WEBVTT - Minsky Moment Is Real Possibility: Economist Bob Barbera 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.160 at Bloomberg dot com. From Davos, we also heard Bob 0:00:21.200 --> 0:00:24.280 Prince k c io of Bridgewater saying that we are 0:00:24.320 --> 0:00:27.560 seeing the end of the boom and bust cycle, which 0:00:27.680 --> 0:00:31.800 is particularly relevant for our next guest. Uh our guests, 0:00:31.840 --> 0:00:35.080 I should say plural who have been sort of honing 0:00:35.080 --> 0:00:37.559 in on this concept of a Minsky moment, and I'm 0:00:37.560 --> 0:00:39.560 really glad to say we have John Authors with a 0:00:39.680 --> 0:00:43.000 senior editor from Bloomberg Markets, as well as a special guest, 0:00:43.400 --> 0:00:48.080 Bob Barbara, who wrote a book on the Minsky moment 0:00:48.360 --> 0:00:50.920 that a lot of people talk about and are waiting for. 0:00:51.080 --> 0:00:55.200 It is also a professor at John Hopkins. So I'm wondering, John, 0:00:55.480 --> 0:00:58.040 just can you give us a sense of why you 0:00:58.120 --> 0:01:00.960 wanted to take a closer look at the concept of 0:01:00.960 --> 0:01:04.920 a Minsky moment right now. Well, I did decide this 0:01:05.000 --> 0:01:08.160 before somebody in a control of a very large amount 0:01:08.200 --> 0:01:10.720 of money declared that the boom bust cycle was over, 0:01:10.880 --> 0:01:14.080 which would appear to be one of the classic moments 0:01:14.080 --> 0:01:16.360 that Minsky would worry about. But even a month or 0:01:16.400 --> 0:01:19.840 so ago, when we started on the Boom bog book 0:01:19.840 --> 0:01:25.480 club saying read Minsky and read Bob's book on Minsky, 0:01:25.720 --> 0:01:29.759 there was obvious concern that the key notion of Hyman 0:01:29.840 --> 0:01:32.080 Minsky that we were trying to get at is that 0:01:32.520 --> 0:01:38.080 stability breeds instability, that when people are calm and relaxed 0:01:38.319 --> 0:01:42.440 and confident, they will inevitably take things too far, and 0:01:42.480 --> 0:01:47.000 that will lead to over expansion of credit, a Ponzi cycle. 0:01:47.400 --> 0:01:50.120 And then the Minsky moment is when the coyote looks 0:01:50.120 --> 0:01:53.800 down to mix my metaphors and realize that there is 0:01:54.120 --> 0:01:57.680 that there is nothing to support that debt. Dr Barbera, 0:01:57.760 --> 0:02:01.920 do you believe we are at a Minsky moment currently? Well, 0:02:02.200 --> 0:02:04.840 I like to say that the difference between me and 0:02:04.960 --> 0:02:09.359 Ray Dalio is that he had the timing precisely right, 0:02:09.560 --> 0:02:12.960 and therefore he has fifty billion and I don't. So 0:02:13.040 --> 0:02:15.399 I can't tell you I know we're at a Minsky 0:02:15.480 --> 0:02:18.560 moment right now, but I can tell you that we 0:02:18.560 --> 0:02:22.359 we have the preconditions falling into place, and and certainly 0:02:22.400 --> 0:02:25.760 on the death side. I mean, just think about the 0:02:25.800 --> 0:02:30.360 fact that junk bonds yielded sixteen percent in two thousand nine. 0:02:30.520 --> 0:02:33.800 In other words, no one was willing to to lend 0:02:33.840 --> 0:02:37.200 to a risky company, and now you're seeing them at 0:02:37.320 --> 0:02:41.239 less than five percent. So there's no margin for error 0:02:41.320 --> 0:02:45.760 there now. If a company is offered an extraorin and 0:02:45.919 --> 0:02:50.240 extremely easy credit term, they're going to borrow more. And 0:02:50.320 --> 0:02:52.600 that's what we're seeing right now. Well, although you could 0:02:52.720 --> 0:02:55.440 argue people have been trying to make this bet for 0:02:55.480 --> 0:02:57.799 a long time since the crisis. Everyone's been worried that 0:02:57.840 --> 0:03:00.520 we're sewing the seeds for the next crisis. But there's 0:03:00.520 --> 0:03:02.400 the Federal Reserve, in the ECB and the b o 0:03:02.520 --> 0:03:05.120 J sticking their thumb on the scales. Here to Bob 0:03:05.120 --> 0:03:07.120 Prince's point, you know, a lot of people are saying 0:03:07.240 --> 0:03:09.680 he's crazy, this sort of heralds the next Minsky moment. 