WEBVTT - Abby Joseph Cohen Talks Finance, Tech, and Investing

0:00:02.440 --> 0:00:06.760
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:07.200 --> 0:00:11.080
<v Speaker 2>What a newslough. It's a perfect day to enjoy. Short

0:00:11.160 --> 0:00:14.360
<v Speaker 2>thirty minutes, Two short thirty minutes with Abby Joseph Cohen.

0:00:14.960 --> 0:00:20.480
<v Speaker 2>The office at Columbia Business School is five seventy four Cravis.

0:00:20.600 --> 0:00:22.960
<v Speaker 2>When the students walk through the door, do they shake?

0:00:23.720 --> 0:00:24.680
<v Speaker 2>They bow down?

0:00:26.400 --> 0:00:29.320
<v Speaker 3>You know, I have so much enjoyed working with the students,

0:00:29.360 --> 0:00:32.760
<v Speaker 3>but also the faculty members. It's a pleasure to be

0:00:32.880 --> 0:00:36.120
<v Speaker 3>working with a number of people whose names you would recognize,

0:00:36.280 --> 0:00:37.839
<v Speaker 3>but also a lot of the up and comers.

0:00:37.880 --> 0:00:41.879
<v Speaker 2>Two years into the game, do the underlying theories that

0:00:41.960 --> 0:00:45.320
<v Speaker 2>you owned and I was weaned on do they still work?

0:00:45.960 --> 0:00:52.040
<v Speaker 2>De Sharp, does Fama of Chicago the other giants? Do

0:00:52.159 --> 0:00:55.360
<v Speaker 2>those theories still work in this market?

0:00:56.240 --> 0:00:59.760
<v Speaker 3>This is a market clearly that is breaking a lot

0:00:59.800 --> 0:01:02.960
<v Speaker 3>of rules. The question is do we get back to

0:01:03.080 --> 0:01:06.440
<v Speaker 3>those rules? And as you know, my own personal rule

0:01:06.480 --> 0:01:09.880
<v Speaker 3>of a TOM has always been that one must pay

0:01:09.880 --> 0:01:13.959
<v Speaker 3>attention to things like valuation models based on fundamentals. But

0:01:14.120 --> 0:01:17.200
<v Speaker 3>that doesn't mean that the market is always an equilibrium.

0:01:17.280 --> 0:01:18.800
<v Speaker 2>Damian's dying to get in here.

0:01:19.000 --> 0:01:21.840
<v Speaker 3>But let me make one other comment if I may,

0:01:21.160 --> 0:01:26.600
<v Speaker 3>and that is we swing from one level of disequilibrium

0:01:26.640 --> 0:01:30.959
<v Speaker 3>to another. So market cycles are typically going from undervaluation

0:01:31.840 --> 0:01:36.080
<v Speaker 3>through fair value to overvaluation. And the question I think

0:01:36.120 --> 0:01:39.720
<v Speaker 3>for today is as we swing back down, where do

0:01:39.760 --> 0:01:40.160
<v Speaker 3>we stop?

0:01:40.280 --> 0:01:42.360
<v Speaker 2>Okay, I'm going to rip up the script here right now,

0:01:42.520 --> 0:01:44.760
<v Speaker 2>and we got again. We've got abby for the entire

0:01:45.200 --> 0:01:48.840
<v Speaker 2>half hour. Megdan Decaiah l Let's say, wrote a book

0:01:48.880 --> 0:01:52.480
<v Speaker 2>in Fury out of their financial crisis. Golden Sach caused

0:01:52.520 --> 0:01:55.960
<v Speaker 2>the financial crisis in case you didn't no on volacy

0:01:56.040 --> 0:02:00.240
<v Speaker 2>in general equilibrium theory, and he said it's flawed, but

0:02:00.320 --> 0:02:04.120
<v Speaker 2>it's the best tool we have, is our global vo

0:02:04.720 --> 0:02:09.160
<v Speaker 2>and equilibrium in finance and an investment. Is it still

0:02:09.200 --> 0:02:09.760
<v Speaker 2>in place?

