WEBVTT - Ivy Zelman Discusses Real Estate 0:00:02.400 --> 0:00:06.560 This is Masters in Business with Barry Riddholts on Bloomberg 0:00:06.680 --> 0:00:12.119 Radio this weekend. On the podcast, I have an extra 0:00:12.200 --> 0:00:15.000 special guest. Her name is ivy's Elman, and I have 0:00:15.080 --> 0:00:18.320 been following her research and writing for the better part 0:00:18.440 --> 0:00:22.320 of a decade plus. UH. She has had a series 0:00:22.400 --> 0:00:27.920 of phenomenal calls within various aspects of the real estate industry, 0:00:27.960 --> 0:00:33.280 be it the home builders, the mortgage originators, the credit underwriters. 0:00:34.000 --> 0:00:38.800 She is definitely a contrarian. She is somebody who is 0:00:39.400 --> 0:00:43.080 extremely astute as to the economic cycle and how it 0:00:43.120 --> 0:00:48.960 affects housing. If you are at all interested in real estate, 0:00:49.080 --> 0:00:54.400 credit homes, both single family and multi family, and all 0:00:54.440 --> 0:00:59.720 of the latest innovations in either technology or UH financial 0:00:59.760 --> 0:01:03.880 and sations and financing of of especially from the private 0:01:03.880 --> 0:01:06.880 equity side. We we just spend some time talking about 0:01:07.680 --> 0:01:11.920 I buying the instantaneous buyers that have appeared that facilitate 0:01:12.680 --> 0:01:15.959 transactions of sellers. I think you're gonna find this conversation 0:01:16.600 --> 0:01:20.560 filled with wonky goodness. So, with no further delay, my 0:01:20.720 --> 0:01:26.880 conversation with real estate and equity analyst expert Ivy Selman. 0:01:30.959 --> 0:01:33.919 I'm Barry rit Halts. You're listening to Masters in Business 0:01:33.959 --> 0:01:37.880 on Bloomberg Radio. My special guest this week is Ivy Zellman. 0:01:38.319 --> 0:01:42.440 She is the CEO and founder of Zellman and Associates, 0:01:42.480 --> 0:01:47.400 a boutique research firm focusing exclusively on the housing industry. 0:01:47.760 --> 0:01:52.000 She is an institutional investor, Hall of Fame Equity Analyst 0:01:52.480 --> 0:01:55.840 UH The All American Research Team Rankings placed Ivy and 0:01:55.880 --> 0:02:00.120 her team with eleven first place rankings between nineteen Then 0:02:00.160 --> 0:02:04.520 you know and and I V. S Ellman. Welcome to Bloomberg. 0:02:04.800 --> 0:02:07.040 Thank you for having me. Very so you cover one 0:02:07.040 --> 0:02:10.800 of my very favorite areas because it's so fascinating, especially 0:02:11.480 --> 0:02:17.520 in the United States, housing, the pursuit, construction, financing of it. 0:02:18.360 --> 0:02:21.440 Let's talk about the early days of your career and 0:02:21.440 --> 0:02:25.440 how you became a housing analysts. You began on Wall 0:02:25.480 --> 0:02:30.400 Street that about rights right? What path led you there? Well, 0:02:30.440 --> 0:02:34.800 actually I didn't start out interested in housing admittedly. UM. 0:02:34.840 --> 0:02:39.520 I was UM really focused as an undergrad on accounting 0:02:39.680 --> 0:02:42.680 and I was working UM at Arthur Young now Ernst 0:02:42.720 --> 0:02:45.520 and Young, going to night school. So I went to 0:02:45.600 --> 0:02:48.840 undergrad for six years and during the time that I 0:02:48.919 --> 0:02:52.160 was studying at George Mason University and working in Ernst 0:02:52.200 --> 0:02:54.880 and young as an accounty major. I was asking a 0:02:54.919 --> 0:02:57.320 lot of these accountants that I worked with, do you 0:02:57.360 --> 0:03:00.720 like what you do? And they hated it. They almost 0:03:01.040 --> 0:03:03.679 universally everyone I talked with said you don't want to 0:03:03.680 --> 0:03:05.720 be an accountant. So I was like, well, what should 0:03:05.720 --> 0:03:08.200 I do? And they basically all said, go get a 0:03:08.240 --> 0:03:10.280 job in Wall Street? And I'm like, what does that mean? 0:03:10.320 --> 0:03:13.840 Because at George Mason, Wall Street firms didn't recruit students there, 0:03:14.320 --> 0:03:16.840 so I had to network and knock on doors, and 0:03:16.880 --> 0:03:19.560 eventually it led me to Wall Street, where I got 0:03:19.560 --> 0:03:22.680 a job at Solomon Brothers in investment banking and I 0:03:22.800 --> 0:03:25.520 was there for a two year stint as an investment 0:03:25.520 --> 0:03:29.359 banking analysts prior to be coming in going into equity research. 