Transcript: Ed Hyman


The transcript from this week’s, MiB: Ed Hyman on Using Economic Data Opportunistically, is below.

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This is Masters in business with Barry Ritholtz on Bloomberg Radio

Barry Ritholtz: This weekend on the podcast, ed Hyman returns to talk about all things economic analysis, what’s going on in the world, how he’s built an incredible career, oh my God, 43 times number one ranked in the Institutional investor survey in economics. That’s just unprecedented. And I’ll keep saying, no one will ever beat that, that that streak. Ed is a fascinating guy. He’s built a fascinating company. He is one of those people who focuses on figuring out what’s happening here and now, and is less concerned about making forecasts about the future. His clients adore him. He helps keep them on the right side of the trade, and he’s really just one of these legends and gems on, on Wall
Street. I could keep going, but let me just stop and say, with no further ado my conversation with ISI ever course Ed Hyman.

Ed Hyman: Very great to see you. Great to see you.

Barry Ritholtz: You know, the last time you were here, that number was something like 35 times. Alright. Which was also unbeatable. That, that is a record that I don’t believe will, will ever be topped. Before we get into the details of your career and and your work, how on earth is anyone ranked number one for 43 consecutive times? That, that’s amazing.

Ed Hyman: I don’t know. I, I’ve been really lucky in my career and I, I listen to your show all the time, and most people will say that, right? I’ve been lucky. And frankly, if they’ve done a lot, they have to have been lucky. My greatest talent is work. I’m really a hard worker. I know how to work. I like working. And so that’s maybe number one.

Barry Ritholtz: Wouldn’t you say that in, in finance, which is such a competitive field, hard work and intelligence, that’s just table stakes to, to get into the game, isn’t it?

Ed Hyman:  It Is, but it’s table stakes in every game and it doesn’t change much. And there are people I know that work harder than I do, and they do better,

Barry Ritholtz: Well, not better than 43 in a row. I like, I like Peter Lynch’s description of what made you successful. I think it was in his book, one Up on Wall Street. Ed Hyman is much more practical than most economists. He’s more interested in examining railroad cars than Laffer Curves. What does that say about what makes
you special and different from other economists? Yeah.

Ed Hyman: First, I like working and I’ve worked to the point that I’ve found something I really enjoy doing. You know, that’s maybe the second most important thing for anybody, for you, right? Or me. I have a real interest in helping people, which, you know, some people have that interest and some people don’t, but I do. And so I met Peter Lynch, how was that, 50 years ago or 40 years ago. I said, I gotta help this guy. And he said, no thanks. I said, wait a minute, I’ll come back. And so I tried to find something that I could do that would be of interest to basically an equity investor. And he’s, you know, maybe the best that’s been around. And so he set me off in a direction that was practical and at that point, commission business that he generated was ginormous, I’m sure. And so I was in incentivized, you know, monetarily to help him.

I wouldn’t put him as a mentor because I didn’t spend that much time with him, but he definitely influenced my career in a practical way that I think has served me very well ever since then. ’cause I’m always trying to find things that are practical. And I happen to, like, art Laffer, you mentioned the Laffer Curve, which I think is frankly pretty much a stroke of genius. But, you know, it’s, it’s not something that people make money off of every day, right? So I’m trying to mix both things that are intellectual and theoretical as, as well as things that they have a practical side to them.

Barry Ritholtz: So, let’s talk a little bit about the genesis of that practical side. You, you get your BS in engineering from University of Texas.

Engineers tend to be pragmatic problem solvers. And then you get an MBA from MIT. So you have all of this very pragmatic experience as opposed to getting a PhD in economics, which tends to be a little more abstract and academic. How much of, of your rankings come from the fact that you have these very problem solving oriented academic background? How, how did that affect you?

Ed Hyman:  A lot. You know, if you’re hardworking and you’re trying to do things that people value and my client base, if you will, or institutional investors, I went all the time.

Barry Ritholtz:  So let’s talk a little bit about the early days of your career. When you come outta school, 1969 to 71, you’re an economic consultant at data resources. What, what did you do for those guys? That, that sounds kind of interesting.

Ed Hyman:  Whenever he wanted actually I wanted some coffee. I brought it to him.

Barry Ritholtz: So you started as a very junior person on the tone and pole? Yeah,

Ed Hyman:   Pretty, pretty junior. But I had, at that point, I had a pretty special knowledge of econometrics at MIT. They had the first time sharing  Big mainframe, but you could share the data, share the computer programs. And the first real practical application was the Sage American Airlines Ticket System, which is a, you know, time sharing where you get your tickets. And that’s also,

Barry Ritholtz: That eventually became Sabre, right?

Ed Hyman: Sabre, sorry. And so I had done that at MIT and Otto Eckstein, who was a professor in the economics department at Harvard, he started a company that did that exact thing.

Barry Ritholtz: Right down the street from MIT right?

Ed Hyman:  Right there. And I was working for a professor named Ed k, who was a friend of Otto Stein. And so they were talking and I got the job. So that was a stroke of good luck. Plus I, was in the right spot at the right time. Right.

Barry Ritholtz: Ed Hyman:

00:06:28 [Speaker Changed] What was the data like back then? I, I’m thinking of punch cards and very rudimentary computing.

00:06:33 [Speaker Changed] It was before then. And actually I did a lot of punch cards. You’re too young for this.

00:06:40 [Speaker Changed] I, when I started college punch cards and timeshares were still a thing. Yeah. But it was a fading thing. And the newfangled technology was coming. You, you saw it on the horizon.

00:06:50 [Speaker Changed] I just jumped right over that card deck into data resources where the data was in a computer you shared. And so you didn’t have to carry the deck around. And it, it was, it was a major step forward. Pretty much the same technology as today. We still use the data resources system constantly. And the data is there. The only thing that’s changed is there’s much more data,

00:07:16 [Speaker Change d] More data, faster, bigger. It just has obviously scaled up a lot since back then.

00:07:21 [Speaker Changed] Right. So it’s not just government data. Now there’s a lot of industry data,

00:07:24 [Speaker Changed] Which you guys will talk a little bit about what ISI does in assembling its own data. Let’s just continue along your career. 72, you end up at CJ Lawrence. Tell us what you did there. What was that work like?

00:07:37 [Speaker Changed] Yeah, so at, at Data resources, I worked with our clients and Otto Eckstein, who is a spectacular human being, he passed away, I think in his fifties. You know, he went from the cover of Time Magazine to not being with us anymore. But he was a phenomenal person. And he had this game plan. He would hire people outta school that seemed to be over on the ball. On the ball, right. And they would work for data resources and take care of clients and then a client would hire them. And he said, that’s great. And he would, he just

00:08:15 [Speaker Changed] Saw, ’cause they’re locked in as a client,

00:08:16 [Speaker Changed] They’re locked in as a client. Right. So I remember telling him, I think I called ’em auto, I shouldn’t have, but I, I did, I said auto. I said, I have a job offer to go to work for one of our clients, CJ Lawrence. And he said, oh, ed, that’s great. I kept waiting for the counter. And so I, I remember Barry, he took me to lunch at friend’s,

00:08:38 [Speaker Changed] Right. For a fri and some fries. Right.

00:08:42 [Speaker Changed] Friendlies. But anyway, so that was how I got to CJ Lawrence.