0:02:10.440 --> 0:02:13.000
<v Speaker 3>It seems to me that it's always something we need

0:02:13.080 --> 0:02:15.560
<v Speaker 3>to keep in mind. But I think that some of

0:02:15.600 --> 0:02:19.120
<v Speaker 3>the best calls that get made by strategists, for example,

0:02:19.560 --> 0:02:24.079
<v Speaker 3>is identifying the situations that keep you off of equilibrium

0:02:24.160 --> 0:02:27.679
<v Speaker 3>number one, and number two identifying the catalysts that will

0:02:27.680 --> 0:02:30.280
<v Speaker 3>do that. So, for example, there have been many people

0:02:30.520 --> 0:02:35.560
<v Speaker 3>talking about the peculiarity of the US equity market recently

0:02:35.600 --> 0:02:39.800
<v Speaker 3>with the over concentration in a very small number of names,

0:02:40.280 --> 0:02:45.040
<v Speaker 3>but The magic, of course, is identifying the catalyst that

0:02:45.120 --> 0:02:50.280
<v Speaker 3>would move that away and also figuring out what the

0:02:50.440 --> 0:02:53.560
<v Speaker 3>ultimate target might be. Doesn't mean you get there, but

0:02:53.600 --> 0:02:54.920
<v Speaker 3>it gives you a sense of direction.

0:02:55.480 --> 0:02:58.040
<v Speaker 1>Abbie, you mentioned catalyst, and so that takes me to

0:02:58.080 --> 0:03:00.720
<v Speaker 1>the concept of factor investing in equities. It's changed so

0:03:00.800 --> 0:03:02.760
<v Speaker 1>very much. And I'm a big fan of g SAM.

0:03:02.840 --> 0:03:05.160
<v Speaker 1>You know, Cliff Asness, this g SAM factor in disease,

0:03:05.240 --> 0:03:08.280
<v Speaker 1>the long short value, the growth. But there's quality, there's

0:03:08.360 --> 0:03:11.440
<v Speaker 1>low volatility, there's I mean, there's all these different factors

0:03:11.440 --> 0:03:14.560
<v Speaker 1>that are driving equities. What beta regime are we in

0:03:14.639 --> 0:03:17.000
<v Speaker 1>now and what beta regime do you think we're going

0:03:17.000 --> 0:03:18.280
<v Speaker 1>into through the end of this year.

0:03:18.520 --> 0:03:22.720
<v Speaker 3>Well, that is a very good question and a highly

0:03:22.800 --> 0:03:25.720
<v Speaker 3>technical one, but let me answer it in a somewhat

0:03:25.720 --> 0:03:29.120
<v Speaker 3>different way, and that has to do with the level

0:03:29.160 --> 0:03:33.200
<v Speaker 3>of concentration that we're seeing in markets and the focus

0:03:33.240 --> 0:03:39.600
<v Speaker 3>that we have on indexation, both implicit and explicit, seems

0:03:39.640 --> 0:03:42.720
<v Speaker 3>to me to be driving a lot of the very

0:03:43.400 --> 0:03:47.920
<v Speaker 3>extraordinarily well developed quantitative models. It's just driving them in

0:03:47.960 --> 0:03:51.600
<v Speaker 3>the wrong direction. That doesn't mean they're wrong intermediate to

0:03:51.640 --> 0:03:54.560
<v Speaker 3>long term, but it doesn't really help on a trading basis.

