Transcript: Jeffrey Sherman, DoubleLine – The Big Picture

The transcript from this week’s, MiB: Jeffrey Sherman, DoubleLine Deputy CIO, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

Barry Ritholtz:

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Bloomberg Audio Studios, podcasts, radio News. This is Masters in business with Barry Ritholtz on Bloomberg
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Barry Ritholtz: This week on the podcast. What can I say? Funny story. Jeffrey Sherman, he’s been on the podcast before. I’ve had been on his podcast, the Sherman Show before the very first Masters in business broadcast was just about a decade ago. And that was his boss, Jeffrey Gundlock, founder of Double Line Capital, back in July, 2014. So he just flew in late yesterday. The calendar was a little tight. They got here a little late. They had to leave a little early. I apologize in advance if it sounds like I’m jumping in, trying to get to the next question. I have pages and pages of topics to talk to him about and a very limited amount of time to get to it. So if it sounds like I am leaping into push him forward, I am. He was super generous with his time. He was supposed to leave about 25 minutes to go to his next appointment, but we just kept going.

There are few people who understand both fixed income and equity investment and quantitative strategies to each better than Jeffrey Sherman. He really is one of the most knowledgeable people in this space, and not just knowledgeable in the abstract, but helping to oversee just about a hundred billion dollars in client assets. Really just a tour to force discussion. I, I find his take very insightful, very refreshing. I love the approach of just throwing everything out the window and going back to first principles on occasion. Double Line is known for that. Just a delightful conversation. So informative. With no further ado, my discussion with Jeffrey Sherman, double line’s Deputy Chief Investment Officer.

Jeffrey Sherman: Thanks, Barry. It’s good to be back.

Barry Ritholtz: It’s Good to have you. So, you know, the last time we spoke we were really talking about funds and and bonds and really got into the minutiae. But I wanna roll back a little bit and talk about your background, which is really kinda interesting. Undergraduate applied mathematics, master’s degree in financial engineering, a little bit of, of teaching. What was the original career plan? What were you thinking?

Jeffrey Sherman: So, prior to going to graduate school, I was looking at becoming a teacher. Everybody told me that if you get a degree in mathematics, the world’s your oyster. And I didn’t really see it, to be honest, originally really, because I started off in what was the discipline of pure mathematics. So pure mathematics for the uninitiated is essentially proving everything you’ve already learned. And so you go back and you have to go back to the basics and the principles, and it’s, it’s just a lot of logic at the end of the day and trying to make that connection to how to be employed, very difficult for, for, especially for like a 19, 20-year-old who has no clue what’s what’s out there in the world.

Barry Ritholtz: It’s like studying philosophy. You, you could be a philosophy professor, but that’s pretty much it,

Jeffrey Sherman: Right? But also, like there, there’s a lot of overlap between philosophy and a pure mathematician as well. And, and again, it comes down to logic and, you know, the deduction of arguments.

Barry Ritholtz: But you Moved to applied mathematics?

Jeffrey Sherman: I did, and I, I did looking for something different and I just didn’t see much there. And further to that, I was on the track to become a teacher. So I was, I thought, you know, hey, I’ll be a high school baseball coach, high school teacher, seems interesting. And I, I have to thank the university for forcing us to go actually sit in classrooms. And so I, and I don’t mean attending class for your own education, but I meant if you want to teach, you have to go to the local schools,

Jeffrey Sherman: Order a course, watch a teacher, do what you’re studying to do and say, Hey, is this for me? Yeah. And I realize the repetition, the redundancy, also the lunacy of trying to babysit teenagers, right? And so I was very turned off by it. And so that was actually the transition too, to applied mathematics to try to find a different career. And what they don’t tell you about applied mathematics is you can apply it to things, but it’s not blatantly obvious what said application is. And so effectively, you know, by the time I became a senior, I didn’t really know what I wanted to do. And time was rolling around and I really hadn’t applied for a
job. So the natural thing was, well, let’s just stay in academia. And so that’s what I did. I actually started off in a PhD in Applied Mathematics. And I like to say I’m a dropout. I didn’t really see the path of becoming a professor at the, you know, kind of at the university level because again, I still felt there was that redundancy and it, it just didn’t, it didn’t seem to, you know, elicit
some spark inside of me. So how

Barry Ritholtz: Do you go from a PhD program to financial engineering masters?

Jeffrey Sherman: Well, what it was was, so I, as I said, with applications, there’s many applications of math, and the usually obvious one is physics. And I really hated physics, really. I never really liked physics, and it was just something that didn’t intrigue me. So I spent a lot of time in probability and statistics, which probability is very wonky statistic. The people think they’re the same.

Barry Ritholtz: They’re actually completely different.

Jeffrey Sherman: Not right, absolutely different fields. But I’d done a lot of econometrics and, and things like that. And so from the standpoint of statistics, that was one of my specialties in addition to calculus. And so really I was focused on applied during the, the route of differential equations and, and calculus based stuff. And at the time, this was the late nineties, obviously quants were becoming bigger and bigger part of the financial industry. And so there was starting to become these programs on, on like financial math and, and more applied, usually it was like, you know, a a University of Chicago, which again, I didn’t have a lot of exposure to these, you know, prestigious universities and didn’t know about a lot of this. And so I was looking at like a Carnegie Mellon, the likes. They ended up going back to a school in LA called Claremont, and they had a financial engineering program there. And so I was always concerned, well, I haven’t studied accounting finance over the time, and the advisor there gave me some great advice, said, we can teach mathematicians finance, we can’t always teach finance majors math.

Barry Ritholtz: So funny. It’s so true.

Jeffrey Sherman: It, it’s, it, there is something about it, it’s an easier transition. I won’t say you can’t teach them, it’s just the finance was a lot easier when you’ve studied a lot of math for a long time and the applications were, were absolutely directly applicable.

Barry Ritholtz:  It seems that some people are math people and some people are not. And you know, if it comes to you naturally, you don’t understand why other people don’t get the fundamental, like there’s an internal logic that makes so much sense if you’re one of those people. And if you’re not, you know, it’s Greek to,

Jeffrey Sherman: And, and also it was something that I was always kind of gifted with, right? The, the math came easier. The reason I became a math major, Barry, is that I actually disliked reading by the time I got to college. It was kidding. And obviously, think about
it, finance never have to read, right? We don’t have to read anything in there. But I was actually floored by when I got my first job as an intern and the amount of reading that I had to do in a given day, and I was like, wow, you know, I chose math because it was very simple. It came natural. It was like, you know, you read a couple pages, you do some problems, it’s over. I don’t have to read, you know, hundreds of pages of a novel, but very quickly I learned that you, you definitely have to read day in, day out. And so,

Barry Ritholtz:  And a, a poorly written novel with a terrible narrative plot structure and awful characters, right?

Jeffrey Sherman: That, that’s finance in a nutshell, right? So, so definitely, you know, again, that’s just being young and naive as well. But you know, you should always gravitate to some of your internal skillset and that, that’s what I did. But I, I think that people who told me that you can always do stuff with the math degree, but I also really cursed them for a while, was not telling me what that exactly was. And by the way, when I heard you can become an engineer, I never wanted to drive a train, right? And so no one ever told me what an engineer was actually doing, is that, that the definition of engineer is using math to solve problems. Exactly. [Right]. Real world problems. And so I, I don’t know if financial engineering holds up as well, because I don’t know if they’re the real world problems, but I definitely know there are problems there and there are things we can help in the world by doing. So

Barry Ritholtz:  You, you mentioned you were an intern. Yeah. Where did you start your internship and was it, was it in the world of finance?

Jeffrey Sherman: It was, it was. So, so when I was in the master’s program, required an internship as part of it, and I got at Trust Company, the West, so TCW. Oh. And

Barry Ritholtz: So, so that was your first job also?

Jeffrey Sherman: Yeah, my first job was there and I’ve worked with the same crew effectively ever since. So that was in, that was in 2001 early then. And then ultimately, you know, I’ve been working with the same team around me for about 25 years now.

Barry Ritholtz: That’s amazing. How did you bump into some kid named Jeff Gundlock there?

Jeffrey Sherman: Well, he, he was a, he was a lot older than me. He was not a kid at the time too, but he definitely had gravitas around the firm. And I, I think there’s something about finance too, that you get defined into your roles as a function of essentially your entry point in the industry. And so I’ve noticed that me coming in 2001, think about it, not really a great equity market

Barry Ritholtz:  Dot.com implosion. Absolutely

Jeffrey Sherman: Right? I mean, in the middle of it, ob obviously we had nine 11, we had all kinds of crazy stuff that happened in the world. And so I’ve noticed that the people that came a few years after me tend to be more risk takers, right? Where we were a little bit more risk averse. So I think there’s this anchoring of when you start one’s career sometimes of how you get into a side of the business. Now, obviously we can redefine ourselves, right? But I do think that there is something to be said about that. So again, this is a world where interest rates, you know, you got paid unlike the last time we were here talking, right, right. When we had that true financial repression for like 12 years. And so there’s something that was interesting about it, and inherently it’s more mathematical in nature. And so as I was doing like risk analytics and, and working to help support some of the marketing staff and do that, you know, I gravitated to that side of the business a little bit. So my goal was to work for Mr. Gunn, like I did not on day one, but I always felt that like there was something in there just analyzing returns, looking at the history, looking at the team. And my goal was to try to get on that team. And effectively I did.

Barry Ritholtz: So, just a little bit of a trivia footnote. The very first Masters in Business that was broadcast just about 10 years ago, July, 2014, episode number one, Jeffrey Gundlock, DoubleLine Capital.  [That’s right. I remember that]. So really, he, I owe him
a special debt of gratitude.

Jeffrey Sherman: So I do too, Barry, you know, so he, he still writes my paychecks today. [Signs him, right?] Yeah, yeah. At TCW

Barry Ritholtz:  You were at the Trust company of the West, you’re a senior vice president, you’re a portfolio manager, you’re a quantitative analyst. It sounds like you’re wearing a lot of different hats. Are these sequential positions or were these all at once?

