:03:05,160 --> 01:03:08,680
Speaker 1: not too long ago was about a buck forty seven?

1045
01:03:08,800 --> 01:03:12,160
Speaker 1: Is that right? And I had a friend who in

1046
01:03:12,280 --> 01:03:15,560
Speaker 1: the early two thousand's, the last time the dollar was

1047
01:03:15,680 --> 01:03:19,920
Speaker 1: crazy strong, was going to Europe and buying Porsches and

1048
01:03:19,960 --> 01:03:24,360
Speaker 1: Ferraris and high end bmw and Mercedes, bring them to

1049
01:03:24,400 --> 01:03:28,600
Speaker 1: the United States, making them US d OT legal and

1050
01:03:28,640 --> 01:03:31,720
Speaker 1: selling them for a fat profit and still undercutting the

1051
01:03:31,760 --> 01:03:35,960
Speaker 1: dealers by twenty dollars because the exchange rate had gotten

1052
01:03:36,200 --> 01:03:41,840
Speaker 1: that crazy. To this day, I regret not making the

1053
01:03:41,960 --> 01:03:44,960
Speaker 1: pulling the trigger on a BMW Z eight, which at

1054
01:03:45,000 --> 01:03:48,200
Speaker 1: the time I couldn't have afforded. This is fifteen years

1055
01:03:48,240 --> 01:03:51,200
Speaker 1: ago or twelve years, twelve years ago, and it was

1056
01:03:51,240 --> 01:03:53,400
Speaker 1: about seventy grand and now that car is going for

1057
01:03:53,400 --> 01:03:56,920
Speaker 1: about two. This goes a little in the other direction,

1058
01:03:57,000 --> 01:04:00,040
Speaker 1: but the same thing. I was in Japan on a

1059
01:04:00,040 --> 01:04:04,240
Speaker 1: business trip, took my wife. The end was at to right,

1060
01:04:04,280 --> 01:04:07,680
Speaker 1: and today today where are we? One oh six? Right?

1061
01:04:07,720 --> 01:04:10,600
Speaker 1: How I was gonna say half? But and what were

1062
01:04:10,600 --> 01:04:14,440
Speaker 1: you looking at back then? Uh? Well, my wife was

1063
01:04:15,200 --> 01:04:20,560
Speaker 1: just going shopping every possible place she could. At that

1064
01:04:20,640 --> 01:04:25,160
Speaker 1: point in time, everything just so cheap. It was we

1065
01:04:25,360 --> 01:04:30,640
Speaker 1: had to buy two extra trunks, not just suitcases, trunks

1066
01:04:31,080 --> 01:04:34,360
Speaker 1: to haul back what she bought. And the truth is

1067
01:04:34,960 --> 01:04:37,720
Speaker 1: we should have bought more. So it's funny because when

1068
01:04:38,320 --> 01:04:42,760
Speaker 1: people should be aware of how CONNI affects everything. From

1069
01:04:42,880 --> 01:04:46,040
Speaker 1: two thousand and one, when the FED started cutting rates

1070
01:04:46,120 --> 01:04:50,200
Speaker 1: after nine eleven UM to two thousand and seven, the

1071
01:04:50,480 --> 01:04:54,760
Speaker 1: dollar lost of its value. If you want to know

1072
01:04:55,320 --> 01:04:58,800
Speaker 1: why oil skyrocket in the two thousands, food and gold

1073
01:04:58,840 --> 01:05:01,960
Speaker 1: and everything else. Hey, the measuring stick got much smaller.

1074
01:05:02,360 --> 01:05:06,240
Speaker 1: And we were here in Manhattan. My old office was

1075
01:05:06,280 --> 01:05:08,560
Speaker 1: on Fifth and forty four and around the corner from

1076
01:05:08,640 --> 01:05:13,280
Speaker 1: us was a two ME shop and T M I

1077
01:05:13,320 --> 01:05:18,240
Speaker 1: the logest really high end, very expensive stuff. The city

1078
01:05:18,360 --> 01:05:22,760
Speaker 1: was just filled with Europeans and this was the highest

1079
01:05:22,800 --> 01:05:26,680
Speaker 1: producing shop in the country. So I speaking, I pop

1080
01:05:26,760 --> 01:05:29,520
Speaker 1: in there and it was impossible, just looking for a

1081
01:05:29,520 --> 01:05:33,560
Speaker 1: computer case and for a laptop. And I started talking

1082
01:05:33,560 --> 01:05:36,400
Speaker 1: to the manager and I'm like, the house business these days,

1083
01:05:36,480 --> 01:05:39,439
Speaker 1: and his answer was it's insane. He goes, we don't

1084
01:05:39,440 --> 01:05:42,120
Speaker 1: have a big enough warehouse. To keep ourselves filled. The

1085
01:05:42,160 --> 01:05:46,040
Speaker 1: Europeans come in, they're buying the big wheeled suitcase. He goes,

1086
01:05:46,080 --> 01:05:49,000
Speaker 1: we sell these a piece. We can't keep them in stock.

1087
01:05:49,320 --> 01:05:51,080
Speaker 1: People are coming in and buying them two and three

1088
01:05:51,080 --> 01:05:53,720
Speaker 1: at a time. The dollar was so cheap to them.

1089
01:05:53,760 --> 01:05:56,680
Speaker 1: It was like si off to these folks. And then

1090
01:05:56,720 --> 01:05:59,200
Speaker 1: they would take these big suitcases and wheellum over to

1091
01:05:59,240 --> 01:06:03,160
Speaker 1: Bloomingdale's and Phil Madison and they would basically take all

1092
01:06:03,240 --> 01:06:07,200
Speaker 1: the stuff and take it back. That's that's exactly That's

1093
01:06:07,240 --> 01:06:10,640
Speaker 1: exactly what happened. And that's clearly what my wife did

1094
01:06:10,680 --> 01:06:14,440
Speaker 1: in Japan, and she's electronics or clothes or well. She

1095
01:06:14,640 --> 01:06:19,560
Speaker 1: was buying actually a lot of antiques, a lot of

1096
01:06:20,080 --> 01:06:23,720
Speaker 1: baskets that they had, you know, very artistic basket She

1097
01:06:23,840 --> 01:06:27,600
Speaker 1: was buying a lot of this stuff that today again

1098
01:06:27,640 --> 01:06:30,240
Speaker 1: it costs two and a half times right then, and

1099
01:06:30,280 --> 01:06:33,560
Speaker 1: even a little more because some of these were collector's items.

1100
01:06:33,600 --> 01:06:36,000
Speaker 1: The thing that I used to hear about people coming

1101
01:06:36,000 --> 01:06:39,720
Speaker 1: back from Japan with all the time was the nikon.

1102
01:06:39,960 --> 01:06:42,480
Speaker 1: I want to say, D seven's is that yes, yea.