00:08:45 [Speaker Changed] Didn’t they end up getting purchased by, was it Deutsche Bank? Something by Deutsche Bank?

00:08:49 [Speaker Changed] Right. How did that affect your plans going forward? Did you want to go toa big bank or is that what led to the next step in your career?

00:08:57 [Speaker Changed] That was the next step.

00:08:59 [Speaker Changed] I-S-I

00:09:00 [Speaker Changed] So that’s 91. So you were, you were at CJ Lawrence for good Good while for almost 20 years. Four years. Wow. Alright. So you found ISI group with some partners. Tell us a little bit about the plan for launching an independent economics research

00:09:15 [Speaker Changed] Shop. Yeah. So at that point, I had a pretty big career. I’d been ranked i back in the seventies, if you can do the math. And I had a, I basically had to

00:09:26 [Speaker Changed] Be fair in the beginning you were only like runner up and second Right. You really, you really weren’t carrying your share the workload. You were coming in second place. I mean, that’s just no go.

00:09:38 [Speaker Changed] You have to start somewhere. Right?

00:09:40 [Speaker Changed] Start at number two and work your way up.

00:09:43 [Speaker Changed] And it was easy transition to start my own shop. And I had a group of people and Jim Moltz ran CJ Lawrence and he was, and still is like a father to me. So he was very helpful. We, we all could tell that it probably wasn’t the best fit for somebody who liked working for small companies to work for, you know, a big bank. I, I told, I told him, he said, okay, ed, would you stay until we find a replacement for you? I said, of course. He came in one day, he said, ed, we, I got some good news. We found a replacement for you. It’s Ed Ardini. And I said, okay, that’s great. I said, okay, if I send an announcement out, he said, it’s okay. I’ve already sent one out.

00:10:27 [Speaker Changed] Ardini is at Deutsche Bank for a long time until he launched Ardini research.

00:10:31 [Speaker Changed] Yeah, he’s he’s very good.

00:10:33 [Speaker Changed] Really? He lives in the next town for me. We is that right? We ally go out to dinner. Yeah. Yeah. Super nice guy. Super nice guy. So, so let’s talk a little bit about, ISI was both a research shop, but you also set up ISA funds management for investors and clients. Two different groups. How, how did they coexist under the same roof?

00:10:51 [Speaker Changed] It was okay. It wasn’t a great business, frankly. It’s not as, as strong as your business in the asset management business. I think I got up to, maybe I did get up to maybe 3 billion. Yeah. But you

00:11:02 [Speaker Changed] Research side of the shop generated, that was enough activity to make up for it.

00:11:06 [Speaker Changed] Yeah. That was, I forget what, what you call it,

00:11:09 [Speaker Changed] The side hustle. Your side hustle. Hustle was managing institutional right assets. Your real business is having the best perspective of what is happening this moment in the economy. And again, according to ISI, nobody does that better than you did. How long after you launched ISI did you get a sense that, hey, we really have this figured out. We have, we’re providing research product that nobody else on the street seems to be doing.

00:11:38 [Speaker Changed] Actually, that had happened at CJL Lawrence, you know, by the time I started, ISI, I had already gotten a strong following and knew what I was doing in that space. And so I just made a transition at that point, 90 91 or recession years. And the stock market, you know, had a pretty big drop. And I thought, well, this is a bad idea to start your own company.

00:12:00 [Speaker Changed] Turns out to be the perfect time to start your own

00:12:02 [Speaker Changed] Company. It is a perfect time, but you know, that’s, you, you, you learn that a little later. But it is a perfect time. That point I thought, well, if it doesn’t work out better than what I was doing,

00:12:12 [Speaker Changed] Right. So

00:12:13 [Speaker Changed] I had very low expectations. And then it turns out, you know, the market, if you go from 91 forward market just sort of went up and business was good and it was good basically until maybe 2010. And since then it’s, it’s been very difficult.

00:12:27 [Speaker Changed] So you’ve seen changes in the seventies and eighties, right? You had the bull market in the nineties. The financial crisis in the two thousands, the 2010 seemed totally uneventful other than the fact that, you know, there was no yield on the fixed income side. Yeah. And here we are in 2020s. First the pandemic, now the increase in rates in your long career in Wall Street. Is there ever a decade where something isn’t blowing up or going crazy? Isn’t that just the normal state of affairs? I try to explain this to the younger guys in my office. Like, wow, this is crazy. It’s like, no, no, something crazy is always going on.

00:13:07 [Speaker Changed] Doesn’t crazy is always crazy, right?

00:13:08 [Speaker Changed] Am I, am I like not overstating that or Well,

00:13:11 [Speaker Changed] I would say, you know, in a research response to you, so I’ve been through 13 fed tightening cycles, right? And everyone has had a financial shocker crisis, continental Illinois 84 for example. But every single one New York Community Bank, it’s just

00:13:29 [Speaker Changed] Par for the course.

00:13:29 [Speaker Changed] Par might even, not even quite par, but I mean, so I would be surprised if we don’t have another one. It’s, it’s part of the tightening cycle, I think. Huh?

00:13:39 [Speaker Changed] Even if the Fed is arguably done tightening, you think still arguably,

00:13:44 [Speaker Changed] But

00:13:44 [Speaker Changed] You still more cockroaches coming out.

00:13:46 [Speaker Changed] Yeah. Huh. Fascinating. But I would also say trying to put things into a historical perspective that we might enjoy a decade from now, the yield curve still inverted, right? Which is a tightening move and every week the Fed shrinks its balance sheet and it’s doing about a trillion a year, which is not exactly,

00:14:05 [Speaker Changed] So you’re saying, you’re saying the financial conditions are tighter presently than people seem to realize,

00:14:12 [Speaker Changed] Not just the financial conditions because the market’s up so much. Right. And you know, credit spreads are very tight, but I’m saying the fed tightening is probably ongoing and bank deposits go down every week.

00:14:23 [Speaker Changed] Well, if I get 5% in the money market, why am I’m gonna leave cash in a savings or a checking account? Right?

00:14:29 [Speaker Changed] So I I think the Fed is still in a tightening mode, which is why I think, for example, New York Community Bank popped up and if you are looking for it, which I am, every two or three days, there’s some story about a problem here or there. It could be a problem with the, the German banks and commercial real estate, for example, has been a little backstory.

00:14:49 [Speaker Changed] Are are you seeing this as a systemic issue or just isolated?

00:14:54 [Speaker Changed] I think it standalone. I reflects the, the fed tightening and also ECB has been tightening. So it’s all the same. But I, I do think that every period has problems. And like you mentioned, the smooth sailing in the 2000 tens

00:15:07 [Speaker Changed] Didn’t feel that way at the time.

00:15:09 [Speaker Changed] I remember the you Europe blowing up in Greece,

00:15:12 [Speaker Changed] Right, right. There was a lot of stuff that was

00:15:14 [Speaker Changed] Happening that seemed, that seemed pretty bad.

00:15:16 [Speaker Changed] Right. You look at a stock chart, it’s a little misleading, right? Oh, we started down here and we ended up here. Must have been great. Yeah. Always climbing a wall ROI of worry.

00:15:23 [Speaker Changed] Right, right, right. It,

00:15:24 [Speaker Changed] It seems like you’re much less focused on the here and now then predictions. So, so let’s talk a little bit about forecasts. How do you use them or not? How do they fit into your research product?