Jeffrey Sherman: Yeah, it’s sequential. You know, I started as a quant and then, you know, you get these corporate titles as things go along. But ultimately, you know, I liked being on the for flow management side, and so devising strategies, coming up with ideas and
trying to figure out different ways to execute them, I, that was always of interest. And so I worked a lot on the asset allocation side. And so I’ve had a lot of roles throughout my career, even though it’s, it’s very narrow team, right? Instead, I’ve worked with the same folks forever. You know, I’ve trafficked in a lot of markets. I mean, at one point I worked for a guy that wrote a very seminal piece on commodities. And so we created commodity products, we ran those for a few years. Again, as I said, we’ve worked in asset allocation. I’ve helped build a lot of our quantitative strategies we run at Double Line as well.

And so it’s not just me. I have a, a good team around me too. And so I’ve always been able to surround myself with people who can like, think about these ideas and are a really kind of big picture folks. And, but it can also get into the minutiae. And so not shockingly, I like quants, right? I, I, I feel like we, we vibe, you know, we can, we can get together, but I, I like the way that the quants think, you know? And so I’ve never, I struggled when I took the CFA exam, not, not with the whole curriculum, but obviously the accounting. I mean, I have a degree in financial engineering and I took one accounting course, right? Right. And so the statement analysis never made sense to me. It still doesn’t, you know, well,

Barry Ritholtz: It doesn’t have the same internal logic, the same, you can’t derive it hand mathematical rationality where you just have to start with a basic premise. And so much things can be derived logically from that starting point. This is just rules and yeah, it’s
00:13:10 Struggle with it. It’s just, especially if you’re a left brain person, the right brain stuff and vice versa. So you mentioned financial repression, you and the rest of the quants in your core group, including gun lock, decide to stand up your own firm in 2009. It’s pretty much in the midst of  the worst of the market

Jeffrey Sherman: I think was somewhat behind us, but still people were shellshocked.

Barry Ritholtz: What was it like standing up a new firm, right, in the financial crisis, right in the midst of oh nine with the Fed every week, it seemed like there was a different new credit line, a different new way to unfreeze what was going on in the credit markets. Tell us about that period.

Jeffrey Sherman:  Well actually the bulk of that period transpired at TCW. So the, the new firm [07-08?] And then, but even in oh 09, there was, there was still, this was kind of the bounce back, as we all know, the lows were in March of oh nine. But what you found was that in we, we left in December of oh nine, at that point, things were starting to have more clarity now, massive uncertainty in the world. And there’s the old adage that investors fight the last war, always. They’re still fighting the last war, right? Always, every time.
Right? And so trying to show people this idea that, you know, investing in these mortgages, that that did go down 50 or 60%, that there was significant upside in this, and really limited downside. And so there was something special about that time as well, where the opportunity set was extremely obvious, but it’s never obvious, right? At the time, it wasn’t obvious. We thought it was obvious. Looking back with hindsight, it was the best time to make money in fixed income.

Barry Ritholtz: Can I tell you something about obvious? So we, full disclosure, we used to own the way back in 09, 10, 11, 12, or so the double line mortgage backed portfolio. And it was obvious that, hey, you’re buying these deeply distressed mortgages with an implicit federal guarantee. How are you not gonna outperform plain vanilla mortgages and that product for, I wanna say like the next seven, eight years until you just couldn’t buy any more mortgage back. That’s right. They just weren’t available.

Jeffrey Sherman: Well, they weren’t, they weren’t available at those prices anymore. That, [That’s for sure]. So the difference is when you buy ’em at par, it’s a lot different than buying ’em at 50, right? Right.

Barry Ritholtz: But that, that fund just destroyed all commerce for years and years and years. Am I overstating that?

Jeffrey Sherman: No, I mean, look, anybody who was in the space did similar, right? As long as you had them

Barry Ritholtz: You guys were very aggressive. Yeah. Very early. And I wanna say 75, 80 5% of the portfolio, at least in the beginning was mortgage backed?

Jeffrey Sherman: So it was, no, it was almost a hundred actually. [Oh, really?’ Actually, at the time, very early on, because it was blatantly obvious that you had two sides of the markets, right? You had the government guaranteed side, which gave you interest rate risk, and you had this stuff that was so bombed out, it had zero exposure to interest rate exposure. It was all about the credit. And as we said, you know, investors fighting the last war were saying, well, if they went down to 50, they must be going to 25, right? So where you just say, Hey, I’m buying, you know, Wells Fargo shelf paper with six coupons. Now, if you buy an asset with the six coupon at 50 cents and a dollar, and let’s just think, you think you’re getting par back, that thing has an IRR like close to 30, right? Right. And that math probably doesn’t jump out to a lot of people, but just think of current yield. It’s got six you divided by 50, that’s a 12 current yield. That’s the cash flow. Now you have to assume some losses. And what we were doing was just running these bonds to like draconian scenarios where the world’s ending, right? If, if if house prices.

Barry Ritholtz: And these bonds are still profitable

Jeffrey Sherman: And they don’t break, like they, they don’t, they don’t, they don’t lose money, especially at 50 cents on dollar. But the biggest challenge Barry, that a lot of investors had would say, well, you’re buying this, but, and we tell ’em, look, we think we’re gonna get 75 cents on the dollar back. Well, why the hell would you buy this bond? Because

Barry Ritholtz:  I’m paying, because 40 cents on the dollar,

Jeffrey Sherman: It doesn’t. Yeah. But, but people don’t think that way. They’re like, but you’re not gonna get par back. And by the way, if you don’t get par back, these bonds go d for default in a range agency model. But  [Who cares?] But see, but that’s not the mentality of people.

Barry Ritholtz: And that was an unconstrained fund, right? It wasn’t like we have to buy conforming, right? Fanning in front, it’s like

Jeffrey Sherman: It was, it was all written in the prospectus. And by the way, the nice thing about starting a new firm is you can write prospectus the way you want, right? [No Legacy paper, no garbage].You don’t have to do it. You don’t need to proxy vote. You say, this is how we wanna run the portfolios. And so it was, it was a great time. Would I, would I advise people, you know, five years ago or six years ago to set up a bond shop? No, but at the time it was, it was just everything was kind of in our favor. And the thing I  remember is that the day we launched that total return fund at Double On, it was actually April 6th of, of 2010, Flash crash was May 10th, I think.

Barry Ritholtz: Right around the Flash Crash.

Jeffrey Sherman: It was, it was a little bit prior to that, but   Yeah, it was. I don’t know exactly the day, but it was definitely later. But why I remember that is I used to tell people that was the last time we saw 4% tenure, huh? Was that day that we launched that fund. It was a 4% tenure. And it took us until 2022 to get back to that level.

Barry Ritholtz: What’s a dozen years? Or 20 & 20 between friends? Yeah. It’s so funny you specifically said, what a great time it was in oh nine to launch a firm to launch a fund. I have a vivid recollection of walking into my training room in 08, 09 and just
channeling devolve from Apocalypse. Now remember the Charlie don’t surf Yeah. Thing at one point he turns to Martin Sheen says, you know, son, someday this war’s gonna end with this bittersweet wistfulness. Yeah. Like, this is the time you have to just recognize it. And I always thought it was much more applicable to markets than to war. ’cause hey, it, when it’s just the hell out there and there’s blood on the, in the streets. Yeah. That’s when the greatest opportunities come.

Jeffrey Sherman: It, it really is. And unfortunately, war never ends as we know. Right. We, we continue to see that left and right. But definitely markets are cyclical in nature. And you know, it’s the same thing when valuation gets outta control too. It will come home to
roost at some point, but doesn’t mean the valuation can’t get worse. Right. It can’t go higher. And so what you have to, you have to realize is that you’ve gotta stick to principles. You’ve gotta think through things and you know, regimes change, but they don’t change that much. Right? And so what I, I think in that is that if, if once you start hearing this time is different, this is the new era, typically those things are the signs of, of excess in the market. And look, I think that we’ve been through one of those recently as well. I think we’ve had some excesses out there on

Barry Ritholtz: The fixed income side or on the equity side on both.

Jeffrey Sherman: Both. And so, look, corporate spreads are tight today. Valuations are tight, they’re tight for a reason. But it doesn’t, you know, look, corporate bonds being a little bit overvalued doesn’t mean they’re gonna crash, right? Doesn’t mean you’re gonna lose half your money. But the problem is, in some equity markets, you can have that experience. Right? Now, granted bonds had a significant drawdown as we all saw in 22. But from the standpoint of thinking about valuation, you know, credit spreads are not really reflecting much of a default premium today. And I think that’s reflective of the economy. I think that’s reflective of kind of where we are, but also I think that’s backward looking, not forward looking, right? And so from that standpoint, do I get excited about, you know, when the OAS on corporate bonds is like, like, you know, inside of 90 basis points, not really high yield got inside of 300, you know, a couple weeks ago.

That’s not exciting. And what I hear from a lot of people is, and I’ll hear it from the credit team significantly at the firm yield buyer, there’s a yield buyer, there’s a yield buyer, and there’s a threshold of yields. All they care about is yield. Well, if you only care about yield, just go buy treasuries. They have yield. Right? Right. You have to get compensated for each risk. So when I say the excess in valuation, some of it does apply to the corporate market because look, the economy has been very strong, right? It, I mean, last year was the, the recession, it was a massive recession. Remember everybody forecasted it, right? And of course, when everybody does it, it doesn’t happen.

Barry Ritholtz: Hey, It’s in the price already. I used to hear that early in my career  already in the price. And it used to be so frustrating. And when that light goes on, it’s like, Hey, if everybody is discounting a recession, then the market’s figured it out a long time ago.

