Jim Cramer Finds Outperformance Of This ETF "Pretty Amazing" — Here"s Why It"s Happening

   The transcript from this week’s, MiB: William Cohan on GE, Lazard, Goldman & Bear, is below. You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is… Read More The post Transcript: William Cohan appeared first on The Big Picture.    The transcript from this week’s, MiB: William Cohan on GE, Lazard, Goldman & Bear, is below. You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, Bill Cohan is a fixture on Wall Street for a long time, both as an investment banker at Lazard Freres and eventually Merrill and JPMorgan Chase, as well as an author. He is one of the co-founders of Puck. He is a writer for Vanity Fair, for the New York Times, for Bloomberg. He’s really well known on the street and puts out a number of fascinating books, arguably a sort of parallel career to Michael Lewis. He’s at Lazard Freres for seven, eight years, and then sometime later writes his version of Liar’s Poker, which is a history of Lazard Freres. His most recent book, Power Failure, about the rise and fall of General Electric is really a fascinating history, with some fun stories and a lot of really interesting gossip throughout it. It’s deeply researched, deeply reported, and really a very enjoyable read. I think you’ll find this conversation quite fascinating; I know I did. With no further ado, my conversation with Bill Cohan, author of Power Failure. William Cohan, welcome back to Bloomberg. WILLIAM D. COHAN, FINANCIAL JOURNALIST, AUTHOR OF POWER FAILURE: Thank you, Barry. It’s great to be here. RITHOLTZ: So, let’s talk a little bit about your career, which began as a reporter, went into M&A banking, and then went back to writing. You start writing for the Raleigh Times. Tell us a little bit about what you were doing there. COHAN: I was doing something I probably should never have been allowed to do, which was write about public education in Wake County, which was fine. I had just graduated from Columbia School of Journalism, getting a master’s in journalism and I’ve done my thesis on public schools in Central Harlem, in the Central Harlem School District. I went to one of the best schools in the district and one of the worst schools in the district, and just sat there for like six weeks and tried to absorb what was going on. And no one had ever done that, I had to get special permission from the Board of Education in Brooklyn back when they still do that. And then I went to Raleigh and covered public schools in Raleigh. But I’ve never been to a public school in my life, other than sitting in the classrooms in Central Harlem. So, it was great, but it was, you know, like anything, a total learning experience. RITHOLTZ: So, you ended up becoming an investment banker. You worked at places like Lazard Freres and Merrill Lynch and JPMorgan. Tell us a little bit about your banking background, what did you do, what sort of deals. By the way, this wasn’t like, I’m going to try this for six months and go back to writing. You did this for 17 years. COHAN: Yeah. And I actually started out of business school. I’ve gone back to Columbia. So, I graduated from business school in 1987 and went to GE Capital for two years, financing leveraged buyouts. And I also spent a year there, working for the chief credit officer at GE Capital, learning all the different business lines at GE Capital. And then I went to Lazard and — RITHOLTZ: So, let’s stay with GE Capital for a minute because they’re going to loom large later. COHAN: Plenty of relevance. Yes. RITHOLTZ: In the ‘80s, they were really a financial arm of GE and a way to facilitate its client base. It seems like in the ‘90s, it evolved into something else. When you were there, was it a financial engineering firm, or was it a more traditional credit finance firm? COHAN: By the time I was there, I had started in the Depression, you know, financing customers — RITHOLTZ: Right. COHAN: — purchase of GE’s appliances, right, because credit was hard to come by during those years. RITHOLTZ: Everybody, General Motors had a credit on multi-big manufacturers there. COHAN: A lot of did that. Right. GE had a benefit in over other companies in that regard because they had a AAA credit rating. So, they were able to borrow very cheap, and then lend out expensively. And they were able to arbitrage that credit rating which, of course, Jack Welch did it in spades. And by the time I got there, you know, Jack had been CEO for six years, and he was well into turning GE Capital into a financial powerhouse. So, by the time I got there, it was well beyond just, you know, financing customer acquisitions of appliances. I mean, you know, I probably shouldn’t have been doing it because I had been a journalist covering public schools and knew nothing about leveraged buyouts. But I was financing leveraged buyouts at GE Capital, and that was one of 18 or 20 business lines that the business was in and you know, just making huge profits, arbitraging that credit rating. RITHOLTZ: So, you go from GE Capital to Lazard next. Tell us about Lazard. COHAN: Well, Lazard couldn’t have been more different than GE, as you can imagine. RITHOLTZ: Talk about old school, classic partnership, managing risk, very different headspace. COHAN: Oh, totally, totally. I mean, I’ve always been fascinated by Lazard because I read Cary Reich’s book, the Financier about Andre Meyer which was a fabulous book and Cary Reich was a great writer, but he died way too young. And you know, I’ve been a Francophile my whole life. I read that book. I wanted to work at Lazard. When I was in business school, I got an interview at Lazard with two partners who probably are still there, and they didn’t even send me a ding letter, Barry. Do you know what a ding letter is? RITHOLTZ: Sure. COHAN: Yeah. RITHOLTZ: Thanks for coming in. COHAN: Thanks for coming. We don’t need you. RITHOLTZ: At this time — COHAN: You know, good luck with you. I’m sure you’d be great. RITHOLTZ: We’ve put your resume in our file. COHAN: That’s right. RITHOLTZ: Don’t hold your breath. COHAN: They didn’t even send me one of those. They just ignored me. Okay. And then two years later, I tried again. You know, GE Capital, you have to understand, like, investment banking was so hot then. RITHOLTZ: Right. COHAN: Everybody wanted to be an investment banker. RITHOLTZ: Of course. It was monstrous. COHAN: It was monstrous. I mean, investment bankers were rock stars, right? So I was at GE Capital and you know, we were getting business because we had access to all this capital. RITHOLTZ: Yeah. COHAN: You know, I became enamored of this idea of getting business through your ideas, right. And that was at Lazard. Lazard had no capital. RITHOLTZ: Right. COHAN: No capital, but it got in the middle of deals. It became interstitial men because of, you know, its reputation, its brain power, and that really appealed to me. And plus, it was French, in a private partnership, and all these great men were wandering around like, you know, Felix Rohatyn, and Michel David-Weill and — RITHOLTZ: Right. COHAN: — Damon Mezzacappa. And so, I, you know, wanted to be part of that. I was the only associate they hired in 1989. RITHOLTZ: They’re like the last partnership standing, aren’t they? COHAN: No. They went public in 2006. RITHOLTZ: Oh, they did? COHAN: Yeah. RITHOLTZ: That’s right. COHAN: They’ve been, and my first book covered them being a private partnership to going public. And when Bruce Wasserstein came in, and basically stole the company from Michel David-Weill, which is a story I tell in detail in the book. They went public in May of 2006, and they’ve been public now for — RITHOLTZ: The argument is they avoided trouble in the financial crisis because they didn’t have a decade of overleverage. COHAN: Well, they had vague basically zero capital markets business. They had no balance sheet. So they weren’t ever going to be, you know, having securities on their balance sheet that were at risk and losing value. RITHOLTZ: Whereas all the other public companies had access to capital and managed to get into trouble. COHAN: Of course, having access to capital can be a big problem. And they used to say that like, you know, Goldman Sachs, which one of the reasons they stayed private until 1999 is because John Whitehead used to say that and I know this from writing my book about Goldman, John Whitehead used to say that, you know, not having capital forced them to make tougher choices. And other banks which have more access to capital, you know, were often foolish with that money. RITHOLTZ: So, you go from Lazard to Merrill to JPMorgan, tell us about those other experiences, how do they compare to Lazard which seems much more unique, being in a public company versus a partnership. What was the workflow like there? COHAN: I mean, in Lazard, you were drinking from the firehose — RITHOLTZ: Yeah. COHAN: — because, you know, there were 72 partners and 72 non-partners in the investment banking group, so very small. So, you know, that was not a pyramid structure. RITHOLTZ: Right. COHAN: That was a rectangular structure. So, you know, there are a lot of people at the top of the funnel, pushing down on the people at the bottom of the funnel. And so, you know, you’re just constantly busy working on the biggest and best deals of all time, you know, and that’s what I did. And you know, Merrill was, of course, much more corporate. It was public. And the ultimate corporate was Chase, JP Morgan, JPMorgan Chase, you know. So, they were all very different. But you’ll note of those three, you know, Lazard and Merrill and JPMorgan Chase, the only one I’ve written a book about is Lazard because it was so unique and you know, really, the people there were quite extraordinary and fun to write about. RITHOLTZ: So, compared to Lazard and Goldman Sachs, I have to ask the question about GE Capital. Did they essentially in the 1990s, morphed what was an industrial giant into a financial giant? COHAN: In fairness, you know, once Jack took over GE Capital in the ‘70s, and you know, once he decided that, as he told me, it was easier to make money from money than from making — RITHOLTZ: Selling widgets or jet engines. COHAN: — jet engines, making power plants. You know, it was just easier. It was easier to do that arbitrage and if you had people in place who understood the risks and managing the risk. So during Jack’s 20-year reign atop GE, GE Capital became an increasingly large and important contributor to the bottom line, and to the point of like providing 50 percent of the profits. So, I mean, — RITHOLTZ: Wow. That’s giant. COHAN: Of course, it was giant. It was like the third or fourth largest banking institution in the country, and it was completely unregulated, Barry, completely unregulated. It was not a bank because — RITHOLTZ: No FDIC insurance, no regulation. COHAN: Well, it didn’t have deposits. RITHOLTZ: Right. Well, they had one depositor, it was General Electric, the company. COHAN: It was the commercial paper mark. RITHOLTZ: Yeah. That’s quite amazing. COHAN: Yeah. RITHOLTZ: So when I think of GE in the ‘80s and ‘90s, the three things that come up; GE Capital, obviously; the rise of shareholder value, which a lot of people point to General Electric as a key driver of that; and then Six Sigma. Let’s talk a little bit about shareholder value and that Chicago School philosophy that Jack seems to have embraced? COHAN: Well, you know, Jack wouldn’t know Chicago philosophy from a hole in the wall. But what Jack really understood was, you know, stock price — RITHOLTZ: Right. COHAN: — and shareholder value. When he took over GE, we had a market value of $12 billion. And you know, by the time he left, like a year before he left, it was the most valuable company in the world. RITHOLTZ: 650? COHAN: $650 billion. RITHOLTZ: Yeah. That’s amazing. COHAN: So that’s a nice, you know, compounded rate of return over those basically 20 years. I mean, you know, we’re not unlike, you know, sort of Tesla or even Apple. Really, I mean, if you think about when Tim Cook took over Apple, it was worth $300 billion, and at one point it was worth two and a half trillion. RITHOLTZ: Right. COHAN: So that’s an equally Jack Welch like, or even more. RITHOLTZ: So the difference between the two, I’m glad you brought that up as an example, the vast majority of the gain we’ve seen in Apple has been an increase in revenues and profits, with a modest, very modest uptick in PE multiple. When we look at GE from ‘82 to 2000, under the Jack Welch reign, it began priced as a stodgy industrial and I have argued that he left this giant ticking time bomb of a 47 PE on an industrial, with a cratering capital business that had a ticking time bomb of an accounting fraud that SEC finds about to happen. How much of the growth of GE was due to the legend of Jack Welch and how effectively he presented the company to the world? COHAN: So there’s a lot there to unpack. RITHOLTZ: Hey, I read this giant book that goes into all these details called Power Failure. Check it out. COHAN: Wow. Don’t hurt yourself. So yeah, so I would agree with a lot of what you said, not all of it. So Jack had Wall Street research analysts eating out of the palm of his hand. RITHOLTZ: Absolutely. COHAN: Okay. So that’s important, number one. RITHOLTZ: And you discussed that also. COHAN: And he figured that out, okay, and he played that game. And also, it was a fact that, for the longest time, the research analysts that covered GE were industrial side analysts, didn’t understand what was going on at GE Capital. RITHOLTZ: Right. COHAN: So he could kind of wow them every quarter with the performance of the company. And he, you know, 80 straight quarters or something like that, you know, either met or exceeded the analysts’ estimates. RITHOLTZ: He had Bernie Madoff numbers, didn’t he? Just like consistency to a degree that should have raised some red flags? COHAN: Well, except that Bernie Madoff was a Ponzi scheme and totally fictional, and never made a trade — RITHOLTZ: Right. COHAN: — for his customers. So, Jack was actually, you know, running a very large — RITHOLTZ: 90 percent of it was legit. It was just that penny or two of up or down that was — COHAN: Well, you know, we could debate that probably endlessly, and there are people who, you know, would love to debate this. I mean, you know, having worked at GE Capital, I’m actually sympathetic. You know, if you’ve got $650 billion of assets floating around, including loans of actual buildings because you’re in the real estate business — RITHOLTZ: Right. COHAN: — warrants in companies, equity stakes and companies, you know, and if you have those assets and you can monetize them at some point during the quarter to achieve what you told Wall Street research analysts you’re going to achieve. If you don’t do that, then I don’t know you’re committing some sort of financial malpractice, it seems to me. And if you do it, then people accuse you of financial malpractice so — RITHOLTZ: Well, we’ll get to the SEC fines and that stuff later. COHAN: Right. Of course. RITHOLTZ: I want to stick with the analyst community. COHAN: Yes. RITHOLTZ: Jack having them eat out — COHAN: And he also had the media eating out the thing. RITHOLTZ: So that’s where exactly I was going to go. COHAN: Yeah. RITHOLTZ: GE owns NBC Universal. NBC Universal has on its platform CNBC. COHAN: Jack created CNBC, created MSNBC. RITHOLTZ: So, it’s different today when the media ratings for financial television are all off. Regardless of which television channel you’re talking about, the numbers are way down from the ‘90s. You’ll get a spike during the financial crisis. You’re getting a spike during the pandemic lockdown. But that’s more like a cross between ESPN 6, Australian rules rugby and the Weather Channel, right? When some disaster happens, everybody turns to it. But, look, we both came up in the ‘80s and ‘90s. At that time, if a CEO went on CNBC and said, here’s what I’m going to do, and then he went out and do it, the entire investment community was hanging on to that every word, which raises the question, how effective was Jack Welch as a media spokesperson? And how challenging was it for him to go on his own channel and tout his company’s stock? COHAN: Well, he obviously had a conflict. RITHOLTZ: A little, right? COHAN: But I guess they got over that. I mean, did you ever meet Jack? RITHOLTZ: Ever so briefly at CNBC for like 30 seconds — COHAN: Okay. RITHOLTZ: — in a green room. He was getting makeup on and I was coming in for Kudlow & Cramer, and maybe it was eight seconds. COHAN: Well, then you have a hint of what he was like. I mean, I spent, you know, hours and hours and hours with him before he died. And he even as an 80-year-old man, he was incredibly charming and magnetic, and had a larger-than-life personality. So, you know, when he would get on television, you know, with that cranky sort of New England accent — RITHOLTZ: Yup. COHAN: — that I managed to get rid of, and he didn’t, even though we grew up near each other, he was magnetic and captivating. So, yes, he had the media eating out of the palm of his hands. He had the research community eating out of the palm of his hands. He had shareholders eating out of the palm of his hands. And when you have that kind of performance as a CEO over that long period of time, don’t forget, he was around for 20 years. You know, he became sort of an imperial CEO. RITHOLTZ: I’m trying to remember which magazine it was, might have been Fortune, declared him the greatest CEO of the 20th century. COHAN: The CEO, the manager of the century. RITHOLTZ: Yeah. COHAN: The manager of the 20th century. RITHOLTZ: Quite impressive. COHAN: Yes. You know, don’t forget, at that time, GE was the most valuable company. It was the most respected company, and Jack was the manager of the century. So it’d be like Apple, Google, Microsoft, all rolled up into one. And you know, that was GE. It was, you know, original member of the Dow Jones Industrial Average. It was a AAA credit rated company. It had been paying dividends for, you know, 50, 60, 70 years. RITHOLTZ: It’s like they invented the light bulb. COHAN: And they did, and it was a true bellwether. Remember that phrase? A bellwether? They don’t really use that anymore. RITHOLTZ: No, no. COHAN: But it was a bellwether of the market. RITHOLTZ: Amazing. So, Power Failure: The Rise and Fall of an American Icon, you know, when I saw the title of this book, I thought it was going to be about the modern GE. You really do an amazing deep dive into the early history of the company. I mean, the foundation from before they were accompanied, when it was just a gleam in a Thomas Edison’s eyes. Tell us a little bit about the process of researching something this substantial. COHAN: Very, very painful, Barry. RITHOLTZ: Well, you do this in all your books, you do a giant dive. COHAN: You know, I write the books that I would like to read, you know, so they have to be sort of part oral history, part real history, part investigative reporting, part documentary, you know, deep dive and evidence. And you know, I like to get at the DNA of these firms or these companies, right. And the DNA of GE goes back to the late 19th century, right? RITHOLTZ: Right. COHAN: And I didn’t know what it was, so I had to figure that out. Because, you know, the myth is that this GE was started and founded by Thomas Edison. Well, within a minute of virtue of researching, I discovered that actually, that’s not true. RITHOLTZ: Right. COHAN: But they play that up ad nauseam and I don’t blame them. I mean, how can you not play up Thomas Edison. RITHOLTZ: And the light bulb. COHAN: Well, the light bulb is real. He did, you know, develop the light bulb, create the light bulb. But you know, the business started as an electricity power generation business. RITHOLTZ: Let’s talk about that because a light bulb is useless if you can’t it plug into the wall. COHAN: Extremely useless. RITHOLTZ: At that time, that wasn’t an electrical — COHAN: If you’ve heard of candles — RITHOLTZ: Right. COHAN: — if you’ve heard of whale oil — RITHOLTZ: Right. COHAN: — if you’ve heard of fireplaces, I mean, you know, this was incredible. This was an Internet-like leap forward in technology. RITHOLTZ: So General Electric plays an integral role into bringing — COHAN: Essential. RITHOLTZ: — electricity, at least starting in the Northeast of the United States. COHAN: Right. RITHOLTZ: Tell us a little bit about that process of electrifying New York City, electrifying other parts of the Northeast. COHAN: Well, basically, what became General Electric, which was a merger of two companies, you know, sort of what was a pioneer in bringing electric power, the generation of electric power, and then creating the electric power grid. Remember, you can create electricity. RITHOLTZ: And good luck. COHAN: But if there’s no way to deliver it to businesses, and then by the way, you know, you have to convince people to, like, connect to it. RITHOLTZ: Right. COHAN: And it’s invisible, right? And if you mess up, it’s deadly. RITHOLTZ: So other than that, it seems like a simple business model. COHAN: Other than that, it seems like a simple thing. In the early days, there were like fires, you know, and people’s businesses burned down. So, you can imagine that wasn’t exactly the greatest recommendation for this product. But over time, you know, the miracle occurred. And part of the reason the miracle occurred is because, you know, there were electric subway cars and electric trams above ground. And you know, I don’t know, you probably didn’t watch this, but, you know, The Gilded Age show. Okay. So, I mean, there’s an episode, I think the second or third episode in there, where they actually have a big social event in Downtown Manhattan, in a square mile in Downtown Manhattan, around City Hall, where they were, you know, electrifying that square mile of Downtown Manhattan. And that was GE doing that. Okay. That was General Electric doing that, and that was like a major league event in New York City’s history, you know, electrifying a square mile of Downtown Manhattan. And there was, like, a big social event. And you know, Page Six covered it, Bloomberg covered it, you know, everybody covered it. RITHOLTZ: I don’t think Bloomberg covered that thing. COHAN: No? Okay. RITHOLTZ: It might have been before Mike was born. COHAN: It might have been. RITHOLTZ: But when you think about people seeing streetlights that are running without oil — COHAN: Revolutionary. RITHOLTZ: Right. This is — COHAN: I mean, maybe not as quaint. RITHOLTZ: Well, this is before the days of FOMO was called FOMO. But how attractive was the idea of clean, accessible light? COHAN: I mean, it did — RITHOLTZ: How long did it take for this to catch on? COHAN: It happened quickly. Obviously, it was a major, you know, revolution. But, I mean, people had to get comfortable with it. And the grid had to be built out, and the power had to be able to be manufactured. So as the demand crept up and continued, then the supply grows to meet that demand. RITHOLTZ: So, let’s talk about how that was done. Tell us about the merger in the early days that gave us General Electric, and who ran that company. It wasn’t Thomas Edison. COHAN: No. So, Thomas Edison was completely against the merger of what became GE. So right off the bat, I’m thinking, why did they keep talking about Thomas Edison? Like, I get it from the technology point of view and the entrepreneurial point of view, but the actual merger, so right off the bat, we’re talking about M&A, which, you know, of course, intrigued me. RITHOLTZ: Your wheelhouse. COHAN: Right. I mean, there was probably no bigger acquirer and seller of companies over the years than GE. So, M&A was in GE’s DNA. It was like an investment banker’s dream, GE. And so, Edison had a company called Edison General Electric. But by 1892, it had about $10 million in revenue. It wasn’t doing that well. He was just basically a shareholder, and the other big shareholder was JPMorgan, the man. And then it was, you know, run by a different CEO who was also a venture capitalist friend of JPMorgan’s. And there was another company called the Thomson-Houston Company, which was owned by a guy named Charles Coffin up in Massachusetts. And he was from Maine, but his uncle owned a shoe manufacturing business Lynn, Massachusetts. He went to work for his uncle and decided like many, you know, entrepreneurial minded people that the shoe business wasn’t all that exciting. But what was exciting was the electric power business and the generation of electric power. So, he ended up buying the Thompson-Houston Company, which was started by two high school teachers in Philadelphia, moved it eventually up to Lynn, Massachusetts, and started running it. He was a very good businessman, and he ran it much more profitably than Edison’s company. So basically, JPMorgan and the Boston venture capitalist backing Thompson-Houston Company, backing Charles Coffin’s business, wanted to merge these two businesses. And the merger took place in 1892, over the serious objection of a guy named Thomas Edison. He wanted nothing to do with it. He became a minor shareholder, eventually sold his shares and started working on, like, limestone mining in New Jersey. RITHOLTZ: So, did Edison profit from when GE eventually went public, or did he sell his — COHAN: You know, he wasn’t a very good businessman. RITHOLTZ: He’s clearly not. COHAN: No. And I’m sure he made money because he started the company, but — RITHOLTZ: But he ended up like a 10 percent shareholder of GE, right? COHAN: Well, you know, when it went public. But we’re talking about relatively small numbers, but at the time, I’m sure that was, you know, more money than most everybody else. He was fine. Don’t you worry. But you know — RITHOLTZ: Don’t worry about Thomas Edison. He did okay himself. COHAN: — JPMorgan and Charles Coffin and others made a lot more money. RITHOLTZ: That’s really interesting. So, let’s roll into the 20th century, the teens, the ‘20s, the ‘30s, GE has electrified a lot of America. They’re adding businesses. There’s a lot of M&A. And it turns out that, you know, this competition thing, it’s hard, and it’s much easier if we all kind of agree, don’t tell anybody, we’ll meet in the hotel room, not in the conference facility. But let’s all kind of fix our prices in a way that works out best for everybody. This is good for everybody, isn’t it? What happened with that? COHAN: Yeah, you’re referring to a major league, you know, electrical conspiracy as it was called. I mean, you know, where Westinghouse and other manufacturers of electrical equipment basically conspired together to set the prices. RITHOLTZ: And by the way, these people didn’t innovate that. This is fairly common. It’s why we have any trust rules. At that time, this seemed to have happened pretty regularly. COHAN: And you know, they would sort of get caught, or they would decide that it wasn’t such a great idea. They would try to stop it, and then — RITHOLTZ: Or they would cheat amongst themselves. COHAN: And then cheat amongst themselves. RITHOLTZ: No honor among thieves. COHAN: And then they would realize, you know, this probably isn’t great, what we’re doing here. Let’s wind it down, and they would be told to wind it back up again. It was incredibly unethical, immoral, illegal. People went to jail. You know, no doubt after about 10 years, it was flushed. RITHOLTZ: What was so fascinating in the book, the way you describe it, is when these sort of quiet coalitions and trusts would start to break down, the price competition became fierce, and the penetration into the market and the ability to get new products, like capitalism turns out to work. COHAN: It’s a test case that shows you the importance of competition. RITHOLTZ: Right. COHAN: And collusion does not really work out for consumers. So, you know, there’s a reason we have antitrust. There’s a reason, you know, that’s still being litigated even today. We see, you know, antitrust litigation now ramping up again. So, competition is important, and collusion really is not great and is illegal. RITHOLTZ: You know, the differences between the 21st century collusion and the 20th century, you hear about Google and Apple and Microsoft trying to cap prices on certain software engineers’ salaries. This was just massive. It affected cities. It affected businesses. Like, there was a real hard number that you couldn’t buy a turbine from, which was enormously important. Now, I’m not saying what Apple and Google did was right, it was wrong. It just seems like it’s so much smaller than the collusion from the good old days. COHAN: Or maybe if there is collusion today, let’s just make it hypothetical, it’s sort of more insidious because you’re not exactly sure how, you know, it might affect the pricing of software products, or it might affect whether there’s cookies that are taken from our data, and how our data is used. RITHOLTZ: Right. COHAN: You know, back then, it was, okay, we need to build a power plant in Florida. And you know, you guys make your bids. Westinghouse, you make your bid. GE, you make your bid. And oh, these bids seem awfully similar. And you know, oh — RITHOLTZ: Identical. COHAN: Identical, in fact. RITHOLTZ: What a coincidence. COHAN: Are you guys colluding? And you know, I want to go around and cut a deal. So, it was sort of amateur hour, if you will. It really was kind of amateur hour, which doesn’t make it any less illegal or immoral or unethical. But you know, what you can probably get away with — unbeknownst to people nowadays with — and again, I’m not saying that it’s happening, but If it were to happen, you know, it’s probably much more insidious and hard to track down. RITHOLTZ: So, let’s fast forward a little bit. GE plays a huge effort during both World Wars. Tell us a little bit about what GE did. How did they affect the ability to fight a global conflict like that, from here in the United States? COHAN: Well, GE was a, you know, for a long time, a very big defense contractor, made jet engines for fighter jets, and you know, made nuclear power plants and probably had a role in making nuclear bombs and triggers and things like that. RITHOLTZ: Undisclosed? None of that we really you know about. COHAN: Yeah, we don’t know. We know, you know, there were nuclear waste dumps, et cetera, probably at one point that GE was involved with. What I found to be the most interesting thing was sort of in World War I, GE created the radio technology, you know, that we may be even using today — RITHOLTZ: Right now. COHAN: — right now, that allowed people to communicate with one another. And it was a real technological breakthrough and helped the Allies win the war. And so, GE created this technology, and after the war, wanted to sell it to Marconi, which was the big British company. They had an American subsidiary called American Marconi, which was a public company. And basically, the government, Woodrow Wilson’s administration blocked the sale of that. RITHOLTZ: Sure. Too valuable. COHAN: Too valuable. And essentially forced GE to create what became RCA, the Radio Corporation of America, inside GE, and forced GE to buy American Marconi and create what became RCA inside GE, so that the British wouldn’t get access to this technology and dominate the radio waves. RITHOLTZ: Which is funny because they’re an ally of ours. COHAN: Yes. RITHOLTZ: And then am I recalling this correctly? Wasn’t the subsequent event of that, and now that we’ve done all this, you have to divest RCA. COHAN: Yeah. So that was like, you know, in 1917, 1918, 1919, 1920. And then in 1932, for reasons that actually kind of I still don’t quite understand, the Justice Department decided that GE owning RCA was an antitrust violation, forced GE to divest RCA. That’s when RCA became a public company run by David Sarnoff. And then, you know, in 1986, our hero, Jack Welch, buys back RCA for $6.4 billion, at that point, the largest M&A deal in history. And everybody like heralds, Jack Welch is like this hero for doing this incredible deal, which by then, RCA also owns NBC. That’s how GE got NBC. And in fact, Jack was just buying back something that GE had started. RITHOLTZ: He’s getting the band back together. COHAN: He’s getting the band back together. But of course, nobody has that kind of a memory. In front page of The New York Times was Jack Welch buying back RCA, the biggest M&A deal of all time. And now, he’s got NBC. But Jack was just buying back what GE had already owned. RITHOLTZ: So let’s — COHAN: And I didn’t know that, by the way, and I had worked there. And that was a big revelation to me. I was fascinated by that. RITHOLTZ: So, let’s stay with the chronology, World War II ends, they come out of the war with a burgeoning defense business. Jet engine is invented during World War II but not deployed until after the war. I don’t know if we had any jet fighters during the war. The Germans had a couple. It certainly didn’t affect the tide of the war, one way or another. COHAN: I mean, I think you know that GE perfected, you know, the jet engine by going up to Pikes Peak, you know. I’m sure you remember that commercial. RITHOLTZ: Yes. It’s an amazing story. COHAN: Yeah. RITHOLTZ: They have to drive up there — COHAN: They have to drive up there. RITHOLTZ: — because it’s the highest point you can get to by truck. COHAN: It’s the highest point that you can get to by truck — RITHOLTZ: Yes. COHAN: — because it’s a road up to the top of Pikes Peak. And then they test the engine because they needed to test it out — RITHOLTZ: Was that a propeller engine, not a jet engine, right? COHAN: I think that was a jet engine, but, like, you know — RITHOLTZ: But the whole idea was some of the fighter planes move faster. COHAN: Were losing altitude. RITHOLTZ: Right. COHAN: They would get up to certain altitude — RITHOLTZ: They would lose power. COHAN: They would lose power. And so they needed to test a new jet engine to see whether it would maintain its, you know, velocity — RITHOLTZ: Full thrust that had the higher — COHAN: — of full thrust that had a high altitude. And obviously, GE perfected that on top of Pikes Peak and that made a huge difference for the speed and the, you know, viability of these fighter jets. RITHOLTZ: So, they come out of the war with this huge book of patents, all these new products, essentially an entire new line of aerospace and defense sectors. It seems like the post-war era really began the modern period of General Electric becoming a dominant conglomerate. Fair statement? COHAN: I mean, yes. I mean, you know, GE kind of ended up, for whatever reason, doing some of the largest M&A deals, you know, up to that point. Like, you know, Jack’s predecessor, Reg Jones, bought something called Utah International, which was like a mining company of all things, because he decided that, you know, owning commodities would be a good hedge against the 1970’s inflation. So that was like a two and a half billion-dollar deal. That was, again, Utah International. That was the largest M&A deal, you know, up to that point, prior to RCA. RITHOLTZ: The RCA? COHAN: Right. Which Jack had done a decade later. And of course, when Jack became the CEO in 1980, he hated the Utah International deal. He was against it, but nobody listened to him. And the first thing he did was divest it. So, Jack divests, you know, so that’s not unsurprising that the new CEO, you know, wants to undo. Jack wanted to, you know, make changes to the way Reg Jones ran GE. And so, I think, you know, it was under Jack, really, that GE was just buying and selling so many companies all the time. They were really an M&A machine. You know, they hired this guy, Mike Carpenter, you know, from McKinsey to be the M&A guy and you know, just create a strategic planning department just to do deals. RITHOLTZ: And they did a ton of them, didn’t they? COHAN: Did a ton of deals. RITHOLTZ: So, I have to start by asking, you begin the book telling a story of driving with Jack to the golf course. Tell us a little bit about how you met him and what that set of conversations were like. COHAN: So, once I decided to see if I could do this book in August of 2018 — RITHOLTZ: Geez, that’s a five-year process. COHAN: Well, I mean, it took me probably two and a half years to write it and research it, and then another, you know, 15 months to get it published. You know, getting a book published in the middle of a pandemic is not that easy. RITHOLTZ: You see, I would think it’s easy because you’re at home. They’re at home. COHAN: You know, it was easy for me. But you know, we’re talking about paper supply and printing time on the printer and things like that really got bogged down, and not just for my book, but a lot of books. RITHOLTZ: That’s interesting. I didn’t realize that. COHAN: And getting time on the press was very hard to do, and finding the paper was very hard. RITHOLTZ: So, we had supply chain issues with — COHAN: Supply chain issues. RITHOLTZ: — paper for books. COHAN: Exactly. And time on the press RITHOLTZ: I had no idea. COHAN: I think I actually started it in October of 2018. But one thing I did was, you know, I figured if Jack weren’t going to talk to me, then I would have to think about whether I wanted to do it. You know, I had a home in Nantucket, I was there. He had a home around the corner from me in Nantucket. I would see him occasionally. RITHOLTZ: Did you know him when you worked at GE Capital? COHAN: I mean, of course, we all, quote, “knew” Jack. RITHOLTZ: Did you meet him? Did he chat? Was he familiar with you prior to you reaching out to him? COHAN: Oh, I seriously doubt it. But I think — RITHOLTZ: You were a kid banker and a finance banker. COHAN: I was, you know, a pipsqueak, way down the food chain. And I think over time, over the years, he became aware of who I was, running the book. And when I reached out to him, he surprised me by saying, yeah, let’s have a meeting and let’s meet at the Nantucket Golf Club which, you know, was where he was a member. And we met and — RITHOLTZ: I love the story of him like kind of rolling up in the car to the valet, and the kid, the keys. Tell us a little bit about what that was like. COHAN: You know, I walked into the Nantucket Golf Club and told them I was being a Jack Welch. Of course, you know, it was like I was meeting royalty. I love this story. We go out onto the veranda which was the porch, you know, for lunch, and he was already seated there. And at the next table, there was Phil Mickelson. RITHOLTZ: Right. COHAN: It was a Wednesday. Okay. And the Thursday was, like, I think the Deutsche Bank Golf Tournament, the Annual Deutsche Bank Golf Tournament happens in Massachusetts, right. So the professional golfers were in and around Massachusetts, and Phil Mickelson, Lefty, was doing a practice round at the Nantucket Golf Club the day before the tournament started. So he was there having lunch and he was seated at a table with Bob Diamond who had been the CEO of Barclays and I think had been defenestrated by then. And he was with Paul Salem, who I knew from growing up in Central Massachusetts. And Paul was one of the founders of a private equity firm, Providence Equity Partners. And so they were having lunch and you know, one after another, they came over and paid their respects to Jack. Everybody was always paying their respects to Jack and this was no different. And I knew Bob and I knew Paul, so they’re probably wondering, what the hell is Bill Cohan sitting and having lunch with Jack Welch? The first thing out of Jack Welch’s mouth, as I tell the story, was that, you know, he had messed up. He didn’t use messed up, but he used something — RITHOLTZ: He was not afraid to use salty language. COHAN: He was not afraid. And he had messed up with the succession process. He had messed up the selection of Jeff Immelt, which basically, who was his handpicked successor. And he felt, you know, by 2018, Jeff, of course, had been — RITHOLTZ: Gone. COHAN: — fired. You know, he had been fired a year earlier, and John Flannery was the new CEO. Now, I had worked with John Flannery. John Flannery and I had started at GE Capital together and shared an office together. So, I knew John for 30 years and you know, it was great that John was the new CEO. So the first thing out of Jack’s mouth is how he had messed up the process and I’m thinking to myself, whoa, Jack Welch is telling me that the person he had hand-selected as a successor, he was completely disavowing and, like, saying, I messed this up completely. But I said, Jack, you chose him. RITHOLTZ: Right. COHAN: Yes, I know, but I screwed it up and this is on me, and this is going to affect my legacy. At that moment, I kind of knew I was onto something — RITHOLTZ: You’re in. COHAN: — quite special. Yeah. RITHOLTZ: And he had already published his — COHAN: Oh, yeah, his memoir. RITHOLTZ: — autobiography. COHAN: His memoir came out literally on September 11th, 2001. In fact, he had been on the Today show that morning and had finished his segme.....»»