00:15:38 [Speaker Changed] Well, you, you have to do forecast, maybe forecasting is impossible. It’s certainly difficult, but you have to do it because in order to make money you have to have some sense about where things are going. And the difficult thing is to know when to hold it, know when to fold it. So that’s like a mosaic you put together and you come up with a view that’s based on whatever you would like. I, I always would like to have pretty strong theoretical or intellectual framework that I’m operating within and then see how things fit into that. And sometimes they continue to fit in and sometimes they don’t. And there’ll be plenty of times when they’ll get bumps in the road. But I try and, and have a framework so I’m not just, you know, reporting the latest data point, put it into a perspective that’s helped me because I, I most often have a view that when I talk to people, they can understand where I’m coming from. Not only where I’m coming from, but why I am have a particular

00:16:32 [Speaker Changed] Viewpoint. I wanna talk about the thing that first caught my eye with the work that you do, starting with your survey of people in the real economy of businesses and sectors, rather than just rely on economic data that comes out of the government or earnings. Tell us about the surveys you created when you first started doing the sort of work you do.

00:16:57 [Speaker Changed] Early on there was a business called Johnson Red Book. Don’t write it down, but they surveyed retailers. And

00:17:05 [Speaker Changed] That was like a weekly thing, right?

00:17:07 [Speaker Changed] Remember correctly? Yeah. Yeah. It sounded like a really good idea. I took that idea and took it to the limit. So now we survey about 30 industries, maybe 300 companies

00:17:17 [Speaker Changed] In each industry.

00:17:19 [Speaker Changed] 300 companies overall. 30 industries. Okay. Like re like retail for example, or autos, trucking companies, you name it. We do wine and spirit wholesalers, right? We have a, a survey we do at the end of the year of Christmas tree sale. Really we survey the people that grow them, people that truck them and the people that sell them in the cities.

00:17:41 [Speaker Changed] So you’re getting like a real time snapshot of what’s happening, not just across the economy but within very specific subs sectors. Yeah.

00:17:50 [Speaker Changed] I’m sort of a contrarian at heart is I don’t trust government data, right? It’s also very difficult. How do you measure GDP two weeks or three weeks after the quarter ends or retail sales eight days after the month ends. Too
00:18:07 [Speaker Changed] Much data to assemble, right?

00:18:08 [Speaker Changed] If you think about it across the whole country, employment’s the same way. How can you possibly,

00:18:13 [Speaker Changed] Well that’s why they do three, three of ’em. The early release, the update, and then the final right cross it takes ’em three months to do GDP.

00:18:20 [Speaker Changed] But even that’s difficult. So then on the other side, you’re a practical person. If you meet somebody say that runs a business and you say, how’s business? They’ll always tell you sure with actually vivid detail, real granularity, right? Because they live it 24 7. So if you can, you know, get a group of those, say a dozen, you have a pretty good leg up on what’s happening in a particular sector. It’s certainly different. And in some ways it’s more reliable than trying to measure, say retail sales for example.

00:18:54 [Speaker Changed] So what’s their incentive to participate? And to be honest, I’m, I’m always
fascinated by this. So

00:19:00 [Speaker Changed] If they participate with us, I send ’em our, our research

00:19:03 [Speaker Changed] So they get it for free. And that’s, they get it for free. That’s not an
inexpensive product. So, so in their space they, they get to see what their competitors

00:19:10 [Speaker Changed] Are saying. Not all of them might, right? But I’m saying that’s, that’s one
incentive. The second incentive is they get to see the result trucking survey we do comes to mind. I think
we have a dozen truckers and boy there really aren’t any more than that in the country, right? There are
only probably five big trucking companies. But we get a dozen trucking companies,

00:19:30 [Speaker Changed] They all wanna see what the other truckers are saying.

00:19:32 [Speaker Changed] Yeah. And so you can imagine if you’re in a business that has some
homogeneity to it and you see this survey and it, it drops sharply, you say, we’re doing great. Or if your
business drops sharply and the other and the survey doesn’t, you go, Hey guys, we’re doing something
wrong here. Sometimes you do things and after a while you conclude it’s not the best idea.

00:19:54 [Speaker Changed] So you retired if it’s not working and you move on to the next that. But this

00:19:58 [Speaker Changed] Just keeps working

00:20:00 [Speaker Changed] Year after year. So let me tell say the other thing, week,

00:20:02 [Speaker Changed] Week, week after week, right?

00:20:04 [Speaker Changed] You know, anytime we talk about economic data, I love the George Box
quote, all models are wrong, but some are useful that it’s incredibly insightful insight into statistics and
modeling. You obviously pick that up 43 years ago because you said, I don’t want anything to do with
government data. Let’s build our own models, let’s do a realtime assessment and try and keep it as close
to objective reality. ’cause the more and more you model stuff out, the more it diverges from what’s
happening. So weekly, real time, it’s as close as you’re gonna get to the real thing. The other thing you
did though that just really caught my eye is you would take a chart and it was either a survey result or a
stock chart or a bond, whatever it was. And you would hand mark these up with a sharpie and it just
jumped off the page. And it was one of the first things that I’m like, wow, this is really fascinating. How,
how on earth did that come about

00:21:02 [Speaker Changed] Though I don’t think I’ve invented a single thing in my life.

00:21:05 [Speaker Changed] I give you credit for inventing that because before you, I’ve never seen
marked up charts well that way.

00:21:13 [Speaker Changed] So lemme let, lemme explain. So on the company surveys, there was this
one group that did a survey of retailers, which turns out well that was our first survey we did. It just
worked out. But I really stole the idea from this other group. I was working in this business I’m still in at
CJ Lawrence and the sales team, which is an important part of the way you operate. You have to
generate ideas for them and get them to believe in you. They were taking my work and marking it up,

00:21:46 [Speaker Changed] Literally

00:21:47 [Speaker Changed] They would mark it up. So I thought, boy, if they’re marking it up, I can do a
better job marking it up than they are. And so I started doing that. And the frankly the, the rest is

00:21:59 [Speaker Changed] The amazing thing is when you look, you can look at a million stock charts,
but if you or whatever, yeah. But if you look at a chart and there’s in a sharpie and bold

00:22:08 [Speaker Changed] Script, guy goes to it, you

00:22:09 [Speaker Changed] Can’t help but see it. And it, it, it changes how you perceive that chart. It, it,
it, it shows you what’s important. It shows you what to focus on, but it, it just draws you right into it.
Yeah. Was that a purposeful strategy or was this just something you were doing to show the guys in the
office? No, no. You wanna focus on this part?

00:22:29 [Speaker Changed] I would say the latter. But then, you know, if I’m, if I’m working and it works
for those guys, then it probably works for other people like Peter Lynch.

00:22:36 [Speaker Changed] Right. So I think of you not as a pure economist, but as somebody who is
both a business cycle expert and who has watched market cycles over the decades and has become an
expert in market cycles. Is that a a fair description to, to make?

00:22:57 [Speaker Changed] So if you do what I do well you have to be market focused. You have to
listen to the markets, you have to respect the markets, you have to learn from the markets. I look at the
markets all the time on Bloomberg, but I mean you, I’m a, I’m a junkie. I probably look at, you know, the
markets three or four times an hour, right? And just as I’m sure you do frankly, and you let it sink in, you
say, does that fit with my picture? I have in my head about what should be happening.

