Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. Today.
Speaker 1: I have a very special guest, and I really mean it.
Speaker 1: We have a very special guest, Ed Hyman. He is
Speaker 1: the founder of I s I, Chairman of evercres I
Speaker 1: s I UM, a super highly regarded economic research firm.
Speaker 1: Let me let me share a statistic with you which
Speaker 1: is impossible. This is an impossible data point. So every
Speaker 1: year the UH, the institutional investor, puts out their survey
Speaker 1: of top strategists, analysts, economists. It's a run that that
Speaker 1: literally is voted on by people who are putting money
Speaker 1: UH to work, big big pension funds, big institutions, big
Speaker 1: neustrel funds. And these are the people they say are
Speaker 1: the most helpful, the the top ranked folks UH in
Speaker 1: the world of Wall Street research. And it's a great
Speaker 1: honor to be I I ranked number one in any
Speaker 1: given year. Our our guest today, Ed Hyman, has been
Speaker 1: I I ranked number one for thirty five consecutive years.
Speaker 1: That that's just a number that that is impossible. You know.
Speaker 1: I'm a big New York Knicks fan and and during
Speaker 1: the UM Patrick Ewing, Charles Oakley, UH, Anthony Mason John
Speaker 1: Starks era. It was always Michael Jordan's in the way,
Speaker 1: and and for six of let's call it ten years,
Speaker 1: Jordan's bulls, along with Scottie Pippen and the rest of
Speaker 1: the cast, prevented the New York Knicks from getting either
Speaker 1: to the finals or or winning the finals. And they
Speaker 1: came close to a couple of times. Uh Charles Smith
Speaker 1: fingerroll once um uh did a season for them, a
Speaker 1: bad finger role. But Michael Jordan's the greatest basketball player
Speaker 1: of all times, you know, won six championships and and
Speaker 1: and I think it was uh six championship um m
Speaker 1: v p s and maybe eight total uh nbah m
Speaker 1: v p s. Ed Himan for thirty five consecutive years
Speaker 1: has been I I ranked as the institutional world's top economists.
Speaker 1: That's just a streak that is unimaginable. I can't not
Speaker 1: only can I not conceptualize it. I can't ever imagine
Speaker 1: anyone finding themselves in a position to to top this
Speaker 1: this streak. And and think about how frustrating it must
Speaker 1: have been for all of the Looking around Wall Street,
Speaker 1: there are some really really good economists, some really savvy
Speaker 1: people who have a fantastic um handle uh on on
Speaker 1: the world of of economics and what's actually happening in
Speaker 1: the economy. They have perennially been you know, number two
Speaker 1: or worse to to Ed Hyman's UH top rank. It's
Speaker 1: an astonishing um feet you'll find this conversation really quite
Speaker 1: quite fascinating, quite interesting. Ed's a guy who doesn't do
Speaker 1: a lot of media, he said, he you know, went
Speaker 1: for about fifteen years where he did no media whatsoever. Um.
Speaker 1: This is something I'm I'm nothing if not tenacious and relentless,
Speaker 1: And eventually he succumbed to my charms and agreed to
Speaker 1: do our podcast. And I think you'll find his approach
Speaker 1: to looking at the world uh fascinating, not just from
Speaker 1: an economic perspective, not just how he views the world
Speaker 1: of of economics, but how he built a business which
Speaker 1: eventually was sold for north of four million dollars to
Speaker 1: have a corps with with the upside potential it's worth
Speaker 1: even more than that. But there's so much insight and
Speaker 1: so much wisdom uh in his experience and his perspective.
Speaker 1: I found it to be an absolutely fascinating conversation and
Speaker 1: I think you will also so. With no further Ado.
Speaker 1: Here's my conversation with ever Cores I ses Ed Hyman.
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: My special guest today is Ed Hyman. He is the
Speaker 1: founder of I s I now the chairman of I
Speaker 1: s I ever Core. Mr Hyman has the unique distinction
Speaker 1: of being the number one rated economist on Wall Street
Speaker 1: by Institutional Investor. It's their poll of of big investors
Speaker 1: for the past thirty five consecutive years running, an absolutely
Speaker 1: astonishing feat. You may not have heard of him. Most
Speaker 1: of his clients are big institutions, hedge funds, pension funds, etcetera.
Speaker 1: But Ed is really well known on Wall Street, very influential.
Speaker 1: Let me just give a short version of your curriculum, Vita.
Speaker 1: You graduate with a bachelors and engineering from the University
Speaker 1: of Texas in nineteen sixty seven. Then you go on
Speaker 1: to get your m b a from uh the Massachusetts
Speaker 1: Institute of Technology in nineteen sixty nine, and finally you
Speaker 1: ended up forming I s I. In is that more
Speaker 1: or less correct? Left left the middle part out, but
Speaker 1: it's perfect. A couple of years in the middle, we'll
Speaker 1: get to well, welcome to Bloomberg. Thank you. So Ed
Speaker 1: and I have been talking about him doing the show
Speaker 1: for some time, and I'm really thrilled to have him here.
Speaker 1: Most people don't know who you are because you're not
Speaker 1: really all that public facing you. You you and your
Speaker 1: office face the institutional universe, right, So I don't. Our
Speaker 1: clients are all institutional investors, and so we don't really
Speaker 1: have a retail face, and so we have a very
Speaker 1: low profile. I also noticed that most of our clients
Speaker 1: have a low profile as well. So any event, uh,
Speaker 1: maybe I'm just not famous either, But well, you're famous.
Speaker 1: You're famous amongst people who manage billions and billions of dollars,
Speaker 1: So that's a very influential sort of fame. Let's let's
Speaker 1: talk a little bit about how you ended up on
Speaker 1: Wall Street. So you get an engineering degree. You didn't
Speaker 1: go the usual route. Most people in your role end
Speaker 1: up having a bachelor's in economics and neither get a
Speaker 1: PhD in economics or something comparable. You took a very
Speaker 1: different route. How do you go from a bachelors and
Speaker 1: engineering and an m b a To essentially creating the
Speaker 1: world of econometric modeling. So because I was an engineer.
Speaker 1: I knew I was mathematical, and M I t s
Speaker 1: Business School is one of two or three of the
Speaker 1: business schools that have a quantitative vent. So that's what
Speaker 1: I wanted to And when I got there, Uh, I
Speaker 1: had a research assistance job working with Ed Ku, who
Speaker 1: was a fairly well known economist and working on econometric
Speaker 1: models just by chance, and at M I T. They
Speaker 1: had developed the first time sharing computer where the data
Speaker 1: is often in one central place and you could access
Speaker 1: that data from off site spaces with a with a
Speaker 1: time shared computer. And so I spent uh really those
Speaker 1: two years at M I T immersed in doing econometric modeling,
Speaker 1: and then I did my master's thesis for a guy
Speaker 1: named Paul Kutner who's a fairly well known Both of
Speaker 1: Ku and Kutner have passed away working on forecasting commodity
Speaker 1: prices with with econometric models, and then later on I
Speaker 1: ran a commodity fund using econometric models to forecast pork prices. Basically. So,
Speaker 1: so these issues that you approach, do you look at
Speaker 1: these as engineering problems to be solved or are they
Speaker 1: really pure economics? Uh? I think they're they're economics. But
Speaker 1: in this case there market economics and and business cycle economics,
Speaker 1: and that's really what I think I do. At M
Speaker 1: I T. They had this first time sharing computer, and
Speaker 1: then uh Otto Eckstein, who was a professor at Harvard
Speaker 1: started a company called Data Resources, which did econometric modeling
Speaker 1: with time sharing computer, and I was lucky enough to
Speaker 1: go to work there, and that's really how I got
Speaker 1: into this. So that sequence of events is how I
Speaker 1: got where I am today. So your training, and we're
Speaker 1: talking M I T was sixty nine University of Texas
Speaker 1: Engineering with sixty seven. These were really the early days
Speaker 1: of this quantitative analysis, wasn't it. Well, this was this
Speaker 1: time sharing computer, was the first use of time sharing computer.
Speaker 1: They also had developed the Saber of airline ticketing system,
Speaker 1: which still exists, and that was still exists. It's a
Speaker 1: company down in Texas and that is still the sort
Speaker 1: of birthplace of time sharing computing, which is now every everywhere.
Speaker 1: That's where I got started doing uh time series analysis
Speaker 1: studying economic data. So it was fairly natural for you
Speaker 1: to then take because you were really one of the
Speaker 1: first people on Wall Street to say, hey, let's take
Speaker 1: this massive computing power that we're developing and apply it
Speaker 1: to modeling business cycles, modeling economics, modeling forecasting. This was
Speaker 1: not any great aha moment. It was just obvious, Hey,
Speaker 1: this is what these tools are here for, right And
Speaker 1: so I, Um, I was at Data Resources and Cyrus J.
Speaker 1: Lawrence was a client, and so I went to work
Speaker 1: for Cyrus J. Lawrence doing the economic forecasting but also
Speaker 1: building models the forecast industries like kept goods, autos, retail.
Speaker 1: And that's really how I got launched in the direction
Speaker 1: that I'm launched in now. So in the last minute, UM,
Speaker 1: we have one of the things you're sort of infamous
Speaker 1: for on Wall Street is despite all this computing power
Speaker 1: and despite the use of technology, you have a tendency
Speaker 1: to take a bunch of charts, mark them up with
Speaker 1: a sharpie, mark him up by hands, and then fax
Speaker 1: that out or today scan it and send it out
Speaker 1: as a PDF. Where did the idea for hand marking
Speaker 1: up charts and tables ever come from? So we had
Speaker 1: a morning meeting at Cyrus J. Lawrence and I would
Speaker 1: come in and mark us some charts and pass out
Speaker 1: to the sales guys, and they started singing out to
Speaker 1: the clients and the clients liked it, so we all
Speaker 1: have a thinked when you see something, if it's been
Speaker 1: marked on by hand, your eye goes right to it absolutely,
Speaker 1: and so that's where it came from, and it's still
Speaker 1: a good technique. I'm very ridult. You're listening to Masters
Speaker 1: in Business on Bloomberg Radio. My special guest today is
Speaker 1: Ed Hyman. He is the chairman of Evercres. I s
Speaker 1: I UM, and I just wanna I love this quote
Speaker 1: from Peter Lynch, he's the fame manager of Fidelities Magellan Funds,
Speaker 1: and he described you as much more practical than most economists,
Speaker 1: more interested in examining railroad card deliveries than Laugher curves.
Speaker 1: That was in his book One Up on Wall Street.
Speaker 1: So really the question is do you consider yourself an economist?
Speaker 1: Are you a strategist? How do you describe yourself? Well, first,
Speaker 1: I'm a practitioner, but you know, from my early days
Speaker 1: I was really going off in the economics area at
Speaker 1: M I T Than Data Resources and then at C
Speaker 1: at C. J. Lawrence. But I view myself really as
Speaker 1: a business side goal expert and a market cycle effects sinado.
Speaker 1: So that's really what I'm trying to apply the logics
Speaker 1: of economics too. Makes makes perfect sense to me. So
Speaker 1: let's let's get into that in a little detail, because
Speaker 1: over the past couple of years, especially during the financial crisis,
Speaker 1: the economics profession has come in for some some criticism. Um,
Speaker 1: so let's talk a little bit about the data you
Speaker 1: look at. You early in your career created a survey
Speaker 1: that went out to four hundred different companies in trucking, retailing,
Speaker 1: home building, manufacturing. How how did that come about? How
Speaker 1: did the idea for this regular survey of people in
Speaker 1: the real economy come about? So probably probably thirty years
Speaker 1: ago or more. Uh, there was a survey of retailers
Speaker 1: that came out once a week and very widely followed.