1103
01:06:43,160 --> 01:06:45,560
Speaker 1: And my wife actually lost one in the back of

1104
01:06:45,600 --> 01:06:47,400
Speaker 1: a cab, left it in the trunk of a cab.

1105
01:06:47,760 --> 01:06:49,960
Speaker 1: But we knew people would come back and it's a

1106
01:06:50,040 --> 01:06:53,640
Speaker 1: three thousand all camera. They were paying like six just

1107
01:06:54,080 --> 01:06:57,240
Speaker 1: the numbers were so crazy. I'll take to bring it

1108
01:06:57,280 --> 01:07:00,120
Speaker 1: back with And it was also we went to Hong

1109
01:07:00,200 --> 01:07:02,920
Speaker 1: Kong after that it was the same thing. What year

1110
01:07:03,040 --> 01:07:07,760
Speaker 1: was this this gosh before unification? Obviously it was it

1111
01:07:07,880 --> 01:07:10,480
Speaker 1: was very much So. So you do a lot of

1112
01:07:10,520 --> 01:07:14,280
Speaker 1: traveling for for business or for pleasure of both, a

1113
01:07:14,320 --> 01:07:16,520
Speaker 1: little bit of both, and I try to combine it.

1114
01:07:16,760 --> 01:07:18,840
Speaker 1: So where have you been and what parts of the

1115
01:07:18,840 --> 01:07:23,040
Speaker 1: world are really interesting to you as an investor these days? Well,

1116
01:07:23,080 --> 01:07:25,920
Speaker 1: what's interesting? Well, I'll start with some of the places

1117
01:07:26,000 --> 01:07:29,040
Speaker 1: I've been. I'm watching what's going on in India with

1118
01:07:29,240 --> 01:07:33,920
Speaker 1: Modi and I'm watching also what's going on between India

1119
01:07:33,960 --> 01:07:38,640
Speaker 1: and Pakistan, because there's a little history with a little Yeah.

1120
01:07:38,720 --> 01:07:44,040
Speaker 1: What what's amazing is why have hasn't India become China?

1121
01:07:44,200 --> 01:07:48,240
Speaker 1: Why hasn't India to take all this intellectual capital they

1122
01:07:48,280 --> 01:07:53,680
Speaker 1: have and amongst the highest educated workforce when it comes

1123
01:07:53,720 --> 01:07:59,840
Speaker 1: to stem um science, technology, engineering, math, and and you

1124
01:08:00,000 --> 01:08:03,280
Speaker 1: look at medicine, look at and yet they half the

1125
01:08:03,280 --> 01:08:06,439
Speaker 1: country doesn't have indoor plumbing, they're using half the half

1126
01:08:06,480 --> 01:08:10,080
Speaker 1: the country six million people don't have they're not tied

1127
01:08:10,120 --> 01:08:13,280
Speaker 1: into the grid, they have no electricity. How is that

1128
01:08:13,640 --> 01:08:16,919
Speaker 1: Is that a societal failure? Is that? Well, it's political.

1129
01:08:18,080 --> 01:08:21,680
Speaker 1: Part of political. It's a it's a democracy and and

1130
01:08:21,760 --> 01:08:24,320
Speaker 1: it's the biggest democracy in the world, and it's a

1131
01:08:24,360 --> 01:08:30,879
Speaker 1: democracy down to a provincial level. The politics are are severe.

1132
01:08:31,600 --> 01:08:33,479
Speaker 1: I think you can blame a lot of it on

1133
01:08:33,520 --> 01:08:37,800
Speaker 1: the British. They set up a great bureaucratic system, which

1134
01:08:37,880 --> 01:08:42,680
Speaker 1: the Indians have perfected bureaucracy, so the efficiency of the

1135
01:08:42,800 --> 01:08:47,320
Speaker 1: system is way down, and frankly, the corruption is very high,

1136
01:08:47,840 --> 01:08:51,760
Speaker 1: very very high. Wed to ideal lab companies over there,

1137
01:08:51,840 --> 01:08:57,240
Speaker 1: we ultimately sold them both to Indians because as outsiders,

1138
01:08:58,479 --> 01:09:01,760
Speaker 1: we couldn't we couldn't deal. We could deal with everybody's

1139
01:09:01,800 --> 01:09:05,360
Speaker 1: hand out to actually get business done. There are some

1140
01:09:05,640 --> 01:09:08,880
Speaker 1: laws that say, as Americans were not supposed to do that,

1141
01:09:09,320 --> 01:09:11,960
Speaker 1: even if it's in another country and you just you

1142
01:09:12,080 --> 01:09:15,000
Speaker 1: just couldn't do it. But you couldn't. You then could

1143
01:09:15,040 --> 01:09:17,920
Speaker 1: not create a business unless you knew how to work.

1144
01:09:18,400 --> 01:09:20,960
Speaker 1: So what's it going to take to get India out

1145
01:09:21,040 --> 01:09:25,160
Speaker 1: from out of their own way. It's it could take

1146
01:09:25,200 --> 01:09:28,920
Speaker 1: someone like Modi, because if I went to Gujarat a

1147
01:09:28,920 --> 01:09:32,000
Speaker 1: lot and we actually set up our manufacturing facility there,

1148
01:09:32,240 --> 01:09:36,559
Speaker 1: and Gujarat ran like a real it ran almost like

1149
01:09:36,600 --> 01:09:41,000
Speaker 1: its own country. There was efficiency, there was less corruption.

1150
01:09:41,120 --> 01:09:43,600
Speaker 1: I wouldn't say there was no corruption, but there was

1151
01:09:43,680 --> 01:09:48,560
Speaker 1: less corruption, and there was a you know, a firm,

1152
01:09:48,600 --> 01:09:52,599
Speaker 1: a firm leader who was actually making decisions around what

1153
01:09:52,680 --> 01:09:56,080
Speaker 1: was going on there. The country could move in that direction,

1154
01:09:56,080 --> 01:09:58,200
Speaker 1: but it's it's going to take a long time to

1155
01:09:58,240 --> 01:10:01,000
Speaker 1: get from where they are to where they could be.

1156
01:10:01,560 --> 01:10:04,840
Speaker 1: But you know, that stock market is actually been a

1157
01:10:04,880 --> 01:10:08,840
Speaker 1: pretty good stock market. Pretty well. Mody was here during

1158
01:10:08,840 --> 01:10:11,800
Speaker 1: the last U N session and he was a rock star.

1159
01:10:11,880 --> 01:10:17,280
Speaker 1: He gave there was a presentation at Madison Square Garden.

