WEBVTT - Boaz Weinstein on Credit Investments 0:00:00.080 --> 0:00:05.960 M. This is Mesters in Business with very Results on 0:00:06.240 --> 0:00:11.160 Bloomberg Radio. This week on the podcast, I have an 0:00:11.160 --> 0:00:16.320 extra special guest. BoA's Weinstein is the founder of SABA Capital, 0:00:16.800 --> 0:00:20.000 of five billion dollar hedge fund that specializes in some 0:00:20.160 --> 0:00:24.120 really interesting types of trading um credit to fault swaps, 0:00:24.160 --> 0:00:27.760 tale protection, volatility trading UH. SABA is one of the 0:00:27.840 --> 0:00:32.239 five largest investors globally in spacts, but not in the 0:00:32.280 --> 0:00:35.000 way you think they've done really well with it despite 0:00:35.479 --> 0:00:39.320 all of the troubles that spacts have seen. Previously, he 0:00:39.400 --> 0:00:42.080 was co head of global credit trading at Deutsche Bank, 0:00:42.440 --> 0:00:46.479 and ultimately he and Deutsche spun out SABA along with 0:00:46.520 --> 0:00:51.480 his whole team as a standalone funds man. I don't 0:00:51.479 --> 0:00:54.080 even know where to begin. This was just an absolutely 0:00:54.240 --> 0:00:59.080 fascinating conversation. Not only is he a quant with some 0:00:59.160 --> 0:01:05.200 real insight into capital market structures and valuation and miss pricings, 0:01:05.240 --> 0:01:09.840 but he's put together an amazing track record, uh, not 0:01:10.040 --> 0:01:14.280 just in terms of his trading, but his consistent ability 0:01:14.440 --> 0:01:18.600 to find parts of the markets that are completely miss 0:01:18.680 --> 0:01:23.919 priced because people fundamentally misunderstand what's going on there. Really 0:01:23.959 --> 0:01:28.560 just a fascinating guy, an amazing conversation with no further Ado, 0:01:29.080 --> 0:01:33.959 my conversation with BoA's Weinstein of Sabba Capital, Hi, Barry, 0:01:34.080 --> 0:01:36.479 it's great to be here. And am I pronouncing your 0:01:36.480 --> 0:01:39.960 first name correctly Boas? Depends where you're from in these parts, 0:01:40.000 --> 0:01:42.960 that would work, and it's really a typical Israeli name 0:01:43.000 --> 0:01:46.400 and it would be Boas alright. So so let's start 0:01:46.480 --> 0:01:50.520 with um your background, beginning with you started to play 0:01:50.640 --> 0:01:55.000 chess when you were five and eventually became pretty highly ranked. 0:01:55.280 --> 0:01:57.280 How did you get into chess and and how long 0:01:57.320 --> 0:02:00.040 did it take to become a ranked player here in 0:02:00.080 --> 0:02:03.240 the US? Sure, so I had those parents that would 0:02:03.320 --> 0:02:06.120 drive us on weekends. I have a sister actually been 0:02:06.880 --> 0:02:09.920 been on Bloomberg many times, uh Elana. But we my 0:02:09.960 --> 0:02:12.560 parents would take us to Saturday morning workshops to learn 0:02:12.560 --> 0:02:15.160 about model rocketry or chess or what have you. But 0:02:15.200 --> 0:02:18.560 I didn't actually playing tournaments to always thirteen. I got 0:02:18.600 --> 0:02:21.040 to junior high school and I was interested in the game. 0:02:21.040 --> 0:02:22.680 And there was a kid a year above me, and 0:02:22.720 --> 0:02:24.960 I saw that he was ranked in the top fifteen 0:02:24.960 --> 0:02:27.520 the United States, and I thought that's amazing. How do 0:02:27.600 --> 0:02:29.480 I how do I get there? And so how long 0:02:29.520 --> 0:02:31.200 did it take you from when you started playing in 0:02:31.280 --> 0:02:36.040 tournaments to becoming ranked. So I became really obsessed with it. 0:02:36.080 --> 0:02:38.360 And so in three years I went from a beginner 0:02:38.440 --> 0:02:42.239 to number two in the country for age fifteen sixteen. Wow, 0:02:42.400 --> 0:02:47.040 that's pretty impressive. And that's thousands and thousands of hours. Uh, yeah, 0:02:47.040 --> 0:02:51.000 at least. And and so from chess you moved to 0:02:51.080 --> 0:02:54.639 poker and black jack, which seems more of a fit 0:02:54.760 --> 0:02:58.679 with with finance. What led you from poker and black 0:02:58.800 --> 0:03:02.640 jack to credit it and derivatives? I knew I wanted 0:03:02.720 --> 0:03:04.760 to be on Wall Street well before I knew how 0:03:04.840 --> 0:03:07.639 to play poker. In fact, I didn't really learn poker 0:03:07.720 --> 0:03:10.640 until I was in my mid twenties. Black Jack I 0:03:10.680 --> 0:03:12.839 learned a bit earlier. Maybe we'll get there, But Wall 0:03:12.880 --> 0:03:15.480 Street was always something I was interested in. My parents 0:03:15.480 --> 0:03:18.120 would listen to watch Wall Street Week with Lewis Ruckiser. 0:03:18.480 --> 0:03:21.000 I can tell you the postcode for Owens Mills, Maryland. 0:03:21.280 --> 0:03:23.359 It's two one one one seven, because that's they would 0:03:23.400 --> 0:03:24.760 always do that right in the middle of the show. 0:03:25.200 --> 0:03:27.720 And uh. And so I was able to parlay that 0:03:27.880 --> 0:03:31.760 interest into getting an after school job when I was 0:03:32.200 --> 0:03:34.040 a high school student in New York City, at Merrill 0:03:34.120 --> 0:03:37.280 Lynch and then uh summer internships at Coleman Sacks, which 0:03:37.280 --> 0:03:40.520 were really among the most fun times in my career 0:03:40.520 --> 0:03:42.360 on Wall Street. Well, we'll talk a little bit about 0:03:42.360 --> 0:03:46.000 Goldman In a bit, Um, you mentioned black jack. I 0:03:46.080 --> 0:03:50.120 understand you got pretty good at black jack, eventually getting 0:03:50.200 --> 0:03:52.640 kicked out of the Blaggio as a card counter to 0:03:52.640 --> 0:03:55.240 tell us about that. So it's they're very polite. It's 0:03:55.240 --> 0:03:57.080 a you know, it's it's kicked out as more of 0:03:57.080 --> 0:04:00.200 the nineteen sixties. Um. But you know ed Thorpe is 0:04:00.280 --> 0:04:03.360 a is a hero and beat the dealer and a 0:04:03.400 --> 0:04:07.280 man for all markets. Also is I think a fantastic book. Um. 0:04:07.400 --> 0:04:10.240 And So I learned how to count cards when I 0:04:10.280 --> 0:04:12.600 was a summer intern on the risk guard desk at 0:04:12.640 --> 0:04:16.640 Goldman from the partner in charge, Frank Brozen's almost Marone, 0:04:16.720 --> 0:04:20.680 some of these legendary hedge fund managers, UM and UH 0:04:20.720 --> 0:04:22.760 and I got pretty good at it, and UM and 0:04:22.800 --> 0:04:25.320 I went and was sent over to London when I 0:04:25.360 --> 0:04:29.040 graduated college with Merlynch, and I found that the games 0:04:29.040 --> 0:04:31.200 in London had a weakness that the games in the 0:04:31.279 --> 0:04:33.839 US didn't. They had a certain side bed that was 0:04:34.040 --> 0:04:37.000 very crackable, and I had to kind of figure it out. 0:04:37.080 --> 0:04:40.000 There was no internet, you know, to look up everything 0:04:40.040 --> 0:04:43.039 back then, and I became quite a skilled card counter. 0:04:43.360 --> 0:04:47.240 Uh that's really that's really quite fascinating. So so from 0:04:47.360 --> 0:04:52.440 counting cards, how do you end up at Deutsche Bach? Uh? 0:04:52.680 --> 0:04:55.680 So the people at Marylynch that I first worked with 0:04:55.760 --> 0:04:59.839 out of college had moved really in mass to Deutsche 0:05:00.080 --> 0:05:04.479 um Edson Mitchell legendary Mary Lynch, head of global markets, 0:05:05.000 --> 0:05:07.880 wanted to recreate that at Deutsche Bank without having the 0:05:07.920 --> 0:05:11.960 deep institutional capital markets relationships, and so he really wanted 0:05:12.000 --> 0:05:14.880 to build up trading quickly, and credit derivatives was a 0:05:15.600 --> 0:05:19.160 new market, and he had someone named Aunt Jane, who 0:05:19.160 --> 0:05:22.120 has really been an amazing mentor to me. Um poor 0:05:22.480 --> 0:05:25.560 huge amount of resources into making Deutsche if if not 0:05:25.600 --> 0:05:27.599 the best, the top two year and in year out. 0:05:28.200 --> 0:05:31.599 And at Deutsche Bank you become the youngest person to 0:05:31.760 --> 0:05:36.200 be a managing director. Tell us about that path? Yeah, 0:05:36.240 --> 0:05:39.680 so I think, um, it's either youngest, your second youngest. 0:05:39.720 --> 0:05:42.520 Let me let me not overstep it. But still I 0:05:42.640 --> 0:05:45.440 was twenty seven and usually it's not until you're in 0:05:45.440 --> 0:05:48.520 your thirties, and I have to say there's so many 0:05:48.560 --> 0:05:52.960 aspects to one's career that have to do with luck 0:05:53.040 --> 0:05:56.440 and timing that have to go along with skill. Almost 0:05:56.440 --> 0:05:58.440 all the time, sometimes you can even avoid the skill 0:05:58.520 --> 0:06:01.560 part just be ultra lucky. At my My luck was 0:06:01.640 --> 0:06:06.520 that UM, this market creditortives basically started when I started, 0:06:06.560 --> 0:06:08.880 and even a year or two after, and I was 0:06:08.920 --> 0:06:10.279 waiting for it. It It was like I was waiting for 0:06:10.320 --> 0:06:12.719 it to be created, because I was never going to 0:06:12.800 --> 0:06:17.279 be the credit investor that can read through the tent 0:06:17.400 --> 0:06:20.240 k and and do the deep uh you know, fun 0:06:20.839 --> 0:06:23.520 fundamental work and accounting work that was going to I 0:06:23.560 --> 0:06:25.279 was not going to make my mark in credit that way. 0:06:25.279 --> 0:06:29.440 I needed something more quantitative, more tactical, and creditor. It 0:06:29.480 --> 0:06:32.440 of started really in ninety seven and UM and so 0:06:32.520 --> 0:06:34.560 there was no one, there were no adults to learn from. 0:06:34.560 --> 0:06:38.680 I got to I got to UM learn learn from experience, 0:06:38.680 --> 0:06:42.920 and and ninety eight with Russia defaulting and LTCM blowing up, 0:06:43.240 --> 0:06:47.400 gave an incredible path to that those lessons, and so 0:06:47.480 --> 0:06:51.479 Deutsche Bank kept giving me more and more responsibilities UM 0:06:51.560 --> 0:06:54.520 and so each year they promoted me and I and 0:06:54.600 --> 0:06:56.840 I think another bit of luck was not just being 0:06:56.839 --> 0:06:59.960 at a place that wanted to expand in this new area. 0:07:00.320 --> 0:07:03.039 But also Goldman Sachs had hired away my boss, an 0:07:03.040 --> 0:07:06.120 amazing guy, Ron Tannemora, and I think Deutsche was a 0:07:06.160 --> 0:07:08.280 little afraid that that I might move over to Goldman, 0:07:08.640 --> 0:07:11.800 and so, you know, earlier than than one would have expected, 0:07:11.800 --> 0:07:15.080 they made me an empty So so good timing, right place, 0:07:15.200 --> 0:07:18.120 right time, plus the right set of skills in in 0:07:18.240 --> 0:07:22.960 derivatives trading before we moved to spinning out SABA from 0:07:23.000 --> 0:07:26.000 Deutsche Bank. I have to follow up your conversation about 0:07:26.640 --> 0:07:29.520 being an intern at Goldman Sachs. You kind of worked 0:07:29.560 --> 0:07:32.160 with a murderers row there and you said it was 0:07:32.160 --> 0:07:34.880 the most fun you ever had. Tell us about your 0:07:34.880 --> 0:07:37.160 time at Goldman, Who did you work for and what 0:07:37.160 --> 0:07:41.000 do they have you doing? Sure, so, look, anyone who 0:07:41.000 --> 0:07:43.880 comes to Wall Street needs to read Liars Poker doesn't 0:07:43.880 --> 0:07:46.240 matter we're talking now, ten years ago or fifty years 0:07:46.240 --> 0:07:50.120 from now. And um there was a minor character in 0:07:50.160 --> 0:07:54.040 that book, David DeLucia, who Goldman hired from Solomon to 0:07:54.360 --> 0:07:57.840 set up the junk bond desk, and he had a 0:07:57.920 --> 0:08:00.880 incredible love of chess. He actually has the world's greatest 0:08:00.960 --> 0:08:03.040 going to say something that's not gonna sound so great. 0:08:03.120 --> 0:08:06.520 World's greatest chess book collection. Um um. Hopefully no one's 0:08:06.520 --> 0:08:09.480 gasping at that. But he has, you know, fifteen century 0:08:09.560 --> 0:08:12.920 books and and the busts of the hand of the 0:08:12.960 --> 0:08:15.640 world champion from the eighteenth century, and so he was 0:08:15.720 --> 0:08:18.200 obsessed with chess. I had met him at a at 0:08:18.200 --> 0:08:20.760 a chess club, and I came to Goldman Sachs to 0:08:20.800 --> 0:08:23.320 interview for a summer internship. And I had a very 0:08:23.360 --> 0:08:27.920 perfunctory meeting with the HR person. They they even met me, 0:08:27.960 --> 0:08:30.680 I think only because my sister was working in private 0:08:30.720 --> 0:08:33.200 client services then, so they as I have this twenty 0:08:33.200 --> 0:08:35.840 five minute meeting, the woman says, thanks for coming your 0:08:36.120 --> 0:08:38.280 college freshman, why don't you come back in three years 0:08:38.760 --> 0:08:40.720 and shows me to the door, and I said, okay, 0:08:40.760 --> 0:08:42.719 can I use the men's room? And on my way out, 0:08:42.760 --> 0:08:44.880 I went into the men's room and who's standing washing 0:08:44.920 --> 0:08:48.000 his hands at the sink is David de Lucia. He says, 0:08:48.040 --> 0:08:50.199 what are you doing here? Come on back, and that 0:08:50.320 --> 0:08:55.520 began five rounds, five interviews per round, and finally, after 0:08:55.600 --> 0:08:57.920 twenty five interviews, he calls me back and he says, 0:08:58.400 --> 0:09:00.960 we tried to do everything we could. There's no program 0:09:01.000 --> 0:09:03.880 for you. There's a there's a program called s c 0:09:04.040 --> 0:09:07.280 o UH to give minorities a chance to come to 0:09:07.280 --> 0:09:09.560 Wall Street. There's a program for sons and daughters. We 0:09:09.679 --> 0:09:13.360 just couldn't fit you in. And I said it's you know, 0:09:14.120 --> 0:09:16.199 one thing is never give up. So I said to him, 0:09:16.240 --> 0:09:18.320 it's really too bad. You have a program for sons 0:09:18.800 --> 0:09:22.880 and daughters but not brothers of sisters. And he said, 0:09:23.120 --> 0:09:25.439 let me try that one. And he and he came 0:09:25.440 --> 0:09:27.680 back and I had another two sets of meetings and 0:09:27.720 --> 0:09:31.000 they they they jammed me in with the Summer NBA. 0:09:31.040 --> 0:09:33.160 So I'm a college freshman and I'm there with the 0:09:33.160 --> 0:09:36.360 the HBS and Wharton n B as UH during doing 0:09:36.360 --> 0:09:38.800 training and all sorts of you know things, and and 0:09:38.840 --> 0:09:41.080 the desk I was assigned to. His desk was we 0:09:41.120 --> 0:09:44.640 had a three by two rows, so six seats. He 0:09:44.760 --> 0:09:47.760 was directly facing me and it was a murderers row. 0:09:48.040 --> 0:09:52.200 Um on my on my left was Bill Troy. It 0:09:52.280 --> 0:09:54.480 was really an amazing mentor to me. He was a 0:09:54.480 --> 0:09:57.360 co founder of a fund called um Gray Wolf Capital. 0:09:57.400 --> 0:10:00.280 Next to him was Jim Zelter, who's one of the 0:10:00.280 --> 0:10:02.960 heads of Apollo Um. And then on the other side 0:10:03.280 --> 0:10:05.800 Jonathan Coleach, the founder of Redwood. And then last but 0:10:05.840 --> 0:10:08.600 not least, a guy who was named David Tepper. But 0:10:08.679 --> 0:10:11.280 he was not the David Tepper we all know and 0:10:11.320 --> 0:10:15.000 love now larger than life. He was. He was a 0:10:15.040 --> 0:10:18.040 distressed analyst that was working for for a group. He 0:10:18.120 --> 0:10:20.920 wasn't this. I can't even imagine him, you know, the 0:10:20.960 --> 0:10:24.400 way he was then versa now he's He's an incredible superstar, 0:10:24.400 --> 0:10:26.600 one of the greatest investors of all time. And I 0:10:26.640 --> 0:10:29.040 got to work with the five of them every day 0:10:29.120 --> 0:10:31.800 for you know, for months. And what sort of work 0:10:31.920 --> 0:10:35.800 did they give you? Because I've read that Tepper used 0:10:35.840 --> 0:10:38.840 to bust your chops a little bit, a lot, not 0:10:38.840 --> 0:10:41.000 not a little bit. So he would say, what are 0:10:41.000 --> 0:10:43.720 we paying you for? You're here to play chess with DeLucia. 