       The transcript from this week’s, MiB: Jennifer Grancio, Engine No. 1, is below. You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is… Read More The post Transcript: Jennifer Grancio, Engine No. 1 appeared first on The Big Picture.        The transcript from this week’s, MiB: Jennifer Grancio, Engine No. 1, is below. You can stream and download our full conversation, including any podcast extras, on iTunes, Spotify, Stitcher, Google, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, Jennifer Grancio was there at Barclays when the beginning of ETFs and passive indexing really took off on an institutional basis. She was one of the founding members when BlackRock bought iShares from Barclays and really helped drive broad adoption of passive and ETFs in the financial community. Today, she is the CEO of Engine No. 1, which focuses on the fascinating transitions that are taking place in broad strokes across the economy. There are numerous opportunities in energy, in climate, in robotics, in automation, and her firm helps invest in those spaces. Not quite an activist investor, but she has worked with a number of companies like Exxon and General Motors and Occidental, where the input of Engine No. 1 drove significant changes at those companies. They’re a longtime investor than a black hat activist where they’re looking to buy stock Forza, an exit of the CEO and sell once the stock pops, really fascinating story. I found it quite fascinating and I think you will as well. So with no further ado, my interview with Engine No. 1’s Jennifer Grancio. Let’s start out talking about the early part of your career. I’m really curious how you ended up in BlackRock. But before that, you’re working as a consultant. JENNIFER GRANCIO, CHIEF EXECUTIVE OFFICER, ENGINE NO. 1: Yes. I think like a lot of people in undergrad, I went to Stanford thinking I was going to do genetics and science — RITHOLTZ: Right. GRANCIO: — did an internship, pivoted, ended up doing international relations. Then as you head towards the end of college, you figured you’re going to save the world, then I’m going to go work for the World Bank. The World Bank wants you to take out more student debt and get a master’s degree. So like so many other bright-eyed graduates, I trooped off to, you know, one of the traditional professional services professions. But what’s kind of interesting for me about consulting was this idea that you almost apprentice with somebody that’s senior, and you run around and try to help companies and problems. So it seems like a good idea at that time. RITHOLTZ: At that time. GRANCIO: And that’s what I went off to do. RITHOLTZ: So how do you go from that? How do you end up at a place like BlackRock? iShares seems to have been almost an accidental business line from them. Am I remembering correctly, that was a post financial crisis Barclays’ purchase, something along those lines? GRANCIO: Yes, exactly. Yeah. So if you go back, so management consulting, moved back to California and decided I was going to be a California person, not a New Yorker, no offense to New York, spent a lot of time here, all those things, right? RITHOLTZ: Better weather. The geography is beautiful. Sure. GRANCIO: And so I went looking for what I thought would be the best asset management business, I focused on asset management within the consulting space. Like, this idea that somehow if you got portfolio construction and savings right, you help people over time. And so I joined what was Barclays at that time. The asset management business of Barclays Bank was this little firm called Barclays Global Investors based in San Francisco. RITHOLTZ: And that was not such a little firm at that time, was it? GRANCIO: No. It was growing very quickly. And that business was an institutional business. So as an institutional business, we did indexing. We thought indexing was cool. And the iShares and the ETF idea came from, we just had a fundamental belief it was a better mousetrap. So there’s something about an ETF and we could go into that another time. There’s something about an ETF that’s a better mousetrap than a mutual fund. And so for Barclays Bank, we pitched here’s a great idea. Let’s build this ETF business in the U.S. And it’s a way for Barclays to build in the United States. And so we launched the business in 2000. So we launched it right into the dot-com crisis. RITHOLTZ: So from the dot-com crisis to the global financial crisis, what were the circumstances surrounding BlackRock saying to Barclays, yeah, we’ll take that little worthless business off your hands for a couple of hours? GRANCIO: Yeah. And the interesting thing about an ETF business is that it takes a long time to build. And so to your question, around that time, you’re going into 2008, Barclays needed cash. And the index business was starting to take off in the form of ETFs, or at least we thought that, but it was still a relatively small business. And so who were the other people that probably looked at that acquisition included other big indexers, big asset managers who weren’t sure, was indexing going to be a thing or not? Because remember, at the time, ETFs and index were synonymous, but Larry, you know, was more forward-looking. RITHOLTZ: Larry being? GRANCIO: Larry Fink of BlackRock. RITHOLTZ: Who arguably, and I know who Larry is, I just want the audience to know, arguably the purchase of iShares by BlackRock from Barclays could be one of the great opportunistic distressed purchases in the middle of a crisis ever in financials. What is iShares up to now? Like $4 trillion, something insanely? GRANCIO: Enormous. RITHOLTZ: Yeah. And they picked it up for a teeny tiny fraction of that. So what was your experience like when BlackRock took over iShares? GRANCIO: Yeah. So we built the iShares business first within Barclays. And we were a, you know, small but mighty team doing ETFs. And the whole idea I remember of ETFs is to go and to challenge mutual funds and challenge active management. So that’s a big thing to take on. And so as BlackRock work through the acquisition of all of the BGI business, including iShares, we spent a couple of years then getting to know BlackRock, as a little iShares team, and talking about ETFs and fee-based advice and portfolio construction, and all these things that we thought were trends we could take advantage of and use to build the business. But then the business really just got from strength to strength after that acquisition. We came out of the financial crisis, few rocky years in the ETF industry overall. Vanguard decided to get into ETFs in a serious way. BlackRock and iShares launched that core series as a competitive business. So kind of responding to what was going on in the market, and the business continued to grow and grow. And then I think from an ETF industry perspective, we did some important work on trying to protect the category of ETFs. So we did a lot of work with the U.S. regulators, European regulators and run the business in Europe for a while as well, talking about the differences between like a passive index fund, for example, an ETF that’s got commodity exposure and ETF that’s leveraged or inverse, in terms of trying to protect the vehicle and protect the category. And really since then, there’s just been continued explosive growth. RITHOLTZ: In your wildest dreams, did you ever imagine back from the sleepy early days of passive and ETF at Barclays that would grow up to be just the dominant intellectual force in investing, and reach the size it’s reached? What is even after this year, BlackRock has something like $8 trillion? $9 trillion? GRANCIO: Yeah. I mean, the numbers are huge. I think we did, but maybe we were naïve. But our view was, it was a trend that was going to happen. And if you could own the trend, and if you could accelerate the trend, this was a better way to invest. A better way to invest is to have a low cost solution at the core of the portfolio, and then hire people that are deeply capable to deliver alpha. So I would say we thought it could be big. But you know, it’s pretty amazing. RITHOLTZ: So you talk about accelerating the trend. What exactly do you do to help accelerate that trend? How do you drive acceptance of both ETFs as a wrapper as opposed to traditional ‘40 Act mutual funds, and passive versus more traditional stock picking market timing, active investment? GRANCIO: Yeah. I think when the industry first started, so going back, you know, 20 years now, the two things were synonymous. But, you know, let’s take those one at a time. So from a passive perspective, the argument we made as an industry selling passive ETFs was you really had to take a look at what the portfolio is doing over time, total cost, total risk exposure. And when you did that, you often found that there was a way to get better long-term performance and cheaper, by having some index in a portfolio. So that was the story on indexing. And then we kind of kept driving that into this idea of models. So now, you know, there’s a model, a huge amount of money, you know, trillions of dollars sit in models in U.S. wealth. What does that mean? It means a big wire house. Your brokerage puts a model together, this much of Europe, this much U.S., this much small cap. And then you can use index products to fill all those allocations. And so that was the kind of the 20-year build of how did passive get so big. And then ETF as a wrapper, it’s just a great way to get the price at the moment if you’re buying into the public markets, number one. And number two, it’s a great way to manage tax, where if you buy something now and you sell it in 20 years, and the markets gone up, guess what, we have to pay tax on that. But the kind of annual capital gains gift you get from a lot of mutual funds, it can be managed very astutely in the ETF wrapper. And that’s great. Like, that’s great for all investors. RITHOLTZ: Meaning if you’re a mutual fund owner who’s not selling, but somebody else sells and generates a capital gain, that gets spread around to the other older (ph) — GRANCIO: Exactly. So even if you’re — RITHOLTZ: — which doesn’t make sense at all. GRANCIO: I mean, as somebody that’s been doing ETFs for a long time, I say it doesn’t make any sense, whatsoever, because there’s another way to do it. And we’re finally seeing that now. We’re finally seeing a lot of the big mutual fund companies start converting into ETFs. RITHOLTZ: The flows even in a down year like 2022, the flows have all been towards passive, towards ETFs, towards low cost. It seems like a much better mousetrap. GRANCIO: I think it is. RITHOLTZ: But I’m not going to get much of an argument from you on that. So you mentioned Vanguard, we’re talking about Black Rock. Let’s talk a little bit about the role of brand on in the industry. How important is that when you’re putting out either a low cost passive ETF at 3 or 4 BPS, or something more active or thematic on the ETF side? GRANCIO: Yeah. I mean, the role of brand is pretty critical. And if you think about in the index business, if you’re managing it well, there’s not a lot of performance. It’s are you tracking the index? Yes or no. And so that power of the brand is massive. And my observation in this space is that the average investor, the average retail person that’s going out and investing or talking to an advisor, they don’t necessarily know one product provider or investor versus another. But they definitely know who they do business with or who they buy from. So that retail brokerage brand, their advisory brand has a huge impact on them. So to your question on Vanguard, like Vanguard is a brokerage firm, so you kind of know Vanguard. Vanguard does your 401(k), you’ve heard of Vanguard. And so for other people that enter the industry, and this is certainly what we did in the iShares business or what we do now at Engine No. 1, is you really have to be clear on who are you and what is your story because that brand matters a lot. RITHOLTZ: So you mentioned brokerage firms, and Vanguard does 401(k) brokerage. They do all sorts of obviously mutual funds and ETFs. How do you see some of the bigger custodians and actual brokers like Schwab and Fidelity in terms of ETF developments? We know it’s BlackRock, Vanguard and State Street at the top. These guys are no slouches either, are they? GRANCIO: No. I mean, I would say if we go back and we look at the history of ETFs and how they’ve developed, we see State Street, Vanguard and BlackRock. BlackRock iShares is very dominant, and they’re going to continue to be dominant in passive, period. They’re there. They’re big. They’re so big now. And we’ll come back to this later. I personally think there’s some problems with how big they are. But from an ease of buying decision-making perspective, they’re big. They’re dominant. The brokerages were late to get in the game. So Fidelity and Schwab got in much later. They don’t charge fees for those products. And so it makes it harder for them as a kind of a corporate organism to, you know, have that be a big part of their business. And then what we’re very excited about it Engine No. 1, and what you’re seeing with the mutual fund conversions, the big ones at DFA, at Franklin Templeton, and the list goes on, there are many, is that we’re now ready to move active funds into the ETF structure. And that I think is very exciting. But that’s new, that’s very new development. RITHOLTZ: So let’s talk a little bit about Engine No. 1. First, how did you get there from Black Rock? What led that transition? GRANCIO: Yeah. So I left BlackRock very large. I wanted to do a little bit more innovation. And I think sometimes the biggest firms are great, but they can’t always lead from an innovation or change perspective. RITHOLTZ: Right. GRANCIO: So I spent a couple of years, I built an advisory firm, and took a couple years to decide on, you know, what was the next move? And I did some great work with a number of large wealth and IRA firms that were going through an M&A or selling themselves process, did some work on impact investing, actually led me to Ethic and joined the MannKind board, but decided I was definitely going to be a builder, that there was this opportunity to do something different than traditional mutual fund and passive ETF. And so I started looking for what would be the thing I wanted to build with partners, and then I met Chris James. RITHOLTZ: And did you launch Engine No. 1, or did you join him when it was already existing? GRANCIO: We launched it together. Going back, you know, before we started the firm, so Chris James is our founder at Engine No. 1. And Chris’ background is hedge fund and private fund investments. And what he’s really known for, he’s known for taking an extremely long view on something and doing the work to let’s say, where is the opportunity as you go through a huge transformation or transition? So Chris was hard at work on this and wanted to reach into the wealth space. So rather than just doing products that were private and you could help institutions invest, what could we do that was broad and into the wealth space? So I joined him to collaborate, given my background on that side of the business. And the idea of Engine No. 1 is just to help people benefit from these huge transitions and transformations that are very much not the backwards-looking. Look, Google and Amazon got great. You know, our portfolios have a lot of growth in tech, great. There’s a lot of money to be made in the energy transition, transportation, agriculture. And so really, the idea of the firm is to be able to look forward, find mispricing, and make money as we go through these huge changes. RITHOLTZ: The firm’s name is intriguing. Where does Engine No. 1 come from? GRANCIO: The first firehouse in San Francisco is actually a couple of blocks from our office. And in talking about what we were trying to do, which is maybe it’s grandiose, but if you think about it like capitalism works. And what we were agitated about is we saw the market, you have ESG over here, very small. We think old school ESG does not work. We have a strong view on that. We’ll come back to that. Indexing, too many shares are locked up in indexes. Index don’t vote their shares. And then maybe most important of all, we’re going to need a General Motors and Ford to actually be able to do this huge transition from internal combustion to battery electric vehicles. And so, you know, actually, the firehouse is the center of the community, right. And if you think about how a community survives, the firehouse is the center of the community. It takes care of itself. A well-run business really should be as simple as sort of taking care of the environment, it’s in being aware of it. And in public markets, that means you also have to be able to adapt and manage their change. RITHOLTZ: So tell us a little bit about the strategies you guys employ. What are your key focuses? How do you deploy capital? GRANCIO: Yeah. As a business, we run an alts business, and then we run the ETF platform. So if you think about it very simply, these huge ideas about transition and transformation and how to make money are very common across what we do. But we have two businesses. And the big ideas are these transitions and transformations, and how do you take advantage. And so when we look at public companies, we look at every single company, and we look at what their path is through time. So I think this is one of the problems with a lot of investment strategies right now is they’re looking to short term. And then we build the impact or externality data, we just build it into the financial model, right? Because the data is out there particularly on governance, particularly on environmental issues. And when we do that, in the sectors that are in transition, let’s take energy, for example. If you’re an oil and gas company, and you don’t account for the emissions that you’re dealing with and you don’t decrease them over time, you’re going to have a problem. And we saw this when we started building the business that a lot of these companies were heading towards zero terminal value. So let’s take Exxon, for example — RITHOLTZ: Okay. GRANCIO: — where if you take Exxon, and Exxon keeps doing long-dated fossil fuel projects, and has no plan to reduce emissions at any point in time, and has no plans to develop a green business. Well, that’s not very good for Exxon stock when we get to 7 or 10 years out. And so we see a lot of these opportunities where like it’s just math. The capitalist system is supposed to have the company govern itself, so that it’s making money through time. It has a longer duration of business, and it has a higher value. And that’s the kind of the way that we work in everything that we do. RITHOLTZ: So you mentioned environmental issues and impact. You mentioned governance. This sounds a lot like two-thirds of ESG. GRANCIO: Yeah. We think the way people use that label is a little bit problematic. So people often use that label looking backwards. RITHOLTZ: Flash that out a little more — GRANCIO: Yeah, yeah. RITHOLTZ: — because when I hear someone mentions ESG, I typically think of an investor and for the most part, as we go through this generational wealth transfer, you do surveys of investors, husband passed away, the wife tends to be much more empathetic with issues of equality and environmental concerns. And the next generation is much more concerned. So it seems like there is a desire to express those beliefs in their portfolios. Why does that not work with ESG? GRANCIO: Yeah. I mean, I guess our view on that would be, you can always express values in a portfolio. But if you’re going to express values in a portfolio, say that I am expressing my values in the portfolio, which is different than the core concept of managing money over time generally, for the person that’s doing the managing is to be a fiduciary — RITHOLTZ: Right. GRANCIO: — and drive good outcomes and strong returns. And in general, for the investor, is to drive returns over time. And so the way we think about it is, really, you can do that. And any business that is going to survive over time has to be sustainable, has to address or basically cover their impacts, right, after the cost of capital so that they can be profitable over time. So instead of thinking ESG means it’s values based, I don’t like the company, they’re bad, I’m going to screen them out of my portfolio. We don’t think that’s a great way to manage your core portfolio over time. We think the better way is you simply have to engage with the companies to make sure that their most material impacts that’s financial data, right? That’s risk data if you don’t manage your emissions as an oil and gas company. And so let’s build that into just investing to make returns as opposed to this special class, which, you know, it devalues base and ESG tends to kind of infer value over performance, right, or divesting from companies that you don’t like. And we don’t think that’s a great way to invest. RITHOLTZ: So let me push back a little bit on the low carbon strategy. It seems like it’s half of the economic equation because people seem to be approaching entities like ExxonMobil and others, the suppliers of the carbon-based fuel. What is that doing if you’re ignoring the other half, the consumers? So every other company that is not a carbon energy producer is likely to be a carbon energy consumer. They’re running factories. They’re shipping goods. They’re having offices. Why focus on one half of the equation and not the other? GRANCIO: Yeah. I mean, I think that’s the right question. And we focus on both. And so let’s take for a minute the energy industry, and then the transportation or auto industry. That’s an example of that kind of handshake or handlock, right? So in the case of the car companies, that’s consumption. So if we’re consumers and we’re driving cars, which we still do and people are planning to do in the future, the car company can switch from encouraging the behavior of driving internal combustion engines, which have very high emissions, or the car company can know that the consumer demand is shifting a little bit and they can build a car that is an awesome battery electric, reasonably priced vehicle. And then they can capture that shift in demand. And that’s really good for the car company. So actually, we a hundred percent believe that this has to primarily be driven on the consumer demand side and on my first piece of that. So if I’m a consumer, I buy a car, you’ve got to start with the car company. However, if you look at global emissions, you know, 34 percent of that today comes from the energy companies. So at the same time in parallel, there’s still an opportunity to work with those companies on, as battery electric comes up, as fossil fuel comes down, how do those companies make a lot of money 9 or 10 years from now as we go through that transition? RITHOLTZ: Explain that 34 percent. Because, again, it’s that someone is a buyer, someone is a seller. They’re not burning 34 percent of the fossil fuels, they’re selling it to consumers — GRANCIO: That’s right. RITHOLTZ: — who were burning it. Like, there are some low carbon ETFs. I just don’t understand. It’s why the war on drugs failed, if you’re only going to interdict the supply but ignore the demands, you’re not going to be successful. GRANCIO: Yeah, that’s right. I mean, and we think from an investment perspective, if you want to solve this problem on how do you take emissions down, we think that problem can be solved and you can make money by owning the people that are going to win. So you asked before, like, what do we do? What strategies do we run in the ETF business? Our active team, it’s effectively hedge fund investors. So they’re very concentrated portfolios. We believe we’re right. There’s a handful of names, like under 30 names today in the portfolio. Ticker is NETZ, Transform Climate (NETZ), and what that portfolio holds is it holds companies that have emissions. But we believe that the companies in the portfolio are the companies that have the right strategy to, if I’m an energy company, I’m producing energy. There’s demand for energy, that’s what I do. But I’ll tell you my emissions, I’ll do methane third-party monitoring. I’ll do all the right things. So that from a social license to operate perspective, I’m at the top of my peer group. And in all cases, they have a strategy whereas fossil fuel demand declines, not today, but in 7, 10 years, they have a strategy to actually make money and still have value. So we’re picking the top best performing energy companies. We’re not saying energy is bad. Energy is essential, and we need that energy in the transition. And the portfolio then also holds the car companies that we think win. RITHOLTZ: So let’s talk about a couple of names. So a couple of energy names from NETZ and a couple of core companies from NETZ. GRANCIO: Yeah. And so one of the names we had in the portfolio, which is actually so highly valued, it goes in and out, depending on if it’s overvalued — RITHOLTZ: Right. GRANCIO: — it’s an active fund, is Occidental (OXY). And that’s an example, they were really the leader in the space. So they had started to develop greener businesses so that as fossil use comes down, they have another business and they’re competitive. That’s great for long-term value of the company. And — RITHOLTZ: What are their green businesses? Things like solar and wind or — GRANCIO: They have a range of things that they do in that space, but think of it as committing early to find ways to make money, having these people on staff, on the board that know how to run green businesses. And then from an emissions perspective, also, they were very early on telling us, being very transparent on Scope 1 and 2, and agreeing to oil, gas, methane partnership emissions with third-party monitoring of emissions, which we think is critical because again, methane emissions leaking, that’s probably the biggest thing. RITHOLTZ: Especially with natural gas. But with pretty any form of car being — GRANCIO: That’s right. RITHOLTZ: — capture, your carbon removal from the ground, that’s a big risk. Methane is even worse than CO2 in the atmosphere, right? GRANCIO: That’s right. And that’s right, and that’s some of the active ownership work we did on that portfolio, where Conoco and Devon are companies that we worked with, to join the methane third-party verification partnership this past summer. And that’s when we talk about Engine No. 1 as active owners, it’s not always, you know, the black hat activist. We actually haven’t done that other than Exxon. But the ability to really understand their business and go in and work with them. And actually, having them methane verified is a big deal, because then people understand what you’re doing in that part of the business. And it gives you license to operate because we need that energy source. RITHOLTZ: What are the car companies that are in NETZ? GRANCIO: General Motors is in NETZ. Ford has been, it goes in and out of the portfolio, based on how they’re doing, managing some of their supply chain constraint issues. And then Tesla is in the portfolio. But GM is at a much larger weight than Tesla. And then Tesla went out of the portfolio for governance reasons. RITHOLTZ: Because? Give me more specific. GRANCIO: Twitter. Because of Twitter. So the way that we manage that portfolio, basically what NETZ is, is you’re holding some of the biggest emitters, and you’re holding this 1.8 metric tons of emissions a year, so not low carbon, high carbon. And then what we expect is that those companies are going to take that number down to less than half within a decade. And so if you care about impact or sustainability, yeah, that’s great. That’s a huge win. You’re holding the companies, watching them. They’re taking emissions down. But if you want to make money, you’re holding the companies that are providing energy, but doing it in a way that they have a social license to operate. And then sort of come back to your Tesla example, all of this starts with governance. And so if a public company is going to make money over years and years, it’s all about governance. And do you understand your markets? Do you understand how things change? And so if you’re running Tesla and you have a huge job to do in terms of scaling that business, but you’re also doing other things at the same time — RITHOLTZ: Assess. GRANCIO: — and saying you don’t have time to run Tesla, well, that’s kind of a governance issue. RITHOLTZ: So when I looked at the acquisition of Twitter which started out as a lark, $44 billion, the market drops, wild overpayment. The bigger issue is if you think about who’s Tesla buyers, they seem to not be the people who Elon is playing to on Twitter. And in fact, as much as there are a lot of fanboys and I think you have to give Elon full credit for moving the entire auto industry to EVs, I think all the legacy-makers looked at him and said, we can’t let Elon do to us what Bezos did to the book industry and the booksellers and a dozen other industries. But it seems like he’s alienating that core middle left, all those liberals we’re going to own on Twitter. He seems to be chasing away a lot of his future buyers of Tesla’s. GRANCIO: He may be. That’s good news for GM NASA. We’re okay. We’re covered on that one. RITHOLTZ: And to say nothing about valuation issues and other assorted things — GRANCIO: Right. RITHOLTZ: — I’m assuming this is in strictly an ESG checklist. You looked at the usual — GRANCIO: Not at all. Yeah, we looked at the usual things and that’s maybe our main point, which is the people get in our industry in particular. They get stuck in old frameworks, right? An ETF is an index fund. An activist is somebody that comes in short term and fires the CEO. So I think we need to be careful of those sort of short ways and shorthand ways of thinking in investments. Our point of view is that there’s a lot of data available now. We have a huge amount of data. Take the climate and environmental-related issues. We have a lot of data on carbon, and we can estimate carbon prices. And so in a basic fundamental financial model, you can start with your old traditional financial model. But you can add in, we do this, we can add in the monetization of those emissions. And then as you build out your financial model, you can look at how the company reduces them over time. And we see those as purely financial metrics, right? That large externality for a company is a risk or financial measure. It’s not some separate ESG dot bubble rating system. It’s just their numbers, it’s math. It should go into the long-term valuation of the business. RITHOLTZ: Let’s talk about the Exxon situation. You accumulated a relatively small number of shares, and then reached out to management. Tell us about the process and how they reacted to your overtures. GRANCIO: Yeah. So from a team perspective, we started by making an economic case. So we did the work on here’s what we would do differently, here’s how we think the value of the business wouldn’t be higher if we did this. And the suggestions on what we would do differently included disclosure of emissions. It included better capital allocation decisions between this sort of short-term energy transition period. And we don’t know when it’s going to be, thanks to, you know, Putin and the Ukraine, longer than we thought a year ago. RITHOLTZ: Right. Right. GRANCIO: But at some point, we’re going to start to really pivot into an energy transition. And so what’s your best thinking, Exxon as a company, on what your business looks like, and your capability at a board level to extend the duration of the business, do things that may be renewable, or whatever they may be. What is it that you can do that’s in that area? And so those were the things that we requested. RITHOLTZ: They were receptive to that? GRANCIO: They were not receptive to that. But those are the things that we requested, which is usually how these things start. RITHOLTZ: So .02 percent of outstanding shares doesn’t exactly put the fear of God into them. Why a toe in the water and not a more substantial stake? GRANCIO: Exxon, going back to when we started the proxy campaign — RITHOLTZ: They were giant, right? GRANCIO: They were giant, but also they were a giant in terms of the big asset managers had not been able to get them to pivot from a governance perspective. So there were known concerns about governance. A lot of the big investors take a slower approach to work with management, not cause too much change, request changes. And there just hadn’t been any progress in this case. So we were able to have conversations. And the team did a huge amount of work with investors and passive investors, and active investors, walking through our economic case. If these things happen, better governance, better economic performance, and that, we think, is what allowed us to rally support. And as we were rallying support, as you see in this situation, I’m sure Exxon was talking to some of those investors as well. And so as we went through the campaign process, we saw some of these changes, changes in capital allocation decisions, and intention to launch a green business. So some of these changes started even before the proxy vote where new directors were elected onto the board. RITHOLTZ: So we talk a lot about specific companies. How do you look at the macro environment and geopolitics? You mentioned Putin’s invasion or the Russian invasion of Ukraine. Arguably, that’s going to accelerate the greening of Europe in particular, and the move to alternative energy sources, not dependent on Russia, which is all carbon. GRANCIO: Yeah. And I think to some extent, you can’t control what is the moment in time where the energy transition happens, right? However — RITHOLTZ: Right now. Right. Aren’t we more or less in the midst of this today? GRANCIO: We are in the transition. Absolutely. But we think that if you wanted to not use fossil or carbon intensive now, it wouldn’t possibly work. RITHOLTZ: Right. GRANCIO: We’re not ready to be transitioned. We are in the transition. And so the way we think about it is we have to be very savvy about where do you have a brown business? Where can that brown business be gray? Where does it start to use green techniques? Natural gas is a great example. We need natural gas. So how do you move natural gas in a way where you’re looking at methane. You don’t have methane leaks. You’re using green energy and electric sources to process the natural gas. There are a lot of things we can do even while we’re using fossil to be cleaner, nd to put the people that are cleaner and doing fossil in a better position to sell versus their competitor, because we are seeing these changes. And we do have a lot of people looking at carbon footprint as they’re buying or investing in companies. RITHOLTZ: So my colleague, Matt Levine mentioned your win. And now says, when they see you coming, you are no longer presenting as a scrappy, small startup. You’re bringing some receipts to the table. Hey, Exxon knuckled down. Now, you and I have a conversation. How has that changed since that win? GRANCIO: Yeah. We started with Exxon effectively. And so I wouldn’t say the next day, it was a sea change in a positive way. I would say it’s complicated, because after you’ve done that, the board and the CEO are a little bit worried about what our intentions are and it takes time to build those relationships. And Chris does a lot of this work directly with the CEOs and the companies that are in the portfolios. And it takes time to build trust. But our relationship with them is basically having modeled their business ourselves and modeled all their competitor businesses, and have gone to kind of up and down the supply chains. And once we get to know each other, we’re giving them what they find is actually some very helpful point of view on if I like your business, I think this, you know, consumer demand is going to flip sooner, you’re going to miss it, or how organized are you on supply chain? What are your bottlenecks? And so it’s become really very constructive with a lot of the companies that we work with. RITHOLTZ: It sounds like your early training in the consultant world wasn’t for naught. This is almost a hybrid between activist investing and consultants. GRANCIO: And just investing, right, high quality investing means you really have to understand what a company strategy is and what are the bottlenecks, what are the places where they may miss. If you understand those, you can make those faster, shorter, better, less risk. Then that’s really positive for being more sure that the company increases in value. RITHOLTZ: So let’s talk a little bit about your toolbox. You mentioned proxy voting, you mentioned modeling. What else does Engine No. 1 bring to the table as ways to get management to see the world from your perspective? GRANCIO: Yeah. And part of it is the data science work that we do around the sizing of emissions, comparative emissions, monetization of emissions, so call that our total value approach to looking at the externalities of these companies. So we bring that. We’ve done the modeling all the fundamental work that we do. And then it’s very active engagement, where we want to stay engaged. That’s part of where the alts business came from. If there’s something in the private markets that could work differently to help a big public company move, can we make connections? Can we help that move along? And then proxy voting is important. So most of what we do is this kind of very intense active engagement. And we’re active owners of the company, not always an activist in a traditional meaning. We also launched an index product. So you know, our view is that you really have to hold these companies if you want to own the winners over time. And if you want to drive change, you also have to hold the companies, you can’t divest. A problem in the dominance of the current index providers is that they’re big and it’s complicated to vote shares, because you have people on different sides of every issue. So while we’re at it, put a new index product out on the market, that ticker is VOTE, which is pretty simple. It’s literally an index. We vote the shares in line with our economic outcomes, and we post them as soon as we vote. So a little option for people that still want to use index instead of active. RITHOLTZ: That’s really interesting. We’ve talked about Exxon so far, and Tesla and Ford. Tell us about your involvement in General Motors, what attracted you to the company, and what sort of positioning do you have with it. GRANCIO: Yeah. And General Motors, it’s going to take some time, right? So General Motors has been in the portfolio since we launched NETZ and still is, and has stayed there. And when we work with General Motors, a lot of our work has been about how do we accelerate the transition to battery electric vehicles for them as a manufacturer, and not for an ideological reason, purely because we think the consumer demand is shifting more quickly. RITHOLTZ: That’s where the market is going. GRANCIO: Right. That’s where the market is going. RITHOLTZ: That’s where the consumer demand is moving. GRANCIO: Again, this is an economic argument for us in working with General Motors, that the faster you get to all battery electric, which means you need to build the battery plants, you need to build them bigger, you need to build them faster, you need supply agreements locked up for the rare metals, and then you need to work on bringing the cost of batteries down. Because as all of that happens, GM makes 8 to 9 million cars a year. And so if those cars are all battery electric vehicles and the battery cost comes down, you know, what’s Tesla’s multiple, right? They have the opportunity to go from where the GM multiple is today, which is very low, very depressed value stock, all the way up to what producing BEVs at scale is going to look like. And that’s a huge value creation opportunity. RITHOLTZ: Let’s talk about what’s going on in the world of ESG and greenwashing and wokeism. There’s so many things happening here and I think people don’t really use these buzzwords appropriately. Let’s start out with greenwashing. Tell us your view of it and why it’s problematic. GRANCIO: Well, I think if you could do everything from scratch, I get this a lot from people that run large asset management companies, they’re like, gosh, I wish I could just start everything from scratch again in this environment. So I think the reality is, if you’re running a strategy and you don’t care, or you don’t have risk metrics on, let’s say, the environment and your strategy, it’s very hard to fit them on top. And I think a lot of people get caught in that from a greenwashing perspective. What we do is we start from scratch. We think about these material impact things as financial data, and it’s just part of our process. And so there’s no greenwashing there. But for people that were investing in something and now want to take advantage of a moment in time, or people that are investing and actually don’t really understand how environmental risk factor into the portfolio, I do think you just have to take a timeout and go back to basics and better articulate what the strategy is and what you’re actually doing to the market. And if it’s not a green strategy, you kind of have to say that. RITHOLTZ: It seems like a lot of this has just been on the hot buzzword of the day. GRANCIO: Well, a lot of our society right now has been on the buzzword of the day. So I think we need to be very careful about that when it comes to investing. RITHOLTZ: So let’s talk about wokeism. You’re describing ESG as sort of a risk management tool to filter out certain potential problems down the road. But if I pick up the Wall Street Journal or the New York Post and flip it to the editorial section, all I hear is woke capitalism and this is what Disney is doing, and this is what Apple is doing, and this is what Nike is doing. Is this really woke capitalism? Tell us what’s happening in that space. GRANCIO: Yeah, I think we have to remember what capitalism is. And then I’m not sure what we mean by woke, which is part of the problem. So your capitalism is meant to be you in public markets kind of, you know, put that in the private markets as well. It’s meant to be you have a set of financial shareholders, you have other stakeholders. You’re making money for the shareholders over time. That’s the definition of capitalism. It’s really hard to make money for shareholders, the financial shareholders over time if you don’t treat your workers well or you destroy the community in which you live. That’s just kind of good business or doing business the right way. I think we sometimes get confused when we talk about values or practices, and you can’t link it directly back to financial returns. So, listen, when it comes to climate, we feel like we can do a pretty good job with the data out there, to link how a company handles climate and environment with how they perform as a stock over time. You know, there’s not enough data on the social side. The research is spotty. I really hope there’s better data. I hope the research gets better. I hope we have causality there. But I think as investors, we have to be careful what we’re talking about. If the company has less emissions, they get credit for trying to do the right thing and the stock price goes up. That’s capitalism. Where from a values-based perspective, we want to ask a company to do something, that’s a little bit different. So I think that distinction is really important. RITHOLTZ: And it’s pretty robust then on governance, if you — GRANCIO: Yes, it did. RITHOLTZ: — elevate women to senior members, if you have people on your board that are diverse. Those companies historically have outperformed the companies that have not. GRANCIO: Yeah. And the board, for a minute, is another one that’s very hard to reduce into one stat. So if you think about all the research that’s been done on boards, in Engine No. 1, we do a lot of work with academics. So we’re always trying to look for these places where we’ve got data and causality, and we can link it to economic outcomes. And when it comes to boards, what a lot of the research would tell us is if a board is deeply non-diverse, that first, if you add one diverse person or thinker, they may actually have worse performance. But if a board starts to have multiple varieties of diversity, and the board listens to the diverse points of view, those are the boards where we get the real outperformance. And then remember, it’s a board. So it’s not just diversity of thought, it has to be diversity of capability. Because as these companies go through change, you know, you need other CEOs that have been successful through change. You know, if you’re an old school media company, you need people on the board that are successful with where the puck is going. So I think we have to look for both of those kinds of diversity. And boards that listen to each other, have diversity and have that important diversity of capability, absolutely, those are going to be the highest performing ones. RITHOLTZ: So we talked about Exxon. We talked about GM, and Ford, and Tesla. What other companies are you looking at as being on the cutting edge of change to take advantage of this transitional moment? GRANCIO: Yeah. I mean, one of the things we’re excited about, I can’t talk about the product because we’re not through the SEC with it yet — RITHOLTZ: Right. GRANCIO: — although it’s in filing. But from a theme perspective, we’re super excited for the U.S., from a U.S. competitiveness perspective. What happened during COVID is supply chains were too global, too fragile, and they broke. RITHOLTZ: Right. GRANCIO: And so what we’re already seeing, and we’re going to see a lot more of this in the next few years, is we’re seeing a huge resurgence of manufacturing jobs in the U.S. and it’s going to be great for a lot of these communities. So we see semiconductor plants. We see battery plants, Michigan, Tennessee, Kentucky. RITHOLTZ: Arizona is starting a big chip — GRANCIO: — Texas. Exactly. So it’s happening already. There’s a huge increase in manufacturing. And then as that happens, if you build a manufacturing plant, there’s a huge job multiplier. You have people come in to build the plant, and people work in the plant, and people work to move goods in and out of a plant. And we’re going to see a huge growth, we believe, in railroads. So if you’re going to increase manufacturing in the North America, guess what, you don’t need to ship things overseas. You need better, more effective railroad, continuing to strengthen the lines and the movement of goods around the U.S. And then automation, so good and bad is, you know, we have less birthrate and less people coming to the U.S. And we’re going to have a huge number of quality jobs. And so companies like Rockwell Automation, that high quality jobs and brand new factories, with automation to assist in the manufacturing. It’s going to be pretty awesome from an investment team perspective. RITHOLTZ: So Rockwell just isn’t terrifying us with YouTube videos of robots that are coming to kill jobs (ph)? GRANCIO: No. The high quality blue collar, if you will, workers and all these new plants, they’re not going to be enough of them. And they’re going to be happy that robots are there to help them RITHOLTZ: Really quite interesting. So let’s talk a little bit about some of the political pushback to the sort of investing you do. Maybe Florida is the best example, passing laws to punish a specific company, Disney, who objected to Florida’s anti-LGBTQ sort of legislation. Is the environment changing for this sort of proxy voting and criticism and working with companies? Or is Florida just Florida and you know, it’s kind of a one-off? GRANCIO: Listen, I think companies have consumers. And so if I’m a company, if I’m Disney and I have consumers, and I feel like my company needs to stand for something because it allows me to serve my consumers to say my brand has value, that’s something that Disney is going to have to push for. So I think, first of all, when it comes to public companies, some of them have one audience, some of them have another audience, and they may need to behave in ways to make their audience feel good so they can be in business and sell their product. And I think, separately, if we talk about proxy voting, successful proxy votes should be economic. So back to the kind of fiduciary concept we were talking about earlier. So if a proxy vote says, you know, can you please disclose more information about your workforce? That’s helpful to investors. Great. That often makes sense to us. If the proxy vote says, I don’t like this thing you do, please don’t do it. But there’s no economic causality. RITHOLTZ: Right. GRANCIO: I think it’s hard for that to be a proxy voting issue versus a values-based conversation with the company. So our belief is proxy votes matter. We should all use our vote. But proxy voting is a tool to drive kind of long-term economic performance with companies. Sometimes there are just value-based issues that shouldn’t be tackled through proxy votes. RITHOLTZ: I know I only have you for a limited amount of time. So let’s jump to our favorite questions that we ask all of our guests starting with, tell us about your early mentors who helped to shape your career. GRANCIO: Yeah. It’s funny, I don’t have a lot of mentors where it was that one guiding light. I found that I picked up little bits and pieces from different people. So Condi Rice was a provost when I was at Stanford. RITHOLTZ: Really? GRANCIO: And so it was that inspiration that sort of sent me off down the international relations path. There was just a level of smarts and confidence that I really appreciated, that I picked up from her. And then a professor in business school who said women can definitely have it all. But you’re kidding yourself if you think you can have it all at the same time. So, like, pace yourself, Like, go after it, but pace yourself. You can’t literally do it all at the same time, which is good advice. And then I think there are a lot of people for me, where I learned one or two lessons from different people. And now, I do a lot of mentoring of other people. And that is my overarching suggestion on this is you got to ask a lot of questions. And you don’t always have to have a lifetime relationship with everyone, but get any nugget you can get and run with it. RITHOLTZ: I like it. Let’s talk about books. What are some of your favorites and what are you reading currently? GRANCIO: So Maya Angelou is actually a favorite of mine. I find it relaxing and it’s so different than what I do every day, and kind of American and lyrical. Harry Potter, one of our kids is younger, so working our way through Harry Potter. And then the Daniel Kahneman Thinking Fast and Acting Slow, I read that last year. I like that a lot because you got to remember sometimes how our brains work. And the fact that we rush to things and we shortcut, and we group things. And so I find that helpful sometimes and just being calm about how else can we solve a problem, or why is somebody reacting the way that they do. RITHOLTZ: What sort of advice would you give to a recent college graduate who is interested in a career in either impact ESG activist, whatever you want to call it, type investing, or ETF and passive investing? GRANCIO: Well, first, I’d say those are great areas to go into. You should go into it. And definitely learn how to invest, learn how to be an investor. Don’t stick to one fad or one mousetrap. If you can learn how to be an investor, or how investors think, that will serve you so well in our business. And I guess to new graduates, I would say don’t give up hope. It’s going to be a bad job market. So take those internships, be a little bit scrappy, and just learn from whatever that first job is, two years in, because you’ll pick up a phenomenal amount of information. And if it’s not what you love, great, then go do something else after it. But it’s a great place to build a career. RITHOLTZ: Really interesting. And our final question, what do you know about the world of investing today that you wish you knew 30 or so years ago? GRANCIO: I think it’s that the overall portfolio construction matters, right? So as an investor, thinking about when you build, like when we build Engine No. 1, we built products or we put strategies out into the market, the more you can make them balanced and with some duration. So if somebody puts something in the portfolio, they sort of understand what it’s going to do, and what the return stream looks like and what the risk looks like, as we’re investing and then selling to other people. I think that ability to build products that are durable, and it’s clear what they do is really, really important. It lets you build your brand. It lets you build trust with the investors. RITHOLTZ: Really interesting. Thank you, Jennifer, for being so generous with your time. We have been speaking with Jennifer Grancio. She is the CEO of Engine No. 1. If you enjoy this conversation, well, check out any of our previous 450 interviews. You can find those at iTunes, Spotify, YouTube, wherever you get your favorite podcasts. Sign up from my daily reads at ritholtz.com. You can follow me on Twitter @ritholtz. Check out all of the Bloomberg podcast @podcast. I would be remiss if I did not thank our crack team who helps put these conversations together each week. Sarah Livesey is my audio engineer. Atika Valbrun is my project manager. Sean Russo is my head of Research. Paris Wald is my producer. I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio. END ~~~   The post Transcript: Jennifer Grancio, Engine No. 1 appeared first on The Big Picture......»»