1160
01:10:17,880 --> 01:10:20,760
Speaker 1: It was insane. We saw eclipse of it. It was

1161
01:10:20,840 --> 01:10:24,760
Speaker 1: like you two was in town. It was an absolutely

1162
01:10:25,000 --> 01:10:30,840
Speaker 1: a madhouse, you know, Rolling Stones type of show. How

1163
01:10:30,880 --> 01:10:34,439
Speaker 1: does a politician find themselves? And that we don't see

1164
01:10:34,439 --> 01:10:36,559
Speaker 1: that in the US. You don't see that. But this

1165
01:10:36,640 --> 01:10:39,040
Speaker 1: was a major change. It was a move away from

1166
01:10:39,080 --> 01:10:43,920
Speaker 1: the whole Gandhi and and the other party, the Congress Party,

1167
01:10:44,120 --> 01:10:47,080
Speaker 1: into something totally different where there's a lot of hope,

1168
01:10:47,600 --> 01:10:51,439
Speaker 1: while we recall the president being elected here where there

1169
01:10:51,520 --> 01:10:53,800
Speaker 1: was a lot of hope as well, there was a

1170
01:10:53,840 --> 01:10:56,640
Speaker 1: lot of hope. I think we have a very experienced

1171
01:10:57,280 --> 01:11:01,719
Speaker 1: both politician and manager, and it could make a difference there.

1172
01:11:01,840 --> 01:11:05,120
Speaker 1: But I'm watching that. What I'm interested in, I call

1173
01:11:05,200 --> 01:11:07,599
Speaker 1: it sort of close to home. I think you can

1174
01:11:07,640 --> 01:11:11,920
Speaker 1: find investments from Canada to Tierra del Fuego that will

1175
01:11:12,000 --> 01:11:15,639
Speaker 1: take care of your emerging market needs, your energy needs,

1176
01:11:16,160 --> 01:11:20,040
Speaker 1: your actual businesses. If you want rule of law, you

1177
01:11:20,080 --> 01:11:23,080
Speaker 1: can sort of stay with Canada and UH in the

1178
01:11:23,200 --> 01:11:26,519
Speaker 1: US if you want to take some risk. Great things

1179
01:11:26,560 --> 01:11:29,320
Speaker 1: going on in Mexico. We'll see how this election comes

1180
01:11:29,360 --> 01:11:32,960
Speaker 1: out Brazil, and I think I think what's happening in

1181
01:11:33,160 --> 01:11:37,960
Speaker 1: Argentina ultimately does get resolved, and it may get resolved

1182
01:11:37,960 --> 01:11:40,120
Speaker 1: in a way where we're not going to see the

1183
01:11:40,160 --> 01:11:44,679
Speaker 1: opportunity to do what happened there on sovereign debt. So

1184
01:11:44,680 --> 01:11:47,439
Speaker 1: so are you talking about the social unrest or the

1185
01:11:47,479 --> 01:11:52,160
Speaker 1: hedge fund situation? The hedge fund situation that's ultimately got

1186
01:11:52,160 --> 01:11:55,640
Speaker 1: to get squared away. I think it will, and I

1187
01:11:55,640 --> 01:11:58,759
Speaker 1: think we'll get squared away in terms of a change

1188
01:11:58,840 --> 01:12:02,559
Speaker 1: in the rules around sovereign debt, having a lot of

1189
01:12:02,560 --> 01:12:05,840
Speaker 1: the rules already been changed going forward, there have there

1190
01:12:05,880 --> 01:12:08,160
Speaker 1: have been some, but you haven't totally gotten to the

1191
01:12:08,240 --> 01:12:14,960
Speaker 1: point where a rogue investor and sovereign debt can actually

1192
01:12:15,360 --> 01:12:19,040
Speaker 1: cause the kind of grief that we've seen, so for

1193
01:12:19,120 --> 01:12:24,320
Speaker 1: people who may not be tracking this closely. So, Argentina

1194
01:12:24,400 --> 01:12:28,760
Speaker 1: has a lot of UM sovereign debt, not not corporate debt,

1195
01:12:29,200 --> 01:12:32,560
Speaker 1: and they went through restructuring, and when you go through restructuring,

1196
01:12:33,080 --> 01:12:36,760
Speaker 1: the creditor committee gets to weigh in on how much

1197
01:12:36,760 --> 01:12:39,240
Speaker 1: of a haircut, how much less they're willing to take,

1198
01:12:39,920 --> 01:12:43,439
Speaker 1: and there's a secondary market where people can go and

1199
01:12:43,600 --> 01:12:47,200
Speaker 1: buy this debt. Hey, listen, this is gonna get cut

1200
01:12:47,240 --> 01:12:50,200
Speaker 1: in half. Um, you could wait seven years to get

1201
01:12:50,200 --> 01:12:52,679
Speaker 1: your fifty cents on the dollar, I'll give you thirty

1202
01:12:52,680 --> 01:12:55,280
Speaker 1: cents on the dollar today. And a number of hedge

1203
01:12:55,320 --> 01:13:00,519
Speaker 1: funds did this, some of whom then became members of

1204
01:13:00,560 --> 01:13:04,479
Speaker 1: that creditor committee and I'm grossly oversimplifying this and basically

1205
01:13:04,600 --> 01:13:07,040
Speaker 1: said we're not going to participate in this. We want

1206
01:13:07,040 --> 01:13:09,840
Speaker 1: a full hundred cents on the dollar. And they even

1207
01:13:09,920 --> 01:13:13,800
Speaker 1: managed to attach a warship, one of one of the

1208
01:13:13,960 --> 01:13:17,320
Speaker 1: Argentinean warships made ports somewhere and they show up and

1209
01:13:17,360 --> 01:13:20,320
Speaker 1: serve papers on the captain and said, until we get paid,

1210
01:13:20,479 --> 01:13:25,160
Speaker 1: this isn't your ship anymore, which I don't think is

1211
01:13:25,200 --> 01:13:29,080
Speaker 1: a way to run a process around sovereign debt. And

1212
01:13:29,280 --> 01:13:31,400
Speaker 1: it just is not the way that it may make

1213
01:13:31,479 --> 01:13:35,360
Speaker 1: sovereign debt more expensive. It's not very clean, it's not

1214
01:13:35,479 --> 01:13:40,600
Speaker 1: very efficient. Yes, and you you actually paralyze a country,

1215
01:13:40,760 --> 01:13:44,160
Speaker 1: and um, we need to get past that. And I

1216
01:13:44,400 --> 01:13:50,800
Speaker 1: I think Argentina's got energy just running sure everywhere. And

1217
01:13:50,880 --> 01:13:54,799
Speaker 1: it's a beautiful country. It's got great people. It's always

1218
01:13:54,800 --> 01:13:57,080
Speaker 1: had or for a long time here has had a

1219
01:13:57,080 --> 01:14:01,520
Speaker 1: bad government. Well that that you could described so many countries.