0:10:43.720 --> 0:10:45.520 That's why Goldman saxes paying you as if it was 0:10:45.679 --> 0:10:47.840 any of his business. So what did he do? He 0:10:47.880 --> 0:10:49.760 didn't teach me much about the market that I learned 0:10:49.760 --> 0:10:51.360 from some of the other guys on the desk. But 0:10:51.400 --> 0:10:53.840 I would have to get broker quotes in the morning, Um, Murphy, 0:10:53.880 --> 0:10:56.200 Duryer or Garband. I'd write down where all the bond 0:10:56.200 --> 0:10:58.800 prices were. And I barely knew anything at the time, 0:10:58.920 --> 0:11:00.839 but what he would do ring the course of the day. 0:11:00.880 --> 0:11:04.160 I remember this was Wall Street in the early nineties. Um, 0:11:04.640 --> 0:11:06.520 they would make bets. So he would yell over at 0:11:06.600 --> 0:11:09.320 Jim's alter, how many how many synagogues do you think 0:11:09.320 --> 0:11:12.520 there are in Montana? And and Zelter would say not 0:11:12.640 --> 0:11:14.720 more than three. And he would say, I'm I'm gonna 0:11:14.760 --> 0:11:17.280 buy three bo as, go to the library and figure 0:11:17.280 --> 0:11:18.959 it out. And this was this is pre internet. So 0:11:19.000 --> 0:11:20.760 you want to know how many synagogues are in Montana, 0:11:21.120 --> 0:11:22.520 It's gonna be a lot of work. And so I 0:11:22.520 --> 0:11:25.160 would settle that bed I would settle were interest rates 0:11:25.160 --> 0:11:27.959 every negative they were briefly during World War Two. I 0:11:27.960 --> 0:11:30.800 would settle, you know, bets of all kinds. And in 0:11:30.840 --> 0:11:34.080 the meantime I would also learn a lot through outmosis 0:11:34.200 --> 0:11:38.319 and by asking questions. So it was just a marvelous experience. 0:11:38.559 --> 0:11:40.600 And if I have a million stories about it, so 0:11:40.760 --> 0:11:42.480 we'll see what we have time for. So so the 0:11:42.559 --> 0:11:46.840 Solomon Brothers version of gambling was liars poker, played with 0:11:46.920 --> 0:11:50.679 dollar bills at Goldman It was a trivia contest for 0:11:50.920 --> 0:11:55.960 random unknown facts. You know, traders like Tibet and and 0:11:56.160 --> 0:11:58.120 some of the obscure bets need to be settled. And 0:11:58.120 --> 0:12:01.000 there was no internet, so you a final word. They 0:12:01.360 --> 0:12:05.360 trusted you to say what what Boa says, that's what goes. 0:12:05.760 --> 0:12:08.640 I uh, I don't even remember if I had to 0:12:08.640 --> 0:12:11.000 show evidence or not, but I was. I was asked 0:12:11.000 --> 0:12:13.320 to do all sorts of things, and along the way, 0:12:13.600 --> 0:12:16.040 I asked dozens of questions a day. And I think 0:12:16.040 --> 0:12:18.559 that's really important for anyone who is going to have 0:12:18.640 --> 0:12:20.880 an internship on Wall Street is that there are things 0:12:20.920 --> 0:12:23.920 you can do to annoy the people around you, but 0:12:24.040 --> 0:12:27.480 one of them is not asking too many decent questions 0:12:27.520 --> 0:12:29.959 about markets. That's that's the only way you're going to 0:12:30.040 --> 0:12:32.200 get to where you want to be, and actually, I 0:12:32.200 --> 0:12:34.280 think it will impress the people around you. So let's 0:12:34.320 --> 0:12:37.080 talk a little bit about your time trading at Deutsche 0:12:37.160 --> 0:12:43.239 Bank before the Great Financial Crisis. You allegedly made profits 0:12:43.240 --> 0:12:46.760 in forty out of forty four quarters. How did you 0:12:46.800 --> 0:12:48.839 manage to be so consistent? I think there are a 0:12:48.880 --> 0:12:51.040 lot of investors who, if you look at how they 0:12:51.080 --> 0:12:53.720 did in that time frame. So let's say the late 0:12:53.800 --> 0:12:57.360 nineties to the Lehman Brothers. The markets really were a 0:12:57.400 --> 0:13:00.880 lot easier than they and laws compare editive. There were 0:13:01.120 --> 0:13:04.440 thousands of fewer hedge funds, and we were we were 0:13:04.480 --> 0:13:08.240 relatively consistent because there also was a lot of edge 0:13:08.320 --> 0:13:13.079 in creditoratives. Creditoratives being synthetic bonds or insurance contracts. You 0:13:13.120 --> 0:13:16.079 can refer to them any number of ways, but how 0:13:16.120 --> 0:13:18.880 to think about, how to price them, miss pricings, in 0:13:19.400 --> 0:13:22.520 credit dioratives against equity ritives. Some of those things were really, 0:13:22.840 --> 0:13:26.440 again not well understood, and I think Deutsche allowing me 0:13:26.480 --> 0:13:29.200 to trade those relationships, trading out of the money puts 0:13:29.240 --> 0:13:32.439 on a stock compared to hedging them with a bond, 0:13:32.480 --> 0:13:35.400 which is not as crazy as it sounds, is something 0:13:35.440 --> 0:13:37.439 that I think gave us a big leg leg up 0:13:37.440 --> 0:13:41.160 and an ability to look across markets and find relative value. 0:13:41.440 --> 0:13:44.200 And so we were we were consistent. We were particularly 0:13:44.920 --> 0:13:49.120 profitable when markets were volatile up until Lehman Brothers, which 0:13:49.160 --> 0:13:51.679 is where we had two of our four down quarters. 0:13:51.720 --> 0:13:57.400 That's volatility large, so you're looking for medium load of 0:13:57.440 --> 0:14:01.240 medium amount of volatility. Once it spikes to very high levels, 0:14:01.280 --> 0:14:04.680 suddenly all the correlations start to fail or why does 0:14:04.760 --> 0:14:07.839 that degree of volatility affect trading. Oh, it was really 0:14:07.920 --> 0:14:11.480 so specific to Lehman failing as a counterparty. So because 0:14:11.480 --> 0:14:14.280 I was inside of a bank, if you were um 0:14:14.320 --> 0:14:17.839 whether it's interest rate swaps or credit swaps, you were 0:14:17.920 --> 0:14:20.440 part of a daisy chain where you buy protection on 0:14:20.600 --> 0:14:25.080 General Electric or IBM from Morgan Stanley, who buys it 0:14:25.080 --> 0:14:28.240 from Lehman. And these hundreds of thousands of swaps would 0:14:28.280 --> 0:14:30.040 remain on the books. So even if you bought and 0:14:30.080 --> 0:14:32.000 sold something, instead of being out of the trade, you 0:14:32.000 --> 0:14:34.720 would have two swaps on. And so when Lehman Brothers failed, 0:14:35.000 --> 0:14:38.080 we had enormous exposure to them as a counterparty, just 0:14:38.160 --> 0:14:40.960 like all the other desks at Deutsche Bank. So that 0:14:41.080 --> 0:14:43.200 made it more challenging than being at a hedge fund. 0:14:43.440 --> 0:14:46.560 But the more volatility for our strategy is really the better, 0:14:46.600 --> 0:14:49.560 and we saw that and we've seen it again this year. 0:14:49.680 --> 0:14:52.560 But Lehman Brothers was very specific because if you couldn't 0:14:52.600 --> 0:14:55.880 trust not just Lehman to pay you, anybody, Mary Lynch, 0:14:56.080 --> 0:14:58.640 you know, and and Goldman, Sax and Morgan Stanley were 0:14:58.680 --> 0:15:02.920 trading like you nearly bankrupt identities trading at credit spreads 0:15:02.920 --> 0:15:06.400 that were a thousand basis points are higher. So so 0:15:06.440 --> 0:15:08.720 that was very specific, and I think the market has 0:15:08.720 --> 0:15:11.760 done a great job to reduce counterparty risk in the 0:15:11.760 --> 0:15:15.000 intervening fifteen years. So let's talk a little bit about 0:15:15.040 --> 0:15:19.520 the strategies that SABA employees. One of your funds is 0:15:19.560 --> 0:15:24.240 a closed end funds arbitrage where companies are either trading 0:15:24.320 --> 0:15:28.080 at a substantial discount or premium to nav to net 0:15:28.080 --> 0:15:31.480 asset value. Tell us a little bit about trading closed 0:15:31.560 --> 0:15:34.320 end funds. Yeah, this is an amazing space. It's one 0:15:34.480 --> 0:15:37.200 where the product has been around a hundred years. Berkshire 0:15:37.240 --> 0:15:39.360 Hathaway in a sense is a closed end fund, and 0:15:39.400 --> 0:15:42.720 Warren Buffett in particular has talked to me and showed 0:15:42.760 --> 0:15:45.000 me how enamored he was with them right before he 0:15:45.000 --> 0:15:47.520 took Benjamin Graham's class. So we're going back to nineteen 0:15:47.600 --> 0:15:50.080 fifty where he had two thirds of his holdings in 0:15:50.320 --> 0:15:52.800 closed end funds. Why why are they interesting? Because you 0:15:52.840 --> 0:15:55.520 get to buy a dollar of assets for less than 0:15:55.560 --> 0:15:58.200 a dollar, and there are ways to turn it back 0:15:58.200 --> 0:16:00.760 into a dollar. So the there's five hundred of them 0:16:00.760 --> 0:16:04.040 on the New York Stock Exchange. The most venerable managers 0:16:04.120 --> 0:16:07.080 all have tons of them, whether it's black Rock or 0:16:07.120 --> 0:16:12.720 black Stone or Pimpco, UM and Templeton, and they um 0:16:12.800 --> 0:16:16.840 sometimes because they're not cared for, because the fees are high, 0:16:16.960 --> 0:16:20.440 because the manager is not thinking about the investor, they 0:16:20.440 --> 0:16:23.080 can slip into trading for a discounts to any v 0:16:23.240 --> 0:16:26.880 So objective dollar bassets valued properly in the same way 0:16:26.880 --> 0:16:29.240 that ETFs mutual funds are valued. You can buy a 0:16:29.280 --> 0:16:32.840 dollar for eight five cents, and if you accumulate enough 0:16:32.840 --> 0:16:35.120 of it, and if you take on an institutional approach 0:16:35.200 --> 0:16:39.600 to reading the documents, understanding the rules as a shareholder, 0:16:39.680 --> 0:16:42.960 your rights to UM to vote for a board of 0:16:43.080 --> 0:16:47.560 trustees and UH or or overthrow the board if they're 0:16:47.560 --> 0:16:49.800 not doing the right thing for investors UM. If you 0:16:49.840 --> 0:16:52.120 buy up enough of the shares UM, you have a 0:16:52.200 --> 0:16:55.480 chance to to make change. And UH we only started 0:16:55.520 --> 0:16:59.680 doing that when they started to go to deep discounts. 0:16:59.720 --> 0:17:02.600 Some these barry had been at discounts seven eight, nine years. 0:17:02.600 --> 0:17:03.920 They never had a day where they were not at 0:17:03.960 --> 0:17:07.600 a discount. And we've been able in dozens of cases 0:17:08.000 --> 0:17:11.640 two for thousands and thousands of investors, tens of thousands, 0:17:11.920 --> 0:17:15.760 to get the discount to UM converge back to ny VING. 0:17:16.040 --> 0:17:19.360 So so let's talk about that approach. When I think 0:17:19.400 --> 0:17:23.840 of activist campaigns, I think of investors like Carl Icon 0:17:24.119 --> 0:17:28.119 or Dan Loebe or or uh Bill Ackman. How is 0:17:28.160 --> 0:17:32.040 your approach similar or different to their sort of activist 0:17:32.200 --> 0:17:35.920 investing campaigns. Right, So, they're finding a company where they 0:17:35.920 --> 0:17:40.440 can make change, and that change maybe on average, is 0:17:40.840 --> 0:17:43.720 quite valuable, but you can debate it. And certainly there 0:17:43.720 --> 0:17:47.040 are examples where the impact of the activist was terrible 0:17:47.320 --> 0:17:49.679 me in some cases even led to the bankruptcy of 0:17:49.720 --> 0:17:52.920 the of the company. Enclosed end funds. It's totally different 0:17:52.960 --> 0:17:56.439 because the medicine, the plan for how to get the 0:17:56.480 --> 0:17:59.720 fund trading to ny V works every single time. And 0:17:59.760 --> 0:18:02.840 all I'll tell you why, because we're not trying to 0:18:02.920 --> 0:18:05.919 remake J. C. Penny in the image of Apple Computer, 0:18:05.920 --> 0:18:07.560 which might or might not work. Or you know, we 0:18:07.560 --> 0:18:11.080 could pick some that were fantastic successes um general growth 0:18:11.359 --> 0:18:15.679 to follow on with one of Akman's amazing longs um 0:18:15.840 --> 0:18:19.120 on the close end funt side, if the manager we're 0:18:19.160 --> 0:18:21.439 just thinking about the investor, they could literally press a 0:18:21.440 --> 0:18:23.840 button turn it into an e t F, which they 0:18:23.880 --> 0:18:26.600 also those same managers. Black Rock is selling e t 0:18:26.800 --> 0:18:28.919 s by the cartload. If they changed their closed end 0:18:28.920 --> 0:18:31.440 fund into an open ended fund, because it didn't give 0:18:31.480 --> 0:18:34.240 investors an exit at n a V for five six, 0:18:34.280 --> 0:18:36.680 seven years, it would immediately go to n a V, 0:18:37.240 --> 0:18:40.800 just like all e t f s are arbitrage double 0:18:41.200 --> 0:18:42.840 if they're trading different than any of V. So they 0:18:42.840 --> 0:18:44.960 could change it to an open ended fund, they could 0:18:45.040 --> 0:18:48.199 tender for shares at no discount. They could liquidate the 0:18:48.200 --> 0:18:51.560 fund and offer investors the chance to go into almost 0:18:51.560 --> 0:18:54.160 the exact same products, whether it's New York communities or 0:18:54.480 --> 0:18:59.240 or junk loans, or UM or energy equities MLPs UM. 0:18:59.280 --> 0:19:02.040 There's five hundred closed in funds and there's thousands of 0:19:02.119 --> 0:19:04.359 mutual funds and thousands of e t fs, So the 0:19:04.400 --> 0:19:07.600 ability to go from eighty four to a hundred, you're 0:19:07.600 --> 0:19:10.800 talking about return, and maybe it's the recapture of a 0:19:10.880 --> 0:19:15.280 loss that the investor, of course UM, if they knew enough, 0:19:15.960 --> 0:19:18.439 would want it every time. And the only thing standing 0:19:18.560 --> 0:19:20.840 in your way is the manager that feels like they 0:19:20.880 --> 0:19:23.240 have some god given right for that capital to be 0:19:23.280 --> 0:19:25.960 permanent capital. And if they tender for shares, that means 0:19:26.000 --> 0:19:27.919 less au M and less fees for them, and so 0:19:28.160 --> 0:19:32.040 there's a huge um. There's really a huge problem where 0:19:32.080 --> 0:19:34.560 the managers putting their own interests and the board is 0:19:34.560 --> 0:19:37.160 putting the manager's interests ahead of the shareholders. And that's 0:19:37.160 --> 0:19:40.280 where we come in. So why can't closed n funds 0:19:40.320 --> 0:19:44.080 be arbitrage the same way E t f s can? So? 0:19:44.240 --> 0:19:46.960 E t s have a mechanism where you can create 0:19:47.040 --> 0:19:50.480 new shares if or redeem old chairs and so if 0:19:50.600 --> 0:19:52.800 if it's ever trading below, you could buy it and 0:19:52.800 --> 0:19:55.400 then redeem it, if it's trading above, you could sell 0:19:55.480 --> 0:19:58.080 it and then create it and always at any V. 0:19:58.359 --> 0:20:01.119 So there's that mechanism that tether is E t f 0:20:01.200 --> 0:20:03.320 s two N A V closed end funds. It's like 0:20:03.359 --> 0:20:05.400 a stock. You know, you may think IBM is worth 0:20:05.520 --> 0:20:08.480 two to share, but you've got to find somebody to 0:20:08.480 --> 0:20:10.159 sell to. You can't call our monk New York and 0:20:10.240 --> 0:20:12.719 ask IBM to give you the two d bucks. So 0:20:12.720 --> 0:20:15.720 so the things can trade at a big discount for 0:20:15.960 --> 0:20:18.200 very very long time, and even at a big premium, 0:20:18.240 --> 0:20:21.320 and so um. But there's a very simple fix, which 0:20:21.359 --> 0:20:24.320 is they don't have to figure out some new fangled 0:20:24.320 --> 0:20:26.560 way to run the company. They just need to offer 0:20:27.040 --> 0:20:29.360 liquidity like a mutual fund or an e t F 0:20:29.760 --> 0:20:32.119 that would get it back to ny V. And so 0:20:32.240 --> 0:20:35.639 we've basically won all of the challenges we've had because 0:20:35.640 --> 0:20:37.840 we're on the side of right. We get letters from 0:20:38.000 --> 0:20:40.520 octogenarian saying I was in this fund for fifteen years. 0:20:40.680 --> 0:20:42.240 I never thought I would see the light of day 0:20:42.240 --> 0:20:44.320 to get out near n a V And um, we're 0:20:44.320 --> 0:20:46.360 not doing it for them, but but at the same time, 0:20:46.359 --> 0:20:48.600 we're doing it for our investors. It is a great 0:20:48.720 --> 0:20:51.920 joy to be able to in certain market environments pick 0:20:52.000 --> 0:20:56.160 through the closed in fund space and find literally dollars 0:20:56.160 --> 0:20:59.239 trading for a two cents that you can pick up 0:20:59.240 --> 0:21:01.120 the two cents and turn it back into a dollar. 