0:03:29.480 --> 0:03:34.720 And so well told you were there from nine about right, Yeah, 0:03:34.920 --> 0:03:38.800 kind of overlapping with the Michael Lewis Liars Poker era, 0:03:39.240 --> 0:03:41.680 one of my favorite books. But so that that is 0:03:41.920 --> 0:03:46.920 a very much a male dominated period in Wall Street. 0:03:47.280 --> 0:03:51.000 Not that Wall Street has has really done enough to 0:03:51.000 --> 0:03:54.360 to even the gender levels, but back in the nineties 0:03:54.440 --> 0:03:56.720 that had to be kind of a wild place to work. 0:03:57.600 --> 0:03:59.960 It was a lot of fun, I think starting out 0:04:00.000 --> 0:04:02.920 out first being in a class because I was in 0:04:02.920 --> 0:04:05.360 a training program. I think I was one of three 0:04:05.640 --> 0:04:09.000 women of seventy kids, and we were all there for 0:04:09.040 --> 0:04:11.440 two years. I was intimidated because most of them were 0:04:11.840 --> 0:04:13.920 from the Ivy League, and so I initially not even 0:04:13.960 --> 0:04:16.240 being just a woman, but just you know, having from 0:04:16.320 --> 0:04:19.360 a state university. UM. But you know, once you're once 0:04:19.400 --> 0:04:21.320 you're there, you know, you put your head down, you 0:04:21.400 --> 0:04:24.800 work hard, and it was really just about proving myself 0:04:25.040 --> 0:04:28.200 and as working hard as I can. So I think 0:04:28.240 --> 0:04:31.159 that today I look back on that time and I 0:04:31.200 --> 0:04:33.880 had a lot of fun, but it was about just 0:04:34.160 --> 0:04:37.160 you know, execution and working as hard as you can 0:04:37.200 --> 0:04:41.360 to prove yourself. So how did you transition from investment 0:04:41.400 --> 0:04:44.920 banking analysts to housing analysts? After two years you're out 0:04:44.920 --> 0:04:47.240 of a job, which you know that's the case when 0:04:47.240 --> 0:04:50.160 you took the job. It's a it's a two year lifespan. 0:04:50.200 --> 0:04:53.560 It's a two year lifespan, and most of the seventy 0:04:53.640 --> 0:04:55.920 odd plus or minus will go on to get their 0:04:56.040 --> 0:04:58.520 m b A and then return, you know, back to 0:04:58.560 --> 0:05:01.920 Wall Street. And because I had student loans already through 0:05:02.000 --> 0:05:06.360 undergrad and unfortunately didn't want to take on the responsibility 0:05:06.440 --> 0:05:08.599 or go back to school after six years. I just 0:05:08.680 --> 0:05:10.920 was looking for a job to pay my rent. And 0:05:11.000 --> 0:05:14.120 internally we had something called the you know, the Treasury 0:05:14.120 --> 0:05:17.800 scandal going on at that time, and unfortunately John good 0:05:17.839 --> 0:05:20.680 Friend and the firm was in turmoil. So a lot 0:05:20.680 --> 0:05:23.080 of people period with Warren Buffett came in and right 0:05:23.400 --> 0:05:26.480 the ship pretty much. And prior to Warren Buffett writing 0:05:26.480 --> 0:05:28.560 the Ship, the view was there, you know, the lights 0:05:28.560 --> 0:05:30.680 were going to go out at Solomon and a lot 0:05:30.680 --> 0:05:33.279 of people were leaving, and there was an opportunity that 0:05:33.360 --> 0:05:36.240 opened up in in equity research, in the housing space 0:05:36.320 --> 0:05:39.800 and the actually in corporate finance. I worked in Transportation group, 0:05:39.839 --> 0:05:43.359 and gentleman by the name of Julius Maldudas, which is 0:05:43.400 --> 0:05:46.440 a famous airline analyst, he's like, you should go work 0:05:46.440 --> 0:05:49.760 in equity research, you know, and and go help them. 0:05:50.000 --> 0:05:52.480 So I got a job with his recommendation as an 0:05:52.480 --> 0:05:56.719 associate in the UM. At that time, it was Bruce 0:05:56.800 --> 0:06:01.120 Harding who covered S n L's and Fanny Freddie, and 0:06:01.160 --> 0:06:04.400 he was picking up homebuilding and housing as a favor 0:06:04.760 --> 0:06:07.600 because Bob Bishop quit said I'm out of here, as 0:06:07.800 --> 0:06:12.000 many other people were quitting, so I came an associate, 0:06:12.080 --> 0:06:13.560 and I was just happy to have a job. People 0:06:13.680 --> 0:06:16.160 like you don't want to be an equity research analyst. 