Here are seven of New York's top venture capitalists who draw style inspiration from the city's vibrant arts scene. CNN's Poppy Harlow and Forerunner Venture's Kirsten Green at the NYC Summit.Inspired Capital New York's venture capital scene is rapidly growing as more West Coast firms move in. Several of New York's venture capitalists said they draw their style from the city's vibrant arts scene. Here are seven New York VCs who take their style very seriously. How does a venture capitalist dress?The standard answer: All Birds sneakers. Patagonia fleece vest. A copy of Yuval Noah Harari's, Sapiens, in hand. In 2019, an enterprising product engineer at the startup website AngelList thought those few items defined a Silicon Valley venture capitalist. He reportedly rolled them into a bundle that he jokingly tried to sell online for $500, according to Insider. But now, some venture capitalists don't necessarily see the merit in dressing like one another. At a summit of VCs in New York this fall, guests arrived in bright floral dresses, tailored pantsuits, slim fit jackets, and designer sneakers. It was the first time that many of the city's dealmakers had gathered together since the pandemic began. The pressure to impress was palpable. "There is such a wide range of people that come together to form our tech community in New York," said Alexa von Tobel, founder and managing director of Inspired Capital, and one of the principal organizers of the summit. She believes the display of personal style is an important indicator of that diversity. In a city like New York, the street fashion often varies from neighborhood to neighborhood. The concentration of artists — and the artistically minded — creates space for uninhibited expressions of style. And the opportunities for people-watching are endless. Many of the city's venture capitalists are taking liberties with their style, too. For Sita Chantramonklasri, the founder of Siam Capital, a unique sense of style also pushes back against the visual archetype of who belongs in tech. "There should not be any "standard" about who looks like, sounds like, or seems like, they fit into the typical profile of a venture capitalist investor," she told Insider by email. "In order for us to be best positioned to capture a diverse range of investment opportunities, we also need to be a diverse range of investors."'Good style' is often synonymous with luxury brands, flashy insignias, and rarefied displays of wealth. For investors — especially those who work with up-and-coming founders — deciding what to wear can be a delicate balancing act. "I work with founders and a lot of founders don't have much money," said Ben Sun, cofounder of Primary Capital, another principal organizer of the summit. "You don't want to be the guy that's wearing the $2,000 jacket. I'm still a little bit self-conscious because I've been there. I was a founder."  Many of the investors Insider spoke to said they prefer to take a 'high-low' approach to their clothes: melding luxury pieces with more budget finds.Whether it's a leather skirt, a pair of sneakers, or a fleece vest, most venture capitalists told Insider that their work style boils down to one thing: personal power. "So much of what we call style is actually about gathering yourself for the work of the day and making sure you feel as powerful, and as effective, and as comfortable as you possibly can," said Susan Lyne, co-founder of BBG Ventures. Here are seven venture capitalists who take their style as seriously as their investments. Sita Chantramonklasri, Siam CapitalChantramonklasri wearing a linen suit from Another Tomorrow.Siam CapitalHow would you define your style?I always optimize for cost-per-wear and consider product life-cycle extension. I often gravitate towards items that are high-quality and timeless, which reduces cost per wear (and is a smarter way to spend!) for everyday items. I also appreciate vintage finds, which are extended life-cycle products and almost always, a better bang for your buck.Who are your favorite designers?Another Tomorrow is spearheading this shift in the high-end womenswear space, delivering beautifully well-crafted minimalist investment pieces. I love their power suits. I am a big fan of Quince, Naadam, and Everlane. They are all great for high-quality affordable pieces. Has your style changed since you became a VC?Given our fund's focus, I have had an insider's seat or backstage pass into the broken world of manufacturing, supply chain, and consumption infrastructure. This has made me even more of a conscious consumer in thinking about traceability, production ethics and pricing transparency.  Chantramonklasri's answers were sent by email to Insider. Anu Duggal, Female Founders FundDuggal wearing a Zara dress and vintage Cartier tank watch.Anu DuggalHow would you define your style?Feminine with French influence. Monochrome looks, long dresses, lots of florals — anything with delightful and unexpected details. I love bold colors for work events like red and pink.Who are your favorite designers? Ulla Johnson, Sezane, Zimmermann, Johanna Ortiz, anything vintage Chanel. I love the thrill of a good vintage find — am a regular on Vestiaire Collective & The Real Real. Who are your style icons? So many amazing style icons to take inspiration from over the years starting with Coco Chanel, Diana Vreeland, Jackie O, and more recently, Amal Clooney.Are the supposed tech cultural norms of hoodies and t-shirts falling by the wayside? Venture capitalists in NYC look very different to those on Sand Hill Road. As the nation's fashion capital, you see much more style and personality amongst the venture capital community — many of them have come from different industries outside of tech.Duggal's answers were sent by email to Insider. Alaina Hartley, GreycroftHartley wearing an Argent vest, Aritzia turtleneck, Anine Bing bag, and Jenni Kayne skirt and shoes.GreycroftWho are your style icons?Anine Bing – a model and rock & roll singer who founded the eponymous Anine Bing brand – is a major inspiration to me. She effortlessly combines high with low, classic with edgy, and accessibility with luxury. I love her signature look of an oversized blazer, cool t-shirt, denim, and statement accessories. Has your style changed since you became a VC?I have become even more adventurous since entering the venture capital world 4+ years ago. I even dyed my hair purple! I'm proud that my style is an expression of my personality, and I think it also appeals to founders who value individuality and creativity.  Are the supposed tech cultural norms of hoodies and t-shirts falling by the wayside? "Capsule" wardrobes are very in right now, and dress codes have certainly become more casual with hybrid work — so perhaps the tech entrepreneurs wearing stereotypical hoodies and t-shirts were just ahead of their time! You won't see me in a Patagonia vest, but I can appreciate some high-quality basics!Hartley's answer's were sent to Insider by email. Susan Lyne, BBG VenturesLyne wearing Theory head to toe.BBG VenturesHow would you define your style?Classic. Simple. Modern.How has your style evolved over time?For the first couple of decades of my career to define yourself as a professional woman you wore pants and jackets — period. I had a lot of Armani. There was a uniform for women. You knew you'd be fine going into a meeting in a black Armani suit. Now, I wear I lot of skirts with a cashmere sweater. That's become my current uniform. Or jeans and a really great blazer. Who are your favorite designers?I buy a couple of things that are pricey every season. Altuzarra I really like at this moment. Proenza Schouler I always like. There was a period of time where I bought a lot of Gucc i— less so now. I also buy a lot of stuff that is Everlane. Jeans can come from anywhere as long as they're cut well. I buy t-shirts on Amazon. Lyne shared her answers in a call with Insider. KJ Sidberry, Forerunner VenturesSidberry wearing The Perfect Jean jeans, Thursday Boot Company sneakers, Club Monaco coat, Cuts Clothing t-shirt, and Akashi Kama's Noragi jacket.KJ SidberryHow would you define your style?My style is pretty classic. I travel a bunch, so I tend to stick to neutrals. Layering is a pretty key step to each outfit, but will often flash some color or accessories here and there for personality and fun. Do you have a style motto?"Try being a little bit of someone else." Style is like music — a remixed expansion of what came before. Inject bits and pieces of other people's fits to expand your boundaries and explore new territory.Who are your favorite designers?Jeff Sheldon (Ugmonk) and Alec Nakashima (Akashi Kama).What is one misconception you want to dispel about VC culture?Style change in VC is happening from the bottom up, not the top down. The sneaker game has come a long way and appears to be changing at a faster clip than anything else.Sidberry's answers were sent to Insider by email. Ben Sun, Primary CapitalSun wearing a Maison Kitsune sweater, Gucci pants, and Celine high-tops.Inspired CapitalHow would you define your style?A bit street. A bit eclectic. I'll wear Levi's jeans and Celine shoes. Where do you draw style inspiration?Just people in New York. New York people have such great style. The scene is just amazing. Who are your favorite designers?Acne, Celine, Prada, Gucci, Bottega Veneta — just got a great jacket there. I love APC stuff. I have these old Dior sneakers I got 15 years ago at a Barney's sale. What is one misconception you want to dispel about VC culture?A lot of VCs now are less finance people. They're people like me. I was a founder. I ran my own startup for 12 years. So, the profile of the person has changed. If you worked in finance, or you worked at Goldman Sachs, you're not going to wear fashionable stuff because it gets really frowned upon. So, you transition and you are wearing the vest because it's what everyone does.It's really the background of the new class of VCs that don't come purely from a finance background that are willing to express themselves more. You have founders or startup operators that now become investors and because of that they have more style. Sun shared his answers in a call with Insider. Alexa von Tobel, Inspired Capitalvon Tobel wearing a Scanlan Theodore dress and Hill House Home platforms.Inspired CapitalHow would you define your style?For as long as I can remember, I have been style and design-obsessed. From the vantage point of a repeat entrepreneur, I think I speak for many founders when I say that style, design, and innovation are all inextricably linked. The heart of innovation is improved design: How do you build something that not only looks great, but also functions effortlessly and solves the intended problem?Do you have a style motto?One of my mottoes is "get up, dress up, show up." I think there's an energy that comes from getting up early, putting effort into feeling your best, and showing up with a positive attitude for whatever the day may bring. It's a fashion motto as much as it is a life motto.Who are your favorite designers?When it comes to designers, I love to support entrepreneurs building amazing brands, such as Ulla Johnson, Markarian, Brock Collection, Celine, Rag & Bone, Rivet Utility, Scanlan Theodore, Dannijo (I've known the founders since age 2!), and brands I've angel-invested in like Hill House Home and Something Navy.I also love brands that are trying to bring their values into the heart of who they are…I've recently come to love Thousand Fell sneakers which are eco-friendly. All that said, I also love the timeless classics; Chanel is Chanel for a reason.von Tobel's answers were sent to Insider by email. Read the original article on Business Insider.....»»

Trump announced that he's running for president in 2024. Insider previously spoke with Cruz, Rubio, and others who had front-row seats to his rise. Donald Trump defeated 16 Republicans en route to winning the 2016 GOP presidential nomination. History books would be written very differently had that not happened.Marianne Ayala/InsiderThe most famous escalator ride in American political history was almost an elevator ride. Donald Trump's operatives couldn't decide whether to send him down the escalator to announce his presidential candidacy or have him take the elevator instead. They landed on the escalator, and that moment would set in motion a 13-month ride that would ultimately ensconce him atop the GOP as its 2016 standard-bearer.On Tuesday, Trump officially announced his 2024 presidential bid, marking the start of yet another race in his storied political career. Seventeen Republicans aspired to be president of the United States during the 2016 election cycle, one of the most unorthodox and unconventional the country had ever seen. Only one emerged from the pileup — Trump — who would learn he was the nominee on the Trump Tower elevator he almost descended on back on announcement day.During those tumultuous months from June 2015 to July 2016, the Republican Party establishment's reluctant journey to accepting a reality-TV celebrity as their presidential nominee laid bare deep ideological and cultural divisions within their ranks. Traditional Republicans found themselves outflanked by an insurgent former lifelong Democrat whose impulses and approach conflicted with their own. But by the time of the Republican National Convention in Cleveland five years ago this week, running from July 18 through the 21st, Republicans who did not support Trump fell in line.In interviews with nearly two dozen people — including several 2016 Republican candidates, party officials, and both GOP and Democratic campaign operatives — Insider collected never-before-reported recollections from Trump's hostile takeover of the GOP. The story that follows covers the Trump Tower escalator ride that was mocked from all directions and yet started everything; the Trump official behind renting a crowd for the big campaign announcement speech; and Melania Trump's plagiarism of Michelle Obama's Democratic National Convention speech eight years earlier.These 2016 insiders also described how the Trump team prepared for the first GOP debate in Cleveland by hanging with a member of Aerosmith and how his campaign polled Ivanka Trump as a vice-presidential candidate amid the RNC's last-minute gambit to dump Trump.The human drama of the Republican primary campaign has been all but forgotten, replaced by what came after: Trump versus Hillary, Russian hackings, WikiLeaks, and the infamous "Access Hollywood" tape — and the four ensuing wild years that roiled the nation and the world.But for any of that to happen, Trump must first become the leader of the GOP. What you are about to read is the oral history of that story.Chapter 1: The escalatorFor 29 years before his fateful escalator ride, Trump toyed with the idea of running for president. This time he was serious. Aides carefully planned and scripted the event and his remarks; Trump improvised.Corey Lewandowski, Trump campaign manager: We had a number of variables which we had to factor in, which was either come down the elevators in the back of the room and have him walk out through a blue curtain and onto the stage, or come down into the lobby, come down that now famous escalator ride, and then go up onto the stage. But what our goal was, was making him look as presidential from the very onset, which means the American flag behind him, the stage was exactly how we wanted it, with a podium, with the same type of microphone that presidents traditionally use.The most famous escalator ride in US political history.Christopher Gregory/Getty ImagesDonald McGahn, Trump campaign counsel: I was at the top. He went down. And I remember seeing the crowd go nuts.Adrienne Elrod, Hillary for America director of strategic communications: We all kind of stopped what we were doing and chuckled at the fact that this is happening. And we all kind of said, "Yeah, he's going to be in the race for about six weeks. He'll use this to make some more money and grow the Trump brand and try to launch a new television show."Sarah Isgur, deputy campaign manager for Carly Fiorina: What a weird thing for the advance team to think was OK — like him standing on this escalator.Tim Miller, communications director for Jeb Bush: I thought it was a ridiculous show.Corey Lewandowski: We had people who were on the periphery of the campaign and thought they were campaign strategists who wanted to have elephants and monkeys and donkeys running through Trump Tower.Donald McGahn: There was a lot of building security checking each other's credentials, because we had different levels of credentials. It took them a while to realize there was a hierarchy of credentials. There were security guards telling other security guards to move.Corey Lewandowski: There were five different sets of credentials and all-access to media and volunteers. They all had the wrong date printed on it. They all said June 16, 2016. So we had to send this poor woman by the name of Joy out to Brooklyn at, like, 3 o'clock in the morning to get these reprinted, because we knew that if it wasn't perfect we'd be chastised.Josh Schwerin, Hillary for America national spokesman: He was not a serious person at that point. There had been debate of will-he-won't-he for a really long time. It didn't seem like a serious thing.Sarah Isgur: I remember thinking: "Man, I'm surprised he couldn't even get people there. That seems insane."Amanda Carpenter, communications director for Ted Cruz: It seemed strange. I was watching the coverage of "Oh, did they pay people to show up? Who were these people?"Corey Lewandowski: That's a Michael Cohen special. Michael Cohen decided that he was going to go hire one of his buddies and pay his buddy without getting any campaign approval. You know, $50 for every person to come in, to stand in Trump Tower.I literally spent the entire day of Trump's announcement screaming at TV executives. Tim MillerMichael Cohen, Trump personal attorney: Trump hired David Schwartz to coordinate the campaign launch, which he did professionally. Any allegation of payments to actors is an absolute lie that was promoted by Corey Lewandowski.David Schwartz, partner at Gotham Government Relations: We were hired to put that entire event together. That event was really our brainchild: The most famous escalator ride in the history of politics was that one. Bottom line is, we had thousands of people there, and then the press accused us of hiring thousands of actors. Based on the fee that I got, that would not have been a good business decision on anyone's part. The reality is we hired 50 people, some of whom were part-time actors I found out later on. But we hired 50 people to help coordinate an event that brought in thousands of people. There were people at the door that couldn't get in. That night, all of the sudden, I got accused of hiring thousands of actors.Tim Miller: So Trump is going to speak, and Sean Hannity was going to give Trump Jeb's slot that night, because they announced the same day. So I'm standing outside Bed Bath & Beyond in Miami, shouting at Hannity, like, "What the F is your problem?" F this and F that. "How can you give this guy our slot?" Then I remember going in to shop and coming out and yelling at some other anchors. I literally spent the entire day of Trump's announcement screaming at TV executives.Corey Lewandowski: He did not deliver one word of the speech as it was written. We provided the speech to every media outlet and said, "Remarks as prepared by Donald Trump for his announcement speech." There were some media outlets that actually just printed them verbatim. Probably had egg on their face afterward. Because as we know, Donald Trump went on to speak extemporaneously for 45 minutes and talk about some of the individuals coming across the border that were never in the original speech. And I assume some are good people.Trump promised to make America great again and vowed to take on the growing might of China in a speech launching his run for the presidency in 2016. He made his way to the stage as Neil Young's "Rockin' in the Free World" played.Kena Betancur/AFP via Getty ImagesAmanda Carpenter: I was, like, "OK, well, at least he's talking about mostly our type of issues. People will realize he's a clown. And then this whole thing will melt like cotton candy. And we'll be back to maybe a Jeb, Rubio, Cruz race."Lindsey Graham, GOP senator and 2016 presidential candidate: I thought his announcement was pretty extreme. I thought the rhetoric around his announcement and some of his policy positions would make it almost disqualifying.Chapter 2: Early disastersA month after his campaign announcement, at the Family Leadership Summit in Ames, Iowa, Trump attacked Sen. John McCain. The Arizona senator and 2008 Republican presidential nominee had been a prisoner of war in Vietnam. "He's not a war hero," Trump told the moderator Frank Luntz. "He's a war hero because he was captured. I like people who weren't captured." It proved to be the first of a series of moments early on when it looked like Trump's campaign was over before it had even really begun.Marco Rubio, GOP senator and 2016 presidential candidate: Look, everybody — every traditional observer of politics — thought his campaign was dead when he said the things he said about John McCain.GOP Sen. John McCain of Arizona in the US Capitol in July 2015, days after Trump said the Vietnam POW was "not a war hero."Andrew Harnik/AP PhotoCorey Lewandowski: We had a whole day planned in Iowa that day. I remember it very vividly. I waited for Mr. Trump to walk off the stage, and I said, "I'd like to speak to you." He said, "I was pretty good, right?" I said, "Sir, could I speak to you over here for a second, please?" We went into a locker room, which is where the referees or umpires, depending on the sport, would get dressed in that gymnasium. And I said: "Sir, by all accounts, John McCain is a war hero. You need to apologize." He said, "Yeah, no apologies."Marco Rubio: That was a pretty early sign that the dynamics of American politics have changed. Part of it is just the way the public now consumes political news. It's very different than 20 years ago. It's covered more like entertainment or sports, and less like public policy. It was a perfect forum for a candidate with a message and the experience that he had.I called my wife just as we were getting onto the plane. I said, 'Hey, baby, I'm coming home.' She said, 'Oh, the day is over?' I said, 'No, no — the campaign is over.' She said, 'What do you mean?' I said: 'It's over. We're done.' Corey Lewandowski, Trump campaign managerCorey Lewandowski: I called my wife just as we were getting onto the plane. I said, "Hey, baby, I'm coming home." She said, "Oh, the day is over?" I said, "No, no — the campaign is over." She said, "What do you mean?" I said: "It's over. We're done."We flew from Iowa back to New Jersey, and this guy Dave picked us up in the car and we drove over to Mr. Trump's home. As we walked in the door, Mrs. Trump was waiting for us. She said: "You're right. John McCain isn't a war hero. What he has done for the veterans has been shameful." In the meantime, I'd been getting phone calls from every major political pundit and conservative talk-show host except Rush Limbaugh. They were all telling me that Donald Trump had to apologize — that his race was over if he didn't apologize immediately.Michael Cohen: Melania played a very limited role during the campaign not believing Donald would actually win. However, when directly asked for her opinion on a matter by Donald, she offered it readily.Chapter 3: The DebatesOn August 6, inside Quicken Loans Arena in Cleveland, 10 Republican presidential candidates took part in the first debate. Trump was a neophyte to debates, and his team was more interested in hanging out with the Aerosmith lead guitarist Joe Perry than prepping, auguring the alchemy of entertainment and politics that would define the Trump era. If Trump was a made-for-television candidate, he benefited from the unconventional nature of that cycle's nearly dozen debates, spanning from August 2015 to March 2016.Corey Lewandowski: We had a little bit of downtime before we went over to the arena. We landed the plane in Cleveland, and we got a phone call from Don McGahn, who was then our general counsel. "Hey, Aerosmith is close by. Do you mind if they bring their tour bus over and party with us for a little while?" We said, "100% — bring Aerosmith over!"Donald McGahn: Close, but that's a little off.Corey Lewandowski: So we sat there with Aerosmith about an hour before the debate, swapping stories of Aerosmith as opposed to doing debate prep.Steven Tyler of Aerosmith listens from the audience during the first official 2016 Republican presidential debate in Cleveland.Brian Snyder/ReutersDonald McGahn: It wasn't the whole band. It was Joe Perry. He was intrigued by the emerging Trump phenomenon. Remember, this was before there were any primary debates, and it was all new to everyone. Stuff that would be from Mars on any other campaign was perfectly normal for the Trump campaign.By this point, Trump was getting ready for the debate, so Joe had to wait a little bit. On the way out the door, Trump says something about "rock stars have all the ladies," which apparently Perry got mad at, because he's been married for decades and takes all that stuff pretty seriously. After the debate, if you watch the film, Joe goes up on stage and finds Trump and proceeds to tell him that he's married and he doesn't sleep around.The subtext is that Steven Tyler already had tickets to the debate through some other wing of Trump Org. Joe didn't want to be upstaged — wanted to meet with Trump rather than just go to the debate. Apparently, there's a whole internal Aerosmith thing among the political persuasion of the band.After the first debate, the prime-time contests took on a familiar pattern, with Trump becoming their draw and center of gravity.Marco Rubio: The first time I got on the debate stage, there were, like, 100 people on stage. So it was a very unique race, because you had so many different people running.Rand Paul, GOP senator and 2016 presidential candidate: I blame as much as anything the media. The media organizes the debates.Sarah Isgur: It wasn't a debate. You were debating yourself. How could you use your time as effectively, and where can you jump in on a question that wasn't to you?The top-polling 2016 Republican presidential candidates in August 2015 at their first official debate in Cleveland. From left: Chris Christie, Marco Rubio, Ben Carson, Scott Walker, Trump, Jeb Bush, Mike Huckabee, Ted Cruz, Rand Paul, and John Kasich.Chip Somodevilla/Getty ImagesCorey Lewandowski: Let me just remind you, Trump had never been on the debate stage. And he was going up against a Princeton-educated debate champion in Ted Cruz, and career politicians and executives who've done this their entire life. So we spent time talking to Mr. Trump about some of the possible questions that would come up. We wrote one-liners on every candidate, just so he would have a quick retort if he wanted that.Rand Paul: It's hard to have much exchange when you don't get much time. It's unfair the way the debates are set up. They really make it impossible for the underdog to have much of a chance.Lindsey Graham: I never got on the big stage. That's frustrating. I was never able to poll well enough.Sean Spicer, chief strategist and communications director for the Republican National Committee: You're sitting there and watching Trump say, "Yeah, I don't know." And you think, "OK, that would have been a death knell for anybody else. It would have been, like, 'Boom — you're out.'"Josh Hawley, GOP candidate for Missouri attorney general: The one debate I remember, he starts by attacking Rand Paul. "I don't know why Rand Paul is even on the stage." I remember thinking, "I can't believe he's saying this stuff out loud." You can understand why people are watching the debates. Because you wonder, "Well, what's gonna happen next?"Rick Gates, deputy Trump campaign chairman: Donald Trump had this amazing ability to size people up — a "Little Marco" — in literally a one- or two-word phrase that so encapsulated who they were that people said: "This guy is absolutely right. He's telling us the truth." So it was almost impossible to compete with Donald Trump in that regard.Corey Lewandowski: Everyone has a plan until you get punched in the face. And we just kept punching people in the face.Tim Miller: If you're designing a candidate to do a poor job of being the one to go head-to-head with Trump, it would be Jeb. He was an easy punching bag because of his family. He's not an alpha type on a debate stage.—NTA by Mic (@NavigatingTrump) March 4, 2016Josh Schwerin: The most memorable debate experience? I was on the road, and it was the one where Trump and Rubio got into an argument about hand size, which I then had to brief President Clinton on. Which was one of the more awkward moments in my life, I would say. We were in Louisiana. He didn't at first believe me that this was the topic of a debate. I had to show him the CNN headline. I tried to not add any commentary and just let him read it for himself. Because it was not the most comfortable conversation to have with the former president of the United States. He was amused, but also really aghast that this is what they had devolved to.The evening after the Cleveland debate, with exhaustion setting in, Trump ignited another controversy when he phoned into "CNN Tonight" with Don Lemon and said that the Fox debate moderator Megyn Kelly had "blood coming out of her eyes, blood coming out of her wherever." Kelly had aggressively questioned Trump about his past comments about women, and his post-debate commentary would only further solidify the narrative that Trump had a problem with sexism.Sean Spicer: I think she thought that was going to be the gotcha moment.Corey Lewandowski: I remember getting a phone call that Friday night. I was in my apartment in New York at, like, 9 o'clock — we were supposed to be traveling to South Carolina the next day — from a guy by the name of Erick Erickson. And he says, "I just listened to the interview, and I've got teenage daughters and a wife, and Donald Trump is no longer invited to my event, because it was such an egregious thing to do."I didn't even know what the hell he was talking about. I said, "What happened?" I call Mr. Trump, and he says: "Yeah, I don't know. Maybe I said something." I again tell him it was one of these things where his campaign was over. And he just doubled down on it. He powered through it. And once again, 48 hours later, we were into a new news cycle.At the Ronald Reagan Presidential Library in Simi Valley, California, the candidates faced off in another marathon debate, during which Trump attacked Rand Paul's height and Carly Fiorina blasted Trump for mocking her appearance in an interview with Rolling Stone a few days before the debate. ("Look at that face! Would anyone vote for that? Can you imagine that, the face of our next president?!") "I think women all over this country heard very clearly what Mr. Trump said," Fiorina would say that night to raucous applause.Sarah Isgur: We were landing — this was back when not every airplane had WiFi. And so I was landing and getting WiFi back, and that's when I saw it. And, I mean, she knew immediately that was the best opportunity we'd ever had. Like the thing sucking up all the oxygen just gave us an oxygen mask.Tim Miller: Carly did a good job.Sarah Isgur: Trump realized the mistake he had made. That's why he never touched her again.Chapter 4: Republicans cannibalize themselvesIn the months-long lead-up to February's Iowa caucuses, the massive Republican field continued to jockey for position, and Trump continued to suck most of the oxygen out of the room and vacuum up earned media. By the end of 2015, the oxygen deprivation had winnowed the field by five candidates. The candidates who remained were trapped in something like a prisoner's dilemma in which they turned fire on everyone else but Trump. Meanwhile, the former celebrated neurosurgeon Ben Carson began to gain traction among social conservatives nationwide, particularly in Iowa. During a rally in Fort Dodge, Trump went after his future Cabinet appointee, reenacting Carson's teenage tribulations — ridiculous mock knife fight, anyone? — purely for laughs. Trump's team planned it on the plane, and it led to an awkward exchange in the motorcade afterward.—Vaughn Hillyard (@VaughnHillyard) November 13, 2015Corey Lewandowski: Mr. Trump says to Mark, the head of the Secret Service detail: "Hey, Mark. How did we do?" And Mark says, "Very good, sir!" And Mr. Trump says, "Do you have any advice?" And Mark says, "Just one, sir."I'm like, "You gotta be shitting me. This guy has been on the job a hot second and he's already giving the candidate advice? He's the fucking Secret Service guy!" And Mark, who's a great guy and I have enormous respect for, says: "Sir, please don't have anybody come up on the stage and stab you. We have to shoot them!"Then Trump goes, "Oh, Mark — the guy was 80."And Mark goes: "No, don't. Please. Here is my only advice. Please don't ask anyone to come up on the stage." And I said: "OK, like, I agree with you, head of Secret Service detail protection, let's not have anyone come up on the stage."February 2016 opened with Ted Cruz mounting a surprise win in Iowa and Trump complaining that the election was rigged.Newt Gingrich, former House speaker and 2012 GOP presidential candidate: Trump could never perform a classic Iowa campaign. First of all, it's not who he is. It's inconceivable he was going to go to small towns three times. But how could you create a replacement campaign? I called him one afternoon and said: "What you have to do is get on Facebook every day. People have to feel that you're in their living room or their kitchen every day. Then the familiarity will lead them to decide." I must have said that to him in October. And at Christmas, we were at my wife's sister-in-law's. He calls and says: "This is Donald. We just finished taping 58 Facebook videos."Sean Spicer: I had breakfast one morning with Corey. He was very clear that the expectations were that Trump needed to win Iowa. He was going all in, doing anything he could.Corey Lewandowski: Cruz's campaign was so focused, they put all their eggs in the Iowa basket. Then at the very end of the night of the Iowa caucus, they sent out a mass distribution that said, "Ben Carson is getting out of the race — vote for Ted Cruz." We believe that those votes went from Dr. Carson to Ted Cruz, and that is ultimately what led Donald Trump to finish second in the Iowa caucus.Marco Rubio: It was obvious he was doing it differently than everybody else was.Corey Lewandowski: There was a brief period of time where Marco Rubio started to go after Donald Trump and attack him. And you actually saw a movement in the polls, but what did Marco's team do? They started hearing from their donors, and their donors said: "This is beneath you. You should not be talking about the size of Mr. Trump's hands. This is not becoming of a presidential candidate."Marco Rubio: He has a real understanding of the media ecosystem and what feeds it—what it is the media wants to report on and getting narratives across. And that was probably underappreciated when everybody was kind of running traditional political campaigns and he was running a 21st-century, modern version of what we have. And it worked.The ensuing four weeks — starting with the Iowa caucuses at the beginning of February 2016 — saw the remaining Republican challengers cannibalize each other instead of Trump. Taking out the top guy after the Iowa caucuses, Ted Cruz, was too lofty a goal for Chris Christie in early 2016. So the straggling two-term governor of New Jersey settled on taking out the first-term senator from Florida, portraying Rubio as too green to be president. Meanwhile, Trump aides worried their candidate's obsession over not coming in first in Iowa could spell the end of his campaign.Mike DuHaime, senior strategist to Chris Christie: So it was on the plane ride back from Iowa to New Hampshire, it was really the governor himself and basically said: "This is what we have to do. Now is the time to take on Marco."Corey Lewandowski: I called the grown children — Don, Eric, and Ivanka — told them what was happening, brought Mr. Trump in, and, over a meal of McDonald's in the back room of our Manchester office, told him that if he wants to continue to bitch about the results in Iowa and not lay out his vision for what he wanted to achieve for America to the people in New Hampshire, this race was over. It was a very candid conversation; it was just he and I in the room. He listened intently. You walked out of that room. He went to a town-hall meeting with CNN that afternoon and Manchester. He came and ran a positive message.Then he went to a shift change at the Manchester police department, where he talked about supporting the men and women in law enforcement. And we campaigned in New Hampshire on Thursday and Friday, on Saturday, on Sunday, and on Monday. And on Tuesday, Donald Trump won the state of New Hampshire by 17 points, with 35%, in the 17-way primary. It was a complete blowout, the biggest blowout in the primary's history.With the field on the verge of collapsing, the GOP establishment's favorite son, Jeb Bush, sensed opportunity — albeit briefly. They pinned their hopes on the candidate's mother, the former first lady.Tim Miller: There was a small window where we felt, like, "Mrs. Bush is coming up, somebody is going to take some momentum here out of New Hampshire." That's not Cruz or Trump. It'll either be us or a Kasich or Rubio. We thought maybe we can kind of channel this and have a McCain-like 2008 sort of bump.Our internal numbers were going up a little bit right around the time when Mrs. Bush came to visit us. And it was just lovely, and she's just so charming and wonderful and aligned and blunt. And I remember briefing her for — she was interviewing with Norah O'Donnell. I was pretty clear, and I asked her what she was going to say if she was asked about them. I asked her her thoughts about Cruz and Trump, and she gave her very candid negative assessments of both of them. After each sort of rant she went on, she then looked at me and said, "But I'm not going to say that."Former first lady Barbara Bush introduces her son Jeb Bush at a town-hall meeting in Derry, New Hampshire, in February 2016.Charles Ommanney/The Washington Post via Getty ImagesCorey Lewandowski: We could attack Jeb for being a fake rich guy. Because he wasn't as rich as Trump. And then we could attack him for being a career politician. And then we can attack him for being low energy. He became an easy target for us because he had never had a tough battle.Christie dropped out after Trump won New Hampshire. Meanwhile, Bush's campaign never got going. He suffered perhaps most from a viral video after he told a New Hampshire audience on February 4, 2016, to "please clap."Tim Miller: The "please clap" thing is Ashley Parker's fault. I never will forgive her for that. She was the one who tweeted it out first and made everybody go back and find it and make it seem cringe.It was like a totally normal human response to an awkward audience moment that he was trying to let it go ahead. And then it got turned around on the internet to seem like he's begging people to clap for him. Like: 'Please clap for me, please clap for me. I'm so sad. I'm in last place.' Such is life. Tim MillerAshley Parker, reporter at The New York Times: I made it the kicker of my story. Once I tweeted it out, it just took on a totally unexpected life of its own.Tim Miller: It was like a totally normal human response to an awkward audience moment that he was trying to let it go ahead. And then it got turned around on the internet to seem like he's begging people to clap for him. Like: "Please clap for me, please clap for me. I'm so sad. I'm in last place." Such is life.Ashley Parker: It was sort of a poignant moment and a telling moment, in certain ways, but I think some of this got lost in the meme. It was also a lighthearted moment.All told, 12 Republican candidates started out in February. By the time Super Tuesday rolled around, on March 1, 2016, the field stood at five. Amid the South Carolina primary, holed up at a Hilton Garden Inn, the Bush campaign compiled speeches for dropping out and forging deeper into other states' nominating contests. Surrounded by the Bush family, the New York Jets owner Woody Johnson, and staffers, the son and brother of two former presidents dropped out of the race. He was the 2016 campaign's original front-runner with a nearly $100 million war chest.Rob Portman, GOP senator from Ohio: The Republican primary was a surprise for people because most of us thought Jeb Bush came into it with the most mainstream Republican support.Tim Miller: There were a couple of folks around Jeb who wanted him to keep going, and he called us back in and said: "You know, this is, I can't, can't do it. I can't move forward. So we have to, you know, we have to do this." He was all business. And he looked at me and says, "I've got it." And we went over the speech, you know, just like we would have with any other speech. He was wistful, obviously, and a little sad, but very businesslike. Like, this happened, he gave it his all, and he recognized staying in was only going to make things more likely at that point for Trump.Discarded lawn signs for Jeb Bush and Ben Carson lie on the ground outside a polling station in Columbia, South Carolina, on February 20, 2016.Joshua Roberts/ReutersMarco Rubio: Generally I was happy when people dropped out, because that meant, you know, one less candidate out there and a pool of voters that were now available to go after. Unfortunately for me, they didn't drop out soon enough.Chapter 5: Trump takes control: Super Tuesday, Indiana's decisive primaryIn March, as the contest narrowed, Trump went on a tear on Super Tuesday, winning Virginia, Vermont, Georgia, Tennessee, Arkansas, Massachusetts, and Alabama, setting up a battle royal between Trump, Cruz, and Kasich in Indiana's May primary.Rick Gates: By March, clearly he was the front-runner, and he was gaining delegates. But at the same time, you could see the party apparatus starting to work against him.Lindsey Graham: I endorsed Ted Cruz. I ran out of people to endorse. I was sort of the Dr. Kevorkian of endorsing. Everybody I endorsed politically died.Amanda Carpenter: It was essentially coming down to a Cruz-Trump race, and Kasich was refusing to get out. People like John Boehner and others were signaling that they weren't going to help Cruz and consolidate the field. They were just saying, "Well, we'll just nominate Trump and let him lose."Tim Miller: Jeb endorsed Cruz pretty quickly after he dropped out. Gave Marco Florida all to himself. I went to work for a super PAC that spent millions of dollars attacking Trump in Florida. Like, what more did you want from us?Mike DuHaime: Mitt Romney was potentially the most influential endorsement during that cycle. He was the previous nominee, and he had this massive fundraising network. So the thought was that if Mitt endorsed somebody, that person could become the one who could coalesce people. He never did.Mitt Romney, 2012 Republican presidential nominee: There's really no reason for me to add to that story.Tim Miller: There's an alternate history where Trump gets treated like a joke from the start. There's another alternate history where all of the campaigns attack him and treat him seriously from the start and he never really takes off. We'll never know. I do think that in both of those alternative histories, he could've gotten killed in the crib.A London pub set up cardboard cutouts of the faces of Ted Cruz, Trump, and Marco Rubio in March 2016 as part of an informal survey for customers to log which they disliked the most.Justin Tallis/AFP via Getty ImagesIn the early spring of 2016, the Trump campaign began to make some changes atop its organizational chart, hiring Paul Manafort, the veteran delegate wrangler of RNC conventions who'd turned into a jet-setting shadowy political operative for foreign autocrats.Rick Gates: Paul Manafort was brought in at the end of March. Trump had been advised to meet with Paul because Paul knew how to deal with conventions. The media had been reporting that the Republican convention was going to be contested. So you needed somebody to understand the nuances of how a contested convention works.The first call he made was to Jim Baker, the broker of the last contested convention. We had a secret meeting with Baker at the Jones Day law firm, our lawyer at the time. He and Trump had a fantastic meeting. Baker was as smooth as he typically is, and Trump was very interested in Baker's experience.The second call, which I thought was interesting, was to Dick Cheney. Cheney had agreed to support Trump, but he wanted to do it from behind the scenes. He wanted to be helpful for the party and support the nominee, but clearly he was not comfortable yet to move all into Trump's camp, given his relationship with the Bush family.Another interesting call was to Marco Rubio. Paul got Marco on the phone, and Rubio said he would look at how Trump was going to run his campaign, and, at the appropriate time, he might be willing to support him. Paul hung up and started smirking. I said, "What's going on?" He goes, "Marco used to be my driver at the 1996 Republican convention."At a hastily arranged event in Indianapolis, in a last-stand effort ahead of Indiana's decisive primary and following Trump's big wins in five East Coast states, Ted Cruz announced that Carly Fiorina would be his running mate if he emerged from the GOP primary with his party's nomination. It was an odd, awkward event that featured a botched handshake between the two.Sarah Isgur: The most important thought was, who can actually beat Trump at this point? He was underperforming with women. Cruz wasn't women's favorite candidate either. So if women in the middle of the Republican Party were up for grabs, maybe Carly could help with that.Jeff Roe, campaign manager for Ted Cruz: They had a really good rapport, and it was a man-bites-dog publicity event. So we thought it would be newsworthy, and that's how it came together.Adrienne Elrod: By that point, we realized it was over, and we started planning for the general election.Amanda Carpenter: I like Carly and respect her a lot, but it was just a play. You just tried to signal that we would be serious about things: "Look, we would bring a woman onto the ticket." I mean, it was kind of a last-ditch attempt.Nothing fancy to explain there: We fumbled for a moment, and it makes for an amusing video after the fact. Ted CruzJeff Roe: What's funny is we practiced the handshake.Sarah Isgur: Oh, my God. My memory is that not only did they practice the handshake, we made them practice the handshake. They balked at us and said that we were idiots for making them practice. They did it in a way teenagers will do something, like rolling their eyes. And then to have them do the most awkward, whatever that was, in the world.Jeff Roe: It's always awkward when candidates do the victory wave. We freaking practiced it, and they still screwed it up.Ted Cruz: Nothing fancy to explain there: We fumbled for a moment, and it makes for an amusing video after the fact.Jeff Roe: They really liked each other, legitimately liked each other. So it was what it was, a guy running for president who announced his VP before he got the nomination. It's going to be a little funky. If we could get conservatives to unite against Trump, then this could be a thing. It wasn't, "Oh, isn't this kind of funny?" We did not treat it as being funny.Lindsey Graham: I think it had slipped away by then.Days later, during an event on May 2, Fiorina fell through the stage while campaigning with Cruz.Sarah Isgur: I was doing something on my phone. They were, like, "Carly just fell!"Jeff Roe: I think she stepped off the thing. It's better from the camera angle than it was in real life. But the camera angle looks bad.Sarah Isgur: I was, like, "Oh, my God."One of the most pivotal endorsements during the final days of the GOP nominating contest was still up for grabs. On April 29, 2016, in a radio interview in Indianapolis, Gov. Mike Pence, himself running for reelection, endorsed Cruz to appease his socially conservative base. But Pence also threaded the needle with kind words about Trump. "I'm not against anybody, but I will be voting for Ted Cruz in the Republican primary," Pence said in an interview with WIBC's Greg Garrison. Trump won despite Pence's endorsement.Rick Gates: That night we set up a rally inside Trump Tower for Trump to kind of do his victory party. But we didn't say anything about being the presumptive nominee. We didn't take any liberties. We just stayed in our lane, and we knew at some point Cruz is going to have to drop out. We didn't know he was going to drop out that night.Jeff Roe: We stayed in a hotel. I cannot remember the name of the hotel, and, unbelievably, there was a dog show there. So we stayed up there the whole weekend, and we made our decision