0:21:01.160 --> 0:21:03.840 And that's true even today. So markets are efficient, they're 0:21:03.880 --> 0:21:07.560 just not that efficient. Well, yeah, there's you need someone 0:21:07.600 --> 0:21:09.399 to come along and say I'm gonna change that. And 0:21:09.680 --> 0:21:12.840 the closed in fund space really was lacking an institutional 0:21:13.240 --> 0:21:18.639 manager to do that in size because institutions are also 0:21:18.800 --> 0:21:22.760 that are an activists are also beholden to those same managers. 0:21:22.760 --> 0:21:25.119 They need black rocks votes when they're an activist, so 0:21:25.160 --> 0:21:26.840 they so they might say I'm not going to upset 0:21:26.840 --> 0:21:29.760 the Apple card and annoy black Rock to the benefit 0:21:29.760 --> 0:21:32.760 of thousands of investors and our investors if I need 0:21:32.800 --> 0:21:35.560 to come to black Rock on my regular way, activism 0:21:35.560 --> 0:21:37.720 when they're a big shareholder, so you have a little 0:21:37.720 --> 0:21:41.000 bit of you know, people don't necessarily want to fight 0:21:41.400 --> 0:21:45.680 UM the big asset managers, but we UM, We're very 0:21:45.680 --> 0:21:48.119 happy to. We're not We're not activists in any other place. 0:21:48.440 --> 0:21:51.560 And this is one of the best ARBs uh that 0:21:51.560 --> 0:21:55.359 that you can find. And there's only one entity that suffers. 0:21:55.400 --> 0:21:58.400 It's the asset manager that goes from managing seven trillion 0:21:58.600 --> 0:22:02.320 to managing six point nine nine trillion. Thousands of investors 0:22:02.359 --> 0:22:05.480 get to make gains that they would never otherwise get 0:22:05.960 --> 0:22:08.800 really really interesting. Let's talk about one of the most 0:22:08.840 --> 0:22:15.080 popular investment vehicles out there, SPACs special purpose acquisition companies. 0:22:15.520 --> 0:22:18.119 SABA has about five and a half billion dollars in 0:22:18.160 --> 0:22:20.040 that space. Is that right? That sounds like a lot 0:22:20.040 --> 0:22:23.480 of money. You're the fifth largest SPACK holder along with 0:22:23.600 --> 0:22:28.760 peers like Citadel, Millennium d E share. Your approach is 0:22:28.960 --> 0:22:33.280 different than how retail investors look at SPACs. Tell us 0:22:33.280 --> 0:22:36.399 a little bit about what you guys do. Yeah, SPACs 0:22:36.440 --> 0:22:39.639 are this amazing thing in that it's all over the 0:22:39.680 --> 0:22:44.440 press whenever there's an acquisition. It's also critiqued, sometimes maligned 0:22:44.480 --> 0:22:47.880 for being a product that that ought not to exist. 0:22:48.080 --> 0:22:51.959 Um uh, in the in the number of offerings that exist. 0:22:52.040 --> 0:22:55.439 So so in the last year there's generally been a 0:22:55.520 --> 0:22:59.560 negative ting tinge to the to the coverage about SPACs, 0:23:00.280 --> 0:23:04.000 and they've performed poorly. They've performed poorly when they do SPAC. 0:23:04.119 --> 0:23:07.720 So what's important to understand with spacts is the life 0:23:07.760 --> 0:23:11.920 cycle that they start by being extraordinarily safe. And by 0:23:11.960 --> 0:23:14.240 that I mean when the I p O happens, the 0:23:14.280 --> 0:23:17.960 money is taken into trust, the manager doesn't touch it, 0:23:18.040 --> 0:23:21.600 and the trust must buy us T bills. So from 0:23:21.600 --> 0:23:24.840 time zero to the day that they are converting into 0:23:24.920 --> 0:23:28.040 the company that they're taking public, you have the risk 0:23:28.080 --> 0:23:30.520 of T bills, but you have some mark to market 0:23:30.640 --> 0:23:33.600 risk as sentiment goes up and down. That sometimes that 0:23:33.680 --> 0:23:35.760 ten dollars that you pay for at I p O. 0:23:36.200 --> 0:23:39.639 You know, back in the heady days of let's say Ark, 0:23:39.680 --> 0:23:42.040 when arquestrating at a hundred and fifty and flying cars 0:23:42.320 --> 0:23:46.960 were you know, we're exciting people's imaginations. Um even before 0:23:46.960 --> 0:23:49.800 the spack manager would find someone that ten dollars are 0:23:49.840 --> 0:23:53.159 traded eleven or twelve or even higher. UM Today you 0:23:53.200 --> 0:23:55.440 can find and for the last year, you can find 0:23:55.720 --> 0:23:59.439 many billions offered at a discount. Instead of ten dollars 0:23:59.480 --> 0:24:03.080 you get to pay is something like and UM one 0:24:03.160 --> 0:24:06.879 year later or even ten months later that for certain 0:24:07.160 --> 0:24:09.840 will be worth ten dollars. So on top of that 0:24:09.920 --> 0:24:12.359 you also get the yield that is in T bills, 0:24:12.359 --> 0:24:15.399 which right now is another hundred forty basis points. And 0:24:15.440 --> 0:24:18.480 so you could put together something where if you screened 0:24:18.600 --> 0:24:22.000 for SPACs and you look for high quality managers, you 0:24:22.040 --> 0:24:25.200 can still find a four and a half percent return, 0:24:25.280 --> 0:24:27.880 which is a certain return. But on top of that, 0:24:27.960 --> 0:24:30.679 in case they find a company to buy and the 0:24:30.720 --> 0:24:33.400 market gets very excited about it, whether it's electric vehicles 0:24:33.760 --> 0:24:36.640 or media companies or whatever it may be. UM, you 0:24:36.720 --> 0:24:39.120 are a stockholder and you don't have to take only 0:24:39.119 --> 0:24:41.720 ten dollars back. That goes to fifteen or to the moon. 0:24:41.840 --> 0:24:44.120 That's that's your profit. And so I I really look 0:24:44.119 --> 0:24:48.359 at spacts like an incredibly valuable product in these times 0:24:48.359 --> 0:24:51.639 were worried about inflation, because it's a guaranteed return in 0:24:51.680 --> 0:24:55.840 the fours plus an equity option for free and um, 0:24:55.880 --> 0:24:57.960 it's really hard to find something this safe in the 0:24:58.040 --> 0:25:01.439 history of specs back a before you know the environment 0:25:01.480 --> 0:25:03.960 today where they're actually quite a bit safer. Not one 0:25:04.000 --> 0:25:07.080 time in history could you not get back trust value. 0:25:07.119 --> 0:25:09.320 You always have trust value to look to, and trust 0:25:09.400 --> 0:25:12.719 value is us T bills. What happens if the announcement 0:25:12.760 --> 0:25:16.760 comes out of the acquisition and the public doesn't like it, 0:25:16.960 --> 0:25:19.600 and the spact trades at a discount, there is a 0:25:19.640 --> 0:25:22.760 subsequent vote about that eventually. Isn't that there's a vote 0:25:22.920 --> 0:25:26.520 You can vote for the spack to to do the 0:25:26.560 --> 0:25:30.320 deal or against. But that is even a separable question 0:25:30.400 --> 0:25:32.480 from can you vote to get your money back? So 0:25:32.520 --> 0:25:34.800 you could say, I've support the deal, but give me 0:25:34.840 --> 0:25:37.400 my trust value back, which should be your ten dollars, 0:25:37.480 --> 0:25:39.879 let's say, plus the the yield that you made on 0:25:39.960 --> 0:25:43.040 the T bills, so you always have the ability to 0:25:43.119 --> 0:25:45.640 get your money back. And so then as an investor, 0:25:45.680 --> 0:25:48.560 I have to think about, well, how the market is 0:25:48.560 --> 0:25:50.760 not just driven by the way things ought to be, 0:25:50.880 --> 0:25:53.159 even though it's T bills. If there's six hundred of 0:25:53.200 --> 0:25:56.120 these running around trying to find companies to buy. There 0:25:56.119 --> 0:25:58.680 could be a period where because of losses, one is 0:25:58.720 --> 0:26:01.600 suffering in their portfolio. You you might dump your SPACs 0:26:01.640 --> 0:26:03.560 and put pressure on that market. It's I have to 0:26:03.600 --> 0:26:06.440 think about how cheap get spacts get, even if they're 0:26:06.480 --> 0:26:09.960 basically the safest investment I know of T bills in 0:26:09.960 --> 0:26:14.000 a box UM and UM with a ten, ten month, 0:26:14.040 --> 0:26:16.480 eleven month average life. You know you're gonna get your 0:26:16.480 --> 0:26:18.199 money back, but in the meantime you have to be 0:26:18.240 --> 0:26:20.639 ready for some mark to market pain. Let's talk about 0:26:20.680 --> 0:26:24.159 tail hedging and crash protection funds. How do you find 0:26:24.359 --> 0:26:29.359 efficient tail protection and what's the difference between paid for 0:26:29.480 --> 0:26:35.399 tail protection with a zero carry and more expensive tail protection. Yeah, 0:26:35.560 --> 0:26:40.120 so I've been running tail protection funds since two thousand nine, 0:26:40.680 --> 0:26:44.480 and um so I've seen many hundreds of investors and 0:26:44.560 --> 0:26:46.520 heard from them. How are they thinking about it? How 0:26:46.600 --> 0:26:48.480 much premium do they want to spend? Do they look 0:26:48.520 --> 0:26:50.800 at it as an insurance policy where you know, just 0:26:50.840 --> 0:26:53.359 because your car doesn't get stolen or house doesn't go 0:26:53.400 --> 0:26:56.080 on fire, you're you're not thinking that something bad happened. 0:26:56.040 --> 0:26:58.480 You bought a policy and you spent it and its 0:26:58.520 --> 0:27:01.600 portfolio insurance and then their investors that say, well, look, 0:27:01.720 --> 0:27:03.119 I don't have a budget for that. I have to 0:27:03.160 --> 0:27:05.120 keep up with the joneses, I have to make my 0:27:05.440 --> 0:27:08.640 expected return. So is there a way that since I'm 0:27:08.680 --> 0:27:10.480 not going to do the first one can is there 0:27:10.480 --> 0:27:12.639 a way that you can find something that will have 0:27:13.080 --> 0:27:17.240 very low um negative carry or burn or bleed some 0:27:17.280 --> 0:27:19.760 people call it and um and so in the credit 0:27:19.840 --> 0:27:22.240 or of market, in the last two or three years, 0:27:22.240 --> 0:27:25.359 there has been, in my view, way to have your 0:27:25.400 --> 0:27:27.080 cake and eat it too, to have a very low 0:27:27.119 --> 0:27:32.399 cost or no cost portfolio of tail protection and still 0:27:32.440 --> 0:27:36.600 benefit and so in um, you know, this strategy was 0:27:37.080 --> 0:27:40.720 incredibly profitable even though it didn't have the negative carry 0:27:40.800 --> 0:27:44.760 that one assumes they need to get a big payout. 0:27:45.160 --> 0:27:48.000 So that sounds a bit like a free free lunch. 0:27:48.560 --> 0:27:52.320 How do you get tail protection with with no cost 0:27:52.320 --> 0:27:55.760 to carry? What risks are you assuming in order to 0:27:56.480 --> 0:28:01.040 execute that? Uh So, there there's an there's no free 0:28:01.119 --> 0:28:06.560 lunch anywhere, not even at Bloomberg. Uh So, um, I'm 0:28:06.560 --> 0:28:09.600 getting free lunch. At least we got that going for 0:28:09.840 --> 0:28:12.160 So that's the only free lunch on Wall Street. Well, 0:28:12.440 --> 0:28:15.919 so the free lunch is not free. You are you 0:28:15.960 --> 0:28:18.320 are making a bet. But what I see now and 0:28:18.480 --> 0:28:21.040 for the last few years in the credit space is 0:28:21.040 --> 0:28:26.399 that there is not enough differentiation between safe companies and 0:28:26.560 --> 0:28:29.080 less safe or safe and dangerous. And by that I 0:28:29.119 --> 0:28:33.000 mean if you look at the credit spreads of fifty 0:28:33.000 --> 0:28:35.919 different companies rated triple B or single A, some of 0:28:35.960 --> 0:28:39.480 them are ultra safe. They go by the names of McDonald's, IBM, E, 0:28:39.560 --> 0:28:44.520 T and T, you know, Verizon, Um, Disney and But 0:28:44.600 --> 0:28:48.920 the thing is that banks, federal express banks make loans 0:28:48.960 --> 0:28:52.040 to these companies when Disney, when when IBM, but Red 0:28:52.040 --> 0:28:55.840 Hat or Philip Morris, Bud Jewel and so banks have exposures, 0:28:56.080 --> 0:28:58.360 and that when they go out and buy CDs, they 0:28:58.360 --> 0:29:01.680 are not They are not brilliant hedgehow manager saying what's 0:29:01.720 --> 0:29:05.000 the next en round? Like Jim Chainos. They're saying, what's 0:29:05.000 --> 0:29:07.120 in my book, and I need to hedge it. And 0:29:07.160 --> 0:29:11.280 so the CDs spread on some of the best companies 0:29:11.320 --> 0:29:14.080 in the world market caps between a hundred and three 0:29:14.160 --> 0:29:18.040 hundred billion dollars um, trade at very similar levels. Because 0:29:18.040 --> 0:29:20.880 of that upward pressure pushing up the spread to names 0:29:20.920 --> 0:29:23.160 that they're the banks are not pushing up higher, and 0:29:23.200 --> 0:29:25.400 so you can set up a portfolio where you go 0:29:25.560 --> 0:29:28.320 long risk to the IBM s of the world and 0:29:28.400 --> 0:29:32.200 take that carry and buy protection on companies that are 0:29:32.200 --> 0:29:34.000 not as safe. And so, just to use the example 0:29:34.000 --> 0:29:38.760 of I was amazed coming into the COVID environment where 0:29:39.160 --> 0:29:42.920 McDonald's had the same credit spread as a double B 0:29:43.120 --> 0:29:48.600 rated online travel company called Saber, and Saber double B 0:29:48.840 --> 0:29:52.040 was trading at twenty five basis points and McDonald's trading 0:29:53.200 --> 0:29:55.280 but if you pay twenty five enough times, it can 0:29:55.280 --> 0:29:57.920 add up. So we we put on these trades. You know, 0:29:58.040 --> 0:30:00.480 imagine a book of thirty or forty names. You're you're 0:30:00.520 --> 0:30:04.000 selling the McDonald's and buying the Saber exactly. And and 0:30:04.240 --> 0:30:07.120 of course Saber was negatively affected by COVID, but even 0:30:07.160 --> 0:30:10.120 today Saber trades at five hundred and guess where McDonald's 0:30:10.120 --> 0:30:14.680 trains back at. And so there is a free lunch, 0:30:15.160 --> 0:30:17.360 so to speak, that I didn't see until two thousand, 0:30:17.400 --> 0:30:20.240 nineteen or twenty, which is that credit when it got 0:30:20.360 --> 0:30:23.520 ultra tight because people were so confident that the FED 0:30:23.560 --> 0:30:26.160 had the markets back, and the FED did extraordinary things, 0:30:26.360 --> 0:30:29.440 you know, since two thousand and eight that credit spreads 0:30:29.640 --> 0:30:33.440 were too clumped together and one could pick through the portfolio, 0:30:33.760 --> 0:30:35.720 find the names that would be good tail hedges and 0:30:35.760 --> 0:30:38.600 the names that would be bad ones, and set up 0:30:38.640 --> 0:30:41.920 that trade and it it's worked in better than I thought, 0:30:41.920 --> 0:30:45.040 and it's working again in so to put some numbers 0:30:45.080 --> 0:30:48.480 on that, I recall reading the first couple of months 0:30:48.520 --> 0:30:52.960 of that fun was up like to start the year, 0:30:53.000 --> 0:30:55.960 you gave a little bit back, but not a whole lot. 0:30:56.000 --> 0:30:59.040 I think you finished the year up some crazy number 0:30:59.120 --> 0:31:01.760 like that. So we we have different funds, and not 0:31:01.800 --> 0:31:04.560 to speak about any any in particular. Those numbers are 0:31:04.720 --> 0:31:09.040 are in the frame correct, So so pretty close to 0:31:09.400 --> 0:31:11.880 a zero carry, pretty close to a free launch. You 0:31:11.920 --> 0:31:14.160 are assuming some risk, but it sounds like not a 0:31:14.160 --> 0:31:16.840 lot of risk. Well, you know, I'm agnostic as to 0:31:17.040 --> 0:31:20.400 which which strategy is right. It's really up to the individual. 0:31:20.440 --> 0:31:23.440 If you say, well, should everyone have insurance? Should we 0:31:23.440 --> 0:31:26.320 walk around with uh? You know, insurance? Sometimes we're mandated. 0:31:26.480 --> 0:31:29.160 You want to get a car, you need insurance. In portfolios, 0:31:29.920 --> 0:31:33.840 you get this problem where people don't necessarily think they 0:31:33.880 --> 0:31:35.959 have a budget for it. If there and if they 0:31:36.000 --> 0:31:39.480 have that constraint, I think paid for tell protection is 0:31:39.480 --> 0:31:42.520 a whole lot better than not having anything because look 0:31:42.560 --> 0:31:44.240 at what's going on now in the market, and I've 0:31:44.280 --> 0:31:47.280 been seeing for the last year, whether it's from state pensions. 