0:06:16.480 --> 0:06:19.680 They're just like monkeys. They just companies talma to write 0:06:19.720 --> 0:06:22.240 and and I just wanted to get a job and 0:06:22.400 --> 0:06:25.120 stay at the firm, and and there there, there you 0:06:25.160 --> 0:06:28.120 have it. To be fair, some of them are not monkeys. 0:06:28.120 --> 0:06:33.080 Some of them are insightful researchers who put forth intelligent, 0:06:33.920 --> 0:06:39.880 um actionable wealth generating research. Absolutely agree with that, and 0:06:39.960 --> 0:06:42.200 I certainly don't agree with the monkey comment, but it 0:06:42.279 --> 0:06:45.520 was the beginning of now my nearly thirty year career 0:06:45.560 --> 0:06:48.680 as an equity analyst. So not not as a monkey, 0:06:48.720 --> 0:06:52.120 but but actually generating research. So so you're you're kind 0:06:52.120 --> 0:06:56.280 of thrown into housing. How did you suddenly discover such 0:06:56.320 --> 0:06:59.760 a proficiency for it? What made you so astute as 0:06:59.800 --> 0:07:03.280 as someone without a background and housing going into that space? 0:07:03.800 --> 0:07:05.400 You know, I think what I really loved about it 0:07:05.480 --> 0:07:08.679 initially was the fact the challenge was to really find 0:07:08.720 --> 0:07:12.040 ways to differentiate the work that I was doing. And 0:07:12.200 --> 0:07:14.760 when you have a fragmented industry and housing is something 0:07:14.800 --> 0:07:17.360 that you know, I could relate to lived in a home. 0:07:17.520 --> 0:07:20.800 I like the housing market. It was really about finding 0:07:20.960 --> 0:07:24.840 companies that were privately held that are in the business 0:07:24.880 --> 0:07:27.080 of housing, whether they were a home builder or a 0:07:27.120 --> 0:07:31.080 realtor like your mom, or building product manufacturer, and talking 0:07:31.120 --> 0:07:33.880 to them about the business and learning from them, and 0:07:33.920 --> 0:07:37.640 then you using that analysis to then try to correlate 0:07:38.240 --> 0:07:41.760 or predict what public companies would do. Were other people 0:07:42.160 --> 0:07:44.560 delving into private companies at that time as a way 0:07:44.560 --> 0:07:46.680 to give them a little more color into what the 0:07:46.720 --> 0:07:50.440 reality of the public situation was not that much, to 0:07:50.520 --> 0:07:52.560 be honest with you, In fact, um not to give 0:07:52.680 --> 0:07:54.840 too much credit to any one person, but it was 0:07:54.880 --> 0:07:57.680 really I was assigned a buddy. Salomon Brothers decided that 0:07:57.720 --> 0:08:01.160 a salesperson and analysts would become buddies and they would 0:08:01.160 --> 0:08:03.560 work closely together for the younger Alice to learn from 0:08:03.600 --> 0:08:07.200 the senior salesperson, and the senior salesperson really said, you know, 0:08:07.240 --> 0:08:09.400 you need to go dig in the channel. You need 0:08:09.440 --> 0:08:12.880 to find private companies. And that was really the direction 0:08:12.960 --> 0:08:15.360 I went. Now, it just so happened I happened to 0:08:15.520 --> 0:08:19.040 have married my buddy, but that's a longer story. But 0:08:19.560 --> 0:08:22.440 my husband, David, really was the one who directed me 0:08:22.520 --> 0:08:25.480 to go find private companies and that will really help 0:08:25.560 --> 0:08:29.920 to ferentiate you. Quite fascinating. So let's talk a little 0:08:29.920 --> 0:08:33.760 bit about Wall Street and housing. I think for the 0:08:33.800 --> 0:08:38.400 most part, Wall Street has not done a distinguished job 0:08:38.600 --> 0:08:45.760 covering housing in general, covering the retail and department store sector, um, 0:08:45.800 --> 0:08:51.720 certainly the credit companies that are associated with residential housing. 