0:03:54.560 --> 0:03:57.680
<v Speaker 3>And by the way, we have seen this before. Right

0:03:58.480 --> 0:04:01.040
<v Speaker 3>years ago, there was something called the nifty fifty Ye

0:04:01.200 --> 0:04:06.320
<v Speaker 3>no really, and many people listening to us may not

0:04:06.520 --> 0:04:08.680
<v Speaker 3>remember that, or they may not have read about it,

0:04:08.960 --> 0:04:12.560
<v Speaker 3>but there were fifty sauce stocks that dominated the markets

0:04:13.040 --> 0:04:18.120
<v Speaker 3>decades ago, and basically the question was would it continue.

0:04:18.520 --> 0:04:21.400
<v Speaker 3>And many of the companies that were included in this,

0:04:21.520 --> 0:04:26.560
<v Speaker 3>including IBM, if you did the extrapolation, they were going

0:04:26.600 --> 0:04:32.000
<v Speaker 3>to be twenty to fifty percent of usgdpaid. Obviously, that

0:04:32.240 --> 0:04:35.960
<v Speaker 3>is not sustainable. And then we have an even more

0:04:36.000 --> 0:04:39.440
<v Speaker 3>extreme version of that now with a magnificent five, with

0:04:39.560 --> 0:04:42.640
<v Speaker 3>a mag seven, depending upon which ones you like. And

0:04:42.680 --> 0:04:46.880
<v Speaker 3>it is driven in large part by the self fulfilling

0:04:46.920 --> 0:04:53.080
<v Speaker 3>prophecy of people using indexed approaches, particularly market cap indexed approaches.

0:04:53.240 --> 0:04:55.440
<v Speaker 3>And you guys have talked about this before, so I'm

0:04:55.480 --> 0:04:57.280
<v Speaker 3>not going to belabor it to.

0:04:57.279 --> 0:05:00.400
<v Speaker 1>Me blaming Larry Fink and black Rot. Now, I'm not

0:05:00.440 --> 0:05:02.279
<v Speaker 1>a concentration risk in the equity market.

0:05:03.240 --> 0:05:07.160
<v Speaker 3>I am focusing on the idea that everyone has been

0:05:07.279 --> 0:05:11.480
<v Speaker 3>emphasizing relative performance of easy be the index and doing

0:05:11.520 --> 0:05:14.840
<v Speaker 3>it on a very short term basis. And there are

0:05:14.839 --> 0:05:17.560
<v Speaker 3>some great companies out there that have been facilitating that

0:05:17.600 --> 0:05:20.640
<v Speaker 3>for investors who wanted to get it done because it's

0:05:20.720 --> 0:05:23.680
<v Speaker 3>low cost and so on. And if you are a

0:05:23.680 --> 0:05:27.080
<v Speaker 3>professional investor, many of them don't want to veer too

0:05:27.160 --> 0:05:30.240
<v Speaker 3>far from the index because if you're wrong, better to

0:05:30.279 --> 0:05:33.080
<v Speaker 3>be wrong with lots of companies, right, And.

0:05:32.960 --> 0:05:34.640
<v Speaker 1>The thing the behavioral component of that.

0:05:34.640 --> 0:05:37.839
<v Speaker 3>Absolutely, and one of the things that intrigues me, of course,

0:05:38.240 --> 0:05:40.520
<v Speaker 3>are those people who are willing to kind of stick

0:05:40.520 --> 0:05:43.720
<v Speaker 3>their necks out and say, you know, maybe the consensus

0:05:44.279 --> 0:05:47.719
<v Speaker 3>will prove to be wrong. The problem this time around,

0:05:47.720 --> 0:05:51.640
<v Speaker 3>of course, has been that the movement towards five or

0:05:51.720 --> 0:05:55.880
<v Speaker 3>seven stocks, that level of concentration is really unparalleled.

0:05:55.920 --> 0:05:58.640
<v Speaker 2>I want to spend the entire next section on the

0:05:58.680 --> 0:06:00.919
<v Speaker 2>concentration of the magazine of it. And there's a small

0:06:00.960 --> 0:06:04.800
<v Speaker 2>shop downtown that put out a blistering essay about six

0:06:04.880 --> 0:06:08.520
<v Speaker 2>days ago that will did you hire Jim Cavello, You're

0:06:08.560 --> 0:06:12.440
<v Speaker 2>the one is a ear fault? I was. It's going

0:06:12.520 --> 0:06:12.839
<v Speaker 2>to be great.

