WEBVTT - Rick Rieder on Fixed Income Investments 0:00:00.080 --> 0:00:05.960 M. This is mesters in business with very results on 0:00:06.240 --> 0:00:11.560 Bluebird Radio this week on the podcast what Can I Say? 0:00:11.920 --> 0:00:16.400 Rick Reader runs fixed income at black Rock. He holds 0:00:16.480 --> 0:00:21.000 all sorts of fascinating titles. In addition to chief investment 0:00:21.040 --> 0:00:24.560 Officer for bonds, he helps to oversee two point five 0:00:24.960 --> 0:00:29.520 trillion dollars in various investments. And this is just a 0:00:29.560 --> 0:00:34.960 master class in how to manage assets. Think about your career, 0:00:35.840 --> 0:00:41.720 Understand the relationship between markets, between fixed income, the FED, 0:00:41.800 --> 0:00:46.879 the dollar sentiment, consumer spending, just everything is related. And 0:00:47.000 --> 0:00:52.000 understanding what matters when is the key to your success. 0:00:52.479 --> 0:00:56.040 If you're at all interested in electric school and investing, 0:00:56.720 --> 0:01:00.800 or fixed income or active and passive, this is just 0:01:00.880 --> 0:01:03.520 a master class as to how to do it right. 0:01:03.680 --> 0:01:07.440 I can keep babbling about how fascinating I found this discussion, 0:01:07.959 --> 0:01:12.000 but instead I will say, with no further ado, my 0:01:12.160 --> 0:01:17.360 conversation with Black Rocks Rick Reader, you have a fascinating background, 0:01:17.400 --> 0:01:19.120 and let's go all the way back to the beginning. 0:01:19.560 --> 0:01:23.160 You graduate Emory University with a degree in finance, you 0:01:23.200 --> 0:01:26.840 get an MBA from Wharton. Was fixed income always in 0:01:26.880 --> 0:01:31.000 the cards? I think it was ever in the cards? Actually? Yeah, 0:01:31.080 --> 0:01:34.320 So when I graduated Wharton. You know, I wasn't one 0:01:34.319 --> 0:01:36.880 of those people who had you know, my family was 0:01:36.920 --> 0:01:39.520 in Wall was on Wall Street, and I didn't really 0:01:39.600 --> 0:01:42.440 know what direction I was going in. And actually I 0:01:42.440 --> 0:01:44.280 was going to go and do something different. In fact, 0:01:44.280 --> 0:01:48.240 I was going to be a strategist financial analyst, to 0:01:48.280 --> 0:01:51.800 work for a bank and write research reports. And I 0:01:51.880 --> 0:01:54.120 was somebody convinced me to go into sales and trading, 0:01:54.120 --> 0:01:56.440 and I decided to do that. And I loved you know, 0:01:56.440 --> 0:01:59.400 they talked to me about I love sports, and you know, 0:01:59.440 --> 0:02:01.920 I love Mark Gets and anyway, I got into fixed 0:02:01.920 --> 0:02:05.280 income and I and I really liked the macro element 0:02:05.320 --> 0:02:07.800 to it. I really liked you know, how you think 0:02:07.840 --> 0:02:11.080 about big picture. And you know, one thing led to another. 0:02:11.080 --> 0:02:13.679 There was a job opening, and uh, like I said, 0:02:13.680 --> 0:02:16.160 I graduated, went to EF Hutton and nobody remembers anymore, 0:02:16.880 --> 0:02:20.360 which because were the greatest commercials of all time and people, yes, 0:02:20.400 --> 0:02:23.200 people are still remember them, and and then which was 0:02:23.240 --> 0:02:25.280 absorbed into Lehman, and I got lucky to go there 0:02:25.280 --> 0:02:27.760 and got a job in fixed income and and then 0:02:27.800 --> 0:02:30.200 the ball started rolling. But I probably two years prior 0:02:30.200 --> 0:02:31.519 to that or three years, probably didn't even know what 0:02:31.560 --> 0:02:35.360 fixed income was. So you spend what seven to oh 0:02:35.480 --> 0:02:38.560 eight at Lehman Brothers. That has to be one of 0:02:38.600 --> 0:02:42.359 the most exciting two decades at a specific place and 0:02:42.480 --> 0:02:45.799 a specific time anywhere on Wall Street. Tell us a 0:02:45.840 --> 0:02:47.880 little bit about that history. So, first of all, when 0:02:47.919 --> 0:02:50.280 I started, I mean I started this, it was the 0:02:50.400 --> 0:02:54.360 July market crashes. Nothing was going on that. Yeah, so 0:02:54.480 --> 0:02:58.079 market crashes, and then you know, we don't think that, 0:02:58.160 --> 0:02:59.720 you know, it doesn't look like if Hutton is gonna 0:02:59.720 --> 0:03:01.560 make it, potentially he's going to go out of business. 0:03:01.840 --> 0:03:06.400 They get absorbed. Lehman buys them as acquisition. It was 0:03:06.440 --> 0:03:09.160 so a Lehman paid a billion dollars free f Utton 0:03:09.880 --> 0:03:13.160 and m and they took I was very lucky. There 0:03:13.200 --> 0:03:15.600 were thirty five of us in the training program and 0:03:15.639 --> 0:03:17.480 it looked like we all were gonna get fired, and 0:03:17.520 --> 0:03:19.680 they took two of us. And I'm not sure how 0:03:19.720 --> 0:03:22.240 I made it through the strainer, but I um, I 0:03:22.240 --> 0:03:24.560 found somebody who I really liked on the mortgage department 0:03:25.160 --> 0:03:28.760 and the mortgage agency mortgage business and took a liking 0:03:28.760 --> 0:03:30.560 to me, and they went into the training program. And 0:03:30.560 --> 0:03:32.560 then you know, and then by the way it wasn't 0:03:32.600 --> 0:03:36.600 like the crises ended between and the recession on the 0:03:36.720 --> 0:03:41.520 SNL dynamics and then and and you know, all had 0:03:41.520 --> 0:03:43.480 a different stream to two thousand and two. By the way, 0:03:43.520 --> 0:03:46.720 team like every four years there was um and then 0:03:46.760 --> 0:03:50.440 you know, punctuating with obviously two thousand and eight. But boy, 0:03:50.480 --> 0:03:52.240 I mean I went through and I think I still 0:03:52.280 --> 0:03:54.640 have the scar tissue to this day of you know, 0:03:54.720 --> 0:03:56.320 all of these And by the way, I think it's 0:03:56.320 --> 0:04:00.400 an interesting cyclicality to markets that every four years you 0:04:00.440 --> 0:04:03.640 need to recalibrate. You know, people are comfortable, leverage builds 0:04:03.680 --> 0:04:05.520 and then and then and then all of a sudden, 0:04:05.560 --> 0:04:09.280 sometimes violently, it recalibrates. But I'll tell you, you know, 0:04:09.280 --> 0:04:11.680 going through it again in twenty two, you know, you 0:04:11.760 --> 0:04:13.840 just know that the next couple of years are going 0:04:13.880 --> 0:04:16.240 to be pretty good because you just reprice things again. 0:04:16.279 --> 0:04:18.960 But I'll tell you, going through those years, I'd love 0:04:18.960 --> 0:04:22.839 to skip those in my career. Mark your calendars. And 0:04:22.880 --> 0:04:26.479 also maybe we should rename hundred year floods because every 0:04:26.480 --> 0:04:28.880 time someone goes on this is a hundred year flood 0:04:29.400 --> 0:04:32.120 until four years or years. By the way, it's interesting 0:04:32.160 --> 0:04:34.159 that O two. You know why I didn't happen to 0:04:34.160 --> 0:04:36.600 know six, and so you think about what happened, Well, 0:04:36.600 --> 0:04:39.560 monetary policies stayed too easy. While I thought Jaron Greensman 0:04:39.680 --> 0:04:42.479 was incredible, you know, he kept policy too easy. Remember 0:04:42.480 --> 0:04:45.000 the housing market was starting a bubble. They should have 0:04:45.040 --> 0:04:46.960 started tightening and oh six, and we should have had 0:04:46.960 --> 0:04:48.880 the recalibration of six, and the fact that it didn't 0:04:49.240 --> 0:04:52.719 probably created more pressure two years. Hence for sure that 0:04:52.880 --> 0:04:54.840 we can spend a lot of time talking about seven. 0:04:54.880 --> 0:04:58.240 Oh wait, we'll get to that later. So what departments 0:04:58.320 --> 0:05:01.520 did you work in at Lehman Brothers. You were there 0:05:01.600 --> 0:05:05.880 long enough. Eventually when you leave there, you're running the 0:05:05.880 --> 0:05:10.720 firm's global principal strategies team. So clearly that was quite 0:05:10.720 --> 0:05:13.880 a successful career path. Tell us about the different departments 0:05:13.880 --> 0:05:16.080 you are. So, I mean I started and while I 0:05:16.120 --> 0:05:18.040 was going to go into mortgages, and that was where 0:05:18.040 --> 0:05:21.320 I was taken out of the place from the training program. 0:05:21.360 --> 0:05:24.599 I went into a six month training program and Lehman 0:05:24.760 --> 0:05:27.560 and I found um the corporate bond business to be 0:05:27.640 --> 0:05:31.240 incredibly interesting and uh and I got to meet two 0:05:31.240 --> 0:05:33.360 people and you know how you learn in life that 0:05:33.480 --> 0:05:35.440 it's and I've learned over the years. It's all about 0:05:35.480 --> 0:05:39.279 the people and and gosh, I found two people who 0:05:39.320 --> 0:05:43.320 were extraordinarily uh. I mean, I thought smart, capable. I 0:05:43.400 --> 0:05:45.960 love their business. And so I started in corporate bonds, 0:05:46.080 --> 0:05:49.800 and then UM, I started trading international Yankee bonds, so 0:05:49.880 --> 0:05:53.280 foreign bonds denominating dollars. Did that for a while. Then 0:05:53.320 --> 0:05:57.560 I did crossover between investment grade and high yield, and 0:05:57.600 --> 0:05:59.799 then I ran UM. Then I round the corporate bond 0:06:00.040 --> 0:06:03.440 trading desk, and then uh did that for a while, 0:06:03.600 --> 0:06:05.839 I run right. Then I ran our credit business across 0:06:05.839 --> 0:06:10.320 emerging markets, money markets, UM, loans prefers, and then uh, 0:06:10.400 --> 0:06:12.719 and then I went to the principal strategies area before 0:06:12.880 --> 0:06:16.599 before I left in MAYO eight and uh, yeah, you 0:06:16.960 --> 0:06:22.599 hit the bid. Yes, everything blew up, yeah, which you know, yeah, 0:06:22.600 --> 0:06:25.560 which seemed depression, but it actually wasn't. Yeah, it was 0:06:25.720 --> 0:06:28.520 definitely dumb luck. And in fact it wasn't even luck 0:06:28.880 --> 0:06:30.919 because I left in O eight and I started my 0:06:30.960 --> 0:06:33.080 hedge fund. And if somebody said what would be the 0:06:33.080 --> 0:06:35.760 worst month in history to start a credit hedge fund, 0:06:36.279 --> 0:06:38.760 May of oh eight may have been the one, or 0:06:38.880 --> 0:06:41.760 certainly closer. You know, part of why you know, I laughed. 0:06:41.760 --> 0:06:43.880 I brought my team with me. You know, this was 0:06:43.920 --> 0:06:46.080 an exciting point in time. The markets were bubbling and 0:06:46.120 --> 0:06:48.280 there and there were gonna be some opportunities and then 0:06:48.279 --> 0:06:51.320 it would turned out to be calamitous. And um I 0:06:51.360 --> 0:06:53.640 saw by the part of part of what we merged 0:06:53.680 --> 0:06:56.880 into black Rock in Mayo nine was we did you 0:06:56.880 --> 0:06:58.240 know we had a tough go in O eight but 0:06:58.279 --> 0:07:00.719 then started to do well in oh nine, But we 0:07:00.720 --> 0:07:03.200 have an opportunity to move to black Rock. You mentioned, 0:07:03.320 --> 0:07:06.520 um luck, you very easily could have ended up in 0:07:06.560 --> 0:07:11.040 the NBS mortgage department at Lehman you were, you had 0:07:11.120 --> 0:07:14.080 half a foot there. How did you escape a fate 0:07:14.120 --> 0:07:16.240 worse than that? Well, I mean it was I mean, 0:07:16.280 --> 0:07:18.040 you think about that, that that was eighty seven. It probably 0:07:18.240 --> 0:07:20.000 you know, it probably was a good twenty year runway 0:07:20.360 --> 0:07:23.440 after that. But I jokingly said, you could set the 0:07:23.560 --> 0:07:26.840 record on the on the racetrack, but if you don't 0:07:26.840 --> 0:07:28.800 make the turn at the end, if you hit the wall, 0:07:28.800 --> 0:07:32.600 it doesn't that is right. But I don't I found 0:07:33.000 --> 0:07:35.120 you know, I was a financial analyst and I was 0:07:35.200 --> 0:07:36.920 literally per you know where we talked about I was 0:07:36.920 --> 0:07:39.400 going to go and do that again. I loved looking 0:07:39.440 --> 0:07:42.480 at companies, both my parents who entrepreneurs. I loved how 0:07:42.520 --> 0:07:45.040 business has worked and to think in in you know, 0:07:45.080 --> 0:07:48.040 for some reason, naturally in school, I had a really 0:07:48.040 --> 0:07:50.400 tough go early in my school career because I didn't 0:07:50.400 --> 0:07:53.840 really I didn't understand philosophy or psychology. But business always 0:07:53.880 --> 0:07:56.680 made a lot of sense to me. And looking at companies, 0:07:56.760 --> 0:07:59.680 analyzing them, figuring out how they drive cash flow and 0:07:59.680 --> 0:08:01.800 the amount or liquidity was I mean, I found it 0:08:02.000 --> 0:08:05.200 phenomenally exciting. So anyway, so I did it. I did 0:08:05.200 --> 0:08:07.560 it for for a long time, and you know I 0:08:07.600 --> 0:08:11.400 still do this day, you know, being a being in credit, 0:08:12.120 --> 0:08:14.559 I think people underestimate like I don't. I don't really 0:08:14.560 --> 0:08:18.040 think top down analysis works. Like trying to analyze the 0:08:18.080 --> 0:08:21.320 economy from the top. I think it's too hard to 0:08:21.320 --> 0:08:26.760 do being understanding how companies drive inventory, hiring, capex, spend, 0:08:27.160 --> 0:08:28.560 and to this day, you know, when I have a 0:08:28.600 --> 0:08:30.800 view on the economy or usually a view on the 0:08:30.840 --> 0:08:35.240 economy or inflation, it's usually driven because I read so 0:08:35.280 --> 0:08:39.480 many corporate earnings reports and understand trying to understand why 0:08:39.520 --> 0:08:43.000 they why they're cutting inventory, why are they laying off people? Anyway, 0:08:43.080 --> 0:08:46.440 So it's been Having a credit corporate background has been 0:08:46.600 --> 0:08:49.800 hugely powerful because I tend every analysis we do big 0:08:49.840 --> 0:08:53.679 picture starts, bottoms up and uh, and that's what informs 0:08:53.720 --> 0:08:55.720 I find that's the most effective way to inform your views. 0:08:55.760 --> 0:08:59.280 Is that how you ran our three? Was? That? Was that? Yeah? 0:08:59.360 --> 0:09:01.320 So the idea of being, you know that we could 0:09:01.440 --> 0:09:08.160 analyze um dissect companies anywhere from senior securities secured down 0:09:08.200 --> 0:09:10.560 to down a distress. And we had we had a 0:09:10.600 --> 0:09:12.560 great team many many of which are still with me 0:09:12.600 --> 0:09:15.240 today that I'm super honored by. I have a lot 0:09:15.280 --> 0:09:18.439 of us who worked together for twenty thirty years, a 0:09:18.520 --> 0:09:21.480 couple of over thirty years. But the idea being, you know, 0:09:21.520 --> 0:09:24.080 we were good at analyzing companies and could do it 0:09:24.120 --> 0:09:27.520 across cap stock, different sectors, it's and globally and we 0:09:27.520 --> 0:09:30.600 have a great team in Asia and Europe. So yeah, 0:09:30.640 --> 0:09:32.440 I mean that was the idea and uh and I 0:09:32.480 --> 0:09:34.600 say that's port of White's translated to a number of 0:09:34.640 --> 0:09:36.800 people coming to black Rock and uh and being with 0:09:36.840 --> 0:09:39.920 me today. So let's talk a little bit about black Rock. 0:09:40.000 --> 0:09:42.439 You said black Rock absorbed our three. Tell us a 0:09:42.480 --> 0:09:45.080 little bit about how did that come about? Was that 0:09:45.200 --> 0:09:48.320 something you were planning on doing, or the right opportunity 0:09:48.360 --> 0:09:50.800 just came along and you said, I think I can 0:09:50.840 --> 0:09:53.240 hang with you, fellas so um so. I had known 0:09:53.440 --> 0:09:55.920 Larry Fink and Robed Computer, our CEO and president for 0:09:55.960 --> 0:09:57.920 a number of years. In fact, the only other place 0:09:58.640 --> 0:10:02.400 that I almost u most left Leman to go work 0:10:02.480 --> 0:10:04.600 for was black Rock, and because I had such great 0:10:04.640 --> 0:10:06.720 respect for the people running it, and there were actually 0:10:06.760 --> 0:10:09.480 more people than that, but but Larry and the and 0:10:09.640 --> 0:10:13.280 Rob being the the main drivers of the company. And 0:10:13.280 --> 0:10:16.120 then uh, you know, after you know, I would say 0:10:16.120 --> 0:10:18.160 the fall of oh nine, you know, going through that 0:10:18.280 --> 0:10:21.680 darress around around Hedge, fond of being in uh you know, 0:10:21.679 --> 0:10:24.520 it was a tough spot around the markets, coming under pressure. 