0:08:52.640 --> 0:08:55.480 What's your view is Wall Street? Am I overstanding this? 0:08:55.920 --> 0:08:58.480 Or does Wall Street not do a great job getting 0:08:58.520 --> 0:09:03.240 housing right? Well? You know, looking at really our our firm, 0:09:03.600 --> 0:09:06.040 which um, we think we do get it right. You know, 0:09:06.080 --> 0:09:10.280 what we've built has enabled us to really um differentiate 0:09:10.840 --> 0:09:16.520 our overall views because we're dependent not upon what economists 0:09:16.559 --> 0:09:21.920 are predicting or um other outside parties perspectives, meaning publicly 0:09:21.920 --> 0:09:25.280 traded management teams telling them what they should do. We're 0:09:25.280 --> 0:09:28.800 really going outside through our own network, which again we 0:09:29.320 --> 0:09:32.760 channel check developed relationships. We have nearly a thousand companies 0:09:33.120 --> 0:09:36.760 that are throughout what I call the housing ecosystem. Whether 0:09:36.800 --> 0:09:39.479 they're a builder, they're a broker, there are a mortgage originator, 0:09:39.640 --> 0:09:42.520 there are a manufacturing company that makes building products, or 0:09:42.600 --> 0:09:45.200 they're in the single family rental business as as an 0:09:45.200 --> 0:09:50.080 owner operator apartment. We're taking all of these silos, and 0:09:50.160 --> 0:09:54.280 we're aggregating data that is proprietary data within each silo, 0:09:54.760 --> 0:09:58.480 and we're then triangulating it amongst this ecosystem to have 0:09:58.840 --> 0:10:00.760 a firm view of what's going on in the market. 0:10:00.960 --> 0:10:03.560 And I don't think it's unique to Zelman. No one 0:10:03.600 --> 0:10:05.880 else has anything like what we do, and it's been 0:10:05.880 --> 0:10:08.000 built over the course of the decades that I've been 0:10:08.400 --> 0:10:11.320 in the business. So I can't say what other firms do, 0:10:11.600 --> 0:10:13.760 but I think we get it right. Well, it sounds 0:10:13.840 --> 0:10:17.280 like Wall Street is generally a little too close with 0:10:17.320 --> 0:10:20.760 corporate management and they're looking for guidance and not doing 0:10:20.800 --> 0:10:25.440 a sort of deep outside the box research UM dive 0:10:25.600 --> 0:10:30.840 into various aspects of housing or again, am I overstanding that? Well? Again, 0:10:30.880 --> 0:10:33.640 I can't speak on behalf of what other firms are doing, 0:10:33.720 --> 0:10:36.160 but I know what we don't do, and I can 0:10:36.200 --> 0:10:40.040 tell you that back in the I guess Go Go 0:10:40.280 --> 0:10:42.880 days of the housing market in you know, oh, three 0:10:42.880 --> 0:10:46.400 oh four, oh five, I wasn't a very popular analyst 0:10:46.679 --> 0:10:49.840 UM working at credit suites when I was negative and 0:10:49.960 --> 0:10:52.959 certainly the companies UM didn't see eye to eye with 0:10:53.000 --> 0:10:56.280 my views. And it's like being the sober person at 0:10:56.320 --> 0:10:59.680 the party. Um so um, I was definitely a lone 0:10:59.760 --> 0:11:02.440 range are at times. So let's talk about that period 0:11:02.720 --> 0:11:08.840 of financial engineering was endemic. Securitization was a giant revenue 0:11:08.880 --> 0:11:13.320 source and we ended up seeing that eventually spiral out 0:11:13.320 --> 0:11:17.640 of control into the Great Financial Crisis. So what is 0:11:17.679 --> 0:11:22.880 it about that era that led so many people astray? 0:11:23.240 --> 0:11:31.400 Especially the supposed smart guys doing the quantitative um research. Well, 0:11:31.440 --> 0:11:33.080 I don't know that you could put pen it on 0:11:33.080 --> 0:11:39.079 one thing. So then agreed um certainly the inability to 0:11:39.920 --> 0:11:43.360 really take sort of the entire mosaic and see the 0:11:43.480 --> 0:11:46.480 risk that was so in our opinion obvious. A lot 0:11:46.520 --> 0:11:49.439 of people started, I call it drinking their own kool 0:11:49.440 --> 0:11:53.160 aid and believing that there was a secular shift in 0:11:53.280 --> 0:11:56.880 home ownership rates and that the government was certainly supportive 0:11:56.920 --> 0:12:00.480 of continued you know, um