1220
01:14:01,760 --> 01:14:04,559
Speaker 1: Let you mentioned. So there's two things you you touched

1221
01:14:04,600 --> 01:14:06,920
Speaker 1: on that I want to You mentioned that I definitely

1222
01:14:07,000 --> 01:14:09,679
Speaker 1: want to touch upon in our last ten or so minutes.

1223
01:14:10,120 --> 01:14:12,760
Speaker 1: You mentioned Japan, and that's a country that has all

1224
01:14:12,760 --> 01:14:15,880
Speaker 1: sorts of interesting problems, and then you mentioned energy, And

1225
01:14:15,920 --> 01:14:18,120
Speaker 1: I want to talk about both of those because I

1226
01:14:18,160 --> 01:14:20,320
Speaker 1: know you have a lot of experience in each area.

1227
01:14:20,880 --> 01:14:27,719
Speaker 1: Japan debt ridden society, aging society, terribly low birth rate,

1228
01:14:27,840 --> 01:14:36,559
Speaker 1: almost no immigration, but a phenomenal corporate export economy. How

1229
01:14:36,600 --> 01:14:40,400
Speaker 1: does that work and how what's the endgame there? With

1230
01:14:40,920 --> 01:14:43,439
Speaker 1: what happens? The real question is what is the end game?

1231
01:14:43,720 --> 01:14:47,439
Speaker 1: And the end game may be driven by demographics as

1232
01:14:47,520 --> 01:14:50,920
Speaker 1: much as anything else. So the average age keeps going up,

1233
01:14:51,200 --> 01:14:55,160
Speaker 1: very few new kids coming in. You know, you think

1234
01:14:55,200 --> 01:14:57,799
Speaker 1: about the baby boom and what that in the United States.

1235
01:14:58,240 --> 01:15:00,960
Speaker 1: This is the opposite of that. This is the opposite. Now,

1236
01:15:01,040 --> 01:15:04,200
Speaker 1: what what Japan has not done is it hasn't taken

1237
01:15:04,880 --> 01:15:09,360
Speaker 1: full advantage of their female population. So they've got workers,

1238
01:15:09,400 --> 01:15:14,160
Speaker 1: They've got workers that they could actually have something happen with.

1239
01:15:14,320 --> 01:15:18,840
Speaker 1: But I don't know culturally, yes that there. You know,

1240
01:15:18,960 --> 01:15:22,800
Speaker 1: you have women are talented and they're the society is

1241
01:15:22,880 --> 01:15:27,320
Speaker 1: just not taking advantage of that, and they may have to.

1242
01:15:27,680 --> 01:15:31,200
Speaker 1: At the same time, you do have technology continuing to

1243
01:15:31,240 --> 01:15:33,559
Speaker 1: move here. So how many people do you actually need?

1244
01:15:33,800 --> 01:15:37,640
Speaker 1: Less and less? That's the that's the secular argument for

1245
01:15:37,800 --> 01:15:42,280
Speaker 1: why the labor pool continually shrinks. Yeah, there's a baby

1246
01:15:42,280 --> 01:15:45,280
Speaker 1: boom generation that's sixty thousand a day or whatever the

1247
01:15:45,360 --> 01:15:49,439
Speaker 1: number is retires. But on the other hand, globalization of

1248
01:15:49,520 --> 01:15:52,040
Speaker 1: people else we're willing to work much cheaper. That's whether

1249
01:15:52,080 --> 01:15:56,599
Speaker 1: it's Vietnam or Turkey or Mexico. And you have look

1250
01:15:56,640 --> 01:16:00,080
Speaker 1: in my office, we're less than ten people. The stuff

1251
01:16:00,120 --> 01:16:04,439
Speaker 1: that we do, we talk about technology, it would have

1252
01:16:04,520 --> 01:16:07,040
Speaker 1: taken it would have taken a hundred people, it would

1253
01:16:07,080 --> 01:16:09,840
Speaker 1: not have or it would have been so expensive to

1254
01:16:09,920 --> 01:16:13,920
Speaker 1: do you couldn't so so we put out a number

1255
01:16:13,960 --> 01:16:18,959
Speaker 1: of different commentaries every month, We put out a quarterly

1256
01:16:19,040 --> 01:16:22,800
Speaker 1: conference call for clients. We do a whole series of

1257
01:16:22,880 --> 01:16:28,000
Speaker 1: analytics on all our portfolios, and we do a regularly

1258
01:16:28,040 --> 01:16:31,519
Speaker 1: balancing and every one of those things is essentially you

1259
01:16:31,560 --> 01:16:34,920
Speaker 1: push your button. And it used to take four guys

1260
01:16:34,960 --> 01:16:38,320
Speaker 1: with green eye shades working for two weeks in the

1261
01:16:38,320 --> 01:16:40,880
Speaker 1: basement of some building, you know, a month to get

1262
01:16:40,920 --> 01:16:44,240
Speaker 1: that out. And now it's eight seconds pushing and it happens,

1263
01:16:44,360 --> 01:16:47,720
Speaker 1: and that that would that's the only thing that I

1264
01:16:47,760 --> 01:16:53,080
Speaker 1: think could save Japan Front from what looks like I

1265
01:16:53,080 --> 01:16:55,120
Speaker 1: don't know how long it's going to take, but it's

1266
01:16:55,160 --> 01:16:58,920
Speaker 1: not going to end well, I don't think. And yet

1267
01:16:58,960 --> 01:17:01,519
Speaker 1: and yet people are willing to lend them money for

1268
01:17:01,680 --> 01:17:06,719
Speaker 1: ten years at fifty basis. How is that their their

1269
01:17:06,760 --> 01:17:11,320
Speaker 1: debt to GDP is approaching two. It's twice as bad

1270
01:17:11,360 --> 01:17:15,400
Speaker 1: as ours, almost three times as bad as ours, and

1271
01:17:15,479 --> 01:17:20,479
Speaker 1: yet their their treasury is much muscle. So so if

1272
01:17:20,520 --> 01:17:23,240
Speaker 1: people are still willing, the marketplace is still willing to

1273
01:17:23,320 --> 01:17:26,360
Speaker 1: lend them money, when when is that going to stop?

1274
01:17:26,360 --> 01:17:29,640
Speaker 1: When is that going to change? I don't know, but

1275
01:17:29,720 --> 01:17:32,760
Speaker 1: at some point it has to or or you're going

1276
01:17:32,880 --> 01:17:37,000
Speaker 1: to see the end back at and maybe that'll change. Well,

1277
01:17:37,040 --> 01:17:40,520
Speaker 1: that'll hurt their economy dramatically if everything becomes more expensive

1278
01:17:40,560 --> 01:17:43,880
Speaker 1: out of them. So let's talk a little bit about energy.