00:23:27 [Speaker Changed] How do you separate the intraday noise from the stuff that really matters?
’cause I started on a trading desk, so I was staring at a screen all day and I have to force myself, you are
looking at the market four times an hour. I’m forcing myself to look at the market less and less. I don’t
wanna look at it constantly ’cause it just makes me want to get in there and start trading.
00:23:50 [Speaker Changed] Each of us finds their own voice. I know for me, being aware of what the
markets are doing is part of my sauce. And so when I’m dealing with investors, obviously they’re
consumed by what’s happening in the markets, right? And so it’s not a, a foreign language to me at, at
all. I think it helps me understand what I should be doing per a practical approach to what’s happening.
And I view myself as a business analyst,
00:24:18 [Speaker Changed] A business analyst. So when I say business cycle, that’s significant.
00:24:22 [Speaker Changed] Right on. And, and business cycle, you know, part of the business cycle are
the financial markets. I remember early on in my career, I, I’d met a guy and then they had an article
about him in the Wall Street Journal. The market was doing something and he said, it’s just too much
money in irresponsible hands. Interesting. I thought to myself, interesting. This guy’s a loser
00:24:42 [Speaker Changed] And how did his career work out?
00:24:44 [Speaker Changed] Not well
00:24:45 [Speaker Changed] Too much money in irresponsible hands or the state of the world every day.
Anyway. Isn’t that how it is?
00:24:51 [Speaker Changed] Well it’s just, it it,
00:24:52 [Speaker Changed] How useful is that as a market insight?
00:24:55 [Speaker Changed] Yeah. Not, not useful.
00:24:57 [Speaker Changed] I wanna share a quote from your client who put this up online and
someone asked him about Ed Hyman and he responded, ed Hyman sticks to his core mission of
providing high quality and independent research. He helps portfolio managers make sense of the world.
He sorts through the reams of economic data and government surveys to provide an objective and
independent assessment. That’s, that’s the high praise from a client. Does that sound like the goals that
you’re aiming for?
00:25:32 [Speaker Changed] It sounds, is that, is that from my wife or
00:25:36 [Speaker Changed] No, that was from a client who actually answered a question about you.
00:25:40 [Speaker Changed] So that, that is high, high praise. And, and obviously that’s what I want to
do. I also, part of my job is to connect the dots to look at a hundred different observations and find the
three that have a important message. And sometimes I get, I get the right three and some I don’t. It’s
something that people can understand and when it doesn’t work out, then I move on to another
00:26:02 [Speaker Changed] Huh. Really interesting. So, so let’s talk a little bit about the state of the
economy today. And let’s start with where’s our recession in in 22? I just kept hearing there’s a
recession coming in 23 i, here comes a recession. What do you make of the economist’s consensus that
seems to have been pretty wrong for, I don’t know, eight, 10 quarters in a row.
00:26:26 [Speaker Changed] Yeah, I’m a student of history. The last cycle, for example, it took 18 months
from when the yield corps inverted to when the recession started in 2008, 18 months. During a good
part of that, the s and p went up 20%. Right. And peaked eight weeks before the great recession hit. You
don’t know, it’s, it’s happened until it happens
00:26:48 [Speaker Changed] As a student of history, you know, it’s not when the yield curve inverts, it’s
when it begins to un invert that bad things start to happen. Right?
00:26:57 [Speaker Changed] But that takes a long, a long time. And you can see, once you get that
perspective, you can see real estate projects, they get started and it takes probably 18 months for them
to finish up. So that’s just one example of why it takes so long. It takes a while for increase in interest
rates to actually get into the system. ’cause people first, they’re living off low interest rates, right? It
takes a while for people to get a 7% mortgage for, whereas now they have a 3% mortgage. But aside
from that, the practical observation is it takes a long time. It takes so long that people give up on it. So
Bernanke in oh seven concluded we weren’t gonna have a recession that
00:27:35 [Speaker Changed] Was the subprime is contained. Right? I remember that. It was just
contained, contained to planet Earth once you, the rest of the solar system was fine,
00:27:45 [Speaker Changed] But boy, you mentioned Reinhardt and Rogoff. Sure. They, they wrote a
piece in early oh eight, how silly it was that people had concluded it was different this time. But that’s
what had had happened. And so we’re in that phase now. I think the recession might not start for
another six months in life. There’s a certain combination of being confident and being humble. You
know, you have to be humble, but you have to have a certain amount of self-confidence that you know
what’s happening. So I, I think we’re just going through the normal lags at of dinner the other night and
with clients, no one expected a recession. No one, that’s
00:28:22 [Speaker Changed] A reversal from a year ago.
00:28:24 [Speaker Changed] Everyone expected
00:28:24 [Speaker Changed] A recession. Right? So, so I want to talk about inflation, but before I get to
that, obviously the Federal Reserve has a big impact on the economy. They raised, what are we, 525
basis points in 18 months? You gotta go back to Paul Volcker to see a rate hike that radical and that
quickly, if the higher for longer argument wins out and the Fed does not cut rates from here, and some
people are now talking about raising rates from here, that sounds like that’s a pretty sure fire strategy
for a recession. Is that a fair assessment? It’s a
00:29:01 [Speaker Changed] Fair, the the economy is booming.
00:29:04 [Speaker Changed] It is booming.
00:29:04 [Speaker Changed] It’s booming. I mean, but
00:29:06 [Speaker Changed] But you’re, yet, you’re saying end of this year we could see a recession,
00:29:10 [Speaker Changed] It looks okay until it’s not. It’s
00:29:13 [Speaker Changed] The lag,
00:29:14 [Speaker Changed] It’s the lag latter part of oh seven. Even though housing was imploding,
right. The economy was okay and I mentioned the s and p had had a big rally and people were saying,
well, it’s different this time, et cetera. At the same time, I don’t want to get too crazy about things. I
don’t wanna make a fool of myself and Right. And so I’m just saying it’s coming and confident or hopeful.
I say confident that when it starts to hit, I won’t be the last person to know. Right? I mean, I, I have a
whole set of indicators that I think will help me know when a recession is starting to hit. It’s not hitting
now. I mean the economy’s
00:29:50 [Speaker Changed] Booming.
00:29:51 [Speaker Changed] It probably booming. It’s a little strong. We do these company survey 50 is a
as expected. They got up to 60 last week they were 49. So 45 is recession territory. So they’ve cooled off
quite a bit.
00:30:05 [Speaker Changed] So if we see, as some people are talking about June or maybe even may,
rate cuts, don’t assume you’re not gonna get rate cuts in election year. There have been rate changes
every presidential election going back 40 years. Just about if the fed cuts rates in may, cuts rates in June,
cuts rates in in July or September, can we avoid a recession in 24 or 25?
00:30:30 [Speaker Changed] We might avoid it anyway. But monetary policy works with long lags. The
00:30:35 [Speaker Changed] Long and variable lag is so hard to, to get,
00:30:38 [Speaker Changed] Get away from. Right. And guess,
00:30:41 [Speaker Changed] Although we, you see it in real estate first, it seems that seems to be where
the rubber meets the road. Or, or do you see other sectors get hit before that?