enabling people to have the 0:12:00.480 --> 0:12:05.160 American dream. But there was a optimism that was not 0:12:05.280 --> 0:12:10.120 supported by the you know ingredients that go into you know, 0:12:10.200 --> 0:12:13.840 creating that opportunity for people. So it it just was 0:12:13.920 --> 0:12:18.480 a again, is if people just were convinced that it 0:12:18.559 --> 0:12:22.920 was different this time and that housing housing was you know, 0:12:22.960 --> 0:12:25.800 gonna go up forever. So I want to point out 0:12:25.840 --> 0:12:28.640 this is not a case of hindsight bias, where, of 0:12:28.679 --> 0:12:33.280 course the risks where obvious, says everybody today. In real time, 0:12:33.360 --> 0:12:36.880 I recall reading some of your research oh four, oh five, 0:12:37.360 --> 0:12:40.520 oh six, when did you leave? Oh seven, May of 0:12:40.520 --> 0:12:45.040 oh seven, So in real time, before the bust, you 0:12:45.080 --> 0:12:48.240 were effectively saying, there's a problem with credit, there's a 0:12:48.240 --> 0:12:52.320 problem with housing, this is unsustainable. What what was the 0:12:52.360 --> 0:12:54.640 research that you were putting out at that time saying 0:12:54.679 --> 0:13:00.000 how how blunt were you? Pretty blunt? Um? I remember 0:13:00.120 --> 0:13:04.160 report that we untitled Investors Gone Wild in July of 0:13:04.240 --> 0:13:06.720 two thousand five. I think we had like a thousand 0:13:06.800 --> 0:13:10.200 people in our conference call across all of it, beyond equities, 0:13:10.200 --> 0:13:13.959 within you know, fixed income and rivers everywhere. Um, the 0:13:14.080 --> 0:13:18.760 securitization guys were there, but generally speaking, the amount of investors. 0:13:18.760 --> 0:13:22.520 When you go to let's say Las Vegas and you're 0:13:22.600 --> 0:13:25.080 driving from the airport and your taxi drivers telling you 0:13:25.120 --> 0:13:27.480 he's buying houses, and then you know, you go to 0:13:27.720 --> 0:13:29.559 the nail salon, the woman and the nail salon is 0:13:29.600 --> 0:13:31.719 during your nails is buying houses, and you realize we 0:13:31.800 --> 0:13:33.760 have maybe we have a problem. I think that the 0:13:33.800 --> 0:13:37.600 investors and the magnitude that we're buying both new and 0:13:37.679 --> 0:13:41.040 existing homes with no money down and understanding the mortgage 0:13:41.040 --> 0:13:43.920 piece was probably one of the biggest um parts of 0:13:43.960 --> 0:13:47.719 our conviction on why we had a real problem here, 0:13:47.800 --> 0:13:51.440 and and mentioning again affordability was clearly way out of 0:13:51.440 --> 0:13:55.200 reach from any historical perspective. Um. The other aspect of it, 0:13:55.280 --> 0:13:59.240 besides investors gotten wild, was the amount that the builders 0:13:59.240 --> 0:14:02.120 were willing to pay for land and having the ability 0:14:02.120 --> 0:14:05.280 to talk to private companies and who would be competing 0:14:05.520 --> 0:14:08.200 with the builder for that land, and the private builders 0:14:08.200 --> 0:14:10.199 would tell us, oh my god, you cannot believe what 0:14:10.240 --> 0:14:13.200 these guys are paying for the land. That was another 0:14:13.280 --> 0:14:16.600 part of our analysis that really led us to understand 0:14:16.640 --> 0:14:20.640 the risks that these um companies were really willing to 0:14:20.680 --> 0:14:24.040 absorb at the expense of shareholders. You put your finger 0:14:24.080 --> 0:14:25.560 on a couple of things I want to bring up, 0:14:25.600 --> 0:14:32.640 one of which is historically, most builders are pretty cognizant 0:14:32.760 --> 0:14:36.600 of the real estate cycle and the business cycle, and 0:14:36.640 --> 0:14:38.760 they get aggressive when things are cheap, and when things 0:14:38.800 --> 0:14:42.680 get expensive they pull back. But for some reason, it 0:14:42.760 --> 0:14:46.200 seemed that a lot of people sort of stopped doing 0:14:46.240 --> 0:14:49.320 that in oh five or six oh seven. What was 0:14:49.360 --> 0:14:53.840 it about that period that made them forget, Oh no, 0:14:54.080 --> 0:14:56.160 you don't want