1279
01:17:44,160 --> 01:17:47,160
Speaker 1: Where we're in a at the time we're recording this,

1280
01:17:47,280 --> 01:17:51,880
Speaker 1: oil briefly dipped under eighty dollars, and some of this

1281
01:17:51,960 --> 01:17:54,680
Speaker 1: has to do with let's talk about three things. So

1282
01:17:54,720 --> 01:17:58,519
Speaker 1: we have the strong dollar obviously a factor. We also

1283
01:17:58,840 --> 01:18:03,280
Speaker 1: have seen supply I'm sorry, we've seen demand drop some

1284
01:18:03,400 --> 01:18:06,960
Speaker 1: of its weakness in Europe and weakness in Japan and Asia.

1285
01:18:07,439 --> 01:18:11,400
Speaker 1: But we've also seen the US become more efficient as

1286
01:18:11,439 --> 01:18:15,800
Speaker 1: a consumer as the world's largest consumer of energy is

1287
01:18:15,840 --> 01:18:19,200
Speaker 1: a factor. And then at the same time, massive discoveries

1288
01:18:19,600 --> 01:18:25,120
Speaker 1: of supply everywhere, whether it's tar sands or shell gas.

1289
01:18:25,120 --> 01:18:28,280
Speaker 1: It's around the world. It's not it's not not just

1290
01:18:29,200 --> 01:18:32,840
Speaker 1: the technology, but it's it's around the world. So I

1291
01:18:32,920 --> 01:18:35,680
Speaker 1: think the supply picture, the combination of what they call

1292
01:18:35,720 --> 01:18:41,400
Speaker 1: it conventional hydrocarbon energy combined with the alternative energies, we're

1293
01:18:41,479 --> 01:18:44,120
Speaker 1: creating a lot of energy and I think it's going

1294
01:18:44,160 --> 01:18:48,320
Speaker 1: to keep pressure on prices here. And we've got certainly

1295
01:18:48,400 --> 01:18:50,400
Speaker 1: at this point in time, we have a lot of

1296
01:18:50,439 --> 01:18:54,240
Speaker 1: countries that need those revenues and they're not getting them.

1297
01:18:54,400 --> 01:18:59,200
Speaker 1: So that's Russia, which is Russia is I think we

1298
01:18:59,280 --> 01:19:02,559
Speaker 1: see a finance chill crisis coming out of all this.

1299
01:19:02,680 --> 01:19:05,080
Speaker 1: I don't know, it could be three years or whatever.

1300
01:19:05,200 --> 01:19:08,240
Speaker 1: You have to look at at Russia and what's going

1301
01:19:08,320 --> 01:19:12,400
Speaker 1: on there, and and the revenue requirement that they've got.

1302
01:19:12,840 --> 01:19:17,080
Speaker 1: They can't afford to actually get overly involved in the Ukraine.

1303
01:19:17,600 --> 01:19:22,160
Speaker 1: They need the revenues. Energy prices are just seeing a

1304
01:19:22,760 --> 01:19:26,720
Speaker 1: global a global shift here and and and actually I

1305
01:19:26,720 --> 01:19:30,760
Speaker 1: think it affects geopolitics dramatically. What is what is the

1306
01:19:30,840 --> 01:19:34,040
Speaker 1: real importance of the Middle East if in fact we

1307
01:19:34,160 --> 01:19:38,080
Speaker 1: develop all these other sources of who cares about Iran

1308
01:19:38,120 --> 01:19:42,200
Speaker 1: a foil that's right, that they have much lower ability

1309
01:19:42,240 --> 01:19:45,400
Speaker 1: to do mischief. That's that's right, and this is this

1310
01:19:45,479 --> 01:19:48,760
Speaker 1: is good thing. It means that maybe they have to

1311
01:19:49,200 --> 01:19:55,759
Speaker 1: compropise more about nuclear or anything else that that allows

1312
01:19:55,800 --> 01:19:58,479
Speaker 1: them to get back away from the sanctions and be

1313
01:19:58,640 --> 01:20:01,320
Speaker 1: involved in the in the real world. Here, it's a

1314
01:20:01,600 --> 01:20:07,720
Speaker 1: major shift in where the power, if you'll pardon the pun,

1315
01:20:07,880 --> 01:20:12,000
Speaker 1: where the power resides. And it will change our relationships

1316
01:20:12,000 --> 01:20:15,839
Speaker 1: with the Middle East. It may change our relationships with Israel.

1317
01:20:16,280 --> 01:20:19,240
Speaker 1: It certainly changes our relationships with a lot of the

1318
01:20:19,280 --> 01:20:23,360
Speaker 1: other energy suppliers as we find other sources. So you

1319
01:20:23,400 --> 01:20:28,680
Speaker 1: mentioned traditional crude oil, traditional energy. We have the Tarsands

1320
01:20:28,800 --> 01:20:34,000
Speaker 1: up north, we have hydro fracking in for natural gas.

1321
01:20:34,040 --> 01:20:39,000
Speaker 1: Here we have liquid using cold to make liquefied natural gas.

1322
01:20:39,000 --> 01:20:43,559
Speaker 1: And what am I forgetting in the um hydrocarbon space

1323
01:20:43,760 --> 01:20:46,680
Speaker 1: and in the hydrocarbon space, I think, I think that's it,

1324
01:20:46,920 --> 01:20:50,439
Speaker 1: But but the impact there is not just on energy.

1325
01:20:51,320 --> 01:20:55,360
Speaker 1: Hydrocarbons are a feedstock for a lot of what gets

1326
01:20:55,400 --> 01:21:01,360
Speaker 1: produced around the world, as plastics and the plastics I

1327
01:21:01,360 --> 01:21:04,680
Speaker 1: mean the job. Iran once said that that oil is

1328
01:21:04,760 --> 01:21:09,600
Speaker 1: too precious to be used to power cars, and you

1329
01:21:09,600 --> 01:21:12,000
Speaker 1: can make anything you want with it. And if you're

1330
01:21:12,000 --> 01:21:15,960
Speaker 1: if you're lowering the cost of that feedstock in terms

1331
01:21:15,960 --> 01:21:19,120
Speaker 1: of what you can produce and where you can produce it.

1332
01:21:19,680 --> 01:21:22,400
Speaker 1: This also can lead to a renaissance of where you

1333
01:21:22,479 --> 01:21:26,839
Speaker 1: actually established your manufacturing, particularly if it's not labor related

1334
01:21:26,960 --> 01:21:31,040
Speaker 1: and more what I would call technology related in the

1335
01:21:31,080 --> 01:21:34,160
Speaker 1: way you set up your manufacturing. And if your feedstock

1336
01:21:34,680 --> 01:21:37,680
Speaker 1: sort of guaranteed feedstock is lower, let's say in the

1337
01:21:37,800 --> 01:21:42,559
Speaker 1: US or lower in Argentina, it makes a difference on

1338
01:21:42,640 --> 01:21:45,760
Speaker 1: where you're putting your plants. You can build manufacturing facilities

1339
01:21:45,880 --> 01:21:48,599
Speaker 1: right there. That's right, and that's good for the local

1340
01:21:48,640 --> 01:21:51,040
Speaker 1: economy and it's good for the local account. It's it's

1341
01:21:51,040 --> 01:21:54,679
Speaker 1: a major shift that's taking place here and and always

1342
01:21:54,680 --> 01:22:00,520
Speaker 1: as it has. Energy actually produces major shifts and powers structures.