with these dogs barking next to us the whole damn time.Ted Cruz: When I was giving my speech and I said the words "We're suspending the campaign," a woman in the crowd let out a wail. It was piercing. I almost broke down. I finished the speech, and one of the things I'm still frustrated to this day is that I wanted to stay out there and thank the hundreds of volunteers who were there that night who were grieving. And I couldn't. I couldn't hold back the tears. There was an army of TV cameras there, and I'll be damned if I was going to let the media turn Lyin' Ted into Cryin' Ted. I had to leave the room because I simply couldn't hold back. I'm grateful that Heidi spent probably an hour just hugging everyone and saying thank you. I wish I had the strength to do that. I didn't. But Heidi did it for us. That piercing cry from the woman in the crowd. I'll never forget.Rick Gates: We found out that Cruz had dropped out after Trump had gone through the hallway to the elevator. It was Melania and Trump and myself and Paul in the elevator. And it was just utter silence. Paul turned to Trump and said, "Do you now know that you're one of two people who is going to be the next president of the United States?"Sarah Isgur: I was listening to the "Hamilton" soundtrack just over and over and over on the bus with my headphones on with the senior Cruz team and Cruz and Heidi and Carly. I wish I had had a better mood, attitude, whatever you want to call it. But you just worked your heart out and lost, and now you don't have time off. You're just back doing it for someone else. I say all that because when he lost, I was in sort of a historical, pensive mood. I remember wondering who had run against Hitler in Germany and thinking those people deserve more credit in history. Because you can know what the threat is and you can give everything you've got and still lose.Mike DuHaime: There were too many people who wanted to beat Trump but didn't have the courage to get behind any one person, because they didn't want to offend either us or Jeb or Marco or Cruz. So it was just too little too late.Ultimately, Pence, despite not endorsing Trump, became Trump's pick for the vice-presidential nomination — because of "divine intervention."Trump walks with Mike Pence on stage during a July 2016 campaign event in New York to announce Pence as Trump's running mate.Evan Vucci/AP photoRick Gates: Unbeknownst to Trump, we polled Ivanka to understand where she was. We didn't think that he was necessarily seriously going to move forward with it. But Paul thought we got to at least test it, because you never know, everything else about this race has been different. So why not? Let's look at this, you know, in totality. She had pretty good name recognition for that part. But at the end of the day, even she knew that she was not wanting to be the candidate. And so we moved on very quickly.Trump wanted to bring on somebody that was his friend, that he could work with as vice president, that he was able to communicate with very easily. And so this idea of Chris Christie and Newt Gingrich kind of being among the front-runners was absolutely accurate. But in the background we were looking at people like Mike Pence, Joni Ernst, and Bob Corker who might bring some significant role or resource to the campaign in order to help Trump win.So they came up with a short list very early on, and we reached out to the candidates individually. One of the first candidates was Mike Pence. He was the first VP candidate we met with at Bedminster. I was put in charge of vetting for Pence along with the lawyer A.B. Culvahouse. I staffed that meeting. This is the first time that Trump was physically meeting Mike Pence. And I think it's humorous in the sense that up to this point, Trump thought that Pence was not doing well in his governor's race. Trump felt like if he wasn't winning the governorship of Indiana, how in the world would he be able to help Trump as a vice-presidential candidate?And I say to this day, it was just divine intervention on how everything worked out for the first time they had met. Pence was ultimately selected. And we had a scenario where we met at Bedminster for the first time, Pence and his wife, Karen, and daughter Charlotte were there. And it was Trump and myself in the room. And Trump immediately started the meeting looking at Pence's daughter, Charlotte, and saying, "Charlotte, you know, your dad supported Ted Cruz in Indiana, not me." And it broke the ice and it was great. And to Mike's credit, he said, "Yes, Mr. Trump — uh — that was my fault." And it immediately just kind of got them into a position of really getting to know each other. And the visit was not without its challenges, because they are two very different people.Chapter 6: The RNC, July 2016Their presidential dreams crushed, a handful of Trump's 2016 rivals had by this point quit fighting and pledged allegiance to the seemingly inevitable nominee. But there were holdouts, like Rubio, Cruz, and Graham, who were still refusing to bend the knee. The climax came in Cleveland.Marco Rubio: I didn't go to the convention because I was running for reelection. I had announced late, so I needed every day I could spare in Florida.Tim Miller: I ended up not going to Cleveland. I drove to Richmond and got blackout drunk with my friend.Melania Trump at the end of her speech on the opening day of the Republican National Convention on July 18, 2016.Toni L. Sandys/The Washington Post via Getty ImagesRick Gates: On the first night of the convention, Melania did a fantastic job in the speech. And then about an hour and a half later, we start getting calls about the speech and about how it may have had information in it from a speech that Michelle Obama gave. And then, obviously, people started digging into the two speeches, and then they started comparing it.My wife calls me about an hour later, I think just a little after midnight, and says, "You're being blamed for it." And I was in a complete state of shock, because none of us had seen the speech until just before she gave the speech. And the way that the process worked, it was fed into a system run by the RNC where they would typically check for grammatical mistakes, but they never checked for content — obviously a correction that was made after that night. But at that point, nobody had thought to check Melania's speech because she had taken the team of speechwriters and done it. And what we found out after the fact was that there was an individual who had been guided by the speech firm that had given ideas and previous examples of speeches, and the speechwriter that helped him a lot, he was not political in nature and so, from what we now know, taken some of those aspects of the speech and included it, unbeknownst to Melania. And I don't think it was a deliberate intent, but obviously it created such a stir.Entering the convention, candidates who vociferously opposed Trump during the primary had to decide how to handle the convention optics. Former candidates such as Fiorina took a different tack than former candidates such as Cruz.Sarah Isgur: Carly couldn't endorse Trump and she couldn't not endorse him. I think that the phrase that was used was "You don't show up to someone's birthday party and talk about what a son of a bitch they are."Amanda Carpenter: I was working for CNN, and I had an inkling that Cruz was going to do something. I thought, another good, last-ditch attempt to try to at least signal opposition to what was going to happen.Rick Gates: We had negotiated with Cruz that he would be able to speak but that he would need to come out and say he was endorsing Donald Trump, which up until that moment he hadn't committed to. We asked for a copy of the speech in advance, but he didn't give it to us. We felt Cruz was going to renege on his commitment, which you naturally would assume.There was a lot of jockeying at the last minute. Jared and I were at the hotel with Trump in his suite. We're on the phone with Paul, who was over at the convention center. Nobody wanted Cruz to speak except for Paul, who thought it would be a disaster if he didn't, since we had committed to it. But Trump refused to allow him to speak, and so we were working out how we were going to tell Cruz this.Ted Cruz: The purpose of the speech was to lay out a path that I hoped then-candidate Trump would follow. A path to unifying conservatives. A path to honoring the promises that we had been making to the American people. What I said in the speech is vote for candidates who you trust to defend freedom and to defend the Constitution. And that is very much what I hoped Donald Trump would do. At the time I didn't know if he would or not. There were reasons to have concerns. I did have concerns.Amanda Carpenter: It was all pretty high-level, high-stakes theatrics going on — on everyone's part.Rick Gates: So we go over to the convention center in the motorcade. We have Trump in a holding room, and he's watching the proceedings on TV. He asked me where the rest of the family is. We had a family box, which we called the VIP box, in the corner of the convention center, looking directly onto the stage. Trump said: "'We'll check it out. Let's go."So we walk through the halls, and everybody's shouting "Trump! Trump! Trump!" He's building momentum. I'm thinking, this is way early for him to come down into this area, before Pence comes out to speak. And then he just kind of moseys out of the room right around the corner, because the stairs lead down into the box. He gets into the stairwell, and he turns to me and says, "Watch this."Ted Cruz: I didn't know it was coming. I had no idea. It didn't occur to me that that would be the campaign's reaction. Given that, for any nominee, the objective typically is to unify the party and win in November.Amanda Carpenter: I just remember how loud the boos were. And how I was worried for Heidi, watching her just kind of whisked out.Ted Cruz: If you look at what I said in the speech, the words were virtually identical to what Ted Kennedy said about Jimmy Carter and to what Ronald Reagan said about Gerald Ford. Neither one of them, at their respective conventions, endorsed the nominee. And the reason I know it was identical is I had both of those speeches in front of me when I was writing it and very deliberately used the same language.Amanda Carpenter: I didn't think anybody was in real danger, but just watching everything that happened at Trump rallies and the violence outside the convention, it was uncomfortable.Sean Spicer: Trump owned the moment. He gets stuff in a way that I don't think people appreciate in terms of — what's the right word? — pageantry. It's like showbiz, in the sense that he knows how to make a presentation.Trump's takeover of the GOP would culminate in a dark, authoritarian speech that would presage much of his reign over the country and, years later still, his party. "I alone can fix it," he infamously claimed.Rick Gates: Trump was very involved in writing the speech. We had created a framework for it. But as with every speech, he put his words to it, he put his rhythm, his content, to a large extent. It was a speech that I think resonated with a lot of people at that time. It was one that showed the issues with America, the problems that we were having, based on, in his view, failed leadership, across not just Democratic administrations but Republicans too. He felt very particular about immigration, about China, about making sure that America could be the best country it could be. And he had a different idea of how to do that. And so in laying that out in the speech — and it was a long speech, longer than we had anticipated, but it needed to show Americans — not just Republicans, but all Americans — what was wrong and how we could potentially fix it. And so it kind of codified both those dark moments of where you feel like there's no hope or optimism to feeling very optimistic by the end. And you could sense that he poured everything he had into that speech.The balloon drop after Trump formally accepted the GOP's 2016 presidential nomination in Cleveland. He'd go on to defeat the Democratic nominee, Hillary Clinton, that November and serve a single term as president of the United States.Jeff J Mitchell/Getty ImagesLindsey Graham: I thought it was a pretty good speech. But I never thought he could win. I really didn't. I thought we would lose big. So what the hell do I know?Rick Gates: I'll never forget it, because he was also involved in the actual walk out and how he was going to do it. And just the way that the optics were very important for him. And it was going to either create a momentum booster, which is exactly what you want out of a convention, because at the end of the day, a convention is an event where you get to control the entire script, you don't have a bunch of people criticizing you or weighing down on it, you can certainly try, but at the end of the day, the majority of Americans are seeing exactly what you put on prime time. That 7-to-10-p.m. slot is the most important time of any convention, Republican or Democrat. And so with Trump that night, giving that speech, if he did it, it ultimately gave us a 10-point boost.Donald McGahn: The thing I remember the most are the number of people who still opposed Trump at that point and who were not at all enthusiastic about him. But then after he won, they were the first people in line saying, "I was with you the whole time, and I should get a job." That's the biggest thing I remember about the convention: the lack of honest support Trump was getting, even then.Rick Gates: When we first started planning the convention, it turns out that the RNC had hired a production team, that part of their team had been involved in "The Apprentice." So Trump, he has a style of getting to know everybody who works under him. At the convention, during the walk-through, Trump saw a director he knew, and they connected right away. This individual had a sense of what Trump would like, and he presented an overall plan. Trump loved it. We had to change a few things along the way at Trump's request, but this idea that you create the optic of somebody coming out in this kind of silhouette way through the middle doors — it was almost like a rock concert more than a convention, and people reacted that way. I'll never forget people texting me and emailing me, like, "I've never seen a walk out like that, not ever."Sarah Isgur: By that point, not only has Trump taken over the Republican Party, but the Democratic Party has responded to him as well. So he has had a huge effect on the Democratic Party. Think of it like evolution. There's this thing called Red Queen theory, where parasites actually affect the evolution of their hosts. The two will keep evolving to get advantage over one another. So it really matters what advantage the parasite gets next time, because that's how the host is going to evolve next time.John Cornyn, GOP senator from Texas: Every day was a surprise. Read the original article on Business Insider.....»»

      The transcript from this week’s, MiB: Antti Ilmanen, Co-Head, Portfolio Solutions, AQR, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is Masters… Read More The post Transcript: Antti Ilmanen appeared first on The Big Picture.       The transcript from this week’s, MiB: Antti Ilmanen, Co-Head, Portfolio Solutions, AQR, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. BARRY RITHOLTZ; HOST; MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, Antti Ilmanen is AQR’s Co-head of the Portfolio Solutions Group. He is the author of a new book, “Investing Amid Low Expected Returns: Making the Most When the Markets Offer the Least.” He has an incredible CV full of all sorts of awards and has worked at all sorts of places like Salomon Brothers and Brevan Howard before ending up at AQR. If you’re at all interested in value investing, factor investing, understanding how your starting condition leads to future returns that might be better or worse than historical averages, you’re going to find this to absolutely be a master class in investing. I found it absolutely fascinating and I think you will as well. With no further ado, my conversation with AQR’s Antti Ilmanen. Welcome to Bloomberg. ANTTI ILMANEN. CO-HEAD, AQR’S PORTFOLIO SOLUTIONS GROUP: Thanks, Barry. I’m really looking forward to this. RITHOLTZ: Same here. So, first, I found the book to be quite fascinating, very in depth and you managed to take some of the more technical arcana and make it very understandable. We’ll circle back with that. Let’s start just by talking about your career. You began as a central bank portfolio manager in Finland. ILMANEN: Yes. My really first stroke of luck, I think, was getting that job. Before that, I had been nerdy kid with interesting esoteric things like royal family trees or track and field statistic trading. And when I was studying in university economics, I did not really get the passion. The passion came when I went to invest the country’s foreign exchange reserves there and it was very much global government bond markets. So, thinking about macro picture. And then nor later I had, I don’t know, much interest then on single stock picking. So, thinking about the big picture. And there were some lovely, lovely things like I was there in October ’87 crash. I saw two-year yields falling in one overnight from 9.5% to 7.5%. You don’t see those movements anymore. RITHOLTZ: That’s a giant move. Yes. Absolutely. ILMANEN: Yes. Anyway, so that was a great learning experience. And then my second related stroke of luck was that Professor Ken French came there. RITHOLTZ: Really? Dartmouth, ILMANEN: Yes. He came to educate us in 1989 and teach us what we were doing, what we should be doing and I was just an enthusiastic kid there. Well, by that time, I was already almost 28 then. And he — when I was expressing some interest about studying in the U.S., he was saying, you should do it soon. He said, you’re old enough to do that. And a few months later, I was in the U.S. and it was so lucky in my life because there I met then Cliff Asness and John Liew who later founded AQR. So, as my fellow students, I met my wife there. She was MBA student from Germany and would have left a few months later. RITHOLTZ: University of Chicago? ILMANEN: University of Chicago. So, all of these lucks sort of was related to my wonderful first jobs. RITHOLTZ: Right. And Gene Fama teaches there and his research partner is Ken French. ILMANEN: Yes. Yes. Both Cliff — actually, all three, Cliff, John and I’m, we had Fama and French as our dissertation chairman and that’s a small source of pride. RITHOLTZ: Right. Little intimidating. So, you go from Chicago, is that how you ended up at Salomon Brothers? ILMANEN: Yes. So, that relationship actually already started when I was a portfolio manager, right? Finally, in a faction (ph) like one of these. Michael Lewis’ Liar’s Poker’s good guys was one of my sales contacts there. RITHOLTZ: Really? ILMANEN: Yes. Yes. He didn’t have many good guys with one of us. Anyway, so — and I got to know people like Marty Leibowitz before I went to Chicago and I think he helped — he may have again had a hand somewhere there. And so, when I finished my studies, it was pretty clear that I wasn’t sort of up academic enough. I wanted to go to either buy side or sell side. I even talked to GSAM somewhere, Cliff and John were, didn’t go there. I sort of thought from my ’80s experience that buy side is dusty. Wrong choice. Anyway, I then went to Salomon Brothers, did laundry search for a couple of years and yield curve strategies then moved to Europe, that was always a deal with my wife, to be a bond strategist at Salomon for many years. Initially, very discretionary but gradually becoming more and more systematic and eventually returned from this customer-oriented role to prop trading for a while. RITHOLTZ: And then how did you end up with Brevan Howard. ILMANEN: Yes. So, I think that from these times when I was strategist, I was talking to my — to great people like earlier on some LTCM and then various other people, including Allan who came actually from Salomon. And so, somewhere, all three sort of invited me to try to be a mini-Cliff, a very systematic trader with a small team there at Brevan Howard which was in some sense great but it is sort of misfit because it’s a very discretionary place. RITHOLTZ: Right. ILMANEN: And so, trying to do systematic in that environment was harder and I think none of us were doing extremely well, none of us were doing extremely badly. But it just didn’t become a great success. RITHOLTZ: Just not a great fit. ILMANEN: Yes. Yes. Yes. But it was — on the other hand, it was just a great place, well, first to try it but the second thing is when 2008 came along, it was one of the few places that we’re making money. So, it was very comfortable vantage point for that environment. RITHOLTZ: How did you go from being a Mini-Cliff Asness to maxi-Cliff Asness? ILMANEN: Yes. So, I had stopped that systematic trading. What I had been talking with those guys often of possibly joining. It was a matter also of them opening Europe office because that’s where I was physically. And so, that was approaching. It also helped that I was — I basically decided to write this book “Expected Returns” and when I wrote it, they asked Cliff to write the foreword for it. And by the way, like if you check sometime the first word he has there, like it was — I was sweating when I read that and it’s that by telling that, first time I met Antti, I thought he was insane and I was right. So, that was a little stressful but it turns out very nice. But anyway, so that experience reminded, I think, both of us how aligned our thinking is based on this common background and that somehow, I think, motivated them to offer and me to say yes to the idea of joining them. Really, what I would think is getting to my natural home and that happened in 2011. ! So, you’ve been there for more than a decade. You’re now cohead of portfolio solutions. What is that role like? What you — what’s your day-to-day work like at AQR Capital? ILMANEN: Yes. So, the Portfolio Solutions Group advises mainly institutional clients on all kinds of challenges that they have and thinking about the expected returns, portfolio construction, risk management, et cetera. And then in addition, we write lots of papers. I speak in many conferences. And then in addition to that, I’ve had a hand in designing and improving some of our strategies especially related Style Premia that was something I was quite passionate about when I joined. And by now, I’m co-head, the guy who has collaborated very closely with me, Dan Villalon, has taken more and more over the day-to-day running of the thing and I took time to write the second book recently and now I’m talking about it. And I think with my age, I’m happy to sort of move to part-time status, I think. RITHOLTZ: So, in the book, Cliff Asness, again, does the introduction and he says, you overshare a great characteristic for someone in research but he sometimes says he’s afraid you’re going to reveal the secret sauce. What — explain oversharing of financial research. ILMANEN: Yes. So, this is — this is related to all of us having this University of Chicago experience where we were really taught the value of being open and putting your research out there for public scrutiny to improve it then to educate. But, of course, there are possible downsides to that and that has been always a question. So, I’m not and we are not writing about all the proprietary strategies that we have but we are talking quite openly about some things like, again, style factor investing, alternative risk premia, things that are relatively widely known and I have this — I don’t know, yes, I’m sort of leaning that was of being too transparent than the — and then somebody may have to control me a little. RITHOLTZ: So, let’s just talk a little bit about two of the key themes in the book. The first is alpha, it’s the holy grail but also elusive and costly. Explain. ILMANEN: Alpha is something we all aspire for but in reality, the evidence is very limited that most investors can deliver alpha. Moreover, there’s a lot of is good resource by others who send us showing that much what people think is alpha, can be explained by either hedge funds running — RITHOLTZ: (Inaudible). ILMANEN: Lots of equity correlation. RITHOLTZ: Right. ILMANEN: More than correlation to these various styles that are not quite market beta but it’s certainly not pure alpha either. So, somehow, this type of demystifying, I think, is helpful. But it’s clear that investors tend to be managers and investors tend to be overconfident in their ability to find that elusive alpha. RITHOLTZ: So, I’m glad you brought that up because there’s another bullet points in the last chapter of the book which strikes me — let me read it, quote, “Discipline, humility and patience as a key to investing success.” That sounds more like behavioral finance than factor investing. ILMANEN: Yes. Yes. So, one other founder, David Kabiller, he’s always had this very good point that good investment results require good investment strategies and good investors. And so, we wrote the paper together almost a decade ago on bad habits and good practice and really thinking about those. Certainly, it does definitely get to behavioral advices. In general, I think behavioral finance literature focuses way too much on how you can exploit other people’s mistakes as opposed to looking into mirror and reducing your own mistakes. RITHOLTZ: Really quite interesting. So, let’s talk a little bit about some of the concepts about expected returns. You mentioned in the beginning of the book lower asset yields and richer asset prices have pulled forward future returns. In other words, a lot of the gains we’ve seen in the 2010s, and I would guess ’21 and ’22, weren’t so much based on that multiple end of earnings but future multiples that were pulled forward into that time period. Explain that. ILMANEN: It’s always good to think of starting yields and valuation sort of two sides of the same coin. So, starting yields of all major assets were coming down in the last decade and last decade — actually, several decades. So, something that I try to make investors see that they naturally think of this way also of expected returns with bonus. But when they think of equities or housing, they sort of look at the rearview mirror and think historical various returns. That can be distorted by this returning (ph) or cheapening quite a lot. So, I think it’s helpful to think that all of these long-owned investments are priced by thinking of expected cash flows discounted by a common discount rate, riskless part, and some various asset specific premia. And now, when this common discount rate has been at all-time lows and was coming down for decades. So, that was making everything expensive at the same time whatever happened to the expected cash flows and other premia. And so, that situation has gotten us to this sort of everything bubble some say and I think it’s — bubble is a bit wrong word there in the sense that there is a fundamental story behind it. The low real years that were influencing all kinds of investments. RITHOLTZ: It makes a lot of sense. You wrote this book in 2021 or at least finished it in 2021 and you described in the book what you see as an, quote, “investment winter ahead.” I have to say that seems pretty pressing considering since you handed the book in to be published last year. Markets have pretty much done nothing but roll over and head south in 2022. Was this just lucky timing or were you little pressing in? ILMANEN: I’ll put it largely to lucky timing. So, the story I was always saying that we know that we got these low expected returns give those slow starting yields and by the way, related to what you’re saying, I really like another statement. We borrowed returns from the future — RITHOLTZ: Right. ILMANEN: — when we were — when we are capitalizing everything at those expensive levels. RITHOLTZ: Makes sense. ILMANEN: And so, that’s locked in low future returns, we just didn’t know whether that’s going to materialize through slow pain staying in this slow expected return world or fast pain cheapening. And so, then in the book, I was saying that I don’t really have a strong view on this one. But in conclusions, I did put there that it just seems that stars are aligning for some fast pain and it wasn’t just high valuations but there was a catalyst. There was this — basically, the inflation problem was seemingly getting as close to the day when Fed finally has to make some hard choices. And so, that I got right but I would say that I was really lucky because I could have written in six months earlier. And in general, I’ve had other market timing calls. I’m not famous for being good at marketing. I don’t know anybody who is. There are no old gold market timers for most billionaire list. RITHOLTZ: Right. There’s old and there’s old but there’s not both. Let’s talk a little bit about the pushback to low expected returns. Following the financial crisis and the Fed cutting rates, economy and the market starts recovering in late 2009 and then 2010 and we kept hearing from a lot of different value corners, hey, everything is richly priced. Bonds are the most expensive. They’ve been in 30 years. Stocks are pricey. Lower your return expectations. But yet, the 2010s, so, returns and equities and bonds close to double historical averages. How do we explain why that advice took so long before it started to work? ILMANEN: So, I think there is a fair risk that we — anybody who was talking like that is thought that’s the boy who cried wolf and losing credibility then by this time. And I think that would be sad because I think sometimes, it’s going to really work and this year really looks like it can be — can be that sometime. And I felt always somewhat good that we were — at least we were not pushing for — we were not predicting mean reverting valuations that would have made things worse. RITHOLTZ: Right. ILMANEN: We were saying let’s be really humble about any market timing use of this stuff but low starting yields do anchor expected returns lower. But it’s true that — and what we saw then in that decade that rich things can get richer and that’s going to take quite a long time. And so, actually, my favorite quote is to think about what happened to S&P 500, the Shiller PE that went from mildly above historical average 20 to double and widely above average 40 in 10 years’ time and that type of thing gives you, well, basically seven percent annual returns prorated then. And so, that’s the key reason. And something similar happened, real yields and bonds were already low. There were even lower rental yields on equities, credit spreads, anything you look at had basically tailwinds from these falling years and that re-pricing then gave high returns and that — there’s a danger that people then look at the rearview mirror and become complacent just at the wrong time. RITHOLTZ: Right. So, let’s talk a little bit about that. How significant was the ultralow rates of the Federal Reserve to making all of these different asset classes richly valued and continuing to generate strong returns right up until the Fed started raising rates? ILMANEN: So, I think — so short term, what happened this year was really there was a catalyst of inflation and Fed tightening but the long-term story was always about valuations. And the important thing, as I said, is related to this common part low real yields. And should we blame Fed for that or should we blame somehow greedy investors? I’d buy more the stories that there was this fundamental effects, most important probably savings but excess savings coming from pension savers, also another story that when the wealthy were getting a bigger share of the pie, their savings rates are higher. There are research on both transmits which explained why we’ve gotten this exceptional savings glut which was then pushing all assets yields lower and creating this. And Fed and investors were basically then responding to that situation rather than driving it. RITHOLTZ: Now, we heard a lot about the savings plot from then Chairman Ben Bernanke in the early 2000s. Is this savings glut qualitatively different than what we saw two decades ago? ILMANEN: Yes. It’s the same idea. So, always when you think of real yields, you think of, okay, there’s some — there’s either an issue with investments or savings and it’s a balance between those two. And he was highlighting that there probably is more coming from the saving side and then he was emphasizing that this is China and often emerging market foreign reserves. Those types of excess savings were sort of the culprit for the conundrum in 2005 or whatever it was. And I think that story still has some legs but sort of the key culprit then became demographics and retirement savers and the latest story now is in the sort of the one percent. RITHOLTZ: So, the flipside of that, if there’s a savings glut, meaning big uptick in demand for that paper, does that also suggest we have a dearth of high-quality sovereign paper of bonds issued by countries like the U.S. or the UK or is it just whatever the existing supply of paper is what it is and it’s the demand that has spiked? ILMANEN: Yes. I think that demand has been driving things and, well, the supply has been there. Like there’s been plenty of supply as well to cater for it and really given the need for that to cover the public deficits that’s owned. But again, I think if one thinks of what sort of started this among fundamental forces, I choose to go with that savings glut. That’s my best reading of the literature. RITHOLTZ: Makes some sense. So, you wrote the prior book a decade ago, 2011 the “Expected Returns.” In the decade between that book and this book, what have we all learned, what has the markets taught us, and how did you work that into the new book? ILMANEN: Well, I like the — I like the basic framework still in the book but I think certainly, it was a terrible decade for all kinds of contrarian strategies and I have become even more humble. It’s sort of funny that I wrote my dissertation 40 years ago on duration timing and I talked about all kinds of market. I mean, every decade, I become more humbled about the endeavor and yet, even as I told like in the — at the end of this latest book, I’m still mentioning stars are aligning and it might be. So, the temptation is there but I think we — the main point I want to say is I think what we should really try to think of investing as a strategic effort, good diversification as opposed to some great technical timing course (ph) that doesn’t do well. So, I think that would be — and partly relearned through the difficulty of contrarian timing strategies. Then another thing which was very important in this decade was there was a growing interest in these diversifying return sources. But I think by now, the most popular one is related to illiquid investments whereas my favorites were then and are still now more liquid strategies, barrier style premia value investing trend following and so on and so. RITHOLTZ: So, one of the interesting things you talked about in the book is that we continue to find more data not just the decade of data that went by but historical data or old data going back to the 1800s. I have to ask, where is this — do we call it ancient? Where is this 19th century data coming from and how can you apply it to investing in the 21st century? ILMANEN: Yes. So, the first point is that we accrue out of sample new experience so slowly that it’s sort of painful to do that waiting and therefore, it is helpful supplementary source to get some old data source. Most early studies were done with data since 1960s to ’90s and then it was extended to beginning of CRSP data, 1926. And now, we’ve had people going further back and I am — so I haven’t been one of those in the archives but I’m one of those looking at that data and studying it critically and seeing what we can learn from there mainly whether you get similar patterns. I do love it when I find that some strategies have worked persistently over different centuries pervasively across different countries and asset classes and robust with different specification. So, that makes me more confident. But I do — I have recognized and that’s something I say in the book as well that when people see my 100 and 200 years of data there, some would just roll their eyes and — RITHOLTZ: Why is that? ILMANEN: Why do — why do I care about 200 years of data? I really cared about last three years with my old portfolio. RITHOLTZ: Well, obviously, that’s a very specific samples that you want to go way beyond that but it raises — people rolling their eyes, raise the question, how reliable is that data, how accurate is it, can we have confidence that it’s been cleanly assembled? Because the technology of the 1800s little more manual than today. ILMANEN: All fair. So, I would just — I’ll just say, well, first, I’ll say you just do the best you can. RITHOLTZ: Sure. ILMANEN: And I think — so, there’s some value in that data but the — there are data problems, there are investability questions even if the data we’re finding maybe liquid and do foreign diversification or something like that. Actually, before first — well, maybe you could, that was pretty international era. And then there’s whole criticism that the world has structurally changed and that criticism has more bite the further back you go. So, I think for all these reasons, we should be skeptical but I still like it as a supplementary evidence not as main motivation for anything. RITHOLTZ: So, you mentioned diversification earlier. In the last section of the book, you write an ode to diversification. Tell us about that. ILMANEN: Sure. I do think — it’s a cliché but diversification is pretty close to a free lunch and it is a wonderful, wonderful aid to improving portfolios. I think it’s much easier to improve your risk-adjusted returns through good risk diversification than by getting somehow greater insights in one particular strategy. And so, I write about it both — I do know, the simple maths about it how you can double shop ratios for uncorrelated strategies and then remind that it’s really difficult to find for uncorrelated strategies in long-only world. You may have to get to long-short world to take advantage of those types of opportunities. And then the flipside of that, I am saying that diversification has got some critics of the diversification order or that diversification phase when most needed. And so, when I think — I can counter those to some extent. But I think there are challenges. Good risk diversification often then requires you to use some shorting and leverage and there are limits to how much people want to do that. There’s unconventionality issues and then there’s this what we’ve highlighted in recent years that you sort of inherent, you lack stories. And so, it’s very sort of, I don’t know, math oriented or algebra-oriented type of thing as opposed to great stories which drive most investment passions. RITHOLTZ: Right. Right. That makes a lot of sense. You mentioned free lunch. You talked about rebalancing arguably another free lunch. Tell us your thoughts on rebalancing. ILMANEN: Yes. So, rebalancing, I think, is a way of ensuring that you can retain your risk targets and you can retain your diversification. So, I think of it primary years that there’s a follow-up question whether you can get better returns and then how you do it and so on and I talk a little. I think I wouldn’t be too strict on rebalancing. I think like one good idea is to be somewhat lazy with rebalancing strategy. RITHOLTZ: So, that means one year? ILMANEN: Yes. Something like that or maybe four times a year but part of the portfolio. RITHOLTZ: Right. ILMANEN: So, you’re sort of averaging. You don’t get so dependent on when you did it during the year. RITHOLTZ: Right. ILMANEN: So, that type of thing. But basically, if you are a little lazy or patient with rebalancing, let the near-term momentum play out then you might get closer to the time when there’s mean reversion advantages. So, you’re trying to play a little bit disadvantages that tend to be in the financial markets with momentum and mean reversion. RITHOLTZ: So, let’s talk a little bit about low expected returns. We already talked about the impacts on Fed rates. What else goes into driving valuation factors that can lower future expected returns? ILMANEN: It really depends on what horizon we talk about. So, monetary policy macro conditions are very important for short term but I think I’d like to focus and I do focus in the book mainly on long-term expected returns. And then it is — RITHOLTZ: Long term being three, five, seven years? ILMANEN: Five to 10 years, something like that. And, yes, it’s interesting, if you go even further then sort of valuations even don’t matter. So, everything gets diluted. RITHOLTZ: Right ILMANEN: And then you have to think about what some theoretical long-term return. But sort of for 10 years ahead then starting yields and valuations are essential and again — so, I think those are very helpful anchor for thinking about those returns even though you can get these very ugly forecasters like what happened in the last decade. But when such a thing happens, then it pretty much stores problem for the future. So, last decade, as its reach on its adjustment, you’re going to have even more problems in those future returns. And I think the only way you can sort of solve the low-expected return problem here is — at least for risky assets is that they would be this much faster growth, this techno optimism that you hear in some quarters. And there, I’d say, could be but we’ve had wonderful technological advances last hundred years and two percent real growth is pretty much as good as it gets. RITHOLTZ: And that’s interesting thing because you talked in the book about very often mom-and-pop investors, individual investors, tend to confuse GDP growth with expected returns. Academically, we know there’s almost no correlation between the two, is there? ILMANEN: It’s surprising that whether you look at over time in one country or you look at across countries, the relation is very modest and my favorite poster boy in that one is China, which had this 30 years of very fast GDP growth. RITHOLTZ: Massive. Massive growth. ILMANEN: And for equity investors, it was really sorry story. RITHOLTZ: Yes. No. It’s a lost opportunity. If you piled into China in 1990, you missed a lot of opportunity elsewhere in the world. ILMANEN: Yes. RITHOLTZ: It’s quite amazing. ILMANEN: Yes. And there are some stories why that’s — why that’s the case, Like basically, one logic is a GDP growth doesn’t capture how the IE shared between corporates and so on and there’s different sector compositions, there’s public versus unlisted sectors. All kinds of questions like this that can then mechanically explain why this happens. But it is — it’s a weird result and it’s understandable and I think it commonly motivates people to look for those fast-growing countries and taking it for granted that that’s a good equity investment. RITHOLTZ: So, when we’re thinking about various asset classes, how does cash work into that allocation strategy, is that a legitimate asset class or is it just a drag on future returns except for years like 2022. ILMANEN: Well, even in 2022, again, the relative sense, cash, is, of course, doing fine but the real returning cash is whatever minus five percent. It just happens to be better than even more — RITHOLTZ: Right. ILMANEN: — various results. And so, I think one interesting thing is you sort of — you need to have some market timing ability, I think, to make cash useful and use it almost as an option. And then it matters whether you have got some interesting yield levels. Twenty years ago, you had that three, four percent real return on cash. RITHOLTZ: Right. ILMANEN: Not around in this situation. So, I do think that the main story with cash like you said that there’s something about the drag and it dilutes. It’s not to diversify or it dilutes the performance. It would be good if you have got some great market timing skills. But let’s be humble about it. Often, I’d even say that cash may be best used as basically on the other side like you want to use for leverage for some long-short strategies. And so, that maybe helpful answer on what you do with that. RITHOLTZ: In the book, I like the way you described certain investor type based on their future liabilities. So, pensions, endowments, defined benefit plans, you point out that they’re particularly sensitive to low-expected returns. Tell us what makes them so susceptible. Is it the future liabilities they have? Why is merely the concept of lower expected return so problematic for them? ILMANEN: Yes. Well, I think it is — it is for any investor, but if you have made some commitments for the future, then it is maybe more legally binding and — and that — that makes it better than for somebody who can — who can basically adjust expectations or try to just leave through these things without — without sort of recognizing the low expected return until — until somewhere far into the future. RITHOLTZ: So, let’s talk about far into the future. How long should we expect lower returns for? Is this a question quarters or years and decades ? Is this cyclical? Does it eventually turn on? Tell us a little bit about the duration of expected returns? ILMANEN: Sure. So, the main story of the book is about low — those low starting years and therefore, we are talking of long-run story. Then I’m — I’ll sort of turn in to more speculative punditry by thinking about the current situation where I do think that we are now in this fast pain situation where we will probably get more, where we will surely get more monetary policy tightening and I suspect that the latest — latest market positive is on yield so it’s maybe way too optimistic. I think — I think you will need — you will need more tightening to control inflation. And again, this is — this is a speculative talk here. So, I think fast pain will be with us for various risky assets but I — I think there will be a limit to it because of the structural forces. I refer to the savings glut. I think that’s not going away anytime soon, and therefore, there’s going to be a lead on how far yields can rise and that — and basically, those bond yields, they have been underwriting high valuations and all other on stocks and real estate and so on and those rising years have been very important in cheapening those other asset classes. And so, I think there’s gong to be more pain on that front but not too much. I don’t think we will get so much higher yields and cheaper asset valuations that we would sort of solve all of the long run problem of low expected returns. We will — we will still get some pain, but we’ll — I think the slow pain will be with us quite a long time. RITHOLTZ: So, let me see if I can explain that. If I — if I understand that. We’ve had a savings glut that has put a cap on interest rates which means that the cost of capital has been very low and therefore that allowed us to speculate in real estate, in inequity, and that allowed valuations to go high and what’s going to determine how much those multiples compress is how high rates end up going up? Am I oversimplifying that? ILMANEN: No, no, that is — that is right. And again, we have gotten now the cyclical situation where — where basically their inflation problem forced finally central banks to act quite aggressively then on, well, Fed, anyway, on the interest rate front and then how much more they have to do is going to be important in the near-term, but I just don’t see a scenario where they would raise rate so much that we will get back to the kind of four, five percent expected real return, so 60-40 portfolios which used to be there, we are about half of that nowadays. We’ve come from the lows but we are still like, let’s say, 60 to 40, two percent real yield is roughly the number as opposed to the four plus long run. RITHOLTZ: So, we’re recording this the first week of July. The Fed has already raised 75 basis points on top of their previous 50 basis points. For a while, the consensus is that the end of July, I think it’s the 27th, that meeting seem to be 75 basis points. It sounds like fears of recession might drive that down to 50 basis points, but clearly, there’s no consensus there yet. How far do you think the Fed’s going to go in tightening and do we run the risk that we’re behind the curve in 2021? Are we running the risk that they’re getting ahead of themselves in 2022? ILMANEN: Yes. First, as a qualifier here that … RITHOLTZ: Nobody knows. ILMANEN: Nobody knows and we don’t trade on my views, we don’t, like, this is — this is — that’s important. Then it is — it’ s incredibly difficult. But, yes, we certainly do think about those — those issues will attend and my — I’m pretty much in, let’s say, Larry Summers camp there thinking that it’s very hard to get the immaculate disinflation here and you will need — Fed needs to do more to get that information into control. And if it does, either if it acts more or financial markets drop enough, then there’s going to be some pretty bad outcomes to risky assets