Jeffrey Sherman: Yeah. I also, I also think what happened is that, you know, a lot of us are trained, especially from an economic background to look at and financial markets to look over year over year data. And the year over year data was flashing very negative. And what a lot of us missed, and I’ll, I’ll, I’ll take some, some blame for this too. We, we, a lot of us missed it was that it was the amount of excesses that came into the system during the pandemic that haven’t worked through. And the the one I heard so much was excess savings. And I hated the phrase the Fed used it, and it was like, here’s the savings, right? But we pumped all this money in, so thus there’s this excess savings amount that’s out there. And I always tell anybody, Barry, if you know anyone with excess savings, I can help them. We can take the excess off your hand, you can put it Bank of Sherman and generate some return.

Jeffrey Sherman: No, you can just put it in the Bank of Sherman. ’cause to me, it’s not an excess all my savings I need, right? It’s what I’m going at. There is no excess savings in the world. And so, from my standpoint, that that’s what I would say. So call me if you have excess savings, forget the investment. I’ll just take it off your hands. It’ll, it’ll help all of us out. You,

Barry Ritholtz: You sound like what I say. Every time someone tells me the dollar is being destroyed, well send me your worthless US dollars for proper disposal. I’ll, I’ll take care of those. Yeah. Don’t worry.

Tell you what, you take care of the excess savings. I’ll take care of the worthless dollars. We’ll make sure no one has any crap on

Jeffrey Sherman: That. Right? And, and we’re just helping the world out here. Right? But, but, so that phrase I hated, but there is a, there’s kind of a corollary to it, and it’s something that really I think is impactful and it’s still in the market today. And this was the amount of monetary growth, and this is what we call M two inside of, in, in the wonky economics world. And this M two growth at one point, with all the, you know, six to $7 trillion of money printed through all these support programs led to an increase in the monetary base of 28% year over year two eight. I mean, that’s an unprecedented,

Barry Ritholtz: Almost a third increase.

Jeffrey Sherman:  Increase in the amount of money out there. Okay? And so you can say that it was free money. You could say we gave free money to people, we gave it to corporations, we printed it, it existed. The fed bought some of it through, you know, changed now.

Barry Ritholtz:  And this is on top of you. I’m not a big fan of the phrase financial repression, but to be fair, this is following about 10, 15 years of pretty aggressive monetary policy, including, you know, printer goes Brrr was the meme.  Yeah. This isn’t just in, in isolation. This follows a solid decade. Is that a fair absolutely number of expansion of the monetary base?

Jeffrey Sherman:  It is. And it’s these, you know, what was it Freedman that said there’s nothing more permanent than a temporary government program. Right? And that’s, that’s absolutely true. But when I think about it, what you was starting to see as the year over year numbers, we were starting to see the M two fall precipitously. And it was getting to a point where, you know, out in a war are going into like these, you know, coming off of these war periods, you’ve never really seen the monetary base shrink. We saw it shrink in late 22

Barry Ritholtz: To, to say if, if that’s what is the fallible recession forecast. You haven’t even brought up the inverted yield curve, which, well,

Jeffrey Sherman:  Hold on, but hold on. I’m not even done with this Barry this because I think this is way more important than the yield curve. Oh, really? I have, I have some ideas on the yield curve too that we’ll get to. But the, what, where I’m going with this monetary growth is that what you actually need to do is look at the two year number change or look at the three year number change. What you need to do is look at the trend line over the last seven or eight years,

Barry Ritholtz: Not just year over year.

Jeffrey Sherman: And what you would see if you did that trend line, and I put it in a webcast recently, the gap is still so massively to the upside of how much we created relative to this trend. And you can talk, you, you can do it over many, many years, and you get the same result. And so what that means is that there truly is liquidity in the market. We created these dollars and put them out there. And also, I think you put together the consumer and what’s happened there is that behavioral patterns of change.

Barry Ritholtz: So before we were talking about the expansion of the monetary base, I, I have to ask you, and we’ll talk about the inverted yield cover in a minute, but, but given the fall off in the monetary base, you, you mentioned, how do you contextualize that against just, we went, I don’t know, 15 years with kind of de minimus, fiscal stimulus. Monetary was shouldering all of the burden come, come, the Pandemic Cares Act won under former President Trump, $2 trillion, biggest fiscal stimulus, literally is a percentage of GDP about 10% since, since World War II Cares Act two, 800 billion under Trump Cares Act three, almost a trillion and a half under Biden. And then you have the infrastructure bill, the inflation reduction bill, the semiconductor bill, the PACT VA bill. These are giant 10 year fiscal Yep. Stimulus is the regime change from monetary policy to fiscal policy impacting equities more? Is it impacting bonds
more or is just it’s a new day and you have to start over?

Jeffrey Sherman:  Well, I think what you see here is we realize that the fiscal stimulus drives the consumer at the end of the day. And dumping money into the system has really, really changed that dynamic. Where monetary policy, you know, if you go back to Bernanke, when they rolled out the qe, he always talked about the wealth effect. He, he’s really telling you trickle down economics, right? That if people feel wealthier, they’re willing to spend money.

Barry Ritholtz: By the way, do the way the Fed describes the wealth effects, do you buy that? It always smelled funny to me.

Jeffrey Sherman:  No, I I think it’s, I think it’s stupid. Like I think trickle down economics is stupid, right? Because

Barry Ritholtz: Jeffrey Sherman:

It’s a theory. But in the real world, it just doesn’t,
00:27:39 [Speaker Changed] It’s what rich people say because they own assets, right? And
they’re like, if I, if I own more money, you know, like, you know, Barry, I’m gonna probably
give you some, Barry, I haven’t given you any more money as I made more money, but in theory
I’m gonna do so Right. Cut my taxes, I’m gonna help you out. And I just, I, I don’t think it has
this broad economic impact. I think it sounds good. That’s why we all argue in politics, but I, it
just, I I’m not, I’m not convinced that any of it works.
00:28:06 [Speaker Changed] I I, I, I a hundred percent agree and I can’t help but notice that
wealthy people, and I mean very wealthy people, their spending happens. Whether the market’s
up 30% That’s right. Flat down, maybe during a crisis, some of the more conspicuous
consumption gets throttled back. Yeah. Because, you know, Marie Antoinette and all of that.
Yeah. Yeah. But for the most part, the wealth effect, since, since 80% of stocks are owned by
five 10% of people, how big of an impact can the wealth effect have on the bottom? 80% of, of, I
00:28:43 [Speaker Changed] Think the only place that it could potentially happen is with the
housing market. And so I think that’s part of what you’re seeing today and some of this as well.
So we were talking about the M two growth and the money supply out there, but don’t forget if
people feel confident, they’re willing to spend money. And I think part of this last push we’ve
seen is that, you know, with the advent of Zillow and, you know, Redfin, and we can look up the
price of our homes and we can creep on our neighbors and you know, our friends, what do they
buy? I think that that has created something in the psyche of people that they feel a little
wealthier if they’re a, if they’re a homeowner, right.
00:29:18 [Speaker Changed] Especially if the neighbor’s house went for a butt ton of money.
Right. But
00:29:21 [Speaker Changed] You used, you used to have to see that transaction. Now we have
this algorithm and you can go log in every day and look at your house and it moves every day.
Kind of, or you know, it, it, it’s, I think there is something in there, but, well, let
00:29:34 [Speaker Changed] Me throw a curve ball at you. ’cause you mentioned psych
psychology and sentiment on the one hand, even though it’s off the lows, consumer sentiment has
been awful. Like below the financial crisis below the.com Yep. Below nine 11. Yeah. But when
we look around in the world of consumer spending on the high end, you want a Porsche, Ferrari,
or Lamborghini, there’s a wait list. Yep. On the upper medium end, you want to go buy a Rolex,
you can’t get ’em. They’re, they’re
00:30:02 [Speaker Changed] Getting cheaper though, right? Yeah, yeah. You probably can’t buy
a brand new one, right? Yeah. It’s
00:30:06 [Speaker Changed] Hard to get. So if you go to the certified pre-owned, or even just the
used one, a watch that costs 10 grand MSRP, that was $22,000 used is now down to 17. But it’s
still much more than new. ’cause you can’t get new, there’s no supply of homes or very, at least
dramatically reduced. You wanna buy a boat or a jet ski, you’ll wait a few months. It’s, it’s, or or
a big truck. All right? You could probably get the
00:30:33 [Speaker Changed] Big trucks. Now I, I got something that you could buy. You can
buy a Tesla right now. You know, there’s a lot of those on, there’s a lot of those on offer right
now.
00:30:38 [Speaker Changed] You know, we, we maybe the takeaway from that is if, if you are, if
the demographics of your primary customers are, you know, left of center, save the planet, anti-
global warming people, maybe owning the libs is a bad marketing strategy. Yeah. Yeah. But, but
that, who knows? And there’s also a ton more competition today in that space.
00:31:01 [Speaker Changed] Sure, sure. But my, I I guess where I’m going with this is consumer
sentiment. Okay. So why, why does it feel abysmal? Well, let’s talk about inflation. So instead of
doing what, what Jay Powell is doing, or what all of us do, and they’re gonna cite the year over
year inflation number. And by the way, the core PC is looking a little bit better after this last
print Sure. Too. But Jay has a problem. He’s been talking about CPI for the last few years, right?
So moving the goal sticks is just not good for him right now. And he doesn’t need to do anything
anyway. So he’s, we can talk about that later. Listen,
00:31:33 [Speaker Changed] Inflation came down regardless of what the Fed did, here’s the
problem. But it was so late and it, by the time they started it, it was just about to peak and come
down.
00:31:40 [Speaker Changed] But here’s the problem. Now let’s go back on Euro, not instead of
year over year, let’s go back two years. Let’s go back three years. And if you ask people what
inflation looks like, usually the common person will give you one of two statistics. They’ll talk
about their grocery bill or they’ll talk about fuel pump prices. That that’s really how people think
about inflation. But if you think about what’s happening right now, I think people’s anchor is pre
pandemic
00:32:06 [Speaker Changed] And we’re, we’re what, 20% generally you’re,
00:32:09 [Speaker Changed] You’re in the mid to high twenties now. And so that I think is
weighing on sentiment, but it’s not changing the dynamic of the spending. And I I also think this
is part of the whole fed’s policy is that when you, when you’re hiking rates, you’re, you’re trying
to do two things for this transmission mechanism, make credit more expensive. They’ve done
that. Okay. Mission accomplished, but also to curtail cons, to curtail consumption. You also
wanna incentivize savings. That’s the missing part in this, I believe. And I, I saw the, you know,
the JP Morgan CFO come out and no disrespect there, but he’s complained about how clients
want CDs. But if why he’s complaining is because they’re paying a basis point on their savings
account. Right. And if you’re, you have a great relationship, you get two basis points. Well,
there’s, there’s your repression, Barry, you’ve
00:32:55 [Speaker Changed] Moved to a money market, you’re getting about 5%. Right?
00:32:58 [Speaker Changed] But that’s called financial literacy, right? So that’s the gap we have
here. My right. But it, it’s true. And, and this is not a US phenomenon. This is a global
phenomenon, right? That there is just not this robust financial literacy. But, so if you think about
a person that I I, I was contending probably two years ago going into 22 or sorry, going yeah.
Going into 23 after we had higher rates that people are gonna save money. I didn’t realize that the
banking system wasn’t transmitting that mechanism. We work in capital markets, right? Right.
And so we know what rates
00:33:27 [Speaker Changed] Are. And that’s, that’s what, six or $7 trillion, some crazy number.
00:33:30 [Speaker Changed] It was 6 trillion. We got to in money market obviously went down
because of tax payments a couple weeks ago. Right? But the thing is, is that what you find is that
that savings wasn’t there. Now, I would’ve contended in 23 that people thought inflation was
gonna continue at the nine handle. Right. Or the eight handle. And so they didn’t think that that
money market account was enough. Now, I think it’s that they’re not getting paid on their
deposits either, right? Yes. Sophisticated people do people we know do this. And our job is to
educate more people. All my friends ask me about that don’t work in markets. What, what should
I buy? I was like, Janet Yellen’s money market account, government money market. Don’t worry
about it. I promise you won’t lose money.
00:34:10 [Speaker Changed] What’s the yield today? What’s Janet Payne?
00:34:12 [Speaker Changed] Janet’s Payne about five and five and five and
00:34:14 [Speaker Changed] 3, 3 5, right? Right. That’s an impressive listen, especially coming
on top of a decade of practically zero. That’s that’s an oasis in the desert.
00:34:24 [Speaker Changed] It is. But, so let’s continue on this path of, of why the consum, why
the sentiment’s so bad is because I don’t think that what we see in the slowdown is the, the
savings rate go up. Right? If you look at the percentage of disposable income, they’re, they’re
really at, at low levels.
00:34:39 [Speaker Changed] Let’s, because you took all their excess savings.
00:34:41 [Speaker Changed] I haven’t yet. I’m, I’m making a plea. Okay. I’m making a plea still.
But where I’m going with this still is that I don’t think people have been incentivized to save.
And you know what? We have the YOLOs, they have the, there was the idea that we, we were
locked down for a year or two depending on where your jurisdiction
00:34:57 [Speaker Changed] Is. People died. It’s fair to say the, my big takeaway from the
pandemic aside from, hey, these vaccines are, are a miracle, was life is short, open that expensive
bottle of wine, what are you waiting for? People who were like otherwise fairly healthy,
suddenly dying, you know, a lot of people had that moment of existential dread wear. Hey, I only
got so many years left, let’s go live life. That’s
00:35:23 [Speaker Changed] Right. And I think that that has changed the psyche. So if you
wanna talk about a regime change, I think that’s changed. And I think that’s missing in this fed
transmission mechanism right now, is that we’re not curtailing this or we’re not increasing the sa
savings and curtailing consumption we are spending still. And so from that standpoint, as long as
people stay employed, that’s probably gonna continue. And by the way, we’re here in April, we’re
in New York. It’s actually a beautiful day outside.
00:35:50 [Speaker Changed] Spectacular.
00:35:50 [Speaker Changed] Right? And this is the seasonal part where you guys on the east
coast start to go out and spend more money too out in la We’re we’re just drinking jet sun all the
time. Yeah, we do it all the time. But, so the seasonal component will probably kick in here too.
So this is the idea of waiting for a catastrophe to happen. What’s missing in a lot of this is also
just the dynamic of the consumer. And look, people have criticized the labor market statistics,
birth death models, all of that. But what I, what I look at in the labor market today is I watch
unemployment claims. ’cause we can argue about service
00:36:23 [Speaker Changed] Weekly unemployment claims about a 200 KA week now. Yeah.
Why do I watch
00:36:27 [Speaker Changed] This pretty low? But why do I watch that? The one thing I can say
is that I, I’m pretty confident in our fellow Americans, I mean, Barry, you’ve worked a long time
in your career. You paid in the system, right? Sure. If Bloomberg lets you go, let’s say Ritholtz
doesn’t want you anymore, that would be kind of weird. But it could happen. I whatcha
00:36:43 [Speaker Changed] You probably gonna do myself. Yeah.
00:36:44 [Speaker Changed] You you may you you may just get match
00:36:46 [Speaker Changed] Yourself if I decide to pick up golf and spend my time doing that.
But think,
00:36:49 [Speaker Changed] But, but I want to go the other way. I wanna say you lose your job
if you lose your job. I’m pretty sure that most people don’t have an issue going and filing those
claims. So when I look at unemployment claims and not seeing spikes that, or continuing claims
not being out there, to me it says something about we can’t dismiss the jobs data. Right?
00:37:08 [Speaker Changed] Well the labor market is tight during the previous administration,
legal immigration, I’m not talking about people coming under the fence at the Mexican border.
But legal people coming in dropped off about a million persons per year. Then you have the
pandemic and
00:37:24 [Speaker Changed] The pandemic took a couple million out of the workforce. But
we’ve actually seen that that foreign born cohort
00:37:31 [Speaker Changed] Starting to tick up, starting
00:37:32 [Speaker Changed] To grow. It’s above trend now. Right. So,
00:37:33 [Speaker Changed] But you still have a very tight labor market with a shortage of