0:06:12.839 --> 0:06:13.400
<v Speaker 3>We're going to do that.

0:06:13.440 --> 0:06:15.880
<v Speaker 2>In the next section for Global Law Street, I want

0:06:15.920 --> 0:06:18.240
<v Speaker 2>to talk about courage to be in the market and

0:06:18.279 --> 0:06:20.640
<v Speaker 2>the word in this room that we get from many

0:06:20.720 --> 0:06:24.760
<v Speaker 2>strategists as an abby Joseph Cohne word which is solid.

0:06:25.200 --> 0:06:28.359
<v Speaker 2>And what you say is, if the American economy is

0:06:28.520 --> 0:06:34.480
<v Speaker 2>solid and business is solid, you have to participate. Talk

0:06:34.520 --> 0:06:39.000
<v Speaker 2>about the gloom crew that says go to cash.

0:06:39.240 --> 0:06:44.400
<v Speaker 3>That is a fascinating question, Tom, And it seems to

0:06:44.440 --> 0:06:46.800
<v Speaker 3>me that we do have an economy right now that

0:06:47.000 --> 0:06:52.040
<v Speaker 3>is extremely solid. We have never seen in recent decades

0:06:52.320 --> 0:06:55.520
<v Speaker 3>as strong a labor market as we have now. Wages

0:06:55.640 --> 0:06:59.680
<v Speaker 3>are rising at a rate that now exceeds inflation, which

0:06:59.720 --> 0:07:02.640
<v Speaker 3>is hell helpful, particularly for middle income and lower middle

0:07:02.640 --> 0:07:07.279
<v Speaker 3>income families that have been having trouble. We have enormously

0:07:07.480 --> 0:07:10.280
<v Speaker 3>strong profits. Return on equity for the s and P

0:07:10.440 --> 0:07:14.000
<v Speaker 3>five hundred is at an extremely high level. In fact,

0:07:14.080 --> 0:07:17.120
<v Speaker 3>it might be the highest ever. So things are in

0:07:17.200 --> 0:07:21.520
<v Speaker 3>fact solid. What I worry about always is is that

0:07:21.640 --> 0:07:25.280
<v Speaker 3>already priced into the market number one and number two,

0:07:25.880 --> 0:07:29.840
<v Speaker 3>the policies that helped get us to this are they

0:07:30.120 --> 0:07:35.480
<v Speaker 3>potentially in danger. So this is obviously a big political

0:07:35.600 --> 0:07:40.200
<v Speaker 3>point in the United States right now. Policies may be changing,

0:07:40.520 --> 0:07:43.320
<v Speaker 3>and among the things that I worry about, for example,

0:07:44.000 --> 0:07:49.160
<v Speaker 3>would be a movement towards more significant tariffs, which are inflationary.

0:07:49.840 --> 0:07:53.040
<v Speaker 3>It damages not just the economies of our trading partners,

0:07:53.320 --> 0:07:57.720
<v Speaker 3>but our economy as well. I worry about whether we

0:07:57.760 --> 0:08:01.000
<v Speaker 3>would step away from some of the good long term

0:08:01.040 --> 0:08:05.280
<v Speaker 3>policies implemented during the Biden administration to encourage long term

0:08:05.280 --> 0:08:11.400
<v Speaker 3>investment in public infrastructure, in technology through the CHIPSAC basically

0:08:11.480 --> 0:08:14.760
<v Speaker 3>making things here, and then of course the investments that

0:08:14.840 --> 0:08:17.680
<v Speaker 3>are being made in alternative energy. One more point time,

0:08:17.720 --> 0:08:20.320
<v Speaker 3>if I may, if we're looking at where there's a