Speaker 1: And I saw that, and I thought, why don't we
Speaker 1: do that for many industries, not just retailing. So we
Speaker 1: started a retail survey, which we still have, and then
Speaker 1: we branched out and now we survey about thirty different
Speaker 1: areas and have really gone very wide feel. So, for example,
Speaker 1: as you mentioned, we survey trucking companies and asked them,
Speaker 1: how are your sales this week compared to what you expected?
Speaker 1: Same question every week to the same person. If the
Speaker 1: person is not there, Typically the the CFO. If they're
Speaker 1: not there, we used last week's reading, so there's no
Speaker 1: change in the survey due to somebody changing the answer.
Speaker 1: And so we've been doing that UH for a long time,
Speaker 1: and now we cover almost every single nook and cranny
Speaker 1: of the US economy. We also survey companies that do
Speaker 1: business in China and ask them how their sales are.
Speaker 1: So what do all these surveys ultimately end up informing
Speaker 1: you about? So I have UH, if you follow the surveys,
Speaker 1: you have an almost perfect knowledge of the US economy today.
Speaker 1: They're not the least bit predicted. We're not asking what
Speaker 1: do you think sales will be next week, next quarter?
Speaker 1: But you know what's happening right now in real time,
Speaker 1: in real time. The surveys are for revenue. So like
Speaker 1: our trucking survey got very strong, and part of that
Speaker 1: with price increases, they were getting rate increases. UH. So
Speaker 1: we catch capture both the miles driven and the and
Speaker 1: the rates. Our airline survey was very strong, UH, and
Speaker 1: now it's come off in part because fares have been
Speaker 1: under pressure. So it's a it's a it's a nominal measure.
Speaker 1: Each each of the surveys. So one of the issues
Speaker 1: that we always run into, at least with investor surveys,
Speaker 1: is whether or not people are actually telling the truth.
Speaker 1: You have an issue with that. Are CFOs pretty honest
Speaker 1: with you about what they're doing or do you run
Speaker 1: into a little wishful thinking here and again the I
Speaker 1: think we're getting the straight shot of the companies that
Speaker 1: do it, that participate with this UH do it for
Speaker 1: two reasons. One, they get to see the survey result.
Speaker 1: So if you're running a trucking company and somebody will
Speaker 1: tell you every week how twelve other truckers put together
Speaker 1: a consensus, you can tell if you're gaining or losing
Speaker 1: UH market share. Here's how you're doing relative to the
Speaker 1: rest of your You know what your answer was, you
Speaker 1: don't know, and you know what the overall is. You
Speaker 1: can you can get a feel for it. The second
Speaker 1: is we give them our economic research and so there
Speaker 1: we've gotten about three companies to work with us on
Speaker 1: a on a weekly basis. That that's really fascinating and
Speaker 1: that answers the question how did you get people to
Speaker 1: agree to do these You've you've given them an insensive
Speaker 1: and so because of that. Uh. I really don't think
Speaker 1: there's any incentive for them to game the system. We
Speaker 1: also do a survey, for example, of hedge funds, and
Speaker 1: we're trying to determine whether they're really extended or are defensive.
Speaker 1: Occasionally I worried that one of the participants might put
Speaker 1: in of a real fake number, fake number to try
Speaker 1: and make it look like people are really enthusiastic, are
Speaker 1: really pessimistic, and then trade against that. So he wants
Speaker 1: to influence the survey and then take the other side
Speaker 1: of the trade. I think about that occasionally. But so
Speaker 1: this really is in how traditional economics has been done
Speaker 1: in the past. Usually there's official government data and people
Speaker 1: take that and crunch numbers. You're really looking at the
Speaker 1: economy with the rubber meets the road, so to speak. Yes,
Speaker 1: but as as a constant job to look at what
Speaker 1: our surveys are saying and then compare it to what
Speaker 1: the government stats are saying, whether it's retail sales or
Speaker 1: GDP or housing starts. So you're always going back and
Speaker 1: forth to try and triangulate the best picture is their lead.
Speaker 1: Is there a lag? Do they often coincide? Uh? The
Speaker 1: surveys are definitely coincident. Sometimes the government data can be lagging,
Speaker 1: and it's and it's always lagging just because it comes
Speaker 1: out a month late or two weeks late. Uh So
Speaker 1: we're always working real time, and the gunment data is
Speaker 1: always with some sort of lag, could be a week
Speaker 1: for employment or two or three weeks for retail sales.
Speaker 1: That that has to be tremendously valuable to your clients.
Speaker 1: It's it's valuable to our clients. It's very valuable to me.
Speaker 1: It's I think it forms my sort of whole vision
Speaker 1: of what is happening on a current basis. So that
Speaker 1: leads me to my next question, how do you assemble
Speaker 1: your economic perspectives. One of the things that you did
Speaker 1: earlier in your career, when most of Wall Street was
Speaker 1: making monthly forecasts, you said, we get data weekly, let's
Speaker 1: do this on a weekly basis. What goes into into
Speaker 1: that process, So it's a little bit has followed the
Speaker 1: Internet the frequency you had first you had mailed, then
Speaker 1: you had facts, then you had email, and as that happened,
Speaker 1: you could go faster and faster. And also data is
Speaker 1: coming out faster, and so it's changed dramatically in the
Speaker 1: forty years I've been doing this, and so we went
Speaker 1: uh too, weekly, and then we went to daily, and
Speaker 1: so now every day is a complete immersion and you
Speaker 1: know what's happened, what the markets are doing, and we
Speaker 1: put out a piece every every morning. Uh and I
Speaker 1: can feel it. It's gonna go it's gonna go virtual
Speaker 1: or they'll be constantly continuous, not that far off in
Speaker 1: the distance, not that far from distance, and it almost
Speaker 1: is now. But it is more or less a daily phenomenon.
Speaker 1: I'm Barry Ridhalt. You're listening to Masters in Business on
Speaker 1: Bloomberg Radio. My special guest today is Ed Hyman. He
Speaker 1: is the founder of I s I and the chairman
Speaker 1: of ever Corps r s I, which is a very
Speaker 1: large research and asset management firm located here in Manhattan
Speaker 1: and offices pretty much all over. Let's talk a little
Speaker 1: bit about the institutional investor rankings. What what you've accomplished
Speaker 1: with that is is really unprecedented. Thirty five consecutive years
Speaker 1: from one to two thousand and fifteen and counting, you
Speaker 1: were the number one rated economist according to a poll
Speaker 1: of institutional investors. That that's Michael Jordan's plus Tiger Woods
Speaker 1: plus Derek Jeter rolled into one nobody has ever had
Speaker 1: at Look. Bill Miller's streak was what fifteen years, that's
Speaker 1: kids stuff. This is thirty five years. It's unprecedented. How
Speaker 1: on earth do you explain this? They? Well, first, I
Speaker 1: think Barry, I've been really lucky. Never it never hurts.
Speaker 1: So the space that I got into has been a
Speaker 1: space that has not been that competitive in terms of
Speaker 1: other people, you know, other economists in the in the space.
Speaker 1: So I've been I've been a little bit lucky. I've
Speaker 1: been very lucky in the places I've worked, uh, like C. J. Lawrences,
Speaker 1: which is really where it happened for me. Uh. And
Speaker 1: my mission always and our mission at ever Chorus I
Speaker 1: s I is to help our clients. That's that's what
Speaker 1: I want us to do. And that comes across clearly
Speaker 1: in the work that you get. And so everything I
Speaker 1: do is aimed at trying to help our clients, and
Speaker 1: that's what they respond to. So for example, if you
Speaker 1: have an idea, it doesn't help if they don't understand it.
Speaker 1: And so I spend a lot of time thinking about
Speaker 1: communicating the idea as well as conceiving the idea, and
Speaker 1: then we have forty salespeople, uh that or my megaphone
Speaker 1: and megaphone for our other analyst, and so that combination
Speaker 1: gives us a very loud signal in the in the community.
Speaker 1: Do you spend a lot of time making sure those
Speaker 1: salespeople really understand your thoughts, your thought process, and and
Speaker 1: what you're trying to communicate to the clients. So we
Speaker 1: have a terrific group of salespeople and they are my
Speaker 1: forty biggest accounts, each one of them. And so every
Speaker 1: morning at seven o'clock, seven fifteen, I start meeting with
Speaker 1: them and our other forty research teams to try and
Speaker 1: tell them what I'm thinking. And other analysts do as well,
Speaker 1: And so that's what you have. If you cannot get
Speaker 1: your salesman to understand what you're saying, what you're thinking,
Speaker 1: what you're trying to get at, then the clients aren't either.
Speaker 1: And so that's that's your first line. And we do
Speaker 1: that every single morning, every day. Seven How long does
Speaker 1: that that morning conference last at last till till eight?
Speaker 1: So you're you're I'm up on goodly early. You have
Speaker 1: to also be up at a ridiculous a right, right,
Speaker 1: So we start, uh my team comes in at around
Speaker 1: six fifteen and I start really at around five, um,
Speaker 1: watching Bloomberg and getting up on the news and what's happening.
Speaker 1: Then I read a dozen newspapers and by I meet
Speaker 1: with our team to launch. We have very similar schedules. UM,
Speaker 1: only I'm not doing the meeting at seven fifteen. That
Speaker 1: that's uh, that's really significant. So beside yourself, who are
Speaker 1: some of your favorite economists? Who who do you like
Speaker 1: to look at their economic work? So they Um, the
Speaker 1: person that probably had the most influence on me was
Speaker 1: Milton Freeman. And he's not putting out economic work now,
Speaker 1: but he I I was at a presentation he gave
Speaker 1: an M I T. When I was twenty three, and
Speaker 1: he had a debate with Paul Samuelson and I just
Speaker 1: fell in love with Freeman two Giants to Giants and uh.
Speaker 1: So he had a big influence on me. Uh. And
Speaker 1: then Otto Eckstein, who I mentioned of, hired me right
Speaker 1: out of M I T. And he had a huge
Speaker 1: influence on me. He was very clear thinker, very hard working,
Speaker 1: very good communicator. Uh and and he really influenced a
Speaker 1: lot of what I think now. So those are two
Speaker 1: of the legends of economics, and what about the next
Speaker 1: generation of strategists and economists coming up? Anybody you look
Speaker 1: at in the let's call it the under forty set.
Speaker 1: They so this sort of a drought right there. So
Speaker 1: there was a time when there were all these fabulous strategists, uh,
Speaker 1: like Byron Ween and Barton Biggs, Steve Galberth, Henry McVeigh
Speaker 1: and Uh, now there's some great strategists France Wat Trahan.
Speaker 1: Uh is you worked with us and now has another firm. Uh.
Speaker 1: And we're we have in our shop Dennis de Buscher,
Speaker 1: who I have great hopes for. He's He's my up
Speaker 1: and comer strategist. I'm Barry Ritults. You're listening to Masters
Speaker 1: in Business on Bloomberg Radio. My special guest today is
Speaker 1: Ed Hyman. He is the number one ranked economist in
Speaker 1: the Institutional Investor Survey of Large Institutions and currently the
Speaker 1: chairman of ever Corps. I s I. Let's talk about
Speaker 1: what it was like building I S I. But before
Speaker 1: we start, I have to read a quote here and
Speaker 1: it reflects directly to what you said in the earlier segment.
Speaker 1: So while we were looking up a lot of the
Speaker 1: details on your background. There was a blog post by
Speaker 1: a client of yours and this is a couple of
Speaker 1: years old, and this person writes they are a long
Speaker 1: term research client of Ed Himan. I s I and
Speaker 1: here's why he is consistently the number one ranked economic
Speaker 1: researcher on Wall Street. He sticks to his core mission
Speaker 1: of providing high quality and independent research. He helps portfolio
Speaker 1: man ers makes sense of the world. He sorts through
Speaker 1: the reams of economic data and government surveys to provide
Speaker 1: a real time analysis of what's happening. He provides a
Speaker 1: very high level of client service. He is independent and unconflicted.