0:31:47.280 --> 0:31:50.040 We just got one on board last month. UM and 0:31:50.360 --> 0:31:55.160 university endowments. Incredible desire for strategies that will pay off 0:31:55.280 --> 0:32:00.360 when there's volatility. Quite quite interesting. Last question about about 0:32:00.400 --> 0:32:05.480 SABA Capital Hedge Fund. Where did the name SABA come from? Uh? So, 0:32:05.520 --> 0:32:08.200 I was at I was at Deutscha, and there were 0:32:08.200 --> 0:32:11.160 a lot of Deutsche prop groups and I wanted to 0:32:11.160 --> 0:32:13.720 to brand it. And so I was trying to think, 0:32:14.040 --> 0:32:16.960 what's easy to say, easy to spell, and hasn't been 0:32:16.960 --> 0:32:20.800 taken and there wasn't really much much left. And Saba 0:32:20.880 --> 0:32:25.080 means grandfather in Hebrew. My mother was raised in Israel 0:32:25.120 --> 0:32:29.520 after the Holocaust, and her father, my Saba, saved the family, 0:32:29.800 --> 0:32:32.440 saved her, you know, and and saved a lot of 0:32:32.600 --> 0:32:36.280 innocent people of Um hid them. So I really felt, 0:32:36.360 --> 0:32:40.880 as a kid, an incredible debt to to him, and 0:32:40.920 --> 0:32:43.120 I wanted to honor him by by calling it that. 0:32:43.160 --> 0:32:44.880 So we named it that at Deutsche was called SABA 0:32:44.920 --> 0:32:47.680 Principal Strategies, And when we lifted the team out in 0:32:47.800 --> 0:32:50.760 oh nine, we we kept the name. So it's Saba capital. 0:32:50.840 --> 0:32:54.479 And if I recall reading correctly, your your grandfather built 0:32:54.920 --> 0:32:57.560 a double wall of false wall and on in order 0:32:57.560 --> 0:33:01.040 to hide people from the Nazis that are looking for 0:33:01.240 --> 0:33:04.120 people's children. Is that right? Yeah, So he was a 0:33:04.160 --> 0:33:07.040 carpenter and um, he had a hardware store after the 0:33:07.080 --> 0:33:10.760 war in Israel. He didn't have um any wealth of 0:33:10.840 --> 0:33:13.320 significance to speak of, but he was he had a 0:33:13.360 --> 0:33:16.200 lot of vision. And there was a moment. My mother 0:33:16.280 --> 0:33:18.720 was born in July forty one in the war saw Ghetto, 0:33:19.040 --> 0:33:23.240 and sometime around forty two he realized he needed to 0:33:23.240 --> 0:33:25.520 get her out of there, and he got fake papers 0:33:26.040 --> 0:33:29.840 that showed he was a gentile with his wife and um, 0:33:29.880 --> 0:33:33.160 and my mother was hidden on a farm, and so um, 0:33:33.240 --> 0:33:35.240 yes he's he was a real hero. And I actually, 0:33:35.600 --> 0:33:39.000 just a month or two ago, got to take my 0:33:39.040 --> 0:33:43.440 eldest daughter to Yad Vashem in Israel and and explained 0:33:43.440 --> 0:33:46.760 to her a bit about the history, really really intriguing stuff. 0:33:47.320 --> 0:33:49.280 So so it made a lot of sense to spin 0:33:49.320 --> 0:33:52.920 out and be a free standing fund instead of being 0:33:53.000 --> 0:33:57.040 part of a larger bank and all of the baggage 0:33:57.040 --> 0:33:59.240 that comes with that. Yeah, I I I love my 0:33:59.280 --> 0:34:01.320 time at Deutsche In. But I had taken on enough 0:34:01.360 --> 0:34:05.480 responsibility that when my boss left and UH left the 0:34:05.480 --> 0:34:07.600 bank and he's actually now the head of the vision 0:34:07.600 --> 0:34:09.640 fund at soft Bank, I had to make a choice. 0:34:09.640 --> 0:34:12.000 Am I going to be a manager or an investor? 0:34:12.400 --> 0:34:14.760 And I chose investor. And that was in late oh seven, 0:34:14.800 --> 0:34:17.719 and the spinout happened early or nine. And along the 0:34:17.760 --> 0:34:21.480 way came Lehman Brothers, which was, you know, just a 0:34:21.520 --> 0:34:24.239 mind blowing experience. I was at the New York Fed 0:34:24.480 --> 0:34:27.120 the weekend Lehman failed, and you know, we lost quite 0:34:27.120 --> 0:34:28.919 a bit of money in a eight like like most 0:34:28.920 --> 0:34:33.280 desks are all desks, but um, but incredible, incredible experience 0:34:33.320 --> 0:34:35.600 and lessons to well, what were you doing with the 0:34:35.600 --> 0:34:40.120 New York Fed UH that weekend? It looks it's gonna 0:34:40.160 --> 0:34:43.440 sound so silly, like they call us in um and 0:34:43.480 --> 0:34:47.400 they wanted us to game out on the weekend. Um. 0:34:47.440 --> 0:34:51.400 If Lehman was closed for business on Monday, if it 0:34:51.440 --> 0:34:55.200 was done, UM, could you on Sunday, the day before, 0:34:55.280 --> 0:34:58.319 could you unwind all sorts of trades contingent on them 0:34:58.320 --> 0:35:01.920 not being there? Like, let's let's do a pre mortem. 0:35:01.960 --> 0:35:05.040 What can we do to reduce the amount of counterparty exposure, 0:35:05.320 --> 0:35:07.239 and it was really like dectures in the Titanic. I 0:35:07.239 --> 0:35:11.520 think Deutsche Bank had hundreds of thousands of swaps facing Lehman, 0:35:12.000 --> 0:35:14.200 and it was like we were able to that week 0:35:14.280 --> 0:35:17.120 and unwind maybe a dozen of them. Really, And that's 0:35:17.160 --> 0:35:20.360 before we start talking about one step removed, where you 0:35:20.400 --> 0:35:22.719 have counterparties who then threw it off to Lehman on 0:35:22.760 --> 0:35:25.279 top of it, or were you including that in that list? No, 0:35:25.520 --> 0:35:28.719 just direct exposure was hundreds of thousands of rates, fcs 0:35:28.800 --> 0:35:31.560 and credit swaps. I was in charge of credit, so 0:35:31.640 --> 0:35:34.080 we were there. I was in a room of you know, 0:35:34.160 --> 0:35:36.600 all the major banks sent their head of credit, and 0:35:36.760 --> 0:35:39.320 there were other rooms had head of you know, mortgages 0:35:39.400 --> 0:35:42.640 had CEO. But um I got in on a Saturday 0:35:42.680 --> 0:35:45.719 at at one pm and I left maybe Sunday at 0:35:45.719 --> 0:35:49.560 five am. So I've heard people complain that the FED 0:35:49.640 --> 0:35:53.680 made a terrible mistake not rescuing Lehman. But no matter 0:35:53.719 --> 0:35:56.720 how I've looked at Lehman Brothers, hold aside the fact 0:35:56.719 --> 0:36:00.480 that they were technically insolvent, it sounds like it was 0:36:00.560 --> 0:36:03.799 all but impossible for Lehman to be rescued. There was 0:36:03.920 --> 0:36:08.080 just far too much risk, far too much exposure for everybody, 0:36:08.120 --> 0:36:11.120 and it was really sort of a mercy killing, you know. 0:36:11.320 --> 0:36:14.759 I think if the FED knew what was going to 0:36:14.800 --> 0:36:17.200 happen in just the intervening days with A. I. G. 0:36:17.400 --> 0:36:19.319 And the others, I think they would have rescued it. 0:36:19.400 --> 0:36:22.200 The price tag would have been a drop in the 0:36:22.239 --> 0:36:25.640 bucket compared to um what they eventually had to do 0:36:25.719 --> 0:36:28.799 with all the different programs and everything that came after it. 0:36:28.920 --> 0:36:32.880 So so I think that there was a moral imperative 0:36:32.920 --> 0:36:38.439 they thought to not rewarding uh greed and treating risk 0:36:38.560 --> 0:36:42.040 like it's always gonna get bailed out. But we learned 0:36:42.040 --> 0:36:44.000 that the FED couldn't see in front of their nose, 0:36:44.080 --> 0:36:46.640 because only days later we have Fannie and Freddie any 0:36:46.680 --> 0:36:49.560 I G that needed massive bailouts, and so Barry. I 0:36:49.560 --> 0:36:51.520 don't know the price tag, but whatever it was, I 0:36:51.520 --> 0:36:54.080 think it was a tiny drop compared to the damage. 0:36:54.800 --> 0:36:57.600 You know. I always thought a lot of people don't 0:36:57.640 --> 0:37:02.279 remember that buff It made an offer to Fold to 0:37:02.360 --> 0:37:05.800 bail out Lehman, and Fold rejected him, and ultimately Buffet 0:37:05.840 --> 0:37:08.319 ended up taking a small piece of goldman Um. But 0:37:08.400 --> 0:37:12.239 I always imagined that the conversation with Bernanke, and the 0:37:12.320 --> 0:37:16.799 desk was, wait, he turned down Buffett's money, how can 0:37:16.840 --> 0:37:20.560 we give money to this yachts if he turned down 0:37:20.560 --> 0:37:23.600 Berkshire hath Away And I always felt that was the 0:37:23.640 --> 0:37:26.600 moral hazard, that you an opportunity to save the firm 0:37:26.960 --> 0:37:30.319 you refused, Sorry, we can't help you. Yeah, so they 0:37:30.400 --> 0:37:32.719 did take money, if I'm not mistaken, from a Korean bank, 0:37:32.920 --> 0:37:36.120 and I think it was just Buffet's terms were worse 0:37:36.160 --> 0:37:38.120 than the Korean bank. But of course you're right, they 0:37:38.120 --> 0:37:41.040 should have taken it from from both, because once in 0:37:41.080 --> 0:37:44.360 a financial institution with such massive leverage starts to unravel, 0:37:44.760 --> 0:37:47.239 it's uh, it's self fulfilling, it has its own the 0:37:47.320 --> 0:37:50.239 decline has its own gravity. And you take it from 0:37:50.280 --> 0:37:53.239 the Korean bank, and you take it from Buffett and 0:37:53.440 --> 0:37:56.040 uh and you uh, you know, you count your blessings 0:37:56.080 --> 0:37:57.960 that you didn't go under. This would have been after 0:37:58.000 --> 0:38:02.880 he already rescued Solomon Brother. It's the financial sector. Goodhouse 0:38:02.960 --> 0:38:06.560 king being seal of approval. Lehman might have might have 0:38:06.600 --> 0:38:09.239 survived if he took the money from Buffett. Who knows. Yeah, 0:38:09.280 --> 0:38:12.040 I don't think they had such large losses that couldn't 0:38:12.040 --> 0:38:14.400 you couldn't put umpty empty back together again. But so 0:38:14.400 --> 0:38:17.879 so you know, I was already h planning the hedge 0:38:17.920 --> 0:38:20.960 fund from well before that. And so when I left 0:38:21.000 --> 0:38:24.200 Deutsche Bank in February, around February, middle of February O nine. 0:38:24.480 --> 0:38:27.279 By April one, O nine's only six weeks later, I 0:38:27.320 --> 0:38:29.080 was already up and running with the fund that I 0:38:29.160 --> 0:38:33.400 had been prepping. Uh Saba has had some spectacular trades. 0:38:33.960 --> 0:38:36.880 Let's let's talk about some of your most successful ones. 0:38:37.200 --> 0:38:41.840 I mentioned earlier. The Tail fund practically doubled in um 0:38:42.680 --> 0:38:45.520 The fund itself was up thirty three percent in that year. 0:38:46.600 --> 0:38:51.000 How does having one of your strategies up a hundred 0:38:51.040 --> 0:38:54.680 percent affect how you think about trading? Do you just 0:38:54.960 --> 0:38:59.160 leave it and and not interfere or are those sort 0:38:59.160 --> 0:39:03.200 of returns do do the mean reversion light start flashing 0:39:03.239 --> 0:39:07.319 and encourage you to start paring back a bit? Right? 0:39:07.440 --> 0:39:11.000 So specifically in the tail fund, since investors in that 0:39:11.080 --> 0:39:12.920 fund or using it for a purpose, or using it 0:39:12.960 --> 0:39:14.520 for a hedge I don't want to be the one 0:39:14.560 --> 0:39:17.839 to say, hey, the loads are in, let's let's take 0:39:17.840 --> 0:39:20.840 it off. And you know, people's crystal balls are I 0:39:20.840 --> 0:39:23.680 think always cloudy if if not worse. But in those 0:39:23.800 --> 0:39:26.600 environments it's especially hard to see. I would say when 0:39:26.640 --> 0:39:29.160 we talk about two, this is another one of those 0:39:29.160 --> 0:39:32.680 hards to see environments. So I'm not generally tweaking that 0:39:32.880 --> 0:39:35.799 too much. In our flagship fund where tail doesn't have 0:39:35.840 --> 0:39:37.799 to be the biggest part or you know, and we 0:39:37.840 --> 0:39:41.839 had very similar returns. Um we did find in that 0:39:41.960 --> 0:39:45.640 environment incredible miss pricings, and so we were able to 0:39:45.719 --> 0:39:48.440 monetize some of the tail protection and invest in the 0:39:48.440 --> 0:39:52.680 then you know, most miss priced things, which was relationships 0:39:52.719 --> 0:39:56.960 between the credit rutives and the bonds or various et fs. Basically, 0:39:56.960 --> 0:40:02.160 the bond market broke, and Uh, there was an incredible 0:40:02.160 --> 0:40:05.000 opportunity to do things that I didn't even think I'd 0:40:05.040 --> 0:40:08.719 ever see again after a wait, really really intriguing. Let's 0:40:08.800 --> 0:40:13.000 let's talk a little bit about Bruno excel a k A. 0:40:13.160 --> 0:40:16.960 The London whale Uh, that trade lost over two billion 0:40:16.960 --> 0:40:20.360 dollars for JP Morgan. You were on the other side 0:40:20.360 --> 0:40:23.239 of that trade and ostensibly picked up some of that, 0:40:23.520 --> 0:40:26.080 not all, but some of that two billion. Tell us 0:40:26.080 --> 0:40:29.200 a little bit about the London whale trade, which I 0:40:29.320 --> 0:40:34.480 recall reading you discussing at a conference before everything went 0:40:34.520 --> 0:40:36.920 to hell, tell us about that, yes, and and the 0:40:36.960 --> 0:40:40.200 eventual price tag what they had started the estimated too. 0:40:40.200 --> 0:40:42.719 I think they acknowledged some number like six point six 0:40:42.719 --> 0:40:45.560 billion ended up being even a lot worse. So I 0:40:45.680 --> 0:40:49.879 am I noticed, being that we're looking very closely at 0:40:50.400 --> 0:40:54.080 miss pricings in derivatives, I noticed that an older series 0:40:54.719 --> 0:40:56.920 of the index, the creditor at of index, by the way, 0:40:56.920 --> 0:40:59.680 I should say, is the most liquid product in fixed income, 0:41:00.200 --> 0:41:03.600 certainly in credit. The the investment grade one trades about 0:41:03.640 --> 0:41:07.040 fifty billion a day. It has basically zero bid offer cost. 0:41:07.080 --> 0:41:10.040 You can get in and out very cleanly with in billions, 0:41:10.040 --> 0:41:12.680 and that's why firms like Bridgewater and a q R 0:41:12.800 --> 0:41:16.560 use it in enormous quantities. Back then, I noticed that 0:41:16.640 --> 0:41:20.200 an older series one that was not current anymore, retained 0:41:20.320 --> 0:41:23.759 having a lot of interest, and that interest all came 0:41:23.840 --> 0:41:27.320 from one counterparty, according to market sources, and one counterparty 0:41:27.400 --> 0:41:29.839 was kind of driving the interest in it. And one 0:41:29.880 --> 0:41:33.360 thing that I noticed was that um it was priced 0:41:33.680 --> 0:41:35.640 very differently than the others. So if you have just 0:41:35.719 --> 0:41:38.120 imagine the SMP five hundred and it has an at 0:41:38.120 --> 0:41:40.759 asset value of one, well it's gonna trade right at 0:41:40.760 --> 0:41:42.680 one or someone's gonna arbitrage it. Now, if you have 0:41:42.719 --> 0:41:45.440 the older series before they change three or four names. 0:41:45.920 --> 0:41:49.239 If if the current series at one and the older 0:41:49.280 --> 0:41:52.480 series that you know, point nine or something, that's that's 0:41:52.520 --> 0:41:56.759 really strange that that you have this kind of difference, UM, 0:41:56.800 --> 0:41:59.040 where the some of the parts is not the same 0:41:59.080 --> 0:42:00.880 as the whole. And I and I noticed that it 0:42:00.920 --> 0:42:03.640 was it was too low. You're able to buy credit 0:42:03.640 --> 0:42:07.920 protection for too low a number comparing the pieces to 0:42:07.960 --> 0:42:10.919 the whole. And I wanted to understand why. And through 0:42:10.920 --> 0:42:14.200 a lot of work we started to see some strange patterns. 0:42:14.520 --> 0:42:17.680 We knew that it was a trader in London that 0:42:17.840 --> 0:42:21.880 had by all accounts of this there was it was 0:42:21.920 --> 0:42:26.880 basically everybody against one and UM and we noticed patterns 0:42:26.880 --> 0:42:30.040 where in the final days of a week, or particularly 0:42:30.080 --> 0:42:32.360 the final days of a month, there would be unusual 0:42:32.400 --> 0:42:36.200 trading which smelled like someone trying to mark market. You know, 0:42:36.239 --> 0:42:38.759 I'm not saying that's what they did, but that's what 0:42:38.880 --> 0:42:41.759 the data showed that there was something going on. And 0:42:41.800 --> 0:42:44.239 so we took the other side. And as you said, 0:42:44.600 --> 0:42:47.279 I went to speak at a conference for boys and 0:42:47.520 --> 0:42:50.160 boys girls Harbor. I think the charity was called and 0:42:50.200 --> 0:42:53.080 I wanted to come up with something accessible. I want 0:42:53.120 --> 0:42:55.840 to talk about an index, not some weird single company. 