available workers. That’s right. That’s gonna keep wages up and that’s gonna keep the
unemployment claims down. And
00:37:42 [Speaker Changed] If you keep, keep wages up, if people are making it, even though
they may be living paycheck to paycheck, they are spending money. And so this is the thing you
can’t dismiss in the overall cycle. And so I think when you start to look at it and you take a
different perspective versus year over year and you go back a couple years, you find that you’re
getting a different signal in the marketplace. And that’s something that we had to recognize last
year. Well
00:38:04 [Speaker Changed] Let’s talk about that. ’cause you came into this year, you came into
2024 specifically saying, Hey, rate cuts in March seems kind of optimistic to me. You were dead.
Right? And I’m gonna assume between the strength of the economy and sticky inflation, at least
in the services and, and apartment rental market was the basis for that. The market’s caught up to
you. Yeah. I think the market has, now
00:38:33 [Speaker Changed] You got about one and a half. You got one, one and a half kind of
cuts this year. And it’s really back
00:38:38 [Speaker Changed] Loaded June, July
00:38:39 [Speaker Changed] It’s way back loaded. You’re, you’re talking about you, you’re
talking about probably fourth like September or something. A lot of people will say, well the Fed
can’t cut right in front of the election. They’ve
00:38:48 [Speaker Changed] Cut every year during an election. They can cuts
00:38:50 [Speaker Changed] Wrong. It’s crap. Right? It’s this thing where they’re gonna be
viewed politically. I say I tell other people if the Fed cut a hundred basis points two months
before the election, do you think it changes the election? It does nothing. If everyth anything’s
out in the cycle,
00:39:03 [Speaker Changed] If anything that hurts the incumbent. ’cause it’s saying, Hey need,
00:39:05 [Speaker Changed] There’s something wrong. We
00:39:06 [Speaker Changed] Need it. Right? What’s going on? I know you’re a data wonk and
you’re not afraid to dive deep into the numbers. Let me ask you a kind of counterintuitive
question. I I read a fantastic stat. Half of the homes that are owned that have mortgages, so only
about 50 60% of homes have mortgages. But half of the homes with mortgages have mortgages
at 4% or less. And I think it’s like two thirds at 5%.
00:39:32 [Speaker Changed] It’s gotta be high. I think it’s, well at least in the agency market,
which is easy to look at, if you look at, you can pull up the, what’s called the effective coupon of
the agency mortgage market. So the effective just means that you’re taking it all together, the
average and averaging it. Right? And that number’s about three and three quarters today.
00:39:49 [Speaker Changed] C so much refinancing took place. It
00:39:51 [Speaker Changed] Took place. But this is also another reason for that strength of the
consumer. Yeah. Is that like corporate America who was smart and refied their debt and
00:40:00 [Speaker Changed] So did owners,
00:40:01 [Speaker Changed] So did homeowners. But, but here’s what’s caused an inventory
problem because now, so
00:40:06 [Speaker Changed] That’s where I wanted to go is how much has the Fed taking rates
up and bringing, forcing mortgages to seven and a half percent created a sort of persistent
inflation both in single family homes, apartment rentals and, and of course owners equivalent
rent and Yeah. In BLS data for, for CPI for consumer price index, is it sort of perverse that the
fed raising rates has raised inflation or at least made it sticky?
00:40:35 [Speaker Changed] Well that’s, that’s the whole, that’s the whole thing. If, if I’d told you
rates were going to a seven handle on mortgages, I, I don’t think you would’ve said that house
prices go up from where we were when we were talking about a 2.5% mortgage. Right? Well,
00:40:48 [Speaker Changed] It’s because of exactly what you said. It’s the inventory, it’s the
supply is gone. Right.
00:40:50 [Speaker Changed] So think about it this way, one thing we’ve been thinking about and
we’ve been throwing around the table in, in some of our discussions is that what if the fed cuts
rates meaningfully? And what if mortgage rates come down 200 basis points? You’ll
00:41:02 [Speaker Changed] Free up a ton of inventory and prices
00:41:04 [Speaker Changed] Will go down. Prices will, my contention is if if mortgage rates
came down, 200 prices go down because you have a people that are landlocked or they’re, they’re
stuck in this home golden
00:41:14 [Speaker Changed] Handcuffs.
00:41:14 [Speaker Changed] Correct. And on top of that, you have, you know, a boomer
generation that ultimately is looking to maybe downsize and things like that where they’ll, they’ll
just say at some point, well now I can afford the mortgage on the smaller place. Right? And I’m
up so much on my home, I’ve doubled my price in the last,
00:41:31 [Speaker Changed] Or even we added a second or third kid. We want a little more
space. Right? To go from three and three quarters to seven and a half is exorbitant on the same
size house. You want to add a bedroom or two? Yeah, it’s much easier. Oh my god. No one could
do it. So, you know, you know, Nick Hanover of second wave capital has been talking about this
exact issue, which is if the Fed wants lower inflation, especially on the housing side, they need to
lower rates. Yeah. The pro and people seem to not wrap their heads around. You obviously get
00:42:02 [Speaker Changed] It. It’s, it’s tough though because on the other side, think about what
happened starting in November one of last year when the Fed kind of authorized that, hey, let’s
start talking about cuts. And what you saw was really, I’m gonna call it excess into the market,
right? Rates, rates rallied meaningfully spreads came in meaningfully, equity prices went up
meaningfully, gold went up strangely meaningfully that, that’s the one I can’t get my head around
as much is
00:42:28 [Speaker Changed] Gold. Yeah,
00:42:29 [Speaker Changed] Well how it went up so much recently,
00:42:31 [Speaker Changed] Right? While it ignored decade while printing and
00:42:34 [Speaker Changed] Yeah, we have these real yields that are positive. It is everything,
you know, has kind of been thrown upside down. However, crypto, all, all these speculative
assets, and again, I’m, I’m not here to criticize any of ’em are up. If the Fed truly believes the
wealth effect, they think if you cut rates more, you fuel that again. And so that’s another reason
why, you know, coming into the year I thought that the, we should be patient on the rate cuts and
you know, it doesn’t look that strange today, but a couple months ago I was telling people the
biggest risk to the market is that the Fed doesn’t cut this year. And people looked at me like I was
insane Barry. Right. Well, more insane than they usually did usually, right? Yeah. Right. Yeah. I
mean, so there’s a baseline there. But, but I just said like, why do we have to have cuts at this
point? And what if the economy continues? Do you think the Fed wants to cut to have to turn
around and hike again later on? Now I’m not in the Larry Summers camp, but we should be
hiking this year. I think we’re just fine where we are.
00:43:28 [Speaker Changed] Who’s left in the Larry Summers camp? He’s been dead wrong for a
couple of years now. At what point do people say maybe the 1970s and the 2020s are somehow
different decades? You
00:43:40 [Speaker Changed] Know, you know, maybe there’s a thing called technology that’s a
little different. I, I don’t know. But, but where I’m, where I’m thinking about all of this is that,
you know, it’s not just falling the path of, of what the market is telling you. Because remember
the bond bond guys get a lot of credit for, you know, being smarter than than other folks. And the
bond market knows more than, than other markets. But remember we’re just people too. That
forward curve is a bad indicator of where rates are going. It always has been. And you know, if
you think about when rates were,
00:44:10 [Speaker Changed] How about that dot plot?
00:44:11 [Speaker Changed] Yeah. I mean look at where rates were pinned down in the early
2010s through the whole, the whole decade of the tens, the market always had cut. Hikes are
coming, hikes are coming. So effectively I thought the market got way too giddy at this point.
You know, it’s, it’s harder to make a decision now. ’cause it was very easy to say, look, I wanna
fade the full cover. I want to continue to own some floaters in the market. There’s nothing wrong
with owning some floating rate debt. Yes, you gotta be careful with it. ’cause they can be
problematic. But I can buy floating rate mortgages for instance. Right? And they’re guaranteed
by the government. They’ve got seven caps, meaning that mortgage, you know, the, the rates and
member, these, these were issued before, they would have to go up to over seven before you’re
penalized. You know, they trade a hundred over. Right. That seems like a a no brainer trade for
not taking credit risk right now. You know, it’s kind of priced right into the market and so things
aren’t as exciting there. But as you, as you look through it, I just think there was just so much
fervor that everyone thinks the fed’s gonna go down in rates. But as I, as I tell people on the desk,
what’s wrong with yield? What is wrong with having a positive real yield? You
00:45:17 [Speaker Changed] Sound like a bond manager.
00:45:19 [Speaker Changed] I know. And you know what, it’s kind of funny because you know,
these, these younger analysts and things, they, they just think it’s okay to have zero real yield like
that the rate should equal inflation. And I’m like, you have to have a premium. And I think that’s
also what’s changed is because inflation has come back into the market, the bond folks are gonna
require an inflation premium, which means we need real yield
00:45:42 [Speaker Changed] Was did you say this in one of your notes? Like the current crop of
bond managers have never experienced a bond market where they were generating real returns.
Real yield relative to, to rates. They only know decades going back to the 22,000 of pretty close
to 0% fed funds rate.
00:46:04 [Speaker Changed] Yeah, I think I said something like that. I won’t say there’s none out
there. ’cause obviously we have some
00:46:09 [Speaker Changed] Tenure,
00:46:09 [Speaker Changed] But like a lot of folks this mean
00:46:10 [Speaker Changed] This new generation course who are the under 40 crowd has never
seen higher rates.
00:46:14 [Speaker Changed] Well they had never seen a hiking cycle either. They’ve never seen
inflation briefly
00:46:18 [Speaker Changed] Like 18,
00:46:19 [Speaker Changed] 16. Yeah, you got a little bit and I, I think I said that back in the 16
era. Like there’s people out there having you ever seen a hiking cycle that are making investment
decisions. But you know, the thing about it is, is that that’s why we have to be students of history,
right? We have to know some of the dynamics. But I think that’s a Buffett quote, right? Where
not Jimmy, but Warren, where he says that if history was all there was or past his prologue, then
the richest people in the world would be librarians, right? And so you have to have that in your
toolkit. You have to have the behavioral side in your toolkit, but also you have to be willing to
kind of just think about things differently. And you know that that’s what’s, that’s what’s great
about this business and that’s why I’m glad I didn’t become a teacher, Barry, because I think I te I
teach through this, right? I i I try to, I try to help our analysts, I try to educate our clients and to
me it’s, it’s solving these mysteries all the time. It’s way more fun than just teaching you how to,
how to do PDOs and, and figure out the order operation.
00:47:14 [Speaker Changed] And, and it’s pretty, it’s pretty clear you made the the correct
choice. So I want to talk about what you’re doing at the firm with some of the new funds you