1343
01:22:00,600 --> 01:22:02,320
Speaker 1: Is why you can you can go back to the

1344
01:22:02,960 --> 01:22:05,840
Speaker 1: to the Dutch and and whale oil, or you can

1345
01:22:05,880 --> 01:22:11,559
Speaker 1: go to coal and the United Kingdom. I mean, you know,

1346
01:22:11,600 --> 01:22:14,200
Speaker 1: it's caused major shifts. We we started seeing this a

1347
01:22:14,200 --> 01:22:17,599
Speaker 1: few years ago, and people were not big believers of,

1348
01:22:18,160 --> 01:22:21,120
Speaker 1: you know, the manufacturing renaissance in the United States. The

1349
01:22:21,200 --> 01:22:25,000
Speaker 1: complaint in China is, well, we don't we can't reliably

1350
01:22:25,120 --> 01:22:29,240
Speaker 1: get electricity, and the electricity that comes in fluctuates wildly

1351
01:22:29,360 --> 01:22:33,240
Speaker 1: and ampage and voltage. So there's a cost of building

1352
01:22:34,240 --> 01:22:38,559
Speaker 1: a set of electronics to create a steady output as

1353
01:22:38,640 --> 01:22:41,519
Speaker 1: opposed to these wild swings. You go anywhere in the

1354
01:22:41,560 --> 01:22:45,400
Speaker 1: mid Midwest, United States and run a natural gas pipeline

1355
01:22:46,080 --> 01:22:49,120
Speaker 1: or just a natural gas line there, set up electrical

1356
01:22:49,160 --> 01:22:54,760
Speaker 1: co generation plant, you have inexhaustible, almost free electricity. Right.

1357
01:22:55,320 --> 01:23:00,480
Speaker 1: And so if you're running a heavy consumer of actricity,

1358
01:23:00,560 --> 01:23:05,560
Speaker 1: whether it's a semiconductor fab or a heavier industrial manufacturer,

1359
01:23:06,400 --> 01:23:08,800
Speaker 1: it be is now once you back at the cost

1360
01:23:08,840 --> 01:23:12,200
Speaker 1: of shipping from from Asia, the United States has become

1361
01:23:12,240 --> 01:23:16,599
Speaker 1: really cost competitive. It's called it's cost competitive. And and

1362
01:23:16,640 --> 01:23:19,559
Speaker 1: we still have the rule of law here, which makes

1363
01:23:19,560 --> 01:23:23,120
Speaker 1: a big, big difference, as anybody who was trying to

1364
01:23:23,160 --> 01:23:26,840
Speaker 1: do business in Russia can tell you. You know, someone

1365
01:23:26,920 --> 01:23:30,800
Speaker 1: described the United States as a um a huge insurance

1366
01:23:31,040 --> 01:23:34,680
Speaker 1: health insurance company with a standing army attached. Russia, on

1367
01:23:34,720 --> 01:23:38,240
Speaker 1: the other hand, is a huge cuiminal enterprise with a

1368
01:23:38,320 --> 01:23:41,439
Speaker 1: standing army attached. That's why would you want to go

1369
01:23:41,520 --> 01:23:45,400
Speaker 1: there and do business? Last subject before we let you go,

1370
01:23:45,880 --> 01:23:50,920
Speaker 1: so I know you're big into alternative energies and associated technologies.

1371
01:23:51,479 --> 01:23:55,479
Speaker 1: What's interesting in that space these days, Well, we're driving

1372
01:23:55,520 --> 01:24:00,920
Speaker 1: town the cost curve significantly in the classic uh, classic

1373
01:24:01,000 --> 01:24:05,559
Speaker 1: alternative energies. I know that solar, solar wind, all of that.

1374
01:24:05,840 --> 01:24:08,160
Speaker 1: I think what's coming to the fore and I believe

1375
01:24:08,240 --> 01:24:12,639
Speaker 1: this for quite some time. Fuel cell technology is now

1376
01:24:12,680 --> 01:24:15,760
Speaker 1: getting down to cost levels where I think it will

1377
01:24:15,800 --> 01:24:19,599
Speaker 1: be a major impact, particularly like hydrogen fuel cell, Like

1378
01:24:19,680 --> 01:24:23,480
Speaker 1: hydrogen fuel cell, and and if we've got alternative energies

1379
01:24:23,600 --> 01:24:27,960
Speaker 1: and we're we're starting with water and we're using using

1380
01:24:28,000 --> 01:24:31,840
Speaker 1: solar energy, let's say, to create hydrogen which then is

1381
01:24:31,960 --> 01:24:35,559
Speaker 1: used to turn back into the water to power product.

1382
01:24:35,800 --> 01:24:40,080
Speaker 1: That's ultimately I think the direction. I think electric cars

1383
01:24:40,240 --> 01:24:43,400
Speaker 1: as we're defining them today is our interim and it's

1384
01:24:43,400 --> 01:24:48,720
Speaker 1: a stop measure between gasoline and hydrogen and hydrogen dred

1385
01:24:48,800 --> 01:24:52,400
Speaker 1: years away from full hydrogen cars or is it sooner

1386
01:24:52,439 --> 01:24:55,120
Speaker 1: than that. I think it's sooner. I think you're in Japan.

1387
01:24:55,320 --> 01:24:58,559
Speaker 1: That's one thing they're doing. The Japanese auto companies, which

1388
01:24:58,600 --> 01:25:02,880
Speaker 1: are internally very competitive, are moving down the fuel cell track,

1389
01:25:03,040 --> 01:25:06,200
Speaker 1: and they put in place the infrastructure for fueling on

1390
01:25:06,320 --> 01:25:10,880
Speaker 1: that is hydrogen refueling. Yes, And we mentioned earlier the

1391
01:25:10,920 --> 01:25:15,960
Speaker 1: falling price of oil. Isn't that a threat to traditional

1392
01:25:16,040 --> 01:25:18,400
Speaker 1: things like solar and winds? It is a threat. It

1393
01:25:18,520 --> 01:25:21,800
Speaker 1: is a threat. But you're again, technology is working for

1394
01:25:21,920 --> 01:25:28,479
Speaker 1: you there. You're driving absolutely does so. The other question is,

1395
01:25:28,520 --> 01:25:32,360
Speaker 1: I don't think there's enough alternative energies that are competitive

1396
01:25:32,479 --> 01:25:37,000
Speaker 1: enough that that's making the price of oil drop. But

1397
01:25:37,040 --> 01:25:40,160
Speaker 1: at a certain point, on the margin, it's an element

1398
01:25:40,280 --> 01:25:43,559
Speaker 1: of supply. On the margin, it's an element of supply.