0:10:24.920 --> 0:10:27.679 You know. We started talking and we were back and 0:10:27.720 --> 0:10:30.520 forth having a conversation about coming to black Rock, and 0:10:30.520 --> 0:10:32.880 and I remember Rob and Larry saying, we've been talking 0:10:32.880 --> 0:10:35.200 about for years, why don't you do it now? And 0:10:35.240 --> 0:10:37.920 I had a big team with me and and whatever reason, 0:10:37.960 --> 0:10:40.240 I having worked at places for a long time, very loyal, 0:10:40.640 --> 0:10:42.120 and I said, but I gotta bring my whole team, 0:10:42.360 --> 0:10:44.880 and uh away I get. I was a massive honor 0:10:45.200 --> 0:10:49.400 they you know, took forty two people and um, you know, 0:10:49.440 --> 0:10:50.920 like I say, many of whom are are still with 0:10:51.000 --> 0:10:53.040 us today. So yeah, the fact they were willing to 0:10:53.080 --> 0:10:55.800 do that, and quite frankly, even at the time before 0:10:55.840 --> 0:10:58.720 black Rock was this big, I felt like it was 0:10:59.040 --> 0:11:01.360 much the episode or a finance and I thought I 0:11:01.360 --> 0:11:04.079 wouldn't have gone to and you know, our hedgephone started 0:11:04.080 --> 0:11:06.240 to do well again, and I wouldn't have done it 0:11:06.280 --> 0:11:10.040 anywhere else because I thought this was a place that, like, 0:11:10.080 --> 0:11:12.280 how could you turn down the ability to be at 0:11:12.280 --> 0:11:14.360 a place that was if you liked finance and you 0:11:14.480 --> 0:11:17.000 liked what we did, this was a chance to work 0:11:17.040 --> 0:11:19.440 somewhere that was you know, the epicenter is before it 0:11:19.480 --> 0:11:21.560 got to be the size and scale it did. So 0:11:21.600 --> 0:11:24.440 you've been at black Rock for well over a decade 0:11:25.000 --> 0:11:28.480 um you're running fixed income for them, Essentially, tell us 0:11:28.480 --> 0:11:32.760 about what the process was from bringing over a team 0:11:32.960 --> 0:11:35.959 from your hedge fund to Okay, now we're just gonna 0:11:36.040 --> 0:11:40.120 talk into black Rock and see what we can do here. Yeah. 0:11:40.200 --> 0:11:41.959 So I mean the idea coming over is we're gonna 0:11:42.000 --> 0:11:45.000 we're gonna work operate our hedgephone and work and work 0:11:45.000 --> 0:11:48.280 within the credit business at black Rock and somebody ended 0:11:48.320 --> 0:11:50.360 up leaving the firm. Who was the who was the 0:11:50.440 --> 0:11:54.000 c i O. And UH anyway opened up opened up 0:11:54.000 --> 0:11:55.960 a spot for me, and you know, I was huge 0:11:55.960 --> 0:11:58.040 on it to be chosen to do it. So that 0:11:58.200 --> 0:12:01.720 was that twelve thirteen years ago, and uh, which was 0:12:02.120 --> 0:12:06.600 mine ten. So you're there for six months and Larry says, hey, 0:12:05.800 --> 0:12:08.800 I think it was. It must have been. It's been 0:12:09.080 --> 0:12:13.960 August of thinking through it, August at ten. And I 0:12:14.000 --> 0:12:15.760 know it was a little bit of trepidation I was 0:12:16.120 --> 0:12:18.400 at the time. It was still a big place, and 0:12:18.480 --> 0:12:19.920 it was a little bit of trepidation. But it's been 0:12:19.920 --> 0:12:22.000 incredibly exciting, and like I said, I have so many 0:12:22.000 --> 0:12:23.920 of the team had come with me, and I got 0:12:24.080 --> 0:12:27.280 to know some really great people across the organization. So 0:12:27.520 --> 0:12:29.600 you know, I was honored to do it. And you know, 0:12:29.640 --> 0:12:32.640 I've always been investing in different parts of fixed income, 0:12:33.360 --> 0:12:35.880 and the heritage of Black Rock was in the mortgage business, 0:12:36.400 --> 0:12:38.240 but I was my background was in credit, but we 0:12:38.280 --> 0:12:41.080 had so many talented people in mortgages and that obviously 0:12:41.120 --> 0:12:43.560 a huge part of the fixed income market that I 0:12:43.600 --> 0:12:47.240 felt like that team, you know, could take my shallow 0:12:47.320 --> 0:12:50.839 knowledge to the hopefully to the next level. And um, 0:12:50.880 --> 0:12:53.360 so then I became I became c I O then 0:12:53.480 --> 0:12:55.680 and uh yeah, I guess I've been doing it for 0:12:55.720 --> 0:12:58.040 over a decade now. It was pretty unbelievable. So let's 0:12:58.080 --> 0:13:00.720 go over all your titles. Your Chief and Stment Officer, 0:13:00.920 --> 0:13:03.920 you run global fixed Income, your head of the Global 0:13:03.960 --> 0:13:07.520 Allocation Investment team. Um, you're also on one of the 0:13:07.559 --> 0:13:10.439 executive management teams and some sudden they on the Global 0:13:10.480 --> 0:13:14.120 Executive Committee. Alright, so it sounds like you have a busy, 0:13:14.320 --> 0:13:17.760 uh busy day, Like how do you spend your time? 0:13:17.840 --> 0:13:20.920 What takes up the most hours during the day? And 0:13:21.080 --> 0:13:23.160 is it I know a lot of these things meet 0:13:23.240 --> 0:13:25.360 once a week or months once a month. It's not 0:13:25.440 --> 0:13:28.720 like they're eighty hour week jobs. But it sounds like 0:13:28.720 --> 0:13:31.240 a lot's on your plate. We haven't even talked about 0:13:31.600 --> 0:13:33.920 the various funds you run. So I mean, I got 0:13:34.040 --> 0:13:36.440 up at three forty five in the morning, Is that true? Yeah? 0:13:36.800 --> 0:13:41.440 I thought I was earlier. You know, I think you know, 0:13:41.440 --> 0:13:43.520 people always set of young people are coming to the business. 0:13:43.960 --> 0:13:45.280 You know, why are you coming in a finance You 0:13:45.360 --> 0:13:47.160 gotta really love it, And you know, I love the 0:13:47.200 --> 0:13:49.640 business and I love. You know, it's dynamic. So I 0:13:49.640 --> 0:13:53.080 get up at three forty five. Uh, you work out 0:13:53.160 --> 0:13:54.960 and but but I literally the first thing I do 0:13:55.040 --> 0:13:56.959 is I check every market around the world and see 0:13:57.000 --> 0:13:59.760 where things are. And you know, I pretty much go 0:14:00.040 --> 0:14:01.880 you know, whether it's dinners or what have you. I'm 0:14:02.120 --> 0:14:04.840 I go to uh, you know, pretty late in the evening. 0:14:04.840 --> 0:14:07.440 But I'm I'm pretty turned on by the markets. And 0:14:07.520 --> 0:14:10.600 you know, obviously, our business so in depends on the 0:14:10.640 --> 0:14:13.360 meeting you're in. Obviously, people drive what we do. I 0:14:13.360 --> 0:14:16.280 mean it's not we're not running an industrial company. I 0:14:16.320 --> 0:14:18.240 mean it's people drive what we do. So a lot 0:14:18.280 --> 0:14:22.400 of those meetings are talking to people, you know, strategy meetings, 0:14:22.440 --> 0:14:25.160 who are we hiring, what businesses do we need to grow? 0:14:25.680 --> 0:14:28.040 You know, where what do you think the next opportunity is? 0:14:28.080 --> 0:14:30.480 And markets. Much of how Black Rock evolved is, you know, 0:14:30.520 --> 0:14:33.680 trying to be pressent about what is the next evolution 0:14:33.760 --> 0:14:36.400 of what clients are looking for. So a lot of 0:14:36.400 --> 0:14:39.680 those meetings are about, you know, trying to anticipate where 0:14:39.720 --> 0:14:41.840 things going. I mean, I have to say the first thing. 0:14:42.400 --> 0:14:44.000 Then maybe I wasn't very good at it earlier in 0:14:44.000 --> 0:14:46.040 my career, but you start to think about, particularly on 0:14:46.600 --> 0:14:50.160 the asset management side, like you know, you gotta you know, 0:14:50.200 --> 0:14:52.040 take in what you're getting today, but you've gotta have 0:14:52.080 --> 0:14:53.600 one eye on where we're going. And I think in 0:14:53.640 --> 0:14:56.200 all those meetings, just trying to think through get in 0:14:56.240 --> 0:14:59.040 front of where we're going, whether that's markets, positioning, our 0:14:59.080 --> 0:15:03.960 business people, strategies, etcetera. So you've been with black Rock 0:15:04.680 --> 0:15:08.520 since the financial crisis back in oh nine, did you 0:15:08.600 --> 0:15:11.240 ever stop and think, oh, yeah, in a decade or so, 0:15:11.400 --> 0:15:14.280 will be eight nine, ten trillion dollars. Was that ever 0:15:14.480 --> 0:15:17.680 in the realm of possibilities? No. I mean at the time, 0:15:18.080 --> 0:15:20.240 I remember when I came over, and then soon there 0:15:20.280 --> 0:15:21.680 after the firm bought b G I and the I 0:15:21.800 --> 0:15:26.040 shares business. But gosh, the the thought that you know, 0:15:26.080 --> 0:15:28.280 grow into the scale that we've grown and grown into 0:15:28.440 --> 0:15:30.800 never would have even been a consideration. You know. I 0:15:30.840 --> 0:15:33.880 will say, you know, Larry and and Rob and the 0:15:33.880 --> 0:15:36.720 whole operating committee and the executive committee, the firm are 0:15:36.880 --> 0:15:39.680 very thoughtful about where opportunities are and they've they've built 0:15:39.680 --> 0:15:42.400 the business piece by piece over the years, you know, 0:15:42.440 --> 0:15:45.520 And I think there's something that's really important about you know, 0:15:45.560 --> 0:15:48.280 we run our franchise around a what is the client 0:15:48.320 --> 0:15:51.040 look more of be the risk systems. So the Laddin 0:15:51.120 --> 0:15:53.080 risk system is when I remember when I which is 0:15:53.200 --> 0:15:55.720 unique and specific to black Rock and not an off 0:15:55.720 --> 0:15:58.480 the shelf piece of software totally, which is run by 0:15:58.760 --> 0:16:01.840 many insurance going engine funds who use the Laddin and 0:16:01.880 --> 0:16:04.520 it's a it's a commercial enterprise for the firm. But 0:16:04.600 --> 0:16:06.600 I remember when I came to black Rock and I 0:16:06.640 --> 0:16:09.240 got to you, and I knew about a Laddin when 0:16:09.280 --> 0:16:11.440 I was when a Krafrankla was on the sell side 0:16:11.960 --> 0:16:15.400 and because remember the Lehman had the Lehman Act and 0:16:15.560 --> 0:16:18.400 that was the benchmark. But but but what happened. A 0:16:18.480 --> 0:16:20.880 Laddin was able to take it and bring it alive 0:16:20.920 --> 0:16:23.400 in terms of how do you manage money? And you know, 0:16:23.440 --> 0:16:26.680 it's really been extraordinary around if you if you can 0:16:26.680 --> 0:16:29.280 analyze your risk and you think about optimizing your return, 0:16:29.600 --> 0:16:31.480 you could build you know, how do you look at 0:16:31.480 --> 0:16:34.040 correlations diversification? And I remember I was like a kid 0:16:34.080 --> 0:16:36.240 in a candic store when I first started, and I said, wow, 0:16:36.280 --> 0:16:38.800 this isn't this is powerful? I mean if and I said, 0:16:38.840 --> 0:16:41.360 it's the clients all the time, we could make you know, 0:16:41.400 --> 0:16:44.400 the wrong decision on markets, But it's never that we 0:16:44.440 --> 0:16:47.080 don't know what we own or what that decision, the 0:16:47.120 --> 0:16:50.680 implications of that decision given our risk system, and that's 0:16:50.680 --> 0:16:53.600 been a unique benefit to the firm, and I think 0:16:53.600 --> 0:16:56.080 that's part of how we've grown so much. Is gosh, 0:16:56.120 --> 0:16:58.120 if if you can make good you know, hopefully more 0:16:58.160 --> 0:17:01.280 good calls than not, but you know exactly how they're 0:17:01.280 --> 0:17:04.480 going to interplay within a portfolio, hugely powerful. So no 0:17:04.560 --> 0:17:08.320 one bats a thousand. But what you're saying is the 0:17:08.440 --> 0:17:12.520 process and managing the information flow is every bit as 0:17:12.520 --> 0:17:16.520 important as the decision process itself a d I mean 0:17:16.520 --> 0:17:19.520 a hundred percent. And you know, when clients invests with 0:17:19.600 --> 0:17:24.080 you or rating agencies or consultants evaluate your business, it's 0:17:24.119 --> 0:17:26.720 all about what is your process? Is it repeatable and 0:17:26.840 --> 0:17:29.120 you're not gonna embarrass them or cost them or coross 0:17:29.200 --> 0:17:32.800 the money. And you know, we built the franchise around 0:17:33.200 --> 0:17:36.080 thoughtful investing. You know we're you know, we don't swing 0:17:36.160 --> 0:17:39.800 for the fences on one uh investment theme. It's always 0:17:40.040 --> 0:17:42.760 try and build diversification, try and do it thoughtfully, and 0:17:42.760 --> 0:17:47.280 try and be consistent return without creating real pressure on 0:17:47.320 --> 0:17:49.640 the downside, and I you know, I think that's particularly 0:17:49.680 --> 0:17:52.119 fixed income. You know, it's not the equity market. And 0:17:52.160 --> 0:17:54.840 I run you know, some big equity portfolios. You know 0:17:54.920 --> 0:17:58.200 different fixed income is convex to the downside. You either 0:17:58.240 --> 0:18:01.040 get part and either pay you back or they don't 0:18:01.560 --> 0:18:05.080 return of capital. And so along the way, are you 0:18:05.119 --> 0:18:07.960 clipping enough coupon to get their equities? You're trying to 0:18:08.000 --> 0:18:11.000 get convexity to the upside. But to have have risk 0:18:11.040 --> 0:18:14.680 system and a process, a repeatable process, you know, particularly 0:18:14.680 --> 0:18:16.480 my business, I don't fixed income. I say it in 0:18:16.560 --> 0:18:18.000 my funds, a lot of my funds. It's make a 0:18:18.040 --> 0:18:20.159 little bit of money a lot of times. And as 0:18:20.200 --> 0:18:22.840 opposed to let's swing for the fences, let's just do it, 0:18:22.960 --> 0:18:25.320 use relative value, use all your tools, use your tools 0:18:25.359 --> 0:18:27.840 around the world, do it over and over and over again. 0:18:28.160 --> 0:18:30.639 And I think that that models repeatable and and uh, 0:18:30.840 --> 0:18:33.480 you know, people aren't shocked to the downside, which I think, 0:18:33.480 --> 0:18:36.000 particularly fixed income is the key. So let's talk a 0:18:36.000 --> 0:18:39.520 little bit about that. I think most public investors know 0:18:39.720 --> 0:18:43.880 about Black Rock from an equity perspective, but the company's 0:18:43.920 --> 0:18:46.680 history is deeply rooted and fixed docom didn't it start 0:18:46.720 --> 0:18:50.080 as a bomb shop catering to pension funds and foundations. 0:18:50.119 --> 0:18:52.080 Isn't that the genesis it is? I mean it started 0:18:52.119 --> 0:18:56.960 as largely mortgages, fixed income bond shop and uh, you know, 0:18:57.000 --> 0:19:00.919 created closed end funds. And by it's very much, I 0:19:00.920 --> 0:19:03.199 mean Larry and Rob and the and the management seems 0:19:03.600 --> 0:19:06.880 origin was in fixed income and I'm sorry Larry and Rob, 0:19:07.000 --> 0:19:10.240 Larry Fink and Rob Compito. It's our CEO and president 0:19:10.320 --> 0:19:13.880 and there. But then over the years, you know, through 0:19:13.920 --> 0:19:16.760 an acquisition and their merger with Meryll Lynch Investment Management, 0:19:16.760 --> 0:19:18.960 all of a sudden became a big equity house and 0:19:19.040 --> 0:19:21.120 to this stay where equities are bigger than the than 0:19:21.240 --> 0:19:24.439 fixed income today and uh, and some of that is 0:19:24.800 --> 0:19:28.400 is equities appreciate over over time and the end compounded 0:19:28.480 --> 0:19:31.320 return works in the in the equity market. But now 0:19:31.560 --> 0:19:34.679 you know, our equity business is UM is larger than 0:19:34.680 --> 0:19:37.480 our fixed income while both are are pretty good scale. 