0:42:56.239 --> 0:42:58.279 I go to present and it's at JP Morgan. The 0:42:58.320 --> 0:43:01.439 conference is held at JP Morgan, and I talked about 0:43:01.480 --> 0:43:03.359 and I say, you know, you have this trader that's 0:43:03.360 --> 0:43:05.960 really uh taking on everybody and and it's and we 0:43:06.000 --> 0:43:07.840 can all do the same math, and why why is 0:43:07.880 --> 0:43:10.880 it trading there? And uh. It took about six months 0:43:11.640 --> 0:43:14.840 but eventually cost the bank six billion dollars. And so 0:43:15.040 --> 0:43:18.160 despite you know Jamie Diamond highly regarded as one of 0:43:18.200 --> 0:43:20.960 the great bank CEOs of all time, the idea that 0:43:21.000 --> 0:43:24.120 the bank could have lost that much on, by the way, 0:43:24.160 --> 0:43:26.920 a notional quantity. So that's the lost six billion, a 0:43:27.000 --> 0:43:31.239 quantity probably three to four hundred billion, uh and out 0:43:31.239 --> 0:43:34.120 of some London desk taking risk to us credit. It 0:43:34.160 --> 0:43:36.480 really is mind blowing. And so when it all ended, 0:43:37.160 --> 0:43:39.440 someone from JP Morgan came over to our office and 0:43:39.480 --> 0:43:42.360 we were one of the larger people on the other side, 0:43:42.360 --> 0:43:44.600 but as you said, we were not nearly their size. 0:43:45.040 --> 0:43:47.319 UM came over with a piece of paper and said, 0:43:47.320 --> 0:43:49.840 write down your number for letting us out. Of this trade, 0:43:50.400 --> 0:43:52.120 and if you do, we're going to have an extra 0:43:52.160 --> 0:43:55.359 great relationship from now on. Uh. I wrote the number 0:43:55.400 --> 0:43:58.279 down we traded. It was we traded fifteen billion and 0:43:58.840 --> 0:44:01.960 one one trade. That was the size we had. And um, 0:44:03.239 --> 0:44:07.000 we have a good relationship with JP Morgan. I would 0:44:07.040 --> 0:44:09.120 imagine you would after being on the other side of 0:44:09.120 --> 0:44:12.480 that trade. Did they do that with all of their counterparties? 0:44:12.880 --> 0:44:15.960 I think so? Um, Look, we weren't. It was nothing personal. 0:44:16.000 --> 0:44:18.560 It's just someone's again like closed in fund, someone selling 0:44:18.560 --> 0:44:22.600 a dollar for seventy five cents, and and it's that's 0:44:22.640 --> 0:44:26.560 that's our bread and butter, and especially the the spacks. 0:44:26.600 --> 0:44:28.319 It's it's a little easier because you know you're gonna 0:44:28.320 --> 0:44:31.239 get any v back, But this one's tougher because you know, 0:44:31.280 --> 0:44:34.160 we're tiny compared to JP Morgan and UH and so 0:44:34.360 --> 0:44:37.200 we were one of four or five counterparties that were 0:44:37.280 --> 0:44:39.560 quite large in the trade. We made a few hundred 0:44:39.560 --> 0:44:43.560 million dollars from it. But um, but it was more 0:44:43.800 --> 0:44:47.440 the detective work to find it than the than the 0:44:47.480 --> 0:44:50.680 actual game that I think is is what stays with me. Huh, 0:44:50.840 --> 0:44:53.680 really really quite fascinating. Let's talk a little bit about 0:44:53.680 --> 0:44:57.000 ever Grand, which has become a bit of a debacle 0:44:57.360 --> 0:44:59.600 over in China, tell us a little bit about your 0:44:59.600 --> 0:45:02.879 involved in that. So I thought, Barry, we were gonna 0:45:02.880 --> 0:45:05.120 only talk about my greatest trades, and now you're mentioning 0:45:05.680 --> 0:45:07.680 a giant loss maker. So let's do it. Not well, 0:45:08.000 --> 0:45:11.120 this is this is a great trade, just not a 0:45:11.120 --> 0:45:15.960 positive one. Um No, it's only fair. So Evergrands stuck 0:45:16.000 --> 0:45:20.000 out to us as really interesting because we run a 0:45:20.040 --> 0:45:24.480 screen that says, show me the credit spread of a company, 0:45:24.920 --> 0:45:27.000 what the you know, with the spread over treasuries or 0:45:27.040 --> 0:45:31.520 library or sofur is, and and chart that against the 0:45:31.560 --> 0:45:34.440 market cap of the company. So how big it is 0:45:34.520 --> 0:45:37.480 and how volatile the stock is the you know, if 0:45:37.480 --> 0:45:39.560 you look at the equity options. So if you look 0:45:39.600 --> 0:45:42.360 for companies that have a credit spread like Evergrand of 0:45:42.440 --> 0:45:45.000 over a thousand basis points, it did. It had that 0:45:45.040 --> 0:45:47.239 credit spread when it was totally healthy, when it had 0:45:47.280 --> 0:45:50.080 a market cap of forty billion dollars and holdings in 0:45:50.520 --> 0:45:53.840 various entities that are not even in the real estate space, 0:45:53.920 --> 0:45:57.520 like of like electric cars. You know, on top of 0:45:57.600 --> 0:46:01.520 the being the behemoth in the needs property market, you 0:46:01.520 --> 0:46:03.680 you have forty billion of equity, but you have a 0:46:03.680 --> 0:46:06.480 credit spread of eleven d basis point that's basically unheard of, 0:46:06.800 --> 0:46:09.840 and you have equity options that are trading at a 0:46:09.840 --> 0:46:12.320 pretty attractive level. If you wanted to buy that bond, 0:46:12.640 --> 0:46:14.920 you have eleven hundred basis points. And if you go 0:46:14.960 --> 0:46:17.399 and spend that eleven hundred and equity puts, you can 0:46:17.440 --> 0:46:20.359 hedge yourself quite a bit on the all the way 0:46:20.400 --> 0:46:24.000 down from far down to you know, near zero. So 0:46:24.000 --> 0:46:26.760 so why didn't that trade work out? So we didn't 0:46:26.760 --> 0:46:29.879 hedge ourselves down to near zero? We we you know, 0:46:30.280 --> 0:46:32.839 we thought that the We didn't think the company the 0:46:32.880 --> 0:46:36.600 company was going to blow up, and we also um 0:46:36.800 --> 0:46:38.799 thought that there would be decent recovery value and there 0:46:38.840 --> 0:46:41.240 may still be by the way, but um, the way 0:46:41.280 --> 0:46:45.359 everything went south so quickly. Um, we ended up having 0:46:45.360 --> 0:46:47.719 not enough hedge on and it was it was a 0:46:47.760 --> 0:46:51.000 loss making trade. But I would say even just it, 0:46:51.440 --> 0:46:55.120 these kinds of screens can help identify things that become problems, 0:46:55.160 --> 0:46:57.400 and we've we've seen that in a number of cases 0:46:57.440 --> 0:47:01.680 where you know, the markets today Barry should be more 0:47:01.680 --> 0:47:05.120 connected when you think about the passage of time and technology. 0:47:05.200 --> 0:47:08.239 But when I was at Deutsche Bank, the credit and 0:47:08.280 --> 0:47:11.319 equity departments were on different floors and they spoke to 0:47:11.320 --> 0:47:13.440 each other, but you had this segmentation, and you assume 0:47:13.480 --> 0:47:16.960 over time things will get more and more connected. But 0:47:17.120 --> 0:47:21.040 it requires different disciplines, different mandates, and so sometimes you 0:47:21.080 --> 0:47:22.759 can get a very high credit spread and a low 0:47:22.800 --> 0:47:25.000 equity of vol or a very low credit spread and 0:47:25.000 --> 0:47:26.880 a very high equity of vault, and that might point 0:47:26.920 --> 0:47:30.719 to UM something that that can lead to, whether it's 0:47:30.800 --> 0:47:33.640 us doing the r V or someone saying I see 0:47:33.640 --> 0:47:35.759 a short here, I see along here, And so I 0:47:35.840 --> 0:47:39.759 really do love UM looking across markets for clues. And 0:47:40.160 --> 0:47:42.719 the reason I asked you about ever grand is I 0:47:42.760 --> 0:47:45.839 began my career on a trading desk, and anybody who 0:47:45.880 --> 0:47:48.840 only talked about the winners and never talked about their losers, 0:47:49.280 --> 0:47:51.319 I know they were full crap, and I can pay 0:47:51.320 --> 0:47:56.680 any attention. But people who are really UM skilled and 0:47:56.760 --> 0:48:00.080 polished traders, their losses are a badge of honor and 0:48:00.120 --> 0:48:02.080 they treat it that way. And so that's why I 0:48:02.080 --> 0:48:05.160 had to ask you about that. Following the London whale, 0:48:05.520 --> 0:48:07.719 let's talk about a couple of other things you do 0:48:07.800 --> 0:48:12.960 that I think are really really interesting. You mentioned closed 0:48:13.120 --> 0:48:17.279 and funds. Uh and some mispricings in that space in 0:48:17.360 --> 0:48:19.880 my prep for this, and and you might have referenced 0:48:19.880 --> 0:48:22.960 this to me. Um Bill Ackman was a Deutsche banklin 0:48:23.080 --> 0:48:25.600 for a long time. He has some closed and funds, 0:48:26.080 --> 0:48:29.800 some of which run at a pretty substantial discount to 0:48:29.880 --> 0:48:32.400 n A V. Tell us a little bit about trading 0:48:32.440 --> 0:48:36.320 with Acman. Sure, so I I met Acman and oh 0:48:36.520 --> 0:48:39.600 two and Uh I went to go see him after 0:48:39.680 --> 0:48:42.799 we had done some trades in NB I A the 0:48:42.840 --> 0:48:49.279 bond insure and UH defunct bond insure. Basically, Uh, so 0:48:49.560 --> 0:48:52.360 I went to his office and uh there were boxes 0:48:52.440 --> 0:48:55.160 piles to the ceiling. They were full. They were with 0:48:55.200 --> 0:48:57.920 offer show of the work he had done on n 0:48:57.960 --> 0:49:01.279 B I A. And so I saw first hand how 0:49:01.360 --> 0:49:05.840 he understood that UM aside from and looking at investing 0:49:05.880 --> 0:49:08.239 that h you know, is this an attractive stock god 0:49:08.239 --> 0:49:11.160 to go up twenty or thirty percent? He also understands 0:49:11.239 --> 0:49:14.640 when there's potentially ways to make fifty times your money 0:49:14.760 --> 0:49:17.560 or twenty times your money, like he did in n BIA. 0:49:17.680 --> 0:49:20.719 And he's done in general growth and coupang and you know, 0:49:20.760 --> 0:49:24.360 things like that his closed end fund because it happened 0:49:24.400 --> 0:49:26.400 to have launched at a time where he hit a 0:49:26.480 --> 0:49:29.880 draw down. As all investors you know, great and not 0:49:29.960 --> 0:49:33.320 so great do. UM. His closed end fund has stayed 0:49:33.360 --> 0:49:35.479 at a very large discount. So I talked to before 0:49:35.480 --> 0:49:37.640 about buying stuff at eight eight five cents in the dollar. 0:49:37.840 --> 0:49:40.480 Bill Ackman's fund trading at about sixty eight cents in 0:49:40.520 --> 0:49:44.160 the dollar. But that's not something that we as activists 0:49:44.200 --> 0:49:47.640 can can take on because he's already set the rules 0:49:47.680 --> 0:49:49.520 so that he has the majority of the voting rights. 0:49:49.640 --> 0:49:51.680 So there wouldn't be a way too for the activist 0:49:51.960 --> 0:49:55.799 to have an activist UM couldn't force a result on him. Yeah. 0:49:55.880 --> 0:49:57.799 But at the same time, you know, he has, to 0:49:57.920 --> 0:50:01.160 his credit, bought back a lot of the stock and UM. 0:50:01.200 --> 0:50:03.640 And he's also UM uh you know, done quite well 0:50:03.680 --> 0:50:06.480 over the last few years. Uh leave leave aside. Uh 0:50:06.520 --> 0:50:09.040 you know a recent trade that he exited. UM. But 0:50:09.120 --> 0:50:13.160 he's he's been an amazing investor. UM. He's really, in 0:50:13.239 --> 0:50:17.920 my view, amazing for understanding asymmetry because I've seen whether 0:50:17.960 --> 0:50:21.480 it's Enron with UM. You know, the incredible work Jim 0:50:21.560 --> 0:50:24.400 Chainos did to UM to find Enron. If you go 0:50:24.440 --> 0:50:25.879 in short of stock and you make it a three 0:50:25.880 --> 0:50:28.200 percent position and it goes to zero. Okay, you made 0:50:28.200 --> 0:50:32.200 three percent, but credit derivatives if you bought protection and 0:50:32.320 --> 0:50:34.720 end run and you you only have to pay one percent. 0:50:34.800 --> 0:50:36.960 Even after ken Lay was out, it only cost one 0:50:37.000 --> 0:50:39.719 percent a year for five years. A year later it's 0:50:39.760 --> 0:50:42.479 gone and you you turned one point of premium into 0:50:42.480 --> 0:50:45.360 about ninety five points. You made ninety five times your money. 0:50:45.400 --> 0:50:48.520 That kind of payoff profile is a different skill set 0:50:48.560 --> 0:50:51.279 than the skill set of analyzing companies. And I see 0:50:51.320 --> 0:50:54.640 examples where people get things right, whether it's Enron or Lehman, 0:50:54.960 --> 0:50:58.239 but they but it didn't change, it didn't change their 0:50:58.320 --> 0:51:00.399 the outcome for their fund that year. And I think 0:51:00.400 --> 0:51:03.200 Acman a number of times has shown he really gets 0:51:03.239 --> 0:51:05.960 a symmetry. Now his clothes End fund is is at 0:51:05.960 --> 0:51:08.120 a very big discount, and if one we're looking for 0:51:08.160 --> 0:51:11.239 a top quality manager to be able to buy in 0:51:11.560 --> 0:51:15.920 at that discount, I think um is really compelling. But 0:51:16.080 --> 0:51:18.000 there's nothing we as activists can do to our the 0:51:18.040 --> 0:51:22.759 discount really interesting. So I mentioned earlier your tail funds. Uh, 0:51:22.800 --> 0:51:26.680 there are some pretty famous people who run similar or 0:51:26.719 --> 0:51:29.439 I guess not so similar tail funds. Let's talk about 0:51:29.560 --> 0:51:35.280 now seemed teleb and spitz Nagels funds um Int Integral Integral. 0:51:35.320 --> 0:51:37.879 I don't remember the name of the fund. How does 0:51:38.120 --> 0:51:42.919 their approach differ or is similar to your approach? Yeah? 0:51:42.960 --> 0:51:48.880 So universe universe But uh so, look I'm here. You 0:51:48.880 --> 0:51:51.080 want to have good stories, you want to hear here 0:51:51.120 --> 0:51:56.040 the so I I've never I've never been at first 0:51:56.040 --> 0:51:57.480 of all, let me say before I say nerve been 0:51:57.520 --> 0:52:01.279 a fan of that seemed to his I Q is 0:52:01.360 --> 0:52:05.440 twice as high as mine. Brilliant, brilliant, the smartest guy 0:52:05.520 --> 0:52:08.239 in the world, just ask him. Okay, and but he 0:52:08.360 --> 0:52:09.719 but he happens to be but he happens to be 0:52:09.760 --> 0:52:13.360 super smart. Um, I don't smart. But anyway, but you 0:52:13.360 --> 0:52:15.839 know I had I had a couple of experiences from 0:52:15.840 --> 0:52:17.960 afar or from clothes. I'll share with you so we 0:52:18.000 --> 0:52:20.800 can have a little fun. And so I'm at Deutsche 0:52:20.800 --> 0:52:22.839 Bank and I'm still a pretty young guyme speaking at 0:52:22.840 --> 0:52:25.560 a conference that we're having in Barcelona. And he's the 0:52:25.640 --> 0:52:29.000 lunch speaker. Okay, I'm the Deutsche whatever speaker, and he's 0:52:29.040 --> 0:52:33.319 the entertainment for lunch. And and so we've been all 0:52:33.400 --> 0:52:36.600 given in our in our satchels, his book Fooled by Randomness, 0:52:36.600 --> 0:52:39.719 which is a legendar, it's a crisis. I had not 0:52:39.800 --> 0:52:42.520 read it, so so there he's showing up. I'm sitting 0:52:42.520 --> 0:52:45.919 with them at some cocktails and um, and I read 0:52:45.920 --> 0:52:49.120 the flap Jacket. And Peter Bernstein, who was one of 0:52:49.120 --> 0:52:51.680 my has written one of the great books about about 0:52:51.800 --> 0:52:54.880 risk and finance, Against the Gods. I mean when I 0:52:54.920 --> 0:52:57.480 just say those words and I want to reread it 0:52:57.480 --> 0:53:02.080 when I got out. Absolutely so, Teleb somehow has gotten 0:53:02.320 --> 0:53:05.840 Bernstein to say the most wonderful things about Fooled by Randomness? 0:53:06.360 --> 0:53:07.880 And so what am I going to say to Toleb? 0:53:07.920 --> 0:53:09.600 I don't know him. He sits down and I say, 0:53:09.760 --> 0:53:12.239 you know, I haven't read your book. But but Peter 0:53:12.280 --> 0:53:14.759 Bernstein on the five Jacket, he said, you know, he 0:53:14.800 --> 0:53:16.560 said something that was so strong, and I really loved 0:53:16.560 --> 0:53:19.520 Against the Gods. Now there's a range of answers that 0:53:19.560 --> 0:53:23.240 one can say, thank you appreciated. I hope you enjoyed 0:53:23.239 --> 0:53:25.839 the book. Can do you have any others? Barry? Because 0:53:25.840 --> 0:53:28.040 I'll tell you what's not in the range. How dare 0:53:28.080 --> 0:53:31.279 you not read my book? Okay, that's that's in the range, 0:53:31.280 --> 0:53:33.040 But it's not the range. When someone says that to 0:53:33.080 --> 0:53:35.960 another person at that venue, and I'm from Deutscha and 0:53:36.040 --> 0:53:39.839 common decency, he says, Peter Bernstein is not a very 0:53:39.840 --> 0:53:43.400 intelligent man, which by the way, could not be further 0:53:43.480 --> 0:53:46.359 from the truth even if it were true. So so 0:53:46.520 --> 0:53:50.200 that the the the hubrist, the arrogance, the so so anyway, 0:53:50.400 --> 0:53:53.239 so look fleds fast forward the number of years. I'm 0:53:53.280 --> 0:53:56.080 now at a different Japing Morgan conference, not talking about 0:53:56.120 --> 0:53:59.080 the London Well, they've had me back and I'm speaking, 0:53:59.120 --> 0:54:00.760 and I get off the stage, and now they're introducing 0:54:00.800 --> 0:54:03.480 to Seem to Live and instead of you know, with me, 0:54:03.560 --> 0:54:06.040 they're like, okay, he played chess, he's Deutsche Bank whatever. 