1399
01:25:43,640 --> 01:25:47,720
Speaker 1: And if you add you know, fracking to the picture here,

1400
01:25:47,920 --> 01:25:54,040
Speaker 1: which is major technological breakthrough as well, the supply picture

1401
01:25:54,240 --> 01:25:56,760
Speaker 1: is just going to overwhelm. I don't care what the

1402
01:25:56,760 --> 01:26:03,040
Speaker 1: growth rates are. The marcels um uh It's people have

1403
01:26:03,400 --> 01:26:07,080
Speaker 1: literally said, there's five hundred years three hundred years of

1404
01:26:07,880 --> 01:26:11,559
Speaker 1: natural gas consumption and they're still making fine To find

1405
01:26:11,640 --> 01:26:15,160
Speaker 1: that they are now the technology needs to develop that

1406
01:26:15,160 --> 01:26:20,360
Speaker 1: that five hundred years is not using today's fracking technology.

1407
01:26:20,400 --> 01:26:23,599
Speaker 1: But again, you're moving down a path there, and and

1408
01:26:23,640 --> 01:26:26,920
Speaker 1: the and the oil companies spent a lot on R

1409
01:26:27,000 --> 01:26:30,400
Speaker 1: and D. It's it's not recognized as much, but they're

1410
01:26:30,840 --> 01:26:37,000
Speaker 1: they're as technologically savvy and users of technology, even even

1411
01:26:37,040 --> 01:26:39,880
Speaker 1: as much as you can see out a silicon valley

1412
01:26:39,920 --> 01:26:44,559
Speaker 1: around the Internet. So how low can oil go before

1413
01:26:44,640 --> 01:26:49,920
Speaker 1: it puts a crimp in all these alternative energy I

1414
01:26:50,320 --> 01:26:53,439
Speaker 1: think I think if you saw, if you saw as

1415
01:26:53,479 --> 01:26:59,160
Speaker 1: a marker, oil down around seventy dollars a barrel not

1416
01:26:59,280 --> 01:27:04,479
Speaker 1: that far away. Yeah, that and what would that do

1417
01:27:04,600 --> 01:27:06,880
Speaker 1: seventy dollar oil? What does that do to solar? What

1418
01:27:06,920 --> 01:27:09,439
Speaker 1: does that do to win? Well, I think it slows

1419
01:27:09,479 --> 01:27:14,000
Speaker 1: down the adoption, but I'm not so sure it slows down.

1420
01:27:14,200 --> 01:27:19,599
Speaker 1: It actually may speed up the technological development in alternative energy.

1421
01:27:19,640 --> 01:27:24,120
Speaker 1: You know, we haven't had a huge breakthrough in battery technology.

1422
01:27:24,120 --> 01:27:27,760
Speaker 1: These have all been incremental improvements. And I was just

1423
01:27:27,880 --> 01:27:31,160
Speaker 1: reading that too long ago. Some sort of a gel.

1424
01:27:31,360 --> 01:27:35,040
Speaker 1: I can't remember the metal that underlines it, but it's

1425
01:27:35,040 --> 01:27:39,559
Speaker 1: a metallic gel used for these new batteries and the

1426
01:27:39,760 --> 01:27:44,360
Speaker 1: storage is the first order of magnitude breakthrough. Now I

1427
01:27:44,360 --> 01:27:47,120
Speaker 1: don't know what the safety dangers and if it could

1428
01:27:47,120 --> 01:27:50,160
Speaker 1: be commercialized, yeah, and how how big it can get.

1429
01:27:50,320 --> 01:27:54,160
Speaker 1: There's actually a lot of technological work going on with

1430
01:27:54,360 --> 01:27:58,719
Speaker 1: lead acid batteries, old lead acid batteries where you're using

1431
01:27:58,880 --> 01:28:03,679
Speaker 1: nanotechnology for the cathodes and anodes and some mixture thereof.

1432
01:28:03,880 --> 01:28:06,920
Speaker 1: You can increase the efficiency to the point where they

1433
01:28:06,920 --> 01:28:10,000
Speaker 1: actually may be as competitive as they as you can

1434
01:28:10,000 --> 01:28:13,640
Speaker 1: get with lithium as well. The the amazing thing is

1435
01:28:13,800 --> 01:28:17,960
Speaker 1: that you can really improve technology and with all these

1436
01:28:18,000 --> 01:28:21,800
Speaker 1: incremental changes, all these iterations, but when you get that

1437
01:28:21,880 --> 01:28:26,320
Speaker 1: big breakthrough and you know there's one out there, it's

1438
01:28:26,360 --> 01:28:29,080
Speaker 1: going to be such a game change. You imagine. You

1439
01:28:29,120 --> 01:28:31,400
Speaker 1: know when when I used to have this drill, this

1440
01:28:31,560 --> 01:28:35,840
Speaker 1: electric drill, with this big heavy battery, and for years

1441
01:28:35,960 --> 01:28:38,160
Speaker 1: it was it was perfectly fine. Yeah, it was a

1442
01:28:38,160 --> 01:28:40,840
Speaker 1: little heavy, and when you're done using it, you plugged

1443
01:28:40,840 --> 01:28:42,800
Speaker 1: it and you had to charge it. When the new

1444
01:28:42,880 --> 01:28:47,040
Speaker 1: litho lithium batteries came out, you just, oh my god.

1445
01:28:47,120 --> 01:28:50,719
Speaker 1: These other things are just ancient technology. So you charge

1446
01:28:50,720 --> 01:28:52,920
Speaker 1: this up. I have this. I have this leaf blower

1447
01:28:53,439 --> 01:28:55,599
Speaker 1: that I got at home deep. I'm trying to remember

1448
01:28:55,600 --> 01:28:57,920
Speaker 1: the name of it, but it's the home depot in

1449
01:28:58,040 --> 01:29:02,439
Speaker 1: house brand. I charge this thing up, you forget about

1450
01:29:02,479 --> 01:29:06,120
Speaker 1: it for a year. It's still it hasn't lost the charge.

1451
01:29:06,120 --> 01:29:09,240
Speaker 1: It weighs half as much as the old one. So

1452
01:29:09,439 --> 01:29:13,519
Speaker 1: I'm waiting for that next breakthrough. That's four times as

1453
01:29:13,760 --> 01:29:17,160
Speaker 1: as powerful half to wait. And that's how it will happen.