0:03:09.919 --> 0:03:12.560 Other people saying he's right. The idea that the central 0:03:12.560 --> 0:03:16.200 banks are coming in and suppressing volatility, suppressing yields changes 0:03:16.240 --> 0:03:19.720 the equations fundamentally. Okay, So um, I think that if you, 0:03:20.000 --> 0:03:21.880 if you, if you were to watch what the Fed 0:03:22.040 --> 0:03:24.360 is doing. Let's pick one central bank, the one we 0:03:24.400 --> 0:03:27.560 watch most of the time. What they're saying is the 0:03:27.600 --> 0:03:31.040 inflation backdrop is quiescent, and as a consequence, they'd have 0:03:31.120 --> 0:03:34.680 to see a meaningful change in inflation before they would 0:03:35.000 --> 0:03:38.200 begin to tighten credit. A right, that's been the movie. 0:03:38.680 --> 0:03:42.520 The movie has been you watch the wrong arena. So 0:03:42.560 --> 0:03:46.280 you're watching a side show the price of corn and 0:03:46.360 --> 0:03:49.320 what you a w wages are doing, and you're ignoring 0:03:49.440 --> 0:03:52.640 the main event, which is what's going on in asset markets. 0:03:52.960 --> 0:03:55.760 So you're staring staring at the price of corn the 0:03:55.800 --> 0:03:59.200 asset markets because you've said, I'm not going to do anything, 0:03:59.640 --> 0:04:03.920 get progressively risk here. At some point you get a modest, 0:04:04.120 --> 0:04:08.680 unimportant rise for inflation, but you dutifully respond to it, 0:04:08.920 --> 0:04:11.400 and you let everybody know. It's a small inflation, it'll 0:04:11.400 --> 0:04:14.800 be easy to take care of. But what happens You 0:04:14.880 --> 0:04:18.200 bust the bubble, and then you discover that the cost 0:04:18.760 --> 0:04:22.200 of that modest tightening is much larger than you anticipated. 0:04:22.440 --> 0:04:28.039 So Greenspan talks about secular head wings in two thousand. 0:04:28.080 --> 0:04:32.880 Bernankei says, we need helicopter money, and you're watching the 0:04:32.920 --> 0:04:36.840 wrong movie. And it's not that that they have ended 0:04:37.640 --> 0:04:41.280 the cycle, it's that they're not looking at what matters. Hey, 0:04:41.360 --> 0:04:44.440 John tell us about the upcoming book club live chest 0:04:45.040 --> 0:04:48.320 So this is a part of our ongoing book club 0:04:48.360 --> 0:04:52.320 with the screamingly clever clever name of Author's Notes, Authors 0:04:52.320 --> 0:04:56.080 with an E get it? Yeah good, And we'll be 0:04:56.160 --> 0:05:00.440 live blogging on the terminal. So anybody on the who 0:05:00.480 --> 0:05:04.000 has access to a terminal who wants to multimedia Bloomberg 0:05:04.040 --> 0:05:08.440 experience this morning can keep listening to radio while following 0:05:08.880 --> 0:05:11.719 our live blog on T live t l i V 0:05:12.400 --> 0:05:15.039 go on the terminal starting at eleven carry on till 0:05:15.040 --> 0:05:17.880 twelve thirty. If you have any questions for me or 0:05:17.920 --> 0:05:22.400 particularly Bob Barbara emailed them to Author's Notes Authors with 0:05:22.480 --> 0:05:25.520 any Notes Bloomberg dot nets. John Author's thanks so much 0:05:25.560 --> 0:05:29.600 for joining us, really appreciated. John Author's senior editor Bloomberg Markets, 0:05:29.680 --> 0:05:32.320 and Dr Barbara from JOHNS. Hopkins, who is the author 0:05:32.400 --> 0:05:35.800 of the Cost of Capitalism, Understanding Market Mayhem, and Stabilizing 0:05:35.800 --> 0:05:39.840 our Economic Future. Have we had estabilization or we face 0:05:41.240 --> 0:05:54.680 right exactly. One of the top stories that it really 0:05:54.720 --> 0:05:58.159 caught my attention was the FTC, the Federal Trade Commission 0:05:58.200 --> 0:06:03.680 antitrust officials are looking into the top index fund providers 0:06:03.720 --> 0:06:07.040 that have seen incredible inflows and surge to to sort 0:06:07.040 --> 0:06:11.080 of record power and scope Black Rock, Vanguarden, State Street 0:06:11.160 --> 0:06:14.000 in particular. And one kind of statistic that caught my 0:06:14.080 --> 0:06:16.719 eye here is that the Big Three, which is what 0:06:16.760 --> 0:06:20.479 they're called, collectively owned about two of the typical SMP 0:06:20.480 --> 0:06:24.800 five hundred company, which could potentially give them significant influence 0:06:24.880 --> 0:06:27.960 over major decisions like mergers. That is the theory and 0:06:28.040 --> 0:06:30.799 chopping at the bit to weigh. And here is Barry 0:06:30.880 --> 0:06:33.320 rid Holes. I have to even introduce you. Yeah, come on, 0:06:33.560 --> 0:06:36.320 Barry rid Holts whose founder of Ridholes Wealth Management and 0:06:36.360 --> 0:06:40.280 a Bloomberg opinion columnist who has opinions. Yeah, he's got 0:06:40.320 --> 0:06:43.280 he's got some strong opinions. Let's hear it. I'm confused. 0:06:44.360 --> 0:06:48.200 You have to break it down. So what you you 0:06:48.320 --> 0:06:54.200 understand how passive indexes work? Right? A third party index 0:06:54.240 --> 0:06:58.800 provider like let's say the SMP creates this index and 0:06:58.920 --> 0:07:01.279 you passively own it. Well, no, but hold on a second. 0:07:01.480 --> 0:07:05.080 The theory here is a black Rock, particularly black Rock 0:07:05.200 --> 0:07:07.520 where you had Larry Fink come out and say, we 0:07:07.600 --> 0:07:10.000 are such a huge owner of stocks, we are going 0:07:10.080 --> 0:07:14.280 to have a more activist approach in our shareholder. Okay, 0:07:14.320 --> 0:07:16.480 he's he's making hand motions that I wish we could. 0:07:16.800 --> 0:07:20.160 He could write whatever he wants letters and he could 0:07:20.160 --> 0:07:22.040 send those letters out to whoever he wants, and he 0:07:22.080 --> 0:07:23.720 could go on TV and he could talk about it. 0:07:24.080 --> 0:07:27.480 But at the end of the day, Larry Rock, that's 0:07:27.480 --> 0:07:30.400 what the president calls him. No, Larry black Rock, like 0:07:30.800 --> 0:07:35.760 Tim Apple, Uh, Larry Fink of black Rock is going 0:07:35.800 --> 0:07:39.400 to own funds that own indexes, and if he doesn't 0:07:39.480 --> 0:07:43.040 like the companies that are in those indexes, well it's 0:07:43.040 --> 0:07:45.200 too bad. That's how he got to be a seven 0:07:45.200 --> 0:07:48.320 trillion dollar company. He is not going to advise companies 0:07:48.360 --> 0:07:51.720 about their mergers and acquisitions. He's not going to advise 0:07:51.800 --> 0:07:55.200 them about their strategy. He could write a very lovely 0:07:55.240 --> 0:07:57.920 annual letter saying, hey, we should all be green and 0:07:57.960 --> 0:08:00.880 we should be concerned about the future, bah blah blah, 0:08:00.960 --> 0:08:02.640 and then he's going to go back to his office 0:08:02.760 --> 0:08:05.160 and he's going to count the seven trillion dollars in 0:08:05.200 --> 0:08:08.720 passive indexes he has and do nothing else. And we 0:08:08.760 --> 0:08:12.160 could see this in how these companies vote their proxies 0:08:12.480 --> 0:08:16.000 in what they actually do. All three of these companies 0:08:16.040 --> 0:08:20.880 are on average of um U S companies. That means 0:08:20.960 --> 0:08:26.160 seventy of those holdings are other owners who actually vote 0:08:26.200 --> 0:08:30.000 their proxies, who elect the board of directors of these companies, 0:08:30.400 --> 0:08:33.880 and they don't really care what Larry think thinks about 0:08:33.920 --> 0:08:36.679 the companies in their indexes. So if I'm company A 0:08:36.840 --> 0:08:40.120 thinking about buying company B, and company B is has 0:08:40.160 --> 0:08:43.319 a terrible E s G score and is a polluter 0:08:43.600 --> 0:08:47.920 or whatever, and I know Larry finks index Blackrock owns. 0:08:48.120 --> 0:08:50.079 You know X percent of this company is the biggest 0:08:50.120 --> 0:08:53.440 sharehold of this company, I don't care. Well, actually, Mary, 0:08:53.480 --> 0:08:56.520 thing you almost out there. It's not Larry think. What 0:08:56.559 --> 0:08:59.559 we know about E s G indexes is on average 0:09:00.000 --> 0:09:03.800 they've been out performing the broader indexes. And we also 0:09:03.880 --> 0:09:06.600 know that E s G as a screen is a 0:09:06.640 --> 0:09:09.920 fantastic