0:08:20.360 --> 0:08:24.160
<v Speaker 3>shortage of something in this country, it's power. Right with

0:08:24.360 --> 0:08:28.400
<v Speaker 3>all of the focus on technology, and clearly people are

0:08:28.440 --> 0:08:31.720
<v Speaker 3>talking about it this morning with the outage. If we're

0:08:31.760 --> 0:08:36.640
<v Speaker 3>going to be moving towards an even more tech concentrated economy,

0:08:37.520 --> 0:08:41.040
<v Speaker 3>one that is using AI, cloud services and so on,

0:08:41.320 --> 0:08:45.800
<v Speaker 3>we need a dependable grid. And one of the things

0:08:45.960 --> 0:08:50.520
<v Speaker 3>under the legislation, bipartisan legislation that was passed over the

0:08:50.600 --> 0:08:54.240
<v Speaker 3>last couple of years is a development of more power sources,

0:08:54.280 --> 0:08:55.480
<v Speaker 3>including alternatives.

0:08:55.679 --> 0:08:59.120
<v Speaker 2>Ammy Joseph Cohen, a legend at Globen Sachs, is now

0:08:59.120 --> 0:09:01.839
<v Speaker 2>a legend at the clou be A Business School. Her

0:09:01.880 --> 0:09:06.480
<v Speaker 2>classes damian SS are so oversubscribed they're doing classes now

0:09:06.480 --> 0:09:10.000
<v Speaker 2>a dinosaur barbecue over in a Hudson River. I mean,

0:09:10.559 --> 0:09:14.600
<v Speaker 2>like push it right out of the school. Here's what

0:09:14.640 --> 0:09:17.920
<v Speaker 2>everybody wants to know. This arguably is a conversation of

0:09:17.920 --> 0:09:25.560
<v Speaker 2>twenty twenty four. Somebody really competent James Cavello, Georgetown Tuk

0:09:26.240 --> 0:09:30.080
<v Speaker 2>Gulben Sachs has said, we got a problem. We're going

0:09:30.280 --> 0:09:34.160
<v Speaker 2>opposite of the way it worked at Intel and everywhere else.

0:09:34.760 --> 0:09:39.319
<v Speaker 2>You have technology that comes in that's cheaper, that drives

0:09:39.360 --> 0:09:45.840
<v Speaker 2>the dialogue forward. AI seems to be more expensive, polar,

0:09:46.000 --> 0:09:50.360
<v Speaker 2>opposite of the norm we have lived. Is there substance

0:09:50.400 --> 0:09:53.240
<v Speaker 2>there to James Cavello's questioning AI?

0:09:53.760 --> 0:09:57.640
<v Speaker 3>Yep. I think Jim is a very thoughtful guy who

0:09:57.720 --> 0:10:03.679
<v Speaker 3>also has access to of information being pulled together by analysts.

0:10:03.720 --> 0:10:07.160
<v Speaker 3>And what many have been hearing for the past six

0:10:07.200 --> 0:10:10.640
<v Speaker 3>months in particular, has been that companies that have been

0:10:10.679 --> 0:10:14.560
<v Speaker 3>investing heavily in AI are saying they're not yet seeing

0:10:14.559 --> 0:10:19.640
<v Speaker 3>the return. Economists throughout the country are saying they're not

0:10:19.679 --> 0:10:23.640
<v Speaker 3>really seeing the productivity enhancements yet from AI. Now, it

0:10:23.640 --> 0:10:27.800
<v Speaker 3>could be that the analyses are looking at data in

0:10:27.840 --> 0:10:33.040
<v Speaker 3>a premature stage. Maybe things will improve, but clearly AI

0:10:33.200 --> 0:10:36.360
<v Speaker 3>has been quite expensive. At this point, there was a

0:10:36.480 --> 0:10:41.040
<v Speaker 3>race in many industries to take on as much AI

0:10:41.240 --> 0:10:44.880
<v Speaker 3>investment as possible, and it might take a little while

0:10:44.920 --> 0:10:45.560
<v Speaker 3>to digest.