00:30:50 [Speaker Changed] You know, I’ll, I’ll look for for, for wherever it is, but real estate right now,
the commercial real estate space, there’s a story probably every two or three days about some problem
here or there. So that problem hasn’t gone away. It just takes a while for it to work itself out. 98 with a
recession coming up a couple years later.
00:31:12 [Speaker Changed] Oh one
00:31:14 [Speaker Changed] You had LTCM, right? Which long-term, what is it lt,
00:31:18 [Speaker Changed] Long, long-term capital manage management.
00:31:21 [Speaker Changed] And I, I’m not even sure I knew what it was
00:31:24 [Speaker Changed] At the time,
00:31:25 [Speaker Changed] At the time before it hit I, I, I actually, I knew pretty well what it was.
00:31:28 [Speaker Changed] But you had no idea they were running a hundred to one leverage?
00:31:31 [Speaker Changed] No, apparently they didn’t either. But anyway, you know, that, you know,
darn near blew up the global financial system right outta
00:31:40 [Speaker Changed] The blue an an early warning shot, right? Yeah. If only anyone had paid
attention, maybe oh 8 0 9 might not have happened.
00:31:47 [Speaker Changed] And, and then you had the Asia crisis in the same year and then you had
Russia. Right. I’m saying these are not things that you would’ve thought of. First off, if ask what could be
a problem in 98, 99
00:31:59 [Speaker Changed] Ballot was the, was the tie bot crisis 97 and then I think
00:32:03 [Speaker Changed] It yeah, maybe, maybe 97.
00:32:05 [Speaker Changed] And I think Russia, which ultimately ended up blowing up L TC M in 98 also.
Right. So you had two major events in two consecutive
00:32:14 [Speaker Changed] Years. Great. Well, and right, right.
00:32:15 [Speaker Changed] And the market continued going
00:32:17 [Speaker Changed] Higher un until the economy hit, hit a recession. So I’m just sort of pushing
ahead. Economy’s doing fine now. I don’t think I’m adding a lot of value on this topic, but Right. I’m just
waiting to see, you know, if we actually get into a recession in the meantime, inflation is coming down.
00:32:36 [Speaker Changed] So let’s talk about inflation because I feel like lots of economists got that
wrong also. And when you look at, I’m trying to figure out a a a polite way to say this. When you look at
the, well-known economists who came of age during the inflationary 1970s, I’m thinking of like Larry
Summers former treasury secretary, they see inflation as structural. They see it very similar to 1970s.
And I get the sense that the transitory nature and, and granted transitory took a little longer than people
expected, but again, that long and variable lag inflation peaked in June of 2022. It’s come down your pal
Ardini says historically, right, as fast as inflation goes up, it tends to come down very symmetrically. You
had a huge and rapid rise and you’ve had a pretty rapid fall off from 9% to 3%. So one question is, why
did so many people seem to get this wrong?
00:33:42 [Speaker Changed] You tell me Barry, I don’t
00:33:43 [Speaker Changed] Know. I mean, I’m playing pop psychologists and say, well if you were a
seventies era economist, well you’re just going back to your roots and not looking at, at the supply side
shock and, and supply chains and all these pandemic related issues that unwound more organically than
I think people expected.
00:34:02 [Speaker Changed] So, so in the seventies, I at MIT and they have a, a debate posted on the
bulletin board between Milton Friedman and Paul Samuelson. Right? Not sure who they are, but I’ll go
And there were probably 20 kids in the room.
00:34:19 [Speaker Changed] That’s unbelievable.
00:34:20 [Speaker Changed] 20 kids. I was blown away. Right. Because they both were incredible.
00:34:24 [Speaker Changed] Samuelson eventually wins a Nobel Prize, right? Freeman
00:34:27 [Speaker Changed] Doesn’t do badly either.
00:34:29 [Speaker Changed] Another giant. Absolutely
00:34:31 [Speaker Changed] A giant. Anyway, so I be, I really got into his logic and he became in the
seventies, a very major figure.
00:34:39 [Speaker Changed] A hundred percent inflation is and always will be a monetary phenomena.
00:34:43 [Speaker Changed] Right? And then he had, you know, extreme views on capitalism, which are
not popular now at this point. He’s not woke. Sort of Larry Summers of the world, who I think is, is
brilliant. They’ve sort of pushed away from that. But I haven’t. Right. And
00:35:02 [Speaker Changed] Well, I bet you’ve pushed away on some of the stuff. I was always surprised
that sort of the free market absolute stuff. Like we don’t need an FDA if, if baby formula kills a baby, well
then, well then they’ll change the formula or they’ll go outta business. I mean I I I think that was
00:35:19 [Speaker Changed] That’s a little extreme.
00:35:20 [Speaker Changed] I I understand what he was saying intellectually. Right. But I think the way it
came across just did not resonate with, even with a lot of economists, but no doubt one of the most
influential e economists of the past century, right?
00:35:33 [Speaker Changed] And so in, in the seventies, the money supply would accelerate maybe 10 or
15% and then inflation would accelerate and it happened three times. And by the third time, Freeman
was a major figure on Wall Street. When the money supply numbers would come out on Thursday
afternoon, trading floors, which I was on a trading floor waiting for the numbers, they would erupt. It
was wow, you know, up 30 billion, oh, only up 2 billion or whatever. I mean, it was, it was something
else. And so I bought that. And so in the, in the eight, in the seventies, inflation, you could see it coming
and see it going away. Right? Right. And, and, and this time money growth got up to 30% and inflation
took off. And now money growth is slightly negative. I’m in the case that inflation’s going away. Plus, you
know, take everything into account. Like you mentioned the supply chain issues, transitory, those things,
are there, demand destruction is there, ’cause prices go up so much and you don’t wanna buy it if it goes
up anymore, et cetera.
00:36:39 [Speaker Changed] Commodity traders love to say the cure for high prices is high
00:36:43 [Speaker Changed] Price, it’s high
00:36:44 [Speaker Changed] Prices. Right, right. I mean I heard that my whole, well, my whole career.
So, so let’s talk a little bit about you as a, as watching money supply. I, again, I tell the young guys in my
office, you know, back in the day the Fed didn’t announce a change in rate policy. They certainly didn’t
hold a press conference. You found out about changes in interest rates when the bond market told you
interest rates are now this. Right. Tell us about that era. It, I’m assuming that’s in part why you’re
watching things like money supply.
00:37:16 [Speaker Changed] Well, I’ve always watched the money supply and the Fed can operate
through interest rates or through the money supply or through jaw bonding the markets, which I, they
do now. You can see them saying we’re not gonna cut rates, so they are gonna cut rates. So that’s been
a familiar territory for me for 50 years.
00:37:34 [Speaker Changed] Really.
00:37:34 [Speaker Changed] At, in the early part, Volcker said he liked to keep his cards close to his vest
and he had a big vest. So tall pole, tall pole. And so that was that. And in the, the, the German Central
Bank, they said, I’m gonna better that I’m gonna give the market a fake out. I’m gonna indicate I’m not
gonna do this and then I’ll do it because you get more bang for your buck if you really surprise the
markets. But now we’re in a situation where the Fed is totally transparent and have what, a dozen
people a week, right. Coming on what they’re doing
00:38:08 [Speaker Changed] Speeches, transcripts, q and as, I mean, it’s such a different world than the
1970s or eighties. Does that make it easier to track what they’re doing or is it harder? ’cause now
everybody sees the same story at once.