Speaker 1: He never pushes a product discuss. So, as I mentioned,
Speaker 1: I view my career as being a continuum, starting with
Speaker 1: my work at M I T. Then I had the
Speaker 1: good fortune working with Data Resources c J. Lawrence, and
Speaker 1: all these were really high quality experiences for me. And
Speaker 1: then CJ. Lawrence was brought by Dorge Bank, and that
Speaker 1: was a discontinuity and what I was trying to do,
Speaker 1: And so a group of us left and started ies I.
Speaker 1: But it was really a continuation of what I had
Speaker 1: been doing. Same core team, same core team, except at
Speaker 1: that point we were just Macro just economics. At CJ. Lawrence,
Speaker 1: we did everything we did, you know, stock research in
Speaker 1: the street work as well as economic and strategy work.
Speaker 1: So we developed the idea that we wanted to be
Speaker 1: the best at whatever we were doing. And at that point,
Speaker 1: it was not really possible to be the best at
Speaker 1: stock research because that was being done in the Moulst
Speaker 1: bracket firms with banking, and you couldn't afford to hire
Speaker 1: the analysts, and they were doing it at a very
Speaker 1: high level. And so when UH they separated banking and research, UH,
Speaker 1: that gave us at an ability to hire the best analysts.
Speaker 1: The economics worked then, and then you had the financial
Speaker 1: crisis and the banks have been under siege, and so
Speaker 1: now we definitely have UH thirty of the best fundamental
Speaker 1: of fundamental analysts on the street. So that's that's really
Speaker 1: allowed you to stay focused and every segment you go into,
Speaker 1: there's no dilly delling. It's all in or not at all, right.
Speaker 1: And so I grew up in an environment where I
Speaker 1: was working with analyst, and I thought that gave me
Speaker 1: a bottoms up advantage, and that's where I am now.
Speaker 1: So we have this group of analysts I meet with
Speaker 1: every morning, whether it's industrials or banks or retail China.
Speaker 1: And so I feel that that collaborative approach gives me
Speaker 1: a better chance at helping our clients and hopefully our
Speaker 1: analysts benefit from working with our economics team. So this
Speaker 1: is an area where a lot of people have tried
Speaker 1: to build businesses and have failed. You guys have managed
Speaker 1: to succeed in the space where competitors have dropped off
Speaker 1: time and time again. What do you attribute this consistent
Speaker 1: success level when lots and lots of people who are
Speaker 1: in the same space just aren't making it well, There
Speaker 1: really aren't many people doing what we've done. Um, So
Speaker 1: we we've grown UH from a group of macro products,
Speaker 1: you know, policy, economics, techno, goal strategy, and now we
Speaker 1: have those plus UH authority fundamental teams and so there's
Speaker 1: really no one has gone quite this path. And the
Speaker 1: reason we were able to do it was because we
Speaker 1: had a lot of momentum, and then we took advantage
Speaker 1: of the split between banking and research, freeing up analysts
Speaker 1: to work in an environment like ours, which is very
Speaker 1: research focused, very research friendly. UH Bernstein is the main
Speaker 1: firm UH maybe Jeffreys that has the same sort of
Speaker 1: footprint that we have, and and they're quite a bit
Speaker 1: larger than than we are. So we're moving ahead and
Speaker 1: now with our ever core connection, it just makes us stronger.
Speaker 1: So Bernstein was brought by UM, was it Alliance or Alliance?
Speaker 1: And UM Jeffrey is still independent. Jefferies is independent, but
Speaker 1: they have a Lucadia connection. UM. So you keep talking
Speaker 1: about your various teams. Tell us about some of your teams,
Speaker 1: who they are, how did you pull them together? How
Speaker 1: do you manage so many disparate groups. We'll have a
Speaker 1: strong management group. Uh and the our first analyst was
Speaker 1: Dave Rosso and industrials and virtually all of our analysts
Speaker 1: are number one ranked. We have uh in the II
Speaker 1: magazine ranking. Our firm last year was number five. It's
Speaker 1: the first time a non bulge bracket firm, a non
Speaker 1: big bank firm has been in the top five since
Speaker 1: UH two thousand and that was d L j uh So.
Speaker 1: I'm very proud of of our guys and every single
Speaker 1: I'll mention some sectors, but please every single sector we do.
Speaker 1: We're the best in uh SO Banks Glenn Shore, he's
Speaker 1: the best, number one ranked. I he's not number one ranked,
Speaker 1: but he will be. But he also because I know
Speaker 1: the industry, he is very highly regarded. Steve Sokkua does
Speaker 1: Riets Rules of Space, Greg Malick does Retail number one
Speaker 1: in two Spaces, or Marsad does Luxury number one, and
Speaker 1: those goes on and on. Our healthcare team is the
Speaker 1: killer team. Uh so we've I'm very proud of the
Speaker 1: of the guys that I have a chance to work
Speaker 1: with jury team. So what's the secret to pulling together
Speaker 1: these top guys? How do you manage to you know?
Speaker 1: Because look, you look at we just watched um the
Speaker 1: basketball finals. Hey, some teams have a Lebron James, but
Speaker 1: not everybody has the seven Yankees, where everybody in the
Speaker 1: lineup couldn't hit a you know, a crushing home run.
Speaker 1: So again, you know, we we had a momentum. Uh
Speaker 1: then you had the separation of banking and research, which
Speaker 1: so you think you're saying the regulatory shift created an opportunity,
Speaker 1: and and then the then the financial crisis has been
Speaker 1: really tough on the on the bulish bracket firms. And
Speaker 1: and we are a research place. That's what we do,
Speaker 1: that's our passion. So it's not one of a hundred
Speaker 1: different things. This is your only focus and possible. Research
Speaker 1: started out in the seventies with smaller firms like Morgan, Stanley, Dale,
Speaker 1: J Goldman, Sachs, C. J. Lawrence where I worked Mitchell, Hutchins,
Speaker 1: Baker Weeks on and on of Alex Brown, and they
Speaker 1: all disappeared or were absorbed into another organization bigger, and
Speaker 1: that's the way it was. I have a feeling that
Speaker 1: research UH is happier in a smaller unit where it
Speaker 1: is the focus of the unit, not part of a
Speaker 1: hundred thousand or two thousand UH employee firm. What once
Speaker 1: research becomes part of a bigger event, it's it's no
Speaker 1: longer independent. The whole energy changes. So I don't know,
Speaker 1: it's just the size might make a difference in our business. UH.
Speaker 1: We make money because we have to, that's our only business.
Speaker 1: In the bulsh bracket firms, they often view research at
Speaker 1: a cost as opposed to something profit. Gotcha, so you
Speaker 1: mentioned you you began in the nineteen seventies. I would
Speaker 1: be remiss if I didn't mention or ask you what
Speaker 1: was it like to start work in the early seventies.
Speaker 1: You began, you said seventy two right before the huge
Speaker 1: crash in nine seventy three. What was that decade like
Speaker 1: that had to be a really tough period for both
Speaker 1: investors and researchers. As as hard as it is to believe,
Speaker 1: I really don't think the industry has changed that much
Speaker 1: since nineteen seventy two. Really the biggest change is the
Speaker 1: frequency of information and the hedge fund participation industry. Uh,
Speaker 1: there are a lot more players now. It was a
Speaker 1: much simpler business. I think it's much much more difficult
Speaker 1: for investors to provide alpha, to provide a leg up
Speaker 1: on other people. But what the cell side does today
Speaker 1: is trying to help the clients is pretty much what
Speaker 1: it did back then. And the our clients investors seem
Speaker 1: to be totally uh uh formatted to working with sell
Speaker 1: side firms. So our clients don't need Mark Schaanbaum, who
Speaker 1: is our health care analyst, They don't need him to
Speaker 1: work for them necessarily, but they definitely want to be
Speaker 1: able to pick his brain. And and so you have
Speaker 1: at at many firms, you have these experts like myself
Speaker 1: or Mark Shawmbomb or Steve Sakua who does reats, who
Speaker 1: are used by our clients to try and improve their
Speaker 1: mosaic of information and come up with a better investment results.
Speaker 1: So so you're saying that that basic approach unchanged over
Speaker 1: the past. It's called it forty years. Uh. The only
Speaker 1: thing has changed has gotten more competitive because there's so
Speaker 1: many more players, and it's much more difficult, I think
Speaker 1: than saying when Peter Lynch was was king of the roost. Uh,
Speaker 1: it's it's much more difficult. Top. So, so in the
Speaker 1: last couple of minutes we have I have a vague
Speaker 1: recollection in the nineteen seventies, I was still in school,
Speaker 1: but I remember that being a really tough economy. The
Speaker 1: market had gone nowhere, interest rates had spiked, inflation was tough.
Speaker 1: You're saying that wasn't a more challenging environment than what
Speaker 1: people are dealing with today, Well, it's for a researcher, right,
Speaker 1: Well I would say that, Uh, when people look at
Speaker 1: how challenging it is today, I tell him go back
Speaker 1: to the seventies. That was also very challenging, and so
Speaker 1: they were both the same. But uh, I would when
Speaker 1: I've thought about it, the seventies was tougher than it
Speaker 1: is today. And that's a very big statement because the
Speaker 1: day is also very difficult with Europe and China, the
Speaker 1: banks under siege here quantitative easing. It's a it's a
Speaker 1: very complicated, but I'm not sure it's much more difficult.
Speaker 1: Halt then it was was then very interesting. We've been
Speaker 1: speaking with Ed Hyman. He's the chairman of Evercore I
Speaker 1: s I. If you enjoy this conversation, be sure and
Speaker 1: check out our podcast extras where we continue chatting, letting
Speaker 1: the tape roll. Be sure and check out all of
Speaker 1: our other conversations. You can find them at Bloomberg dot com,
Speaker 1: Apple iTunes and SoundCloud. See my daily column on Bloomberg
Speaker 1: View dot com, or follow me on Twitter at Rit Halts.
Speaker 1: I'm Barry Richlts. You're listening to Masters in Business. I'm
Speaker 1: Bloomberg Radio. Welcome to the podcast Extras. I'm Barry Rihlts,
Speaker 1: and my special guest this week is Ed Hyman. He
Speaker 1: is the founder of I s I and currently chairman
Speaker 1: of Evercore I s I. Ed, thank you so much
Speaker 1: for doing this. I really appreciate my pleasure. Thank you. Um.
Speaker 1: I know you don't do a lot of media. You've
Speaker 1: done enough in your day, but it's something that you
Speaker 1: don't really do uh a whole lot of lately. So
Speaker 1: I um, I went through maybe the teen years. I
Speaker 1: didn't do any fifteen years really and at lest it
Speaker 1: really hurt your business. So early on, uh I was
Speaker 1: I was on Wall Street Week more than anybody else
Speaker 1: with Lewis we had earlier this year we had Anthony
Speaker 1: Scaramucci who just bought the rights. I started up to
Speaker 1: Wall Street Week, which was really kind of interesting, and
Speaker 1: Liz and Saunders who occasionally guest hosted for So what
Speaker 1: was it like doing uh that show back in the
Speaker 1: day when there wasn't daily too? It wasn't you know,
Speaker 1: the media landscape was so different. There was none, and
Speaker 1: so Wall Street Week was so good because it was
Speaker 1: the only show and uh Lou rook As there was
Speaker 1: a real professional uh terrific uh interviewer and see her
Speaker 1: uh great intellect. And so that show was what everybody.
Speaker 1: Everybody watched it and everybody wanted to be on it.