without that I think we are — we are going to continue to have that inflation problem. And this — there’s a narrow path how it could go in a more benign way and market seems to be clutching that straw right now. RITHOLTZ: So, what would make you change your mind? What would lead you to say, oh, I’ve been too cautious about future expected returns and because A, B, and C happen, I think we could get a little more confident. ILMANEN: Yes. So, I — I think the long horizon estimates are very difficult to change. The starting yields are heavy anchor. So, I think it would be — it would really require the growth environment to change. Again, I mentioned earlier a technological progress, those types of things. So, short term, anything can happen. But somehow, you have to have this type of idea with a greater Internet usage globally and all kinds of technological progress moving us from the two percent to three, four percent real growth … RITHOLTZ: Which is hard to do. ILMANEN: Hard to do. Has not happened. RITHOLTZ: Right. And then you mentioned earlier the cheapening, if stocks got much cheaper, that could potentially change it, the starting valuation, but do — do we really think that’s a likely probability? ILMANEN: Yes. I would be surprised that we would get that much cheaper. And again, the economic logic I have is the savings glut somehow that basically real yields are not going to allow that — we have too, I don’t know fragile economy, too fragile financial markets to — allow that much cheapening. And we usually would — we might be talking of 40-50 percent further — further force that … RITHOLTZ: Right. And that — that seems pretty unlikely from, at least with the state of the world today, obviously that can change any — anytime. That — that’s really, that’s really quite interesting. So, lets’ talk about some things that seem relatively cheap. Cliff Asness, in the foreword of the book wrote, quote, “Value premia seems record cheap today.” That was the end of 2021. Is value premia still cheap today value premium is still very cheap and it’s been a lovely year in the sense that we have had positive returns and yet the value spread this forward-looking measure of how cheap value stocks versus growth stocks has remained wide. And partly, it is that you get some pullbacks like we have recently — recently gotten, but also, you — we are basically rotating into new value stocks and growth stocks and — and the fundamentals have actually further had sort of favorable developments favoring value stocks versus growth stocks. So, for all these reasons, we see that value stocks, the way we tend to trade them, are as cheap or even cheaper than they were at the worst times during the dot-com bubble. And it is important to just distinguish. I’ve wrote about this in a blog recently that that dot-com bubble was very much about tech versus others and across sectors, we haven’t gotten to the new highs. But we tend to focus on within industry stock selection in our value strategies and with that, the key story of this recent bubble was really the markets favoring these disruptive profitless growth companies within every sector and that opportunity remain still very wide and we would love seeing like pretty good performance behind ascendant, very good runway because those values spreads remain quite wide. RITHOLTZ: And in the U.S., I’ve noticed that small-cap value is done much better than the large-cap companies and then emerging markets, small-cap value, last I looked, it might have even been green for the year, might’ve been positive returns for the year, why are small cap doing so well in the value spaces here? ILMANEN: When it often happens, like you just — you just get bigger movements in good and bad on the small caps than large caps. RITHOLTZ: So, I mentioned the quote from Cliff, he’s a big character. What’s it like working with him? ILMANEN: It’s mainly, it’s great. Though, if you had him with us here on this studio, I think you wouldn’t hear much of me and that’s just as well because he is — he is faster on his feet than his — he’s wittier, so that’s in everybody’s benefit. But it — so seriously, it does help that our investment thinking investment beliefs are so similar. So, I really rarely have got any — any, any ways to second-guess anything he says or does. So, that’s great. And then, most importantly, I do love his ethical antenna and his kind of truth-telling obsession that he has. I mean, sometimes there’s — there are overshoots that, but it’s really — it’s a reason for me why I love to work in AQR more than any other place in financial … RITHOLTZ: Because of Cliff? Usually, you get a guy who’s quantitatively oriented, you tend not to get that sort of articulateness and you also tend not to get that sort of sense of humor which is very, very specific to him. He’s a very funny guy. ILMANEN: He is. Yes. And I — a bit mixed feelings because there’s no way to beat him on those things. But that’s OK. RITHOLTZ: That’s very funny. So, let’s talk a little bit about the things that have changed since you wrote this book. What’s going on in the current market? Is it just confirming what you’re expectations were for — for future returns? Tell us a little bit about how 2022 has, now that is half over, how has this impacted the general premise of the book? ILMANEN: Yes. I think overall, I feel totally blessed that we got — the book came out at the time when markets where roughly acting the way the title was saying, talking about low expected returns. We’ve got low realized returns so that sounds — sounds great. And it also turns out that some of our strategies, value strategy trend following these types of strategies are doing very well, so — so I’m getting like great, great response. But of course, things have some — some things have happened as expected related to inflation central tightening, but then I had no idea of what, the geopolitics Russia, Russia-Ukraine or the greater split we have between U.S. sphere and China and so and so. And I don’t have — I don’t have great insights to this. For us, when I think of the long run expected returns, the key story is that as it’s have cheapened, as one would — one would have expected in this situation and — and the question is whether there’s going to be more, I think it’s — it is interesting that we’ve had — we’ve seen the biggest moves in bonds, smaller moves. When I think of yield, yield space, not price space, but in yield space, equity yields have risen more and then illiquidity yields have risen, so far, very little. And of course, there is a smoothing effect. And so, that’s a — but I do expect that there’s going to be an an issue. I saw in March when — when equities didn’t instantly respond to rising yields, it reminded me of Wiley Coyote running over that cliff and sort of waiting for gravity to hit and I think something like maybe still happening with the private assets, that they are sort of waiting, waiting to price things. RITHOLTZ: So let’s talk a little about that. There’s been a lot of discussion about private markets and the illiquidity premium. They get — what are your thoughts on this? Should nontraded assets get an illiquidity premium? ILMANEN: Yes. So, I’ve written a lot about it. Cliff, of course, also and more wittily on this. And I think it is — it’s dangerous that people think too automatically. That if I invest in illiquid investments, I’m going to earn an illiquidity premium. I think after equity premium, that’s probably the second most confident statement people would have on longer expected returns. And data doesn’t really support it. So we’ve done lots of empirical evidence on this. And so, the logic why the data is then, so maybe disappointing is, I think, that — that people somehow confuse — they — they think that the illiquidity is the only important feature. So, yes, I think it is fair to require illiquidity premium for locking your money for 10 years, but then there’s these other characteristics, like — characteristic, lack of mark-to-market, the smoothing service — services, I call it. And that may totally offset the amount of excess return that you get. So, if there’s a two, three percent required illiquidity premium for forward-looking money, we might accept the same return for public and private equities because with the private equities, you don’t get the great volatility. RITHOLTZ: Now, you also show a chart in the book that shows how the bottom third of illiquid markets have, you know, by definition, they’re underperforming the top third but that gap has just been widening and it seems like in addition to whatever illiquidity premium are in private markets, there also seems to be a pretty substantial, I don’t know if I want to call this quality factor, but the best of the illiquid investments seem to really dramatically outperform the bottom. That spread is much bigger than we might have anticipated, otherwise. ILMANEN: So, apart from thinking about illiquid’s overall, one of these great sailing points there is the wide dispersion between outperformers and underperformers and to me, that’s such a lovely example of investor over confidence that when people see this, this person, they think, the upside is for me, the downside is for someone else. And so, clearly, this opportunity involves some risk as well and it is -it’s somehow that that industry doesn’t seem to have anybody getting that downside. So, sorry. I do think that some investors have got a decent claim to expect to get those top quartile right, let’s say to half managers but for others, I think it’s a somehow, it’s better to just think, OK, if we get the industry level returns, that’s reasonable. RITHOLTZ: So, Will Rogers used to always advise people only buy stocks that go up. If they don’t go up, don’t buy them. Does the same thing apply to private markets? Only invest in private markets that outperform. If they don’t outperform, stay away from them. ILMANEN: Yes. Yes. RITHOLTZ: If only it was that simple. ILMANEN: Hindsight, it’s great. But it is — and so, I would say, just positively, there that historically, in particular, if we look at private equity, it has a great 35-year history of outperforming S&P 500 by a three percent or something like that every year and that’s after five, six percent fees. That gross alpha is just mindboggling in some sense. But looking ahead, we should be much more: cautious because the gap has already been much narrower the last 15 years and it seems to be narrower because the money was flowing in because of the popularization of the Yale model. Since then, the forward-looking opportunity has been much narrower and realized opportunity has been much more — much more modest and the fees, are the good old fees. So, I think next decade will be one disappointing than we’re from. RITHOLTZ: Right. And when we look back to the early days of that outperformance, there were a tiny fraction of the number of funds then. What is it? Like 10,000 private equity funds that used to be — that used to be numbered in hundreds, not thousands. ILMANEN: Yes. Yes. RITHOLTZ: Same as the hedge fund and the venture capital world, success has attracted a lot of capital which leads to underperformance. ILMANEN: Yes and one further thing is these questions were already relevant a few years ago, but private equity did very well the last few years and I saw Dan Rasmussen wrote quite nicely, so recognize — I mean, that’s rare and lovely one somebody does. It’s postmortem on my mistake, that’s what he did there and he said that he got it so wrong because they — private equity like hedge funds and especially venture capital, were pushing a lot into the growth sector and that worked very well for a few years and I think to the extent that we are right about the value versus growth, that benefit will turn into advantage, I think, in the coming years and so. RITHOLTZ: Really, really interesting. We haven’t talked about a couple of other alternatives. Credit spreads, commodities, what else are you thinking about in the alt space? ILMANEN: Yes. I think commodities is the most interesting case. And so, I’ve got a double positive story on that one. The first one is the obvious one when we look for inflation hedging investments, they are pretty much the best there is. And so, most portfolios that invest — most constituents of anybody’s portfolio, stocks, bonds, and so on, they have what this disinflationary tilt that was helpful for a long time recently. And so, if you want to have a pretty neutral portfolio, you should have some allocation to commodities. Then the second point is that many investors think that you don’t earn a positive long-run reward on commodities but the data says otherwise. Basically … RITHOLTZ: Really? ILMANEN: Yes. Diversified combination of commodity futures has earned something like three, four percent long run reward and that’s a — it’s a weird thing and I — and I focus on it in the commodity sector telling that it’s part of it is related commodity, role maybe, but important part is related to diversification return. So, basically, this is getting very geeky, but let me just try. Commodities, on a single — single commodity base have a 30-40 percent volatility which means that that that type of volatility hurts compound returns a lot and — and when you combine lowly correlated commodities together, you can reduce that volatility roughly half and you can get this volatility drag much smaller. And so, for — if as the evidence suggests, that a single commodity has pretty much not outperformed cash in the long run, portfolio of them has done it because of this saving on this volatility drag, thanks to diversification. RITHOLTZ: So, it’s a basket of energy and industrial metals and precious metals and foodstuffs and not just … ILMANEN: And lots of — lots of, yes. And lots of single one of them. And so, again, you get — commodities, these types of effects happen in any investment. On your equities, on your bonds and so on, it just doesn’t matter so much with them because the correlations tend to be higher or volatilities, lower commodities have got this glorious combination of high volatility and low correlation that makes this really matter. RITHOLTZ: Very, very interesting. Let’s talk about ESG. There have been some estimates that it’s now over $20 trillion. You talk a little bit about ESG investing. Tell us about your thoughts. ILMANEN: Yes. So, it clearly growing force and I would argue also, largely a force for good, but the expected return impact is debatable. And so, Cliff wrote already a blog a few years ago highlighting this simple logic that, one logic is constraints always should have a cause. But another logic is that if you want to be virtuous and you want to raise the discount rates for sinful companies, well, you do that by maybe investing less, less in the more even — in some cases, you could, you could short them. And so, if you do that and you raise their discount rate, you also raise that discount rate, this flipside of expected return. RITHOLTZ: Makes them more attractive. ILMANEN: Yes. Yes. So, somebody else is willing to basically buy those sinful companies than we’ll earn higher returns. So, that is pretty much long-run story that should happen when investors really like something for nonmonetary reasons and that includes ESG. Then the, I think, the reasonable counterargument is that we may be in a transition phase here where we are getting the repricing. How do we get to those higher discount rates? Well, we get it basically by making those — those companies cheaper and then we can debate now whether we are in early innings or late innings on — on that question. So, in the long run, I think there will be some cost and I think most investors who are ESG oriented should be willing to take some, of course, as a flipside of their virtuous investing. But in between, they might get sort of the win-win outcome that they so like. RITHOLTZ: Now, you weren’t getting the win-win outcome the past six months, especially if you were low carb and low oil, any of the energy stocks have just done spectacularly the past year, is that going to be the long-run trade-off? Is that — if you’re staying away from some of these, you take a chance that there’s a big move up in a sector that you’ve reduced your exposure to? ILMANEN: Yes. I — that possibility always exists. And now, we — now that we had it, I think it is going to raise more discussions in some organizations than how to deal with any financial trade. I must say that in Europe, I think that investors will largely stay with their ESG beliefs and there’s not going to be questioned if they — if they think they — there’s some financial cost that’s okay. In the U.S., there’s more doubts and it has become such a political issue … RITHOLTZ: Right. ILMANEN: … that it’s going to be , I think, harder. Just, I — everything or anything I can say on this one, I think is that — is that there was a sort of easy travel towards more ESG for the last few years. And now, I think we are — we are in a world where it’s going to be harder. I think the trend is still the same but it’s going to be more jagged going ahead and maybe especially so in U.S. RITHOLTZ: And before I get to my favorite questions, I got to throw a curveball at you, Cliff Asness mentioned you like to go in a 120-degree sauna and jump out and roll around in the snow? Is this Finland — Finnish sort of thing? Tell us about your heat and cold habits? ILMANEN: That is — that is exactly what we do for cheap fun. And sadly, there are fewer opportunities with the global warming. But yes. RITHOLTZ: So, how hot does the sauna get? ILMANEN: I was thinking whether you are talking Fahrenheit or centigrade. RITHOLTZ: Fahrenheit. ILMANEN: But, yes, I knows we are talking, so say.. RITHOLTZ: Not boiling water? ILMANEN: You want to know, in centigrade, now we do go close to … RITHOLTZ: Forty degrees? Thirty-five degrees? ILMANEN: I don’t know. We go to 80-100 degrees. Definitely so. RITHOLTZ: In centigrade? ILMANEN: Yes. Yes, yes, yes. RITHOLTZ: So, that’s like 160-180 … ILMANEN: You’ll do the translation there. RITHOLTZ: Wow. ILMANEN: But I — I think of, you know, the I do my Fahrenheit and Celsius not in that area. RITHOLTZ: But still, 80 degrees is very — you’re just — that’s very warm. ILMANEN: Yes, it’s nice to sweat. RITHOLTZ: And then when you jump into the snow, isn’t that a little bit of a shock to the system? ILMANEN: Yes. Well, or you go to a polar, icy — well, you go into icy water. RITHOLTZ: Sure. ILMANEN: That’s even better but that’s hard. But, yes, it’s great fun when you can rarely do that. Yes. RITHOLTZ: Quite interesting. All right. So let’s jump to our favorite questions that we ask all of our guests starting with what have you been streaming these days? Tell us about your favorite — whatever kept you entertained during the pandemic or whatever podcast you listen to. ILMANEN: Sure. Sure. Yes, I thought about this in recent months when I have had you asked these questions. And by the way, I’ve gotten some good tips. I got “Le Bureau” and “Call My Agent,” the French ones, and some Israeli shows in from here. So, thanks for those. RITHOLTZ: “Fauda.” Yes. “Fauda” was … ILMANEN: Yes, yes, yes. Yes. RITHOLTZ: That’s why I ask it because I get to speak to people who have interesting sensibilities. I want to hear what they’re seeing and hearing. ILMANEN: Yes. Well, so, as a first none albeit or none interesting answer, I think recently, “Better Call Saul,” looking forward to the last few episodes. But — so that’s been great. But I thought that I’d rather highlight then less well-known older series. So, my favorites, I think, in last 10 years were sort of slow burn, “The Americans,” the Russian spies. That one or “Rectify.” It was a story of from the southern U.S. and just, I think — I think lovely stories. Got to take time for those. And likewise, then in podcasts, I listen a lot to history. And so, beyond investing. And I’ll just — well, on near investing, I would say Tim Harford’s “Cautionary Tales” is fun and Zingales and Bethany McLean “Capitalisn’t” has got very thoughtful topics. So, I think they are — they are good but I love — in history area, I love Dan Carlin, Mike Duncan, Patrick Wyman. And there’s a British show called “Rest is History” which just always makes me laugh. RITHOLTZ: That’s a good — that’s a very interesting list. Let’s talk about some of the mentors who helped to shape your career. ILMANEN: Sure. So, obviously, I told the dissertation chairman, Fama and French, so they’ve been very influential in many ways. But I would especially then highlight Marty Leibowitz, so all — before, during, and after Solomon years. So, and he’s such a mentor that it is — it’s wonderful to have known him for decades. RITHOLTZ: What about books? What are some of your favorites and what are you reading right now? ILMANEN: Yes. So, I am a voracious reader. Lots of investing fiction, nonfiction, all kinds of things. I thought I — I will highlight from fiction really big one. Hillary Mantel’s trilogy on Thomas Cromwell, “Wolf Hall.” I was thinking, I think maybe I heard in your show also “The Three Body Problem,” very different, sci-fi, the Chinese one. So, I think that was great. And then on nonfiction, I — I think the most impressive book I read in last couple of years was Joe Henrich’s, “The WEIRDest People in the World.” So, this is — WEIRD is Western Educated rich democratic. And it’s basically telling how different the people who are most often studied in various psychological studies, they invest in university students, how different they are from most cultures and then it’s explaining why things went that way. And it’s — it’s most parts of the story are very interesting. But again, a very long book. RITHOLTZ: Really, really intriguing. ILMANEN: Yes. And currently, Zach Carter, I think, is the author. The book on price — “Price of Peace.” Yes. RITHOLTZ: Good. That’s a good, that’s pretty good list. What sort of advice would you give to a recent college graduate who is interested in a career in either investing finance, value, quantitative, investing, how would you advise them? ILMANEN: I’ll go with the old-fashioned saying. Don’t sacrifice your ethics, that integrity matters. RITHOLTZ: Good — that’s really good advice. And our final question, what do you know about the world of investing today that you wish you knew 30 or so years ago when you were first getting started? ILMANEN: Yes. I thought — I’ll say this lightly that bond yields can go negative, you know. Didn’t expect that to happen but the funny thing is that I thought that, really, I would have then expected that do coincide with bearish equity markets. But in 2010s, it actually happened with — with a big bull market. So, it wasn’t that — that equities pushed equity weakness, pushed bond yields down, but it was that low bond yields pushed equities up. So, so causality went that way and that’s a pricing. So, I think that’s — that’s one. And then, another serious, serious is, is how important and how hard patience is. So, with all of these ideas, I talked about this long-run strategies and you just — it doesn’t matter too much if you don’t have the stickiness. So, I think one has to really calibrate one’s investment to the amount of patience one can reasonably expect to have. RITHOLTZ: Really, really intriguing. We have been speaking with Antti Ilmanen, cohead of portfolio solutions at AQR. If you enjoy this conversation, well, check out any of our previous 400 or so podcasts. You can find those at iTunes, Spotify, wherever you get your favorite podcast. We love your comments, feedback, and suggestions. Write to us at mibpodcast@bloomberg.net. You can sign up for my daily reading list at ritholtz.com. Follow me on Twitter, @ritholtz. I would be remiss if I did not thank the crack team that helps with these conversations together each week. Justin Milner is my audio engineer. Atika Valbrun is my project manager. Sean Russo is my head of research. Paris Wald is my producer. I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.   ~~~   The post Transcript: Antti Ilmanen appeared first on The Big Picture......»»

     The transcript from this week’s, MiB: Bill Gross is Still Standing, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ RITHOLTZ: This week on the… Read More The post Transcript: Bill Gross appeared first on The Big Picture.      The transcript from this week’s, MiB: Bill Gross is Still Standing, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ RITHOLTZ: This week on the podcast we have an extra special guest. I’m trying to — to maintain low tones and I’m trying to keep my insane enthusiasm down. But holy cow, Bill Gross, the Bond King, spent three hours talking with us literally about everything. This is a pretty amazing conversation. He does not hold anything back. He names names. He calls people out. He — I don’t even want to say he has scores to settle because he did that in his book. He explains what made PIMCO such a — a unique place, how they accumulated trillion dollars, essentially creating the concept of institutional bond trading before PIMCO bond trading was by appointment only. This didn’t exist before then. We cover everything from card counting to inflation, to the Fed, to his book. It’s a Mary Childs book, “The Bond King,” about him. Really, there were no comments left unturned. And we also revealed what his thoughts were about when his bonus was revealed by a certain podcast host about eight years ago, and — and how that came about. His and Mohamed El-Erian’s multibillion bonus pool, how that thing could even exist, Allianz allowed them to do it, and — and how after almost being a parlor game of speculation, how those billions of dollars in who got what bonus pool was finally revealed. This was an absolutely fascinating conversation and an extra special guest. So, with no further ado, my conversation with PIMCO Co-founder Bill Gross. ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. RITHOLTZ: My extra special guest this week is the Bond King, Bill Gross, the Co-founder of PIMCO. At one time, Bill’s total return fund was nearly $300 billion. It was the world’s largest mutual fund. Gross controlled more bond money than anybody else in the world. He advised the U.S. Treasury on the role of subprime mortgage bonds in the ’08-’09 crisis. He was named Morningstar’s Fund Manager of the Decade in 2010. They observed no other fund manager made more money for more people than Bill Gross. He is the author of several books, including “Bill Gross on Investing” and most recently, his book “I’m Still Standing: Bill Gross and the PIMCO Express.” Bill Gross, welcome back to Masters in Business. GROSS: Thank you, Barry. Actually, I’m — I’m sitting talking to you, but I’m standing in life, so that’s what the — the title applies, I think, but it’s good to be here. RITHOLTZ: It’s good to have you back. And, in fact, I owe you a debt of gratitude because when you came on the show, you know, it’s got to be six, seven years ago. You were really the first big name that said that I – let’s try this podcast thing out, and you opened the floodgates. So, if I’m lacking in any objectivity, let me disclose that right up front. But — but let’s talk about your career starting with Pacific Life. You’re — you’re a junior guy there, literally, going into the vaults, taking bond certificates and clipping coupons off of that. How — how do you get from that sort of junior intern menial labor to launching a standalone active bond shop? GROSS: We’ll, let me add to that quickly. I — I could only clip coupons for half of the day, I guess. The other half I was off making private placements of loans to fledgling companies such as Berkshire Hathaway and Wal-Mart. I — I visited Sam Walton with his two kids with a dog I struck. They had two Wal-Marts in Bentonville, Arkansas. And same thing with Buffett and Charlie Munger. So, I — I was doing some of that. But to — to — to make the transition, I guess, to managing money, I — I — I did a master’s thesis at UCLA, I just graduated, and it was about convertible bonds, but also about warrants and — and option-related vehicle. So, I was interested in the bond market even though I wanted to get in the stocks. And Pacific Mutual in downtown LA had a $1 billion worth of bonds. And a broker from Weeden & Company, Howard Raykoff, decided to visit and tell me that somebody else in town was trading some bonds from boxes. And — and that was as — as you know, there weren’t any computers or IBM 360s, but we only had one. You couldn’t really buy and sell on the wire, and so it was very difficult to trade. But I convinced him to, you know, let me use $5 million of their bonds and set-up an active trading account. That was the beginning of PIMCO. RITHOLTZ: And before PIMCO, I’ve heard bond trading described as by appointment only. Is it fair to say you and your team invented fixed income trading? Am I — am I overstating that? GROSS: Probably just a little. There was this gentleman, I forget his name in Occidental Life Insurance in L.A. that was doing some of that. There was Jim guy from Lehman who later died that was doing some of that. But I was certainly one of the first, and I was certainly one that pursued it and convinced at least the executives of Pacific Mutual that this could be turned into a business. RITHOLTZ: So maybe I should say PIMCO helped to bring about institutional trading on a level that just didn’t exist before. You guys helped to systematize it. Is that — is that more accurate? GROSS: Yeah, I think that’s true because back then, you know, stocks were the vehicle to trade, and even then, they weren’t traded that actively. Bonds were basically bought and ultimately matured, I guess that — the big banks in the East, the New York, and Boston, and Chicago. And so, yeah, bond trading was — was an afterthought. No one thought that you could sell one bond, buy another, and make some money. And so, it was innovative, and I was glad to be part of it. RITHOLTZ: So, in the book, you describe how PIMCO grew in the 1980’s and 1990’s, but we’ll talk about the latter years later. But that period, following everything that Chairman Paul Volcker had done with the bond market, that really was a — a perfect storm to — to plow into the fixed income space. Tell us about the growth of PIMCO in the 1980’s and 1990’s. GROSS: OK. And — and so you’re right, we started at a great time not in the 70’s because the bear market didn’t really end until ’81, ’82, ’83 depending upon, you know, the maturities of bond. But you — you know, it’s — it’s set-up the premise for total return in bonds where you could not only get a coupon, get an interest payment, but get a capital gain. And when you’re starting at close to 15 percent for a 30-year treasury, you know, it was — it was fairly easy ultimately to get a capital gain, and so that — that helped us. We were also helped by a legislation from the Congress a bill that legislated ERISA, which basically mandated that pension managers had to diversify and not just diversify between, you know, the obvious, but also diversify between East Coast and West Coast. And so, this little company called AT&T, the biggest in the world team according late in the 70’s and liked what they saw, and they hired PIMCO. And that really was the beginning of it all. I mean, who — who wouldn’t open the door to a person or to a company that had just been hired by AT&T. RITHOLTZ: But this is more than just lucky timing for a couple of reasons that I want to go into. We’ll talk a little later about some of the technical aspects that PIMCO really figured out to generate fixed income alpha. We’ll — we’ll circle back to that. I want to talk a little bit about your investment outlooks. These were — were highly regarded. People thought they were both insightful and well-written. And this is at a time when, you know, we kind of take it for granted today that so many people write about financial investing and strategies. When you started doing the investment outlooks each month, that was somewhat unusual, wasn’t it? Tell us about that. GROSS: Yeah, it was very unusual, and I thought about it from a business context. And I said, you know, if I want to be successful at PIMCO, if we want to grow as a company, you’ve got to say hello. And the best way to say hello is to write these investment outlooks. I mean, there were a few. There was a famous guy you know, Barton Biggs from … RITHOLTZ: Sure. GROSS: … Morgan Stanley that was a real good writer. And — and I don’t think Jim Grant had started yet, but he was a excellent writer in the time. So, I wasn’t the only one. But I — I thought that if I’m going to inject some personal vignettes into my forecast for the bond market, the people would read it because they didn’t really read these things that came out of First Boston, and Solomon Brothers, and so on. And so, I — I decided to take a little risk. You know, one of the things that I wrote at the beginning of my book, a quote, it said that, “Talent is helpful in writing, but guts are absolutely necessary.” And so, I — I decided to have a few guts and opened myself up to people. And some like that and some didn’t but, you know, the — the reputation grew. RITHOLTZ: Well, I want to point out first, you were the — the O.G., the original gangster when it came to financial writing because, of course, there were lots of professional writers and journalists running about it. But as far as I recall you might be one of the earliest people who were managing money to describe what you were doing. I — I want to say it was Howard Marks and you. Pretty much, you were the guys that were putting out regular commentary before, you know, anybody could — could go online and find letters from Warren Buffett or — or things that Ray Dalio wrote or anyone of thousands of other professional money managers. When you began, I don’t think there were many other money managers putting out written commentary the way you guys were. You, Buffett, and Marks are kind of the three that — that blazed this trail. GROSS: I — I think so. And, you know, one of my positive attributes is that I — I wasn’t afraid to take risk and to — to take chances. And so, you know, there were those that, you know, PIMCO and marketing and so on that would suggest that you can’t do that because people would just jump on your ideas and front-run. But, you know, I’m — I’m paranoid in a lot of things, but I wasn’t paranoid in that in terms of thinking that no one really cared. And so, — so why not? Why not tell people what I thought? And I — I think it worked. RITHOLTZ: So, no doubt I remember worked because the firm did well in the 80’s and 90’s. At what point did you come to the realization, “Hey, this is kind of a one of a kind company and it’s going to be special.” Did you ever imagine you would have a trillion dollars in assets under management? GROSS: Well, of course not, but at some point, I did when we were $990 billion. RITHOLTZ: Right. GROSS: But — no, my — my objective was to — was to grow the company to, you know, have a fiduciary responsibility to clients in terms of products and not — not charging them too much or inventing products that ripped them off. But I also want to or wanted to be famous. I mean, that’s — that’s in my book and — and the — the Childs book as well. And, you know, growing into $1 trillion and ultimately ended $2 trillion was — was very productive in terms of being famous and I guess, ultimately, infamous. RITHOLTZ: So now that you look back, which is more important in hindsight, money, power or fame? Greg Dardis: Well, I — I never enjoyed power and I’ve enjoyed some of the money, but after a certain point, it’s not that productive unless you give it away. And so, I — I think ultimately, if those are the three choices and I did offer those to potential recruits who, by the way, would never answer the question because they were afraid that any of the answers would be — be negatively. But I — I — I — I’m certain, you know, I would choose fame again. And I — I was — I was cognizant at the time that fame can turn into infamy that you could fly too close to the sun, et cetera , et cetera from an objective standpoint. But I must say I didn’t think it could happen to me because I was always on the up and up, always honest, always open, and — and why would anybody. And I — I think ultimately, that was eye-opening to me, but I — I do it again. RITHOLTZ: Really interesting. (COMMERCIAL BREAK) RITHOLTZ: Let’s talk a little bit about the way he PIMCO grew and generated profits for clients. You — you describe a lot of very technical aspects to bond management and trading, which all contributed to fixed income alpha, which I think a lot of people reading your latest book might not have realized all the ways that — that you guys generated outperformance. The — the question I — I ask is how is it possible with all this money laying around nobody thought of this before. Why didn’t anybody else try and systematize total return of fixed income portfolios? GROSS: Well, I think, I mean, a lot of bond managers were and probably still are very conservative. That’s their job to protect principal. And therefore, on the sales side, on the Wall Street side, they were facing the clientele that didn’t really want to accept any of their suggestions, whatever they were, you know, well, just the other way for me and for PIMCO. And, you know, we were very innovative from the standpoint of new products. We were one of the first to — to buy financial futures. We were one of the first to — to fund mortgages — Fannie Mae mortgage. I mean, most — most bond managers didn’t want to go through the problem of segregating principal and interest, and determining performance. It took a long time and a separate staff, and so we did that. And then, of course, in the — later in the global and tips. And — and so — and so the innovation was key, I think, to help with generation. The biggest key was the thrust of what we called secular forecasting, secular outlooks. And I — I — I read a book early on just after I joined PIMCO called “Investing for the Long-Term.” I forget who wrote it. But, you know, you’re focused maybe on the dangers of trading for the short-term because fear and greed on the others that get involved and you tend to make bad decisions. And so, we approached it from the standpoint of three to five years. In terms of the — an outlook, we brought in speakers that spoke to that, many of them, you know, Fed officials or ex-Fed officials, et cetera. And so, I think that really helped us to avoid, you know, the bad — the bad months and the bad quarter by looking at three to five years. So those were several of the case. RITHOLTZ: And when you say investing for the long run, you’re not talking about Jeremy Siegel’s stocks for the long run, you’re talking about something more specific. GROSS: Yeah, and basically it involved forecasting interest rates. And — and to be fair, you know, throughout the period of time that the secular outlook for interest rates was down, down, down. And, you know, during our annual secular forums that we had where we brought in outside speakers and basically set the tone for the next 12 months, you know, for the most part, it was a bullish forecast, which turned out to be true. If we had a forecast, it went the other way for the long-term for the next three to five years and obviously, the company would have disappeared. But — but focusing on that, forgetting about the day or the week or the month, I think it became very successful in terms of position in a portfolio duration-wise, and volatility-wise, and credit-wide. RITHOLTZ: Really intriguing. So — so let’s talk a little bit about, you know, you as a investor and trader. I’m — I’m kind of entranced by the way I’ve heard the PIMCO trading floor describe your desk was a horseshoe, and the traders and the analysts were arranged in a really specific manner. Tell us a little bit about — about the thinking there. GROSS: Well, I — I thought it was pretty simple, and I don’t really remember the horseshoe. But, you know, I was positioned in the middle certainly, and the traders of which they eventually grew to 20, 30, 40, 50 were, you know, basically positioned in pods: the mortgage people, the high-yield people, the global people, et cetera. And, you know, they would work together and almost independently day-to-day, but I would check and — and others would check in terms of what they were doing, make suggestions, and so on as — as we walked around the floor. So, it — it made a lot of sense. It was a big trading room with — I don’t know how many square feet, but I think functionally it really worked for us. RITHOLTZ: So — so who got to sit close to you and who sat further away? Was that a function of how accurate — how active those markets were or was it, you know, just seniority basis? GROSS: You know, well, it was both. You know, I remember that Scott Simon sat to the left to me, and — and Bill Powers, and I don’t think Chris Dialynas ever sat next to me. He was — he was content to be on the wing, so to speak, and do his own thing. But — but usually, I would be determined as well by who would — who would be quiet as opposed to loud. You know, I — I liked quiet to be able to think myself, and somebody with a loud voice talking to brokers are calling up their spouse, you know, just wasn’t working for me in terms of a trading day. So, you know, the quiet, and function, and seniority all sort of fit in. And I — I didn’t think somebody else picked and I just went along with it until the noise got too loud, and then they were out and somebody else is in. RITHOLTZ: So — so you mentioned the number of your colleagues. In the book, which we’ll talk about in a little bit, you’re very generous in giving lots of credit to your colleagues for being major drivers of — of the firm’s success. Tell us about some of these colleagues and — and how they contributed to PIMCO’s growth. GROSS: Well, they were, you know, we hired some really smart people and really aggressive people, obsessive people that really love to do what they’re doing. Chris Dialynas was one of the first who was my co-portfolio manager so to speak from the early 80’s. He wanted to be a baseball player for the Angels, but decided to take our $20,000 offer. And he came and he — he had gone to the University of Chicago and, you know, studied there about options and so on, and ultimately became instrumental in terms of bringing financial futures to — to the portfolios and suggesting some very creative ideas in terms of Ginnie Mae futures which, you know, some say we — we broke the market, but he was one. And then there was another gentleman Changhong Zhu that came to us from Wells Fargo in San Francisco. He ultimately left after 10 years to go back to China with his family and head up, you know, a key position in the Chinese Central Bank, I think. But he — he would make lots of suggestions and Investment Committee in terms of the convexity and yield curve strategies, euro dollar futures, et cetera. He was perhaps the smartest guy in the floor, including me. And, you know, so I think a lot of the strategies are due to his suggestions. You know, there was a high-yield gentleman, Ben Trosky, who was really a master that all of our mortgage people Bill Powers and John Hague, and Scott Simon that I mentioned were really smart. And their performance and mortgages through the years in terms of their own portfolios, you know, just flowed over into the total return fund. So, all of these people and there are a lot of other ones. You know, we were a team and, you know, the — the term “Bond King” was, I guess, more of a P.R. acceptance than anything else. I — I — I don’t think there was a king, I was a leader and certainly a leader of the Investment Committee. And — and in terms of accepting a standard portfolio for those to manage, but not the smart people. And I think it bared acknowledgement in my book. RITHOLTZ: So, lots of these colleagues eventually became successful, they became very wealthy, and they, you know, hit the eject button and retired. You stuck around for 43 years. That’s a long time. What led to that longevity? That’s pretty unusual these days. GROSS: I — I think it — it was because I loved it. And, you know, the — the standard — the standard idea that you should do what you love is fine. It — it can’t really apply to — to billions of people, you know, throughout the world that they all can’t find jobs that they love. They can’t all paint. They can’t all write music, but this was an area that I loved in terms of buying, and selling, and competing, and making money, and becoming famous, of course. And so, I — I think I stuck around for that long until I was 72 at PIMCO or 71 simply because I love coming in. It — it just — it made my week. And, you know, at PIMCO we would have an Investment Committee until — from 12 to three every day, but after three and certainly in the summertime, I — I could just go across the street and hit some balls and play golf, too. So, I — I wasn’t a — a one-way horse rider, I — I guess, I — I could do a lot of things, but managing money and investing and — and talking about it, writing about it was something I truly enjoyed. RITHOLTZ: So, let’s talk a little bit about the two thousands. You guys really, because the way you were positioned, got a very early warning look at what was going on in the bond market and the housing market. You were pretty well-positioned before, during, and after the financial crisis of ’08-’09. How did you manage to — to accomplish that? GROSS: Well, I — I — I give most of the credit, in this case, to Paul McCauley, and Paul is still around. He’s on TV. He’s got that long hair and that southern (inaudible). But — but … RITHOLTZ: At least he got rid of the beard finally. GROSS: Yes. But he was a — an economist at — at heart, and he was a prominent member of Investment Committee. And he — he would speak about Hyman Minsky and his theory about stability turning into instability. And — and as the housing market roared and dipped, we became sensitive to the potential for instability. I — I had a brother-in-law who was a mortgage banker on kind of small scale, and we would have dinner sometimes. He would tell me about no dots and liar loans, and so on before anyone at the Fed knew anything about that. And so, I — I decided to take 10 of our credit analysts and send them out to — throughout the country and pretend that they were buying houses and to see what was going on. They came back and said hey, that this stuff is dangerous, these subprime mortgages, et cetera, et cetera. And so, we (inaudible) to this early on. We voided portfolios of subprime mortgages and high-yield bonds in general anticipating a crisis at some point. So, I — I — I think our Investment Committee, and again Paul McCauley was the leader in this regard. Grant (ph) really helped in terms of anticipating what might happen at some point, that did happen. RITHOLTZ: To say the least. Full disclosure, I know McCauley really well. We’ve gone fishing together in Maine. I’ve had him on the show before, and full credit to him for giving Minsky’s work a wider modern audience. So, given that you were positioned so well during the financial crisis, how did the relationship with the U.S. Treasury develop? Tell us a little bit about that. GROSS: Well, I guess this sounds delicate, but it shouldn’t be. You know, almost all of us were in touch with the Treasury. I mean, I — I talked to Timothy Geithner once over the phone on a Sunday evening when he called me up after it had a few beers and wanted to know what was happening in the economy. But that — that’s the only time I can ever remember talking to the Treasury. We weren’t — unlike BlackRock and Larry Fink, nothing wrong with that, but we were a company on the West Coast that basically did our own research and weren’t in touch with Treasury officials unless they were Fed officials that had retired like, you know, Bernanke and Paul Volcker, and — and others. And so, I don’t really know how to go up. It certainly wasn’t a phone call. They called us and — and said can we help manage a portfolio of mortgages for them, and we said sure. And so, that was basically it. And, you know, there was a rumor that we badgered them into guaranteeing Fannie and Freddie mortgages. Nothing could be further from the truth. Nobody made a phone call to — to badger or to — to influence in any way. What we did see is that of all the mortgages that Fannie and Freddie were the highest quality and that they were yielding astronomical yields relative to treasuries and — and much wider spreads and — had ever occurred. And so, that was the fascination with Fannie and Freddie. We did well with mortgages, and we did well during the crisis. And after the crisis, PIMCO went from $1 trillion to $2 trillion because we had protected their money. RITHOLTZ: So, we mentioned earlier the — the new book by Mary Childs, “The Bond King” is out. And I know you participated in — in responding to some questions about at least validating certain things are not factually. But it’s pretty easy to read that book and see that she is trying to make the case that PIMCO was the largest holder of Fannie and Freddie bonds, and that you guys bullied the government into guaranteeing them. Make your case. Rebut that premise. Was it simply, hey, we never sp.....»»