0:19:37.480 --> 0:19:38.840 I mean, in fact, one of the business I run 0:19:38.840 --> 0:19:41.840 our Global Allocation fund that is more of an equity 0:19:41.880 --> 0:19:44.440 fund UM. You know, again with a with a bit 0:19:44.440 --> 0:19:46.679 of different the way you run that different than you 0:19:46.720 --> 0:19:50.840 run a bond fund. So academically we know that the 0:19:50.880 --> 0:19:54.840 passive side of equities over long periods of time tends 0:19:54.880 --> 0:19:57.680 to be a lot of people's best bet, but that 0:19:57.800 --> 0:20:02.000 isn't true. And fixed income there is alpha, There is 0:20:02.160 --> 0:20:07.280 above benchmark returns to be generated by active selection of 0:20:07.440 --> 0:20:11.280 credit quality, duration and specific bonds tell us a little 0:20:11.280 --> 0:20:16.800 bit about how you approach fixed income investing and given 0:20:16.840 --> 0:20:19.120 the massive scale of black rock, how do you take 0:20:19.119 --> 0:20:21.639 advantage of that? So not many people know that that 0:20:21.800 --> 0:20:26.200 most firms actually outperform in fixed income, and really that's 0:20:26.200 --> 0:20:29.919 not widely known. No, I don't think so. And but 0:20:29.920 --> 0:20:32.960 it's because the passive equity side, there's just so much 0:20:33.000 --> 0:20:36.280 academic literature, and as soon as you dip your toe 0:20:36.320 --> 0:20:39.560 into the research on fixed income side, because if you 0:20:39.600 --> 0:20:43.720 think about a fixed income passive index, you own everything, 0:20:43.800 --> 0:20:46.600 and a lot of it is not necessarily great. So 0:20:47.280 --> 0:20:49.960 getting rid of the junk, focusing on duration and credit 0:20:50.040 --> 0:20:52.560 quality right away, you're ahead of the game. Well that's 0:20:52.600 --> 0:20:57.119 my pitch. So yeah, it's yeah, I know it's so. 0:20:57.240 --> 0:20:59.560 First of all, that is exactly right. I mean, I'll 0:20:59.560 --> 0:21:01.560 start with thing and equities. There are I think the 0:21:01.600 --> 0:21:07.280 number is in the hundred equities different different securities globally, 0:21:07.320 --> 0:21:11.360 I think there's forty five thousand in fixed income. So 0:21:11.440 --> 0:21:14.400 your point about the ability to write and the ability 0:21:14.480 --> 0:21:17.240 to say, gosh, you know, there's a lot of stuff 0:21:17.280 --> 0:21:20.240 in fixed income that for a variety of reasons, central 0:21:20.240 --> 0:21:22.520 bank owns it, a pension fund owns it, insurance companies 0:21:22.560 --> 0:21:25.240 own it. It has no value and but it's you know, 0:21:25.320 --> 0:21:27.280 it's been in a in a portfolio for a long time. 0:21:27.320 --> 0:21:30.040 It's stuck there. So so one of the beauties of 0:21:30.080 --> 0:21:32.320 fixed income is a finding one of the forty x 0:21:32.359 --> 0:21:36.080 thousand securities using your tools, by the way, times using 0:21:36.080 --> 0:21:39.040 your liquidity, being able to buy mes, you know, being 0:21:39.160 --> 0:21:42.119 you know, buying subordinated debt, buying uh, you know what 0:21:42.160 --> 0:21:45.480 are functionally capital notes. But there are so many tools 0:21:45.520 --> 0:21:49.160 at your disposal. And let alone how much duration you're taking, 0:21:49.160 --> 0:21:52.800 how much interest, how much, how much credit rate you're taking, illiquidity, etcetera. 0:21:53.119 --> 0:21:55.920 There are so many tools to try and outperform and listen. 0:21:55.920 --> 0:21:57.879 One of the one of the secrets of fixed income 0:21:58.600 --> 0:22:01.320 is you generally try and area more than the index. 0:22:01.760 --> 0:22:04.159 You generally want your income in a fund to be 0:22:04.200 --> 0:22:07.919 above the index. Can you manage that through downturns and 0:22:07.960 --> 0:22:10.080 so when you get a downturn like twenty two or 0:22:10.119 --> 0:22:12.560 oh eight or what have you, it is you know, 0:22:12.600 --> 0:22:15.840 can you manage the downside because it's it's generally if 0:22:15.880 --> 0:22:18.440 you can get more yield than the benchmark, you're gonna 0:22:18.480 --> 0:22:22.560 outperform over time. And so managing that risk and making 0:22:22.560 --> 0:22:24.840 sure by the way, you know, they're they're crises and 0:22:24.920 --> 0:22:28.240 individual companies there is exhaugen, a shock that hits, but 0:22:28.440 --> 0:22:32.639 managing that downside so that one expression doesn't hurt you. 0:22:32.640 --> 0:22:34.400 You know, you can run a good a good business 0:22:34.400 --> 0:22:38.840 that outperforms um, you know, almost every year. So let's 0:22:38.880 --> 0:22:41.560 delve into that a little more deeply. It can't be 0:22:41.880 --> 0:22:45.080 just as simple as let me buy the highest yielding stuff, 0:22:45.320 --> 0:22:48.439 because there's a lot of They used to call them 0:22:48.480 --> 0:22:50.960 junk bonds, now we call them high yield bonds. How 0:22:51.000 --> 0:22:55.040 do you decide what is a high quality high yield 0:22:55.040 --> 0:22:58.160 and how do you make the decision I'm not comfortable 0:22:58.200 --> 0:23:01.160 with this credit risk rail lative to the return it's 0:23:01.200 --> 0:23:04.000 gonna throw off. What's that process like? You know, it's 0:23:04.000 --> 0:23:06.280 funny because today is an interesting you don't see this 0:23:06.400 --> 0:23:08.440 very often, but much of the double B high yield 0:23:08.480 --> 0:23:11.560 market is better quality the triple B investment grade market, 0:23:11.600 --> 0:23:15.080 and that is because companies have been operating as double 0:23:15.160 --> 0:23:17.400 bees for a long time. A number of them are 0:23:17.480 --> 0:23:20.040 moving up to investment grade or are inspired to move 0:23:20.080 --> 0:23:22.399 up to investment grade. Where a number of companies and 0:23:22.400 --> 0:23:25.479 triple B that are at the lowest end of investment 0:23:25.480 --> 0:23:28.080 grade and maybe on the deceleration. So that's an odd 0:23:28.119 --> 0:23:32.760 institutional corek tour that higher quality, higher yieldings stuff has 0:23:32.800 --> 0:23:35.080 a lower rating. That's at the end of the day, 0:23:35.119 --> 0:23:37.919 there's so many metrics. You know, debt de but your 0:23:37.960 --> 0:23:40.280 interest coverage, there's so many metrics that we dig in. 0:23:40.359 --> 0:23:43.800 What industry you're in, what's your liquidity, You've got to 0:23:43.800 --> 0:23:45.520 really dig in. I mean, if you're a double A 0:23:45.800 --> 0:23:48.359 rated company, I generally don't do a lot of you know, 0:23:48.840 --> 0:23:51.320 thorough analysis. But if it's single B, I'm doing we're 0:23:51.320 --> 0:23:54.200 doing an awful lot of work. So you know, when 0:23:54.200 --> 0:23:56.359 we look across fixed income and you know, beauty of 0:23:56.400 --> 0:23:59.040 having big teams around the world, you know, I tend 0:23:59.080 --> 0:24:01.520 to say, okay, I want be an X amount mortgages 0:24:01.560 --> 0:24:04.000 on a the X amount credit and then let the 0:24:04.040 --> 0:24:06.600 teams dig in and then you know, think about I'll 0:24:06.600 --> 0:24:08.679 give a good example. Today the high yield market has 0:24:08.880 --> 0:24:10.920 because people need the yield, are looking for the yield. 0:24:11.080 --> 0:24:14.119 The high yield market is compressed to the investment grade market. 0:24:14.280 --> 0:24:15.960 I don't want to take the beta risk in a 0:24:15.960 --> 0:24:21.040 lot of high yield today. If I get functionallycent return 0:24:21.080 --> 0:24:23.840 investment grade, I can sleep a whole lot better at night. 0:24:24.320 --> 0:24:26.600 And then maybe I take some risk in emerging market. 0:24:26.640 --> 0:24:29.119 So what have you? So it's all about relative value. 0:24:29.200 --> 0:24:31.800 Are you getting paid for the risk today? So think 0:24:31.840 --> 0:24:34.200 about you know, where's a stress and fix in commercial 0:24:34.200 --> 0:24:36.560 real estate is tricky today? Do I want to go 0:24:36.600 --> 0:24:39.840 and get that yield today? Probably not? You know, whereas 0:24:39.880 --> 0:24:44.159 you know, parts of credit card um auto finance are 0:24:44.200 --> 0:24:47.280 more attractive. So it is constantly trying to think about 0:24:47.320 --> 0:24:48.800 where do you want to be in the capital stack, 0:24:48.800 --> 0:24:50.040 Where do you want to be in sector? Where you 0:24:50.080 --> 0:24:52.040 wanna be in the world, Like last year, did you 0:24:52.040 --> 0:24:54.800 want to hang out in Europe? Probably not this year. 0:24:55.400 --> 0:24:59.040 You know, fuel prices are lower, the economy stabilizing, China's growing, 0:24:59.480 --> 0:25:02.120 you know, we're liifting money internationally. So every year, it's 0:25:02.119 --> 0:25:04.480 part of why the business so fun is every year, 0:25:04.520 --> 0:25:07.960 every month, every week, you know, the menu changes and 0:25:08.000 --> 0:25:10.280 the opportunity set changes. We'll talk a little bit about 0:25:10.280 --> 0:25:13.639 the inverted yield curve later, but since you mentioned getting 0:25:14.160 --> 0:25:16.080 return on the risk you take, how do you think 0:25:16.119 --> 0:25:21.040 about duration when the three month treasury is more or 0:25:21.119 --> 0:25:25.080 less the same or better than the tenure. So you know, 0:25:25.200 --> 0:25:27.920 think about last year. I mean I know, every every 0:25:27.960 --> 0:25:30.359 media event or any any thing we did externally, I 0:25:30.359 --> 0:25:32.160 talked about how much and it was always people said, 0:25:32.280 --> 0:25:34.880 how much cash you running? And we're running a lot 0:25:34.880 --> 0:25:38.359 of cash in my career on meaning non investment but 0:25:38.560 --> 0:25:44.160 literally keeping a point oh five. Well, but as as 0:25:44.160 --> 0:25:46.840 a year ago, right, as right. But then you know, 0:25:46.880 --> 0:25:48.719 the front of the yeel curve started to move up, 0:25:49.040 --> 0:25:51.720 and it became pretty clear all the central banks in 0:25:51.760 --> 0:25:54.560 the developed markets were behind the curve. They're gonna have 0:25:54.600 --> 0:25:56.840 to start raising Your pricer term is going to be negative. 0:25:57.359 --> 0:26:00.520 Stay as short as possible, hold as much cash as possible. 0:26:00.800 --> 0:26:03.240 And by the way, zero was a pretty good answer 0:26:03.440 --> 0:26:06.320 for your for your return in twenty two. So if 0:26:06.359 --> 0:26:09.360 we were getting zero or care or getting our income 0:26:09.800 --> 0:26:11.480 at the short end of the Yelk curve, that was 0:26:11.600 --> 0:26:15.399 nirvana because we weren't taking such interest rate risk. Today 0:26:15.480 --> 0:26:18.280 it's a little bit different because now we're approaching the 0:26:18.400 --> 0:26:21.200 end of by the way, it's not definitive, but we're 0:26:21.240 --> 0:26:23.480 probably approaching a point where that's central, where the Fed's 0:26:23.480 --> 0:26:26.440 gonna pause. Europe still got a bit more to go. Um, 0:26:26.680 --> 0:26:28.560 So now we can take a little bit more risk, 0:26:28.760 --> 0:26:30.440 you know, push it a bit further out the yel curve, 0:26:30.440 --> 0:26:34.800 because now our aspiration is, gosh, these yields they think about. 0:26:35.400 --> 0:26:37.560 You know, today the one to three year part of 0:26:37.560 --> 0:26:39.440 the act, the short end of the yield curve gets 0:26:39.480 --> 0:26:41.680 you four and a half percent. The average for the 0:26:41.760 --> 0:26:44.440 last ten years was one, and that was one point four. 0:26:45.160 --> 0:26:47.000 We're getting we can allow lock in four and a 0:26:47.040 --> 0:26:50.520 half and maybe the economy is coming off the central 0:26:50.520 --> 0:26:53.080 bank not in twenty three, but we'll start to ease. 0:26:53.720 --> 0:26:55.920 And now there's a discussion about, gosh, maybe I can 0:26:55.960 --> 0:26:57.880 lock these yields in for longer, and so maybe I'll 0:26:57.880 --> 0:27:01.280 take a little bit of downside and push my maturities 0:27:01.440 --> 0:27:03.880 a bit further on the yolker. We've been out from 0:27:03.920 --> 0:27:08.119 one to three. You don't mean ten, you mean so three, four, five? Correct? 0:27:08.200 --> 0:27:10.399 I mean, that's that's been to me that's the sweet 0:27:10.440 --> 0:27:12.920 spot and the biggest I think the biggest opportunity today 0:27:13.000 --> 0:27:16.840 is sell interest rate volatility. You think about in my career, 0:27:16.840 --> 0:27:18.440 I've never seen this before. We had a FED that 0:27:18.480 --> 0:27:20.760 moved four seventy five basis point moves in a row. 0:27:21.000 --> 0:27:24.359 Interest rate volatility. You had to go back to Vulka 0:27:24.440 --> 0:27:26.200 to see that, right, Yes, but but I was still 0:27:26.240 --> 0:27:30.120 in college, so I wasn't. But but now, I mean 0:27:30.119 --> 0:27:33.439 this massive move and now what's gonna happen is we're 0:27:33.480 --> 0:27:36.480 gonna pause. Interest rate volatili can come down things like mortgages, 0:27:36.520 --> 0:27:39.439 Like we didn't own many mortgages last year. Is in 0:27:39.440 --> 0:27:42.959 our tactical portfolios? You know, why would you own negative 0:27:43.000 --> 0:27:46.520 interest rate shock, negative conduction? So now FED coming into 0:27:46.560 --> 0:27:51.160 a pause, interest rate volatility comes down things like agency 0:27:51.160 --> 0:27:53.440 mortgages fit a portfolio that gets you a little bit 0:27:53.480 --> 0:27:55.760 longer on the yield curve. So let's think about that 0:27:55.760 --> 0:27:58.480 that we spiked up to about seven percent, it's pulled 0:27:58.520 --> 0:28:01.320 back to about us and a half more or less. 0:28:01.560 --> 0:28:05.760 Mortgage are the expectations that, hey, that's when mortgage rates 0:28:05.760 --> 0:28:08.480 are going to be for a long time. So mbs 0:28:08.520 --> 0:28:11.399 are starting to get attractive. Yeah, I mean, now you 0:28:11.440 --> 0:28:15.040 can buy assets that are like mortgages, but first of all, 0:28:15.080 --> 0:28:17.920 they're extremely liquid, and so whenever we build a portfolio, 0:28:18.040 --> 0:28:20.800 we think about every security has a tail to it, 0:28:20.920 --> 0:28:22.760 So you think about what what is it doing for you? 0:28:22.800 --> 0:28:24.800 How much yield is it getting you, how much risk, 0:28:24.840 --> 0:28:27.880 how much beta, how much illiquidity, And so you try 0:28:27.880 --> 0:28:30.120 and take all those tails and say, okay, which ones 0:28:30.119 --> 0:28:31.560 why am I willing to take? And which ones do 0:28:31.680 --> 0:28:34.680 I want to extract? Mortgages today last year, I don't 0:28:34.680 --> 0:28:38.360 want to take that interest rate volatility. Now, boy, if 0:28:38.400 --> 0:28:40.960 I think rate volatility can come down, I'll take some 0:28:41.000 --> 0:28:44.840 mortgage risk. Their super liquid um. They fit the portfolio 0:28:44.920 --> 0:28:47.880 nicely because you know, having such liquidity through those assets. 0:28:48.360 --> 0:28:50.280 Now I can buy a little bit of emerging markets 0:28:50.320 --> 0:28:52.520 which are less liquid and more vulatable, but you also 0:28:52.560 --> 0:28:56.280 get me more yield. So it's very very different portfolio 0:28:56.320 --> 0:28:59.680 positioning today than than quite frankly three months ago. Before 0:28:59.720 --> 0:29:02.400 we eve the subject of black Rock, I feel like 0:29:02.840 --> 0:29:05.400 we have to talk about the funds you manage on 0:29:05.440 --> 0:29:10.120 their behalf, many of which have been awarded morning Star 0:29:10.200 --> 0:29:12.960 Gold Medals, as well as you've received a number of 0:29:14.000 --> 0:29:17.560 recognitions about your funds. Let's talk a little bit about 0:29:17.960 --> 0:29:24.120 strategic income Global opportunity total return and strategic global Opportunity 0:29:24.200 --> 0:29:26.800 totally return. I'm messing up those names. Tell us about 0:29:26.800 --> 0:29:29.760 your funds. Yeah, I mean, you know about honored to 0:29:29.840 --> 0:29:32.200 run some some pretty great funds in our strategic income 0:29:32.240 --> 0:29:36.520 opportunities is a flexible unconstrained funds, so unconstrained. You know, 0:29:36.520 --> 0:29:38.640 when you think about fixing them, when you say they're unconstrained, 0:29:38.640 --> 0:29:43.120 it sounds like you're hanging from the chandeliers. Taken risk, unconstrained, unconstrained. 0:29:43.160 --> 0:29:45.400 This means I can take less risk because you know 0:29:45.440 --> 0:29:47.200 the point you made earlier about gosh, I don't have 0:29:47.240 --> 0:29:50.360 to be tethered to an index on what you want. 0:29:50.440 --> 0:29:52.800 I can hedge. I can hedge my portfolio freely. Like 0:29:52.880 --> 0:29:55.240 last year. You can use the dollar, I can use 0:29:55.280 --> 0:29:58.760 I can get short in in some areas. So unconstrained. 0:29:58.800 --> 0:30:01.440 What we're trying to do is create insistent return over 0:30:01.520 --> 0:30:05.440 time and so regardless of of the exterior market. Yeah 0:30:05.720 --> 0:30:08.320 we did. We didn't make money last year. We were down, 0:30:08.360 --> 0:30:10.360 but we beat the aggregate index I think seven under 0:30:10.400 --> 0:30:12.680 a fifty basis points. You know, years like that, if 0:30:12.680 --> 0:30:16.160 you recognize the regime and you lose less. What was 0:30:16.200 --> 0:30:19.960 the act down last year, Yeah, that's the worst year 0:30:19.960 --> 0:30:21.880 in forty years. Yeah, And so you know, being able 0:30:21.880 --> 0:30:24.400 to recognize that use some hedges run a lot of 0:30:24.440 --> 0:30:27.040 cash um and then you know, stay in the short 0:30:27.120 --> 0:30:29.240 end of the yield curve. And then today it's a 0:30:29.280 --> 0:30:31.560 little different. So the ability to be flexible and tactical 0:30:32.280 --> 0:30:34.600 is unbelievable in fixing them. And I think much of 0:30:34.600 --> 0:30:38.480 the future fixed income is can you marry to you know, 0:30:38.560 --> 0:30:40.800 think about the growth of ice shares and passive can 0:30:40.880 --> 0:30:44.640 you marry an opportunistic tactical portfolio? By the way, lets 0:30:44.720 --> 0:30:47.240 us invest around the world when things like emerging markets 0:30:47.240 --> 0:30:49.400 become a truck. So anyway, s i AL has grown 0:30:49.480 --> 0:30:51.800 quite a bit over the years, and uh, you know, 0:30:51.840 --> 0:30:53.920 it's been honored to to uh have a number of 0:30:53.920 --> 0:30:56.840 awards to it. But I think it's just creating consistent return. 