00:38:23 [Speaker Changed] It doesn’t strike me as any particularly any harder. Or the question is what’s
the impact? So for example, you mentioned the, the big increase in interest rates, 525 basis points you
correctly point out, in addition to that, the Fed has shrunk the balance sheet, a trillion dollars.
00:38:40 [Speaker Changed] They went from quantitative easing to quantitative tightening. Tightening
meaning they’re, they’re no longer buying bonds are now selling bonds.
00:38:48 [Speaker Changed] Big time. And so a a general rule of thumb that Bernanke’s talked about, bill
Dudley, the, was the chairman of the New York Fed, is that a trillion dollars is in the neighborhood of a
hundred basis points on the funds rate.
00:39:04 [Speaker Changed] In other words, buying or selling a a trillion dollars worth of bonds is the
equivalent of a hundred a hundred
00:39:09 [Speaker Changed] Basis points for
00:39:10 [Speaker Changed] A a a percentage higher, a percentage lower in rates.
00:39:12 [Speaker Changed] Right? So I think the funds rate is about six point a half percent really?
’cause it’s five point a half and they’ve shrunk the balance sheet by a trillion.
00:39:20 [Speaker Changed] So historically, six point a half percent is pretty average if you go back 50
years. But if you go back to 2006 point half percent sounds high. Really
00:39:29 [Speaker Changed] High. High. Right. And there’s some rates like consumer credit card rates
are up to 21% or 22,
00:39:36 [Speaker Changed] Which seems a a bit stiff.
00:39:39 [Speaker Changed] It’s prohibitive. And I think used car rates are 15 or 16. I mean there are
some rates. Mortgage mortgage rates are up to 7%. So there are some rates that are high. But then
there’s also the mystical about the money supply. You know, how does that impact? And there’s the also
mystical about the yield curve, you know, when it’s inverted, that’s a negative signal. It basically tells you
that the funds rate is high because it’s higher than bond yields. So you have all three of those conditions
in place. And at the moment the economy’s fine. So the average person says, look, it didn’t work. And I
say, just wait, you have to
00:40:19 [Speaker Changed] Be patient. Speaking of transparent Jerome Powell shows up on 60 minutes
for a long q and a first. Did did you get to see him on I did. What what was your thoughts on how he
described the economy, the state of the world rates? What, what was your takeaway? He seems like a
pretty impressive guy.
00:40:41 [Speaker Changed] I agree. He’s very easy on the eyes, right? He’s, he’s easy to listen to. He, he
00:40:45 [Speaker Changed] Looks like a central banker, doesn’t he?
00:40:48 [Speaker Changed] That may be one of the reasons that he got appointed
00:40:50 [Speaker Changed] Straight from central casting. I mean, yeah. But, but very, very thoughtful
and, and reassuring in a lot of ways.
00:40:58 [Speaker Changed] So the only thing that I disagree with him on is he presents the case that
the economy is doing this now, therefore it means that monetary policy is either tight or loose. And I
said, no, that, that doesn’t work that way. You have to wait a year and a half to find out. And that’s what
makes it so difficult to do monetary policy because what you do today, it’s like turning a tanker,
00:41:24 [Speaker Changed] Right?
00:41:24 [Speaker Changed] And it takes, I dunno, 10 miles or so to turn it. And it takes a year and a half
for monetary policy.
00:41:31 [Speaker Changed] So when was, when was the last tightening was July, 2023. So we are still,
we’re still six months away from feeling the effect of what they six months? Probably longer than that.
Yeah. Where, where, till the end of 2024. We haven’t fully felt the impact of, of the last hikes.
00:41:53 [Speaker Changed] Correct. And the, the yield curve inverted in late 22. So we’re, we’re about
14 or 15 months and
00:42:00 [Speaker Changed] What’s the average
00:42:02 [Speaker Changed] 18 is
00:42:03 [Speaker Changed] From inversion to recession.
00:42:04 [Speaker Changed] To recession. All right. 18 months.
00:42:06 [Speaker Changed] That’s a long time. And,
00:42:07 [Speaker Changed] And this, you know, Mr. Freeman, I’m saying the obvious, he was very
smart and he didn’t say they’re long lags. He said they’re long and variable lags. And sometimes I get a
little triggered, like I mentioned, I think I I think I’ve mentioned 18 months, five times to it, right? Like it’s
a But he
00:42:26 [Speaker Changed] Would tell you it’s six to 36 months. Yes. Not 18 months. Right.
00:42:31 [Speaker Changed] And, and so I mean it could last longer than 18 months, which would take
you, and then you have the, the election coming up. Right. And at this point, there’s really nothing the
Fed can do to influence the economy, you know, during November of this, this year.
00:42:46 [Speaker Changed] So someone else recently commented, I’m glad you brought that up. So you
have a number of, so we had the CARES Act one, two, and three. And each of them, the first two under
Trump, the third one under Biden, each of them just a ton of fiscal stimulus into the economy all at
once. A lot of the recent in legislation, so the infrastructure bill, semiconductor bill, the inflation
reduction bill, all three of these are like 10 year legislations that they have a lot of discretion as to how
that gets meted out. Now you can’t dump all of it into, hey, it’s an election year spend the whole thing
’cause they’re all much longer term projects. But I was always under the impression that the White
House can goose the economy a little bit. I if they planned ahead the year before and, and pass some
legislation. I I is that oversimplifying this? I
00:43:41 [Speaker Changed] Don’t think so. And I would be surprised if there’s not some of that going
on. Little thumb on the scale. And the same probably is true for energy prices, you know, if they can. Oh
really? Well if you can, you know, influence, you know, our friends in Saudi Arabia or the Middle East,
00:44:01 [Speaker Changed] You got a war in between Russian and Ukraine. You got a hot war in the
Middle East. It’s kind of amazing that oil prices aren’t $92.
00:44:10 [Speaker Changed] It is, unless you look at the fact that the money supply growth has gone
from 30% down to minus two.
00:44:16 [Speaker Changed] Right.
00:44:17 [Speaker Changed] And I’d also say in a practical way, ’cause I find the, the money supply story,
it gets old after a few months, 18 months, people say forget it enough already. Yeah, enough
00:44:29 [Speaker Changed] Already. It’s like you’re gonna miss the end. It’s like leaving before the ninth
inning of the game. You don’t know what’s gonna happen.
00:44:34 [Speaker Changed] And, but I think, you know, China is a major factor in this and China’s
economy is still pretty soft. We survey 21 companies that have sales in China and that survey this past
week was 31 I mentioned.
00:44:52 [Speaker Changed] Wow. Way below 45,
00:44:54 [Speaker Changed] Way below 45, our survey
00:44:56 [Speaker Changed] That is deep recession
00:44:58 [Speaker Changed] Territory. Our survey is 49. Right. And it’s only been this low 31 for a few
weeks during the pandemic Really? In, in China. Wow. So that’s one measure. Well
00:45:08 [Speaker Changed] Let before you move on to the next measure, let’s stay with China. This is
the second largest economy in the world. It’s the in industrial heartland of a global economy. If they’re
deep in a recession, like I know we used to say the US catches a cold in the whole world gets
pneumonia, but has that changed over the past 50 years? If China is deep in a recession, are they
dragging the rest of the world down with them? Or are they a reflection of a slowing Europe and a soft
South America and Africa?
00:45:41 [Speaker Changed] One question is why are they slowing? And another question is, what’s the
implication of them slowing? The first part is more complicated, why they’re slowing. But the property
market in China apparently is a real mess, giant and gonna stay that way for a long time.