risk management tool. When it turns out that you 0:09:09.960 --> 0:09:13.280 have a diverse board of directors and you have fairly 0:09:13.840 --> 0:09:17.000 gender parity and pay, you're much less likely to get 0:09:17.080 --> 0:09:20.240 hit with the sort of compliance problems. And we meet 0:09:20.240 --> 0:09:23.280 two problems that have afflicted other companies. But let's get 0:09:23.280 --> 0:09:25.800 back to the real core of this issue here, which 0:09:25.960 --> 0:09:31.040 is what kinds of power do the big index providers 0:09:31.120 --> 0:09:34.559 have with the companies that they own shares and given 0:09:34.559 --> 0:09:36.760 the fact that they are owned in passive companies in 0:09:37.000 --> 0:09:40.400 passive indexes, and they really are not able to sell 0:09:40.920 --> 0:09:44.080 the shares if they want to protest that is the 0:09:44.120 --> 0:09:48.320 powers to sell. Active managers have the power because they say, 0:09:48.360 --> 0:09:50.960 you know what, I've had it with you, Jack Dorsey, 0:09:51.360 --> 0:09:54.800 You're not running Twitter. But look at professor Scott Galloway 0:09:54.840 --> 0:09:57.439 owns ten million shares of Twitter and said, the guys 0:09:57.480 --> 0:10:00.679 a part time CEO, he's also CEO Square is going 0:10:00.679 --> 0:10:04.000 to Africa for three months. I'm gonna I'm gonna sell 0:10:04.040 --> 0:10:06.720 my show. But then there's a question sort of embedded 0:10:06.760 --> 0:10:09.760 in this is the only check and balance that a 0:10:09.800 --> 0:10:14.360 shareholder has, this sell option? Where are there other options? 0:10:14.440 --> 0:10:17.720 You can vote? And black Rock has a lot of votes. Yeah, 0:10:17.760 --> 0:10:20.520 but they don't really use them. But they could Why 0:10:20.600 --> 0:10:24.280 what What's What's what's keeping them from using them? Because 0:10:24.320 --> 0:10:28.480 they operate on behalf of their clients, the investors, and 0:10:28.520 --> 0:10:32.840 if they want to diverge their activity and their belief 0:10:32.880 --> 0:10:37.840 system from the trust that investors have put with with them. 0:10:37.880 --> 0:10:41.160 So hypothetically, there are three companies. Let's say one of 0:10:41.200 --> 0:10:44.880 these companies decides to become much more activist as a 0:10:45.000 --> 0:10:47.280 passive investor. I know that it's a little bit of 0:10:47.280 --> 0:10:50.800 a contradiction in terms the other two companies are gonna 0:10:50.800 --> 0:10:54.679 then start advertising, Hey, listen, we're here to invest your money. 0:10:55.040 --> 0:10:57.040 We're not trying to change the world. We're not trying 0:10:57.040 --> 0:11:00.920 to run a political campaign. Trust to us to manage 0:11:00.920 --> 0:11:04.120 your money appropriately. Who wants to take that risk with 0:11:04.280 --> 0:11:08.520 six or seven trillion dollars in client assets? So the 0:11:08.520 --> 0:11:11.120 the whole argument. Let's let's step back and look at 0:11:11.160 --> 0:11:14.960 where this argument came from. So as passive has written 0:11:15.000 --> 0:11:18.920 from a relatively insignificant part of mutual funds and e 0:11:19.040 --> 0:11:22.920 t f s to now over half. Now, admittedly mutual 0:11:22.920 --> 0:11:26.000 funds is still a small part of the total world 0:11:26.040 --> 0:11:30.839 of investing, but fifty of that call it of the 0:11:30.880 --> 0:11:36.000 world is passive. As that's taken place, as that's risen, 0:11:36.640 --> 0:11:42.679 the active world has responded aggressively. We saw research papers 0:11:42.679 --> 0:11:46.520 that said it's it's Marxist, it's an American it's gonna 0:11:46.559 --> 0:11:49.720 crash the market. It's going to destroy the economy. Every 0:11:49.960 --> 0:11:56.280 hair brained our argument against passive investing, very efficient, very 0:11:56.320 --> 0:12:02.079 low cost, very unemotional, has been mustered. This, Oh my goodness, 0:12:02.160 --> 0:12:05.559 the big index ers are now you know they're gonna 0:12:05.720 --> 0:12:11.479 they might theoretically, in some alternative universe, collaborate to stop 0:12:11.760 --> 0:12:15.640 um stop competition is the latest stupid to roll out. 0:12:15.679 --> 0:12:19.280 And by the way, the underlying academic research is based 0:12:19.320 --> 0:12:24.080 on looking at airline stocks and banking stocks, two areas 0:12:24.120 --> 0:12:28.440 that have been wildly aberrational compared to the rest of 0:12:28.440 --> 0:12:32.319 the market. Yes, of course we've we've seen total deregulation 0:12:32.360 --> 0:12:35.040 in the airline industry. Of course that looks different than 0:12:35.040 --> 0:12:37.320 the rest of the world. And banks, in case you 0:12:37.360 --> 0:12:41.160 haven't noticed, received a giant bail out over a decade ago. 0:12:41.480 --> 0:12:43.959 So when we look at these things, those are not 0:12:44.160 --> 0:12:49.439 the right sectors. If there's really coordination amongst the big companies, 0:12:49.679 --> 0:12:53.079 show me how that's impacting competition. In the tech space, 0:12:53.080 --> 0:12:55.120 where there are a lot of monopolies, it turns out 0:12:55.200 --> 0:12:57.520 it's not happening. Barry ri Hilts, thank you so much, 0:12:58.000 --> 0:13:00.960 Barry Hults. Guess what people he is a Bloomberg opinion 0:13:03.200 --> 0:13:05.240 I wonder what his opinion was on this issue. It 0:13:05.280 --> 0:13:08.000 really seemed a little bit opaque to make exactly a 0:13:08.240 --> 0:13:11.960 host of Masters and business on Bloomberg Radio. Great podcast, 0:13:12.200 --> 0:13:15.760 also founder chairman, chief investment officer Vert Holds Wealth Management. 0:13:15.800 --> 0:13:18.520 We love having Barry here talking about the all things 0:13:18.679 --> 0:13:35.360 financial markets. Our next guest really has a unique view 0:13:35.520 --> 0:13:37.960 on the market. Michael Son and Felt, chairman and founder 0:13:37.960 --> 0:13:40.680 of Tiger twenty one. Tiger twenty one is a peer 0:13:40.760 --> 0:13:45.439 membership organization for high net worth investors. Tiger twenty one 0:13:45.440 --> 0:13:48.960 has seven seventy members with more than seventy seven billion 0:13:49.000 --> 0:13:52.520 dollars in assets, so really a unique view on the market. Michael, 0:13:52.520 --> 0:13:54.200 thanks so what for joining us here in our Bloomberg 0:13:54.360 --> 0:13:57.640 eleven three oh studios right now? After the move we 0:13:57.679 --> 0:14:00.720 had in the market in what are you are members 0:14:01.240 --> 0:14:03.240 saying about the market? Are they running out on that 0:14:03.360 --> 0:14:05.240 risk curve? Are they saying, gee, maybe I'm going to 0:14:05.320 --> 0:14:07.600 pull it in a little bit? So, uh, I think 0:14:07.679 --> 0:14:11.320 sentiment to shifting. People who weren't concerned a year ago 0:14:11.600 --> 0:14:14.680 or a little more concerned today. People who were concerned 0:14:14.720 --> 0:14:17.720 are even more so. But our members are looking for 0:14:17.840 --> 0:14:21.040 an all weather portfolio, and the way they do that 0:14:21.160 --> 0:14:24.080 is sort of barbell. They have risk assets in public, 0:14:24.160 --> 0:14:26.920 private equity, and real estate, and then they have large 0:14:26.920 --> 0:14:30.200 reserves of cash at about twelve percent, so they're not 0:14:30.320 --> 0:14:33.640 forced to liquidate if there's a market downturn. The very 0:14:33.680 --> 0:14:36.400 best assets they want to hold onto. Rad Dalio said, 0:14:36.400 --> 0:14:39.880 cash is trash, what's the argument for holding it? So 0:14:39.960 --> 0:14:42.400 the argument for holding it is, if you're an entrepreneur. 0:14:42.520 --> 0:14:45.200 ARE members have built great businesses and they've done it 0:14:45.440 --> 0:14:48.280 sort of step by step by rolling up their shirt sleeves, 0:14:48.720 --> 0:14:51.800 you want to have count cash to pounce on an opportunity. 