0:30:56.880 --> 0:30:59.760 So quite frankly, people can get yield and then focus 0:30:59.840 --> 0:31:02.560 on the other areas where to take risk, equities, etcetera 0:31:02.760 --> 0:31:07.200 private equity venture. You know, our Global Allocation Fund is 0:31:07.280 --> 0:31:09.800 more of an unconstrained but more with an equity tilt 0:31:09.840 --> 0:31:12.800 and that's been super fun to run that. That's a 0:31:12.840 --> 0:31:16.000 blended portfolio stocks and yeah. So so traditionally would be 0:31:16.040 --> 0:31:20.200 sixty forty equity debt, but with an eye towards you 0:31:20.200 --> 0:31:22.800 can be international, you can be domestic. Last few years 0:31:23.120 --> 0:31:25.360 we've run global allocation much more with the U S bend. 0:31:25.360 --> 0:31:28.920 You think about the incredible growth of US technology that 0:31:29.160 --> 0:31:31.840 was something to to ride for a while. Now we're 0:31:31.840 --> 0:31:35.960 shifting at more international places like China, Europe, etcetera, that 0:31:36.000 --> 0:31:39.320 are really growing and that valuations are cheaper. So that 0:31:39.560 --> 0:31:42.360 the thing about that fund a we could toggle from 0:31:42.440 --> 0:31:44.800 equity to debt. We could use a little bit of 0:31:44.840 --> 0:31:48.000 illiquidity around some privates. You know, now we're doing something 0:31:48.000 --> 0:31:50.200 in global alm that it's hard to do in other funds. 0:31:50.560 --> 0:31:52.719 Building up our carrying income. You can use that use 0:31:52.760 --> 0:31:55.800 fixed income to get their use quality assets, but then 0:31:55.840 --> 0:31:58.760 take some risk in in equities to try and beat 0:31:58.800 --> 0:32:02.120 the index in UM in a fur globolication. And then 0:32:02.200 --> 0:32:03.640 you know the other funds on to take too long 0:32:03.640 --> 0:32:06.240 on them. But total return gives you more of You 0:32:06.280 --> 0:32:09.080 know that if you were building a sixty forty portfolio, 0:32:09.120 --> 0:32:11.960 they should get you the forty and get you the 0:32:11.960 --> 0:32:14.720 the fixed income. You know, try and outperform the egg 0:32:14.760 --> 0:32:17.000 every year, but closer to the egg. And then our 0:32:17.040 --> 0:32:20.720 strategic global fund allows us to use the international markets 0:32:20.760 --> 0:32:25.080 more aggressively. Last black Rock question before I jump to 0:32:25.360 --> 0:32:30.160 uh talking about interest rates and the FED and the economy. 0:32:31.080 --> 0:32:34.800 At Rick reader on Twitter, you have your own Twitter feed. 0:32:34.880 --> 0:32:38.400 That is really unusual for a person with your role 0:32:38.520 --> 0:32:42.240 in a firm as large and buttoned down as black Rock. 0:32:42.720 --> 0:32:45.360 Tell us a little bit about what you do on 0:32:45.400 --> 0:32:49.520 Twitter and how is it getting that through legal and compliance? 0:32:49.680 --> 0:32:51.960 So well, first of all, anything I tweetd goes through 0:32:52.040 --> 0:32:54.560 legal and compliance before it gets out there. The first part. 0:32:54.920 --> 0:32:57.800 Second part, So I use an incredible amount. I do 0:32:57.840 --> 0:33:00.600 these monthly calls, I do these write ups. I use 0:33:00.760 --> 0:33:04.640 immense amount of data and analysis. And you know, when 0:33:04.640 --> 0:33:07.840 I do my monthly calls, I literally locked myself literally 0:33:08.040 --> 0:33:11.800 in a room for for one weekend a month, and 0:33:12.000 --> 0:33:15.000 it's brutal putting those together. I do a quarterly and 0:33:15.160 --> 0:33:19.120 it's just a solid fifty hours of work to get 0:33:19.720 --> 0:33:22.040 But you know, I've learned in my career that you've 0:33:22.040 --> 0:33:24.440 got to take a step back and think about, you know, 0:33:24.480 --> 0:33:26.560 instead of following dollar yen. Every second you gotta think 0:33:26.560 --> 0:33:28.840 about why is dollar yen doing it's doing, try and 0:33:28.880 --> 0:33:31.240 assimilate it all into a cogent set of thoughts. So 0:33:31.280 --> 0:33:34.240 I need a weekend to do it. My wife hates it, 0:33:34.280 --> 0:33:37.040 but the it's not the most socially ingratiating weekend of 0:33:37.040 --> 0:33:39.240 my of my life. But I have to do it, 0:33:39.440 --> 0:33:41.240 and and I go through and I put it all together. 0:33:41.280 --> 0:33:45.160 I use immense amounts of data and analysis, stare at graphs, tables, 0:33:45.520 --> 0:33:48.160 and then all of a sudden you get these aha moments. Literally, 0:33:48.200 --> 0:33:49.800 you know, I could sit there for six hours, like 0:33:50.040 --> 0:33:52.480 now I get it. Now, I get why high yield 0:33:52.520 --> 0:33:54.520 trades here in Europe and it doesn't in the U 0:33:54.640 --> 0:33:57.520 S and what what cross currency basis, et cetera. Takes 0:33:57.560 --> 0:34:00.719 a while to assimilate it all. The reason why Twitter, 0:34:00.840 --> 0:34:03.680 and maybe I'm not the perfect specimen for for Twitter 0:34:04.440 --> 0:34:06.520 is you know, my tweets tend to be have five 0:34:06.600 --> 0:34:09.560 or six a long thread to them with graphs, and 0:34:09.600 --> 0:34:11.160 it's not a perfect you know in the world that 0:34:11.200 --> 0:34:15.280 wants now, they're very useful. It's it's a rare insight 0:34:15.400 --> 0:34:18.360 to somebody in your role as to what you're thinking, 0:34:19.080 --> 0:34:23.920 um strong recommend Rick Reader at Rick Reader on Twitter 0:34:24.320 --> 0:34:26.719 if you're interested in fixed income and want to get 0:34:26.719 --> 0:34:30.920 a sense of a person's Even though it goes through compliance, 0:34:30.960 --> 0:34:34.880 it all looks like real time. It doesn't look like 0:34:35.000 --> 0:34:39.480 it's been massage to death by legal you've said, in fact, 0:34:39.800 --> 0:34:42.040 some of my questions will come up with a pretty 0:34:42.080 --> 0:34:44.920 blunts and they're just your tweets asking you what you 0:34:44.960 --> 0:34:48.280 were thinking. So I find that fascinating that you're able 0:34:48.320 --> 0:34:51.040 to Was there any pushback when you first said, Hey, 0:34:51.080 --> 0:34:52.759 I want to go on Twitter and do this? So 0:34:52.800 --> 0:34:55.680 my biggest reservation is, you know, I think the world. 0:34:56.040 --> 0:34:58.000 You know, it's pretty hard to think about. You know, 0:34:58.000 --> 0:34:59.680 what are you doing with duration? Oh, here's a hundred 0:34:59.680 --> 0:35:02.919 and forty character whatever, the number of characters right to eighty. 0:35:03.000 --> 0:35:05.200 Now so now, so how do you do that effectively? 0:35:05.239 --> 0:35:07.040 And I've never been able to do it effectively. I 0:35:07.120 --> 0:35:10.720 always want to here's my hypothesis, here's my ultimate thesis 0:35:10.760 --> 0:35:13.000 around what we're doing with it. But you can do 0:35:13.080 --> 0:35:14.879 it if as long as you can get a few 0:35:14.920 --> 0:35:17.080 thoughts out there and then maybe people look deeper into 0:35:17.120 --> 0:35:19.800 what you're thinking, it can be a really effective mechanism 0:35:19.840 --> 0:35:22.520 to here's my conclusion. And it's different because usually you 0:35:22.560 --> 0:35:24.920 build up the conclusion there. I tend to find here's 0:35:24.920 --> 0:35:27.120 my conclusion, and maybe I can give you a couple 0:35:27.120 --> 0:35:29.040 of snippets to how to do it. But it's a 0:35:29.120 --> 0:35:32.279 super effective mechanism to get out there. And um so 0:35:32.640 --> 0:35:34.879 I read a lot on Twitter. I find it's because, 0:35:34.920 --> 0:35:38.560 like you say, it's instantaneous opinion and the new tape, 0:35:38.920 --> 0:35:40.799 I think so so I spent a lot of time, 0:35:40.880 --> 0:35:42.680 so it's been effective to be out there with it. 0:35:42.840 --> 0:35:45.760 So let's talk a little bit about where we are today. 0:35:46.520 --> 0:35:53.359 I mentioned previously Vulcar taking rates up in two from two, 0:35:53.480 --> 0:35:59.320 we've pretty much enjoyed a spectacular forty year bullmarket in bonds. 0:36:00.080 --> 0:36:04.200 Is that bullmarket over so? I mean, it certainly didn't 0:36:04.200 --> 0:36:07.239 work last year? The uh so, I think, you know, 0:36:07.600 --> 0:36:09.439 I think we are. I mean I was looking at 0:36:09.480 --> 0:36:12.200 it that how the rates market, the Fed funds rate 0:36:12.320 --> 0:36:14.640 looks like a mountain range over time, you know, it 0:36:14.719 --> 0:36:16.440 spikes higher and then it comes to come down the 0:36:16.440 --> 0:36:18.759 other side. Economy slows, then you come down the other side, 0:36:18.760 --> 0:36:20.879 and then a couple of years goes by you start 0:36:20.920 --> 0:36:22.239 to move up again. And then you come down the 0:36:22.239 --> 0:36:24.439 other side. I don't think we're coming down the other 0:36:24.520 --> 0:36:28.160 side today. Of so, I don't think usually when rates 0:36:28.200 --> 0:36:30.600 move up this much, economy slows and we're coming I 0:36:30.640 --> 0:36:32.719 think this is gonna be We're gonna stay on the 0:36:32.760 --> 0:36:34.920 top of the mountain range for a while. And I 0:36:34.960 --> 0:36:37.520 think the FED is going to let this this restricted 0:36:37.560 --> 0:36:41.000 policy percolate through the system. And I think people underestimate 0:36:41.120 --> 0:36:44.919 US economy is the most adaptive, reflective, and it will 0:36:44.960 --> 0:36:47.280 adjust and you're seeing it in the interest rate parts 0:36:47.280 --> 0:36:51.680 of the economy like housing, like automobiles, etcetera. So listen, 0:36:51.719 --> 0:36:53.799 I think I think, you know, I think we're gonna 0:36:53.840 --> 0:36:56.400 see a rally in in in interest rates probably in 0:36:56.440 --> 0:36:58.759 two thousand and twenty four and twenty five, because I 0:36:58.800 --> 0:37:01.759 think ray will go back, the tenure treasure will go 0:37:01.800 --> 0:37:05.040 back to two and a half percent. Yeah. And I 0:37:05.280 --> 0:37:08.080 because you think about what is potential growth in the 0:37:08.160 --> 0:37:12.640 US and in the world. Growth follows the demographic curve 0:37:12.880 --> 0:37:15.719 incredibly closely, and you think about the world we live 0:37:15.760 --> 0:37:17.880 in that's different than the eighties. You know, when you 0:37:17.960 --> 0:37:20.480 had explosive baby boomer, you know that was starting to 0:37:20.560 --> 0:37:24.680 enter the workforce, et cetera following now and by the way, 0:37:24.800 --> 0:37:28.960 COVID accelerated this. You've had a fertility issue, and you 0:37:28.960 --> 0:37:32.440 think about Japan, China going through a demographic difficult period. 0:37:32.719 --> 0:37:35.920 US is a slower period then, So what happens is 0:37:36.000 --> 0:37:38.320 growth follows a demographic curve? Does it come off it 0:37:38.360 --> 0:37:40.800 when you have a shock, a pandemic of financial crisis, 0:37:41.000 --> 0:37:43.799 huge stimulus goes in. I think we're going back to 0:37:43.880 --> 0:37:47.799 a low two's percent tenure because I think GDP will 0:37:47.840 --> 0:37:51.000 operate at you know, one and a half to two, 0:37:51.320 --> 0:37:54.319 by the way, lower in Europe, lower in Japan than that. 0:37:54.719 --> 0:37:56.400 So I think rates are going back, so as the 0:37:56.440 --> 0:37:59.160 bull market in bonds as a secular move from the 0:37:59.200 --> 0:38:02.759 eighties and nine over. But I think if you said 0:38:02.800 --> 0:38:04.279 to me, part of why you've seen this huge move 0:38:04.280 --> 0:38:06.600 of people, I want to lock these rates in four 0:38:06.640 --> 0:38:08.719 and a half is nirvana, you know, if you don't 0:38:08.719 --> 0:38:10.080 have to take a lot of interest rate this. If 0:38:10.080 --> 0:38:11.800 I can get five and get six we talked about, 0:38:12.160 --> 0:38:14.200 you know, my strategic income fund. I'm trying to keep 0:38:14.200 --> 0:38:16.960 a steady six in that portfolio. Boy, if I can 0:38:17.000 --> 0:38:18.759 get six and we're going to two two and a half, 0:38:19.320 --> 0:38:21.680 you know that's what we're playing for this year. Just 0:38:21.719 --> 0:38:25.320 sort of ride a central bank that is gonna pause. 0:38:25.920 --> 0:38:27.480 And by the way, I may still move right up 0:38:27.480 --> 0:38:28.960 a little bit more than we are today, but can 0:38:29.000 --> 0:38:31.640 you ride through it with um, you know, it's not 0:38:31.640 --> 0:38:33.399 gonna be like last year. So it's a good market 0:38:33.480 --> 0:38:35.560 for fixed income and then I think it'll get to 0:38:35.560 --> 0:38:38.880 a better market. So let's talk about something you actually tweeted. 0:38:39.400 --> 0:38:42.200 Quote how far the Fed goes, how willing the f 0:38:42.320 --> 0:38:46.640 O m C is to overshoot to ensure inflation comes 0:38:46.680 --> 0:38:52.399 markedly lower will determine how uneven, how unpredictable this deflation 0:38:52.640 --> 0:38:56.440 of inflation will be in the months ahead. That's a 0:38:56.480 --> 0:39:00.319 fabulous tweet. Tell us what you're thinking. They're translate for 0:39:00.360 --> 0:39:03.000 the average listeners. I agree with that, guys, so the 0:39:04.120 --> 0:39:07.719 so I'm not sure that but anyway, So the one 0:39:07.760 --> 0:39:10.840 thing that I think is real, the U S economy 0:39:11.000 --> 0:39:13.320 is very different than it was in the eighties nineties. 0:39:13.320 --> 0:39:15.640 We are now two thirds of the economy consumption is 0:39:15.680 --> 0:39:18.279 a service economy. We never had that. It used to 0:39:18.280 --> 0:39:20.560 be a goods oriented economy. When you moved interest rates, 0:39:20.840 --> 0:39:25.160 the economy recalibrated quickly because the goods oriented economy, interest sensitive, 0:39:25.280 --> 0:39:29.080 cyclically oriented. Think about healthcare, you know, think about the 0:39:29.120 --> 0:39:33.080 jobs market today. All the jobs are being created healthcare, education, 0:39:33.640 --> 0:39:37.759 not hugely cyclical, not interest rates sensitive, um. And then 0:39:37.880 --> 0:39:40.960 obviously leisure, hospitality, where there is some cyclicality to it. 0:39:42.000 --> 0:39:43.960 But my view is the FED has gotten to a 0:39:44.040 --> 0:39:46.600 level that is restrictive. And now the question is, when 0:39:46.640 --> 0:39:48.920 you have an economy like this, do you bludge in 0:39:49.000 --> 0:39:51.840 the interest rate sensitive parts of the economy real estate, 0:39:51.880 --> 0:39:55.240 the automobile market, um, but parts of how you finance 0:39:55.280 --> 0:39:58.839 big durable goods do you bludge in that to try 0:39:58.840 --> 0:40:02.440 and help the overall bring inflation down? My senses, the 0:40:02.480 --> 0:40:06.440 fed's gone far enough, doesn't need to overtighten, and if 0:40:06.480 --> 0:40:09.360 it does, it will create exogenous shock. You know, the 0:40:09.440 --> 0:40:11.640 leverage in the system builds. You know, you see it 0:40:11.680 --> 0:40:15.200 in places, particularly real estate today. You know, the Feds 0:40:15.200 --> 0:40:18.080 gotta be careful about no, not going too far. And 0:40:18.280 --> 0:40:19.960 and you know the one thing that I'm really really 0:40:20.000 --> 0:40:22.680 sensitive to. You know, there's something really powerful. It's happened. 0:40:23.040 --> 0:40:25.640 All the jobs being created today are the lower wage 0:40:25.719 --> 0:40:28.080 jobs in this country, all of the ones you talk 0:40:28.080 --> 0:40:32.920 about healthcare, education, leisure, hospitality, hotel, etcetera. Now you're closing 0:40:32.960 --> 0:40:35.120 the income gap. It took twenty years to close the 0:40:35.160 --> 0:40:37.520 income gap. You know, you're getting capital going to labor 0:40:37.880 --> 0:40:40.920 that is hugely powerful. The layoffs are happening a finance technology, 0:40:41.000 --> 0:40:44.279 the higher income jobs, and they're just unwinding some overhiring 0:40:44.320 --> 0:40:46.800 over the past. So think about what you know. The 0:40:46.880 --> 0:40:49.239 reason why I think the FED should pause is let 0:40:49.320 --> 0:40:53.120 this play out. You know, if net disposable income for 0:40:53.280 --> 0:40:56.200 lower income, lower wage earners stays higher in kind of 0:40:56.520 --> 0:40:59.080 with a with a consumption basket is food, energy, rent, 0:40:59.760 --> 0:41:02.120 it's not a bad thing that that inflation is a 0:41:02.160 --> 0:41:05.000 bit higher as long as wages for lower income or higher. 