00:45:59 [Speaker Changed] Decades. Right? When you say a long time, this isn’t fixed in, this is like a, a
deep structural problem. They created
00:46:05 [Speaker Changed] Themselves. I’m 78, so let, let’s not talk in decades.
00:46:10 [Speaker Changed] You know what, not your lifetime. Maybe not my lifetime. I I I only have,
you know, you only have a decade or so on me. Yeah. I’m not, I don’t know if I’m ever gonna see a
robust real estate market in my lifetime in China. Yeah.
00:46:23 [Speaker Changed] Well, you know, I’m, I’m not a big fan of long-term forecasting. Right. But
anyway, it’s pretty tough in China now. And you know, one of the other things I do is I talk to clients
relentlessly. And when I get to talk to somebody who’s just back from China, I really grill ’em. And what
I’m hearing now is that the locals in China are not optimistic. They’re pretty down in the dumps. Animal
spirits are pretty somber. Which is not surprising. Right? But I’m just saying if you talk to people here in
the states, you know, things seem to be doing well, moving
00:46:58 [Speaker Changed] In the right direction. Can can she turn around so and say, all right, here’s a,
a whole new plan and we’re gonna, the US just did a giant fiscal stimulus or three, we’re gonna do one
00:47:10 [Speaker Changed] So I’m, I’m a team player and I I love working with people, I love working
with our clients and I love working with our research team and our research team, if I may Sure pat
them on the back, is the number one team on the street, is now the second year in a row. We have a
really good research team and we have an, an analyst, a research team that covers China. Neil Wang,
he’s Chinese, he knows what he’s talking about so far. They haven’t done anything dramatic. Say she has
not done something. I thought by now he would’ve done something, but he hasn’t.
00:47:48 [Speaker Changed] It’s kind of surprising, right? Surprising. So, so let’s, China is its own entity.
What else do you see in the global economy that’s worth mentioning? Your Europe seems to be unable
to get out of its own way also Europe
00:48:00 [Speaker Changed] Is, Europe is, is weak. So our, we do a survey of 28 companies in Europe and
that survey is 35
00:48:08 [Speaker Changed] Also as, almost as soft as China, almost
00:48:11 [Speaker Changed] As soft as China, not as, but it’s soft. And they have problems, you know,
themselves. And so you have, hindsight is great, but always,
00:48:21 [Speaker Changed] But 2020.
00:48:22 [Speaker Changed] But now, you know, sitting here with you we’re trying to look through the
fog and we talked about China. It looked like China’s second biggest economy in the world is not doing
well, not strong. And, and then Europe is not strong either, and no one is, there’s no particular fiscal
stimulus there. Central bank there, the ECB, they’re still tight, not as tight as the Fed, but they’re still
tight, inverted yield curve contraction and bank loans and money. So, you know, we might look back at
this and say, that was simple. The rule economy was soft and of course inflation came down, which I
think is at the moment, I think inflation coming down has been the most important aspect in the past
year for getting the markets to turn around, getting the fed to pause, talk about rate cuts increasing the
odds of a soft landing because of inflation has gone, has gone away.
00:49:20 [Speaker Changed] So, so the last question I’m gonna ask you about the state of the economy
today or in the near future. What else should we be paying attention to? If we want to see the signs that
either the US is sliding into a recession or accelerating out of it and, and is gonna avoid a recession, what
are the most important signposts investors should be looking
00:49:43 [Speaker Changed] At? So I watch our company surveys the most closely. Now your viewers or
listeners, they don’t have that, but that, so that’s, that influences me the most. And right now they’re,
they’re o okay, they’re not great, but you know, they’re definitely not recession. Secondly, the best
government data are the weekly unemployment claims. And they are strong as garlic. I mean, I get a, I
get a headache looking.
00:50:13 [Speaker Changed] We, we’ve had a short, you know, we have not had enough. It’s so funny,
when we looked at inflation, we didn’t have enough chips for cars. We didn’t have houses. We
underbuilt houses for a decade and we don’t have enough workers, we don’t have enough labor. This
has very much been a lack of supply driving inflation. And how do you get above three and a half, 4%
unemployment if there aren’t enough bodies? Yeah,
00:50:41 [Speaker Changed] So you have to, we in the economy, but it’s, I think you put your finger on it
perfectly. We’ve had an unusual lack of supply at the same time we’ve had an unusual increase in
monetary and fiscal stimulus. I mean this is like, it created a great economy, but it also created a real
bad inflation problem. And
00:51:00 [Speaker Changed] A number of people warned about the inflation. I remember Professor
Jeremy Siegel saying, we’ve never had this much fiscal stimulus without a huge inflation spike. And
people looked at him in like 2021, like he had two heads and he turned out to be dead. Dead. Right. All
right. So enough of the US and global economy, before I get to my favorite questions, I have to throw a
curve ball at you, the International Tennis Hall of Fame. What do you do with the International Tennis
Hall of Fame?
00:51:30 [Speaker Changed] So I love tennis.
00:51:32 [Speaker Changed] I picked up the game less than 10 years ago and fell in love with it also. It’s,
it’s wonderful. I’m
00:51:37 [Speaker Changed] A lousy player. I’ve been playing, I guess since I was about 20 years old. And
I know how to play tennis. I’ve been trying to play golf recently and I, I can see that, I don’t know how to
play golf, but tennis and I love tennis, right? And so years back, a friend of mine was on the board of the
Tennis Hall of Fame. And so I got on and I was on there for maybe a decade, but I’m still fascinated by
the game. And boy, the players now are unbelievable. Just unbelievable. And the depths of the players,
like Al Perez came along and now it looks like he’s beatable.
00:52:12 [Speaker Changed] Unbelievable. Really, really interesting. Alright, so let’s jump to our favorite
questions that we ask all of our guests. Starting with what’s keeping you entertained these days? What,
what are you streaming or, or watching or listening to?
00:52:23 [Speaker Changed] I don’t stream at
00:52:25 [Speaker Changed] All.
00:52:25 [Speaker Changed] Well, not really. You know, I’ve, I’m a big consumer of business news,
anything, you know, I’d be embarrassed to tell you how much time I spend listening to Bloomberg.
Right. But it’s a, it’s a real treasure.
00:52:41 [Speaker Changed] Well, it’s geared towards you and your clients. It’s not a coincidence that
that’s the target market institutional investors.
00:52:49 [Speaker Changed] So I’m all over that. I read probably a dozen newspapers a day and, and the,
the amount of news coming out,
00:52:56 [Speaker Changed] It’s a fire hose,
00:52:57 [Speaker Changed] It’s a fire hose. And frankly, it, it’s made my job much, much more difficult
because it’s so hard to add value. I mean, it’s very difficult to add value. And so I’m always intently aware
of that, that I have to pick and choose what I try and put in front of people because it’s just
00:53:17 [Speaker Changed] Redundant. Is that why you said the 2010s were such a challenging decade
running a research shop because of the just massive amounts of
00:53:27 [Speaker Changed] Well
00:53:28 [Speaker Changed] News coming out? Well,
00:53:29 [Speaker Changed] It’s not that really for that one thing in 2010, that was the peak of this, of
my business and the dynamic has been active to passive, right? Active managers used my work and, and
use my firm’s
00:53:45 [Speaker Changed] Work. So as that shrinks a little bit, it’s going to that much less demand