0:54:06.200 --> 0:54:09.360 With to Leb, they say he speaks twenty six languages, 0:54:09.400 --> 0:54:11.680 and they say a fifty other things, and he's given 0:54:11.680 --> 0:54:13.799 it to them, and he speaks twenty six languages. Every 0:54:13.840 --> 0:54:15.360 put your hands together. When he Seemed to Leb, he 0:54:15.400 --> 0:54:17.920 gets up and he says, I have to make a correction. 0:54:18.040 --> 0:54:21.600 I speak twenty seven languages. But he's not kidding. He's 0:54:21.719 --> 0:54:24.400 he needs to make that correction, and so I I 0:54:24.560 --> 0:54:26.279 he's brilliant, But you know, I have to tell these 0:54:26.320 --> 0:54:30.520 two stories because we gotta keep it interesting. On to Universa. 0:54:30.880 --> 0:54:33.840 They have said to Bloomberg effect, to Eric Schatzker in 0:54:33.880 --> 0:54:36.839 too many other places, that they made four thousand, one 0:54:37.200 --> 0:54:42.560 d and forty four percent in thousand. Okay, but is 0:54:42.640 --> 0:54:46.600 that that's a trade annualized, that's not their total return 0:54:47.239 --> 0:54:51.319 for the year. They can't possibly be talking about those numbers. Well, 0:54:51.440 --> 0:54:54.120 so that's a thing. If I'm talking fahrenheit and all 0:54:54.120 --> 0:54:56.160 of a sudden, you want to talk forget Celsie's, you 0:54:56.200 --> 0:54:58.080 want to talk Vin, you want to talk Kelvin, you 0:54:58.160 --> 0:55:01.479 gotta say Kelvin. So there, because you end up having 0:55:01.640 --> 0:55:04.759 false expectations and reporting you know by the you know, 0:55:04.880 --> 0:55:08.400 innocent journalists. But they were not saying annualized. What they 0:55:08.440 --> 0:55:13.000 are saying is we spend premium as we go. So 0:55:13.560 --> 0:55:15.600 we spend let's say it's twenty basis points a month, 0:55:15.719 --> 0:55:19.000 so point to twelve months, will every three months, will 0:55:19.040 --> 0:55:21.600 spend sixty basis points, will spend two point four percent 0:55:21.680 --> 0:55:26.520 a year. And on that that you know batch of protection. 0:55:26.600 --> 0:55:29.480 We we paid twenty cents on we got back forty 0:55:29.560 --> 0:55:32.080 times or money. We got eight points, So twenty cents 0:55:32.200 --> 0:55:35.880 went to eight points. Now the batch beforehand, and the 0:55:35.920 --> 0:55:38.960 batch before that and before that that expired worthless. Did 0:55:39.040 --> 0:55:40.759 you see them say they lost a hundred percent? The 0:55:40.840 --> 0:55:43.680 lost er h percent. So we have investors to say, well, 0:55:43.680 --> 0:55:45.520 how do you make four thousand percent? I mean, my 0:55:45.640 --> 0:55:48.360 god like people make forty our legends. So if you 0:55:48.520 --> 0:55:52.200 run around not just miss quoted about four thousand, but 0:55:52.239 --> 0:55:55.200 affirmatively talking about it, I think you're doing the investment 0:55:55.239 --> 0:55:57.920 space at disservice to talk about returns like that. When 0:55:57.960 --> 0:55:59.800 we talk about our returns and in the way that 0:56:00.000 --> 0:56:02.239 we've talked about them, it's all the exact same way 0:56:02.320 --> 0:56:04.600 that we know returns to be, which is return on 0:56:04.719 --> 0:56:07.800 assets UM, not return on the return you made on 0:56:07.880 --> 0:56:10.000 the a U M, not return on an options trade 0:56:10.040 --> 0:56:12.080 you did UM. And so I did it for fun. 0:56:12.440 --> 0:56:15.320 I looked under their framework of what the return was 0:56:15.480 --> 0:56:18.640 for us. It was not four thousand percent, but because 0:56:18.719 --> 0:56:20.759 we had very little negative carry, just like we were 0:56:20.800 --> 0:56:24.320 talking about before, it was actually twelve I remember. But 0:56:24.400 --> 0:56:27.319 it's a gobbledea economy. Sure the SEC would bless those 0:56:27.360 --> 0:56:30.520 sort of numbers in a public document. They'd be thrilled. 0:56:30.680 --> 0:56:33.279 I can't speak to that, but we you know, for 0:56:34.040 --> 0:56:37.320 we it's a silly way to boast about your returns, 0:56:37.880 --> 0:56:41.520 I think so. So, so let's talk about another big brain. 0:56:42.160 --> 0:56:46.560 Nobody bust my chops better than Cliff Assens. I love 0:56:46.719 --> 0:56:50.240 mixing it up with him on Twitter. Um, not because 0:56:50.280 --> 0:56:53.200 I expect to win, but if I could survive fifteen 0:56:53.280 --> 0:56:56.279 rounds with him, that that's a victory. That's more than 0:56:56.320 --> 0:56:58.800 a part of victory. It's like, all right, I defended 0:56:58.880 --> 0:57:01.440 my position. We just ad greed, but at least he 0:57:01.520 --> 0:57:04.080 didn't say, you're an idiot, go away. And I love Cliff. 0:57:04.120 --> 0:57:07.680 I find him to be endlessly amusing. Sometimes he and 0:57:07.800 --> 0:57:11.560 to Leb get into these bizarre fights. Tell us a 0:57:11.600 --> 0:57:14.640 little bit about what you've seen with Asthnes and to 0:57:14.800 --> 0:57:18.280 Leb doing battle. Yeah, so you picked another guy who's 0:57:18.280 --> 0:57:20.480 twice as smart as me, but he handles it with 0:57:20.560 --> 0:57:22.600 grace and humility. How how bright he is, and he's 0:57:22.840 --> 0:57:25.400 and he sounds like a vaudeville comedian. He's one of 0:57:25.480 --> 0:57:28.280 my favorite people to listen to. So so he wrote 0:57:28.320 --> 0:57:32.360 a paper that tail protection is is not additive to portfolios, 0:57:32.400 --> 0:57:36.280 and that caused to Leb to really critique not only 0:57:36.880 --> 0:57:39.120 the paper but also a QRS returns. And they got 0:57:39.160 --> 0:57:42.120 into a big Twitter spat, which Cliff seems to seems 0:57:42.120 --> 0:57:43.600 to do every now and again. And I was reading 0:57:43.640 --> 0:57:46.280 it really as an outsider looking in, but as being 0:57:46.400 --> 0:57:49.160 an expert in some of this, and I feel like, um, 0:57:50.120 --> 0:57:53.360 some of the some of the praise that teleb was 0:57:53.400 --> 0:57:57.200 giving himself was you can't just look at what this 0:57:57.520 --> 0:58:00.240 two percent that we invested out of your hundreds sense 0:58:00.520 --> 0:58:04.120 you took two and bought the tele protection did He says, well, 0:58:04.160 --> 0:58:05.920 what did it allow you to do with your sixty 0:58:06.000 --> 0:58:10.280 forty plan? Instead of being sixty forty equities bonds? You 0:58:10.320 --> 0:58:14.080 could go ninety eight or ninety seven equities and two 0:58:14.160 --> 0:58:16.880 percent me. And because of me, you've got to have 0:58:16.960 --> 0:58:21.080 all these stocks that beat bonds, you know, mercilessly until uh, 0:58:21.280 --> 0:58:23.680 you know, for for quite a long time with the SMP. 0:58:23.800 --> 0:58:27.040 And he picked the smpino less and so so when 0:58:27.080 --> 0:58:29.920 he was comparing the apples to apples, he was taking 0:58:29.960 --> 0:58:34.080 the gains that his tail protection allowed by adding on 0:58:34.200 --> 0:58:37.720 top of it the gains of SMP over over treasuries. 0:58:37.760 --> 0:58:40.400 But he has the benefit of seeing that this was 0:58:40.440 --> 0:58:42.920 a world or SMP app into have beaten treasuries. What 0:58:43.080 --> 0:58:45.479 if SMP had done worse than treasuries that wouldn't be true, 0:58:45.680 --> 0:58:48.000 which which they did for long periods of time over 0:58:48.040 --> 0:58:50.120 the past forty years. Yeah. So it's a little bit 0:58:50.160 --> 0:58:53.520 like like why when people have that intuitive understanding of 0:58:53.600 --> 0:58:56.840 why the Monty Hall problem works, why does that behind 0:58:56.880 --> 0:58:59.200 the door there's a prize, behind one door, there's a 0:58:59.280 --> 0:59:02.360 lion the and the the guy shows you, the host 0:59:02.400 --> 0:59:04.480 shows you the empty door, do you make the switch? 0:59:04.720 --> 0:59:07.400 It's because the host already knows that there's nothing behind 0:59:07.480 --> 0:59:10.240 that door, and so you already know that anything you 0:59:10.320 --> 0:59:12.680 can say that allowed you to have more SMP risk 0:59:12.760 --> 0:59:16.400 into the biggest SMP rally after the fact, you know. 0:59:16.560 --> 0:59:19.920 So I think, um, uh, maybe I kind of am 0:59:19.960 --> 0:59:22.920 in between because I think if Cliff is saying that 0:59:23.000 --> 0:59:24.840 tail production is not worth it, well I beg to 0:59:24.920 --> 0:59:27.080 differ there. But um, but they had Yeah, you're right, 0:59:27.120 --> 0:59:29.360 they had quite a quite a big spat something that 0:59:29.760 --> 0:59:33.320 I I've thus far, um you know, managed to avoid 0:59:33.560 --> 0:59:36.480 uh in my my career. Yet you're inserting yourself right 0:59:36.520 --> 0:59:37.960 into the middle of it. Well, you know, I came 0:59:38.000 --> 0:59:39.680 on your show and I wanted to make it interesting. 0:59:39.760 --> 0:59:42.160 So yeah, I appreciate that. I really appreciate that. So, 0:59:42.480 --> 0:59:46.440 so you've mentioned certain phrases which are really books that 0:59:46.560 --> 0:59:49.960 Tolb has written. We've talked offline. We've talked about the 0:59:50.080 --> 0:59:55.240 fragility of certain institutions, certain sectors, um and and certain 0:59:55.320 --> 0:59:59.560 investment strategies, as well as the advantages of skin in 0:59:59.600 --> 1:00:02.520 the game. These are two really big concepts that to 1:00:02.640 --> 1:00:06.280 Leb has champions. Tell us a little bit about both 1:00:06.360 --> 1:00:09.919 of those issues relative to the world of investment. Yeah, 1:00:10.120 --> 1:00:13.959 so look, um, I think that skin in the game 1:00:14.440 --> 1:00:17.840 so the head fund manager having enough exposure so that 1:00:18.120 --> 1:00:19.920 if the fund is going to do very poorly, and 1:00:20.000 --> 1:00:22.320 we've seen a number of funds this year even you 1:00:22.360 --> 1:00:24.600 know news breaking today about a fund that is down 1:00:25.600 --> 1:00:28.480 this year. That the you want, um not from a 1:00:28.520 --> 1:00:31.480 shot and Freud perspective, but just from a equity, equity 1:00:31.520 --> 1:00:35.240 and fairness perspective. You want the manager to have a 1:00:35.320 --> 1:00:37.320 lot of money invested in their funds so that they're 1:00:37.360 --> 1:00:39.920 treating that fund like they with their own personal net 1:00:39.960 --> 1:00:43.160 worth and not literally and and I am no one 1:00:43.240 --> 1:00:46.120 forced me to do it, but I've had effectively all 1:00:46.200 --> 1:00:49.360 of my net worth, uh that is in investments in 1:00:49.560 --> 1:00:51.880 SAVA funds because I want to eat my own cooking. 1:00:52.240 --> 1:00:53.520 I want to have skin in the game. I think 1:00:53.560 --> 1:00:55.720 it sets the right example. And also, you know, it's 1:00:55.720 --> 1:00:57.520 not so bad to be able to invest without fees 1:00:57.880 --> 1:01:00.040 in a fund which at the moment my my my 1:01:00.080 --> 1:01:02.040 own fund is the only one that is not charging 1:01:02.080 --> 1:01:04.520 me fees. So um. So I've and I have a 1:01:04.640 --> 1:01:08.560 number of different strategies. So I've really put skin in 1:01:08.600 --> 1:01:11.160 the game into practice by having something in the upper 1:01:11.240 --> 1:01:13.920 ninety percent of of my of my network now. But 1:01:14.000 --> 1:01:17.440 there have been times where I see venture tech and 1:01:17.520 --> 1:01:19.800 all sorts of growth stocks going up a lot, which 1:01:19.840 --> 1:01:21.360 is not my expertise, and I wonder it should I 1:01:21.400 --> 1:01:23.880 diversify And so I'm having these thoughts right now Verry, 1:01:24.000 --> 1:01:27.320 like should I into this giant swoon um, you know, 1:01:27.400 --> 1:01:30.680 diversify a bid into things with other managers or index 1:01:30.760 --> 1:01:34.360 funds that I don't have any personal domain expertise like tech. 1:01:34.720 --> 1:01:38.480 But um, thus far um. I've really ate my own cooking. 1:01:38.560 --> 1:01:41.040 And the last few years it tasted very good. There 1:01:41.080 --> 1:01:43.560 have been years where it didn't. Uh. And I think 1:01:44.000 --> 1:01:46.600 to the second point about fragility, you do see a 1:01:46.640 --> 1:01:49.960 lot of funds that go through periods where they're amazing, 1:01:50.400 --> 1:01:52.360 and then they'll hit a bump, and if the bump 1:01:52.520 --> 1:01:54.040 lasts more than a year or year and a half, 1:01:54.360 --> 1:01:57.040 sometimes they're just done. And without mentioning any names, there 1:01:57.080 --> 1:01:59.840 are long list of funds that were more than ten 1:02:00.000 --> 1:02:03.120 Allien had some kind of style drift issue or some 1:02:03.720 --> 1:02:06.560 whatever issue and UM, and they're over in a year. 1:02:06.600 --> 1:02:09.440 And I think, UM, it is a fragile business. We're 1:02:09.440 --> 1:02:11.200 seeing a fund now trying to figure out what to do. 1:02:11.440 --> 1:02:13.400 Should it launch a new fund, should it shut down 1:02:13.400 --> 1:02:15.800 the old one after a long success and then and 1:02:15.840 --> 1:02:19.440 then a failure? And I think that UM. Having been 1:02:19.520 --> 1:02:23.120 through draw downs myself, I went through a period from 1:02:23.200 --> 1:02:26.120 the time Mario Drag said trust me, it's enough, and 1:02:26.160 --> 1:02:29.280 I should have trusted him. So from that period of 1:02:29.320 --> 1:02:33.680 let's say June two twelve to maybe June two, I couldn't, 1:02:34.120 --> 1:02:36.880 you know, I couldn't get anything right and UM. And 1:02:36.960 --> 1:02:38.520 to be able to come through that and out the 1:02:38.600 --> 1:02:41.680 other side, UM and not succumbed to the to the 1:02:42.360 --> 1:02:45.400 fragility problem with hedge funds is actually something I'm more 1:02:45.440 --> 1:02:47.360 proud of than the than the good years we've had. 1:02:47.400 --> 1:02:49.520 And I can maybe even if you like, tell you 1:02:49.560 --> 1:02:52.960 a bit about why I think we survived. Sure, go ahead, 1:02:53.000 --> 1:02:55.640 Why why do you think you survived? I think the 1:02:55.760 --> 1:02:57.560 first thing is you have to love what you're doing. 1:02:57.840 --> 1:03:00.200 And I think back to that three year drawing own, 1:03:00.600 --> 1:03:02.800 and it was not severe. The losses were not severe 1:03:02.920 --> 1:03:05.480 per year. It just took a long time. UM, I 1:03:05.720 --> 1:03:08.040 loved even then coming into work. I love the markets. 