have, but I have to talk a little bit about how this year has gone for bond investors. What are we,
we looking at? We’re off about two and a half percent in bonds. Nothing like 2022, but it really
seems like the bond market has been off sides. What, what’s going on there?
00:47:38 [Speaker Changed] Yeah, well you, you gotta rewind the clock. I mean we were talking
about year over year, you gotta expand the window. So yeah, we all looking calendar years, but
let’s go back to November one. You’re up meaningfully in the bond portfolio right? Last year,
right? For sure. So we got a little too excited. Look, we cut a duration back in back in January a
little bit in our portfolio. So especially on the intermediate term side, we did so because I, I was
just adamant that j Powell was not gonna let this thing keep going. We’re not gonna get rates
down to, you know, three, 3% on the 10 year. It just seemed ridiculous. And,
00:48:09 [Speaker Changed] And that was like a hundred basis points very quickly came out of
the
00:48:12 [Speaker Changed] Market. Yeah, it did. It it did. And Jay just added fuel to the fire in
December and so I, I was kinda licking my wounds for a little bit and say, man that was a bad
call. I’ll own it here. It looks like a good call now. But the thing is, is that, you know, if you roll
back the clock, bonds have done very well in the last 18 months or so since, since we really got
to those kind of peak levels. Yeah, we had that 5% tenure last year for about, I dunno why you
were sleeping minute, right? Yeah, it was, it was overnight really what you saw. And look, I
think we’re gonna try to test it again. And so we’ve been in the stance that coming in the year that
bonds probably have, you know, rates probably fluctuate around. They probably go up in the first
half of the year. Maybe you get something that stabilizes here. It just depends on the outcome of
the economy. But as a bond investor, there’s nothing wrong with having higher yields, you
know? And so if you were patient and you weren’t aggressive with this bond allocation. You got
a good rally in January, don’t forget. Right. So we got rates pretty dang low in January, and then
it just got sucked out all of a sudden because the inflation data came in.
00:49:15 [Speaker Changed] Right? Still a little hot.
00:49:16 [Speaker Changed] Right? And so ultimately, I, look, I, if I’m sitting at the Fed, there is
zero urgency of cutting rates at this point, right?
00:49:23 [Speaker Changed] I, you know, my, my argument has been, yeah, the CPI is coming in
hot, but to quote George Box, all models are wrong, but some are useful. OER, the, the
apartment side, it’s on such a lag itself.
00:49:37 [Speaker Changed] But just, but just take, take the services exit. Let’s look at the super
core stuff. It, it’s, it’s not comforting. And that’s because people are spending, right? They are
spending, yeah. Oh, absolutely. And so forget the OER side. Strip it out. That’s what, that’s what
Jay was trying to do, right? But super core is now annualizing it like 4% if you take super core
pc CPI. So he has a problem still. And why, if the economy is still performing, people aren’t
losing their jobs. What, what are we, why are we asking for
00:50:05 [Speaker Changed] Rate cuts? What’s the, what is the, the incessant ubiquity of doing it
now, other than freeing up that supply of housing, bringing rates down? And let, let me talk
about something else that I want to ask you about. So it’s pretty well understood that huge invest,
huge advantage for equity index investors if you have a 10 year time horizon. However, when we
look at fixed income index investors, it seems that a skillful bond manager can do better than the,
the Bloomberg Barclays bond for a variety of ways. You, you can, you can make duration
choices. Yep. You can make credit quality choices. 2022 was a tough year for bonds. Yep. Down
about 15% across the Barclay Ag. You guys are, are discretionary, unconstrained bond
managers. What were you thinking during 2022? Well, look,
00:51:05 [Speaker Changed] Rem remember, even though we have some of that, you have
guardrails and you have to own some duration and like, there’s, there’s limits to how
unconstrained or unconstrained really is. And so, you know, what we were seeing in that market
was just pain. Right? And what you also have to remember, if you’re running a bond fund, you’re
providing liquidity. And remember when bonds go down, people sell bonds. Just like when
stocks go down, they sell stocks. And so what happens during this too is that you’re forced to
sell. Everybody’s forced to sell. There’s no money to go buy things. And so we all complained
about the same thing. Look at the value in some of this stuff, but it keeps going down. Right?
Right. And so I think what you see in today’s market, I don’t think we’re gonna have a repeat of
22 at this point, why we’re not starting with a 1% tenure. Right? Right. You know,
00:51:54 [Speaker Changed] Or fed funds at zero or
00:51:55 [Speaker Changed] Fed funds at zero, you’re starting where you get yield. So basic
math today says if I own a 4.5% tenure and it has a duration, you can call it seven point a half.
Maybe it’s closer to eight today, that says that, okay, if I think about that ratio between the yield
and the duration, that tells me how much yields can go up in a calendar year and my yield will
offset it. Right? So that’s high break even with a duration trade. And so from that standpoint,
there is some value in it because I do believe that if we do fall apart in the economy, if we have
problems, I do think the tenure rallies, I don’t know if it rallies like it has historically because of
the debt loads that we see out there, because of the big deficit, and this is the other side of it, we
need some inflation. Barry, we need nominal GDP growth. Right? We’ve gotta grow ourselves
outta these deficits. But the problem is, is that we’ve, we’ve changed the, the, the script and
something changed under the previous administration where during the good times, which that
era was pretty good, right? In the 16 era, we actually expanded the deficit historic ally
dramatically. Right. Historically we decreased the deficit. To be fair,
00:53:04 [Speaker Changed] A lot of it was pandemic related. No, no, no,
00:53:06 [Speaker Changed] No. It, no, I’m saying the path that Trump had us, I won’t say
Trump, let’s say the entire Congress had, right? We were spending more money, we were
increasing the budget deficit on an annual basis. It’s the first time, really in the last 70 years
we’ve seen an absent a war. Right? Okay. And so, fair enough.
00:53:22 [Speaker Changed] And
00:53:22 [Speaker Changed] Then we’ve continued it during this administration. Right? So
there’s no change on which team you play on here politically. It they’re, they’re, they’re both bad
for bond money.
00:53:29 [Speaker Changed] Wait, people in DC spend money they don’t have
00:53:32 [Speaker Changed] That’s right. Well, lemme write that down. Yeah. Yeah. So I know
breaking news put put that on the marquee for Bloomberg today. Right. But the thing is, is that,
you know, we, we aren’t, we aren’t keeping the house in order. And so I think it’s gonna be
fearful next time we have a recession. So my boss has been talking about this for a while now,
and it’s not that this is a 2024 problem. The deficit is not a 24 problem. But when we have
another recession, what if Congress sees what we did during the pandemic and says, you know,
we should print 15% of
00:54:01 [Speaker Changed] Dp, this fiscal stimulus thing seems to work. It worked
00:54:03 [Speaker Changed] And it does
00:54:04 [Speaker Changed] Work. That kings guy, he knew what he was talking about,
00:54:05 [Speaker Changed] Knew he was talking about, but also there isn’t a ramification on the
other side of inflation. And the bond market will sniff that out quickly. So I think you can get a
rally going into a recession, but once the fiscal authority start to act, you may not want to be
owning that bond. You may not wanted to rent it over that period.
00:54:21 [Speaker Changed] Let, let me ask you my pet peeve question, not so much from the
prior administration, but from the ERA before the pandemic, when rates were zero for a decade,
how big of a missed opportunity was it? So households refinanced, I know corporations
refinanced. Congress said, no, no, we have no, you know, if we refinance, it’ll just encourage
more spending. Well, look, historically, it’s like the single dumbest thing I’ve ever heard in my
00:54:48 [Speaker Changed] Life. It okay. That is, but let, let me give them a little bit of credit.
And I’m not here to, to give Congress credit or, or the treasury at all. But historically the Fed, I’m
sorry. Here I am screwing this up. Historically, treasury has issued more short than long. Right?
Right. And that’s because of the shape of the yield curve. Right. Effectively. But also there’s a,
there’s an argument that most people miss in this Barry. And what it is, is, remember the treasury
market is one of the most liquid markets in the world. Sure. Except during March of 2020,
nothing was liquid. Mean. Our, our treasury folks that traded in the eighties, by the way, they
were telling us that they’ve never seen such a horrible
00:55:26 [Speaker Changed] Market worse than, you know, September oh eight. Worse than
00:55:28 [Speaker Changed] S worse than Leman. Absolutely. You, you, there was liquidity in
that stuff. You, you couldn’t trade off the runs. You couldn’t trade. They, they wouldn’t even
trade. Wow. You couldn’t make an appointment. You couldn’t call someone to, to try to do it on
the run stuff. You were hard pressed to do 10 million bucks. Wow. No desk wanted risk at all.
And even treasuries. But where I’m going with this on the whole liquidity is remember we have a
term structure of rates. We, we advertise our auction calendars. Right. The quarterly refunding
assets, which there’s one coming up by the way.
00:55:57 [Speaker Changed] And they’ve been pretty mediocre the past few ones that
00:56:00 [Speaker Changed] We’ve seen. Yeah. And this one looks a little scary. Janet’s got a lot
of work to do there. She’s issuing a lot of frontend paper this week. We’ll see how that gets
digested. But, but
00:56:07 [Speaker Changed] Let me just
00:56:08 [Speaker Changed] Real quick, let’s go back to the term structures, because they need
to have the market. You can’t just say, all we’re gonna do is issue 50 year treasuries. You can’t
just do all that. Should they have issued some Yes.
00:56:18 [Speaker Changed] The market claim report, when the Fed was at zero and 10 years
we’re at 1%. I get it. But you can’t, they couldn’t have done 30 years at three and basically change
the,
00:56:27 [Speaker Changed] But you would have no liquidity for the next few years if you took
the entire I I’m saying at the Extremo. Right? Right. So if you went out there, you, you, you
could put some into it. But the treasury market, you have to have this functioning market of
people rolling paper and moving around. There are people that buy thirties and lock ’em up.
Right? Right. They’re called, they’re called sovereign funds. But in general, you’ve gotta have
some dynamic of providing that liquidity to different points on the curve. So don’t disagree. And
so, and so there is something he said now, should they have done as much on the front end?
Absolutely not. But they were shortsighted thinking about the zero Look, you could have done a,
you could have done a 50 year sub two at that time. Really? Oh yeah. You definitely could have
in the mar Remember the long bond in 2020 got to one. Right?
00:57:09 [Speaker Changed] That’s
00:57:10 [Speaker Changed] Right. One. Exactly. That was the low in yields. And so you could
have done stuff like that. Two, two, and the market clamored for that sub, remember? I mean,
there was, there was like this Austrian a hundred year paper that traded with almost a negative
yield for a while. Right? A hundred years. And you know, so ultimately when you pull it all back
together, some of it is just the function of the market. They couldn’t do, but they should have