0:41:05.360 --> 0:41:08.200 So I think the system is recalibrating. Economy is recalibrating, 0:41:08.239 --> 0:41:10.640 It will recalibrate, and I don't think the FED should 0:41:10.680 --> 0:41:13.000 overdo it, you know, to take two to three million 0:41:13.040 --> 0:41:15.520 people out of work or more or more than that, 0:41:16.280 --> 0:41:18.520 you know, and particularly those will be lower wage jobs. 0:41:18.880 --> 0:41:20.959 To take that, I don't think it makes any sense. 0:41:21.160 --> 0:41:24.160 I could not possibly agree with you more. And I 0:41:24.280 --> 0:41:26.640 have to bring up what you just said about the 0:41:26.760 --> 0:41:30.399 United States being a services based economy. A large part 0:41:30.440 --> 0:41:33.800 of the reason we had this inflation spike was we 0:41:33.920 --> 0:41:37.120 shifted to goods during the lockdown. Now that's over and 0:41:37.200 --> 0:41:42.919 we're going back. Shouldn't this unwine happen naturally? Why does 0:41:43.000 --> 0:41:46.600 the Fed seem to be at risk at least according 0:41:46.600 --> 0:41:50.200 to the bond market of overtightening, they were late to 0:41:50.280 --> 0:41:54.319 recognize inflation? Are they late to recognize that inflation peaks 0:41:54.360 --> 0:41:56.400 six months ago? So? I think to one I might 0:41:56.480 --> 0:41:58.360 I think the one mistake that the Fed mate is that, 0:41:58.480 --> 0:42:00.120 like you said, they were too late, and I think 0:42:00.120 --> 0:42:03.600 they could have been the historically. Isn't that true? Yeah? 0:42:03.680 --> 0:42:06.200 But I think the reason why they were too late 0:42:06.320 --> 0:42:08.680 is because you have, I mean thinking about vaccine happened 0:42:09.040 --> 0:42:11.240 and all of a sudden you change the economic paradigm 0:42:11.400 --> 0:42:13.640 so darned fast and that and and you know, one 0:42:13.640 --> 0:42:16.480 of the things that's hugely important for the FED is credibility. 0:42:16.600 --> 0:42:18.520 They laid out a path that they were going to 0:42:18.640 --> 0:42:21.120 keep interest rates low and QUI in place for an 0:42:21.160 --> 0:42:23.200 extended period of time, and then it was hard to 0:42:23.360 --> 0:42:25.160 change it. Anyway it was. It was it was an 0:42:25.239 --> 0:42:28.760 argument for maybe they should stop playing with their cards 0:42:28.840 --> 0:42:33.000 on the table, so or am I it's funny to 0:42:33.000 --> 0:42:35.319 say that, because listen, I think we've gotten the place 0:42:35.360 --> 0:42:38.440 where there's they're actually too much communication. Like right now 0:42:38.480 --> 0:42:40.840 you have the SEP, the dots, now you now you 0:42:40.960 --> 0:42:43.200 have the press conferences, now you have one of the 0:42:43.280 --> 0:42:45.880 real tools of monetary policy is to be able to 0:42:45.960 --> 0:42:49.160 react and be adaptive to the economy as as it is. 0:42:49.239 --> 0:42:51.279 So listen, I don't think they I don't think they 0:42:51.280 --> 0:42:53.520 should overtighten be I think when they get to this 0:42:53.680 --> 0:42:55.719 place or where they are today, I don't think they 0:42:55.760 --> 0:42:58.759 have to communicate every single step of the way. They've 0:42:58.800 --> 0:43:01.120 done a good job of transparent CRNCY. But now I 0:43:01.239 --> 0:43:04.200 think you want to keep your tools of you know, 0:43:04.280 --> 0:43:06.560 I can, I can surprise if I need to. Yeah, 0:43:06.600 --> 0:43:08.840 And by the by the way, surprise is you know, 0:43:08.880 --> 0:43:11.239 if you're trying to shock an economy, you drop interest 0:43:11.320 --> 0:43:13.600 rates really quickly. But if you don't have the art 0:43:13.640 --> 0:43:16.040 of surprise and to be able to shock the system, 0:43:16.400 --> 0:43:19.000 the system doesn't react to it fast. The FED has 0:43:19.120 --> 0:43:22.880 lost the art of surprise. That that's really kind of intriguing. 0:43:23.000 --> 0:43:26.279 You know, you mentioned how quickly the vaccines came on. 0:43:27.239 --> 0:43:31.439 My favorite stat from from the Lows in March till 0:43:31.440 --> 0:43:33.640 the end of the year, the equity markets gained six 0:43:35.120 --> 0:43:36.839 That should have been a heads up to the FED 0:43:36.960 --> 0:43:40.640 that hey, we need to forget taking rates to five percent? 0:43:41.080 --> 0:43:44.399 Can we get off zero? Can we start to normalize rates? 0:43:44.880 --> 0:43:49.160 And sometimes the bond market tells you various concerns going on. 0:43:49.320 --> 0:43:51.839 Sometimes you're gonna listen to the equity market. But let 0:43:51.880 --> 0:43:54.160 me bring it back to the bond market. There seems 0:43:54.200 --> 0:43:57.719 to be a disagreement between the Federal Reserve and the 0:43:57.800 --> 0:44:00.439 bond market. The bond market is saying, hey, we see 0:44:00.440 --> 0:44:03.480 a recession coming. We think you're gonna cut rates. In 0:44:05.480 --> 0:44:08.400 j pal is saying no, I think we're are going 0:44:08.440 --> 0:44:10.360 to go up and stay up for longer. How do 0:44:10.440 --> 0:44:14.040 you reconcile these two differences. So it's a fascinating dynamic 0:44:14.120 --> 0:44:16.000 that's playing in the markets today. So I don't think 0:44:16.080 --> 0:44:19.920 most of the people, you know, economists, people that follow 0:44:19.960 --> 0:44:22.120 the FED, that listen to what the Feds saying, I 0:44:22.120 --> 0:44:24.480 don't think anybody believes that Fed's gonna cut rates in 0:44:24.600 --> 0:44:28.440 two three. When the FED says we're not, I mean, 0:44:28.520 --> 0:44:31.279 and all the FED presidents governors come out and say 0:44:31.320 --> 0:44:32.879 we're not, then I think you have to take them 0:44:32.880 --> 0:44:35.440 withut the word why is the market doing this? You know, 0:44:35.480 --> 0:44:39.480 I've learned in my career that the technicals are as important, 0:44:39.480 --> 0:44:42.719 if not more important, than the fundamentals. What's happening now 0:44:42.840 --> 0:44:45.440 that kind of the discussion we had before about money 0:44:45.520 --> 0:44:48.480 flowing in because people locking in these yields, much of 0:44:48.560 --> 0:44:50.640 that money is not necessarily looking at what is the 0:44:50.680 --> 0:44:52.800 one year, one year forward, the two year two year forward. 0:44:52.800 --> 0:44:54.839 They're saying I can lock in four and a half. 0:44:54.840 --> 0:44:58.760 I So what's happening is people are sitting on immense 0:44:58.840 --> 0:45:03.000 amounts of cash and decade of zero and suddenly four 0:45:03.040 --> 0:45:05.480 percent looks fantastic totally, So what is it doing? It 0:45:05.560 --> 0:45:08.719 actually prices your forward curve in a bit because people say, 0:45:08.760 --> 0:45:10.439 you know what, I'm willing to take that. By the way, 0:45:11.080 --> 0:45:12.800 you know, the risk is that all of a sudden 0:45:12.800 --> 0:45:14.520 you have some shock to the system. Economy does slow 0:45:14.560 --> 0:45:17.319 and maybe they do move, but people are willing to say, gosh, 0:45:17.360 --> 0:45:20.560 I'll underwrite that easy thing that's probably not priced right 0:45:20.719 --> 0:45:22.480 because I need to lock these yields in. And by 0:45:22.480 --> 0:45:24.880 the way, I spent much of last year sitting on 0:45:25.000 --> 0:45:27.800 my hands and you know, trying to protect my downside. 0:45:28.080 --> 0:45:30.040 Now these bonds are attractive, so I think it is 0:45:30.320 --> 0:45:33.640 a technical condition that's that's driven the market to price 0:45:33.719 --> 0:45:36.000 in that ease today. So let's talk a little bit 0:45:36.040 --> 0:45:38.840 about some of the technical conditions that I recall you 0:45:39.040 --> 0:45:44.640 discussing in the fourth quarter of and there were two 0:45:44.840 --> 0:45:49.040 statements you said that have stayed with me. Let's start 0:45:49.080 --> 0:45:53.440 with the more amusing one. October two. This is some 0:45:53.560 --> 0:45:56.040 of the wildest fixed income trading I've seen in my 0:45:56.239 --> 0:45:58.960 entire career. And I remember, I think that was the 0:45:59.560 --> 0:46:01.840 September a CPI came out in October, and then we 0:46:01.920 --> 0:46:04.480 got the job state as well tell us about what 0:46:04.640 --> 0:46:06.880 was going on in October. So it was pretty and mean, 0:46:06.920 --> 0:46:09.440 it's pretty wild. I mean, so you think about by 0:46:09.480 --> 0:46:11.840 the way, when you think about two twenty two, and 0:46:12.160 --> 0:46:14.600 part of you know, the FED deserves some blame for 0:46:14.760 --> 0:46:17.320 taking too long, but you also at a war that 0:46:17.600 --> 0:46:21.120 was who thought you'd shock fuel prices and who in 0:46:21.200 --> 0:46:23.360 food prices? I mean, what is it? Russian Ukraine account 0:46:23.360 --> 0:46:26.440 for twelve percent of the calories in the world. Giant 0:46:26.520 --> 0:46:30.440 we bread basket and basket after the US and all 0:46:30.480 --> 0:46:33.200 of a sudden, what we thought would look like inflation 0:46:33.239 --> 0:46:35.640 would start to moderate or at least stabilize. We took 0:46:35.680 --> 0:46:38.239 a whole another leg higher, and then, like you say, 0:46:38.320 --> 0:46:42.319 in September October, we started getting these point course, cp 0:46:42.440 --> 0:46:45.239 I was printing a point six for two straight months, 0:46:45.560 --> 0:46:49.319 you know, so so annualizing that's over seven and all 0:46:49.360 --> 0:46:51.839 of a sudden, like, oh my god, this FED may 0:46:51.920 --> 0:46:54.560 have to go significantly further. And by the way, at 0:46:54.560 --> 0:46:59.399 the same time, employment was was extraordinarily strong and is today. 0:46:59.440 --> 0:47:02.000 And I still think people don't recognize there's not enough 0:47:02.040 --> 0:47:05.520 people for the jobs today. There's still a deficit in 0:47:05.600 --> 0:47:07.759 all those sectors we talked about earlier. So so the 0:47:07.840 --> 0:47:10.360 FED should keep raising rates. That'll get bodies and jobs. 0:47:10.520 --> 0:47:14.360 Oh wait, they can't create more people to fill those jobs. 0:47:14.600 --> 0:47:17.760 They can't create more semiconductors, they can't build more houses. 0:47:18.520 --> 0:47:21.040 At a certain point, the FED should really just declare 0:47:21.160 --> 0:47:23.960 victory and go home. So I think, you know, you know, 0:47:24.040 --> 0:47:27.440 it's interesting how like every every committee, like the FED, etcetera, 0:47:27.520 --> 0:47:30.080 there's always this I can tweak it a little bit, 0:47:30.640 --> 0:47:32.359 and I think at the I think at this point 0:47:32.960 --> 0:47:35.640 it's time and the system recalibrates. I mean a number 0:47:35.640 --> 0:47:38.759 of times that FED has to come to the fore 0:47:39.160 --> 0:47:41.560 when you have a financial crisis, when you have a pandemic, 0:47:41.880 --> 0:47:43.640 and then I think you've gotta go, you know, get 0:47:43.719 --> 0:47:46.200 to the back page of the newspaper versus the front 0:47:46.640 --> 0:47:49.000 and let the system do what it's gonna do, because 0:47:49.080 --> 0:47:52.000 the more that you create the news. If you think 0:47:52.000 --> 0:47:53.879 about if you're a big CEO c Ione, I'm thinking 0:47:53.880 --> 0:47:57.279 about capex spend long term hiring plans. Do I need 0:47:57.360 --> 0:48:00.600 to have the FED as one of the risk factors 0:48:00.640 --> 0:48:02.759 in I don't think so. And I don't think we 0:48:02.840 --> 0:48:05.400 need to keep the economy will do its job of 0:48:05.520 --> 0:48:09.680 keeping the system on on on pace. And you think 0:48:09.680 --> 0:48:11.160 about we just happen the last couple of years, like 0:48:11.239 --> 0:48:13.840 you said, goods economy to service economy, the number of 0:48:13.960 --> 0:48:17.880 people job shifts extraordinary of how it played out. Anyway, 0:48:17.920 --> 0:48:19.560 I think there's a time that you need the Central 0:48:19.600 --> 0:48:20.960 Bank to be on the front page. But I think 0:48:20.960 --> 0:48:24.200 we're leaving that new story. You mentioned green Spin earlier, 0:48:24.440 --> 0:48:29.040 and I had the same sense that you know, he 0:48:29.120 --> 0:48:31.640 had a great career, and then the last couple of 0:48:31.719 --> 0:48:37.160 innings helped to really ding his reputation because he stayed 0:48:37.200 --> 0:48:40.040 on the front page for too long and didn't say no, no, 0:48:40.160 --> 0:48:42.440 the system's fine. I'm going to step back and let 0:48:42.560 --> 0:48:45.759 things play out the way they should on their own. So, man, 0:48:45.800 --> 0:48:47.239 if you go back in the anlds of time, I 0:48:47.320 --> 0:48:50.799 think Alan Greenspan may have been, at least in my generation, 0:48:50.920 --> 0:48:53.320 the best central banker I've ever seen. Certain I'm on 0:48:53.360 --> 0:48:56.280 the other side of that trade sold to you. I'm sure, 0:48:56.400 --> 0:48:58.960 Alan green all right, and we'll continue to be I 0:48:59.040 --> 0:49:02.120 have long put I will write calls, whatever you need 0:49:02.200 --> 0:49:05.600 to do. I'll take the out of the maestro training, alright. 0:49:05.719 --> 0:49:08.799 So so but make your case, alright. So, I mean, 0:49:08.840 --> 0:49:11.359 I watched them for years and and I've seen very 0:49:11.400 --> 0:49:14.160 few people, including getting the honor presenting to him many times, 0:49:14.719 --> 0:49:16.719 I've seen, I mean, the way he analyzed the day 0:49:16.760 --> 0:49:18.080 of the way he reacted to the day of the 0:49:18.120 --> 0:49:21.800 way he commanded policy. I'll never forget when when Greenspan 0:49:21.920 --> 0:49:24.839 said we're going this way you he had immense credibility 0:49:24.960 --> 0:49:28.560 to execute it. Listen, I think, but I think your 0:49:28.600 --> 0:49:32.000 point is the last year or two it was it 0:49:32.080 --> 0:49:34.000 didn't make a lot of sense for and I think 0:49:34.000 --> 0:49:37.680 people knew subprime in the mortgage crisis, the mortgage wasn't crisis. 0:49:37.760 --> 0:49:41.000 The mortgage dynamic, the housing dynamic was was creating a 0:49:41.120 --> 0:49:44.359 problem that would put a you know, put a real 0:49:44.880 --> 0:49:49.600 damper on what was I think an immaculate um central banker. 0:49:49.840 --> 0:49:55.640 So you mentioned credibility. Does the current FED insistence on 0:49:55.840 --> 0:49:58.400 taking us up to five five and a quarter? Is 0:49:58.560 --> 0:50:02.719 that sort of third Hey, we're gonna we're gonna have 0:50:02.880 --> 0:50:05.720 stable rates, we're gonna have full employment, and we also 0:50:05.840 --> 0:50:08.960 have to maintain our credibility. Is that a third mandate 0:50:09.080 --> 0:50:11.839 for the FED? I mean, you know, part of why 0:50:12.000 --> 0:50:15.160 and I say the FED stays in policy later, is 0:50:15.680 --> 0:50:18.480 credibility is such a big deal. Once you lose credibility. 0:50:18.520 --> 0:50:19.759 It's part of what I think they've done a really 0:50:19.800 --> 0:50:22.640 good job of communication. You think about how the few 0:50:22.719 --> 0:50:25.320 number of dissents when you get an f O MC decision, 0:50:25.880 --> 0:50:28.880 think about yeah, and there's opinions from the different officials 0:50:28.960 --> 0:50:32.600 that speak, but they're generally on the same page. And 0:50:32.719 --> 0:50:35.120 that that I think is really effective. Listen, I think 0:50:35.160 --> 0:50:38.120 once you lose credibility, then you're all of a sudden 0:50:38.160 --> 0:50:40.800 your your monetary policy. Because moral suasion and how you 0:50:40.880 --> 0:50:43.200 think about where you want to guide the system is 0:50:43.280 --> 0:50:45.840 usually important. By the way, if you guide this the 0:50:46.840 --> 0:50:49.880 system into finite a way, and this is part of 0:50:49.920 --> 0:50:51.680 the idea of like go away for a bit, stop 0:50:51.760 --> 0:50:54.920 defining every single you know, I think quite franking. I 0:50:54.960 --> 0:50:58.200 think these sep the dot plot is crazy, Like why 0:50:58.239 --> 0:50:59.959 do you need to tell the world where we're gonna 0:50:59.960 --> 0:51:01.520 be two years? Hence you don't know where you're gonna 0:51:01.520 --> 0:51:03.359 be two years? Hence why do you need the price 0:51:03.480 --> 0:51:05.960 the treasury market to the two year forward or the 0:51:06.000 --> 0:51:07.440 three or four work? You don't know where and you 0:51:07.480 --> 0:51:09.719 know they're back to year sense that you need the 0:51:09.760 --> 0:51:12.880 ability to surprise when necessary totally and if you pin 0:51:12.960 --> 0:51:15.799 yourself and even in the past the Fed has pinned 0:51:15.800 --> 0:51:17.520 therese ups to a date and say we're going to 0:51:17.640 --> 0:51:20.560 move that that's crazy or to or do you know 0:51:20.680 --> 0:51:23.880 one number like core PC is the most important, But 0:51:23.920 --> 0:51:26.240 why would you pin yourself to core PC because there's 0:51:26.400 --> 0:51:29.960 weird nuance that happens. You have to look at the abstract, 0:51:30.080 --> 0:51:33.480 give yourself some flexibility, allow the system to do what 0:51:33.560 --> 0:51:37.200 it's gonna do, and create normal volatility to markets as 0:51:37.239 --> 0:51:40.120 opposed to defining you have to be here. You mentioned 0:51:40.239 --> 0:51:43.520 core PC. I'm trying to remember was it Bernankee or 0:51:43.600 --> 0:51:48.480 green Span that liked the GDP deflator as their inflation managumer, 0:51:48.520 --> 0:51:51.640 I don't remember which, Um, And they're not always it's 0:51:51.719 --> 0:51:54.920 kind of surprising they're not always the same. Last year, 0:51:55.000 --> 0:51:57.880 for example, I always love to throw charts up to 0:51:58.080 --> 0:52:03.600 shock people. Oil was negative for everything ran up an 0:52:03.640 --> 0:52:06.960 anticipation of the wartime chatter, and then by the time 0:52:07.000 --> 0:52:09.439 we got to the fourth quarter, it was red, which 0:52:09.560 --> 0:52:13.360 is kind of stunning. Um, what do you think is 0:52:13.440 --> 0:52:17.400 the best measure of inflation? And have we seen peak inflation? 