to pay up for lands. It'll come 0:14:56.160 --> 0:14:59.720 back down when the cycle turns well, you know, I 0:14:59.760 --> 0:15:03.400 think there was a view that the demographics had shifted 0:15:03.800 --> 0:15:07.240 and that um there was support for you know, a 0:15:07.320 --> 0:15:10.560 secular growth in housing that we hadn't hadn't seen in 0:15:10.600 --> 0:15:14.560 prior cycles. That was the That was what the companies 0:15:14.760 --> 0:15:17.400 pitched to the investment community. They and they really believed 0:15:17.400 --> 0:15:20.680 in many of them. Um, they also had Wall Street 0:15:20.800 --> 0:15:25.480 pushing hard to drive top line. So what had been 0:15:25.680 --> 0:15:29.240 matching short term assets with short term debt or long 0:15:29.400 --> 0:15:33.320 term debt with long term assets. You know, what you 0:15:33.360 --> 0:15:37.120 started seeing is builders willingly taking on more leverage, buying 0:15:37.360 --> 0:15:41.360 larger parcels because it would feed the machine, enabling them 0:15:41.400 --> 0:15:44.760 to continue show strong growth. And so the market was 0:15:44.840 --> 0:15:48.760 really demanding growth and they were willing to put the 0:15:48.800 --> 0:15:50.720 capital to work. You know, it's one of the only 0:15:51.200 --> 0:15:53.720 businesses that you know, once you build the factory and 0:15:53.760 --> 0:15:57.240 then sell it, you have to rebuild your factory. And unfortunately, 0:15:57.320 --> 0:15:59.760 this is one of a factory that you know, you 0:15:59.800 --> 0:16:02.160 have to best fifty cents to seventy cents to make 0:16:02.200 --> 0:16:06.520 a dollar revenue capital intense business, and you start buying 0:16:06.800 --> 0:16:10.040 land that won't be let's say, put into the manufacturing 0:16:10.160 --> 0:16:14.240 capacity realization machine for a few years. You can really 0:16:14.240 --> 0:16:17.920 put some significant risk on the balance sheet. Quite quite interesting. 0:16:18.440 --> 0:16:21.960 So let's talk a little bit about the timing of 0:16:22.080 --> 0:16:27.280 the launch of Zelman and Associates. You do this? Was 0:16:27.320 --> 0:16:30.720 it later on? Oh seven? Is that right? We left 0:16:30.760 --> 0:16:35.520 Credit Suites in May and started Zelman October seven. Okay, 0:16:35.520 --> 0:16:40.240 so October fifth, two thousand seven. The October October five, 0:16:40.520 --> 0:16:43.720 two thousand seven is when the equity markets peaked and 0:16:43.760 --> 0:16:48.160 would not see that level again until So your timing 0:16:48.920 --> 0:16:54.840 was kind of interesting and coincidential. You obviously saw some 0:16:54.960 --> 0:16:59.360 variation of what was coming. Why launch into that sort 0:16:59.400 --> 0:17:03.560 of Mayhew Or was the expectation, Hey, nobody's job is safe, 0:17:03.560 --> 0:17:05.560 we might as well do it ourselves, or what were 0:17:05.600 --> 0:17:09.560 you thinking? Well, my team's at Credit Suites. Dennis McGill 0:17:09.680 --> 0:17:14.240 who was my UM partner associate and he's the co 0:17:14.320 --> 0:17:17.400 founder of his Element Associates, along with Alan Rattner, who 0:17:17.480 --> 0:17:19.760 was also working with us on the team of Credit 0:17:19.800 --> 0:17:25.240 SUITEZ we were working um as equity analysts, really focused 0:17:25.240 --> 0:17:29.160 on housing, but we were servicing the entire firm because 0:17:29.200 --> 0:17:31.480 we were such in the eye of the storm, and 0:17:31.520 --> 0:17:34.520 we had such a controversial call, and I had such 0:17:34.520 --> 0:17:38.800 an unbelievable network that we created through these private industry 0:17:38.800 --> 0:17:41.920 contacts that we wanted. We weren't feeling that we were getting. 0:17:41.920 --> 0:17:46.200 First of all, we were unfortunately a lot of people 0:17:46.240 --> 0:17:50.800 internally within the salesforce and the traders and in the 0:17:50.880 --> 0:17:53.520 in this curization, the ABS guys, they didn't agree with 0:17:53.560 --> 0:17:56.400 our call. So we were a little bit um. Hey, 0:17:56.440 --> 0:17:58.920 somebody has to be on the wrong side of the trade, right. Well, 0:17:58.960 --> 0:18:01.720 we were not very popular. And you know, I was 0:18:01.760 --> 0:18:05.720 even told by the head of product management from Credit 0:18:05.720 --> 0:18:09.119 Suez is um perspective that your job could be at 0:18:09.240 --> 0:18:11.560 risk if you don't make you know, you had your 0:18:11.680 --> 0:18:13.919 I think in two thousand six, this is what happened. 