   The transcript from this week’s, MiB: Edwin Conway, BlackRock Alternative Investors, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS:… Read More The post Transcript: Edwin Conway appeared first on The Big Picture.    The transcript from this week’s, MiB: Edwin Conway, BlackRock Alternative Investors, is below. You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here. ~~~ BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, man, I have an extra special guest. Edwin Conway runs all of alternatives for BlackRocks. His title is Global Head of Alternative Investors and he covers everything from structured credit to real estate hedge funds to you name it. The group runs over $300 billion and he has been a driving force into making this a substantial portion of Blackrock’s $9 trillion in total assets. The opportunity set that exists for alternatives even for a firm like Blackrock that specializes in public markets is potentially huge and Blackrock wants a big piece of it. I found this conversation to be absolutely fascinating and I think you will also. So with no further ado, my conversation with Blackrock’s Head of Alternatives, Edwin Conway. MALE VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio. RITHOLTZ: My extra special guest this week is Edwin Conway. He is the Global Head of Blackrock’s Alternative Investors which runs about $300 billion in assets. He is a team of over 1,100 professionals to help him manage those assets. Blackrock’s Global alternatives include businesses that cover real estate infrastructure, hedge funds private equity, and credit. He is a senior managing director for BlackRock. Edwin Conway, welcome to Bloomberg. EDWIN CONWAY, GLOBAL HEAD OF ALTERNATIVE INVESTORS, BLACKROCK: Barry, thank you for having me. RITHOLTZ: So, you’ve been in the financial services industry for a long time. You were at Credit Suisse and Blackstone and now you’re at BlackRock. Tell us what the process was like breaking into the industry? CONWAY: It’s an interesting on, Barry. I grew up in a very small town in the middle of Ireland. And the breakthrough to the industry was one of more coincident as opposed to purpose. I enjoyed the game of rugby for many years and through an introduction while at the University, in University College Dublin in Ireland, had a chance to play rugby at a quite a – quite a decent level and get to know people that were across the industry. It was really through and internship and the suggestion, I’ve given my focus on business and financing things that the financial services sector may be a great place to traverse and get to know. And literally through rugby connections, been part of a good school, I had an opportunity to really understand what the service sector, in many respects, could provide to clients and became absolutely intrigued with it. And what – was it my primary ambition in life to be in the financial services sector? I can definitively say no, but through the circumstance of a game that I love to play and be part of, I was introduced to, through an internship, and actually fell in love with it. RITHOLTZ: Quite interesting. And alternative investments at Blackrock almost seems like a contradiction in terms. Most of us tend to think of Blackrock as the giant $9 trillion public markets firm best known for ETFs and indices. Alternatives seems to be one of the fastest-growing groups within the firm. This was $50 billion just a few years ago, it’s now over 300 billion. How has this become such a fast-growing part of BlackRock? CONWAY: When you look at the various facets which you introduced at the start, Barry, we’ve actually been an alternatives – will be of 30 years now. Now, the scale, as you know, which you can operate on the beta side of business, far surpasses that on the alpha side. For us, throughout the years, this was very much about how can we deliver investment excellence to our clients and performance? Therefore, going an opportunity somewhere else to explore an alpha opportunity in alternatives. And I think being so connected to our clients understanding, that this pivots was absolutely taking place at only 30 years ago but in a very pronounced way today, you know, we continue to invest in this business to support those ambitions. They’re clearly seeing this as the world of going through a tremendous amount of transformation and with some of the challenges, quite frankly, in the traditional asset classes, being able to leverage at BlackRock, the Blackrock muscle to really explore these alpha opportunities across the various alternative asset classes that in our mind wasn’t imperative. And the imperative, really, is from the firm’s perspective and if you look at our purpose, it’s to serve the client. So the need was coming from them. The necessity to have alternatives and their whole portfolio was very – was very much growing in prominence. And it’s taken us 30 years to build this journey and I think, Barry, quite frankly, we’re far from being done. As you look at the industry, the demand is going to continue to grow. So, I think you could expect to see from us a continued investment in the space because we don’t believe you can live without alternatives in today’s world. RITHOLTZ: That’s really – that’s really interesting. So let’s dive a little deeper into the product strategy for alternatives which you are responsible for at BlackRock. Our audiences is filled with potential investors. Tell them a little bit about what that strategy is. CONWAY: So we’re – I think as you mentioned, we’re in excess of 300 billion today and when we started this business, it was less about building a moat around private equity or real estate. I think Larry Fink’s and Rob Kapito’s vision was how do we build a platform to allow us to be relevant to our clients across the various alternative asset classes but also within the – within the confines of what they are permitted to do on a year-by-year basis. So, to always be relevant irrespective of where they are in their journey from respect of liabilities, demand for liquidity, demand for returns, so we took a different approach. I think, Barry, to most, it was around how do we scale into the business across, like you said, real estate equity and debt, infrastructure equity and debt. I mean, we think of that as the real assets platform of our business. Then you take our private equity capabilities both in primary investing, secondary et cetera, and then you have private credits and a very significant hedge fund platforms. So we think all of these have a real role and depending on clients liquidities and risk appetite, our goal was, to over the years, really build in to this to allow ourselves for this challenging needs that our clients have. I think as an industry, right, and over the many years alternatives have been in existence, this is been about return enhancement initially. I think, fundamentally, the changes around the receptivity to the role of alternatives in a client’s portfolio has really changed. So, we’ve watched it, Barry, from this is we’re in the pursuit of a very total return or absolute return type of an objective to now resilience in our portfolio, yield an income. And so things that probably weren’t perceived as valuable in the past because the traditional asset classes were playing a more profound role, alternatives have stepped up in – in many respects in the need to provide more than just total return. So, we’re taking the approach of how do you have a more holistic approach to this? How do we really build a global multi-alternatives capability and try to partner and I think that’s the important work for us. Try to partner with our clients in a way that we can deliver that outperformance but delivered in a way that probably our clients haven’t been used to in this industry before. Because unfortunately, as we know, it has had its challenges with regard to secrecy, transparency, and so many other aspects. We need to help the industry mature. And really that was our ambition. Put our client’s needs first, build around that and really be relevant in all aspects of what we’re doing or trying to accomplish on behalf of the people that they support and represent. RITHOLTZ: So, we’ll talk a little bit about transparency and secrecy and those sorts of things later. But right now, I have to ask what I guess is kind of an obvious question. This growth that you’ve achieved within Blackrock for nonpublic asset allocation within a portfolio, what is this coming at expense of? Are these dollars that are being moved from public assets into private assets or you just competing with other private investors? CONWAY: It’s really both. What – what you are seeing from our clients – if I take a step back, today, the institutional client community and you think about the – the retirement conundrum we’re all facing around the world. It’s such an awful challenge when you think how ill-prepared people are for that eventual stepping back from the workplace and then you know longevity is your friend, but can also be a very, very difficult thing to obviously live with if you’re not prepared for retirement. The typical pension plan today are allocating about 25 percent to 28 percent in alternatives. Predominantly private market. What they’re telling us is that’s increasing quite substantially going forward. But you know, the funding for that alpha pursue for that diversification and that yield is coming from fixed-income assets. It’s coming from equity assets. So there’s a real rebalancing that’s been taking place over the past number of years. And quite frankly, the evolution, and I think the innovation that’s taken place particularly in the past 10 years, alternatives has been really profound. So the days where you just invest in any global funds still exist. But now you can concentrate your efforts on sector exposure, industry exposures, geographic exposures, and I think the – the menu of things our clients can now have access to has just been so greatly enhanced at and the benefit is that but I think in some – in some respects, Barry, the next question is with all of those choices, how do you build the right portfolio for our client’s needs knowing that each one of our client’s needs are different? So, I would say it absolutely coming from the public side. We’re very thankful. Those that had a multiyear journey with us in the public side are now allocating capital to is now the private side to because I do think the – the industry given that change, given that it evolution and given the complexity of these private assets, our clients are looking to, quite frankly, do more with fewer managers because of the complexion of the industry and complexity that comes with it. RITHOLTZ: Quite – quite interesting. (UNKNOWN): And attention RIA’s. Are your clients asking for crypto? At interactive brokers, advisers can now offer crypto to their clients and you could trade stocks, options, futures currencies, bonds and more from the same platform. Commissions on crypto are just 12-18 basis points with no hidden spreads or markups and there are no ticket charges, custody fees, minimums platform or reporting fees. Learn more at IBKR.com/RIA crypto. RITHOLTZ: And I – it’s pretty easy to see why large institutions might be rotating away from things like treasuries or tips because there’s just no yield there. Are you seeing inflows coming in from the public equity side also? The markets put together a pretty good string of years. CONWAY: Yes. It absolutely has. And many respects, I think, we’ve had a multiyear where there was big questions around the alpha that can be generated, for example, from active equities? The question was active or passive? I think what we’ve all realized is that at times when volatility introduces itself which is frequent even independent of what’s been done from a fiscal and monetary standpoint, that these Alpha speaking strategies on the traditional side still make a lot of sense. And so, as we think about what – what’s happening here, the transition of assets from both passive and active strategies to alternative, it – it’s really to create better balance. It’s not that there’s – there’s a lack of relevance anymore in the public side. It’s just quite frankly the growth of the private asset base has grown so substantially. I moved, Barry, to the U.S. in 1998. And it’s interesting, when you look back at 1998 to today, you start to recognize the equity markets and what was available to invest in. The number of investable opportunities has shrunk by 40 plus percent which that compression is extraordinarily high. But yet you’ve seen, obviously, the equity markets grow in stature and significance and prominence but you’re having more concentration risk with some of the big public entities. The converse is true, though on the – on the private side. There’s this explosion of enterprise and innovation, employment creation, and then I believe opportunities has been real. So, I look at the public side, the investable universe is measured in the thousands and the private side is measured in the millions. RITHOLTZ: Wow. CONWAY: And I think part of the – part of the part of the thing our clients are not struggling with but what we’re really recognizing with – with enterprises staying private for longer, if not forever, and with his growth of the opportunities that open debt and equity in the private market side, you really can’t forgo this opportunity. It has to be part of your going forward concerns and asset allocation. And I think this is why we’re seeing that transformation. And it’s not because equities on fixed income just aren’t relevant anymore. They’re very relevant but they’re relevant now in a total portfolio or a whole portfolio context beside alternatives. RITHOLTZ: So, let’s discuss this opportunity set of alternatives where you guys at Blackrock scene demand what sectors and from what sorts of clients? Is this demand increasing? CONWAY: We’re very fortunate, Barry. Today, there isn’t a single piece of our business within – within Blackrock alternatives that isn’t growing. And quite frankly too, it’s really up to us to deliver on the investment objectives that are set forth for those clients. I think in the back of strong absolute and relative performance, thankfully, our clients look to us to – to help them as – as they think about what they’re doing and as they’re exploring more in the alternatives areas. So, as you know, certainly, the private equity and real estate allocations are quite mature in many of our client’s portfolios but they’ve been around for many decades. I think that the areas where we’re seeing – that’s called an outside demand and opportunity set, just but virtue of the small allocations on a relative basis that exist today is really around infrastructure, Barry, and its around private credits. So, to caveat that, I think all of the areas are certainly growing, and thankfully, for us that’s true. We’re looking at clients who we believe are underinvested, we believe they’re underinvested in those asset classes infrastructure both debt and equity and in private credit. And as you think about why that is, the attributes that they bring to our client is really important and in a world where your correlation and understanding those correlations is important that these are definitely diversifying assets. In a world where you’re seeing trillions of dollars, quite frankly, you’re providing little to no or even there’s negative yield. Those short falls are real and people need yield than need income. These assets tend to provide that. So the diversification, it comes from these assets. The yield can come from these assets and because of the immaturity of the asset classes, independence of the capital is flowing in, we still consider them relatively white space. You’re not crowded out. There’s much room for development in the market and with our client’s portfolios. And to us, that’s exciting because it presents opportunities. So, at the highest level, they’re the areas where I believe are most underdeveloped in our clients. RITHOLTZ: So let’s talk about both of those areas. We’ll talk about structured credit in a few minutes. I think everybody kind of understands what – what that is. What – when you see infrastructure as a sector, how does that show up as an investment are – and obviously, I have infrastructure on the brink because we’re recording this not too long after the giant infrastructure bill has been passed, tell us a little bit about what alternative investments in infrastructure looks like? CONWAY: Yes. It’s really in its infancy and what the underlying investments look like. I think traditionally, you would consider it as – and part of the bill that has just been announced, roads, bridges, airports. Some of these hard assets, some of the core infrastructure investments that have been around for actually some time. The interesting thing is the industry has evolved so much and put the need for infrastructure. It’s so great across both developed and emerging economies. It’s become something that if done the right way, the attributes we just spoke of can really have a very strong effect on our client’s portfolios. So, beyond the core that we just mentioned, well, we’ve seen a tremendous demand as a result of this energy transition. You’re really seeing a spike in activity and the necessity transition industry to cleaner technologies, a movement, not away completely from fossil fuel but integrating new types of clean energy. And as a result, you’ve seen a lot of demand on a global basis for wind and solar. And quite frankly, that’s why even us at BlackRock, albeit, 10-12 years ago, we really established a capability there to help with that transition to think about how do we use these technologies, solar panels, wind farms, to generate clean forms of energy for utilities where in some cases they’re mandated to procure this type of this type of – this type of power. And when you think about pre-contracting with utilities for long duration, that to me spells, Barry, good risk mitigation and management and ability to get access to clean forms of energy that throw off yield that can be very complementary to your traditional asset classes but for very long periods of time. And so, the benefits for us of these – these assets is that they are long in duration, they are yield enhancing, they’re definitely diversifying. And so, for us, where – we’ve got about, let’s call this 280 assets around the world that we’re managing that literally generate this – this clean electricity. I think to give the relevance of how much, I believe today, it’s enough to power the country of Spain. RITHOLTZ: Wow. CONWAY: And that’s really that’s really changing. So you’re seeing governments – so from a policy standpoint, you’re seeing governments really embracing new forms of energy, transitioning out of bunker fuels, for example, you know, burning diesels which really spew omissions into the – into the into the environment. But it’s really around modernizing for the future. So, developed and emerging economies alike, want to retain capital. They want to attract new capital and by having the proper infrastructure to support industry, it’s a really, really important thing. Now, on the back of that too, one things we’ve learned from COVID is that the necessity to really bring e-commerce into how you conduct your business is so important and I think from the theme of digitalization within infrastructure to is a huge part. So, it’s not just the energy transition that you’re seeing, it’s not just roads and bridges, but by allowing businesses to connect to a global consumer, allowing children be educated from home, allowing experiences that expand geographies and boundaries in a digital form is so important not just for commerce but in so many other aspects. And so, you think about cable, fiber optics, if you think about all the other things even outside of power, that enable us to conduct commerce to educate, there are many examples where, Barry, you can build resilience into your portfolio because that need is not measured in years. Actually, the shortfall of capital is measured in the trillions so which means this is – this is a multi-decade opportunity set from our vantage point and one of which our clients should really avail of. RITHOLTZ: Quite interesting. And I mentioned in passing, structured credit, tell us a little bit about what that opportunity looks like. I think of this as a space that is too big for local banks but too small for Wall Street to finance. Is that an oversimplification? What is going on in that space. CONWAY: I probably couldn’t have set it better, Barry. It’s – if we go back to just the even the investable universe, in the tens of thousands of companies, just if we take North America that are private, that have great leadership that really have strategic vision under – at the – in some cases, at the start of their growth lifecycles are even if they maintain, they have a very credible and viable business for the future they still need capital. And you’re absolutely right. With the retreat of the banks from the space to various regulations that have come after the global financial crisis, you’re seeing the asset managers in many respects working behalf of our clients both wealth and institutional becoming the new lenders of choice. And – and when we – when we think about that opportunity set, that is really understanding the client’s desire for risk or something maybe in a lower risk side from middle-market lending or midmarket enterprises where you can support that organization through its growth cycle all the way to some higher-yielding, obviously, with more risk assets on the opportunistic or even the special situations side. But it – it expands many things. And going back of the commentary around the evolution of the space, private credit today and what you can do has changed so profoundly, it expands the liquidity spectrum, it expands the risk spectrum. And the great news is, with the number of companies both here and abroad, the opportunities that is – it’s being enriched every single day. And were certainly seeing, particularly going back to the question are some of these assets coming from the traditional side, the public side. When we think of private credit, you are seeing private credit now been incorporated in fixed-income allocations. This is a – it’s a yelling asset. This is – these are debt instruments, these are structures that we’re creating. We’re trying to flexible and dynamic with these clients. But it really is an area where we think – it really is still at its – at its infancy relevant to where it can potentially be. RITHOLTZ: That’s really quite – quite interesting. (UNKNOWN): It’s Rob Riggle. I’m hosting Season 2 of the iHeart radio podcast, Veterans You Should Know. You may know me as the comedic actor from my work in the Hangover, Stepbrothers or 21 Jump Street. But before Hollywood, I was a United States Marine Corps officer for 23 years. For this Veterans Day, I’ll be sitting down with those who proudly served in the Armed Forces to hear about the lessons they’ve learned, the obstacles they’ve overcome, and the life-changing impact of their service. Through this four-part series, we’ll hear the inspiring journeys of these veterans and how they took those values during their time of service and apply them to transition out of the military and into civilian life. Listen to Veterans You Should Know on the iHeart radio app, Apple Podcast or wherever you get your podcast. RITHOLTZ: Let’s stick with that concept of money rotating away from fixed income. I have to imagine clients are starved for yields. So what are the popular substitutes for this? Is it primarily structured credit? Is it real estate? How do you respond to an institution that says, hey, I’m not getting any sort of realistic coupon on my bonds, I need a substitute? CONWAY: Yes. It’s all of those in many respects. And I think to the role, even around now a time where people have questions around inflation, how do substitute this yield efficiency or certainly make up for that shortfall, how do you think about a world where increasingly seeing inflation, not of the transitory thing it feels certainly quasi-permanent. These are a lot of questions we’re getting. And certainly, real estate is an is important part of how they think about inflation protection, how client think about yield, but quite frankly too, we’ve – we’ve gone through something none of us really had thought about a global pandemic. And as I think about real estate, just how you allocate to the sector, what was very heavily influenced with retail assets, high street, our shopping behaviors and habits have changed. We all occupied offices for obviously many, many years pre the pandemic. The shape of how we operate and how we do that has changed. So, I think some of the underlying investment – investments have changed where you’ve seen heavily weighted towards office space to leisure, travel in the past. Actually, now using a rotation in some respects out of those, just given some of the uncertainties around what the future holds as we come – come through a really difficult time. But the great thing about this sector is between senior living, between student housing, between logistics and so many other parts, there are ways in real estate to capture where there’s – where there’s demand. So still a robust opportunity set and it – and we do think it can absolutely be yield enhancing. We mentioned infrastructure. Even if you think about – and we mention OECD and non-OECD, emerging and developed, when I think about Asia, in particular, just as a subset of the world in which we’re living in, that is a $2.6 trillion alternative market today growing at a 15 percent CAGR. And quite frankly, the old-growth is driven by the large economic growth in the region. So, even from a regional perspective, if we pivot, it houses 57 percent of the world’s population and yet delivers 47 percent of the world’s economic growth. So, think of that and then with regard to infrastructure and goes back to that, this is truly a global phenomenon. So if we just even take that sector, Barry, you’ll realize that the way to maintain that type of growth, to attract capital, to keep capital, it really requires an investment of significant amount of money to be able to sustain that. And when you have 42 million people in a APAC migrating to cities in the year going back to digitalization, that’s an important thing. So, when I say we’re so much at the infancy in infrastructure, I really mean it. It can be water, it can be sewer systems, it can be digital, it can be roads, there’s so much to this. And then even down to the regional perspective, it’s a – it’s a need that doesn’t just exist in the U.S. So, for these assets, this tend to be long in duration. There’s both equity and debt. And on the debt side, quite frankly, very few outside of our insurance clients and their general account are taking advantage of the debt opportunity. And – and as we both know, to finance these projects that are becoming more plentiful every single day, across the world, including like, I said, in APAC in scale, there’s an opportunity in both sides. And I think that’s where the acid mix change happen. It’s recognizing that the attributes of these assets can have a role, the attributes of these assets can potentially replace some of these traditional assets and I think you’re going to see it grow. So, infrastructure to us, it’s really equity and debt. And then on the credit side, like I mentioned, again, too, it’s a very, very big and growing market. And certainly, the biggest area today from our vantage point is middle-market lending from a scale opportunity standpoint. So, we think much more to come in all of those spaces. RITHOLTZ: Really interesting. And let’s just stay with the concept of public versus private. That line is kind of getting blurred and the secondary markets is liquidity coming to, for lack of a better phrase, pre-public equities, tells little bit about that space. Is that an area that is ripe for growth for BlackRock? CONWAY: Yes. We absolutely think it is and you’re absolutely correct. The secondary market is – has grown quite substantial. If you even look at just the private equity secondary market and what will transact this year, I think it will be potentially in excess of 100 billion. And that’s what were clear, not to mention what will be visible and what will be analyzed. And that speaks to me what’s really happening and the innovation that we mentioned earlier. It’s no longer about just primary exposure. It’s secondary exposure. When we see all sort of interest and co-investment opportunities as well, I think the available sources of alpha and the flexibility you can now have, albeit if directed and advised, I believe the right way, Barry, can be very helpful and in the portfolio. So, your pre-IPO, it is a big part of actually what we do and we think about growth equity. There is – it’s a significant amount of capital following that space. Now, from our vantage point, as one of the largest investors in the public equity market and now obviously one of the largest investors and they in the private side, the bridge between – between private to public – there’s a real need. IPOs are not going away. And I think smart, informed capital to help with this journey, this journey is really – is really a necessity and a need. RITHOLTZ: So let’s talk a little bit about this recent restructuring. You are first named Global Head of Blackrock Alternative Investors in April 2019, the entire alternatives business was restructured, tell us a little bit about how that restructuring is going? CONWAY: Continues to go really well, Barry. When you look at the flow of acid from our clients, I think, hopefully, that’s speaks to the performance we’ve been generating. I joined the firm, as you know, albeit, 11 years ago and being very close to the alternative franchise as a critical thing for me and running the institutional platform. To me, when you watched this migration of asset towards alternatives, it was obviously very evident for decades now that this is a critical leg of the stool as our clients are thinking about their portfolios. We’re continuing to innovate. We’re continuing to invest, and thankfully, we’re continuing to deliver strong performance. We’re growing at about high double digits on an annual basis but we’re trying to purposeful too around where that growth is coming from. I think the reality is when you look at the competitive universe, I think the last number I saw, it was about 38,000 alternative asset managers out there today, obviously, coming from hedge funds all the way to private credits and private equity. So, competition is real and I do think the outcomes for our clients are starting to really grow. Unfortunately, some – in some cases, obviously, very good, and in some cases, actually not great. So our focus, Barry, is really much on how can we deliver performance, how can we be a partner? And I think we been rewarded with a trust and the faith our clients have in us because they’re seeing something different, I think, from us. Now, the scale of the business that you mentioned earlier really gives us tentacles into the market that I believe allows us to access what I think is the new alpha which is in many respects, given the heft of competition sourcing and originating new investments is certainly harder but for us, sitting in or having alternative team, sitting in 50 offices around the world, really investing in the markets because that – the market they grew up with and have relationships within, I think this network value that we have is something that’s quite special. And I think in the world that’s becoming increasingly competitive, we’re going to continue to use and harness that network value to pursue opportunities. And thankfully, as a result of the partnership we’ve been pursuing with her clients, like, we’ve – we’re certainly looking for opportunities and investments in our funds. But because of the brand, I think because of the successes, opportunities seeks us as much as we seek opportunity and that has been something that we look at an ongoing basis and feel very privileged to actually have that inbound flow as well. RITHOLTZ: Really quite interesting. There was a quote of yours I found while doing some prep for this conversation that I have to have you expand on. Quote, “The relationship between Blackrock’s alternative capabilities and wealth firms marked a large opportunity for growth in the coming years.” This was back in 2019. So, the first part of the question is, was your expectations correct? Did you – did you see the sort of growth you were hoping for? And more broadly, how large of an opportunity is alternatives, not just for BlackRock but for the entire investment industry? CONWAY: Yes. It’s been very much an institutional opportunity set up until now. And there’s so much to be done, still, to really democratize alternatives and we certainly joke around making alternatives less alternative. Actually, even the nomenclature we use and how we describe it doesn’t kind of make sense anymore. It’s such a core – an important allocation to our clients, Barry, that just calling it alternative seems wrong. Just about the institutional clients. It ranges, I think, as I mentioned on our – some of our more conservative clients which would be pension plans which really have liquidity needs on a monthly basis because of the liabilities they have to think about. At about 25 plus percent in private markets, to endowments, foundations, family offices, going to 50 percent plus. So, it’s a really important part and has been for now many years the institutional client ph communities outcomes. I think the thing that we, as an industry, have to change is alternatives has to be for the many, not for the few. And quite frankly, it’s been for the few. And as we talked about some of the attributes and the important attributes of these asset classes to think that those who have been less fortunate in their careers can’t access, things they can enrich their future retirement outcomes, to me, is a failing. And we have to address that. That comes from regulation changes, it comes from structuring of new products, it comes from education and it comes from this knowledge transmission where clients in the wealth segment can understand the role of alternatives and the context of what can do as they invest in equities and fixed income too. And we think that’s a big shortfall. So, the journey today, just to give you a sense, as we look at her clients in Europe on the wealth side, on average, as you look from what we would call the credited investors all the way through to more ultra-high-net worth individuals, their allocation to alternatives, we believe, stands at around two to three percent of their total portfolio. In the U.S., we believe it stands at three to five. So, most of those intermediaries, we speak to our partners who were more supporting and serving the wealth channel. They have certainly an ambition to help their clients grow that to 20 percent and potentially beyond that. So, when I look at that gap of let’s call it two to three to 20 percent in a market that just given the explosion in wealth around the world, I think the last numbers I saw, this is a $65 trillion market. RITHOLTZ: Wow. CONWAY: That speaks to the shortfall relative to the ambition. And how’s it been going? We have a number of things and capabilities we’ve set up to allow for this market to experience, hopefully, private equity, hedge funds, credit, and an infrastructure in ways they haven’t in the past. We’ve done this in the U.S., we’re doing it now in Europe, but I will say, Barry, this is still very much at the start of the journey. Wealth is a really important part of our future given our business, quite, frankly is 90 plus percent institutional today, but we’re looking to change that by, hopefully, democratizing these asset classes and making it so much more accessible in that of the past. RITHOLTZ: So, we hinted at this before but I’m going to ask the question outright, how significant is interest rates to client’s risk appetites, how much of the current low rate environment are driving people to move chunks of their assets from fixed income to alternatives? CONWAY: It’s really significant, Barry. I think the transition of these portfolios is quite profound, So you – and I think the unfortunate thing in some respects as this transition happens that you’re introducing new variables and new risks. The reason I say it’s unfortunate and that I think as an industry, this goes back to the education around the assets you own, understanding the role, understanding the various outcomes. I think it’s so incredibly important and that this the time where complete transparency is needed. And quite frankly, we’re investing capital that’s not ours. As an industry, we’re investing our client’s assets and they need to know exactly the underlying investments. And in good and bad times, how would those assets behave? So certainly, interest rates are driving a flow of capital away from these traditional assets, fixed-income, and absolutely in towards real estate, infrastructure, private creditors, et cetera, in the pursuit of this – this yield. But I do – I do think one of the things that’s critically important for the institutional channel, not just the wealth which are newer entrants is this transmission of education, of data because that’s how I think you build a better balanced portfolio and that’s a – that’s a real conundrum, I think, that the industry is facing and certainly your clients too. RITHOLTZ: Quite interesting. So let’s talk a little bit about the differences between investing in the private side versus the public markets, the most obvious one has to be the illiquidity. When you buy stocks or bonds, you get a print every microsecond, every tick, but most of these investments are only marked quarterly or annually, what does this illiquidity do when you’re interacting with clients? How do you – how do you discuss this with them in and how do perceive some of the challenges of illiquid investments? CONWAY: Over the – over the past number of decades, I think our clients have largely held too much liquidity in their portfolios. Like, so what we are finding is the ability to take on illiquidity risk. And obviously, in pursuit of that premium above, the traditional markets, I mean, I think the sentiment they are is it an absolute right one. That transition towards private market exposure, we think is an important one just given the return objectives, the majority of our clients’ need but then also again, most importantly now, with geo policy, with uncertainty, with interest rate uncertainty, inflation uncertainty, I mean, the – going back to the resilience point, the characteristics now by introducing these assets into the mix is important. And I think that’s – that point is maybe what I’ll expand on. As were talking to clients, using the Aladdin systems, and as you know, we bought eFront technologies, albeit a couple of years ago, by allowing, I think, great data and technology to help our clients understand these assets and the context of how they should own them relative to other liquidity needs, their risk tolerances, and the return expectations are really trying to use tech and data to provide a better understanding and comprehension of the outcomes. And as we continue to introduce these concepts and these approaches, by the way, that there is, as you know, so used to in the traditional side, it – it gives them more comfort around what they should and can expect. And that, to me, is a really important part of what we’re doing. So, we’ve released recently new technology to the wealth sector because, quite frankly, we mentioned it before, the 60-40 portfolio is a thing of the past. And that introduction of about 20 percent into alternatives, we applaud our partners who are – who are suggesting that to their clients. We think it’s something they have to do. What we’re doing to support that is really bringing thought leadership, education, but also portfolio construction techniques and data to bear in that conversation. And this goes back to – it’s no longer an alternative, right? This is a core allocation so the comprehension of what it is you own, the behavior of the asset in good and bad times is so necessary. And that’s become a very big thing with regard to our activities, Barry, because your clients are looking to understand better when you’re talking about assets that are very complex in their nature. RITHOLTZ: So, 60-40 is now 50-30-20, something along those lines? CONWAY: Yes. RITHOLTZ: Really, really intriguing. So, what are clients really looking for these days? We talked about yield. Are they also looking for downside protection on the equity side or inflation hedges you hinted at? How broad are the demands of clients in the alternative space? CONWAY: Yes. It ranges the gamut. And even – we didn’t speak to even hedge funds, we’ve had differing levels of interest in the hedge fund world for years and I, quite frankly, think some degree of disappointment too, Barry, with regard to the alpha, the returns that were produced relevant to the cost. RITHOLTZ: It’s a tough space to say the very least exactly. CONWAY: Exactly right. But when you start to see volatility introducing itself, you can really see where skill plays a critical factor. So, we are absolutely seeing, in the hedge fund, a resurgence of interest and demand by virtue of those who really have honed in on their scale, who have demonstrated an up-and-down markets and ability to protect and preserve capital, but importantly, in a low uncorrelated way build attractive risk-adjusted returns. We’re starting to see more activity there again too. I think with an alternatives, you’ve really seen a predominant demand coming from privates. These private markets, like a set of growths so extraordinarily fast and the opportunities that is rich, the reality too on the public side which is where our hedge funds operate, they continue to, in large part, do a really good job. The issue with our industry now with these 38,000 managers is how do you distill all the information? How do you think about your needs as a client and pick a manager who can deliver the outcomes? And just to give you a sense, the difference now between a top-performing private equity manager, a top quartile versus the bottom quartile, the difference can be measured in tens of percent. RITHOLTZ: Wow. CONWAY: Whereas if you look at the public equity side, for example, a large cap manager, top quartile versus bottom quartile is measured in hundreds of basis points. So, there is definitely a world that has started where the outcomes our clients will experience can be great as they pursue yield, as they pursue diversification, inflation protection, et cetera. I think the caveat that I would say is outcomes can vary greatly. So manager underwriting and the importance of it now, I think, really is this something to pay attention to because if you do have that bottom performing at the bottom quartile manager, it will affect your outcomes, obviously. And that’s what we collectively have to face. RITHOLTZ: So, let’s talk a little bit about real estate. There are a couple of different areas of investment on the private side. Rent to own was a very large one and we’ve seen some lesser by the flip algo-driven approaches. Tell us what Blackrock is doing in the real estate space and how many different approaches are you bringing to bear on this? CONWAY: Yes, we think it’s both equity and debt. Again, no different to the