0:52:17.520 --> 0:52:19.640 Are we? Are we over the hump? I think so? 0:52:19.800 --> 0:52:22.279 I mean so, you know, I'm always you know, what 0:52:22.360 --> 0:52:24.279 do I look at I look at a core PC 0:52:24.520 --> 0:52:27.359 is is important? I look at wages a lot um. 0:52:27.640 --> 0:52:31.080 I look at the commodity markets. You know, a ton 0:52:31.200 --> 0:52:35.759 of copper, lumber, natural gas all way off their highs. Yes. 0:52:35.920 --> 0:52:37.719 And and by the way, by the way, if you 0:52:37.840 --> 0:52:39.520 if you take and we looked at this stat the 0:52:39.560 --> 0:52:43.839 other day, if use car prices and shelter are coming down, 0:52:43.920 --> 0:52:46.319 which we know they're coming down. If they come down, 0:52:46.360 --> 0:52:48.239 if they continue to come down, everything else can stay 0:52:48.280 --> 0:52:49.880 four to five and you still get in the mid 0:52:49.960 --> 0:52:52.880 to high twos, so meaning it's pretty it'd be pretty 0:52:52.920 --> 0:52:54.960 hard for us not to have seen the peak. But 0:52:55.080 --> 0:52:56.640 you know one thing that I you know part of 0:52:57.200 --> 0:52:58.520 you know, I always in my business we try and 0:52:58.560 --> 0:53:00.760 thinking what are your constancy you could have value the variables. 0:53:01.160 --> 0:53:03.360 Inflation is a hard one to think about the constants. 0:53:03.400 --> 0:53:05.040 And if you don't, you know, part of why I 0:53:05.120 --> 0:53:08.359 read inventory numbers at retailers, what's the you know you're 0:53:08.360 --> 0:53:10.560 talking about Semi's earlier. I think you have to think 0:53:10.560 --> 0:53:14.720 about the whole construct of what's driving top line revenue 0:53:14.760 --> 0:53:17.200 for companies. You know you're seeing Tesla logist, did you 0:53:17.239 --> 0:53:22.359 see companies all of a sudden they're dropping big cuts 0:53:22.400 --> 0:53:25.680 that substantial. You know when you see retailers, the targets 0:53:25.719 --> 0:53:28.600 and Walmarts, you see you know they're change in terms 0:53:28.640 --> 0:53:32.280 of dropping price, and you're seeing customers that are actually 0:53:32.360 --> 0:53:35.799 now shifting using more couponing, trading down, buying in higher 0:53:35.920 --> 0:53:38.920 quantity as opposed so they can get scale and purchase. 0:53:39.080 --> 0:53:41.960 That's real and that means inflation is coming down. And 0:53:42.280 --> 0:53:45.359 all these things factor into what do you build into 0:53:45.480 --> 0:53:47.680 what's happening in inflation because that one is hard to say. 0:53:47.800 --> 0:53:49.520 This is the number, and by the way, I think 0:53:49.520 --> 0:53:52.399 markets do that, like the employment cost index, like that's 0:53:52.440 --> 0:53:54.399 the number, and then it goes to this one. I said, 0:53:54.400 --> 0:53:58.280 I think markets like to have superficial information to drive 0:53:58.400 --> 0:54:01.000 big picture thoughts. So let's dick with inflation for a 0:54:01.040 --> 0:54:04.680 little bit, because you've touched on so many really interesting areas. 0:54:05.520 --> 0:54:09.239 One of my favorite aspects of where I think the 0:54:09.760 --> 0:54:14.120 CPI model is wrong is the cost of apartment rentals. 0:54:14.520 --> 0:54:17.400 And I get the sense the FED understands this, BLS 0:54:17.480 --> 0:54:21.760 understands this. The Cleveland Fed just created this new measure 0:54:21.960 --> 0:54:26.200 of owner's equivalent rent that looks at renewals, but you 0:54:26.280 --> 0:54:31.759 also things like Zilo apartment rental listings, and Apartment list 0:54:31.920 --> 0:54:36.080 is another index that tracks this. It seems that everywhere 0:54:36.200 --> 0:54:41.920 we look we see apartment rental prices coming down faster 0:54:42.280 --> 0:54:45.120 than the b L s C p I model is showing. 0:54:45.520 --> 0:54:50.000 How do you calibrate all models wrong but most are useful? 0:54:50.120 --> 0:54:53.040 Said George Box. How do you calibrate a model that 0:54:53.160 --> 0:54:55.759 has issues that we think we the FED understands what 0:54:55.800 --> 0:54:58.719 the issues are, and yet are still acting as if 0:54:59.360 --> 0:55:02.080 um the model is dead right. So one of the 0:55:02.120 --> 0:55:03.919 things I always thinking about we're investing, and I say 0:55:04.040 --> 0:55:05.920 to our teams all the time, We're not in the 0:55:05.960 --> 0:55:07.880 business of being right. We're in the business of generating 0:55:07.880 --> 0:55:11.800 return for clients. So what happens? So we've we have 0:55:11.960 --> 0:55:15.480 incredible AI data assimilation where we look at billions of 0:55:15.560 --> 0:55:18.080 prices and trying to where is inflation going? But the 0:55:18.320 --> 0:55:22.200 markets focus on core CPI, so you've got to try 0:55:22.280 --> 0:55:24.919 and put together what are the markets going to react 0:55:24.960 --> 0:55:26.800 to it. Oftentimes it's much more important to me to 0:55:26.920 --> 0:55:30.239 understand what is the psychology of markets than it is 0:55:30.440 --> 0:55:33.759 understanding you know, what is like where are we really going? 0:55:33.840 --> 0:55:36.520 Because you get leads and lags, apartment being the big one, 0:55:36.920 --> 0:55:39.960 there are huge lags in terms of when an apartment 0:55:40.040 --> 0:55:43.520 gets into in the reduction and prices. So you know, 0:55:43.600 --> 0:55:45.400 we try and think through all of that, and you know, 0:55:45.440 --> 0:55:47.640 at the end of the day, you know, part of 0:55:47.680 --> 0:55:49.800 what I'm trying to think through is it's less important 0:55:49.800 --> 0:55:52.160 to me to be right six months. Hence, but if 0:55:52.200 --> 0:55:54.040 the markets are going to focus on this core CPI 0:55:54.080 --> 0:55:56.000 report for the next two to three months, and maybe 0:55:56.400 --> 0:55:58.800 the FED is going to focus on core pc that 0:55:58.960 --> 0:56:00.960 I put at the top end of my priority set 0:56:01.000 --> 0:56:02.960 because I've got to buy and sell within the market, 0:56:03.360 --> 0:56:05.000 and so I spend a lot more time trying to 0:56:05.080 --> 0:56:08.920 think through what's the market reaction function and what is 0:56:08.960 --> 0:56:11.640 the data the markets tuned into because that changes over time. 0:56:11.760 --> 0:56:15.560 So you're always providing insight and advice to clients. But 0:56:15.760 --> 0:56:19.080 if you had ten minutes alone with Jerome Palell, what 0:56:19.239 --> 0:56:22.120 sort of advice would you give him? So I would say, 0:56:22.120 --> 0:56:25.120 I'm I'm a big fan, but I think the say so, 0:56:25.160 --> 0:56:28.759 I think I'm list so, but I'd like I say, 0:56:28.840 --> 0:56:31.359 you know, with all the due respect, I thought last 0:56:31.440 --> 0:56:34.040 year it was crazy around keeping or the year of 0:56:34.160 --> 0:56:36.320 keeping rates easy for too long and doing que I 0:56:36.320 --> 0:56:38.359 mean in January last year add billion a month going 0:56:38.400 --> 0:56:41.000 into the system. Certainly zero way too long. You could 0:56:41.080 --> 0:56:45.040 argue how far you'd go, but zero wasn't That was wrong, Listen. 0:56:45.080 --> 0:56:46.640 I think one of the things that he has brought 0:56:46.680 --> 0:56:49.120 to the fund that I think it's been extraordinaries collaboration 0:56:49.840 --> 0:56:53.200 and you know, a collaborative decision making that across and 0:56:53.320 --> 0:56:56.400 taking in tremendous amounts of information. The thing that I 0:56:56.520 --> 0:56:58.960 would you know that I always say, let's say, and 0:56:59.280 --> 0:57:01.160 I've said this before, or if the Federal Reserve said 0:57:01.160 --> 0:57:02.520 the funds rate is going to be two percent for 0:57:02.560 --> 0:57:05.959 the next five years with the system operate better or worse. 0:57:06.400 --> 0:57:09.320 And if if you were a CEO or CFO and said, Okay, 0:57:09.400 --> 0:57:12.040 I know, I gotta figure out what my inventory level is, 0:57:12.080 --> 0:57:14.839 what my supply chain dynamics, but I know they're gonna 0:57:14.840 --> 0:57:17.880 be able to fund myself off of a relatively constant 0:57:18.360 --> 0:57:21.400 interest rate, certainly the risk free rate. There is huge 0:57:21.520 --> 0:57:23.960 power in that. And I think people will underestimate this. 0:57:24.440 --> 0:57:26.320 Get us back on the curve and get us back 0:57:26.360 --> 0:57:29.560 on a I tweak it less than they do until 0:57:29.680 --> 0:57:32.720 you need to, and then you move decisively. And I 0:57:32.800 --> 0:57:34.640 think one of the things we've learned, you know that 0:57:34.760 --> 0:57:37.560 central bankers have done a good job with is when 0:57:37.600 --> 0:57:40.920 you need to move, be decisive and and and get 0:57:40.960 --> 0:57:42.680 it and tell people this is where we're going, and 0:57:42.800 --> 0:57:45.440 shocked the system when when you do it, but let 0:57:45.520 --> 0:57:47.920 him know now we're going. And I think that's powerful. 0:57:48.280 --> 0:57:51.800 But then otherwise back off and let let the system 0:57:51.840 --> 0:57:53.400 with the system is gonna do. By the way, it's 0:57:53.400 --> 0:57:57.200 harder in Argentina because you get you get a little 0:57:57.360 --> 0:58:01.280 you don't have. I mean, we have such a tech, chnology, innovation, 0:58:01.680 --> 0:58:04.160 adaptive human and thinking about I did a presentation. I 0:58:04.240 --> 0:58:06.440 showed what it was thirty years ago. They used to 0:58:06.640 --> 0:58:08.400 look for a job in the classified needs circle and 0:58:08.440 --> 0:58:10.360 go get a job. Now you think about getting a 0:58:10.440 --> 0:58:13.720 job today with all of the immense online you have 0:58:13.880 --> 0:58:17.040 fluidity of employment. That's that we're watching play out if 0:58:17.080 --> 0:58:19.280 that doesn't need to do that much other than the 0:58:19.320 --> 0:58:22.200 shocked period, talk about the impact of a loss of 0:58:22.240 --> 0:58:26.360 credibility of a central bank. It's apples and oranges between 0:58:26.360 --> 0:58:29.320 the US and Argentina, which, by the way, I'm always 0:58:29.440 --> 0:58:32.520 shocked when the parade of FED haters come out and 0:58:32.640 --> 0:58:35.800 it's like, we're gonna be Zimbabwe. The dollar is going 0:58:35.840 --> 0:58:39.360 to be worthless. Talk about getting a trade degrees wrong. 0:58:40.160 --> 0:58:43.680 Let's talk about the dollar. Since I mentioned Argentina and Zimbabwe, 0:58:44.960 --> 0:58:48.680 the dollar for the past decade has been the only 0:58:48.800 --> 0:58:52.960 game in town that seemed to have topped out in two. 0:58:53.480 --> 0:58:55.560 How do you think about the strength of the US 0:58:55.640 --> 0:58:59.960 dollar relative to fixed income equity US versus emerging mark 0:59:00.040 --> 0:59:02.960 gets What is the role of the dollar in your process? 0:59:04.040 --> 0:59:06.360 So for I mean, well, two was the only hedge 0:59:06.400 --> 0:59:09.600 we had, I mean literally, yeah, So two thousand two. 0:59:09.600 --> 0:59:12.280 You think about normally interest rates work against beat against 0:59:12.320 --> 0:59:15.440 your risk assets. You know, normally, volatility markets we use 0:59:15.480 --> 0:59:17.560 a lot of you know, think about call options, put options, 0:59:17.600 --> 0:59:20.640 the equity market when volatility spikes. Not a good hedge. 0:59:20.680 --> 0:59:23.320 It's too expensive because everybody's trying to buy insurance. The 0:59:23.400 --> 0:59:25.800 dollar was a good one because you knew that as 0:59:26.000 --> 0:59:27.760 as the central bank was gonna tighten, the dollar was 0:59:27.760 --> 0:59:30.800 gonna appreciate and risk was gonna have a hard time. Today. 0:59:31.200 --> 0:59:32.680 You know, I would argue, we're on the other side 0:59:32.720 --> 0:59:34.640 of that mountain we talked about in the dollar doesn't 0:59:34.640 --> 0:59:37.080 need to appreciate, and actually, you know, you could start 0:59:37.120 --> 0:59:39.240 to do things because the volatility markets have come down. 0:59:39.440 --> 0:59:42.080 I think there's one important thing with the dollar. You know, 0:59:42.160 --> 0:59:46.480 we're gonna go through a potential debt ceiling crisis issue. 0:59:47.120 --> 0:59:49.800 There were dollars of reserve currency in the world. I 0:59:49.880 --> 0:59:53.640 don't think people really understand it's two thirds of the 0:59:53.720 --> 0:59:56.600 trade flow in the world. It's roughly two thirds three 0:59:56.640 --> 0:59:59.000 quarters of the liabilities in the world. It's the collateral 0:59:59.160 --> 1:00:01.680 us treasures that call lateral in the world that is 1:00:01.760 --> 1:00:05.280 underneath you know, most transactions in the world. The dollar 1:00:05.480 --> 1:00:07.800 is such a critical dynamic. We're gonna go through and 1:00:07.920 --> 1:00:11.040 always find like when do you set up for these trades? 1:00:11.120 --> 1:00:13.320 When he set up for position your portfolio. We're gonna 1:00:13.360 --> 1:00:16.040 go through, you know, sometime three to six months from 1:00:16.120 --> 1:00:18.800 now what could be an incredibly volatile period, and then 1:00:18.880 --> 1:00:22.400 the dollar becomes you know, your your lever and how 1:00:22.480 --> 1:00:24.560 you think about that is going to change and uh 1:00:25.000 --> 1:00:28.160 and evolve. And like I said, it's crazy that we'd 1:00:28.160 --> 1:00:31.320 ever because of the immense benefits that accruiting. Why would 1:00:31.360 --> 1:00:35.080 anyone ever put our exorbitant privilege at risk to score 1:00:35.160 --> 1:00:39.400 political points. All those people really are are deserving of 1:00:39.520 --> 1:00:42.680 our disdain and should be called out for their recklessness 1:00:42.720 --> 1:00:46.600 and ir responsibility. But let's hold the politics side. The 1:00:46.720 --> 1:00:50.360 last question I have in the state of the fixed 1:00:50.480 --> 1:00:54.920 income world is you mentioned since since we talked about dollar, 1:00:55.000 --> 1:00:58.320 we have to talk about emerging market. Last year you 1:00:58.440 --> 1:01:02.200 said you're starting to become more constructive on emerging markets 1:01:02.200 --> 1:01:04.920 and more balanced obviously on the U. S. Dollar. You know, 1:01:05.240 --> 1:01:07.800 it has looked like em was going to be the 1:01:08.200 --> 1:01:11.200 next part of the world to do well for the 1:01:11.280 --> 1:01:14.840 better part of a decade. And the tires spin and 1:01:14.880 --> 1:01:19.120 there's no traction is three the year e M finally 1:01:19.760 --> 1:01:22.880 starts rewarding investors. So, I mean, one of the things 1:01:22.920 --> 1:01:25.320 I've learned over my career running emerging market business for 1:01:25.360 --> 1:01:28.360 a long time is you have to take em and 1:01:28.760 --> 1:01:32.520 dissect the asset class. I mean, there's sometimes no and 1:01:32.640 --> 1:01:35.600 so you know the difference between Mexico and Argentina and 1:01:35.720 --> 1:01:39.360 South Africa to Turkey is immense. And so part of 1:01:39.440 --> 1:01:41.840 what we try and think through is where are we 1:01:41.920 --> 1:01:45.200 comfortable today when we're we are taking more risk in 1:01:45.440 --> 1:01:48.240 UH and you know, building some income in emerging markets. 