0:18:14.200 --> 0:18:17.800 Two thousand and six. The stocks were down about and 0:18:18.000 --> 0:18:23.000 there was slowing and we were right. And then Bob 0:18:23.040 --> 0:18:24.840 toll And told brothers say, hey, things are picking up. 0:18:25.000 --> 0:18:27.040 This is back in September six and they called it 0:18:27.080 --> 0:18:31.000 the Zelman bottom, and and that you need to get 0:18:31.160 --> 0:18:33.639 with it. And you need to be more bullish. You 0:18:33.680 --> 0:18:35.720 had your little good time. Now now you need to 0:18:35.720 --> 0:18:39.000 turn around and be bullish. And I remember publishing Dennis 0:18:39.040 --> 0:18:41.800 and I we had fun writing this report. UM in 0:18:41.960 --> 0:18:45.639 December of two thousand six. We wrote twelve reasons or 0:18:45.680 --> 0:18:49.439 the ten reasons to sell homebuilding stocks. Wait, let me, 0:18:49.560 --> 0:18:51.920 let's just make sure I understand the time in here. 0:18:52.320 --> 0:18:56.600 So you're negative on on home builders and housing stocks. 0:18:57.040 --> 0:19:01.440 They fall over the next twenty four months? Is that fair? 0:19:01.480 --> 0:19:04.000 I think it was July aboh five was when they 0:19:04.600 --> 0:19:07.840 we started really seeing inventory starting to left twelve months, 0:19:07.960 --> 0:19:11.280 let's say twelve months. So this is a fierce bear 0:19:11.400 --> 0:19:17.720 market and it's only the beginning down. Um. And and somebody, 0:19:17.840 --> 0:19:20.480 not your direct boss, but somebody in the firm says, 0:19:20.920 --> 0:19:22.560 all right, you've had you a little fun, you've had 0:19:22.600 --> 0:19:26.120 your little pullback. You better flip bullish and your contray 0:19:26.320 --> 0:19:33.040 responses bullish. Watch this. No hesitation, not wondering about, hey, 0:19:33.080 --> 0:19:35.359 these guys can get me fired. There was no thought 0:19:35.400 --> 0:19:39.320 about that, or was there. Um, Well, this this was 0:19:39.359 --> 0:19:44.240 a managing director running all of the morning call product manager. 0:19:44.280 --> 0:19:48.120 And I was pretty piste off. And actually, UM went 0:19:48.160 --> 0:19:50.960 to my director of research and complained and and actually 0:19:51.000 --> 0:19:53.920 the research director was very supportive of me, and so 0:19:54.359 --> 0:19:57.639 with that it was they were great to me. But 0:19:57.760 --> 0:20:01.159 this particular person, unfortunately it was, was someone I was 0:20:01.160 --> 0:20:04.879 pretty upset with. But subsequent to that, sort of like 0:20:05.160 --> 0:20:08.080 the Zelman bottom, we published something in October o six 0:20:08.160 --> 0:20:12.280 called wonder Land, and Wonderland was basically saying that the 0:20:12.280 --> 0:20:14.160 home building industry is going to have to write off 0:20:14.200 --> 0:20:17.640 equity because they've overpaid for so much land. We actually 0:20:18.480 --> 0:20:22.240 estimated about equity right off. How much was that in 0:20:22.320 --> 0:20:28.920 actual dollars and it actuality It turned out to be 0:20:28.960 --> 0:20:31.680 fifty six that they wrote off, So we were way off, 0:20:31.680 --> 0:20:34.399 but we were so contrariant at this time, so that 0:20:34.440 --> 0:20:38.520 was what else was off? No nor off, Yeah, no 0:20:38.720 --> 0:20:40.679 right offs or anything. So that was October six. That 0:20:40.760 --> 0:20:44.159 was another sort of flagship report. But in December the 0:20:44.160 --> 0:20:46.400 stocks kept going up, so they were rallying in our face. 0:20:46.440 --> 0:20:49.439 We're getting a lot of backlash. Salesforce was against us. 0:20:49.480 --> 0:20:52.600 People internally were like, what's the story. And in December 0:20:53.000 --> 0:20:55.520 we came