1:03:08.240 --> 1:03:12.880 I'm a just you're junkie. It's the greatest puzzle. It's 1:03:13.040 --> 1:03:16.000 it's it's it's a game, but it's important. It's it's 1:03:16.120 --> 1:03:19.400 it's people's financial future. And um, I love it. I 1:03:19.520 --> 1:03:22.680 love it, and it it made it it's it's especially 1:03:22.760 --> 1:03:25.120 fun when you're winning. But it made it very tolerable 1:03:25.200 --> 1:03:26.640 even when I when I was in and I have 1:03:27.000 --> 1:03:29.680 a great competitive drive to um to not give up. 1:03:29.920 --> 1:03:32.320 And maybe some of that is the fortitude even just 1:03:32.480 --> 1:03:35.520 from thinking about my grandfather and so forth. UM. And 1:03:35.640 --> 1:03:39.200 then and then secondly, you have to be so thankful 1:03:39.320 --> 1:03:40.840 for where you are that you you could be in 1:03:40.880 --> 1:03:45.200 an industry that has this type of compensation that when 1:03:45.320 --> 1:03:48.720 times are tough, you need to actually um dig into 1:03:48.760 --> 1:03:50.960 your pocket and and fund the business a little bit. 1:03:50.960 --> 1:03:52.920 And I think there's some managers when the going got 1:03:53.000 --> 1:03:55.600 rough and they didn't have bonuses to pay people. They 1:03:56.080 --> 1:03:59.480 you know, it folded and when in our draw downs, 1:03:59.680 --> 1:04:01.320 we went through some periods where I was willing to 1:04:01.400 --> 1:04:04.200 invest back into the firm, earn nothing in those years 1:04:04.240 --> 1:04:07.440 for myself, but knowing that, UM, I have all the 1:04:07.520 --> 1:04:10.520 upside of things turned around, and I think it's surprising 1:04:10.600 --> 1:04:14.840 to me that more institutions don't make that investment, even 1:04:14.880 --> 1:04:18.240 if it doesn't look amazing in that exact moment, but 1:04:18.400 --> 1:04:21.560 they there's a lot of enterprise value that is there 1:04:21.640 --> 1:04:25.000 for that turnaround. And UM, and so uh, you know 1:04:25.120 --> 1:04:28.760 that's my antidote to fragility is actually UM to invest 1:04:29.160 --> 1:04:32.800 and those draw downs, I'm going to assume we're fairly modest. 1:04:33.480 --> 1:04:35.640 You weren't cut in half and trying to think about 1:04:35.680 --> 1:04:38.120 how do I get back over that high water mark. 1:04:38.200 --> 1:04:41.200 I'm assuming you had faith in the process and said 1:04:42.120 --> 1:04:44.240 the environment is changing and we just have to ride 1:04:44.280 --> 1:04:49.880 this out. Yeah, three three percent, six percent nine survival. Yeah. 1:04:50.080 --> 1:04:52.720 And also, um, the other thing is in my world, 1:04:52.880 --> 1:04:55.280 so the credit market could not be more different than 1:04:55.320 --> 1:04:58.240 the equity market in a way that people I think 1:04:58.240 --> 1:05:00.560 don't appreciate. So let me tell you so if I'm 1:05:00.640 --> 1:05:03.840 short and credit spreads are going tighter and tighter. So 1:05:03.960 --> 1:05:06.120 now let's say the spread on hy yold is to 1:05:06.240 --> 1:05:08.840 an a half percent or three, there is a boundary 1:05:08.880 --> 1:05:10.960 condition where it's not going to go below x. There's 1:05:10.960 --> 1:05:13.880 still gonna be a couple of faults. Whereas if you're 1:05:13.920 --> 1:05:17.160 short of stock and I think game stop, the stock doubles, 1:05:17.240 --> 1:05:20.040 you have to recognize your risk more than doubled, or 1:05:20.040 --> 1:05:22.200 at least doubled, because now you have twice the market value. 1:05:22.360 --> 1:05:24.120 And the more it goes up, the bigger position is. 1:05:24.560 --> 1:05:28.120 The more credit protection, the more shorting bonds, let's say, 1:05:28.160 --> 1:05:30.600 goes against you, the smaller your exposure is. And so 1:05:31.000 --> 1:05:34.400 one of the things about credit is it's a it's 1:05:34.400 --> 1:05:38.280 an accordion. There's a boundary um and and in those 1:05:38.360 --> 1:05:41.960 moments where owning volatility and owning protection was not um 1:05:42.520 --> 1:05:44.880 the best thing to have, credit spreads were ultra low 1:05:44.960 --> 1:05:46.919 and really you just couldn't lose much more. And maybe 1:05:46.960 --> 1:05:49.080 that's part of where the confidence came from. So so 1:05:49.280 --> 1:05:53.440 let's talk about you mentioned equity. Let's talk about another 1:05:53.600 --> 1:05:59.600 fund that did spectacularly well in but seems to have stumbled. 1:05:59.640 --> 1:06:04.080 And there's no clear path to recovery right now ARC. 1:06:04.520 --> 1:06:06.040 And and by the way, I'm not part of the 1:06:06.120 --> 1:06:10.080 Schaudenfreud crew who don't like her. I think she's really 1:06:10.160 --> 1:06:14.680 interesting and innovative and has the um, you know, conviction 1:06:14.760 --> 1:06:18.600 and confidence in her beliefs. In she was the top 1:06:18.640 --> 1:06:21.440 performing fund I think a hundred and sixties something that 1:06:21.560 --> 1:06:24.160 no one was even close. Number two was like fifty 1:06:24.240 --> 1:06:29.160 percentage points under her. But since the fun peaked, it's 1:06:29.200 --> 1:06:32.840 been almost straight down. She sold off. I think she's 1:06:32.960 --> 1:06:37.400 excess of sixty down, maybe even sent down, and filled 1:06:37.520 --> 1:06:41.720 with things like tele aduc and Netflix and um Tesla. 1:06:41.840 --> 1:06:44.000 A lot of the big winners became big win losers. 1:06:44.000 --> 1:06:47.160 I don't remember she's in Netflix, but certainly Tesla tell 1:06:47.320 --> 1:06:52.560 doc um the bitcoin five hundred thousand, call the fifty 1:06:52.640 --> 1:06:56.040 percent a year for the next five year call. Uh. 1:06:56.760 --> 1:06:59.440 She seems to have lost her way. What are your 1:06:59.520 --> 1:07:03.439 thoughts of about that sort of self confidence heading into 1:07:04.200 --> 1:07:08.280 what's been a reopening buzz all. Yeah, So we're actually 1:07:08.480 --> 1:07:12.200 tracking ARC quite closely because the ARC portfolio is not 1:07:12.400 --> 1:07:16.880 altogether different than the list of companies that SPACs are requiring. 1:07:16.880 --> 1:07:22.160 They're all future innovative unprofitable tech companies, I think flying 1:07:22.240 --> 1:07:27.640 cars and UM. And so we've we've seen what happened 1:07:27.680 --> 1:07:30.720 to ARC. And one thing we like about about SPACs 1:07:30.800 --> 1:07:32.440 is that all the deals that will be struck here 1:07:33.320 --> 1:07:35.480 from now on are gonna be struck at the current market, 1:07:35.520 --> 1:07:38.120 whereas in in ARC you're really hoping for it to 1:07:38.160 --> 1:07:41.720 return to the glory days of of the past. UM. 1:07:42.120 --> 1:07:43.960 But I think there are some good deals that can 1:07:44.000 --> 1:07:46.680 be made in this more difficult environment. And so those 1:07:46.720 --> 1:07:49.560 warrants you own in a spack or struck at the market, 1:07:49.560 --> 1:07:51.000 they're not out of the money. If you think about 1:07:51.000 --> 1:07:53.720 if you had along dated option on on ARC, that's 1:07:53.920 --> 1:07:55.640 very far out of the money. Now. Now, as far 1:07:55.720 --> 1:08:00.960 as her confidence, I do witness you know, if someone's 1:08:01.000 --> 1:08:06.000 down that much, this is a humbling market. And it's 1:08:06.040 --> 1:08:08.280 not particular to Cathy would but I think I've seen 1:08:08.320 --> 1:08:11.240 a number of cases where people are way too confident 1:08:11.280 --> 1:08:13.240 about the future, and if they were up fifty would 1:08:13.240 --> 1:08:16.200 be one thing. If you're down, probably there's there's an 1:08:16.240 --> 1:08:18.400 extra dose of humility. So one thing I thought was 1:08:18.479 --> 1:08:24.280 kind of uh telling, there was in February she um spoke, 1:08:24.360 --> 1:08:27.840 I don't remember which which program was on and said, um, 1:08:28.560 --> 1:08:30.639 some of those calls that you mentioned very about bitcoin, 1:08:31.479 --> 1:08:34.880 uh and make a year. And by the way, you know, 1:08:35.000 --> 1:08:37.400 great claim should be backed by a great evidence, such 1:08:37.439 --> 1:08:39.559 Carl Sagan. So I didn't. I didn't see the evidence. 1:08:39.640 --> 1:08:42.840 But but but she said also that something that really 1:08:43.000 --> 1:08:44.599 kind of it's a pet peeve of mine. She said, 1:08:44.920 --> 1:08:47.040 the lows for ARC were in January, and this is 1:08:47.080 --> 1:08:50.479 in February. I guess what happened within two days? Another 1:08:50.600 --> 1:08:53.000 leg down. So you know, you want to say something 1:08:53.040 --> 1:08:55.479 about what will happen in five years. We were not 1:08:55.560 --> 1:08:58.160 going to remember in five years whether you're right or wrong, 1:08:58.200 --> 1:09:00.080 but we're gonna remember when the thing you said and 1:09:00.240 --> 1:09:02.639 happen happens the next day. And I saw it also 1:09:02.640 --> 1:09:05.400 a few weeks ago one of the big banks said 1:09:06.200 --> 1:09:08.880 oil will not be lower than a hundred for the 1:09:09.000 --> 1:09:11.080 remainder of the decade. We we don't want to beat 1:09:11.200 --> 1:09:13.360 up on JP Morgan because they were on the other side, 1:09:13.439 --> 1:09:16.400 but I saw that hundred dollar in oil trade. Um, 1:09:16.520 --> 1:09:18.680 you'll never see below hundred. What did it take three 1:09:18.760 --> 1:09:20.720 days to break below hundred? I actually think that one 1:09:20.800 --> 1:09:22.800 was the next day tree day in true day. So 1:09:23.040 --> 1:09:24.760 so you know, don't say what's not gonna happen for 1:09:24.800 --> 1:09:27.040 three thousand days or whatever, and and and get it 1:09:27.120 --> 1:09:29.280 wrong the next day. There should be a Murphy's Laws. 1:09:29.280 --> 1:09:31.800 There should be some someone should name the what that 1:09:31.960 --> 1:09:33.840 law is, where if you say it, you're damning yourself. 1:09:33.920 --> 1:09:37.680 So so I see way too much hubris over confidence, 1:09:37.720 --> 1:09:40.679 even in the face of giant losses. And it really 1:09:41.280 --> 1:09:44.320 it kind of drives me crazy because when I get asked, well, 1:09:44.360 --> 1:09:46.760 what does your crystal ball tell you? I say, first 1:09:46.800 --> 1:09:50.040 of all, this is the wrong time, you know, it's foggy. 1:09:50.240 --> 1:09:53.760 It should be like, like people get so used to 1:09:54.680 --> 1:09:57.360 recency bias. What's been true for the last month, what's 1:09:57.360 --> 1:10:00.479 been true for the last three years? Extrapolating for a yeah, 1:10:00.520 --> 1:10:02.000 and we're now in the world. Maybe you're supposed to 1:10:02.000 --> 1:10:04.360 look at charts in the nineteen seventies and uh, you 1:10:04.439 --> 1:10:07.200 know we're talking given more inflation is and we should 1:10:07.200 --> 1:10:10.559 all be super humble because prediction is a very hard business. 1:10:10.800 --> 1:10:13.200 And I think the problem is that people who predict 1:10:13.240 --> 1:10:16.320 the loudest, you know, get the most attention. And and 1:10:17.040 --> 1:10:20.160 it's um uh, boy, is a tough sledding right now. 1:10:20.240 --> 1:10:22.840 This market is so challenging. So so there are two 1:10:22.960 --> 1:10:27.080 other um post pandemic issues I wanted to talk to 1:10:27.160 --> 1:10:31.759 you about. One is the meme stocks um game stop 1:10:31.920 --> 1:10:35.719 amc Robin Hood. Uh, tell us a little bit about 1:10:36.120 --> 1:10:39.200 what you were thinking with those? Were you trading those? 1:10:39.240 --> 1:10:42.880 Were you on either side of that trade? And were 1:10:43.000 --> 1:10:45.880 these just people board at home or or what's going 1:10:45.920 --> 1:10:49.240 on with this? I think there's a lot. There's a 1:10:49.280 --> 1:10:53.400 lot to the story. Um. And Uh, you know, we've 1:10:53.439 --> 1:10:56.599 seen cases where somebody's too short and they didn't realize 1:10:56.680 --> 1:10:59.040 being too short can create its own problem, and that 1:10:59.080 --> 1:11:02.479 could be the entire your investment thesis is is if 1:11:02.520 --> 1:11:03.960 we push it up high enough, they have to be 1:11:04.160 --> 1:11:07.040 be squeezed out and um, and it more more becomes 1:11:07.080 --> 1:11:10.880 a supply demand thing. Um. But but I also see 1:11:11.560 --> 1:11:14.200 that in one right around the time that people are 1:11:14.200 --> 1:11:17.200 getting stimulus checks and you know, the the rise of 1:11:17.760 --> 1:11:19.560 and you see n f t s taking off and 1:11:19.640 --> 1:11:23.479 crypto taking off even another leg higher, that there's basically 1:11:23.600 --> 1:11:28.800 been a degradation in the importance of what something ought 1:11:28.840 --> 1:11:31.040 to be worth, what the value ought to be, and 1:11:31.160 --> 1:11:34.760 the price of something is much more determined by the 1:11:34.880 --> 1:11:38.080 physics of it. The puh, the push and the pull 1:11:38.160 --> 1:11:41.639 and and and not about economic models, more about physical models. 1:11:41.720 --> 1:11:44.880 And so so you see the combination of people buying 1:11:44.880 --> 1:11:46.840 out of the money call options, whether it's with their 1:11:46.840 --> 1:11:49.840 stimulus checks or their net worth, and it working. And 1:11:49.960 --> 1:11:51.960 I saw you in the heart of game stuff. So 1:11:52.040 --> 1:11:55.360 we were basically uninvolved. But I couldn't resist Barry when 1:11:55.439 --> 1:11:57.600 like maybe game stop was three fifty, I was. I 1:11:57.680 --> 1:12:00.720 was actually using to fine h a brush because I 1:12:00.760 --> 1:12:02.320 knew if I lost money and this would be embarrassing. 1:12:02.400 --> 1:12:04.400 So I was I did it too small and and 1:12:04.760 --> 1:12:06.800 waited for too too good a level and didn't get 1:12:07.280 --> 1:12:09.400 any kind of reasonable size. But there was a day 1:12:09.479 --> 1:12:11.880 where like the game stop was near the highs were 1:12:12.040 --> 1:12:14.360 a call for three weeks a hundred percent out of 1:12:14.360 --> 1:12:16.439 the money, like game stops at three eight. But the 1:12:16.479 --> 1:12:19.840 eight hundred call is that such an astronomical number that 1:12:19.920 --> 1:12:22.360 it costs like a hundred and fifty points or something, 1:12:22.439 --> 1:12:25.320 And the vall literally broke people's computers. They couldn't they 1:12:25.320 --> 1:12:27.439 couldn't do pn L that night because it was the 1:12:27.520 --> 1:12:30.760 vault was some four digit number. And so I don't 1:12:30.800 --> 1:12:34.360 think those investors are sophisticated on on equity options. But 1:12:34.520 --> 1:12:36.400 but for many of them it worked, and it was 1:12:36.760 --> 1:12:39.920 it was a you know, it was an incredible moment. 1:12:40.000 --> 1:12:43.759 But it reminds me that that love of call options 1:12:43.840 --> 1:12:47.280 started last the summer before um soft Bank set up 1:12:47.280 --> 1:12:49.760 an entity to trade short term call options on the 1:12:49.800 --> 1:12:53.320 tech names they liked, and the sellers of these options, 1:12:53.360 --> 1:12:56.160 as sellers of all, whether it's puts or calls, you know, 1:12:56.240 --> 1:12:59.320 basically blew up during COVID short vall funds that had 1:12:59.720 --> 1:13:02.720 done incredibly well when there was no volume, not surprisingly 1:13:03.080 --> 1:13:05.240 blew up. And so you didn't have the supply, you 1:13:05.360 --> 1:13:08.160 had the demand. And so I see today um. You know, 1:13:08.320 --> 1:13:09.719 n f T s are kind of like an option. 