infrastructure side, these projects need to be financed. But on the – as you think about the sectors in which you can avail of the opportunity, you’ve no doubt heard a lot and I mentioned earlier this demand for logistics facilities. The explosion of shopping online and having, until we obviously have the supply chain disruption, an ability to have nearly immediate satisfaction because the delivery of the good to your home has become so readily available. It’s a very different consumer experience. So the explosion and the need for logistics facilities to support this type of behavior of the consumer is really an area that will continue to be of great interest too. And then you think about the transformation of business and you think about the aging world. Unfortunately, you can look at various economies where our populations are decreasing. And quite frankly, we’re getting older. And so, were you’re thinking of the context of that senior living facilities, it becomes a really important part, not just as part of the healthcare solution that come with it, but also from living as well. So, single-family, multifamily, opportunities continue to be something that the world looks at because there is really the shortfall of available properties for people to live in. And as the communities evolve to support the growing age of the population, tremendous opportunity there too. But we won’t give up on office space. It really isn’t going away. Now, if you even think about our younger generation here in BlackRock, they love being in New York, they love being in London, they love being in Hong Kong. So, the shape and the footprint may change slightly. But the necessity to be in the major financial centers, it still exists. But how we weighed the risks has definitely changed, certainly, for the – for the short-term and medium-term future. But real estate continues to be, Barry, a critical part of how we express our thought around the investment opportunity set. But clients largely do this themselves too. The direct investing from the clients is quite significant because they too see this as still as a rich investment ground, albeit, one that has changed quite a bit as a result of COVID. RITHOLTZ: Well, I’m fascinated by the real estate issue especially having seen some massive construction take place in cities pre-pandemic, look over in Manhattan at Hudson Yards and look at what’s taking place in London, not just the center of London but all – but all around it and I’m forced to admit the future is going to look somewhat different than the past with some hybrid combination of collaborative work in the office and remote work from home when it’s convenient, that sort of suggests that we now have an excess of capacity in office space. Do you see it that way or is this just something that we’re going to grow into and just the nature of working in offices is changing but offices are not going away? CONWAY: Yes. I do think there’s – it’s a very valid point and that in certain cities, you will see access, in others we just don’t, Barry. And quite frankly, as a firm, too, as you know, we have adopted flexibility with our teams that were very fortunate. The technologies in which we created at BlackRock has just become such an amazing enabler, not just to help us as we mention manage the portfolios, help us a better portfolio construction, understand risks, but also to communicate with our clients. I think we’ve all witnessed and experienced a way to have connectivity that allows them to believe that commerce can exist beyond the boundaries of one building. However, I do look at our property portfolios and even the things that we’re doing. Rent collections still being extraordinarily high, occupancy now getting back up to pre-pandemic levels, not in all cities, but in many of the major ones that have reopened. And certainly, the demand for people to just socialize, that the demand for human connectivity is really high. It’s palpable, right? We see it here too. The smiles on people’s faces, they’re back in the office, conversing together, innovating together. When people were feeling unsafe, unquestionably, I think the question marks around the role of office space was really brought to bear. But as were coming through this, as you’ve seen vaccine rates change, as you’ve seen the infection rates fall, as you’ve seen confidence grow, the return to work is really happening and return to work to office work is really happening, albeit, now with degrees of flexibility. So, going back to the – I do believe in certain areas. You’re seeing a surplus. But in many areas you’re absolutely seeing a deficit and the reason I say that, Barry, is we are seeing occupancy in certain building at such a high level. And frankly, the demand for more space being so high, it’s uneven and this goes back to then where do you invest our client’s capital, making sense of those trends, predicting where you will see resilience versus stress and building that into the portfolio of consequences as you – as you better risk manage and mitigate. RITHOLTZ: Very interesting. And so, we are seeing this transition across a lot of different segments of investing, are you seeing any products that were or – or investing styles that was once thought of as primarily institutional that are sort of working their way towards the retail side of things? Meaning going from institutional to accredited to mom-and-pop investors? CONWAY: Well, certainly, in the past, private equity was really an asset class for institutional investors. And I think that’s – that has changed in a very profound way. I mentioned earlier are the regulation has become a more adaptive, but we also have heard, in many respects, in providing this access. And I think the perception of owning and be part of this illiquid investment opportunity set was hard to stomach because many didn’t understand the attributes and what it could bring and I think we’ve been trying to solve for that and what you’re seeing now with – with regulators, understanding that the difference between if we take it quite simply as DD versus DC, the differences between the options you as a participant in a retirement plan are so vastly different that – and I think there’s a broad recognition now that there needs to be more equity with regard to what happens there. And private equity been a really established part of the alternatives marketplace was once, I think, really believed to be an institutional asset class, but albeit now has become much more accessible to wealth. We’ve seen it by structuring activities in Europe working with the regulators. Now, we’re able to provide private equity exposure to clients across the continent and really getting access to what was historically very much an institutional asset class. And I do think the receptivity is extraordinarily high just throughout people’s careers, they have seen wealth been created as a result of engineering a great outcome with great management teams integrate business. And I do believe the receptivity towards private equity is high as an example. In the U.S., too, working with the various intermediaries and being able to wrap now private equity in a ’40 Act fund, for example, is possible. And by being able to deliver that to the many as opposed to the few, we think has been a very good success story. And I think, obviously, appreciated by our clients as well. So, I would look at that were seeing across private equity as well as private credit and quite frankly infrastructure accuracy. You’re seeing now regulation that’s becoming more appreciative of these asset classes, you’re seeing a more – a greater level of openness and willingness to allow for these assets to be part of many people’s experiences across their investment portfolio. And now, with innovation around structures, as an industry, were able to wrap these investments in a way that our clients can really access them. So, think across the board, it probably speaks the innovation that’s happening but I do think that accessibility has changed in a very significant way. But you’ve really seen it happen in private equity first and now that’s expanding across these various other asset classes. RITHOLTZ: Quite intriguing. I know I only have you for a relatively limited period of time, so let’s jump to our favorite questions that we ask all of our guests. Starting with tell us what you’ve been streaming these days. Give us your favorite Netflix or Amazon Prime shows. CONWAY: That is an interesting question, Barry. I don’t a hell of a lot of TV, I got to tell you. I am – I keep busy with three wonderful children and a beautiful wife and between the sports activities. When I do watch TV, I have to tell you I’m addicted to sports and having – I may have mentioned earlier, growing up playing rugby which is not the most common sport in the U.S., I stream nonstop the Six Nations that happens in Europe where Ireland is one of those six nations that compete against each other on an annual basis. Right now, they’re playing a lot of sites that are touring for the southern hemisphere. And to me, the free times I have is either enjoying golf or really enjoying rugby because I think it’s an extraordinary sport. Obviously, very physical, but very enjoyable to watch. And that, that truly is my passion outside of family. RITHOLTZ: Interesting stuff. Tell us a bit about your mentors, who helped to shape your early career? CONWAY: Well, it even goes back to some of the aspects of sports. Playing on a team and being on a field where you’re working together, there’s a strategy involved with that. Now, I used to really appreciate how we approach playing in the All-Ireland League. How we thought about our opponents, how we thought about the structure, how we thought about each individual with on the rugby field and the team having a role. They’re all different but your role. And actually, even starting from an early age, Barry, thinking about, I don’t know, it’s sports but how to build a great team with those various skills, perspective, that can be a really, really powerful combination when done well. And certainly, from an early age, that allowed me to appreciate that – actually, in the work environment, it’s not too different. You surround yourself with just really great people that have high integrity that are empathetic and have a degree of humility that when working together, good things can happen. And I will say, it really started at sports. But I think of today and even in BlackRock, how Larry Fink thinks about the world and I think Larry, truly, is a visionary. And then Rob Kapito who really helps lead the charge across our various businesses. Speaking and conversing with them on a daily basis, getting their perspectives, trying to get inside your head and thinking about the world from their vantage point. To me, it’s a huge thing about my ongoing personal career and development and I really enjoy those moments because I think what you recognize is independent of how much you think you know, there’s so much more to know. And this journey is an ever evolving one where you have to appreciate that you’ll never know everything and you need to be a student every single day. So, I’d probably cite those, Barry, as certainly the two most important mentors in my life today, professionally and personally quite frankly. RITHOLTZ: Really. Very interesting. Let’s talk about what you’re reading these days. Tell us about some of your favorite books and what you’re reading currently? CONWAY: Barry, what I love to read, I love to read history, believe it or not. From a very small country that seems to have exported many, many people, love to understand the history of Ireland. So, there’s so many books. And having three children that have been born in the U.S. and my wife is a New Yorker, trying to help them understand some of their history and what made them what they are. I love delving into Irish history and how the country had moments of greatness and moments of tremendous struggle. Outside of that, I really don’t enjoy science fiction or any of these books. I love reading, you name any paper and any magazine on a daily basis. Unfortunately, I wake at about 4:30, 5 o’clock every day. I spent my first two hours of the day just consuming as much information as possible. I enjoy it. But it’s all – it’s really investment-related magazines, not books. It’s every paper that you could possibly imagine, Barry, and I just – I have a great appreciation for certainly trying to be a student of the world because that’s what we’re operating in an I find it just a very interesting avenue to get an appreciation to for the, not just the opportunities, but the challenges we’re collectively facing as a society but also as a business. RITHOLTZ: I’m with you on that mass consumption of investing-related news. It sounds like you and I have the same a morning routine. Let’s talk about of what sort of advice you would give to a recent college graduate who was interested in a career of alternative investments? CONWAY: Well, the industry has – it’s just gone through such extraordinary growth and the difference, when I’ve started versus today, the career opportunity set has changed so much. And I think I try to remind anyone of our analysts who come into each one of our annual classes, right, as we bring in the new recruits. I think about how talented they are for us, Barry, and how privileged we all are to be in this industry and work for the clients that we do. It’s just such an honor to do that. But I kind of – I try to remind them of that. At the end of the day, whether you’re supporting an institution, that institution is the face of many people in the background and alternatives has really now become such an important part of their experience and we talked about earlier just this challenge of retirement, if we do a good job, these institutions that support the many, they can have, hopefully, a retirement that involves dignity and they can have an ability to do things they so wanted to do as they work so hard over their lives. Getting that that personal connection and allowing for those newbies to understand that that’s the effect that you can have, an alternatives whether it’s private equity, real estate, infrastructure, private credit, hedge funds, all of these now, with the scale at which they’re operating at can allow for a great career. But my advice to them is always don’t forget your career is supporting other people. And that comes directly to how we intersect with wealth channel, it comes indirectly as a result of the institutions. And it’s such a privilege to do that. I didn’t envision when I grew up, as I mentioned, my first job, milking cows and back in a small town in the middle of Ireland that I would be one day leading an alternatives business within BlackRock. I see that as a great privilege. So, for those who are joining afresh, hopefully, try to remind them that it is for all of us and show up with empathy, dignity, compassion, and do the best you can, and hopefully, these people be sure will serve them well. RITHOLTZ: And our final question, what you know about the world of alternative investing today you wish you knew 25 years or so ago when you were first getting started? CONWAY: I think if we had invested much more heavily as an industry in technology, we would not be in the position we are today. And I say that, Barry, from a number of aspects. I mentioned in this shortfall of information our clients are dealing with today. They’re making choices to divest from one asset class to invest in another. To do that and do that effectively, they need great transparency, they needed real-time in many respects, it can’t be just a quarterly line basis. And if we had been better prepared as an industry to provide the technology and the data to help our clients really appreciate what it is they own, how we’re managing the assets on their behalf, I think they would be so much better served. I think we’re very fortunate at this firm to have built a business on the back of technology for albeit 30 plus years and were investing over $1 billion a year in technology as I’m sure you know. But we need to see more of that in the industry. So, the client experience is so important, stop, let’s demystify alternatives. It’s not that alternative. Let’s provide education and data and it’s become so large relative to other asset classes, the need to support, to educate, and transmit information, not data, information, so our client understand it, is at a paramount now. And I think it certainly as an industry, things have to change there. If I knew how big the growth would have been and how prominent these asset classes were becoming, I would oppose so much harder on that front 30 years ago. RITHOLTZ: Thank you, Edwin, for being so generous with your time. We’ve been speaking with Edwin Conway. He is the head of Blackrock Investor Alternatives Group. If you enjoy this conversation, please check out all of our prior discussions. You can find those at iTunes, Spotify, wherever you get your podcast at. We love your comments, feedback and suggestions. Write to us at MIB podcast@Bloomberg.net. You can sign up for my daily reads at ritholtz.com. Check out my weekly column at Bloomberg.com/opinion. Follow me on Twitter, @ritholtz. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Mohammed ph is my audio engineer. Paris Wald is my producer, Michael Batnick is my head of research, Atika Valbrun is our project manager. I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.   ~~~   The post Transcript: Edwin Conway appeared first on The Big Picture......»»

Following is the unofficial transcript of a CNBC interview with Morgan Stanley (NYSE:MS) Chairman & CEO James Gorman on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Thursday, October 14th. Following is a link to video on CNBC.com: Q3 2021 hedge fund letters, conferences and more Morgan Stanley CEO Gorman: We’re Seeing Fruits Of […] Following is the unofficial transcript of a CNBC interview with Morgan Stanley (NYSE:MS) Chairman & CEO James Gorman on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Thursday, October 14th. Following is a link to video on CNBC.com: if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more Morgan Stanley CEO Gorman: We’re Seeing Fruits Of Long-Term Strategy JIM CRAMER: Chairman and CEO James Gorman. Welcome to “Squawk on the Street,” thank you for, for coming in to talk about how well your, your bank is doing. JAMES GORMAN: Happy to do it as long as you don't ask me to go on Jeopardy, Jim. CRAMER: No, we're gonna hold off on that. That's a different, different subject. But, you know what, you deserve to be on because, you know, what is the best wealth management business in the world. 300 billion in new money this year, what is happening that people can bring in 300 billion in wealth management? GORMAN: Yes, it's amazing. I mean the team's done an unbelievable job. The reality is we're managing, you know, over four trillion, nearly four and a half trillion and with success comes success. We have a lot of clients who feel very comfortable with the brand, the platform. The technology we've invested in through E*TRADE. I mean it's just, it's all come together. This has sort of been our dream for over a decade and finally we're seeing the fruits but I mean, 12 years ago or so, I think our assets were about 500 billion. So, they've gone up, eight, nine times in that period and as you know, this is very sticky money. It's a great business so we're thrilled. CRAMER: Well that's what we're going to talk about. At one point, Morgan Stanley before you came in, had what I regarded as episodic earnings. They’d be good, and then bad and good and bad and therefore it's very hard to give a price earnings multiple. The business that you're bringing in, including by the way E*TRADE, is really sticky and steadily growth, growth, secular growth. And I'm wondering what you when you sit around your board meetings, doesn't someone say, you know what, how come we're still at 12 times earnings because this is a secular growth story, it's not cyclical, I'm trying to understand why you're not given a greater price. GORMAN: Yeah, well it's getting there. I mean to be fair we were, you know, we were sub 10 and I thought that was just nuts. We’re now managing if you put wealth and asset management together, which gives us the balance, that's about six and a half trillion on that we're generating revenues of over 30 billion. Just that, and that's very sticky but on the other hand the investment bank and what it's done the resurgence of fixed income after it was restructured dramatically in 2015. You know, equities is number one, the investment bank itself and M&A is on fire, the equity underwriting. So, Jim, it’s this balance and speed concept that I've talked about, and, you know, we're starting to get the multiple. I mean we're getting the recognition, you look at some of the other pure wealth players in the marketplace, they're trading at, you know, 20, 30 times earnings, you know, we'd love a piece of that and I think our investors are starting to understand that so it's getting there. CRAMER: Well I think it is. I mean if you added buy now, pay later, I guess we get 30 times earnings. I’m always struggling about the love of Robinhood and how important it is and I want to stack that up against you and I want you to include a company that you bought at the time was called Solium but it's a company that you've made into Shareworks, who is a younger investment base and whose base is larger? GORMAN: Well first I have a lot of respect for Robinhood. I mean what they do introducing a lot of young investors to the marketplaces. I know you've said this and I believe that that's a good thing and as long as they’re prudently investing they understand the markets go up but they also go down then, you know, we're, they've got ,they've got a real winner so a lot of respect for what those guys have done. But, you know, we've sort of done the same thing but we've done it within the Morgan Stanley platform and brands so maybe it doesn't get that kind of recognition solely as a technology company. I mean that's basically 300 programmers they gave us an opportunity to get into the workplace space between Solium and E*TRADE and our existing business, we're touching over 30 million households and they’re wealthy households, right. There's significant money and by the way they want to borrow and they want to park their cash there, they're taking out mortgages, so it's got multiple verticals so if we can, we can go after to help these people find financial stability and that's what I'm really excited about. It's the combination of the traditional advisor model, the E*TRADE direct model and the solely Morgan Stanley workplace model. We're getting people at work, you're getting them online and you're getting them through an advisor and that to me is the magic mousetrap. DAVID FABER: James, it’s David. You know, I’m looking at your stock price which is not doing much of anything right now and I'm wondering, is it the perhaps because people think when it comes to capital markets, this thing just can't keep going at this rate. You pointed it out, of course, whether it's fixed income or now equities, you know, the outperformance of expectations, the percentage gains, year over year or from ’19. I don't know if you've ever seen anything like this in your career but can it continue at this rate? GORMAN: Oh, sure, sure it can and listen the market, you know, I don't have a problem when I see the market if our stock is at $100 I don’t know I haven't, I can’t look at the screen right now because I'm looking at your camera but we’re at that or about that, you know, we were $50 a year ago, the stock was up 34% I think in 2020 during COVID. We’re up 40 plus percent this year already. I mean it's, it's, you know, the market cap is over 180 billion it's had a phenomenal run, but there's a whole lot more to go. I mean if you, if you take that thread that Jim was pulling on about the mobile expansion and you take the fact that we built these enormous businesses that have huge scale advantages and, and to operate on a global basis, as you know, David in M&A and capital markets across borders, that's not an easy lift. You don't just turn up one day and say that's the business I want to be in. You got to build that over decades. So, I think they're incredibly resilient, the share gains that we've done through the institutional side, you know, have worked out great and I think it's gonna keep going. I'm really positive on the story— FABER: You do I mean because— GORMAN: We brought a market environment so— FABER: Right but we watch it no I mean, we're here at the New York Stock Exchange. We see the listings happen for a long time it was Chinese companies then it was SPACs then it was now it's just straight IPOs. That's one part of capital markets activity but you really expect that you're always, I mean that you're going to maintain these kinds of growth rates when it comes to equities under a fixed income for the next year or two? GORMAN: You know, yeah, we're not going to compound at this level but look at some of the other things going on, I mean you've got global GDP growth in pretty much every major economy in the world is going through global GDP growth. We've got enormous fiscal stimulus. We've got record low interest rates, people want to transact, you've got the, you know, the move from commercial lending to capital markets across all of Europe is still in the very early days so, you know, I'm not uncomfortable in saying we've got we clearly have a growth platform out there, whether it will be at the level we're seeing right now in M&A, obviously not. That's our pipeline suggests that's with us for a while to come, but that's not going to be, you know, over the next five years. We're not going to maintain that kind of growth, but the resilience of the model, the scale advantages, we've got the efficiency ratio now under 70%. I mean all these things are real, then when you double the dividend which we did, you're giving investors, you know, a 2.8% yield at 100 bucks. I mean that's not for nothing, right, and you're buying back about 3% of stocks so investors are getting a return of 7% before we get any of that through. CARL QUINTANILLA: James, one of the headlines from the call was about crypto where you said it's not a huge part of the business demand from our clients. Is that because it's early days, do you expect that to change? GORMAN: You know, Carl, you know, I’ve said this before I think crypto, you know, it's not a fad. It's not going away and obviously the blockchain technology supporting it is a real innovation. We're not seeing among very wealthy clients they might put, you know, I talked to people maybe 1% of their portfolio in it. Nobody's putting 10% of their portfolio into it. So, it's an interesting thing I mean a lot of people want to participate, they don't know how crypto is all really going to play out. I see, you know, Bitcoin this morning I think it's trading. I don't know 55,000, 60,000. So, a lot of people made a lot of money on it but it's not, it's not a core part of their diversification strategy. It's an option that they're playing out and with very wealthy people. Now with some of the younger folks, it's it's different. They, they're using, they've got less money at risk and frankly they're at a stage in life they can take more risks so you're seeing more, more interest at that level. E*TRADE had much more interest than the traditional Morgan Stanley client base. CRAMER: That makes sense. James, you have drawn a line in the sand with people coming to work, people showing up, being able to judge someone as a first-year associate, second year, third, very traditional and I've always felt very right. Pushback? People think that you're wrong, people not wanting to go to Morgan Stanley versus other places, what is the culture right now on this issue? GORMAN: Yeah, I don't think there's been a decision I've made that I haven't had some pushback it's, I tell people you don't get just the good bits of being a leader, you get the good and bad bits and some of it is people don't like it when you make decisions. And by the way that counts for everything from what you put in programming on the show to, you know, what's going on in politics. So that's okay, I can deal with that and, you know, fundamentally what I said was and, you know, the quote I use which got a lot of attention was, “If you can go to a restaurant, you can go to the office.” What I didn't say Jim was and you've got to be in the office five days a week forever. Clearly, we've moved to a more flexible work environment but we'd like to see people in and around their colleagues at least several days a week. I mean, let's that's how we do our best work, that's where our best innovation happens from bringing people together and training and developing them. I mean it's okay for me working from home. I've, I'm at the tail end of my career. For the kids who are 25, they want to be in and around and learn from the seniors so again we'll be flexible and we are being flexible, but we still want to see you in the office some of the time job dependent, etc. We've had some folks as you would imagine on the trading floor they’ve been in five days a week from the get go and that's what their job demanded. Client facing people have to do what the clients want, so we'll be flexible, but we're certainly intentional. I think it's very important to share your learning and development skills with the young kids. FABER: Yeah, I think there's no doubt. I do sense frustration from some of your peers, James, though in terms of people not showing up on Fridays and yet knowing at this point as you say flexibility is part of the allure for other employers and seems to be something that you simply have to provide regardless of whether you want to. Do you agree? GORMAN: I don't know. I mean, David, you know, it's interesting some of the early companies that came out and said, you can absolutely do whatever you like in terms of working, they've retracted from that. I mean it's not every employee gets to choose exactly how they work in the same way they don't choose how they get paid or when they get promoted. Now there's got to be a balance in this so you're not going to please everybody on this topic. What I've said is between now and the end of the year, we're still in the category of what can we do from a health and safety. In New York City, for example, we require you to be vaccinated to come into the buildings. Guess what? 96% of our employees are vaccinated and they showed us their attestation cards. Other parts of the world, they're not even open. Now, you know, Australia, where I grew up, I mean they've barely opened the economy up yet they're still, you know, in lockdown phases in different parts of the country. By 2022, ‘23, then we'll really see what the right model is by business group and then by individual. CRAMER: Well, I've got to tell you James, the stock is down which is a rare opportunity because this was a great quarter. My charitable trust owns it. We talk about it a lot when it comes to the CNBC Investing Club and I just can't thank you enough for coming on and explaining why your bank is different and positive and I think much better than almost everybody else in the industry. James Gorman, CEO of Morgan Stanley. GORMAN: Thanks, thanks guys and by the way, the stock being down it's not all bad news. We are in the middle of a big buyback program so I’m okay— FABER: There you go. Alright. Updated on Oct 14, 2021, 12:20 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

If Donald Trump is criminally indicted in New York, he'll have a mugshot taken and be swabbed for DNA. Secret Service will never leave his side. Former President Donald Trump is facing a looming indictment in New York.Insider If Trump is indicted in New York, he'll be treated like any defendant, but with key exceptions. Trump would be fingerprinted, swabbed for the state DNA database, and photographed for his mugshot. But he likely won't be 'perp walked' before the cameras, and handcuffs are also unlikely. Don't count on handcuffs.Don't expect a dramatic, flash-bulb-dappled perp walk.But yes, there will be a mugshot, and fingerprinting, and a mandatory DNA cheek-swabbing. And there will be an appearance before a judge, and a not-guilty plea — likely, though not necessarily, in open court.If former President Donald Trump is indicted, arrested and arraigned in the New York "hush-money" investigation, he'll be treated like any defendant, but with many key exceptions.Here are predictions for how and when this would roll out, courtesy of some of Manhattan's top defense lawyers, former high-ranking prosecutors, and a retired Secret Service special agent.Will Trump be arrested on Tuesday, as he predicted?Almost certainly not.Trump has claimed on Truth Social that he will be arrested on Tuesday. But Insider has learned that the grand jury has one more witness to hear when it meets for three hours on Monday afternoon, making a Tuesday arrest extremely unlikely.Trump's legal team remains in the dark about when he would hypothetically turn himself in to District Attorney Alvin Bragg, lead defense lawyer Susan Necheles told Insider over the weekend. In fixing on "Tuesday," Trump may just be ad-libbing off of this Fox story, which says the DA's office has "asked for a meeting" with law enforcement early this week, ahead any civil unrest and crowd control issues that may arise from an anticipated indictment. Trump is, after all, calling for supporters to "protest" and "take our nation back." If Trump is indeed indicted and arrested, it will be over his strident denials of wrongdoing.The case is a "fairy tale," he wrote Saturday on Truth Social. Earlier this week, Trump wrote that the prosecution is a "Scam, Injustice, Mockery, and a Complete and Total Weaponization of Law Enforcement in order to affect a Presidential Election!"At what precise millisecond is Trump, officially, a perp?Here's how it plays out in state court in New York.Trump would be officially indicted in the instant that the grand jury foreperson signs his indictment, a document listing the charges the former president — plus any co-defendents — is alleged to have committed.This could happen immediately, right after the grand jury votes to indict."That's called 'walking it through,'" explains Diana Florence, a former white-collar crime prosecutor for the Manhattan district attorney's office.But that foreperson signature could also come days after the vote, Florence said. "Prosecutors can say, we don't have the draft indictment ready," Florence said, especially if the grand jury votes "yes" for some counts and "no" for others."They can tell the foreperson come back two weeks from Wednesday, or something," to sign the revised indictment, Florence said. However long that signature takes, it's only at that crucial moment — foreperson's pen to paper  — that Trump would become the first former president in history to face criminal charges. So what'll it say? The consensus among experts, Trump's defense team, and a trail of breadcrumbs left for hungry reporters by star witness Michael Cohen, is this: if there is an indictment, it will likely list multiple counts of falsifying business documents.Those low-level felony charges will likely relate to the 2016 election-eve hush-money payment to Stormy Daniels. They carry a potential maximum sentence of four years in prison. But a judge could also set a sentence of as little as zero jail plus probation.Can we see it? Can we? Please? Not so fast. The indictment starts out as a sealed document.Ink still wet, it's handed back to the prosecutor, then delivered under seal to the central clerk, whose office manages the paperwork for Manhattan felonies. There, the indictment is assigned an identifying docket number, stuffed into a wide, otherwise empty folder called an indictment jacket, and then tucked away in a locked file where not even Trump or his lawyers can get to it.In those early hours and days, only the grand jurors, Manhattan District Attorney Alvin Bragg, and a select few prosecutors who actually worked the case would know what's inside this yawning, hypothetical indictment jacket.There can always be a leak, of course, somewhere between indictment and arraignment, which is the court proceeding where Trump would plead not guilty.And the DA could always ask the judge to unseal the case early, according to veteran Manhattan defense lawyer Ron Kuby, "given the public interest in the case." But typically, only in a courtroom, during arraignment, will the physical indictment — in stapled, hard copy form — be handed to the defense team.Whenever the judge unseals it — either at the arraignment, or earlier on Bragg's request — the district attorney's office will probably quickly release PDF copies to the press and post it on the DA website. At which point the historic document will blow up Twitter feeds worldwide.Who gives Trump the news? That would be his lawyers."As a matter of course, you, the prosecutor, call the defense attorney, and say, 'Okay, he's been indicted, and the indictment has been filed,'" said Florence."The prosecutor will say, 'We're looking at, you know, March 27,' or something like that. 'How does that work for you?' And then you negotiate the date for them to surrender themselves."It's once that surrender date is agreed on that "everybody finds out" Trump has been indicted, even if the charges themselves remain a secret, predicts Kuby."Half the DA's office and their husbands and wives will know once they set a surrender date. All of Trumpville will know," Kuby said. "Between the two, it'll be out in two hours."Then Trump turns himself in?That's what typically happens in white-collar indictments, said Karen Friedman Agnifilo, a former chief assistant with the Manhattan district attorney's office.The defendant surrenders at the DA's headquarters in Lower Manhattan at a set time on the agreed-upon date and is immediately handed over to the custody of DA investigators — armed peace officers who are often former NYPD cops.At that point, Trump, if this is how it plays out, would be "under arrest" Friedman Agnifilo explained.He would be escorted by elevator to the seventh or ninth floor to be booked. DA investigators would take his prints and mugshot. They'd swab his cheek to get a mandatory sample for New York's DNA database. They'd take his "pedigree" information."That's where you lie about your height, lie about your weight," cracked Kuby. "'I'm six-three and 205 pounds.' Sure you are. Color of hair? 'Orange.'" A small Secret Service detail would accompany Trump every step of the way — as he arrives, as he's booked, and as he waits for his prints to come back clean, meaning no outstanding warrants, from the FBI database.They'd be there as he is then escorted to the arraignment courtroom, through the arraignment itself, and as he leaves."The Service won't abandon its mission," says Bill Pickle, the former special agent in charge of Al Gore's vice presidential detail.Pickle predicts that given the long, excellent relationship between Secret Service and New York City law enforcement — in the one city presidents visit most often — all those details will be easily worked out."They will never leave him, no," Pickle said of Trump's detail.Once his prints come back, Trump, if he were any other high-profile white-collar perp, would be walked in handcuffs by DA investigators down a courthouse hallway — with the press shouting and filming from behind barricades — to the courtroom.There, he'd see the hard copy indictment for the first time, and plead not guilty, or his lawyers would enter that not-guilty plea on his behalf.So that's how it'll go?It's a very possible scenario.Bragg, the district attorney, could well decide he's doing this one by the book, with no preferential treatment, and Trump would move from surrender to booking to arraignment just like any other white-collar defendant.But nothing about this surrender, booking, and arraignment will be typical, experts predict. But they gotta arrest him, right? If he's indicted? Calm down. Not necessarily.Trump could be arraigned without ever spending a moment in custody, according to a former top prosecutor in the office of the previous Manhattan district attorney, Cyrus Vance."My strong bet, and it's what I would do, is that they not arrest him," said the ex-prosecutor, speaking anonymously because they were not authorized to comment on the case."Instead, the court could issue him a criminal summons," an order directing him to appear for arraignment, they said. "He would appear in court and then get printed before or after. No cuffs." Would they do that? "Who knows," they said. "But logistically, it's the only thing that makes sense. Some would criticize that he's being treated differently. OK. He is different. And this is unprecedented. I would not arrest him, or, at worst, I would have it done in the back of the courtroom."So, he'd still have to come to court? Again, not necessarily."It is possible they could schedule a virtual arraignment, and go through the booking procedure later, which is not typical, but they could do that," Kuby said."The judge would have to agree, the defense and prosecution would have to agree, and there would have to be some follow-up," to get Trump printed, mugshot, swabbed, Kuby said."But there's no legal reason why a defendant cannot appear for their arraignment virtually."Arraign him virtually? What?I know. The biggest courtroom drama in the history of the US presidency could quite possibly be broadcast on Zoom. Trump could conceivably do it all from Mar-a-Lago, in a suit and pajama bottoms. This is highly unlikely, but possible.No handcuffs? No perp walk?All of this would ultimately be Bragg's call. But even if Trump does need to surrender in person, Secret Service would likely give the perp walk a hard pass."That walk is not going to happen," said Pickle, the former Secret Service special agent. "You're not going to expose him to people who could cause him harm.""My guess," he added, "is this is going to be a much more sedate event than you envision."As for letting Trump be seen in handcuffs, even left-leaning defense lawyers believe that would expose Bragg, a Democrat, to accusations of election meddling, and of political bias. Handcuffs would severely limit the former president's mobility in the event, heaven forbid, of an emergency. And an image of Trump in handcuffs would enrage Trump's base.It would be a bad look all around, said Kuby."I mean the man is beloved by 20 percent of the American population. Admittedly they're fascist psychos," Kuby deadpanned."But still. Why contribute to a perception of unfairness?" Would Trump stay out on bail? Yep. It's pretty much a certainty that Trump would remain free, and likely without any bail set at all.Under New York's recently-reformed, progressive bail laws, defendants can only be ordered held on bail if the judge finds they are a flight risk. "Happily, under the current bail laws, you cannot consider whether he constitutes a danger to the community," quipped Kuby, an avowed liberal. "I think nine out of ten jurists would find that Donald Trump constitutes a clear and present danger, but those woke liberals prevented that from happening with New York's bail laws," he added."Oh, if only they could consider future dangerousness, and the likelihood of committing another crime, like in the old days," he joked.  This story is being updated to reflect news developments. Read the original article on Business Insider.....»»