1454
01:29:17,280 --> 01:29:20,120
Speaker 1: And it's happening across the board. Is happening in the

1455
01:29:20,200 --> 01:29:24,800
Speaker 1: medical area, is happening in data just in general, it's

1456
01:29:24,840 --> 01:29:29,080
Speaker 1: happening in manufacturing. It's it's just across the board. It

1457
01:29:29,120 --> 01:29:33,280
Speaker 1: makes me just very optimistic in spite of what happens

1458
01:29:33,280 --> 01:29:37,080
Speaker 1: to the market on any given day. This this is uh,

1459
01:29:37,160 --> 01:29:40,400
Speaker 1: this is an interesting time to be involved in watching

1460
01:29:40,439 --> 01:29:43,200
Speaker 1: it and and maybe with what's going on in medical,

1461
01:29:43,280 --> 01:29:45,000
Speaker 1: I'll get to watch it a lot longer than I

1462
01:29:45,080 --> 01:29:47,360
Speaker 1: might have otherwised. You know. The last the last thing

1463
01:29:47,600 --> 01:29:50,639
Speaker 1: I want to mention, and it's right on that point.

1464
01:29:51,160 --> 01:29:54,000
Speaker 1: So we go to this conference um every other year.

1465
01:29:54,439 --> 01:29:56,760
Speaker 1: It's out in California, and it's just a bunch of

1466
01:29:56,800 --> 01:30:01,920
Speaker 1: young college kids showing off each their new technology ideas

1467
01:30:01,960 --> 01:30:06,360
Speaker 1: and looking for venture investing. And you go through to

1468
01:30:06,600 --> 01:30:09,840
Speaker 1: spend two days looking at these nineteen year old kids

1469
01:30:10,160 --> 01:30:12,040
Speaker 1: and what comes out of there. And I'm in my

1470
01:30:12,120 --> 01:30:14,679
Speaker 1: fifties now, so I'm I look at nineteen year olds

1471
01:30:14,720 --> 01:30:19,400
Speaker 1: as kids, and it's impossible to have a negative outlook

1472
01:30:19,840 --> 01:30:23,880
Speaker 1: when you just see this parade of brilliance and the

1473
01:30:24,600 --> 01:30:30,800
Speaker 1: ingenuity and the new technologies. It looks as if every problem,

1474
01:30:30,840 --> 01:30:34,719
Speaker 1: at least from a technology standpoint, can be solved, whether

1475
01:30:34,840 --> 01:30:37,559
Speaker 1: India can get the politics in order in order to

1476
01:30:37,600 --> 01:30:40,479
Speaker 1: fix their system or the United States can can get

1477
01:30:40,560 --> 01:30:45,200
Speaker 1: their healthcare budget in order. It's not the technology that's

1478
01:30:45,240 --> 01:30:48,840
Speaker 1: the problems, and it's not it's society that's around the

1479
01:30:48,960 --> 01:30:52,200
Speaker 1: society that's around it. But see, I I get what

1480
01:30:52,320 --> 01:30:54,679
Speaker 1: you get every two years. I get it every three

1481
01:30:54,720 --> 01:30:57,400
Speaker 1: months when I go to the Ideal LAMB board meeting

1482
01:30:57,479 --> 01:31:01,000
Speaker 1: and walk around that big warehouse with all of these companies.

1483
01:31:01,640 --> 01:31:04,400
Speaker 1: You know, three people or maybe there's ten people. You've

1484
01:31:04,400 --> 01:31:07,280
Speaker 1: got to sign up above them. This is what they're doing.

1485
01:31:07,360 --> 01:31:10,040
Speaker 1: And you're watching these and they are kids, Well, everybody's

1486
01:31:10,080 --> 01:31:13,360
Speaker 1: a kid to me. Now you're watching these kids with

1487
01:31:13,479 --> 01:31:18,960
Speaker 1: such enthusiasm and such energy tackling a problem and it's

1488
01:31:19,000 --> 01:31:21,600
Speaker 1: not they're not saying no, they're saying, we're going to

1489
01:31:21,680 --> 01:31:24,759
Speaker 1: figure this out. Why not work the first time around,

1490
01:31:24,760 --> 01:31:27,040
Speaker 1: but we'll figure it out. We'll figure I couldn't do

1491
01:31:27,080 --> 01:31:28,680
Speaker 1: that every three months because it would just make me

1492
01:31:28,760 --> 01:31:32,320
Speaker 1: too bullish. I have to have some objectivity and that

1493
01:31:32,479 --> 01:31:36,360
Speaker 1: sort of stuff. I would just long and forget about

1494
01:31:36,400 --> 01:31:39,120
Speaker 1: everything else. So I can only go every other year,

1495
01:31:39,320 --> 01:31:41,679
Speaker 1: and that that's that carries me through, brings you back

1496
01:31:41,720 --> 01:31:44,519
Speaker 1: into anyway, Jack, thank you so much for spending so

1497
01:31:44,600 --> 01:31:47,759
Speaker 1: much time with us today. Um, you're just a font

1498
01:31:47,960 --> 01:31:51,920
Speaker 1: of information and as always, it's a pleasure chatting with you. Well,

1499
01:31:51,960 --> 01:31:54,960
Speaker 1: it's a pleasure chatting with you Berry. I always enjoyed

1500
01:31:54,960 --> 01:32:00,280
Speaker 1: that you've been listening to Masters in Business on Bloomberg Radio. Um,

1501
01:32:00,280 --> 01:32:03,120
Speaker 1: I'm gonna say that again. I'm Barry rid Halts. You've

1502
01:32:03,120 --> 01:32:06,760
Speaker 1: been listening to Masters in Business on Bloomberg Radio. If

1503
01:32:06,800 --> 01:32:10,120
Speaker 1: you're listening to this, you're obviously hearing the podcast. Be

1504
01:32:10,200 --> 01:32:13,640
Speaker 1: sure and check out our other podcasts, which are archived

1505
01:32:14,160 --> 01:32:18,240
Speaker 1: on Bloomberg dot com. In theory, we should be up

1506
01:32:18,240 --> 01:32:23,240
Speaker 1: on Apple iTunes any day now. They've been dawdling. I

1507
01:32:23,280 --> 01:32:26,040
Speaker 1: guess they're waiting for for Samsung to put us up first,

1508
01:32:26,040 --> 01:32:30,479
Speaker 1: and then they'll they'll match that. That's my digit Apple.

1509
01:32:30,960 --> 01:32:33,360
Speaker 1: Despite me owning little Apple products, I can't get our

1510
01:32:33,439 --> 01:32:37,519
Speaker 1: damn podcast up there. Um. Follow me on Twitter at

1511
01:32:37,600 --> 01:32:41,080
Speaker 1: rid Halts, or check out my daily column on Bloomberg

1512
01:32:41,439 --> 01:32:45,280
Speaker 1: View dot com. You're listening to Masters in Business with

1513
01:32:45,320 --> 01:32:47,679
Speaker 1: Barry rid Holts on Bloomberg Radio