1:13:09.760 --> 1:13:12.519 They have an asymmetric payout that people are in love 1:13:12.560 --> 1:13:15.800 with option like payouts and um and as a consequence, 1:13:16.280 --> 1:13:19.680 volt is elevated even in the nine times even last year. 1:13:19.840 --> 1:13:21.800 You know, Barry, you've been. You probably know way more 1:13:21.800 --> 1:13:24.160 about the VIX and the history of it than I do. 1:13:24.600 --> 1:13:27.160 But the VIX never really went below twenty last year 1:13:27.200 --> 1:13:28.799 for more than a day or two. Even in tranquil 1:13:28.880 --> 1:13:31.560 times go back five years earlier, twenty was like a 1:13:32.040 --> 1:13:34.080 read alert. You know, all we're in a we're in 1:13:34.120 --> 1:13:36.719 a correction or a bear market, but we've been between 1:13:36.760 --> 1:13:40.639 twenty and forty since COVID, and I think these volatile 1:13:40.680 --> 1:13:43.960 times are going to stay with us. One last question 1:13:44.080 --> 1:13:47.479 before we get to our favorite question, which is you 1:13:47.720 --> 1:13:51.880 hired Stephanie Rule at Deutsche Bank and she tells me 1:13:52.080 --> 1:13:55.559 that you had a business as a New York City 1:13:55.680 --> 1:13:59.759 dog walker. So you have to tell us about hiring 1:14:00.640 --> 1:14:03.400 and dog walker? What the hell is that, Barry? This 1:14:03.560 --> 1:14:05.559 is this is low. You've really gotte low. I'm trying 1:14:05.560 --> 1:14:09.000 to go high and uh, you gotta Okay. So I 1:14:09.160 --> 1:14:12.720 was thirteen. My parents wouldn't let me watch TV and 1:14:12.880 --> 1:14:15.640 the Sony Watchman had come out, and uh, black and 1:14:15.680 --> 1:14:17.920 white TV about two by two, and this is the 1:14:18.040 --> 1:14:20.360 nineteen eighties, and so I thought if I had some money, 1:14:20.360 --> 1:14:22.800 I could buy one for a hundred dollars. And um, 1:14:23.120 --> 1:14:24.760 So I used to walk dogs. I grew up on 1:14:24.760 --> 1:14:27.439 the Upper West Side, uh, which was not the safe 1:14:27.479 --> 1:14:29.600 place it is today back then in the in the 1:14:29.640 --> 1:14:32.200 late eighties. And um, and I tell my kids that 1:14:32.920 --> 1:14:36.200 in one instance I had one of those extended Alisha's. 1:14:36.439 --> 1:14:39.240 The dog ran ahead, ran into the elevator, elevator closed, 1:14:39.880 --> 1:14:41.599 and it started going up and I'm holding this big 1:14:41.680 --> 1:14:44.439 plastic thing that I can't even get rid of, and 1:14:44.920 --> 1:14:47.519 it gets pulled from my hand, and it seemed like 1:14:47.880 --> 1:14:50.519 way too many seconds. It's up in the corner of 1:14:50.600 --> 1:14:53.080 the elevator door, and I'm thinking the dog is dead 1:14:53.120 --> 1:14:55.920 because the elevator went up and came down, you know, 1:14:56.240 --> 1:14:58.760 bouncing around. But it was totally okay. So my my 1:14:58.880 --> 1:15:01.960 dog like career was literally the almost uh ended in 1:15:02.120 --> 1:15:05.479 in one in one cut. Um. But I um, when 1:15:05.479 --> 1:15:07.560 I when I was a kid, I did that. But 1:15:07.760 --> 1:15:10.160 two years later I was working as a summer intern 1:15:10.560 --> 1:15:13.240 and after school at Marylynch, so um. Stephanie really got 1:15:13.280 --> 1:15:16.519 me with that one. She is basically one of the 1:15:16.560 --> 1:15:19.120 best things that ever happened to me. At Deutsche Banks, 1:15:19.200 --> 1:15:21.360 I knew a credit sueez. She was so good as 1:15:21.400 --> 1:15:25.120 my salesperson that I would forego that benefit to have 1:15:25.320 --> 1:15:28.040 her at the bank, and I helped bring her in. Huh. 1:15:28.200 --> 1:15:30.240 That's that's really interesting. All right, Let's jump to our 1:15:30.280 --> 1:15:33.840 favorite questions that we ask all of our guests, starting 1:15:34.000 --> 1:15:36.800 with tell us what you've been streaming these days on 1:15:36.920 --> 1:15:40.960 your two by two sony uh TV man? Whatever that was? 1:15:41.040 --> 1:15:43.879 I remember that was like a Dick Tracy watch almost. 1:15:44.360 --> 1:15:47.000 Um what are you watching on Netflix or Amazon Prime 1:15:47.120 --> 1:15:51.360 or whatever? Sure, so um uh, I definitely watched my 1:15:51.439 --> 1:15:53.519 favorite bit of TV. I'm doing with one eye, so 1:15:53.800 --> 1:15:57.000 i'm you know, the other I'm I'm at least when 1:15:57.000 --> 1:15:59.920 my kids are asleep. I'm definitely following the markets at 1:16:00.000 --> 1:16:02.519 you're closest here. But I just finished the first six 1:16:02.600 --> 1:16:05.360 episodes of Slow Horses with Gary Old. I just started 1:16:05.439 --> 1:16:08.040 that this week. I have to tell you there are 1:16:08.120 --> 1:16:11.400 so many lines of his that are just so quotable, 1:16:11.520 --> 1:16:14.280 and they're they're just there. I think the writing is 1:16:14.320 --> 1:16:17.639 brilliant and m and the show I'd give it an 1:16:17.680 --> 1:16:20.040 a minus, but his lines are in a plus. Um. 1:16:20.160 --> 1:16:22.360 So that that's what I finished. I'm about to start 1:16:22.400 --> 1:16:25.960 season two of Tehran and my wife is from Tehran, 1:16:26.280 --> 1:16:29.040 and in season one, right in the heart of COVID 1:16:29.160 --> 1:16:33.600 before Apple started uh streaming it, um, it was a 1:16:34.240 --> 1:16:38.519 an Israeli show in Farsi and sometimes in Hebrew and 1:16:38.720 --> 1:16:41.679 so um so my COVID memory is my in laws 1:16:42.439 --> 1:16:45.320 and my wife doing simultaneous translation for me. Because there 1:16:45.360 --> 1:16:48.839 were no English subtitles. I certainly couldn't understand the Farsi 1:16:49.240 --> 1:16:51.559 and so we that was a really nice family activity. 1:16:51.760 --> 1:16:53.840 And I thought that was really a great show. Huh. 1:16:54.200 --> 1:16:58.720 Have you watched another Israeli show, Fouda? I have. I've 1:16:58.760 --> 1:17:02.040 actually met the cast. I think it is very good. 1:17:02.240 --> 1:17:04.960 I've seen all those shows. Um, I can't watch it 1:17:05.040 --> 1:17:06.800 before you go to bed because you just like so 1:17:07.040 --> 1:17:10.800 stressed out. It's the it's the most suspenseful, exciting thing 1:17:10.880 --> 1:17:14.720 on TV. Yeah, yeah, really interesting. Tell us about some 1:17:14.840 --> 1:17:18.240 of your mentors who helped shape your career. So my 1:17:18.360 --> 1:17:21.360 start is because a woman who went to Hunter Elementary 1:17:21.400 --> 1:17:24.240 School as a kid put up an ad at Hunter 1:17:24.360 --> 1:17:27.080 and it's Dyvesant where I went looking for someone to 1:17:27.120 --> 1:17:29.920 come in after school and help her arrange meetings and 1:17:30.120 --> 1:17:33.479 put you know, cards in uh in folders and listen 1:17:34.000 --> 1:17:37.200 to uh read stock research in my spare time. So 1:17:37.280 --> 1:17:40.000 that was Jeanine Crane. I'm still close with her to 1:17:40.120 --> 1:17:42.720 this day. She was a high net worth broker at 1:17:42.760 --> 1:17:45.600 Meryl and I worked there from fifteen to seventeen. And 1:17:45.680 --> 1:17:49.280 then the great David DeLucia from a Wars poker who 1:17:49.680 --> 1:17:52.360 ran the junk bond desk at Goldman, the chess player 1:17:52.479 --> 1:17:55.400 who gave me my start at Goldman was an incredible 1:17:55.439 --> 1:17:58.639 mentor to me. But you know, Barry, I I think 1:17:58.720 --> 1:18:00.800 the importance of having some that you can ask those 1:18:00.880 --> 1:18:03.160 questions too, and why did this happen? And what do 1:18:03.240 --> 1:18:05.280 you think? And why did you sell this? Are so 1:18:05.439 --> 1:18:07.639 crucial when you're young. But when I got into credit 1:18:07.720 --> 1:18:11.720 ord of January night i joined Deutsche, I'm still only 1:18:13.560 --> 1:18:16.960 years old, and um there's no one to really learn 1:18:17.000 --> 1:18:19.320 about credit orders from because it's the things brand new. 1:18:19.800 --> 1:18:22.840 And my my two bosses actually left the bank six 1:18:22.880 --> 1:18:25.280 months after I started. So I really was alone in 1:18:25.320 --> 1:18:28.760 the wilderness during LTCM in Russia and it was it 1:18:28.920 --> 1:18:31.200 was a it was an incredible experience. I was the 1:18:31.200 --> 1:18:33.519 most junior person on the desk and the most senior 1:18:33.560 --> 1:18:35.840 because it became a group of one and they let 1:18:35.920 --> 1:18:40.280 me in hire some people and the rest is history. Interesting. 1:18:40.720 --> 1:18:43.639 Let's talk about books. What are some of your favorites 1:18:43.680 --> 1:18:46.640 and what are you reading right now? Uh? Well, so 1:18:46.800 --> 1:18:49.320 I'm gonna read I'm about to reread Against the Gods. 1:18:49.360 --> 1:18:53.479 Now that we had this awesome conversation about Peter Bernstein, Um, 1:18:54.040 --> 1:18:57.960 I'm not that into reading the latest book. Um, so 1:18:59.080 --> 1:19:01.479 I've gone back and read some books that I should 1:19:01.479 --> 1:19:04.439 have read before. So this uh, the last few months, 1:19:04.520 --> 1:19:08.719 I read The Powerbroker by Caro and um just feeling 1:19:08.720 --> 1:19:11.960 a little bit uh interested in my own personal history 1:19:12.520 --> 1:19:16.760 um and this trip to Yad Vashem. Quite recently I 1:19:16.880 --> 1:19:20.000 reread Man Search for Meaning by Victor Frankel. UM. But 1:19:20.080 --> 1:19:22.080 a few years ago a book that is kind of 1:19:22.120 --> 1:19:25.400 one of those books like that that people in our 1:19:25.439 --> 1:19:29.839 community read about different topics about whether it's finance related 1:19:29.960 --> 1:19:35.120 or or skill versus uh, nurture nature. Uh. There's a 1:19:35.160 --> 1:19:38.280 book called Range by David Epstein that I thought had 1:19:38.400 --> 1:19:41.719 some really interesting chapters that I was unfamiliar with. Whether 1:19:41.800 --> 1:19:44.920 it's the spatial disaster is a little familiar with, or 1:19:45.680 --> 1:19:48.960 violinists of the eighteenth century. It's it's really a tourtive force. Um. 1:19:49.120 --> 1:19:51.479 You can get the basic ideas from it pretty quickly. 1:19:51.560 --> 1:19:55.320 But I quite enjoyed it. Huh. Really interesting. You mentioned 1:19:55.439 --> 1:19:58.880 Liars Poker before. I just reread it for the first 1:19:58.960 --> 1:20:02.160 time in like thirty years when I had Michael Lewis 1:20:02.280 --> 1:20:06.040 on recently, and it's surprising how well it holds up 1:20:06.120 --> 1:20:08.800 over time. And there's a book I'm gonna recommend to you, 1:20:08.840 --> 1:20:11.839 because I get a sense of your likes and dislikes. 1:20:12.120 --> 1:20:16.280 Have you ever read godal escher Bach. It seems like 1:20:16.400 --> 1:20:18.479 that's right up your alley. So I tried to read 1:20:18.520 --> 1:20:20.760 it as a college student, and I kept trying because 1:20:20.800 --> 1:20:23.200 I knew this, well, this is a book that's people 1:20:23.240 --> 1:20:26.120 who think, you know that they can understand complicated things 1:20:26.160 --> 1:20:28.439 should read and I am. I loved parts of it. 1:20:28.720 --> 1:20:31.920 I'm I need to need to give it another look 1:20:31.960 --> 1:20:34.959 because it's been thirty years. I literally had the same experience. 1:20:35.040 --> 1:20:37.120 I fought through it in college and said, I got 1:20:37.240 --> 1:20:40.000 to reread it, and it's on my list to reread 1:20:40.320 --> 1:20:43.840 same same exact things. Um. Last two questions, what sort 1:20:43.840 --> 1:20:46.639 of advice would you give to a recent college grad 1:20:46.680 --> 1:20:50.840 who was interested in a career? Uh in finance. You know, 1:20:51.120 --> 1:20:55.200 I had people over the years very frequently at Deutscha 1:20:55.280 --> 1:20:58.280 asked me. Let's say they were summer intern that wanted 1:20:58.320 --> 1:20:59.760 to get a full time job, or as a person 1:20:59.840 --> 1:21:03.000 in operations that wanted to get a trading job. And 1:21:03.040 --> 1:21:04.720 they'd say, at the end of the summer or at 1:21:04.760 --> 1:21:06.200 the at the end of some period, how do I 1:21:06.240 --> 1:21:09.280 get a job on the trading desk? And I would sometimes, 1:21:09.400 --> 1:21:12.880 and we we were pretty good about actually giving those opportunities. 1:21:13.439 --> 1:21:16.880 I'd say to the person who didn't deserve it, let's say, well, 1:21:17.000 --> 1:21:19.400 you know, we have this seven thirty meeting where all 1:21:19.479 --> 1:21:21.639 the traders go over their top positions and the salesforce 1:21:21.720 --> 1:21:24.880 asked questions, why haven't I seen you in those meetings? Oh? 1:21:25.160 --> 1:21:27.920 I you know, I didn't my job starts at date, 1:21:28.040 --> 1:21:30.000 or that's I didn't know I could go to those meetings, 1:21:30.320 --> 1:21:32.600 you know. And there's decisions like that, like should you 1:21:32.680 --> 1:21:34.679 go to that meeting or should you read the week's 1:21:34.760 --> 1:21:37.480 research and ask a question, even if you work in operations, 1:21:37.680 --> 1:21:40.360 or even if you're a summer intern and a reasonable 1:21:40.400 --> 1:21:42.760 person on the other end will should look at that 1:21:43.000 --> 1:21:46.400 with loving eyes. And I feel like some people want it, 1:21:46.640 --> 1:21:48.519 but they don't do the things they need to do 1:21:48.680 --> 1:21:51.799 to deserve it. And if it's if it's about business, 1:21:52.240 --> 1:21:54.880 there's almost nothing that would be too aggressive for someone 1:21:54.920 --> 1:21:57.120 to do, like showing up at a meeting they weren't 1:21:57.120 --> 1:21:59.080 invited to that fifty people are in. It's not a 1:21:59.160 --> 1:22:01.560 secret meeting. And I think young people who want to 1:22:01.600 --> 1:22:04.679 get ahead, um, who want to be doing something different, 1:22:05.160 --> 1:22:09.320 need to uh do those things and our final question, 1:22:09.760 --> 1:22:12.160 what do you know about the world of investing today 1:22:12.280 --> 1:22:15.840 you wish you knew back when you were first getting 1:22:15.880 --> 1:22:20.519 started as an investor. I mean, this is an amazing 1:22:20.600 --> 1:22:24.320 question as an investor that has to think about when 1:22:24.520 --> 1:22:27.599 is it cheap enough? How what's the discount one needs 1:22:27.680 --> 1:22:29.640 on a spack or on a closed in fund, or 1:22:29.800 --> 1:22:33.040 the mispricing between a credit and an equity to put 1:22:33.120 --> 1:22:37.599 on a trade. I think that, um, if I could 1:22:37.640 --> 1:22:41.439 go back, I would tell myself that my imagination for 1:22:41.600 --> 1:22:44.880 how crazy things could get is not enough. You know, 1:22:44.920 --> 1:22:47.120 if you think about, like if you took the government 1:22:47.160 --> 1:22:50.280 bond traders of pre O eight and sent them to 1:22:50.360 --> 1:22:52.400 the moon and left them there for years, and brought 1:22:52.439 --> 1:22:54.840 them back and tell them that interest rates, oh you're back, 1:22:55.160 --> 1:22:58.639 you know, here's your you know, uh, here's your newspaper. 1:22:58.680 --> 1:23:00.760 Interest rates are negative. I think to them would think 1:23:00.840 --> 1:23:02.680 like you're playing a prank on them. We have we 1:23:02.760 --> 1:23:05.120 have Swiss rates negative to fifty years, like it's not 1:23:05.240 --> 1:23:07.920 just a three month bond, like fifty thirty years negative 1:23:07.960 --> 1:23:11.360 and and so so I think the market never will 1:23:11.400 --> 1:23:17.080 cease to surprise and people who get tracked into recency 1:23:17.160 --> 1:23:19.439 bias and this is the way things are, and this 1:23:19.520 --> 1:23:21.960 is the way they'll be. They're not imaginative enough about 1:23:22.000 --> 1:23:25.040 what can happen, and it's it's those extraordinary things that 1:23:25.160 --> 1:23:29.000 happened where the real amazing payouts are. You know, maybe 1:23:29.040 --> 1:23:31.840 an example now something that hasn't worked instead is there 1:23:31.840 --> 1:23:34.439 are probably some currency pegs that people assume are going 1:23:34.479 --> 1:23:36.960 to be there forever and you know, you just have 1:23:37.080 --> 1:23:39.120 to be right one time in a hundred years and 1:23:39.160 --> 1:23:41.200 you're gonna get paid back five dred times or a 1:23:41.280 --> 1:23:45.080 hundred times and things. I think, Uh, with what's happened 1:23:45.120 --> 1:23:47.960 now with with Ukraine and Russia and COVID and China 1:23:48.040 --> 1:23:50.720 and inflation, I think we're in a world where the 1:23:50.800 --> 1:23:54.920 impossible can be possible and we should think creatively about 1:23:55.479 --> 1:23:57.960 um a range of outcomes instead of what's the central 1:23:58.320 --> 1:24:00.760 what's the central theory? Thank you o As for being 1:24:00.840 --> 1:24:03.439 so generous with your time. We have been speaking with 1:24:03.560 --> 1:24:08.520 BoA's Weinstein, founder of Saba Capital. If you enjoy this conversation, 1:24:08.600 --> 1:24:10.760 we'll be sure and check out any of the four 1:24:10.840 --> 1:24:13.759 hundred previous ones we've done over the past eight years. 1:24:14.280 --> 1:24:17.920 You can find those at iTunes, Spotify, wherever you find 1:24:17.960 --> 1:24:21.760 your favorite podcasts. We love your comments, feedback and suggestions 1:24:21.920 --> 1:24:25.479 right to us at might be podcast at Bloomberg dot net. 1:24:26.000 --> 1:24:28.360 Follow me on Twitter at rid Halts. Check out my 1:24:28.479 --> 1:24:32.000 daily reads at Dholts dot com. I would be remiss 1:24:32.040 --> 1:24:33.960 if I did not thank the correct team that helps 1:24:34.040 --> 1:24:38.280 put these conversations together each week. Mohammed Ramaui is my 1:24:38.400 --> 1:24:42.639 audio engineer. Sean Russo is my head of research. Paris 1:24:42.720 --> 1:24:47.400 Wald is our producer. Batika val Brund is our project manager. 1:24:48.040 --> 1:24:51.679 I'm Barry Results. You've been listening to Master's in Business 1:24:52.160 --> 1:24:53.280 on Bloomberg Radia