1:01:48.560 --> 1:01:51.959 But gosh, you know there are places today that that listen, 1:01:52.000 --> 1:01:53.440 We're not doing a lot in Turkey, We're not doing 1:01:53.440 --> 1:01:56.040 a lot in South Africa. But you know, Mexico. You 1:01:56.080 --> 1:01:58.760 think about who the beneficiary for a world that's becoming 1:01:58.800 --> 1:02:02.240 more regionalized, and who is you know, the US's partner 1:02:02.280 --> 1:02:05.560 in Mexico is interesting. Brazil has done a pretty about 1:02:05.560 --> 1:02:08.880 central banks and has done a pretty good job. Brazil 1:02:09.000 --> 1:02:10.840 is a is a good place Indonesia. So there are 1:02:10.880 --> 1:02:13.240 places and the way we've grown and by the way, 1:02:13.240 --> 1:02:16.600 there's some corporates that are domiciled in these countries that 1:02:16.680 --> 1:02:19.720 are often times better credit than the sovereign. So we've 1:02:19.800 --> 1:02:22.920 worked on we've increased our emerging market exposure, but I 1:02:22.960 --> 1:02:24.760 would say we're doing it in a way that is 1:02:25.880 --> 1:02:31.960 less emerging market volatility um sensitive to it. Another example 1:02:32.120 --> 1:02:36.240 of where active has an advantage over passive is choosing 1:02:36.320 --> 1:02:40.360 your country of both equity and fixed income. Yeah, and 1:02:40.520 --> 1:02:42.200 then one thing I will say, you know, active is 1:02:42.200 --> 1:02:44.720 going to live with passive for forever and the growth 1:02:44.840 --> 1:02:47.280 of you know, we obviously you know, are proud of 1:02:47.360 --> 1:02:50.200 the I shares. Development people can, fixed income, you can, 1:02:50.400 --> 1:02:52.840 I use a ton of them. So passive has a place. 1:02:53.280 --> 1:02:55.240 But then the ability to use it as active man 1:02:55.360 --> 1:02:57.520 in your in your process is you. And by the way, 1:02:57.600 --> 1:03:00.840 parts of em are hugely effective. Been using UH and 1:03:00.880 --> 1:03:02.560 we've been doing a bunch of dead and equity to 1:03:02.640 --> 1:03:05.400 get into merging markets where at times getting scale is 1:03:05.480 --> 1:03:08.680 hard on the individual securities. Before I let you go, 1:03:08.880 --> 1:03:12.160 we have to talk a little bit about Lehman Brothers. 1:03:12.480 --> 1:03:17.960 You started there in what was black Monday like at 1:03:18.080 --> 1:03:21.040 Lehman Brothers, who bet then we're really known as a 1:03:21.080 --> 1:03:23.880 fixed income shop. Tell us what that experience was like 1:03:24.400 --> 1:03:27.160 and did it leave any marks? So I'll tell you. 1:03:27.360 --> 1:03:29.920 You know, every time we'll a couple of interesting things 1:03:29.960 --> 1:03:31.360 I think about that. I mean, every time you go 1:03:31.440 --> 1:03:34.400 through one of these crises, you think about music crisis 1:03:34.440 --> 1:03:36.600 don't happen the same way the second time, you know, 1:03:36.720 --> 1:03:39.640 so usually and by the way, usually regulations solves Yesterday's 1:03:40.240 --> 1:03:43.360 every general fights the last one totally and so that 1:03:43.480 --> 1:03:45.720 you know that was and how but you know still 1:03:45.840 --> 1:03:48.600 to this day, black Monday, you know, wears on you, 1:03:48.720 --> 1:03:51.280 by the way, including on Mondays. There's a reason that 1:03:51.400 --> 1:03:54.840 Monday's happened because a liquidity etcetera. That tends to be 1:03:54.880 --> 1:03:57.840 a war news all the stress over the weekend news 1:03:57.920 --> 1:04:00.560 comes out and it just built totally. But one thing 1:04:00.640 --> 1:04:03.439 I've realized over been doing this almost thirty six years 1:04:03.520 --> 1:04:06.560 now is you gotta put you know, think about those crises, 1:04:06.640 --> 1:04:08.240 think about how do you manage the risk of it, 1:04:08.360 --> 1:04:11.400 what's the downside, what's the odds of it happening? And 1:04:11.480 --> 1:04:13.160 then you know you still have to invest and you 1:04:13.240 --> 1:04:14.720 still have to take risk. And one of the things 1:04:14.800 --> 1:04:16.680 I've found that I've tried to fight against for my 1:04:16.760 --> 1:04:20.320 whole career is you know, the longer you get you've 1:04:20.360 --> 1:04:23.000 done this and the more crises you see you know 1:04:23.080 --> 1:04:24.680 less you you know when you get punched in the stomach, 1:04:24.760 --> 1:04:26.240 like it doesn't feel good, Like I gotta like to 1:04:26.280 --> 1:04:28.160 do less of that. And you've gotta think about we're 1:04:28.200 --> 1:04:30.600 still in the business of taking risk. How do you 1:04:30.760 --> 1:04:34.240 manage those things effectively that you've got your tail risk downside? 1:04:34.240 --> 1:04:36.440 So to this day, you know there are things like 1:04:36.520 --> 1:04:39.400 I've been through, whether it's gosh, years of trading Korea 1:04:39.960 --> 1:04:41.680 and you know, every time there's something in North Korea, 1:04:41.720 --> 1:04:42.880 think about, i' my god, we got a hedge that 1:04:42.880 --> 1:04:44.880 And I've learned over my career, gosh, I spent more 1:04:45.640 --> 1:04:48.680 basis point buying insurance and think about if I just 1:04:48.760 --> 1:04:51.120 run my portfolio the right way, stop buying so much 1:04:51.160 --> 1:04:53.520 insurance because you'll figure out how to get returned to zero. 1:04:54.200 --> 1:04:56.200 And but you've got to think about those things and 1:04:56.320 --> 1:04:58.320 what are what are the risk and what is the 1:04:58.400 --> 1:05:00.560 hedge that could that could work relative it it doesn't 1:05:00.560 --> 1:05:02.800 cost you that much, or or how can I run 1:05:02.880 --> 1:05:07.640 my portfolio taking those risks? So fast forward from eight seven, uh, 1:05:08.280 --> 1:05:12.360 twenty years now it's oh five real estate sort of 1:05:12.560 --> 1:05:15.840 peaks and price and oh six and volume, the mbs 1:05:16.000 --> 1:05:18.000 that was a big part of of not what you 1:05:18.080 --> 1:05:21.640 were working with, but generally Lehman Brothers starts to rollovers, 1:05:21.720 --> 1:05:25.120 it starts to be stress. We see the derivatives begin 1:05:25.240 --> 1:05:28.479 to play out. When did you start to smell things 1:05:28.560 --> 1:05:31.960 were going off the rails at Lehman Brothers. Well, I 1:05:32.040 --> 1:05:34.680 didn't write that you're there and you just thought that 1:05:34.760 --> 1:05:36.640 this would be another thing. I mean, I mean I 1:05:36.760 --> 1:05:38.480 left in Mayo eight. If I, by the way, if 1:05:38.480 --> 1:05:40.479 I thought there was any issue there or any other place, 1:05:40.960 --> 1:05:42.520 then I wouldn't have started a hedge fund. Let me 1:05:42.560 --> 1:05:44.880 think about the volatility that I would have created. We're 1:05:44.960 --> 1:05:47.320 betting on the other side. Yeah, but no, I mean 1:05:47.520 --> 1:05:49.520 the Nate. First of all, I was doing credit, and 1:05:49.560 --> 1:05:51.680 as a credit hedge fund, it's pretty hard to run 1:05:51.800 --> 1:05:54.880 big shorts in credit, so you know, so I didn't 1:05:54.880 --> 1:05:57.840 I didn't think there was an issue. What I think was, 1:05:58.600 --> 1:06:00.760 you know, it was it was hard to leave at 1:06:00.800 --> 1:06:02.880 the time, and we get back to the discussion of 1:06:02.960 --> 1:06:06.320 Greenspan and or Treasury that it was hard to believe 1:06:06.560 --> 1:06:10.360 that you knew from O six oh seven subprime was 1:06:10.760 --> 1:06:14.120 was a problem, and you knew the housing froth was 1:06:14.240 --> 1:06:16.920 so extreme, But then it just kept going. I mean, remember, 1:06:16.920 --> 1:06:19.320 you know seven, you know we thought, okay, you know 1:06:19.400 --> 1:06:21.960 there's gonna be regulars is gonna be changed, the central 1:06:22.000 --> 1:06:24.960 bank will move and you never think you never thought 1:06:25.400 --> 1:06:28.960 that you would, you know, policymakers would ignore all of 1:06:29.080 --> 1:06:32.240 these signals along the way, and then we'd go down 1:06:32.400 --> 1:06:35.000 what was this tumultuous point in time you know, started 1:06:35.000 --> 1:06:37.480 with Bear Stearns and then all of a sudden, financial 1:06:37.520 --> 1:06:41.560 institutions are levered entities once the dominoes start to fall, 1:06:41.760 --> 1:06:44.280 and you know, you have whether it's derivatives, you have 1:06:44.360 --> 1:06:48.560 intertwined financial intertwined financial system once the domino start to fall, 1:06:48.640 --> 1:06:51.160 and you think about what would have happened to other 1:06:51.280 --> 1:06:54.040 firms as well. So listen, I mean, I you know 1:06:54.560 --> 1:06:57.200 this went on for longer. Oh six, oh seven felt 1:06:57.560 --> 1:07:01.480 certainly oh seven felt a little queasy about like why 1:07:01.720 --> 1:07:04.560 is nothing happening? And you had this incredibly over zealous 1:07:04.600 --> 1:07:06.360 housing market. I mean, you know, I don't think that 1:07:06.400 --> 1:07:09.560 will ever happen again, because I think policymakers will react 1:07:09.600 --> 1:07:12.440 to that a whole lot, one would hope. So you 1:07:12.520 --> 1:07:15.480 spend two decades and Lehman Brothers. Do you spend much 1:07:15.560 --> 1:07:19.640 time with the guerrilla yes, and and yeah, I mean 1:07:19.680 --> 1:07:22.000 in a lot of respect for them, and uh, listen, 1:07:22.080 --> 1:07:24.520 I think their decisions that I think anybody in their career, 1:07:24.600 --> 1:07:26.960 anybody's running a company or a business, would like to 1:07:27.040 --> 1:07:29.560 have back. But but listen, I'm and you know, the 1:07:29.640 --> 1:07:31.600 firm had a really really good track record for a 1:07:31.680 --> 1:07:34.480 lot of years. That's that's the pretty by the way, 1:07:34.560 --> 1:07:38.280 including going through the crisis crisis, you know, a long 1:07:38.360 --> 1:07:41.240 time capital management they were they were on the right 1:07:41.320 --> 1:07:44.480 side of yea unlike back. Yeah, so I think, you know, 1:07:44.560 --> 1:07:46.880 the track record was pretty good. And you know what's sad. 1:07:46.960 --> 1:07:49.280 I mean, I find it's sad and that you know, 1:07:49.320 --> 1:07:52.200 there were a lot of amazing people at bear sterns 1:07:52.280 --> 1:07:54.000 Levan Brothers, a bunch of places that, by the way, 1:07:54.280 --> 1:07:56.520 many of those people go into, you know, have fruitful 1:07:56.560 --> 1:07:59.000 careers and other in other worlds. But you know, it's 1:07:59.000 --> 1:08:02.560 sad that that. You know. My my pet theory on 1:08:02.840 --> 1:08:06.560 on where Dick Fold went off the rails was rejecting 1:08:06.600 --> 1:08:10.400 the offer from Warren Buffett Layton oh eight. I think 1:08:10.480 --> 1:08:12.800 when the time came to think about who do we 1:08:12.880 --> 1:08:15.560 bail out and who do we set an example? Gee, 1:08:15.600 --> 1:08:19.000 Warren Buffett offered you a few billion dollars. How do 1:08:19.080 --> 1:08:21.000 you say no to warrant? That's the you know, the 1:08:21.120 --> 1:08:24.960 finance good housekeeping seal of approval. Goldman took money from 1:08:25.000 --> 1:08:29.599 Warren at an even higher rate, and it basically removed 1:08:29.680 --> 1:08:32.439 them off the table. For Hey, do we have to 1:08:32.479 --> 1:08:36.439 worry about Goldman had Fold taken Warren's money. I think 1:08:36.560 --> 1:08:39.800 this might have ended differently. Maybe, yeah, probably, I mean 1:08:39.840 --> 1:08:42.040 I say, they're there are decisions that get made, and 1:08:42.560 --> 1:08:44.960 you know, I'm sure not everyone was. You know, it's 1:08:45.000 --> 1:08:47.800 the right war and ultimately but but yeah, so you're 1:08:47.840 --> 1:08:51.160 at Lehman for twenty years and you decide I'm going 1:08:51.200 --> 1:08:54.320 to set up a credit hedge funds. I want to 1:08:54.360 --> 1:08:57.760 go on on my own. Even though we started, we 1:08:58.000 --> 1:09:01.519 we saw the Bear Starns hedge funds UM run into trouble. 1:09:01.640 --> 1:09:04.680 There was clearly froth in the housing market and the 1:09:04.840 --> 1:09:08.960 early signs of a crack in the NBS foundation. As 1:09:09.080 --> 1:09:11.800 you're getting ready to launch, are you thinking, hey, maybe 1:09:11.880 --> 1:09:14.920 this is a bad idea or what's Leban has been 1:09:14.960 --> 1:09:17.519 good to me for twenty years? Tell us about your 1:09:17.560 --> 1:09:19.960 thought process. I mean, you know we thought, you know, 1:09:20.120 --> 1:09:21.960 first of all, I have a strong passion around it. 1:09:22.000 --> 1:09:23.439 And by the way, we started coming to called our 1:09:23.479 --> 1:09:26.200 three capital and so our three people think it's My 1:09:26.240 --> 1:09:29.160 initials actually was for reading, writing, and arithmetic, and so 1:09:29.280 --> 1:09:31.880 part one of the things I was super excited about 1:09:32.040 --> 1:09:35.080 was to start a fond and actually proceeds we're gonna 1:09:35.080 --> 1:09:37.880 go into urban education in the country. But I thought 1:09:38.000 --> 1:09:40.040 this was I had a great, great team, many of 1:09:40.080 --> 1:09:42.320 which you're still with me today. And I thought, and 1:09:42.400 --> 1:09:44.599 I had asked the firm about it two years prior, 1:09:45.160 --> 1:09:46.720 about gosh, I'd love to go and try and do 1:09:46.880 --> 1:09:50.160 this on my own. We've got permission in advance. Well, no, 1:09:50.240 --> 1:09:52.000 I asked the firm a couple of years ago, and 1:09:52.080 --> 1:09:54.599 I probably should have gone and done it. And anyway, 1:09:54.680 --> 1:09:56.120 that to me, I mean at the beginning of Oh 1:09:56.400 --> 1:09:58.280 struck me as my god, there's gonna be volatility, is 1:09:58.280 --> 1:10:01.320 gonna be opportunity. We got a really good team. Let's 1:10:01.439 --> 1:10:02.840 you know, let's go strike out on our own and 1:10:02.960 --> 1:10:06.040 do this, and and so you know, it was an 1:10:06.080 --> 1:10:07.960 exciting point in time to do it. Like I said, 1:10:07.960 --> 1:10:10.800 I didn't think the system would come to an end 1:10:10.880 --> 1:10:13.320 as as it. I certainly wouldn't have done it if 1:10:13.360 --> 1:10:15.280 I thought that that were the case. You tied me 1:10:15.400 --> 1:10:18.880 up for a perfect segue into a curve bowl question. 1:10:19.000 --> 1:10:23.360 You mentioned three rs, reading, writing, arithmetic. You serve as 1:10:23.479 --> 1:10:27.800 the National Leadership Council of Communities and Schools and the 1:10:27.960 --> 1:10:31.200 Educational Foundation UH in Newark. Tell us a little bit 1:10:31.240 --> 1:10:34.840 about the work you do with community schools and less 1:10:34.880 --> 1:10:37.560 affluent neighborhoods. So I mean less of all than so 1:10:37.680 --> 1:10:40.519 I was on the National Leadership So my my biggest 1:10:40.560 --> 1:10:43.000 endeavors today I cheer the board of North Star Academy, 1:10:43.479 --> 1:10:46.080 which is where fourteen schools in Newark, New Jersey charter 1:10:46.200 --> 1:10:48.600 schools that I think I'm biased. I think it's the 1:10:48.640 --> 1:10:51.000 highest performing set of schools in the country. I'm super, 1:10:51.120 --> 1:10:53.680 super proud of what the team does there and how 1:10:53.720 --> 1:10:55.599 we've been able to build that. And I started something 1:10:55.640 --> 1:10:59.839 called Graduation Generation Atlanta, which put together City of Atlanta, Communities, 1:11:00.000 --> 1:11:03.320 communities and schools, and h Emory University to try and 1:11:03.439 --> 1:11:11.200 create the whole package around around a student from social work, tutoring, mentoring, healthcare. 1:11:11.720 --> 1:11:15.000 So anyway, though those are big drivers of of you know, 1:11:15.120 --> 1:11:17.960 my passion of my life is giving people, particularly in 1:11:18.120 --> 1:11:20.960 urban education. You know, giving him a kickstart and a 1:11:21.080 --> 1:11:23.080 chance to succeed. And we've watched it, you know, in 1:11:23.240 --> 1:11:26.600 our schools, in it in Newark. I mean it's extraordinary 1:11:26.600 --> 1:11:31.479 included what's your affiliation with Newark? So early on somebody 1:11:31.479 --> 1:11:33.240 asked me to get involved with the Harlem Children Zone, 1:11:33.280 --> 1:11:36.240 which is an extraordinary place. I lived in New Jersey 1:11:36.240 --> 1:11:37.800 and I said, I gosh, I'd left. Something comes up 1:11:37.800 --> 1:11:40.400 in New Jersey. And then this opportunity came up in 1:11:40.479 --> 1:11:43.280 Newark and I got to meet, uh, somebody named Norman Atkins, 1:11:43.320 --> 1:11:44.960 who's I think is one of the best educators in 1:11:45.080 --> 1:11:47.840 the world. And any I was motivated by we doing 1:11:47.840 --> 1:11:50.280 it's just one school at the time. Cory Booker was 1:11:50.400 --> 1:11:53.320 on our board at the time It's one school and 1:11:53.400 --> 1:11:55.320 then uh, and then we got ability to grow to 1:11:55.439 --> 1:11:58.040 the point now where six thousand kids, big part of 1:11:58.080 --> 1:12:02.360 the population of new work with extre straordinary performance from 1:12:02.880 --> 1:12:04.920 from our schools, in our in our students, I mean, 1:12:04.960 --> 1:12:06.679 the number of students we send in the ivy leagues 1:12:06.720 --> 1:12:09.680 and graduate to colleges is incredible. I don't know, it's 1:12:10.120 --> 1:12:12.320 a Knwich has a reputation of not having a great 1:12:12.320 --> 1:12:18.040 school system. What's the impact of this council on neighboring schools. 