done some of it because there was a massive demand for it out there, specifically in the
Eurozone, where a positive real yield or a positive nominal yield would’ve cleared the market
very strongly. But you couldn’t take the entire budget and do the whole thing in there.
00:57:44 [Speaker Changed] Obviously you can’t refi all of the United States, but you certainly
could have made the circumstances where we are today much less. You could,
00:57:51 [Speaker Changed] You could have made it better. Right. And again, I’m not trying to
give them a lot of credit, but I’m giving you the reason why some of it is there. And it’s also, it’s
this entrenched thinking that they have to issue short.
00:58:02 [Speaker Changed] So let’s come back to a couple of, of funds that you guys run. I
gotta start with, I don’t know who coined this, but the first person I heard say it was you. What
do you make of the idea of TBI and chill? Oh,
00:58:15 [Speaker Changed] Look, I I it’s been a great place. If, if you’re a TBI and chill person,
meaning that you just buy t-bills, forget your bond allocation. It’s worked for you.
Congratulations.
00:58:25 [Speaker Changed] When does that stop working?
00:58:26 [Speaker Changed] At some point it does. And it has risk. And I, I tell people that and
they’re like, well, yeah, we could default. I’m like, no, that, that’s not the risk. I’m talking, it has
refinancing risk. Right? Right. Every month you TBI and chill, if J cuts rates, you, you don’t get
to chill as much. And so at some point you gotta, you gotta move it out a little bit. But that
phrase alone is working. And Jay has given you a renewed sense on life there. You
00:58:49 [Speaker Changed] Got at least another six months. Right.
00:58:51 [Speaker Changed] Got at least a few more months. But the question is, what if they
surprise you? Right? So again, we all think we know, but we, what we’d all know is we don’t
know.
00:58:58 [Speaker Changed] Let’s talk about surprise because the Fed has been so transparent
and there have been criticisms from a variety of quarters that hey, you know, the Fed is more
effective when it can occasionally shock the market. My fantasy is Jay cuts in June, startles the
market. Yeah. And then we have a little bit of a reset.
00:59:17 [Speaker Changed] If he did that, I think the knee jerk reaction would be to sell things
and because it would, it would the, the market,
00:59:23 [Speaker Changed] Which he doesn’t mind.
00:59:24 [Speaker Changed] Yeah. The market would say that takes the fed know something
00:59:27 [Speaker Changed] Consumer out. Right. That takes the, the consumer, it does all these
things that he says he wants, he wants to calm down the consumer, he wants to calm down.
00:59:33 [Speaker Changed] It’s not gonna happen. Barry Inflation, you, you
00:59:34 [Speaker Changed] May want it, I know it isn’t, but if I was a birdie whispering in his
ear just 50 basis,
00:59:39 [Speaker Changed] When’s the last time Jay shocked the market? They didn’t even
shock the market with the fifties and the 70 fives, they’d went to Nick leaks. Right. As Right.
You know, one of the banks called him. And
00:59:48 [Speaker Changed] So Nick leaks. So I’m like Nick Tess at the Wall Street Journal.
00:59:52 [Speaker Changed] Yeah. I don’t even say, that’s why I call it that. I can’t pronounce the
last name Nick. That’s great. But it, but what you see is that they don’t, and who shocks the
market today, the BOJ. And look at what it creates. It, it’s not what the Fed wants because there’s
ripple effects. If the Fed shocks, then the ECB does too. If you notice the ECB follows our lead
in all of this right now. So it’s much more dangerous for J to shock the market. And they feel like
they want forward guidance to be there. And that’s what they set off back in November. So,
alright,
01:00:21 [Speaker Changed] 25 bips
01:00:22 [Speaker Changed] In June, but what does it matter? It doesn’t change anything. We’re
talking about 25 bips Oh. Than
01:00:27 [Speaker Changed] Housing.
01:00:28 [Speaker Changed] Not 25 basis points does not change the housing market. Barry,
come on. Alright. But here’s the thing. TBI and chill, you should be moving out the curve a little
bit. Look, b buy one year, like we run low duration funds for these reasons. Right. You know,
look, they’ve been great for, for clients, you can pick up yield. So from my standpoint, there’s
better things to do. But look, my cash sits in money market. Right? Right. And look, I’m, I’m
ready to, to move some of that out. And look, I’m looking for yields like 4 75 on tens. I think it’s
a great point. I think when we have our next conversation was every five or six years you invite
me, we could, we can, when we do that, we
01:01:02 [Speaker Changed] Can tighten that.
01:01:03 [Speaker Changed] But, but when we do that, what we’ll do is we’ll review this and I, I
know you, you have it all recorded, so I’ll be on tape for that. But I, I think you’re, you’re gonna
want that for this period. All
01:01:12 [Speaker Changed] Right. So let’s talk about two other funds that you guys have
launched. The equal weighted ETF focused on Fortune 500. Yeah. Where you’re ranking the
holdings by revenue. Very smart beta ish or fundamental beta, whatever you wanna call it. Tell
us the thinking behind the equal weight ETF with the Fortune five oh hundred revenue basis.
01:01:32 [Speaker Changed] So first of all, what it does, the Fortune 500 list published annually,
right? It includes public and private companies. Ah, so before I say that, we’re not investing in
the private companies. Okay. So it’s all public, but what happens is that it’s us domiciled names.
So you don’t have any conglomerate, you know, like a Schlumberger or something that’s
creeping into there like an s and p. And it’s very, you know, it’s very rules based, right? You just
rank on revenue. So what this does, if you compare this to like the s and p 500, there’s about on
average in any given year, that’s called 110 to 130 different names that are in the s and p. So we
all know that there’s equally weighted s and p out there. Sure. And what we find is that this
through a cycle does significantly better than equally weighted. And in today’s
01:02:16 [Speaker Changed] Environment, this is, and this is revenue ranked not market capital,
right? Not
01:02:19 [Speaker Changed] Market cap ranked on how they deduce it. You don’t have some
subjective committee like an s and p that comes in there. So names that are growing and actually
generating revenue show up sooner in this index than it would in the s and p. Why?
01:02:31 [Speaker Changed] And if they’re not yet profitable, ’cause they’re reinvesting, they still
show up,
01:02:34 [Speaker Changed] They’re at the top, they’re out. So you, you’re gonna be way
underweight, like service as a, so software as a service, I always get that backwards. Software as
a service, you’re gonna be under, you’re gonna be, wait, some of these tech names too,
unprofitable tech isn’t in there. So you’re gonna have some more industrial type names, you’re
gonna have more value kind of names over a cycle. But in general, these are still names, you
know, and when you look at the list, it’s like, okay, but what it ends up doing is it gives you a
different cohort to play with. Huh. And what you find is that these names get overlooked because
they’re not in the s and p 500. And so over time, you know, if you go back and compliance would
hate me on a back test and everything, but you can generate about 150 over the s and p equal
weight per annum. Wow. And look, if you can do something like that, and we all know over long
term equal weight tends to do better than market cap. Now we go through periods. By the late
nineties we had the one we’ve just been through. And so for us, the timing perspective was very
interesting because at the end of the day, we, we couldn’t, it’s hard for us to really love the Mag
seven or now it’s down to four five, who, who even knows what we changed it all. It was a
01:03:33 [Speaker Changed] Fantastic, fantastic four, right? We changed all went from Fang AA
to Mag seven F. Yeah. So let’s talk about another fund, which is avoiding the Mag seven. Yeah.
Which is the double line Schiller enhance Cape. And I know you can’t say this ’cause of
compliance, but I could say top 1% of large cap value crushing 14% a year for the past three
years beating the s and p 500. Why did you guys partner with SHIELD to come up with the
enhanced cape other than the obvious performance?
01:04:04 [Speaker Changed] I mean, like, it, it, it, it fills with us philosophically. One, as a bond
manager, we are sector rotators, right? So that’s something we focus on. And the other thing we
focus on is valuation. So if, what, what the Shiller methodology does is that it’s, it’s, it’s looking
at the relative cape ratio. So it takes the cape ratio of each sector and compares it to its own
history. So it says it’s for each sector, the market, where are we in the cycle effectively. And it
ranks them and just says, which are the cheapest, which are the most rich? So avoid the rich, buy
the cheapest, right? So you take the universe, there’s 11 sectors, cut it in half, call it five, five
cheapest. What you wanna look at and you apply momentum like any good academic would do
to control for, for kind of the value trap. And you’re left with four and you equally weigh ’em. It’s
as simple as it gets.
01:04:49 [Speaker Changed] Barry, you know, there is something to be said for bond managers
being better PMs on the equity side because of the focus on valuation, return of capital and, and
just tracking the math in a way that the equity side tends not to. Yeah.
01:05:08 [Speaker Changed] But look, they’ll beat us through different parts in time. The long,
the goal is to have a long tenure. And if you can do it over a full cycle and you can do much
better, then why wouldn’t you do it?
01:05:17 [Speaker Changed] Alright. So I have to get at you outta here sooner rather than later.
So let’s turn our favorite five questions into a speed round. Perfect. Answer these as quickly as
you can, starting with, tell us what you’re streaming these days. What are you watching or
listening to?
01:05:31 [Speaker Changed] One of my colleagues turned me on to something called the XFiles
and told me that you should watch this because it well, because
01:05:39 [Speaker Changed] The truth is out
01:05:40 [Speaker Changed] There and Exactly. That’s what I was gonna end with, but yes. And
it actually does hold up pretty well. So anyway, so something that I’ve been revisiting. I I don’t
have any of the new ones out there. It’s, it’s, it’s kind of plus
01:05:52 [Speaker Changed] Plus the coy was, and Jillian, they’re, they’re both so fantastic and
01:05:56 [Speaker Changed] You gotta remember the song David Decoy, why don’t You Love
Me? Right?
01:05:59 [Speaker Changed] Tell us about your early mentors, although I kind of have a feeling
who those are gonna be who helped guide and shape your
01:06:05 [Speaker Changed] Career. Yeah, that’s, I I think I mentioned this before when we were
here, but there was a guy I worked with named Claude Irv too, on the commodity side. Really,
really a guy that taught me to question everything. And then there was this guy named Jeffrey
Gunlock too, very kind of prominent guy who said not only question everything, but question it
again, you know, too. And, and that’s very helpful. And also I think what was, what’s been very
good about Gunlock and why he has such a loyal crew around him is that all of us are really
pushed to challenge each other. And there’s no dumb questions. Yeah. We’ll call each other
dumb at times. You know, we’re, we’re like a family that way, but it’s, it’s encouraging people to
come up with ideas. And we’re an idea business, right? You have to create, you have to, you
have to have new things in the market.
01:06:49 And we want people to poke holes. And I think that’s something that’s very good about
the team is that it’s not being a contrarian for the sake of being a contrarian, but what are we all