Speaker 1: And I was on it because I started so young
Speaker 1: and I would do twenty three right out of school
Speaker 1: something like well maybe, but so I just by stand
Speaker 1: up time, I was on it a lot of it,
Speaker 1: and that ran from I want to say, gies was
Speaker 1: somewhere two thousand and some he passed away about a decade.
Speaker 1: It's really really quite is it? That? Is it longer
Speaker 1: than that? That? Wow, that's amazing. So um one of
Speaker 1: the things I didn't get to ask about. So in
Speaker 1: the early days of I s I, you were both
Speaker 1: managing assets in a separate entity and doing research. How
Speaker 1: do you juggle both of those? So I had a
Speaker 1: very strong partner who led the asset management business, uh,
Speaker 1: and we've just sold that that business didn't fit into
Speaker 1: the ever Core is SI. Who was a partner and
Speaker 1: who end up selling it? Al Metta, It was familiar
Speaker 1: who is fick fixed income guy and is a firm
Speaker 1: out of South South Africa that we sold it to.
Speaker 1: And you also sold I s I. Bloomberg reported last
Speaker 1: year that I s I was sold to ever Core
Speaker 1: for a number of theoretically worth north of four million dollars.
Speaker 1: Is that a real number or is that a just
Speaker 1: a you know, a rough estimate. So, uh, Ralph Schlosstein
Speaker 1: is the business operator. He is the person that is
Speaker 1: driving ever Core and and he is the visionary for
Speaker 1: putting this together. And so we have a five year
Speaker 1: UH program with Evercore where our shares in I s
Speaker 1: I vest into evercre uh in years one to three,
Speaker 1: four and five, depending on performance metrics. And if we
Speaker 1: meet all of our performance metrics, UH, it'll be over
Speaker 1: dollars uh. And it's a terrific example of capitalism. Everybody's incentivize,
Speaker 1: everybody's incentives are lined up perfectly to make the thing work.
Speaker 1: Every corps wants it to work. You wanted to work.
Speaker 1: I wanted to work. Everybody I I wants it to work. Uh.
Speaker 1: And so we essentially have gone public. So now I'm
Speaker 1: part of a publicly traded company. That that has to
Speaker 1: be deeply satisfying after so many I mean this was
Speaker 1: decades and suddenly for someone to say, look, clearly, you
Speaker 1: have received accolades professionally for years and years. But at
Speaker 1: a certain point when someone puts a dollar figure on
Speaker 1: it and says, hey, what ED and team have built
Speaker 1: is so valuable, here's what we want to pay them,
Speaker 1: that has to be like, Wow, I guess we really
Speaker 1: did this the right way. And what I've take the
Speaker 1: deepest pride in is that the employees on half the
Speaker 1: company and so this is a great experience for all
Speaker 1: of us. UH. And because we now are vesting into
Speaker 1: every course stock. Uh I really want ever course stock
Speaker 1: to go up. So if it was a double uh,
Speaker 1: it's theoretically more half the employ half of the company.
Speaker 1: I s I stock was owned by employees. How typical
Speaker 1: is that? Uh? Well, the whole thing is very is
Speaker 1: very unique. You don't hear fifty. There's a disproportionate share
Speaker 1: usually at the top, and then a little bit of
Speaker 1: a stock plan. But that that's a huge I guess
Speaker 1: everybody is aligned at that point. So by everybody. We
Speaker 1: have fifty partners that on that and we have total
Speaker 1: employees of about to fifty. But our keep after something
Speaker 1: like this. The main problem is retention. And so you
Speaker 1: speak to Google, you speak to athletes, speak to Facebook
Speaker 1: or micro. In a previous generation, Microsoft and in Te
Speaker 1: Francisco they had the same issue. At a certain point,
Speaker 1: people start to have so much money they might why
Speaker 1: do I have to work anymore? So uh so we
Speaker 1: have a five or five year investing plan. So I
Speaker 1: have have I guess almost at four and a half
Speaker 1: years now in front of me. Okay, well, let's let's
Speaker 1: hope you keep on to hold onto all your key,
Speaker 1: all your key people, so you had mentioned some of
Speaker 1: your early mentors. Who else were key mentors to you? So, um,
Speaker 1: these these guys at M I T were really started
Speaker 1: to change my life. At COUP and Paul Kotner or
Speaker 1: two professors there, and then Otto Wegstein, who's such a
Speaker 1: fabulous guy and I was so lucky to work for him.
Speaker 1: And then I went to work for Jim Moltz at C. J.
Speaker 1: Lawrence and he's just been a fabulous mentor for me,
Speaker 1: you know, all all through this this time. And so
Speaker 1: those were the guys that really formed my my my career.
Speaker 1: Let me digress about mentoring because this has been something
Speaker 1: I've thought about in the past. There was earlier in
Speaker 1: the history of Wall Street a fairly robust mentoring sort
Speaker 1: of mindset, and one of the things I've noticed is
Speaker 1: that seems to have slipped away. You know, do do
Speaker 1: you see that same sort of mentoring approach today on
Speaker 1: the street that might have existed let's call it twenty
Speaker 1: or thirty years ago. So, as I mentioned, it's possible
Speaker 1: that research thrives best uh in a smaller, medium sized environment,
Speaker 1: not a hundred thousand or two hundred thousand people who
Speaker 1: are mentoring becomes more difficult just by nature size. Uh.
Speaker 1: We've been uh growing so rapidly for the past twenty
Speaker 1: something years. I don't think we've done a good job
Speaker 1: of mentoring. Really, we've because we've just been pushing and
Speaker 1: we've been hiring the best analysts in each space. Uh,
Speaker 1: everyone who don't necessarily need a lot of mentoring at
Speaker 1: that point, they don't need mentoring that at that point,
Speaker 1: they've already been mentored. Uh. Ralph Schlastein at ever Cores
Speaker 1: is really passionate about mentoring and growing talent from from within.
Speaker 1: And so we've and they have had a much stronger
Speaker 1: program than we've had. And so we are now launching
Speaker 1: a career development Committee and a program specifically aimed at
Speaker 1: mentoring people to give people a path forward. Well, well,
Speaker 1: if you can't find anybody in to mentor, you can
Speaker 1: always mentor me. I'm happy to assume those responsibilities. So
Speaker 1: let's talk a little bit about UM. The investors who
Speaker 1: influenced you. We mentioned Peter Lynch earlier on UM. What
Speaker 1: other invents investors have you found to be influential to
Speaker 1: your thought process? How you look at market cycles, how
Speaker 1: you look at business cycles. So UM, Jim Maltz ran C. J.
Speaker 1: Lawrence and is a great investor and strategist, and so
Speaker 1: he influenced me a great deal. We also had a
Speaker 1: strategist there name Stan Salixon who's unfortunately passed away, but
Speaker 1: he was uh sort of nova on the scene while
Speaker 1: he was with us, and then he went on to
Speaker 1: Merrill Lynch to become their strategist and then an investor.
Speaker 1: Uh Stan Drucket Miller has influenced me more than anybody else.
Speaker 1: And um Drugon Mill is really an interesting, um gentleman.
Speaker 1: Some of the work he's doing currently is quite uh
Speaker 1: quite fascinating. And so that that group of of players
Speaker 1: who I've been fortunate enough to work with have influenced
Speaker 1: me a great deal. Louis Bacon is another one. Stevie
Speaker 1: Cohen is another one. Paul Tutor Jones this this is
Speaker 1: like the Hall of Fame. You're you're listing here. Well,
Speaker 1: I've been lucky enough to spend some time with them
Speaker 1: and study how they operate, and I've learned a lot
Speaker 1: from them and try and uh put some of the
Speaker 1: ideas that they used to work in my own work.
Speaker 1: Bob Ferrell was a technician at Meryll Farrell's famous ten
Speaker 1: Laws of of Markets. Yeah, I'll send you a copy
Speaker 1: of it. Our mutual friend Dave Rosenberg had put out
Speaker 1: a piece with the first time eversord printed ten Rules
Speaker 1: of Bob Farrell and um, I ended up posting on
Speaker 1: the internet because it was not publicly available anywhere. He
Speaker 1: still puts out regularly. Agreed him every single week, and
Speaker 1: so he uh, I have a pretty strong technical uh window,
Speaker 1: and he helped me form that. People like Lee Cooperman
Speaker 1: is a real role model for me and met mentor.
Speaker 1: So Lee Cooperman was the best strategist on the street
Speaker 1: when he was the Goldman Sachs. He was a sales
Speaker 1: side before he before he launched Omega. Right, we have
Speaker 1: him coming up next month, So he's uh, he's been
Speaker 1: a legendary. Your list is really well, I've been lucky.
Speaker 1: That's an amazing And I don't run mentors. I don't
Speaker 1: just say I've learned a lot from from Bill Bill
Speaker 1: Miller has I've always enjoyed his thought, his thought process,
Speaker 1: His streak is he his streak is second only to yours.
Speaker 1: He beat the SNPI fifteen consecutive years. Nobody's come remotely
Speaker 1: close to it, although I don't know who the hell
Speaker 1: is ever gonna beat a thirty five years accounting. No
Speaker 1: one wants to. Well, you'd be surprised. I bet people
Speaker 1: would be thrilled, thrilled to do it. Um, let me
Speaker 1: ask you about some of the other interests you have.
Speaker 1: There's a run of different committees and things are on.
Speaker 1: Tell us about the China Institute. What do you do
Speaker 1: with them? So when when we started I s I
Speaker 1: the name is International International Strategy and Investments and so, UH,
Speaker 1: you know that the world is becoming much more international,
Speaker 1: much more globalized, and so that we had that focus.
Speaker 1: And I think the emerging economies are going to play
Speaker 1: a major role in the next decade two decades in
Speaker 1: the way the world economy develops, and China is simply
Speaker 1: the biggest, strongest one of them. So we have a
Speaker 1: China research team. Don Strassheim heads that up, and UH,
Speaker 1: I have a deep interest in China and some on
Speaker 1: the board of the China Institute, and that gives me
Speaker 1: a little extra window into into what's going on there.
Speaker 1: Not too long ago I spoke to you and you
Speaker 1: were either going to China or coming back from How
Speaker 1: often do you, um, on that side of the world. Uh,
Speaker 1: once once once a year. And and what do you
Speaker 1: do when you are in country in China? Uh? Either
Speaker 1: visit investors there or visit companies there. Quite fascinating. Do
Speaker 1: you find anything that you witness when you have boots
Speaker 1: on the ground. Is that different than just looking at
Speaker 1: charts and looking at data? Changes the perspective, right, I'm um.
Speaker 1: I'm definitely a hands on observer of the condition, and
Speaker 1: so I really like traveling to places and seeing from
Speaker 1: my own through my own eyes what's going on, talking
Speaker 1: to people who are there. Uh. And I enjoyed talking
Speaker 1: to investors. I think I learned from talking to investors
Speaker 1: about what's happening. But I definitely love I travel. Uh,
Speaker 1: not a huge amount of travel, about sixty six sixty
Speaker 1: five days a year, which it's more than two months.
Speaker 1: That's but for people, people will travel two months months, right, exactly. So,
Speaker 1: but I feel like I'm learning uh on those trips.
Speaker 1: I got into a debate with someone not too long
Speaker 1: ago who was insisting the US is still in a
Speaker 1: recession really bearished negative long gold short equities, and I
Speaker 1: asked him, when was the last time you left your
Speaker 1: trading tarret. Well, I got too much stuff going on
Speaker 1: and go. Have you been to Seattle? Have you been
Speaker 1: to Dallas? Have you been to San Francisco, Silicon Valley?
Speaker 1: You can't. You can't go through Nebraska, o Iowa, or
Speaker 1: South Dakota and tell me we're in a recession still
Speaker 1: you if you get out from behind your desk and
Speaker 1: look at what's going on in the real world, parts
Speaker 1: of the country are just booming now. It's not evenly distributed.