out with the ten reasons to sell homebuilding 0:20:55.560 --> 0:20:58.680 stocks and give us a few reasons out of the tent. 0:20:59.640 --> 0:21:02.680 The town was they were. You know, basically the mortgage 0:21:02.720 --> 0:21:06.560 market was not sustainable. The fueling of the growth was 0:21:06.640 --> 0:21:11.680 coming from you know, these ridiculous exotic mortgage products you had. 0:21:11.760 --> 0:21:15.720 Land prices were going to crash. We had consumers that 0:21:15.960 --> 0:21:20.160 were not buying because the investors were buying. Um. I'd 0:21:20.160 --> 0:21:21.760 have to go back and look at all the specifics. 0:21:21.800 --> 0:21:25.840 But any any big clients say, I don't care about that. 0:21:25.960 --> 0:21:28.560 This is contrarian. I'm going to do this and put 0:21:28.760 --> 0:21:34.280 giant bets to work. Sure. Um. John Paulson was one 0:21:34.320 --> 0:21:37.520 of our clients that we talked to regularly. Steve Eisman 0:21:38.320 --> 0:21:40.439 was one of my buddies. I probably spoke with him daily, 0:21:40.480 --> 0:21:43.760 along with his team Danny Moses and Vinny Daniels. That 0:21:43.960 --> 0:21:46.359 those guys were every day we were on the phone 0:21:46.359 --> 0:21:49.000 with them. There were some people that were really convinced, 0:21:49.000 --> 0:21:52.040 as we were, that this Barrish call at some point 0:21:52.119 --> 0:21:54.960 was going to work. So the Selma Gomez character and 0:21:55.000 --> 0:21:56.600 the Big Short that that was supposed to be you, 0:21:56.720 --> 0:21:59.720 is that right? I got one quote in there, but 0:21:59.840 --> 0:22:01.560 not that one you did. What was the quote in 0:22:01.600 --> 0:22:03.840 the Big Short? Oh? I don't remember what the quote, 0:22:03.880 --> 0:22:06.840 but Michael Lewis did stick me in there? You mentioned 0:22:06.880 --> 0:22:11.600 the you mentioned the cab driver in in Vegas on 0:22:11.640 --> 0:22:15.119 the way back from the airport. My favorite scene with 0:22:15.119 --> 0:22:18.959 Steve Carrell is he's I don't remember it was a stripper, 0:22:19.040 --> 0:22:21.600 a waitress, but it was in a strip club and 0:22:21.640 --> 0:22:25.480 he's asking her. They're talking about real estate, and he's saying, 0:22:25.560 --> 0:22:28.399 how do you afford the mortgage on that house? And 0:22:28.480 --> 0:22:30.960 she goes, that house I own. I have four houses. 0:22:31.480 --> 0:22:33.879 And that's the moment where okay, I think I have 0:22:34.000 --> 0:22:36.800 to I don't remember what character he was who he 0:22:36.880 --> 0:22:39.280 was playing in real life. He was playing Steve. He 0:22:39.359 --> 0:22:43.840 was Steve Eisman. Okay, so that character, that's the moment um. 0:22:43.880 --> 0:22:45.679 It's a little more dramatic in a strip club than 0:22:45.680 --> 0:22:48.119 speaking to a Wall Street analyst about oh you know 0:22:48.200 --> 0:22:50.639 I Actually my husband and I we owned um a 0:22:50.680 --> 0:22:53.600 home in Florida and we go out to the beach 0:22:53.680 --> 0:22:55.760 and it's in a community. And the guy that was 0:22:55.800 --> 0:22:58.760 putting the umbrellas in the San Chris, he told my 0:22:58.840 --> 0:23:02.160 husband that he owned about ten fifteen lots. And I 0:23:02.200 --> 0:23:05.040 was like, this is probably two thousand four, two thousand five, 0:23:05.080 --> 0:23:06.800 and he was asking my husband, do you want to 0:23:06.800 --> 0:23:08.760 go look at some loss with me, because you can 0:23:08.760 --> 0:23:10.479 buy them with no money down. And I was like, 0:23:10.720 --> 0:23:13.639 I'm like, David, do you hear this? This is crazy? 0:23:13.720 --> 0:23:16.399 So you know everywhere you know. But but Steve was 0:23:16.440 --> 0:23:18.840 on it. He had the call, he really did. So 0:23:19.000 --> 0:23:23.280 a friend of mine called called that era. Um, the 0:23:23.359 --> 0:23:27.240 so called home owners were really renters with an option 0:23:27.280 --> 0:23:30.800 to default, which which I thought was kind of amusing. Interesting. 0:23:31.040 --> 0:23:33.280 Let's talk a little bit about where we are in 0:23:33.359 --> 0:23:37.720