missing when we’re all nodding vertically up and down? You know, that’s the time where you
question and like, that’s what we’ve been doing in our last asset location meetings. It’s like, we’ve
been sitting around going, credit looks expensive, but we don’t want to sell it. And we’re all
cringing and we’re all just saying, okay, we’re just gonna let it run for right now. And you know,
Gunlock keeps saying, I just wanna make everyone aware it, we keep doing this each month. I’m
not, I don’t have another idea right now, but it’s starting to say we’re maybe rates look pretty
decent too.
01:07:25 [Speaker Changed] How do you hedge credit short of going out and buying credit
default swaps and, and they’re not cheap.
01:07:31 [Speaker Changed] No. You, you really don’t. If you’re having to hedge your credit,
you should own it. That’s one thing I’ve learned, huh? ’cause the hedge costs you money. If you
want to hedge the credit, maybe you should own it. And the best hedge out there, I think today
are longer data treasuries. I think they work, I think if we have a meltdown, and I’m not saying
credit spreads wide in 10 basis points. I’m saying
01:07:51 [Speaker Changed] Extended duration isn’t gonna
01:07:52 [Speaker Changed] Hurt you. It’s not gonna hurt you, and you get paid to do it. So that’s
a hedge that, that makes you money. It’s what we call a positive carry hedge.
01:07:58 [Speaker Changed] There you go. Let, let’s talk about books. What are some of your
favorites? What are you reading right now?
01:08:02 [Speaker Changed] Yeah, I think I said to you last time was against the Gods of
Bernstein. That hasn’t changed. That’s,
01:08:07 [Speaker Changed] Oh, it’s so, it’s a classic. It is.
01:08:08 [Speaker Changed] Everybody should read that out there. You know, I, I’m a big fan of,
of the Michael Lewis stuff. I, I know he got a, he got a bad rap with the, the latest one too about
going in Definite. Yeah. On SBF. I thought
01:08:19 [Speaker Changed] That I was a lot of fun.
01:08:20 [Speaker Changed] If you read it. I think a lot of people read like 50 pages and thought,
oh, he’s a fan boy, this is Michael Lewis. He’s building a character, first of
01:08:28 [Speaker Changed] All. Exactly. You
01:08:29 [Speaker Changed] Know, if you haven’t read him his other stuff, then maybe you
could get there. But if you read the whole book, he’s pretty caustic at the end, right? I mean, he
was a
01:08:35 [Speaker Changed] Hundred
01:08:35 [Speaker Changed] Percent right. It, it was, it’s Total Lewis. And so I, I think that
people that was cri were criticized up front, but Chip Wars is the one that someone
recommended to me
01:08:43 [Speaker Changed] That keeps coming
01:08:44 [Speaker Changed] Up. I love it. Everybody loves that. Everybody should, everybody
should read it. That is where it’s at. You talked about the CHIPS act. I think that’s the only great
thing that’s come outta Congress in this last, you know, kind of rounds. I think building the chip
plants, getting our own security, that direction and being a preeminent player there is extremely
important. Huge. I’ve always aided the iPhone where it says designed in Cupertino. Right? But
it’s manufactured somewhere else, right? They forgot that part out. They only kept the Cupertino
part. I think this is something very powerful. Why would you not wanna be the next TSMC?
Why not? We, we call
01:09:18 [Speaker Changed] USC or bring here they’re building a plant in Arizona,
01:09:20 [Speaker Changed] Right? We could call it USMC, but we got a few of those already,
you know, so, so yeah,
01:09:25 [Speaker Changed] The Marine Corps, you don’t wanna piss those guys off.
01:09:27 [Speaker Changed] You. I’m a big fan of the Marine Corps. I do not wanna say
anything and shout out to the, the Marines out there that take care of us.
01:09:33 [Speaker Changed] By the way, I loved the Michael Lewis going infinite. If you want a
different perspective, that’s every bit as well written and entertaining. Just a little more horrifying
is a Zeke Fox’s number go up. Okay. Which it, which is really a, you read the two of those and
now you know everything you need to know right about, about FTX crypto and I gotta fly
01:09:55 [Speaker Changed] Back to LA later in the week. So I’ll, I’ll take a look at it.
01:09:58 [Speaker Changed] Our final two questions. What sort of advice would you give a
recent college grad interested in a career in either applied mathematics, bond management or
investing?
01:10:08 [Speaker Changed] I think you need to stray from what you’ve learned thus far.
Meaning that if you’re the mathematician, you need to learn another side of the business. Learn
the fundamental side, which is something that I didn’t appreciate. Be a student of history that
applies to everyone. Unless you’re a history major, then you already know that. But a student of
history, financial markets rhyme a lot of times, right? They’re, they’re not the same. But you’ll
learn a lot through that. And you’ll learn that a lot of things we’ve been, we’ve experienced these
things before. And most importantly, learn psychology, learn the behavioral side, realize we’re
all people. There is no smart money, dumb money. It’s all ran by people. Institutions are ran by
people. They behave a little differently because their own career risk. Your hedge fund’s gonna
behave a little differently ’cause of its career risk.
01:10:52 But understand that all these dynamics are in play. So the last advice I have when it
comes to this, and the CFA institute hates it when I say this. Yeah. You know, and I’ve, I’ve
given a couple speeches recently and I, I I put that caveat out there. Fundamentals work. They
just can be, they can, they can be off for a while. Right? And ultimately, fundamentals come
home to roost. Technicals teach you how to trade te technicals. There’s levels like they, they
work relatively well ’cause of the psychology. So that leads into psychology. But the one thing
you can never, ever, ever ignore is money flow. Money flow is the most powerful thing. If
people are buying price go up, people are selling price go down. And when you see that in the
market, when you see that, that’s called momentum. Right? Note to the quants out there, that is
the most powerful force in the universe if we’re short term timeframe. So if you can marry those
three things together, that’s, that can give you success.
01:11:45 [Speaker Changed] How do you track money flow?
01:11:47 [Speaker Changed] Well, you watch fun flows. We watch ETF flows. We watch ETF
creation units. You watch also the demand from the institutional when it comes to RFP demand.
So all of these things are somewhat in our toolkit. But remember we talked about M two, that’s a
powerful force as well when we print money and create money that it has to go somewhere.
Right? Right. And you gotta track where it’s going.
01:12:09 [Speaker Changed] It, it goes where it’s treated best. And
01:12:11 [Speaker Changed] Water finds its levels.
01:12:12 [Speaker Changed] That’s exactly right. Our final question, what do you know about
the world of investing today? You wish you had in your toolkit you wish you knew 25 years or
so ago when you were first getting started?
01:12:24 [Speaker Changed] It’s that behavioral aspect. Hands down. Hands down that, you
know, when I came in as a naive quant, I thought mass solved the world. You can model
everything. Right? And I realized that, you know, the models, they’re guides. Everything we
have in the toolkit’s a guide because it’s people making decisions. And we are inherently strange
creatures, right? We do not act in our best interest, right? We, we don’t, we are not utility
maximizers, you know, to, to borrow the economic phrase. And so at the end of it, I think it’s
understanding that dynamic of psychology is very important. How does one model psychology?
You don’t, but you know it, you can can feel it. And there’s something about markets where we
say we feel something’s happening. That means we’re talking about that psychology.
01:13:10 [Speaker Changed] What, what’s the famous Richard Feynman quote? I know I’m
gonna mangle this, but if you think physics is difficult, now imagine what would happen if
electrons had emotions,
01:13:19 [Speaker Changed] Right? Classic. I mean, classic Feynman is is is amazing. There’s
actually something on Twitter where someone does fineman quotes. Yes, yes. I love, I love that
too. And is Twitter
01:13:28 [Speaker Changed] Still around? I’ve been, you know, sad sadly watching it circle the
drink.
01:13:32 [Speaker Changed] Yeah. I mean I think it, something happened with the management
there. I don’t know. It kind of changed the dynamic. So I, I actually haven’t been using it as much
of myself either. And so, but
01:13:43 [Speaker Changed] The glory days of Twitter peak Twitter was a fabulous period.
01:13:47 [Speaker Changed] It was. And I remember you giving me some advice, Mary, me,
Barry. So you, me, you can go onto the mentor list with this out. I think way you should wrap it
01:13:54 [Speaker Changed] Up. Oh, let’s hear this horrible advice I give you.
01:13:57 [Speaker Changed] So I was a, a young guy in here sitting here ’cause I was younger
than I am today. And the thing you told me about, I was like Twitter. I was like, it’s so just a
horrible, it’s a cesspool. And all of this you said true. Which you, that’s great advice, right? You
were like, yeah, true. And you said if you want to do it, block and curate. Oh,
01:14:15 [Speaker Changed] The list. Yes. Oh, a
01:14:16 [Speaker Changed] Hundred percent. And you know what? It changed my life
01:14:18 [Speaker Changed] Really
01:14:19 [Speaker Changed] Block and curate because I got what I was looking for. Now I have
some self-reference in there. And that’s the other thing. But going back to your previous
question, follow people who you don’t wanna follow, follow, follow,
01:14:31 [Speaker Changed] Get outside of your I ideological bubble.
01:14:33 [Speaker Changed] Correct. Understand the other side. And you may not understand it,
but listen to it and it’ll make you better for doing that. ’cause you’ve gotta realize that no one has
your experience, they have their experience. And so to put yourself in someone else’s shoes and
try to try to grow from that, it’s very important. And don’t just read everyone who agrees with
you. It’s really fun for me to walk on the desk. I was like, yeah, yeah. Great job, Sherman. Yeah,
yeah. Well if it’s not truthful, it doesn’t matter. Poke holes in it. And I think that’s the thing, we’re
all looking,
01:15:04 [Speaker Changed] It’s as if every trade has a buyer and a seller.
01:15:08 [Speaker Changed] It’s funny how that works, right? That’s why like prices went out.
There’s more buyers and sellers. By definition. There can’t be, you
01:15:13 [Speaker Changed] Know, by the way, that as someone who started on a trading desk,
that expression has always annoyed me because the true expression is more buyers than why did
wire stocks up today? More buyers, seller buyers at
01:15:24 [Speaker Changed] A higher price.
01:15:25 [Speaker Changed] Sellers at this level. Yes. Correct. Once you exhaust the sellers at
this level, now you go up. Thank you Jeffrey, for being so generous with your time. We have
been speaking with double lines. Jeffrey Sherman. He is Deputy Chief Investment Officer at the
firm, helping to oversee about a hundred billion dollars in fixed income and equity. If you enjoy
this conversation, be sure to check out any of the 500 plus discussions we’ve had over the past
almost 10 years. You can find those at Apple Podcasts, Spotify, YouTube, wherever you find
your favorite podcast. Be sure and check out my new podcast Act, the money expert
conversations about earning spending, and most importantly, investing your money. Find that
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Wasserman is my audio engineer. Atika Val Brown is my project manager. Shorten Russo is my
researcher. Anna Luke is my producer. I’m Barry Ritholtz. You’ve been listening to Masters in
Business. I’m Bloomberg Radio.

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