Speaker 1: I don't have to tell you. Lots of stuff are
Speaker 1: still below par. But the folks who never seem to
Speaker 1: leave their desk, I think they get. We call it
Speaker 1: a fluorescent view of the world. And it's not very accurate,
Speaker 1: is it. Yeah, Well, I'm very in tune with you
Speaker 1: on that. First, I have our company surveys, which are uh,
Speaker 1: you're asking somebody who is running a company, how's your business?
Speaker 1: And people have if they have to look it up,
Speaker 1: I'm not talking to the right person. They know it. Uh.
Speaker 1: And that is better than anything in ten. It's not
Speaker 1: quite as good as oh five and oh six, but
Speaker 1: it's pretty good. But when I travel around the US, UH,
Speaker 1: almost every place I go, when I talk to locals.
Speaker 1: They say, it is booming, it's amazing, And I say,
Speaker 1: places like New Orleans or Minneapolis or Nashville that you
Speaker 1: wouldn't think of right off the bat. Uh as having
Speaker 1: that response are pretty strong. So I think the main
Speaker 1: message here is that the the odds that the US
Speaker 1: economy is in recession are very very low. What about
Speaker 1: falling into recession in the next few quarters or year?
Speaker 1: So um, and I know we're not we don't want
Speaker 1: to talk about forecasts. I said, Hey, we really don't
Speaker 1: do forecasts. But in context of people who have missed
Speaker 1: this bullmarket and are waiting for the next collapse, what
Speaker 1: do you say to folks like that? So this isn't uh,
Speaker 1: this isn't so much a forecast as though. It's an
Speaker 1: observation about where we are in the business cycle. And
Speaker 1: so this is something you can study and uh, in
Speaker 1: terms of where we are, we're still early in the
Speaker 1: business cycle. Say, for example, housing starts are barely over
Speaker 1: a million, the FED hasn't started to tighten yet, wages
Speaker 1: haven't started to accelerate yet. So these are all conditions
Speaker 1: that suggests the next recession is maybe five years out. Really, Uh,
Speaker 1: every single one of these conditions and wages fed tightening
Speaker 1: housing all suggests that the recession is way out. So, uh,
Speaker 1: that's my starting point, and you change that if conditions changed.
Speaker 1: The biggest thing that could change would be if inflation
Speaker 1: were to really come on strong. And at the moment,
Speaker 1: I think it's picking up on the wage side, but
Speaker 1: that's about it so far. So I think we're still
Speaker 1: you know, if you had to have a scientific answer
Speaker 1: about when the next recession is five years out, is
Speaker 1: the best guess. The yield curve is NOE near inverted.
Speaker 1: And when we look at most of the metrics, they're
Speaker 1: continuing to creep up, They're continuing to improve. Like I'm
Speaker 1: always scratching my head trying to figure out is it
Speaker 1: just confirmation bias and people who are positioned wrong are
Speaker 1: rooting for something? Or I'm amazed when I talk to
Speaker 1: people who have been, you know, just so much on
Speaker 1: the wrong side of the trade. I think that I
Speaker 1: think it's hard to overestimate the impact of O eight
Speaker 1: oh nine psychology. Uh. And then you know, there are
Speaker 1: a lot of negatives, like you know, Greece is an
Speaker 1: uncertainty uh and China is an uncertainty and profit margins
Speaker 1: are very high, and the way that quantitative easing plays
Speaker 1: out these are unknowable. But I think investors are sort
Speaker 1: of positioned for negative outcomes on those and if they
Speaker 1: were to be positive outcomes like or even neutral or neutral,
Speaker 1: then then the market is probably okay. But on on
Speaker 1: the economy, which someone different than the market. But on
Speaker 1: the economy, I'm sure it's okay today. And the destabilizers
Speaker 1: are inflation, which we don't have now, UH, FED FED tightening,
Speaker 1: which we don't have now, although we could see that.
Speaker 1: The theory is that that starts later this year fighting
Speaker 1: I mean by aggressive FED tightening, um, and that's way off. Yeah,
Speaker 1: they're gonna start, but they'll go from ultra easy too
Speaker 1: extremely easy. We have to work our way up two
Speaker 1: merely easy, is what you're saying. And um, so we we.
Speaker 1: I asked you about the China Institute. Tell me what
Speaker 1: you do with the New York Public Libraries financial services?
Speaker 1: So that just participating in a speaker's program, it's they
Speaker 1: have about twitter people at each UH sessions a breakfast session,
Speaker 1: and they get some great speakers in and I interesting
Speaker 1: to go and I pick a group of clients, uh
Speaker 1: and it's a nice venue for seeing people that you
Speaker 1: wouldn't ordinarily see in another setting. So Warren Buffett, Bill
Speaker 1: Clinton have been speakers and it's a nice way to
Speaker 1: see uh some ideas that you wouldn't otherwise get very interesting.
Speaker 1: And I know you do something similar in your own
Speaker 1: office where you have people come in and present in
Speaker 1: your in your morning meetings as well. Um, the leadership forum,
Speaker 1: what what do you do with that? Uh, that's not
Speaker 1: much of a what is the leadership forum? I have
Speaker 1: no idea. I'm sorry, that is the it's the leadership forum?
Speaker 1: Is the public library? All right? Son? That into a second.
Speaker 1: So it's a leadership forum at the New York Public
Speaker 1: Libraries Financial Services Advisory Committee. I can't read my own
Speaker 1: typing about the the Economic Club of New York. So
Speaker 1: it's a it's a very different thing than the than
Speaker 1: the library program. But uh, they've been going since the
Speaker 1: eighteen hundreds and um they get speakers like hundred forty
Speaker 1: six speakers so far, and it's a great forum for
Speaker 1: New York to have people come in. The last speaker
Speaker 1: was was Jack was Jack Ma Ali Baba's founders Ali
Speaker 1: Baba's Finder And it's it's just they have a great roster,
Speaker 1: you know, the chairman, the fit comes on a regular basis,
Speaker 1: and so it's just a it's a place that it's
Speaker 1: a large form. There's a thousand people and so it's
Speaker 1: but it's a big room. It's a big room. Very interesting. Um,
Speaker 1: let me keep working through my list. By the way,
Speaker 1: these last half dozen or so questions I'm saving are
Speaker 1: are the same questions I ask everybody. Let me go
Speaker 1: through some of the questions that, um wow, you answered
Speaker 1: two of them. You answered where we are in the
Speaker 1: economic cycle? You answered that you're really a hybrid between
Speaker 1: a strategists and an economist, and uh what, there was
Speaker 1: no eureka moment. You basically just started just kept on almight, Tya,
Speaker 1: and kept going, Um, so you you hinted about quee
Speaker 1: and the Federal Reserve, So let's explore that a little bit.
Speaker 1: So what makes QUI so unique? What makes the unwind
Speaker 1: of QUEI so unique? And can't the Fed just hold
Speaker 1: this um fixed income paper until maturity? I think the
Speaker 1: average uration is seven years. Do they have to actually
Speaker 1: unwind QI or can they just let it run off naturally?
Speaker 1: So they they can and will I think let it
Speaker 1: run off naturally over the next five or six years.
Speaker 1: The paper is something like a six year duration, so
Speaker 1: it should mature over time. The the Federal Reserve has
Speaker 1: become much more important because we have so limited we've
Speaker 1: limited maneuvering room on fiscal pile. Right the Congress is
Speaker 1: basically just grid locked and doing nothing, and the budget deficit.
Speaker 1: It barely gets back to a balance and then we
Speaker 1: go back into deficit. So we we don't have many
Speaker 1: degrees of freedom when it comes to fiscal policy. So
Speaker 1: as a result, we've had to operate more and more
Speaker 1: on monetary policy. And and that's why the FED has
Speaker 1: become a much more prominent institution UH in our country,
Speaker 1: with you know, giving speeches all the time, different members
Speaker 1: and sort of like rock stars in the system. They
Speaker 1: always used to give speeches, nobody paid attention to, nobody
Speaker 1: covered it. It It was just really inside baseball sort and
Speaker 1: they didn't give as many speeches. There are much more
Speaker 1: and more today in a bigger forum each time they
Speaker 1: give it. UH. In terms of qwe UH the UH.
Speaker 1: The overarching problem first is that it's not only QUI
Speaker 1: here is QUI and the ECB in Europe and KWI
Speaker 1: in Japan. Uh. So we're gonna end up with something
Speaker 1: like twelve trillion dollars uh and que in a year
Speaker 1: or year year and a half round between all three
Speaker 1: all three, and so then the question is, you know,
Speaker 1: how can we unwind our que? I think that when
Speaker 1: the Fed tightens, uh, there'll be a moment of silence
Speaker 1: to see if we're still alive. And if we are,
Speaker 1: people are going to relax some that we got the shot,
Speaker 1: it didn't kill us uh, and then they'll start to
Speaker 1: think about, well, the next tightening, the tightening act of that,
Speaker 1: and whether they'll let the fifth balance sheet run off
Speaker 1: and whether that creates a problem in and of itself. Uh.
Speaker 1: So we're gonna go from tightening and as soon as
Speaker 1: one is under a belt, people are gonna start looking
Speaker 1: forward at the at the next tightening, and it'll be
Speaker 1: it's gonna to the next, to the next. It's gonna
Speaker 1: be constant discussion. The FIT is indicated very strongly that
Speaker 1: they will have a more uh responsive function to tightening
Speaker 1: as opposed to every meeting twenty five basis points and
Speaker 1: so uh if that's what happens, there'll be much discussion
Speaker 1: before every meeting or they're gonna pass this meeting or
Speaker 1: tighten this meeting because they go fifty. And then when
Speaker 1: you get down the road, ifn FED funds are two,
Speaker 1: there might even be a notion they might even cut
Speaker 1: rates at the next meeting. So that's going to be
Speaker 1: I think that having Stan Fisher the Vice Chairman of
Speaker 1: the Fed UH there UH will be a great addition
Speaker 1: to yelling and Dudley uh in giving the world some
Speaker 1: vision about how the US might unwind its balance sheet.
Speaker 1: And then if we can do it, UH, they'll give
Speaker 1: a big leg up for Europe and Japan to think
Speaker 1: about whether they can unwind their balance sheets. But those are,
Speaker 1: you know, three or four or five years out. So
Speaker 1: two is really fairly accommodat if we take it, take
Speaker 1: FED funds rates up to two, that's still relatively low
Speaker 1: rates historically. Can the economy absorb a two percent funds right? Well, first,
Speaker 1: we don't have to answer that question today. We'll we'll
Speaker 1: see day by day. Still data dependent, data dependent, and
Speaker 1: it seems as though it should be able to. There's
Speaker 1: one point I'd like to raise here is that we
Speaker 1: talk about the one or two percent funds rate and
Speaker 1: we also have a four train dollar balance sheet, or
Speaker 1: maybe it goes to three trillion, But we have a
Speaker 1: huge balance sheet, and there's the New York Fed in
Speaker 1: particular has done work, uh that having that big a
Speaker 1: balance sheet means that the funds rate isn't zero, that
Speaker 1: it's negative. So when I walked over here, I was thinking,
Speaker 1: I'm in a funds rate that's minus three percent, not zero,
Speaker 1: and so how do you get to minus? The New
Speaker 1: York Fed said that relative it's real terms, not nominal terms.
Speaker 1: Is that just in norminal terms, that bion is the
Speaker 1: equivalent to cutting the funds rate fifty basis points? So
Speaker 1: it's easy to fifty basis points. But at zero you
Speaker 1: can't cut a fifty basis points. But we've we've now
Speaker 1: done three trillion in in quantity of easing. Obviously that's
Speaker 1: six six and that's three basis points. So well that's
Speaker 1: even close. I do think that there's uh that the
Speaker 1: funds rate might be in negative territory, uh in a sense.