1:12:18.080 --> 1:12:21.920 How do you elevate the entire um educational system? So, 1:12:22.080 --> 1:12:23.680 I mean a big deal around and I've learned this 1:12:23.800 --> 1:12:25.400 in my career. It's part of why, part of why 1:12:25.439 --> 1:12:27.160 north Star was so near and due to my heart. 1:12:27.560 --> 1:12:29.400 We call it and there's a number of books are 1:12:29.640 --> 1:12:33.559 our lead director Um Paul Bambreck started. It's called Driven 1:12:33.600 --> 1:12:35.400 by Data is one of the most famous books in 1:12:35.560 --> 1:12:38.320 education for a long time. We analyze the data where 1:12:38.400 --> 1:12:41.160 students performing, where they're not performing, Where how are we 1:12:41.280 --> 1:12:46.200 doing in in in literacy, in literacy versus math, versus science, 1:12:46.560 --> 1:12:49.400 And we study it and we're maniacal about the data. 1:12:49.840 --> 1:12:52.640 Where are we not fulfilling the needs? And then and 1:12:52.680 --> 1:12:55.080 then we adjust relative to that. So what we're doing 1:12:55.120 --> 1:12:57.639 investing and that it's been really successful. And by the way, 1:12:57.640 --> 1:13:00.200 it's permeated not just the city of Newark, but in 1:13:00.320 --> 1:13:03.120 many countries around the world. They're using, you know, sort 1:13:03.160 --> 1:13:06.920 of our methodology around data analysis and making sure we're 1:13:07.000 --> 1:13:09.439 keeping our kids up to a level or in trying 1:13:09.479 --> 1:13:11.320 to the number of of our students that take a 1:13:11.400 --> 1:13:15.160 p exams and succeed is just extraordinary. So I know, 1:13:15.200 --> 1:13:16.880 I'm super proud of you. Know. What the team does 1:13:16.920 --> 1:13:19.519 around it really interesting. I know I only have you 1:13:20.000 --> 1:13:22.160 for a limited amount of time, So let me jump 1:13:22.280 --> 1:13:26.000 to my favorite questions that I asked all of our guests, 1:13:26.439 --> 1:13:29.360 starting with tell us what you've been streaming these days? 1:13:29.439 --> 1:13:32.240 What's been keeping you entertained? So I I do. I mean, 1:13:33.120 --> 1:13:35.920 because I'm going at work million miles a minute, every 1:13:35.960 --> 1:13:38.599 minute of the day, I tend them I releases on sports, 1:13:39.360 --> 1:13:41.720 I mean, I watched tons of sports when I get home, 1:13:41.760 --> 1:13:44.040 I like, I love to watch that San Francisco game 1:13:44.160 --> 1:13:46.720 was just that. Yeah, that one I didn't spend a 1:13:46.720 --> 1:13:48.400 lot of time watching, but I watch a lot of sports. 1:13:48.439 --> 1:13:51.360 I'm particularly intrigued, as you would imagine. I like a 1:13:51.439 --> 1:13:53.519 lot of the show's. ESPN does a ton of shows 1:13:54.080 --> 1:13:56.920 on getting into people's mentality and how do they win? 1:13:57.200 --> 1:13:59.960 And some Michael Jordan's There Was a Man That Wasn't 1:14:00.000 --> 1:14:02.920 amazing series, wasn't it? Maybe the best I've ever seen. 1:14:03.320 --> 1:14:06.360 But I love understanding what drives people, how they how 1:14:06.439 --> 1:14:08.479 they get to the next level. Similarly, when I read 1:14:08.520 --> 1:14:11.080 books about how how do you get to business to 1:14:11.160 --> 1:14:13.160 the next level, but that that's what I watch a 1:14:13.240 --> 1:14:15.840 load of those. And then so did you get around 1:14:15.880 --> 1:14:18.840 to seeing Drive for Survive to Survive? About F one? 1:14:19.240 --> 1:14:21.000 It's so, it's so funny because I went to F 1:14:21.160 --> 1:14:22.800 one last year and we talked about it. I still 1:14:22.840 --> 1:14:26.440 haven't watched it. I gotta watch that. It's shockingly interesting. 1:14:26.560 --> 1:14:29.479 And they just rolled out a new one on tennis, 1:14:30.320 --> 1:14:33.080 and then there's a third one coming that they started 1:14:33.120 --> 1:14:37.080 on golf just as the Dubai League begin. Yeah, it's 1:14:37.680 --> 1:14:40.640 They do a really good job of making people you 1:14:40.800 --> 1:14:43.800 probably haven't. I mean, we we've all heard of a 1:14:43.920 --> 1:14:46.960 handful of names, but it's that, you know, the up 1:14:47.000 --> 1:14:51.560 and coming tier that's so interesting. Um, Netflix does some 1:14:51.680 --> 1:14:54.679 really interesting sports stuff. Yeah, it's fun. So so let's 1:14:54.720 --> 1:15:00.320 talk about mentors who helped to shape your career. So so, 1:15:00.439 --> 1:15:01.920 first of all, the person who hired me I lamed 1:15:01.920 --> 1:15:04.240 many years ago, a guy named Bart McDade. His was 1:15:04.680 --> 1:15:07.439 extraordinary and making. I mean I still do this day, 1:15:07.439 --> 1:15:08.920 I think about what would Bart doing that. He just 1:15:09.040 --> 1:15:14.320 had this incredibility trade invest people, have confidence in people, 1:15:14.400 --> 1:15:17.920 let them make mistakes. Uh not too big and uh 1:15:18.040 --> 1:15:20.080 but anyway, his he taught me a ton of men. 1:15:20.080 --> 1:15:21.320 He taught me more. He's one of my best friends 1:15:21.360 --> 1:15:23.240 today and and he was extraordinant. But I have also 1:15:23.400 --> 1:15:25.920 learned from the best investors in the world, have a 1:15:26.080 --> 1:15:29.360 great honor get to know David Tepper's that, Dan Druccon, Miller's, 1:15:29.360 --> 1:15:32.240 Paul Tutor Jones, and I've learned a bunch from each 1:15:32.280 --> 1:15:35.120 of them. And you know a few things about investing, 1:15:35.960 --> 1:15:38.320 you know, like separating the news from the noise. Some 1:15:38.439 --> 1:15:40.320 of those people are extraordinary. You know, we live in 1:15:40.360 --> 1:15:43.599 a world where which about earlier things like Twitter, etcetera. 1:15:43.680 --> 1:15:46.800 We live in a world where it's constant soundbites. Those 1:15:46.840 --> 1:15:50.120 people have an incredible ability separate the news from the noise. 1:15:50.760 --> 1:15:53.760 You know, interesting, interesting that matters. And those people have 1:15:53.880 --> 1:15:56.040 been really really helpful to me in terms of thinking, 1:15:56.040 --> 1:15:58.080 you know, getting to understand how they think about things, 1:15:58.520 --> 1:16:02.080 and you know what what drives persistent success. Let's talk 1:16:02.120 --> 1:16:04.320 about books. What are you reading now? What are some 1:16:04.400 --> 1:16:06.679 of your favorites. So I read a lot of books 1:16:06.720 --> 1:16:10.560 on technology, and i'm today I say, let's less a 1:16:10.600 --> 1:16:13.400 book that I'm reading today, But I can't read enough 1:16:14.000 --> 1:16:19.000 about deep research papers on artificial intelligence that including the 1:16:19.120 --> 1:16:21.120 chat GBT, and I'm spending a bunch of time this 1:16:21.200 --> 1:16:24.000 weekend playing around without to understand it, but that I 1:16:24.040 --> 1:16:26.439 mean technology to me. And the best book I ever 1:16:26.560 --> 1:16:30.000 read was The Second Machine Age that talked about where 1:16:30.080 --> 1:16:33.320 technology was gonna go. And now I'm all about what 1:16:33.520 --> 1:16:35.920 is the next evolution of technology? And like I said, 1:16:35.920 --> 1:16:37.800 I think this AI is going to change the world 1:16:37.960 --> 1:16:40.439 in many ways. But I also like to read. I'd 1:16:40.479 --> 1:16:43.520 like to read books on things like good, Degrade, etcetera. 1:16:44.040 --> 1:16:47.360 That are you know that how companies ran their businesses 1:16:48.479 --> 1:16:51.679 um and how momentum changes things like the tipping point 1:16:52.439 --> 1:16:55.680 Maxim and Malcolm Gladwell. I think it's extraordinary, So the 1:16:55.720 --> 1:16:57.760 whole myriad of them. And I actually started reading some 1:16:57.840 --> 1:17:01.360 books when I just finished permiss and to Feel, which 1:17:01.479 --> 1:17:05.120 is a book from from Yale. You know, our students 1:17:05.160 --> 1:17:08.599 in our schools undergo a lot of stress, particularly during COVID, 1:17:09.040 --> 1:17:11.960 and this is how emotion and letting emotion out allows 1:17:12.000 --> 1:17:13.960 you to be more effective and deal with some of 1:17:14.000 --> 1:17:15.639 the stresses. And so there's a lot of cool things 1:17:15.680 --> 1:17:18.760 that have been investigating over the last last few months, 1:17:18.840 --> 1:17:22.719 really interesting. Our last two questions, what sort of advice 1:17:22.760 --> 1:17:25.280 would you give to a recent college grad who was 1:17:25.400 --> 1:17:30.000 interested in a career in fixed income. I mean the 1:17:30.040 --> 1:17:31.400 first thing I meant, if you really, I mean a 1:17:31.439 --> 1:17:32.880 lot of people I watched them in the industry do 1:17:32.920 --> 1:17:34.240 it because I hear it's a way to make a 1:17:34.320 --> 1:17:35.800 lot of money or a way to make money. And 1:17:36.000 --> 1:17:38.200 I just think that be by watching people come in 1:17:38.400 --> 1:17:40.600 and then they leave because they're not driven by and 1:17:40.680 --> 1:17:43.880 make sure you're driven by it. And then I think 1:17:44.000 --> 1:17:46.120 most people that come into this business or any business, 1:17:46.200 --> 1:17:49.320 always feel like they follow the person who did it 1:17:49.400 --> 1:17:52.560 well right before them. And you know, what was the 1:17:52.600 --> 1:17:54.840 hot firm, what's the hot firm, what's the hot area, 1:17:55.479 --> 1:17:58.240 and anything about what markets have taught me. Usually don't 1:17:58.280 --> 1:17:59.599 want to buy the hot thing. You want to buy 1:17:59.680 --> 1:18:02.400 the thing that's that's maybe trending down and that may 1:18:02.479 --> 1:18:05.160 come back, but it's you know, I I remember when 1:18:05.160 --> 1:18:08.000 I was interviewing you appreciate this that I Drexel was 1:18:08.040 --> 1:18:10.000 the hard front was a part firm that was impossible 1:18:10.040 --> 1:18:11.320 to get into, and of course I didn't get a 1:18:11.400 --> 1:18:14.800 job there, thank god. And they are a bit of those. 1:18:14.880 --> 1:18:17.519 But the but I know why people always on what's 1:18:17.520 --> 1:18:20.479 in front of me today, but think about where are 1:18:20.560 --> 1:18:23.240 we going longer term, and then where's the area that 1:18:23.280 --> 1:18:26.120 maybe I can grow as opposed to the place that 1:18:26.200 --> 1:18:28.639 maybe has already figured it out, or or the area 1:18:28.720 --> 1:18:31.240 that's already figured out. I think people you are, particularly 1:18:31.280 --> 1:18:34.160 coming out of school, you know, I tend to all 1:18:34.240 --> 1:18:36.400 move in one direction. Was amazing, Like the interview when 1:18:36.439 --> 1:18:38.600 I was at Wharton. How everybody want to interview with 1:18:38.640 --> 1:18:43.400 the exact same places the market, No, and be thoughtful 1:18:43.439 --> 1:18:45.160 about you know, where do you go? And it's so 1:18:45.360 --> 1:18:47.800 much about people, But do you find the right person, 1:18:48.000 --> 1:18:50.400 the right mentor the right group that you fit in 1:18:50.479 --> 1:18:53.479 with culturally as opposed to gosh, this seems to be 1:18:53.560 --> 1:18:56.519 the path that worked for somebody else. And our final question, 1:18:56.880 --> 1:18:59.080 what do you know about the world of investing today? 1:18:59.600 --> 1:19:02.240 You will us you knew thirty six years ago when 1:19:02.280 --> 1:19:05.160 you were first getting started. So I mean I've talked 1:19:05.160 --> 1:19:06.880 about One of them was just you know, taking a 1:19:06.920 --> 1:19:09.920 step back and letting the superficial work work its way through, 1:19:10.720 --> 1:19:12.760 you know. I you know, when I first came into 1:19:12.800 --> 1:19:15.160 the business, I used to want to read everything, and 1:19:15.240 --> 1:19:17.040 it's like if the more I read, the smarter I'm 1:19:17.040 --> 1:19:19.560 gonna be. And now I've really tried to boil it 1:19:19.640 --> 1:19:21.320 down to the things that I think are going to 1:19:21.400 --> 1:19:24.080 be the most relevant, the researchers that I think are 1:19:24.120 --> 1:19:25.960 the best, and do a lot of the work on 1:19:26.040 --> 1:19:29.160 my own. Like you know, people the research, the information 1:19:29.240 --> 1:19:33.200 that gets out there, it's usually homogenized, and it's usually 1:19:33.840 --> 1:19:36.280 you know, if somebody else already had the idea, it's 1:19:36.320 --> 1:19:39.960 probably been expressing the markets. So I try and do it. 1:19:40.360 --> 1:19:41.600 You know, I find like if I can do the 1:19:41.680 --> 1:19:45.000 work organically and come up with my own ideas. You know, 1:19:45.040 --> 1:19:46.760 a lot of people go, you know, every night to 1:19:46.880 --> 1:19:49.640 round table dinners and listen to other people's opinion, and 1:19:49.720 --> 1:19:52.320 I tend to believe while I'm wrong a ton, I 1:19:52.400 --> 1:19:53.920 feel like if I can do my own work and 1:19:53.960 --> 1:19:57.440 my own analysis, then I'd probably come to a better conclusion, 1:19:57.840 --> 1:19:59.800 especially if it's already been played out in the market. 1:19:59.880 --> 1:20:02.080 So there's there's a bunch of things like that that 1:20:02.400 --> 1:20:05.439 that I've learned over over my career. And then one 1:20:05.520 --> 1:20:07.560 last thing I will say is I learned in my 1:20:07.640 --> 1:20:10.400 career similar to why I struggled earlier my academic career, 1:20:11.080 --> 1:20:12.840 is you have to prepare for everything you do. I 1:20:12.960 --> 1:20:14.400 used to think like you just come in and do 1:20:14.520 --> 1:20:16.519 it like I did well in school early on, and 1:20:16.560 --> 1:20:19.040 then I started to not do well because you can't 1:20:19.120 --> 1:20:22.160 just you know, you didn't. You can't over intellectualize it. 1:20:22.479 --> 1:20:24.760 You've got to prepare. And I find today that now 1:20:25.040 --> 1:20:27.640 every single thing I do, I spent a lot of 1:20:27.680 --> 1:20:30.120 time preparing for it. And similar to the way I 1:20:30.160 --> 1:20:32.960 finally got better at college was you know, you got 1:20:33.120 --> 1:20:35.120 to do the work and put in the preparation. But 1:20:35.160 --> 1:20:37.600 I find that young people that come in, you know, 1:20:37.680 --> 1:20:39.280 every day, and they think, you know, think I just 1:20:39.400 --> 1:20:41.599 read this and I can do it. It's all about 1:20:41.680 --> 1:20:44.280 the preparation and I've learned a bunch about that over 1:20:44.320 --> 1:20:47.760 the years. We were talking yesterday about simple but hard, 1:20:48.600 --> 1:20:51.000 Like people think it's easy. It's like, no, no, it's simple, 1:20:51.800 --> 1:20:53.519 but it's a lot of blood, sweat and tears, and 1:20:53.640 --> 1:20:56.479 that's the hard part. Really fascinating, Rick, thank you for 1:20:56.560 --> 1:20:59.400 being so generous with your time. This was this was tremendous. 1:21:00.080 --> 1:21:02.400 We have been speaking with Rick Reader. He is the 1:21:02.479 --> 1:21:06.280 chief Investment Officer for fixed income at black Rock, as 1:21:06.320 --> 1:21:09.439 well as holding a number of other titles. If you 1:21:09.880 --> 1:21:12.920 enjoy this conversation, be sure and check any of the 1:21:13.000 --> 1:21:16.120 other four d and ninety two such discussions we've had 1:21:16.560 --> 1:21:22.000 over the past eight years. You can find those at YouTube, iTunes, Spotify, 1:21:22.320 --> 1:21:25.360 or wherever you get your podcast from. Be sure to 1:21:25.400 --> 1:21:28.000 sign up for my daily reads at Ridhalts dot com. 1:21:28.160 --> 1:21:31.679 Follow me on Twitter at Rihalts. I would be remiss 1:21:31.880 --> 1:21:33.719 if I did not thank the crack team that helps 1:21:33.800 --> 1:21:38.320 us put these conversations together each week. Justin Milner is 1:21:38.400 --> 1:21:41.280 my audio engineer. Sean Russo is my head of research. 1:21:41.720 --> 1:21:45.000 A Tika val Bron is my project manager. Paris Wald 1:21:45.439 --> 1:21:49.760 is my producer. I'm Barry Rihalts. You've been listening to 1:21:49.920 --> 1:21:52.360 Masters and Business on Bloomberg Radio.