0:14:51.840 --> 0:14:54.920 If you're a pure investor like Ray, he has different 0:14:54.920 --> 0:14:58.360 ways of looking at a fully invested portfolio. But for 0:14:58.400 --> 0:15:01.560 our members who are individual they want to make sure 0:15:01.640 --> 0:15:05.240 that if there's a tremendous downturn, they can live through it. 0:15:05.320 --> 0:15:07.760 So they have twelve percent in cash, which is about 0:15:07.880 --> 0:15:11.760 six years living expenses by historic standards. ARE members live 0:15:11.840 --> 0:15:15.200 on about two percent of their assets. And more importantly, 0:15:15.360 --> 0:15:17.800 they don't want to be forced to liquidate assets at 0:15:17.880 --> 0:15:20.920 just the wrong time at low prices. They want to 0:15:20.960 --> 0:15:23.920 be able to weather through any potential storm. Michael, I 0:15:23.960 --> 0:15:26.560 know many of your members and you as well, have 0:15:26.680 --> 0:15:29.240 a background in real estate. How are they looking at 0:15:29.320 --> 0:15:32.120 real estate right now? Sure? So real estate is king. 0:15:32.160 --> 0:15:35.720 It's the number one asset within our members portfolio about 0:15:37.760 --> 0:15:39.960 I think they look at it as the great anchor. 0:15:40.160 --> 0:15:44.160 It's the income producing, the reoccurring UH income that comes 0:15:44.160 --> 0:15:47.560 from real estate that a lot of our members count on. UH. 0:15:47.600 --> 0:15:49.760 They've taken some trips off the table a year or 0:15:49.800 --> 0:15:52.440 two ago, it was in the mid thirties, so they've 0:15:52.480 --> 0:15:55.920 taken low hanging fruit. And you have such transformation in 0:15:55.960 --> 0:15:58.640 real estate, particularly in the United States. You have the 0:15:58.640 --> 0:16:02.760 Gateway twenty force evan cities which are very strong, but 0:16:02.840 --> 0:16:05.120 even there's some weakness there in the upper end here 0:16:05.160 --> 0:16:07.200 in New York. And then you get out of those 0:16:07.200 --> 0:16:10.920 gateway cities where technology companies are thriving and there's growth, 0:16:11.320 --> 0:16:14.560 and you have a heap of heartache out there. So 0:16:14.720 --> 0:16:17.280 it's not just the one size fits all. But that's 0:16:17.280 --> 0:16:20.160 where our members expertise is and that's why they want 0:16:20.200 --> 0:16:22.800 to continue investing. When we talk about private equity, so 0:16:22.880 --> 0:16:25.160 that that was one area that they have been increasing 0:16:25.400 --> 0:16:30.200 allocations too. There's been record amounts of money raised record 0:16:30.200 --> 0:16:33.520 amounts of dry powder to put to work. Valuations near 0:16:33.640 --> 0:16:36.760 or at record highs. How concerned are the members that 0:16:36.800 --> 0:16:39.520 they're perhaps getting in at the top, even though this 0:16:39.560 --> 0:16:43.160 has been an asset class that has been delivering outside returns. 0:16:43.200 --> 0:16:47.200 So our members are entrepreneurs who have built businesses from scratch, 0:16:47.680 --> 0:16:50.000 and so they tend to want to look at private 0:16:50.000 --> 0:16:53.960 equity as a direct shareholder in a small company that's growing. 0:16:54.480 --> 0:16:57.920 They understand that there's lots of cash, but they're playing 0:16:58.000 --> 0:17:01.720 into that trend by growing very small businesses into large 0:17:01.760 --> 0:17:03.840 They're not putting huge amounts of money in the big 0:17:03.880 --> 0:17:07.359 mega funds. They've had their day. Our members are helping 0:17:07.400 --> 0:17:10.320 to create the businesses that are going to take advantage 0:17:10.320 --> 0:17:13.040 of that cash that you're talking about. So in order 0:17:13.080 --> 0:17:16.399 to be a seller into a seller's market, you have 0:17:16.520 --> 0:17:19.600 to create companies that are the stuff of legends. And 0:17:19.640 --> 0:17:21.840 that's why at the other end of the spectrum, they're 0:17:21.840 --> 0:17:24.120 staying away from the I p o s. Those were 0:17:24.160 --> 0:17:27.119 over priced. Last year, whether people got greedy or whatever 0:17:27.160 --> 0:17:29.560 it was, most of the I p o s traded down. 0:17:29.640 --> 0:17:32.600 So our members have shifted from looking at I p 0:17:32.720 --> 0:17:37.280 O opportunities to venture capital and private equity opportunities. How 0:17:37.280 --> 0:17:39.280 concerned are your members about, you know, some of that 0:17:39.800 --> 0:17:42.879 geopolitical risk, whether it's impeachment or whether it's trade issues. 