0:10:45.679 --> 0:10:49.040
<v Speaker 2>Do you believe, I'm thinking of the railroads from eighteen

0:10:49.200 --> 0:10:52.520
<v Speaker 2>eighty out to nineteen thirty nineteen forty, that you can

0:10:52.600 --> 0:10:57.600
<v Speaker 2>partition parts of AI where there will be AI failures,

0:10:58.000 --> 0:11:02.760
<v Speaker 2>but there will be AI successes, and we've already identified them,

0:11:03.160 --> 0:11:06.600
<v Speaker 2>taking Nvidia as the trophy child time.

0:11:06.679 --> 0:11:10.280
<v Speaker 3>Your point is very well made. Clearly, the success thus

0:11:10.320 --> 0:11:14.079
<v Speaker 3>far has been in those companies providing the infrastructure right,

0:11:14.120 --> 0:11:18.160
<v Speaker 3>the ones who are providing the basic support for future

0:11:18.200 --> 0:11:22.080
<v Speaker 3>investment in AI. Where we've not yet seen the full

0:11:22.120 --> 0:11:26.240
<v Speaker 3>payback and maybe we won't in some companies has to

0:11:26.280 --> 0:11:30.000
<v Speaker 3>do with the application of AI. We also need to

0:11:30.000 --> 0:11:34.240
<v Speaker 3>train people, just the way everybody who's been trained in

0:11:34.480 --> 0:11:37.840
<v Speaker 3>the Microsoft three sixty five products are feeling a little

0:11:37.840 --> 0:11:41.360
<v Speaker 3>bit of pain today that worked out. Sure it'll be

0:11:41.400 --> 0:11:45.400
<v Speaker 3>straightened out. You know, people are not yet fully familiar

0:11:46.040 --> 0:11:50.360
<v Speaker 3>with many of the AI product and I believe, based

0:11:50.440 --> 0:11:53.760
<v Speaker 3>upon my background in computer science. I do have an

0:11:53.800 --> 0:11:57.400
<v Speaker 3>undergraduate degree in computer science. It's ancient at this point

0:11:57.920 --> 0:12:03.560
<v Speaker 3>talking about dinosaurs Fortram, Yes, for trends, Pascal Pascal and

0:12:04.600 --> 0:12:08.800
<v Speaker 3>cobol oh my gosh. But what I have seen over

0:12:08.840 --> 0:12:13.800
<v Speaker 3>the years is that it takes a while for users

0:12:14.040 --> 0:12:17.680
<v Speaker 3>to understand the capabilities of what they have, and I

0:12:17.679 --> 0:12:21.760
<v Speaker 3>think that we're still in that gestation period for AI.

0:12:22.640 --> 0:12:26.400
<v Speaker 3>What I also think, however, is that many investors in

0:12:26.440 --> 0:12:31.120
<v Speaker 3>the market, because of this heavy concentration, perhaps became very

0:12:31.240 --> 0:12:34.880
<v Speaker 3>enthusiastic a little bit too soon, and so we're going

0:12:34.960 --> 0:12:38.520
<v Speaker 3>to need to see some digestion of that as well.

0:12:38.679 --> 0:12:40.200
<v Speaker 1>Abby. I have to ask you something that I know

0:12:40.240 --> 0:12:44.840
<v Speaker 1>you're an expert about meme stocks, Robin Hood AMC, I

0:12:44.880 --> 0:12:48.000
<v Speaker 1>mean game stop. I mean, did these names ever come

0:12:48.120 --> 0:12:51.559
<v Speaker 1>up in your classrooms? I mean are students actually investing

0:12:51.600 --> 0:12:53.080
<v Speaker 1>in or asking about them?