from that side.
00:53:52 [Speaker Changed] It’s now 50 50, 50% active, 50% passive
00:53:57 [Speaker Changed] In ETFs and mutual funds, but not overall in the total equity markets. Total
00:54:01 [Speaker Changed] Equity markets
00:54:02 [Speaker Changed] Really 50 50, that’s a big number. I keep reading s much low, like 25 and 30.
00:54:08 [Speaker Changed] Well, anyway, whatever it is, right?
00:54:10 [Speaker Changed] It takes,
00:54:10 [Speaker Changed] But
00:54:10 [Speaker Changed] You notice
00:54:11 [Speaker Changed] It, it’s always, it’s always taking, you know, audience away from and, and
trading volumes away. And then the sense per share and trading sure has come down giant. So it is a
much more difficult business than it was. Let’s
00:54:25 [Speaker Changed] Talk about mentors who helped shape your career.
00:54:28 [Speaker Changed] It’s a good question, Barry, because I think for anybody, a big part of their
success depends on this working out in a positive way. My first job was working for Professor Otto
Eckstein, who was council Economic Advisors cover of Time Magazine. Taught the freshman course at
Harvard. A wonderful person, wonderful family person. And I just was just lucky working for this guy.
00:54:54 [Speaker Changed] Influential in, in guiding you.
00:54:56 [Speaker Changed] And he’s also extremely hardworking. I remember he would come back
from a trip to Europe and he would’ve written a whole paper. I thought, my
00:55:04 [Speaker Changed] God, on vacation,
00:55:06 [Speaker Changed] No, on business coming back on a business trip from Europe. Oh really? He
was always working and he, he was just a, a fine person and I know whatever positive attributes I have, I
picked up a lot from him. And then I went to work for CJ Lawrence and Jim Moltz ran that firm. He was
my boss and I just scored big a second time. Prince of a person, a great intellect, a very serious investor,
a good macro guy, but a real stock person and, and he was very helpful to me in culture ethics. Just a, a
great role model. And then I worked for myself. That was a pretty low point,
00:55:50 [Speaker Changed] But that seemed to have worked out,
00:55:52 [Speaker Changed] That seemed to work, work out okay. Right.
00:55:54 [Speaker Changed] Let’s talk about books. What are, what are some of your favorites? What
have you read recently?
00:55:58 [Speaker Changed] There’s a book called Trust, and it’s a, it’s a fiction, and I haven’t read a
fiction, I don’t know, in flirty years.
00:56:07 [Speaker Changed] I know the feeling and I,
00:56:09 [Speaker Changed] I, I read it and it was, it just was delightful. And I, I learned a lot from it, and
it made me think a lot of it, it’s written about the depression and going up to it, and after that, and it, it’s
made me think differently about the Depression than I did before. And, and now I read my buddy Ed
Ninis trying to make out like we’re headed to a new roaring twenties period. But that’s a, that’s a good
read. Recently. Chip Wars is a must read.
00:56:41 [Speaker Changed] Fascinating book.
00:56:42 [Speaker Changed] Fascinating book, you know, brings up, you know, or you think about
Taiwan in China. Taiwan in China, Taiwan in China, and, and you know what could happen there? Henry
Kissinger has a book out about leaders. It’s, it’s actually all the leaders he worked with, and it’s a very
interesting read. But the, you know, the ones that have been most influential in the long term for
anybody in this business, reminiscence of a stock operator. Sure. By what it, Jesse Livermore. Right. I
mean, you have to read that. Hopefully you read it when you’re young. It’s
00:57:18 [Speaker Changed] Amazing how fresh it still is today. You would think it’s dated, but it’s not.
00:57:22 [Speaker Changed] So those are some of the books I’ve been trafficking in. But I read one, one
thing I’ve found is that people that do well read a lot.
00:57:29 [Speaker Changed] No, no doubt about that. Our final two questions. What sort of advice
would you give to a recent college grad who is interested in a career in either investing or economic
00:57:41 [Speaker Changed] The most important advice I can give people is to work hard. Boy, that
sounds superficial, but I’m sure that is. You know, everybody you, you’ve can think about, that’s the
common denominator. So for a young person, they just have to work hard at finding their voice, finding
their path. I was lucky. I found it easily. You know, I can see some young people don’t find it easily. So
that’s, you gotta work hard. And first you gotta work hard at finding your path. And then once you find
it, then it’s easy. Frankly, I think you found your path and I can, it
00:58:15 [Speaker Changed] Took me a while, but I eventually got here. You got
00:58:17 [Speaker Changed] There, right. And now in terms of this business being the best business.
Yeah. You know, as well as I do, it’s an enormously interesting field, and I get up in the morning, I sort of
jump outta bed and I, right. First thing I do is I start reading my Bloomberg to see what happened.
00:58:35 [Speaker Changed] That, that’s really fabulous. Let, let’s jump to our final question. What do
you know about the world of investing today that you wish you knew back in 1970 when you were first
getting started 50 years ago?
00:58:47 [Speaker Changed] You know, this is one I’ve gotten before and I think about it. Nothing comes
to mind, I’m sure, really? Yeah. I’m sure there is nothing
00:58:54 [Speaker Changed] Would’ve helped you out that you know today, gee, if only I knew 50 years
ago that I shouldn’t do this.
00:59:00 [Speaker Changed] Well, you know, you can do that. You say, you know, you know, I should
have, you know, got into that.
00:59:03 [Speaker Changed] I don’t mean buy Amazon at the IPI mean, what, what, what knowledge do
you have now? What wisdom have you acquired? Nothing. Hey, that would’ve been useful.
00:59:13 [Speaker Changed] Well, nothing comes to mind. I maybe I’m just brain dead.
00:59:16 [Speaker Changed] No, that’ss fascinating. ’cause what you’re really saying is it’s the, it’s the
road, not the destination. What I it’s what you learned along the way and, and when you learned it,
00:59:27 [Speaker Changed] What I’m, I think is a better question now, maybe for me, but maybe for
even a young person, is if you go out a decade from now and you wanna look back at your life, what do
you wanna see? That’s an open slate. You can make that happen.
00:59:40 [Speaker Changed] And, and that’s a question you can think about at any point in your, your
00:59:44 [Speaker Changed] Career, your life. And so right now, that’s what I think about the most. And
nothing just jumps out at me. I knew I was gonna enjoy doing this with you.
00:59:52 [Speaker Changed] Well, I always enjoy chatting with you. It’s always a delight. So
00:59:55 [Speaker Changed] People do it in another decade. I I,
00:59:57 [Barry Ritholtz] I’m not gonna wait another decade. We’ll do it sooner than that. Thanks Ed, for
being so generous with your time. We have been speaking with Ed Hyman. He is the chairman and co-
founder of ISI, Evercore. If you enjoy this conversation, well check out any of the 500 we’ve done over
the past 10 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your
favorite podcasts. Be sure and check out my new podcast at the Money where I sit down for a quick q
and a for 10 minutes to chat with an expert about issues that affect your money, earning it, spending it,
and mostly investing it. Find that wherever you get your favorite podcasts. And in the Masters in
Business podcast feed, I would be remiss if I did not thank the crack team that helps put these
conversations together each week. Sebastian Escobar is my audio engineer. Atika is my project manager.
Sean Russo is my head of research. Anna Luke is my producer. Sage Bauman is the head of podcasts at
Bloomberg. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.



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