Speaker 1: And so when they start to tighten, if they get
Speaker 1: to say two, and the balance sheet is you know,
Speaker 1: has been shrunk by a trillion dollars, the funds rate
Speaker 1: could still be one and a half or something, and
Speaker 1: that's before we start talking. Hey, we're a one inflation environment,
Speaker 1: so zero adjusted for one inflation is also a negative
Speaker 1: a negative number. So the next the next big event
Speaker 1: in this space, UH is where they're not wages. Wages
Speaker 1: are accelerating, and it looks as though they are. So
Speaker 1: it's been it's been very public that we've seen some
Speaker 1: of the minimum wages go up. We've had the McDonald's announcement,
Speaker 1: we've had the Walmart announcement. UH. San Francisco, Seattle, Los
Speaker 1: Angeles all raised their minimum wage. And but depending on
Speaker 1: whose data use, it's not an insubstantial number of people
Speaker 1: earning the minimum wage. But the bulk of Americans, the
Speaker 1: bulk of middle middle class America UM, don't earn the
Speaker 1: minimum wage. There they're the median income is about fifty
Speaker 1: three thousand dollars or so a year. When does middle
Speaker 1: America start to see real wage gains? Now? Now? So
Speaker 1: in the past, wages have accelerated when unemployment has come
Speaker 1: below five and a half. So we're we're there, and
Speaker 1: these wage increases you mentioned would seem to be the
Speaker 1: smoke that would occur when you're starting to get a
Speaker 1: tighter labor market. There's an employment cost index, the gunment
Speaker 1: measure that's moved from one eight to two six, and
Speaker 1: then average generally earnings, another measure has moved from two
Speaker 1: to two point three. And this morning the UK wages
Speaker 1: came out and they're up to two point nine and
Speaker 1: their uneployment rate also is five and a half. So
Speaker 1: I think when we look back at this time five
Speaker 1: years from now, we'll say this was about when US
Speaker 1: wages started to accelerate. And that's a big deal because
Speaker 1: I think a lot of the feeling we talked about
Speaker 1: earlier about the economy not doing well, it's because people
Speaker 1: are not getting pay increases. If the average pay is
Speaker 1: up two, then a lot of people didn't get a
Speaker 1: pay increase. They're flat with inflation or they got one,
Speaker 1: and their costs relative to increase health care and increased
Speaker 1: education expenses, what Middle America is paying for feels like
Speaker 1: you all these things are going up and I'm staying
Speaker 1: the same. It's also psychology. You know, if you go
Speaker 1: home and say, hey, I got a one pay increase,
Speaker 1: it doesn't make you feel like you're a star. And
Speaker 1: so I think if if wages pick up. It'll make
Speaker 1: the economy feel better in addition to just making retail
Speaker 1: sales better. So how does that was the next question
Speaker 1: is how do how does the beginning of rising wages
Speaker 1: impact the overall economy? Is it just retail sales? Can
Speaker 1: we get a virtuous cycle where people start spending more,
Speaker 1: companies higher and do more capex and good things. Well,
Speaker 1: this is in my view, we have been in an
Speaker 1: evolutionary mode for six years now. You know where things
Speaker 1: change a little bit over time. Uh, the places and
Speaker 1: I mentioned like a Seattle, their economy gets better, and
Speaker 1: then you can see it's getting better and employment is
Speaker 1: now up, uh, well above his prior peak. I've been
Speaker 1: watching lately employment of young people thirty four and that's
Speaker 1: gotten strong. It's up three and a half sent now. Uh,
Speaker 1: and it's well above it's up three three million, or
Speaker 1: about ten percent from the low point five years ago.
Speaker 1: And so these are these are hard to overlook improvements.
Speaker 1: And that was a segment that was lagging the moment.
Speaker 1: In that group, recent college graduates. Bad did not feel right.
Speaker 1: Bad is okay, that's no sugarcoating it. They really felt
Speaker 1: that they were living with their parents. They weren't forming households,
Speaker 1: they weren't getting married, they weren't moving out of their
Speaker 1: parents house. Is that another part of the cycle that
Speaker 1: that's ahead of us. That's that's what we're looking at.
Speaker 1: So that's this five year notion. Really, there are a
Speaker 1: lot of things that are ticking up here that make
Speaker 1: that a very plausible decision. It's not just a random number.
Speaker 1: You're looking at all these other metrics that all have
Speaker 1: a lot of runway ahead of them. The main the
Speaker 1: main metrics that give you the five years. Uh, we
Speaker 1: haven't had wages inflation yet, we haven't had fit tightening
Speaker 1: yet we have, and it had housing starts well over
Speaker 1: a million yet. And after those things happen, is when
Speaker 1: you start the clock for five years, and then you say, well,
Speaker 1: what's going to drive it for five years? And the
Speaker 1: employment and in the millennials could drive it. Household formation
Speaker 1: could drive it. Technology, you could drive it. Uh. So
Speaker 1: those are the things that could make it go for
Speaker 1: five years. And those to me, I feel like they're
Speaker 1: they're starting to fall in place. And wages also will
Speaker 1: be a driver, uh if they start to accelerate. So
Speaker 1: let's take the look at the other side. Of it.
Speaker 1: And I'm on the same side of the street as
Speaker 1: you are in terms of being very negative during the
Speaker 1: last bubble during seven oh eight and just seeing everything
Speaker 1: starts to fall apart, and I'm seeing all the things
Speaker 1: you're seeing. I see a lot of positives, but that
Speaker 1: always makes me nervous. What should we be looking at
Speaker 1: if we want to start to hedge our bets or
Speaker 1: start to get an early warning if things don't work out.
Speaker 1: What sort of data points would you suggest people pay
Speaker 1: attention to. Well, first, as I mentioned, you know, there
Speaker 1: are a lot of of significant negatives now, like Europe
Speaker 1: might not work and I don't want The odds are
Speaker 1: one in a hundred or one in a million, or
Speaker 1: one in ten, but it's a non zero now, it's
Speaker 1: a non zero. And if I tell you the chance
Speaker 1: of me getting run over by a bus when I
Speaker 1: walk back to my office is one in a hundred.
Speaker 1: If I told you that, I just stay here. Uh.
Speaker 1: And so you know there's a there's a risk there,
Speaker 1: and that will probably get resolved in the next year.
Speaker 1: As to where not you know, the Greek exit occurs
Speaker 1: or not, China is a is a concern they're going
Speaker 1: through three different problems at once, and whether they can
Speaker 1: pull that off is a concern. So let me guess
Speaker 1: what the three problems in China are so aside from
Speaker 1: demographics unless you can insider that problem. Um. One, their
Speaker 1: economy has been slowing, although slowing to seven or eight
Speaker 1: percent isn't but down from that's a issue. Second, whether
Speaker 1: you talk to Jim Chanos or any number of different people,
Speaker 1: it certainly looks like their stock market is, if not
Speaker 1: in a bubble, well price and and extended relative to
Speaker 1: everybody else's uh stock market. And I can't even guess
Speaker 1: with the third one, So um my three problems. I
Speaker 1: also think Jim Chanos is is a very bright guy,
Speaker 1: and I've learned a lot from him about China, uh,
Speaker 1: very early on identifying problems there before anybody else or
Speaker 1: so in my view, the three problems are First, they
Speaker 1: have corruption, and that's trying to grout that out, and
Speaker 1: that's endemic, systemic corruption throughout the whole country, not just
Speaker 1: pockets here are there. Second, they have the environmental issues,
Speaker 1: which are well the water, the air shure. They had
Speaker 1: to shut the factories for eight months before the Olympics.
Speaker 1: I don't even you kind of forget about that, but
Speaker 1: that you're looking at that as a really substantial problem
Speaker 1: with and oncology is a growth business and one they
Speaker 1: have to fix. I mean, this is not I was
Speaker 1: at the at the Olympics and every day the sky
Speaker 1: was blue bird right because they shut it down. Uh,
Speaker 1: they set all the factories down, trucks didn't run. But
Speaker 1: it's it's that's not the way it is now when
Speaker 1: it's when everything is running just smog and is it
Speaker 1: that really that bad? Yes, And there's water, you've seen
Speaker 1: the lakes and and the and the third is, as
Speaker 1: Jim Channels correctly points out, uh, you've never had investment
Speaker 1: over of the GDP and not have a major contraction
Speaker 1: the economy. So they have capital China now China stock market,
Speaker 1: no capital spending, and that they've had this investment boom
Speaker 1: and so investment got over GDP. So they're trying to
Speaker 1: rebalance the economy, fight corruption, and fight environmental issues all
Speaker 1: at once. Uh that sounds like as a challenge. And
Speaker 1: so those are some of the issues. But then you're asking, uh,
Speaker 1: you know what, Uh those are more uh deep seated issues.
Speaker 1: Then you're saying, well, what could happen that would make
Speaker 1: it happen, make a negative outcome quickly. And the one
Speaker 1: that I'm most interested in right now is a discontinuity
Speaker 1: in the bond market. Uh. There's a constant discussion about
Speaker 1: the reduced liquidity in the fixed income markets that dealers
Speaker 1: UH have maybe a fifth or a tenth of the
Speaker 1: inventory of bonds they had six or seven years ago.
Speaker 1: The market is very thin, and that's liquidly crisis that
Speaker 1: people have been talking about now for months. Yes, and
Speaker 1: when the German bond yield went from something like fifty
Speaker 1: basis points to a hundred basis points, you half a
Speaker 1: percent to one percent in three days, people are going,
Speaker 1: oh my gosh, this is this could be yet. And
Speaker 1: so that's that's a risk that I watched every every morning.
Speaker 1: I checked the German bond yield out to see if
Speaker 1: it's starting to have a discontinuity. That that's an important
Speaker 1: factor to look at the German bond yield spread in
Speaker 1: order to give a sense of what liquidity issues there
Speaker 1: are and influence our our bond yield trades tick for
Speaker 1: tick every day off of their bond bond yield. Really yeah,
Speaker 1: so I fires are if there's is up three basis points,
Speaker 1: ours will be up three basis points. So yet there's
Speaker 1: is so much lower than ours. Why is the German
Speaker 1: bonds yielding so much less than it's strictly a function
Speaker 1: of the volume of US bonds, or how do we
Speaker 1: trade so much higher yield than than there? So this
Speaker 1: gets back to a business cycle um observation. So bond
Speaker 1: yields should in the long term be roughly equal to
Speaker 1: nominal GDP growth. So in the US, nominal GDP growth
Speaker 1: is probably three two percent real GDP maybe one percent,
Speaker 1: inflation three maybe four that neighborhood. And in Europe, uh,
Speaker 1: real GDP has been about one and inflation has been
Speaker 1: about zero, so nominal GDP growth has been about one.
Speaker 1: So we see Switzerland essentially zero. That means that their
Speaker 1: growth is also uh, their nominal growth is about zero.
Speaker 1: Same with Japan. Yes, it doesn't have to work or
Speaker 1: doesn't work you know on daily or weekly, quarterly basis period.
Speaker 1: That's but that's what you're tracking toward. And so nomal
Speaker 1: GDP and Japan has been close to zero for twenty
Speaker 1: five years and their bond yields have been close to
Speaker 1: zero for twenty years. So basically the spread between the
Speaker 1: German yield uh at say one percent and our yields
Speaker 1: at two And it can be largely explained by that
Speaker 1: first difference that our economy grows fast and there's a
Speaker 1: little bit faster than there. That's that's really amazing. Um
Speaker 1: let's talk a little bit about books, right. I assume
Speaker 1: that you're a bit of a reader. When I walked
Speaker 1: into your office, you had bookshelves and and what what
Speaker 1: are some of your favorite books? Both finance and nine
Speaker 1: non fans related. Well, uh, almost everything I read is
Speaker 1: related to what I do for work. So I shouldn't
Speaker 1: feel bad about that because my wife is like, why
Speaker 1: don't you have a pick up a fiction book? Fast? Yeah,
Speaker 1: this is this is good. So I wrote on some
Speaker 1: books that I've enjoyed recently. So there was one uh
Speaker 1: Coming Apart by Charles Murray and and uh so this
Speaker 1: is a description about the way the US was in
Speaker 1: the sixties and the way it is today and uh
Speaker 1: more socially focused. It's a social commentary and uh the
Speaker 1: way the country is coming apart and uh that I
Speaker 1: spent a lot of time thinking about that were recently.