0:12:53.920 --> 0:12:57.400
<v Speaker 3>Students are asking about them, and the response is always

0:12:57.440 --> 0:13:03.320
<v Speaker 3>one of momentum investing. And what we always do is

0:13:03.360 --> 0:13:05.920
<v Speaker 3>to encourage students to think about the fundamentals. What's the

0:13:05.920 --> 0:13:08.920
<v Speaker 3>business plan, what's the business model, what it does matter,

0:13:09.080 --> 0:13:12.200
<v Speaker 3>what do the financials look like? And if you can't

0:13:12.240 --> 0:13:16.560
<v Speaker 3>make a case based on that, it's a only momentum

0:13:16.720 --> 0:13:20.840
<v Speaker 3>And that to me, you know, in my history in

0:13:20.880 --> 0:13:24.520
<v Speaker 3>the market, can take you only so far, but more importantly,

0:13:24.600 --> 0:13:27.360
<v Speaker 3>only for so long, because at some point there's a

0:13:27.400 --> 0:13:30.959
<v Speaker 3>catalyst that basically makes you stand up and say, emperor

0:13:31.000 --> 0:13:31.840
<v Speaker 3>has no clothes.

0:13:31.920 --> 0:13:34.240
<v Speaker 1>Well, I mean, let's just talk about momentum as a factor, right,

0:13:34.280 --> 0:13:35.920
<v Speaker 1>I mean, look back windows and all that. I mean,

0:13:35.920 --> 0:13:37.880
<v Speaker 1>there's a lot of momentum based strategies, but you know,

0:13:38.000 --> 0:13:39.480
<v Speaker 1>my understanding and I don't know if it works for

0:13:39.520 --> 0:13:42.400
<v Speaker 1>equity certainly doesn't have facts. It's a volatility damp new

0:13:42.559 --> 0:13:44.680
<v Speaker 1>you know, so when you used with other factors, it

0:13:44.760 --> 0:13:46.440
<v Speaker 1>kind of does a little bit and it improves your

0:13:46.480 --> 0:13:48.400
<v Speaker 1>risk of justiny return, your sharp ratio, as it were.

0:13:48.679 --> 0:13:49.360
<v Speaker 1>Do you agree with that?

0:13:50.480 --> 0:13:53.199
<v Speaker 3>You know, momentum is something that you need to pay

0:13:53.200 --> 0:13:57.040
<v Speaker 3>attention to. Part of my own fundamental analysis has always

0:13:57.080 --> 0:14:00.680
<v Speaker 3>been flow of funds, because you need to say, okay,

0:14:00.760 --> 0:14:03.720
<v Speaker 3>what will corporates be doing with their cash? What will

0:14:03.880 --> 0:14:07.480
<v Speaker 3>individual investors, what will institutional investors be doing? And so on?

0:14:07.840 --> 0:14:11.280
<v Speaker 3>And one of the things that distinguishes this period has

0:14:11.360 --> 0:14:15.319
<v Speaker 3>been that those investors have all kind of coalesced around

0:14:15.360 --> 0:14:17.800
<v Speaker 3>the same thing because many of them are using the

0:14:17.840 --> 0:14:20.880
<v Speaker 3>same benchmarks for performance. And that's one of the big

0:14:20.880 --> 0:14:22.240
<v Speaker 3>differences this time around.