0:17:42.920 --> 0:17:45.520 And they try to take a longer term view and 0:17:45.840 --> 0:17:49.520 not let that noise get in away. So um, for 0:17:49.560 --> 0:17:52.600 the long term, our members are risk on. They have 0:17:52.760 --> 0:17:56.720 seventy plus percent in public equity, private equity, and real estate, 0:17:56.880 --> 0:17:59.560 so they have a long term bet on the economy 0:17:59.600 --> 0:18:03.080 that is almost doesn't look at the short term, if 0:18:03.119 --> 0:18:07.680 you will. But because they know that unexpected things are 0:18:07.760 --> 0:18:10.000 what trash markets, You're gonna come in one day in 0:18:10.040 --> 0:18:12.920 the market's going to be dramatically down. That's why they're 0:18:12.920 --> 0:18:17.480 carrying large amounts of cash. They want to have that balance. 0:18:17.640 --> 0:18:20.000 When you sell a business, you have to come together 0:18:20.000 --> 0:18:22.600 with a strategy, and when you meet every month with 0:18:22.680 --> 0:18:25.480 people who have been doing this, in particular, people who 0:18:25.520 --> 0:18:28.200 lived through the two thousand and eight crisis and said 0:18:28.240 --> 0:18:30.879 what worked. When you can learn from your peers in 0:18:30.920 --> 0:18:34.080 a confidential setting, you can get an edge and figure 0:18:34.080 --> 0:18:38.280 out where your place is in that In that egosistem 0:18:38.480 --> 0:18:40.359 just real quick here, I'm wondering whether you have a 0:18:40.440 --> 0:18:43.880 sense of the appropriate returns to expect in an all 0:18:43.920 --> 0:18:48.600 weather portfolio through the cycle. So last year, I'd say 0:18:48.640 --> 0:18:51.560 most of our members were in the high single digits 0:18:51.640 --> 0:18:55.159 and low double digits, and many of them watch the 0:18:55.240 --> 0:18:59.520 markets up twenty eight or but they had much higher 0:18:59.560 --> 0:19:02.760 return than the market over their career. Last year was 0:19:02.800 --> 0:19:05.919 an anomaly. So we'd like to be long term greedy, 0:19:06.000 --> 0:19:08.280 not short term greedy. We'd like to be able to 0:19:08.320 --> 0:19:11.040 weather through the storms. I think if you could get 0:19:11.160 --> 0:19:15.199 on a passive portfolio anything in the high single digits 0:19:15.200 --> 0:19:17.800 over the long term, that would be pretty great. Michael 0:19:17.800 --> 0:19:19.600 sonon Felt, thank you so much for being with us. 0:19:19.920 --> 0:19:24.119 Michael sonnon Felt, chairman and founder of Tiger One. With 0:19:24.200 --> 0:19:28.360 members who have the dollars really really interesting to hear 0:19:28.960 --> 0:19:31.800 how they're thinking what it means to be cautious right 0:19:31.800 --> 0:19:33.960 now and the bright teck Away living on two percent 0:19:34.040 --> 0:19:38.360 of their assets twelve percent being in cash, so much 0:19:38.400 --> 0:19:53.280 for cash as trash. California's the biggest utility is finally 0:19:53.440 --> 0:19:56.760 working through or getting closer to working through UH some 0:19:56.880 --> 0:20:00.439 of its liabilities after wildfires put it on the for 0:20:00.520 --> 0:20:03.960 billions of dollars, throwing it into bankruptcy from having been 0:20:03.960 --> 0:20:07.000 an investment grade rated company. Joining us now is Phil Brandall, 0:20:07.200 --> 0:20:10.119 senior credit analyst from Bloomberg Intelligence joining us from Skullman, 0:20:10.160 --> 0:20:12.399 New Jersey. And I'm wondering where we are if you 0:20:12.400 --> 0:20:14.600 could just bring us up to speed in the whole 0:20:14.640 --> 0:20:18.399 court process and uh this sort of resurrection of p 0:20:18.600 --> 0:20:23.119 G and E to a solvent company utility one more time, Hi, Lisa, 0:20:23.200 --> 0:20:25.960 thanks a lot. Yeah, and no, So, Pacific s and 0:20:26.040 --> 0:20:29.920 Electric announced through an a K that they've reached a 0:20:30.000 --> 0:20:33.399 deal with note holders and that's about twenty two billion 0:20:33.400 --> 0:20:37.879 dollars of notes and what they're going to get back 0:20:38.080 --> 0:20:41.200 is some some bonds will be reinstated, some will get 0:20:41.440 --> 0:20:44.640 a mix of longer dated notes and shorter dated notes. 