Speaker 1: Uh Andy McAfee, who's a professor at m. I. T.
Speaker 1: Has done a lot of work on robotics and uh.
Speaker 1: He and his colleague wrote a book called The Second
Speaker 1: Machine Age, and they uh so I spent time working
Speaker 1: with them and and thinking about uh. And their view
Speaker 1: is that this time is different, that robots are a
Speaker 1: destroy jobs and so they have a provocative of your angle.
Speaker 1: You're starting to see it happened already in a number
Speaker 1: of different areas. Um, they're no longer a pertinent to jobs.
Speaker 1: They're now replacing jobs. Well, I don't I don't agree
Speaker 1: with them on that. You don't know, but that's uh,
Speaker 1: we'll find out in the next three or four years,
Speaker 1: not that that's happening. Um. There's a a doctor who's
Speaker 1: written two books I've loved, UH named Gowandhi. I knew
Speaker 1: you were gouldn't go there. The checklist was that the
Speaker 1: most recent one? Yes, do you know that one? Um,
Speaker 1: because it's on my on my bookshelf. It's like number
Speaker 1: four in my queue waiting to be read. The book
Speaker 1: he did before that, Yes, Better Medicine was really got
Speaker 1: fantastic reviews, and um, it was one of those things
Speaker 1: that all right, I'll get around to that. But the
Speaker 1: checklist looks like it has well. His first one I
Speaker 1: think is better than the check List. See the checklist
Speaker 1: looks like it's applicable to everything it is, and better
Speaker 1: medicine would look like a very specific sector discussion. But
Speaker 1: he's a great writer. And then I've really enjoyed the
Speaker 1: book by by Talib called Anti Fragile and Uh, I
Speaker 1: think he's a brilliant guy. And I've I haven't quite
Speaker 1: finished that one, but he's He's so fooled. Button Randomness
Speaker 1: was a really interesting read by him, but it's not
Speaker 1: a fast read. You have to kind of pick it up,
Speaker 1: read a couple of chapters, put it down, and think
Speaker 1: about the same thing with the Black Swan. It's it's
Speaker 1: it's not. You know. I love Michael Lewis's stuff. I
Speaker 1: could pick up a book of his cloth through it
Speaker 1: in an afternoon. Talib not not really requires some digestion. Well,
Speaker 1: I think on his books you can go either way.
Speaker 1: You can just get the gist of it and move on,
Speaker 1: or you can go through you know, each page in
Speaker 1: each chapter, which have some real nugget as you go
Speaker 1: through it. Uh. And then I do find money, money
Speaker 1: Ball and the Big Short by Michael Lewis to be
Speaker 1: books I think back on frequently. Moneyball was one of
Speaker 1: the most interesting books I've ever read. If you like
Speaker 1: Michael Lewis, I'm going to tell you a book I
Speaker 1: read that I don't think a lot of people read,
Speaker 1: and one that I'm waiting to read. So I have
Speaker 1: so money Ball was about football, was about baseball, but
Speaker 1: he did a football book called The blind Side. I
Speaker 1: have not read that. My cue waiting to be read.
Speaker 1: Not as not as good as money Ball, well, not
Speaker 1: as quantitative, not as applicable to every aspect of life.
Speaker 1: So in and our business at EVERCREI s I uh,
Speaker 1: you see many many examples of where you can apply Moneyball.
Speaker 1: That's what made it so fascinating. It was so universal.
Speaker 1: The other book of so I've read everything of his
Speaker 1: except The Blindside. The book of his that I really
Speaker 1: liked that I don't know a lot of people have
Speaker 1: read was the book called The New New Thing. And
Speaker 1: you know everybody's read you know, Liars Poker, everybody's read
Speaker 1: The Big Short. I really enjoyed Flashboys. I thought Flashboys
Speaker 1: was despite the criticism, despite the pushback, I thought that
Speaker 1: was really interesting. But The New New Thing was one
Speaker 1: of his books that sort of slipped in under the radar,
Speaker 1: and it's also really fascinating. So all these things, Uh,
Speaker 1: you know, the world is changing very rapidly. I'm not
Speaker 1: sure we uh we discussed it enough or think about it.
Speaker 1: But say in the area of economics, Uh, it's just
Speaker 1: changing because there's so much more data now all the
Speaker 1: time for people to study and say, like in investments, Uh,
Speaker 1: there are many, many more people doing investments now, which
Speaker 1: makes it more difficult. Chanos said that there are, um,
Speaker 1: there are ten thousand hedge funds today. Back when he started,
Speaker 1: there were a hundred and fifty hedge funds, but all
Speaker 1: the office still being created by those same hundred and
Speaker 1: fifty hedge funds. I don't know how true that is,
Speaker 1: but it certainly means that there's more competition for employees,
Speaker 1: there's more competition for capital, there's more competition for for
Speaker 1: everything now, and it's it's still more difficult when you
Speaker 1: have that many more people playing. I would I would
Speaker 1: imagine at the very least, it's the challenges of managing
Speaker 1: that have to be increasing. Right, So let's let's keep
Speaker 1: blowing through. Any other books on the list, any classic
Speaker 1: books that you. Uh so everything you've mentioned is relatively
Speaker 1: new any of the old classics really? Uh? Well, you
Speaker 1: know I liked I liked I like the stuff that
Speaker 1: John Maynard Kein's has written, and I find him as
Speaker 1: an economist, I find him very fascinating. But because he
Speaker 1: operated in so many different spheres, you know, he was
Speaker 1: an accomplished investor, very successful investor, people don't realize how
Speaker 1: good of an investor he was. And obviously, you know,
Speaker 1: a complete thought leader in his field and had a
Speaker 1: big political role in life. And he should really get
Speaker 1: him on the show. Um, good luck. Um. You know
Speaker 1: what I'm embarrassed to admit I've never read. It's literally
Speaker 1: on my night table. What's the next book in my
Speaker 1: queue is? Where Are the Customer's Yachts? That's been something
Speaker 1: that I've been waiting to read for forever and I
Speaker 1: foundly once I finished the I'm reading Failer's Misbehaving The
Speaker 1: Founding of Behavioral Economics. Once I'm done with that, Customers
Speaker 1: Yachts are are next? What else do you have queued
Speaker 1: up to read? What else are you looking forward to reading.
Speaker 1: I'm looking forward to finishing Anti Fragile and the same
Speaker 1: with the the check checklist. Oh so you will you
Speaker 1: read multiple books at a time. Yes, that's one of
Speaker 1: my worst habits because I have different ten books I'm
Speaker 1: working on. But there's a book, if you haven't read it,
Speaker 1: called Reminiscences of a stock Operator Edward lafarv yes on
Speaker 1: on the I read that many years ago, fascinating. It's
Speaker 1: it's as good today if you pick it up and
Speaker 1: read a couple of pages. So there's a new there's
Speaker 1: a new book that's a bio of um Esse live
Speaker 1: More called Um the Boy Plunger, and it's it's basically
Speaker 1: a it's not written with the same sort of style
Speaker 1: that that Reminiscence was, But that just arrived in the
Speaker 1: mail the of the day. I don't know when I'll
Speaker 1: get to that. But I read Reminiscences a while ago
Speaker 1: and just thought it was really that I started on
Speaker 1: a trading desk. That might have been one of the
Speaker 1: first five books I read. Good for you, Market Wizards
Speaker 1: was the first book the head head trader said, here
Speaker 1: go read this that that was my training. Here, take
Speaker 1: a look at this. So any anything else that you
Speaker 1: have tied up that you want to uh, you want
Speaker 1: to read anytime soon. I just read constantly. That is
Speaker 1: not um. That is not such a rare thing amongst
Speaker 1: people who are regarded as excellent investors, excellent strategists, excellent economists.
Speaker 1: You read what Charlie Munger and Warren Buffett say. They
Speaker 1: say they spend their time reading that. That's just amazing
Speaker 1: to think about. You're so used to people with technology
Speaker 1: and Twitter and everything else, being so hyperactive four four
Speaker 1: out of five hours during the day. These guys are
Speaker 1: sitting around reading books. It's amazing. So I read the
Speaker 1: Jeff Bezos book UM that came out a couple of
Speaker 1: years ago and uh, which is great, a great read.
Speaker 1: And in the end it had a page on the
Speaker 1: books that he had read and they're all these books
Speaker 1: like good to great and etcetera. Well, are they all
Speaker 1: business books? These are all business books. Charlie Munger also
Speaker 1: has about a forty page speech he gave right on
Speaker 1: behavioral psychology and the way it plays into the market.
Speaker 1: I've seen that, which is where it's it's really excellent.
Speaker 1: The speech may actually be on YouTube. I'm gonna have
Speaker 1: to dig that up. Another book sitting on my bookshelf,
Speaker 1: not even on the night table. Is port Charlie's Almanac
Speaker 1: that I'm waiting to pack. It's this thick and it's
Speaker 1: basically a collection of a lot of his thoughts, a
Speaker 1: lot of his speeches, and it's one of these things
Speaker 1: that you could get lost in for three months. So
Speaker 1: it's it's waiting. I just haven't. Maybe that's a winter
Speaker 1: project this year. So let me keep more thinking through
Speaker 1: some of my favorite um questions. You mentioned how the
Speaker 1: pace of changes accelerating. Everything is happening more data faster.
Speaker 1: What what other major shifts do you see coming up
Speaker 1: for research and economics? So I thought about that, and
Speaker 1: I don't. I thought about the question. Nothing comes to mind.
Speaker 1: It just seems as though it slowly is getting faster
Speaker 1: and faster as electronic information becomes more and more available
Speaker 1: and consumable by people. Oddly enough, trading volumes have gotten
Speaker 1: slower and slower. Uh, so there's more news. But in
Speaker 1: the in the equity markets, it's it's gotten. People have
Speaker 1: been trading less. What what explains that? That's really an
Speaker 1: interesting The first first is muscle memory, you know people,
Speaker 1: And second active management has been doing poorly, and so
Speaker 1: people haven't been winning by making moves. So they less,
Speaker 1: they do less and uh, and then money has been
Speaker 1: flowing from active to passive, which generates less trading in
Speaker 1: that space. Dango just passed three that's that's an amazing number.
Speaker 1: And there are two thirds passive. So that's just a tremendous,
Speaker 1: tremendous heart of fathom number. And so it really is
Speaker 1: a staggering development. Trading volume was ten billion shares a
Speaker 1: day h five years ago and now it's six billion.
Speaker 1: You started mentioning ets. Does that having an impact? That's
Speaker 1: less less less trading? So so you could one transaction,
Speaker 1: you're buying the whole SMP. You don't need to to
Speaker 1: purchase the individual stocks and the odds. Are you going
Speaker 1: to sit with that over time time and not jump
Speaker 1: in and out so that you know, I don't I
Speaker 1: don't want that's a permanent condition or uh. And we've
Speaker 1: gone through it's been stable now for about two three years.
Speaker 1: What does that mean in terms of money flowing to
Speaker 1: research dollars because it has to be used to be
Speaker 1: research was paid for with trading commissions that they still
Speaker 1: that's exactly our business trading. So so how do you
Speaker 1: structure that to you? Is there a minimum amount is
Speaker 1: it hard dollar or is it all soft dollar commissions?