0:14:22.360 --> 0:14:25.480
<v Speaker 2>I'm going back in this insane period and it's someone

0:14:25.640 --> 0:14:28.080
<v Speaker 2>abby you and I know well Michael Mobison now with

0:14:28.120 --> 0:14:31.080
<v Speaker 2>a shingle out at Morgan Stanley. That's a firm across

0:14:31.120 --> 0:14:35.200
<v Speaker 2>the street. Michael has been writing since nineteen ninety five

0:14:35.280 --> 0:14:39.400
<v Speaker 2>brilliantly for the CFA Institute and others about the new

0:14:39.760 --> 0:14:43.440
<v Speaker 2>capital allocation we're under and the traditional Graham Dot and

0:14:43.560 --> 0:14:48.280
<v Speaker 2>hot Coddle capital intensive businesses have given way to an

0:14:48.320 --> 0:14:54.480
<v Speaker 2>intellectually intensive, innovation intensive work that needs less capital and

0:14:54.600 --> 0:15:00.960
<v Speaker 2>provides greater return roic and greater and bigger cash. Do

0:15:01.040 --> 0:15:02.480
<v Speaker 2>you buy the kool aid?

0:15:03.040 --> 0:15:05.640
<v Speaker 3>I buy that to a very large extent, because it

0:15:05.680 --> 0:15:09.400
<v Speaker 3>also helps explain why the US economy and the US

0:15:09.480 --> 0:15:13.880
<v Speaker 3>equity market has so dramatically outperformed economies and markets in

0:15:13.920 --> 0:15:14.880
<v Speaker 3>other parts of the world.

0:15:15.000 --> 0:15:15.840
<v Speaker 2>Can we sustain that?

0:15:16.600 --> 0:15:20.240
<v Speaker 3>I think that there are very active decisions that have

0:15:20.320 --> 0:15:23.480
<v Speaker 3>already been taken in other countries to try to catch

0:15:23.560 --> 0:15:26.440
<v Speaker 3>up with us, and we're not keeping our eye on

0:15:26.480 --> 0:15:31.200
<v Speaker 3>the ball sufficiently. So, for example, there are industrial policies

0:15:31.240 --> 0:15:35.600
<v Speaker 3>that are underway in Asia and in Europe to try

0:15:35.640 --> 0:15:38.680
<v Speaker 3>to catch up with the United States in this regard

0:15:39.000 --> 0:15:41.760
<v Speaker 3>and I'm not a huge fan of industrial policies because

0:15:41.800 --> 0:15:45.360
<v Speaker 3>mistakes can be made. But if you can provide a

0:15:45.440 --> 0:15:48.920
<v Speaker 3>capital incentive for the right sort of investment, that that,

0:15:49.000 --> 0:15:51.240
<v Speaker 3>to me makes a great deal of sense. There's one

0:15:51.280 --> 0:15:53.440
<v Speaker 3>other piece of this time that I think we need

0:15:53.480 --> 0:15:55.840
<v Speaker 3>to touch on, and that is we are in a

0:15:55.880 --> 0:16:00.320
<v Speaker 3>new era in which capital is no longer free. Paying

0:16:00.360 --> 0:16:03.680
<v Speaker 3>for capital. Now, and when there was an environment in

0:16:03.720 --> 0:16:06.640
<v Speaker 3>which it was free to borrow money, you can make

0:16:06.680 --> 0:16:10.800
<v Speaker 3>all kinds of interesting decisions. Now you really have to

0:16:10.840 --> 0:16:13.880
<v Speaker 3>sharpen the pencil in so many areas. And it's not

0:16:13.920 --> 0:16:16.280
<v Speaker 3>just what companies are doing, and it's not just what

0:16:16.320 --> 0:16:20.320
<v Speaker 3>active investors are doing. It's also the use of leverage

0:16:20.880 --> 0:16:22.760
<v Speaker 3>in many other investment vehicles.

0:16:22.880 --> 0:16:26.280
<v Speaker 2>Please visit with these when you stop giving out c's

0:16:26.400 --> 0:16:30.560
<v Speaker 2>at Columbia Business School, Professor Joseph Cohen with us here

0:16:31.000 --> 0:16:35.880
<v Speaker 2>on New on this Friday, of our politics, our markets,

0:16:36.240 --> 0:16:40.520
<v Speaker 2>and the certitude of our technology. William Joel gets it done.

0:16:40.600 --> 0:16:43.800
<v Speaker 2>Good morning,