0:20:44.920 --> 0:20:49.360 But the bottom line is is this is a tremendously successful, 0:20:49.600 --> 0:20:54.199 uh you know, progress for the company. Uh you know, 0:20:54.240 --> 0:20:58.359 first they kind of deal with the torque claimants, the insurers, uh, 0:20:58.400 --> 0:21:01.840 the shareholders are getting some in here. So uh, you know, 0:21:01.920 --> 0:21:05.200 we're seeing all the pieces come together for a deal. 0:21:05.680 --> 0:21:09.600 So Phil, we understand, however, that Governor Gavin Newsom of 0:21:09.680 --> 0:21:13.359 California is not supportive of the deal. What's the status 0:21:13.400 --> 0:21:16.959 of that and what needs to happen? Right? So for 0:21:17.000 --> 0:21:20.320 a while there it was the company and the UH 0:21:20.440 --> 0:21:23.000 and the shareholders on one side, you had the governor 0:21:23.119 --> 0:21:25.280 on another side, and then you had a three way 0:21:25.400 --> 0:21:29.200 standoff with the note holders. Uh. And you know, one 0:21:29.240 --> 0:21:32.240 of our thesis was that if two of those parties 0:21:32.280 --> 0:21:35.240 get together, the other the thirds in trouble. And and 0:21:35.320 --> 0:21:37.399 I think that's what we're seeing now by and large, 0:21:37.440 --> 0:21:41.240 the governor's moment to impact the plan in bankruptcy court 0:21:41.280 --> 0:21:44.920 has passed. They arguably could have been more forceful when 0:21:44.960 --> 0:21:48.720 the tour climates and subrogation claimants that they had a 0:21:48.720 --> 0:21:51.919 restructuring support agreement that was up for court approval, but 0:21:52.040 --> 0:21:55.560 they chose to be fairly silent. So, Uh, it might 0:21:55.560 --> 0:21:57.320 be a little bit late in the game to impact 0:21:57.359 --> 0:22:01.719 things in the bankruptcy court. But uh, there is the 0:22:01.040 --> 0:22:05.560 there there. The trump card that they hold is, uh, 0:22:05.600 --> 0:22:10.000 the CPUC needs to approve this plan and so they'll 0:22:10.000 --> 0:22:13.720 have an impact there obviously that the Public Utility Commission. 0:22:13.840 --> 0:22:15.520 Can we just take a step back for a second. 0:22:15.520 --> 0:22:19.879 I remember when the wildfires first were in the news 0:22:20.040 --> 0:22:24.240 and when pc n G ended up filing for bankruptcy 0:22:24.359 --> 0:22:26.960 in short order because of these liabilities. There was a 0:22:27.040 --> 0:22:30.600 larger discussion about what California should do with its utilities. 0:22:30.920 --> 0:22:33.119 Who should be on the hook for this, you know, 0:22:33.359 --> 0:22:36.560 whether or not this was mismanagement or just an increasing 0:22:36.600 --> 0:22:40.480 issue that was going to occur. And I'm wondering has 0:22:40.520 --> 0:22:45.520 there been any broader conversation on that front. Right So, 0:22:46.440 --> 0:22:50.200 and it's all about who made money here, who lost money? 0:22:50.280 --> 0:22:53.399 And I think the winners and losers. I think the 0:22:53.480 --> 0:22:57.000 shareholders obviously were big losers. But at the end of 0:22:57.040 --> 0:22:59.719 the day, they're probably going to walk away with twenty 0:23:00.040 --> 0:23:05.080 thirty five percent of the reorganized company on behalf of 0:23:05.119 --> 0:23:07.800 their old stock. They are also going to be on 0:23:07.840 --> 0:23:10.280 the hook to put in twelve billion dollars more here, 0:23:10.320 --> 0:23:13.600 So they there definitely has been you know that I 0:23:13.640 --> 0:23:16.200 think most of their pain was taken up front. Uh 0:23:16.240 --> 0:23:19.520 and and and that twelve billion dollar equity investment. So 0:23:20.040 --> 0:23:24.440 there's they really uh you know, I think that's where 0:23:24.480 --> 0:23:27.560 the bulk of the losses were suffered. Um. As far 0:23:27.680 --> 0:23:31.040 as the bond holders, the bond holders are coming away 0:23:31.640 --> 0:23:35.639