Speaker 1: So it's it's not all soft dollar commissions, but it's
Speaker 1: virtually all soft collar commissions. Uh. And so it just
Speaker 1: made it a much more difficult environment for everybody in
Speaker 1: the business. So that turn it into a little bit
Speaker 1: of a winner take all. You have a handful of
Speaker 1: firms if the volume is dropping that much, but there's
Speaker 1: x amount of research people are looking to buy. That
Speaker 1: means any firm that's on the fringe or on the
Speaker 1: edge is not going to capture those those trading dollars. Uh.
Speaker 1: It hasn't quite worked out that way because you have UH.
Speaker 1: So we were on the edge and we were doing
Speaker 1: fine because we were taking commissions from the the guys
Speaker 1: in the middle. And now we're not in the middle,
Speaker 1: but we're in the inner circle. But we're still you know,
Speaker 1: gaining market share. But it's a very difficult business. But
Speaker 1: it's uniform across the industry. So it's not like, you know,
Speaker 1: it's sunny in some spaces and reigning and others. It's
Speaker 1: just it's tough. It's tough everywhere. So it doesn't it
Speaker 1: doesn't put us at a competitive disadvantage or advantage either,
Speaker 1: I don't think so. You said something interesting earlier. I
Speaker 1: want to come back and revisit. You said much of
Speaker 1: the industry has not changed since the nineties seventies. You
Speaker 1: alluded to that, how is that possible? Given technology and
Speaker 1: given everything all that's all that's changed. But the basic
Speaker 1: players uh, or you have people in my space, you
Speaker 1: have people doing research and they interface with investors at
Speaker 1: the at the big institutional accounts. That is pretty similar
Speaker 1: to what it was, except they're more investors. Uh. There's
Speaker 1: also UH, keep in mind, there's a ton of money
Speaker 1: that didn't exist in the seventies, so there's although the
Speaker 1: the vibes are down, there's still a lot of trading
Speaker 1: going on, but they're that basic interface, Uh is pretty
Speaker 1: much the same as it as it was. The industry
Speaker 1: started to grow as pools of money began to accumulate. UH.
Speaker 1: When you say pools, you mean big pension funds, foundations
Speaker 1: that sort of stuff, or just assets. The size of
Speaker 1: the stock exchanges, the size of the equity markets in
Speaker 1: the US, so the size of those are feeding off
Speaker 1: of what you mentioned the first the pension funds, mute
Speaker 1: mutual ones you mentioned like Vanguard and so as those
Speaker 1: moneys came together, Uh, it really gave birth to institutional
Speaker 1: research and starting pretty much with Donaldson, Lufkin and Jenrette
Speaker 1: in the late fifties early sixties. How did that How
Speaker 1: did that have such an impact on on the world
Speaker 1: of research. As as pools of money developed, you had
Speaker 1: professional investors now able to shepherd that money. So you
Speaker 1: had research people at City Bank, and so they started
Speaker 1: to need some research from the street and the whole
Speaker 1: dance began. And it's pretty much the same today. It's
Speaker 1: just gotten bigger, fascinating. UM. So the next question was
Speaker 1: is this a good or a bad thing? But you're
Speaker 1: really saying it's neither. It's just the size is increasing.
Speaker 1: The main the main problem is that active management has
Speaker 1: not done well for I don't know how many years.
Speaker 1: But why do you think that is? Because there's so
Speaker 1: many players. It's very difficult. It's UM. Charlie Ellis said
Speaker 1: that when you have this many smart, competitive people out there,
Speaker 1: and he was the chairman of the Yelle Endowment for
Speaker 1: a long time, UM and a board member of Vanguard,
Speaker 1: when there's so many really smart people out there, they
Speaker 1: all just end up canceling each other. Out and that's
Speaker 1: how you have a period where nobody's generating alpha because
Speaker 1: everybody is trying to and it's just you know, it's
Speaker 1: like stepping out into the field with the New York giants.
Speaker 1: You're you're not very well out there, and so that's uh,
Speaker 1: we'll see how that plays out. Uh. Usually that's somewhat
Speaker 1: cyclical though, and so we'll see. There has been one
Speaker 1: aspect that's not been discussed much, is that of people
Speaker 1: have been more successful doing asset allocation, which doesn't show
Speaker 1: up in generating alpha or not. You're always looking at
Speaker 1: a portfolio stocks and are you outperforming the SMP or
Speaker 1: something like that. But in terms of you know, can
Speaker 1: you put together a a portfolio of private equity and
Speaker 1: equities and bonds, uh, real estate that outperforms and uh,
Speaker 1: I think there's been a number of people that have
Speaker 1: done an excellent job of that. Any anyone in particular
Speaker 1: you want to mention or is it just just just
Speaker 1: the shift. I mean you have to look at Vanguard
Speaker 1: as a beneficiary of that. They have huge beneficiary right
Speaker 1: because if you want an instant, low cost exposure to
Speaker 1: a region, a sector of this or that that they
Speaker 1: offer enough funds and at eleven basis points and things
Speaker 1: like that. You get exposure to any of those things instantaneously.
Speaker 1: It's really, it's really quite amazing. Um what what are
Speaker 1: some of your favorite miss on Wall Street that refused
Speaker 1: to die? I looked at that one very I don't.
Speaker 1: I don't see any myths that refused it. I thought
Speaker 1: about it, the Super Bowl Indicator, any of that stuff. Well,
Speaker 1: you don't. You just don't pay attention to. Um So,
Speaker 1: last two questions. Let me ask you to a millennial
Speaker 1: or someone just coming out of college. Now, what sort
Speaker 1: of career advice would you give them if they were
Speaker 1: interested in in finance or investment? So? Um So, First,
Speaker 1: I would say, go fast? What does that mean? Go fast?
Speaker 1: Just whatever you want to do, do it, you know,
Speaker 1: try and uh. It's hard to know what to do. Uh.
Speaker 1: And there are good arguments that you should, you know,
Speaker 1: take your time. You're gonna live a long time compared
Speaker 1: to why people lived a hundred years ago. Uh, And
Speaker 1: I think there's truth in that. But I think you
Speaker 1: should still try and go fast. Let's say you go
Speaker 1: fast by reading a lot of books all of a sudden, right,
Speaker 1: But as I can tell you are you're going fast
Speaker 1: at reading and so whatever you do, go at it.
Speaker 1: It would be one idea that comes to my mind.
Speaker 1: This way you could discover if you like it or
Speaker 1: you don't like it, you move on to the next.
Speaker 1: What what's the thinking behind go fast? Just go fast?
Speaker 1: So do you you get as much you have a
Speaker 1: good time to get a much experience as possible. Um,
Speaker 1: maybe go fastest to you know, go and live in
Speaker 1: Thailand for five five years just to see what it's like.
Speaker 1: But you're doing it. It's experience, so you're what you realize.
Speaker 1: What I'm really hearing from you is be decisive, do something.
Speaker 1: Just don't sit around and wait for the world to
Speaker 1: come to you. Right, Okay? That the things that I've
Speaker 1: when I look at the people that do well in
Speaker 1: this business, the first one that comes up is the
Speaker 1: most trite, which is is work hard. And everybody that
Speaker 1: I see the succeeds. They simply outwork other players. I
Speaker 1: think Michael Bloomberg is a great example of that, where
Speaker 1: he's he's just full of life and is a concredible worker. Well,
Speaker 1: let's see if we can get him on the show.
Speaker 1: Keep asking, he keeps turning me down. Um, work hard,
Speaker 1: clearly go fast. The goal go fast is sort of
Speaker 1: a general condition that work hard. UH. And then I
Speaker 1: think you have to be competitive. You have to whatever.
Speaker 1: Different people are competitive in different ways. Some are overtly
Speaker 1: competitive and some are quietly competitive. But that whatever that
Speaker 1: instinct is to win UH in this business is definitely
Speaker 1: necessary in the investi business and as frankly true in
Speaker 1: most businesses. I take a look at UH. And then
Speaker 1: the third one I think is critical is to be flexible,
Speaker 1: to say this isn't working something, I'm going fast not
Speaker 1: the right direction. And particularly for fund managers, those three
Speaker 1: characteristics are the ones that I find every time. They're
Speaker 1: very competitive, hard working, and they're oddly flexible. You know,
Speaker 1: when they have a bad idea, they're able to get
Speaker 1: rid of it moving. In my office we call that
Speaker 1: strong opinions weekly health, so that you can really have
Speaker 1: a strong belief in it. But as soon as you
Speaker 1: see proof you're wrong, you gotta It's okay to be wrong,
Speaker 1: it's not okay to stay wrong, is what I learned
Speaker 1: on a trading desk. I heard that early on, but
Speaker 1: that's the same concept, is to be flexible. And now
Speaker 1: we're up to our last question, what do you wish
Speaker 1: you knew about investing today? What do you wish when
Speaker 1: when you began? Rephrase it, then, when you began, what
Speaker 1: do you know today you wish you knew when you
Speaker 1: started out? So, man, I very I got your list
Speaker 1: of questions. I looked at that one and it just
Speaker 1: has me stumped. I thought about coming over here, and
Speaker 1: nothing just wells up that that there's something that you
Speaker 1: figured out today that would have been of assistance right
Speaker 1: out of school. Nothing came to mind. You know, someone said,
Speaker 1: gave me an answer to that once, and the answer
Speaker 1: what have you gotten the path? See? For me? So
Speaker 1: the answer that I found intriguing was, gee, what I
Speaker 1: know today? I had to take a certain path to learn?
Speaker 1: And if I knew that when I started, well, then
Speaker 1: where's the path? Where's the the accumulation of wisdom? That
Speaker 1: the journey is itself the value? Sort of a Zen philosophy.
Speaker 1: I don't remember who answered it that way, but I
Speaker 1: found that sort of Maybe it was Bobby Flight. I
Speaker 1: thought it was kind of an intriguing Okay, that's very philosophically.
Speaker 1: I've been I'm have you life as a as a
Speaker 1: journey not a destination, as they put it, and and
Speaker 1: I have. I've been extremely lucky and that my journey
Speaker 1: has been pretty much in a straight line um as
Speaker 1: we've talked about today. So I don't there's nothing, there's
Speaker 1: no So the journey was that. That's a similar answer
Speaker 1: to what somebody else said, which was the journey was
Speaker 1: what they learned and is you have to kind of
Speaker 1: live it. You can't go back to square one with Okay,
Speaker 1: here's everything I've learned. I would have done it differently, right,
Speaker 1: It's it's how to you how to take that process
Speaker 1: to get what you You couldn't be here today if
Speaker 1: you didn't take that route. So, ED, thank you so
Speaker 1: much for being so generous with your time and spending
Speaker 1: my place so much time with us. I really for
Speaker 1: for listeners. You should realize ED doesn't do a lot
Speaker 1: of media, and I really kind of hunted you down
Speaker 1: for for a while trying to cajole you into doing this,
Speaker 1: and I really appreciate it. So thank you. Um you've
Speaker 1: been listening to Masters and in Business on Bloomberg Radio.
Speaker 1: If you want to hear more conversations like this, just
Speaker 1: look up or down an inch or so on your
Speaker 1: um iTunes or Bloomberg dot com. UM. I want to
Speaker 1: thank Charlie Vohmer, our producer and Matt our engineer, and
Speaker 1: Mike bat Nick, the head of research, who helps us
Speaker 1: put together all these questions. Uh, be sure and check
Speaker 1: out my daily column on Bloomberg View and follow me
Speaker 1: on Twitter at rid Halts. You've been listening to Masters
Speaker 1: in Business on Bloomberg Radio.