If Donald Trump is criminally indicted in New York, he'll have a mugshot taken and be swabbed for DNA. Secret Service will never leave his side. Former President Donald Trump is facing a looming indictment in New York.Insider If Trump is indicted in New York, he'll be treated like any defendant, but with key exceptions. Trump would be fingerprinted, swabbed for the state DNA database, and photographed for his mugshot. But he likely won't be 'perp walked' before the cameras, and handcuffs are also unlikely. Don't count on handcuffs.Don't expect a dramatic, flash-bulb-dappled perp walk. But yes, there will be a mugshot, and fingerprinting, and a mandatory DNA cheek-swabbing — and a "not guilty" plea, though not necessarily in open court.If Donald Trump is indicted in New York, as looks increasingly likely, it will be over his strident denials of wrongdoing. This week he "Truthed" that the prosecution is a  "Scam, Injustice, Mockery, and a Complete and Total Weaponization of Law Enforcement in order to affect a Presidential Election!"He'll be treated like any defendant, but with many key exceptions.Here are predictions for how this historic event would roll out, courtesy of some of Manhattan's top defense lawyers, former high-ranking prosecutors, and a retired Secret Service special agent.At what precise millisecond is Trump, officially, a perp?Trump would be officially indicted in the instant that the grand jury foreperson signs his indictment, a document listing the charges the former president is alleged to have committed.This could happen immediately, right after the grand jury votes to indict."That's called 'rocking it through,'" explains Diana Florence, a former white-collar crime prosecutor for the Manhattan district attorney's office.But that foreperson signature could also come days after the vote, Florence said. "Prosecutors can say, we don't have the draft indictment ready," Florence said, especially if the grand jury votes "yes" for some counts and "no" for others."They can tell the foreperson come back two weeks from Wednesday, or something," to sign the revised indictment, Florence said. However long that signature takes, it's only at that crucial moment — foreperson's pen to paper  — that Trump would become the first former president in history to face criminal charges. So what'll it say? The consensus among experts, Trump's defense team, and a trail of breadcrumbs left for hungry reporters by star witness Michael Cohen, is this: if there is an indictment, it will likely list multiple counts of falsifying business documents.Those low-level felony charges will likely relate to the 2016 election-eve hush-money payment to Stormy Daniels. They carry a potential maximum sentence of four years in prison. But a judge could also set a sentence of as little as zero jail plus probation.Can we see it? Can we? Please? Not so fast. The indictment starts out as a sealed document. Ink still wet, it's handed back to the prosecutor, then delivered under seal to the central clerk, whose office manages the paperwork for Manhattan felonies. There, the indictment is assigned an identifying docket number, stuffed into a wide, otherwise empty folder called an indictment jacket, and then tucked away in a locked file where not even Trump or his lawyers can get to it.In those early hours and days, only the grand jurors, Manhattan District Attorney Alvin Bragg, and a select few prosecutors who actually worked the case would know what's inside this yawning, hypothetical indictment jacket.There can always be a leak, of course, somewhere between indictment and arraignment, which is the court proceeding where Trump would plead not guilty.And the DA could always ask the judge to unseal the case early, according to veteran Manhattan defense lawyer Ron Kuby, "given the public interest in the case." But typically, only in a courtroom, during arraignment, will the physical indictment — in stapled, hard copy form — be handed to the defense team.Whenever the judge unseals it — either at the arraignment, or earlier on Bragg's request — the district attorney's office will probably quickly release PDF copies to the press and post it on the district attorney's website. At which point the historic document will blow up Twitter feeds worldwide.Who gives Trump the news? That would be his lawyers."As a matter of course, you, the prosecutor, call the defense attorney, and say, 'Okay, he's been indicted, and the indictment has been filed,'" said Florence."The prosecutor will say, 'We're looking at, you know, March 27,' or something like that. 'How does that work for you?' And then you negotiate the date for them to surrender themselves."It's once that surrender date is agreed on that "everybody finds out" Trump has been indicted, even if the charges themselves remain a secret, predicts Kuby."Half the DA's office and their husbands and wives will know once they set a surrender date. All of Trumpville will know," Kuby said. "Between the two, it'll be out in two hours."Then Trump turns himself in?That's what typically happens in white-collar indictments, said Karen Friedman Agnifilo, a former chief assistant with the Manhattan district attorney's office.The defendant surrenders at the DA's headquarters in Lower Manhattan at a set time on the agreed-upon date and is immediately handed over to the custody of DA investigators — armed peace officers who are often former NYPD cops.At that point, Trump, if this is how it plays out, would be "under arrest" Friedman Agnifilo explained.He would be escorted by elevator to the seventh or ninth floor to be booked. DA investigators would take his prints and mugshot. They'd swab his cheek to get a mandatory sample for New York's DNA database. They'd take his "pedigree" information."That's where you lie about your height, lie about your weight," cracked Kuby. "'I'm six-three and 205 pounds.' Sure you are. Color of hair? 'Orange.'" A small Secret Service detail would accompany Trump every step of the way — as he arrives, as he's booked, and as he waits for his prints to come back clean, meaning no outstanding warrants, from the FBI database.They'd be there as he is then escorted to the arraignment courtroom, through the arraignment itself, and as he leaves."The Service won't abandon its mission," says Bill Pickle, the former special agent in charge of Al Gore's vice presidential detail.Pickle predicts that given the long, excellent relationship between Secret Service and New York City law enforcement — in the one city presidents visit most often — all those details will be easily worked out."They will never leave him, no," Pickle said of Trump's detail.Once his prints come back, Trump, if he were any other high-profile white-collar perp, would be walked in handcuffs by DA investigators down a courthouse hallway — with the press shouting and filming from behind barricades — to the courtroom.There, he'd see the hard copy indictment for the first time, and plead not guilty, or his lawyers would enter that not-guilty plea on his behalf.So that's how it'll go?It's a very possible scenario.Bragg, the district attorney, could well decide he's doing this one by the book, with no preferential treatment, and Trump would move from surrender to booking to arraignment just like any other white-collar defendant.But nothing about this surrender, booking, and arraignment will be typical, experts predict. But they gotta arrest him, right? If he's indicted? Calm down. Not necessarily.Trump could be arraigned without ever spending a moment in custody, according to a former top prosecutor in the office of the previous Manhattan district attorney, Cyrus Vance."My strong bet, and it's what I would do, is that they not arrest him," said the ex-prosecutor, speaking anonymously because they were not authorized to comment on the case."Instead, the court could issue him a criminal summons," an order directing him to appear for arraignment, they said. "He would appear in court and then get printed before or after. No cuffs." Would they do that? "Who knows," they said. "But logistically, it's the only thing that makes sense. Some would criticize that he's being treated differently. OK. He is different. And this is unprecedented. I would not arrest him, or, at worst, I would have it done in the back of the courtroom."So, he'd still have to come to court? Again, not necessarily."It is possible they could schedule a virtual arraignment, and go through the booking procedure later, which is not typical, but they could do that," Kuby said."The judge would have to agree, the defense and prosecution would have to agree, and there would have to be some follow-up," to get Trump printed, mugshot, swabbed, Kuby said."But there's no legal reason why a defendant cannot appear for their arraignment virtually."Arraign him virtually? What?I know. The biggest courtroom drama in the history of the US presidency could quite possibly be broadcast on Zoom. Trump could conceivably do it all from Mar-a-Lago, in a suit and pajama bottoms.No handcuffs? No perp walk?All of this would ultimately be Bragg's call. But even if Trump does need to surrender in person, Secret Service would likely give the perp walk a hard pass."That walk is not going to happen," said Pickle, the former Secret Service special agent. "You're not going to expose him to people who could cause him harm.""My guess," he added, "is this is going to be a much more sedate event than you envision."As for letting Trump be seen in handcuffs, even left-leaning defense lawyers believe that would expose Bragg, a Democrat, to accusations of election meddling, and of political bias. An image of Trump in handcuffs could also enrage Trump's base.It would be a bad look all around, said Kuby."I mean the man is beloved by 20 percent of the American population. Admittedly they're fascist psychos," Kuby deadpanned."But still. Why contribute to a perception of unfairness?" Would Trump stay out on bail? Yep. It's pretty much a certainty that Trump would remain free, and likely without any bail set at all.Under New York's recently-reformed, progressive bail laws, defendants can only be ordered held on bail if the judge finds they are a flight risk. "Happily, under the current bail laws, you cannot consider whether he constitutes a danger to the community," quipped Kuby, an avowed liberal. "I think nine out of ten jurists would find that Donald Trump constitutes a clear and present danger, but those woke liberals prevented that from happening with New York's bail laws," he added."Oh, if only they could consider future dangerousness, and the likelihood of committing another crime, like in the old days," he joked.  Read the original article on Business Insider.....»»

Futures Drop As Attention Turns To Friday's Payrolls US futures dropped on Thursday, led by tech companies, as yesterday's late, 3:30pm surge which brought stocks back to unchanged levels is being tested ahead of tomorrow's payroll reports. S&P 500 contracts dropped 0.3% as of 7:30 a.m. ET while Nasdaq futures retreated 0.6%. Bonds yields were flat alongside a weaker Bloomberg Dollar Spot Index which is set for its first one-day drop this week, commodities are mixed with copper outperforming +1.7%. In premarket trading, mega cap tech names are mostly lower.  Silvergate Capital slumped 44% in premarket trading after announcing plans to wind down operations and voluntarily liquidate the crypto-friendly bank. Tesla extended this week’s losses and fell as much as 2.6% in premarket trading on Thursday, an investigation by US regulators over complaints the steering wheel can fall off certain new Model Y vehicles. MongoDB fell 12% in premarket trading after the infrastructure software company gave a full-year revenue forecast that missed expectations. Analysts said the weaker forecast overshadows its strong 4Q beat. By contrast, Asana surged 21% after CEO and co-founder Dustin Moskovitz said he plans to enter into a trading plan to purchase up to 30 million shares. Here are some other notable premarket movers: Uber shares gain in US premarket trading, after the ride hailing company was said to be considering spinning off its freight logistics business, a move that analysts said would be positive for the company, with Piper Sandler saying it could eventually increase the stock’s chances of being included in the S&P 500 Index. Etsy shares drop 5.4% in US premarket trading after the online marketplace operator was double- downgraded at Jefferies to underperform from buy, with the broker citing the stock’s premium valuation and “troubling” buyer trends that could put pressure on growth. SVB Financial falls as much as 32% in premarket trading after offering $1.25 billion of common stock. The holding company for Silicon Valley Bank also announced the sale of $21 billion of securities, which will result in an after-tax loss of about $1.8 billion in the first quarter. There is a light macro calendar today; we see Biden’s budget proposal reveal later today, as well as Challenger Job cuts and Jobless Claims data to further assess the labor market. In addition, there is a Treasury 30yr bond auction. Investors are digesting Jerome Powell’s signaling after the Federal Reserve chief told lawmakers no decision had been made on the pace of the next move. He reiterated however, that an acceleration in tightening was still on the table, and rates may go higher than anticipated should economic data warrant. Still, markets tilt solidly toward a half-point hike in March rather than the quarter-point expected earlier as Powell's comments coincided with another round of US jobs figures that came in on the hot side, bolstering bets that policymakers will remain hawkish. “The Fed will pause only when they start to see weakness in the labor market and inflation starting to come down. After that they will want to leave interest rates high to squeeze out inflation expectations from the market,” said Charles Diebel, head of fixed income at Mediolanum International Funds. “So rates will remain restrictive even when the economy is slowing or in recession, that turns the screw even further for markets,” he said. “This would shatter the market’s comfortable illusion at the start of the year that rates were about to pivot and a soft landing for the US economy could be engineered,” said Russ Mould, investment director at AJ Bell. Meanwhile, JPM strategists - desperate to find anything bearish now that Marko Kolanovic has staked his reputation on stocks hitting new cycle lows - said that while the US earnings season was not as bad as expected, it confirmed emerging cracks within corporate fundamentals, adding that the rising cost of capital is a key concern for corporates. Which, of course, has been obvious for the past year and has been priced in long ago. Euro Stoxx 50 falls 0.5%. In Europe, real estate, miners and travel underperform. Here are some of the most notable European movers: Hugo Boss shares fell as much as 4.5% as its 2023 Ebit guidance came in below some analysts’ estimates and brokers flagged the German fashion brand’s inventory build Credit Suisse shares drop as much as 4.9% after the Swiss lender delayed the publication of its annual report and compensation details for 2022 Entain shares slip as much as 4.4% after the UK-based gambling company reported full-year results that analysts said were broadly in line with estimates DS Smith shares fall as much as 4.3% after “downbeat” commentary from the packaging maker that appears to mostly echo reporting from its peers National Express falls as much as 7.4%, among the biggest decliners in the UK on Thursday, after getting its only sell rating IQE shares drop as much as 33%, the most since June 2019, after a trading update, with Peel Hunt flagging the chipmaker is suffering from the impact of a deepening inventory correction Aviva gains as much as 3.8% after posting a results beat for the full year and launching a £300m share buyback that met expectations M&G shares gained as much as 4.4%, reversing a slump in early trading, as analysts welcomed the fund manager’s strong operating profit and management’s focus on reducing debt De’ Longhi gains as much as 6.7%, the most intraday since November, after Equita upgraded the Italian appliance maker to buy from hold Dassault Aviation shares jump as much as 11% to a record high after the French maker of the Rafale fighter plane reported 2022 sales and net income that were ahead of analyst expectations Asian stocks were mixed as the latest Chinese inflation data underscored a mediocre recovery in the economy, offsetting the boost from a softer tone by the Federal Reserve’s chief on interest rate increases. The MSCI Asia Pacific Index rose as much as 0.3% on Thursday before giving up the increase. About three stocks declined for every two that advanced in the gauge. Japan led gains in the region ahead of the Bank of Japan meeting this week, where expectations are for ultra-easy policies to continue.  Chinese stocks fell after the nation’s costs of food and consumer goods eased following the end of the Lunar New Year holiday, suggesting that an economic rebound driven by reopening may take longer than expected. South Korean shares also declined. The focus will now be on the US jobs report due Friday and inflation data next week. Sentiment in Asia has been weak recently, dragged by concerns over the Fed’s policy path and a lack of major catalysts from the National People’s Congress in China. The MSCI regional benchmark has fallen 6% from a January peak. “The upside potential of Asia equities remains constrained by monetary policy in the US, where real rates, the crudest measure of financial conditions remain in negative territory,” Societe Generale strategists including Frank Benzimra wrote in a note. Japanese stocks rose for a fifth day after Federal Reserve Chair Jerome Powell softened his tone slightly during a congressional testimony and investors awaited a Bank of Japan policy decision on Friday. The Topix index advanced 1% to 2,071.09 as of the 3 p.m. close in Tokyo, while the Nikkei 225 climbed 0.6% to 28,623.15. Seven & i Holdings Co. contributed the most to the Topix’s gain, increasing 4.1% after the Nikkei reported the company will reduce the number of Ito-Yokado stores by about 20%. Out of 2,160 stocks in the index, 1,642 rose and 413 fell, while 105 were unchanged Australian stocks were flat: the S&P/ASX 200 index was little changed to close at 7,311.10, with gains in banks offset by losses in the mining sector. Some of the largest miners, including BHP and Rio Tinto, traded ex-dividend.  In New Zealand, the S&P/NZX 50 index fell 0.2% to 11,826.15. In FX, the Bloomberg Dollar Spot Index fell as the greenback weakened agajinst all of its Group-of-10 peers apart from the Norwegian krone. The euro climbed above $1.0550. The yen rose against all G-10 peers in the wake of Jerome Powell’s comments that further rate hikes would be data- dependent. Traders are also positioning ahead of the BOJ’s policy decision on Friday, with investors high alert for a surprise parting shot from Haruhiko Kuroda in his final meeting. The Australian and New Zealand dollars rose but stayed within recent ranges amid broad greenback weakness. Bonds hold opening gains. Australian bonds climbed to extend recent outperformance In rates, treasuries higher across belly and front-end of the curve, reversing recent flattening trend with the long-end underperforming. Gains accumulated during Asia session as Australian bonds climbed, extending recent outperformance. Long-end Treasuries lag ahead of 30-year bond auction at 1pm New York time. Yields richer by 3bp-4bp across front-end of the curve in early US session with 20- and 30-year bonds slightly cheaper vs Wednesday’s close; 10-year yields around 3.98%, around 1bp richer on the day. The bund yield curve bear steepened, paring the past two days of gains as well as trimming outperformance over Treasuries. The pound advanced and the UK sovereign yield curve bear-flattened.  WI 30-year at 3.90% is above auction stops since November and ~21bp cheaper than February’s result. IG dollar issuance slate empty so far; two issuers priced $8b Wednesday, with four or five issuers electing to stand down, which could lead to an active session Thursday. In commodities, WTI trades within Wednesday’s range at ~$76.69. Spot gold rises roughly $4 to trade near $1,818/oz To the day ahead now, and data releases include the weekly initial jobless claims from the US. Otherwise, central bank speakers include the Fed’s Barr and the ECB’s Vujcic. Market Snapshot S&P 500 futures down 0.3% to 3,982.50 STOXX Europe 600 down 0.6% to 458.34 MXAP little changed at 160.28 MXAPJ down 0.6% to 513.07 Nikkei up 0.6% to 28,623.15 Topix up 1.0% to 2,071.09 Hang Seng Index down 0.6% to 19,925.74 Shanghai Composite down 0.2% to 3,276.09 Sensex down 0.8% to 59,851.99 Australia S&P/ASX 200 little changed at 7,311.12 Kospi down 0.5% to 2,419.09 German 10Y yield little changed at 2.69% Euro up 0.2% to $1.0566 Brent Futures down 0.3% to $82.40/bbl Gold spot up 0.2% to $1,817.23 U.S. Dollar Index down 0.27% to 105.38 Top Overnight News from Bloomberg Northwestern University Professor Janice Eberly is the frontrunner in the White House search for a successor to Lael Brainard as vice chair of the Federal Reserve, people familiar with the matter said Bank of France Governor Francois Villeroy de Galhau said French inflation should peak between now and June and the ECB will do what’s needed to bring it back to its 2% goal Swedish inflation is far too high and the Riksbank will do whatever it takes to slow price increases, Deputy Governor Aino Bunge said in her first public speech since joining the central bank’s executive board Indicator data for Sweden’s GDP showed an increase of 2% from a month earlier, adjusted for seasonal variations, the fastest increase in four months, according to data published by Statistics Sweden on Thursday. That compares with a median estimate for a 0.1% decline in a Bloomberg survey of economists Turkey borrowed $2.25 billion in its first international bond offering following last month’s devastating earthquakes. The Treasury and Finance Ministry said it sold dollar-denominated bonds maturing March 14, 2029 at a yield of 9.5% A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly rangebound after the choppy performance in the US where Fed Chair Powell reaffirmed his hawkish view but clarified that the Fed has not yet made a decision, while the region also digested weak data including softer-than-expected Chinese inflation. ASX 200 was kept afloat amid outperformance in tech and energy albeit with upside limited by weakness in the mining and materials industries, while sentiment is also clouded following confirmation of a substantial drop in building approvals. Nikkei 225 rose to its highest level since August after downward revisions to Q4 GDP added to the case for a slower exit from the BoJ’s ultra-easy policy and as the central bank kick-started the final 2-day policy meeting before the end of the Kuroda era. Hang Seng and Shanghai Comp. were indecisive as participants reflected on the soft inflation data from China which showed consumer price growth was at its slowest pace in a year. Top Asian News Australia will end COVID testing for travellers from China, while Australia's Trade Minister separately noted that progress is being made on almost all instances of trade blockages with China. Japan's lower house approved the appointment of Kazuo Ueda as the next BoJ Governor, while it approved the appointment of Shinichi Uchida and Ryozo Himino as the next Deputy Governors, which was as expected and with the upper house set to vote on the nominations tomorrow. South Korean President Yoon is to visit Japan on March 16-17th, according to Yonhap. European bourses are under pressure, Euro Stoxx 50 -0.5%, with sentiment gradually deteriorating amid numerous geopolitical updates ahead of Friday's NFP report. Beforehand, we do have Fed's voter Barr and IJC scheduled before a 30yr auction, going into this US futures are lower across the board with the NQ -0.6% lagging as yields pickup. Bank of America (BAC) CEO sees a slight US recession in Q3; says what the Federal Reserve intended to do is happening. Says consumer spending growth is accelerating, consumer account balances are still growing, BofA had to stop hiring last Autumn. Top European News US President Biden and European Commission President von der Leyen are expected to agree on Friday to work towards a trade deal that would give the EU free-trade agreement-like status, according to Reuters sources. It was separately reported that the US and the EU are to start trade negotiations on minerals, according to WSJ. German Economy Ministry says they will be setting up a system of social subsidies so low/medium-income households can afford the energy transition; double-digit billion EUR sum is planned to help the industry cope with the climate transition. Riksbank's Bunge says it is important for inflation to fall significantly this year. Inflation is far too high, prices are rising broadly. Underlying inflation has not shown clear signs of falling, will take time for mon pol to have full impact. Adds, the economy is still faring relatively well; still sees a 25bp or 50bp hike in April. FX The DXY is underpressure and has moved below yesterday's 105.35 trough to 105.28 at worst with the 100-DMA in proximity ahead of US IJC, Fed speak and more pertinently Friday's NFP. Amidst this, the JPY is the standout outperformer with USD/JPY within 10 pips of 136.00 at best vs 137.37 initial high ahead of Kuroda's final BoJ where the straddle premium indicates 230 pip breakeven across the BoJ and NFP events. Antipodeans and the CHF are taking advantage of the USD's pullback, firmly below 0.94 and above 0.66 and 0.61 for CHF, AUD & NZD vs USD. Next-best are the EUR and GBP, with fresh drivers limited as we enter the ECB's quiet period, though with action very much at the whim of broader risk sentiment before next week's UK/EZ specific events; Cable testing 1.19 and EUR/USD holding above 1.0550. SEK shrugged off conflicting macro data though gleaned incremental upside from Riksbank's Bunge's hawkish remarks and a fresh call from SEB, who now look for a 25bp in June after April's 50bp. PBoC set USD/CNY mid-point at 6.9666 vs exp. 6.9668 (prev. 6.9525) Fixed Income Bonds back within tighter ranges as dust settles on Fed Chair Powell's testimonies and attention turns to Friday's US jobs data with BoJ prequel. Bunds meander between 131.77-07, Gilts roam from 100.50 to 100.06 and T-note sits just shy of parity within 110-31+/23+ band. Next on the agenda Challenger layoffs, jobless claims and last long bond refunding leg. Commodities Commodities, generally speaking, reside within fairly contained ranges with price action choppy thus far amid a lack of scheduled catalysts aside from geopolitical developments. WTI and Brent currently reside around USD 76.50/bbl mark (USD 76.16-76.85 range) and USD 82.50/bbl (USD 82.17-82.89/bbl range) respectively. EU Energy Commissioner says we will propose to extend EU gas price cap to other gas hubs, to propose EU extends the voluntary target to cut gas demand by 15%. Russian Foreign Minister Lavrov says it is important to continue the Russian-Saudi coordination on all levels, according to Sky News Arabia. Alongside this, the Saudi Foreign Minister stresses close coordination between themselves and Russia within the energy market and the commitment to OPEC+. Russian Foreign Minister Lavrov says Russia and Saudi "discussed exporting Ukraine's grain across the Black Sea and removing restrictions on our exports of grain and fertilizers", via Al Jazeera. Spot gold remains above USD 1800/oz and by extension within Wednesday parameters and technically between the 10- & 100-DMAs at USD 1827/oz and USD 1808/oz. Geopolitics Twitter sources noted a major Russian air attack was underway in Ukraine, while regional officials said strikes hit many Ukrainian regions including Kharkiv and Odesa with power cuts in some places, while explosions were also heard in Kyiv and Dnipro. Russian missiles struck 10 regions across Ukraine, according to Russian President Zelensky cited by AFP. US Justice Department said the US obtained a warrant for the seizure of an aeroplane owned by a Russian oil company valued at more than USD 25mln, according to Reuters. North Korea fired short-ranged ballistic missile towards the Yellow Sea, according to Yonhap. US Event Calendar 07:30: Feb. Challenger Job Cuts YoY, prior 440.0% 08:30: March Initial Jobless Claims, est. 195,000, prior 190,000 08:30: Feb. Continuing Claims, est. 1.66m, prior 1.66m 12:00: 4Q US Household Change in Net Wor, prior -$392b DB's Jim Reid concludes the overnight wrap After the sizeable losses on Tuesday, markets showed signs of stabilising over the last 24 hours as Fed Chair Powell put forward a slightly softer message on the pace of future rate hikes. He was appearing before the House Financial Services Committee, where he delivered almost exactly the same testimony as he had to the Senate Banking Committee the previous day. However, there was one important caveat added, since when referring to his comments that “we would be prepared to increase the pace of rate hikes”, he said “I stress that no decision has been made on this”. So a clear message that faster rate hikes were not a done deal just yet. Whilst Powell was trying to steer us away from a specific outcome, ultimately the decision was always going to depend significantly on tomorrow’s jobs report, as well as the CPI release on Tuesday. And in the meantime, markets continued to price in a growing chance that the Fed would go for a 50bps move at the next meeting, whatever Powell might have said. In fact, futures ended the day pricing in a 42.8bps hike for March, which is up from 40.7bps the previous day. With a 50bp hike being increasingly priced in, shorter-dated yields continued to move higher, and the 2yr Treasury yield was up +6.2bps to another post-2007 high of 5.07%. 10yr yields rose by a smaller +2.8bps to 3.99% where they remain overnight, after being down shortly after Powell’s testimony before selling off during the day. That meant we had a fresh round of curve inversions, with the 2s10s falling all the way to -109bps by the close, which is something we haven’t seen since 1981. Otherwise yesterday, there was plenty of evidence for the hawks and doves to look over. On the hawkish side, we had a couple of releases suggesting that the labour market remained in a robust position. First, the ADP’s report of private payrolls came in at +242k in February (vs. +200k expected), and there was a modest upward revision of +13k to the prior month’s release. Then we had the JOLTS data for January, which is a bit more backward-looking, but showed that job openings fell by less than expected to 10.824m (vs. 10.546m expected). That means that there are still 1.90 vacancies per unemployed worker, which isn’t far beneath the 2.01 peak last March when the Fed started tightening, and it remains well above its pre-Covid average. That offered evidence for the hawks, but on the dovish side, there were also a couple of indications from the JOLTS release that the labour market tightness was continuing to ease off at the start of 2023. In particular, the quits rate of those voluntarily leaving their jobs (which is strongly correlated with wage growth) fell to its lowest level in almost two years, at 2.5%. If that’s coming down, then that suggests that the labour market might be coming into better balance between supply and demand, which is what the Fed wants to see. There’s much anticipation for the Fed’s next decision, but before that we’ve got the ECB decision in just a week’s time, and the latest speakers suggested some divisions on policy within the Governing Council. Specifically, Italy’s Visco (one of the more dovish members) said that “uncertainty is so high that the Governing Council of the ECB has agreed to decide ‘meeting by meeting’, without ‘forward guidance’”. He added that “I therefore don’t appreciate statements by my colleagues about future and prolonged interest rate hikes.” That comes on the back of comments from Austria’s Holzmann earlier in the week, who said that they should hike by 50bps at the next four meetings, and markets are now pricing that the deposit rate will move to at least 4% by the end of the year. With that in mind, sovereign bonds in Europe followed a similar pattern to the US yesterday, with curve inversions becoming even deeper. For instance, the 2yr German yield (+2.5bps) hit a post-2007 high of 3.31%, whereas the 10yr yield was down -4.6bps to 2.64%, thus leaving the German 2s10s curve at its most inverted since 1992. Likewise in France, the 2yr yield (+2.0bps) was higher, and the 10yr yield (-4.7bps) fell back. Against this backdrop, equities were pretty steady on both sides of the Atlantic, with the S&P 500 (+0.14%) seeing a modest gain after its bigger losses from the previous day. Bond proxies such as Real Estate (+1.3%) and Utilities (+0.8%) were among the best performers along with tech sectors like Semiconductors (+2.6%) and Tech Hardware (+0.8%). This was tempered by energy (-1.0%) and some other more cyclical sectors such as Autos (-2.2%) and Banks (-0.9%). Meanwhile in Europe, the STOXX 600 (+0.08%) only just closed higher on the day. Following all that, Asian equity markets have been mostly subdued this morning. That comes on the back of weaker-than-expected data on Chinese inflation, with consumer prices up by +1.0% in the year to February (vs. +1.9% expected), which is its slowest pace in a year. Furthermore producer prices were down -1.4% (vs. -1.3% expected), marking the lowest reading since November 2020. In the meantime, we also had some weaker-than-expected data out of Japan, with annualised GDP only up by +0.1% in Q4, rather than +0.6% as initially estimated. Amidst all that, the major indices in Asia have struggled to gain much traction, with the CSI 300 (-0.16%), the Shanghai Comp (-0.13%) and the KOSPI (-0.32%) all trading in negative territory. However, the Hang Seng is up +0.33%, and Japanese equities are outperforming with the Nikkei up +0.50%. Looking forward, the picture remains downbeat, with US equity futures are pointing to modest losses today, including for the S&P 500 (-0.09%) and the NASDAQ 100 (-0.15%). Elsewhere yesterday, the Bank of Canada left rates unchanged, following a run of 8 successive hikes over the previous year. The move was in line with expectations, since the BoC had already announced a pause at their previous meeting. However, the Canadian Dollar (-0.4%) fell to its weakest level since October against the US Dollar, after the statement removed a previous reference that the economy was experiencing excess demand. Looking forward, the statement said they were “prepared to increase the policy rate further” if required to get inflation back to target, and investors still expect the next move to be up rather than down, with another 25bp hike fully priced in by the September meeting. Staying on central banks, Bloomberg reported that Janice Eberly is the frontrunner to be the next Vice Chair of the Federal Reserve, according to “people familiar with the matter”. Eberly is a professor at Northwestern University, but previously served as Assistant Secretary of the Treasury for Economic Policy under President Obama. Bloomberg’s article said that Eberly had met for an interview with senior officials, including Treasury Secretary Janet Yellen, NEC Director and former Fed Vice Chair Lael Brainard, as well as Biden’s chief of staff Jeff Zients. Looking at yesterday’s other releases, we found out that the Euro Area economy didn’t grow at all in Q4 of last year, contrary to previous estimates that there’d been a +0.1% expansion. Otherwise, German industrial production grew by +3.5% in January (vs. +1.4% expected), and although retail sales unexpectedly fell -0.3% (vs. +2.3% expected), there were sharp upward revisions to the previous month. To the day ahead now, and data releases include the weekly initial jobless claims from the US. Otherwise, central bank speakers include the Fed’s Barr and the ECB’s Vujcic. Tyler Durden Thu, 03/09/2023 - 08:09.....»»

Power-Grid Attacks Up 71% And Biden Acolytes Tell Us It's All Those White Supremacists Authored by Monica Showalter via AmericanThinker.com, Is there anything the Biden administration can't inject its wokester politics into? The latest news is a disturbing report from an industry-watcher using federal data, pointing out that attacks on America's power grid are up 71%. According to the Wall Street Journal, which got a leaked copy of the report: Physical attacks on the U.S. power grid rose 71% last year compared with 2021 and will likely increase this year, according to a confidential industry analysis viewed by The Wall Street Journal. A division of the grid oversight body known as the North American Electric Reliability Corporation found that ballistic damage, intrusion and vandalism largely drove the increase. The analysis also determined that physical security incidents involving power outages have increased 20% since 2020, attributed to people frustrated by the onset of the pandemic, social tensions and economic challenges. The NERC division, known as the Electricity Information Sharing and Analysis Center, or E-ISAC, recorded the sharp increase in incidents in 2022, driven in part by a series of clustered attacks on infrastructure in the Southeast, Midwest and Pacific Northwest. One of the most significant incidents occurred in early December when attackers targeted several substations in North Carolina with gunfire, leaving roughly 45,000 people in the dark. CBS, which also got a copy of the leaked report, added this: The analysis by E-ISAC is the most comprehensive and includes mandatory reporting of incidents to federal agencies or NERC, as well as voluntary disclosures made in confidence.  And while E-ISAC has determined that "overall physical security incident sharing" has increased by 11% since 2021 and 25% since 2020, analysts assess that the spike in grid-impacting incidents "is due to an actual increase in the electric industry's risk environment and is not just the result of fluctuations in information-sharing patterns by utilities."  Between 2020 and 2022, E-ISAC tracked 4,493 incidents: 502 received through mandatory reporting and 3,991 through voluntary means. The vast majority — 97% — of the incidents "resulted in no disruption of service." But the remaining 3% of incidents resulted in "varying levels of grid impacts." Toplines of this study were first reported by the Wall Street Journal.  That's disturbing stuff, signaling that our power grid is a sitting duck for predators, and with Joe Biden in charge, we can expect a response comparable to the one that he's demonstrated in East Palestine, Ohio.  A blown out power grid could put us into the Stone Age in a matter of seconds. Anybody doing something about this?  There wasn't much said about it in the reports. There was also, where it could be found, an odd focus on "white supremacists" conducting the attacks, and yes, there have apparently been a couple, as if the Russians or Chinese or other malevolent actors, such as Mexico's cartels, wouldn't dream of disrupting U.S. power grids for their own purposes.  The reports seen, which were oddly coordinated, all quoted experts who cited white supremacists in one form or another as being at the root of the problem. There also was no clear explanation as to why it's happening from either news story, it's just that attacks are up, and they are expected to get worse. "It's important to note that new fencing, cameras, or better lighting isn't going to prevent attacks. They will continue to happen," said Brian Harrell, former assistant secretary for infrastructure protection at the Department of Homeland Security (DHS). "This is why we must invest in resilience, adding redundancy, and removing single points of failure. Certain attacks on critical infrastructure should be legally treated as domestic terrorism." Really, Brian?  Who is this guy?  According to a Google search, Harrell was appointed by President Trump to a couple of jobs within Homeland Security, which is a department famous for its NeverTrumps, and who also served as NERC director for critical infrastructure and then electricity for five years before that, according to his LinkedIn page.  Might he be part of the Washington swamp? To the Wall Street Journal, whom Harrell also talked to, he brought up the old "chatter" argument: Brian Harrell, former assistant secretary for infrastructure protection at the Department of Homeland Security, said there has lately been a notable increase in conversations among extremists about targeting critical infrastructure. These groups are talking to each other, and they're learning from each other," he said. "It gets a lot of people's attention when you start turning off the lights, and I think that's what they're craving." OK, fine.  But it sure as heck wasn't specific or complete as an answer. Other characters quoted by CBS were even more focused on white supremacists and neo-Nazis as being at the root of the attacks: But while regulators have worried about targeting of substations for years, there is mounting concern among industry analysts that racially motivated violent extremists, lone wolves and radical environmentalists present an elevated threat, perhaps linked to more readily available information online about specific tactics, techniques and procedures.  In January, two people were charged in connection with Christmas-Day attacks on substations in Pierce County, Washington state, impacting thousands of customers. "We've seen attacks against the power grid for a number of years, and some of those attacks are simply people shooting into substations around the country for purely criminal reasons," Kenneth Wainstein, undersecretary of the Office of Intelligence and Analysis at the Department of Homeland Security, told CBS News last week in an exclusive interview. "But some of these shootings are also being done by domestic violent extremists" who are trying to engineer a societal collapse. This month, two people — including a known neo-Nazi — were indicted by a federal grand jury after allegedly plotting to attack five power substations in Maryland and Pennsylvania to "lay waste" to the city of Baltimore. In the final part of the CBS report, they got to the money quote: "The vision, in short, is that they want to take down the energy grid because if they take down the energy grid, they believe that society will then collapse," Wainstein said. "And out of the collapse, [they believe], will arise a white nationalist government to replace the current government. And we've seen this narrative online among these white nationalist groups." White supremacist plots targeting the grid have "dramatically increased in frequency," according to a study released in September by The Program on Extremism at George Washington University. From 2016 to 2022, thirteen people linked to white supremacist movements have been charged in federal courts with plotting attacks on electrical infrastructure, including 11 defendants indicted after 2020. Ah.  The old white supremacists, same as the Biden administration argues, elevating these marginal losers and lowlifes to the highest threat in the land.  Most of these dirtbags they catch are Trump-haters, but the strategy is all about Getting Trump, whom they view as the grand-daddy of white supremacism. After all, the Bidenites have been obsessed with white supremacists, most recently targeting Catholic Latin Mass–lovers as "white supremacists" premised on Biden's executive order to hunt them down wherever they may be as the nation's biggest threat.  Now their allies are saying the attacks on the power grid are the work of white supremacists.  No doubt they will go hunting for them in those parts, and yes, they have turned up a few such losers. But what's missing here is that America has enemies.  And some of the most terrifyingly effective power grid attacks, such as the one that hit the Metcalf Station, near San Jose, in 2013, bore all the earmarks of an actual foreign enemy attack.  Mark Wauck has noted that Russia and other U.S. adversaries have plenty of motivation for retaliatory attacks against the U.S., given that many Russian infrastructure installations have gone up in flames in what one apparently credible source claims is the work of the CIA striking deep into Russian territory as part of the U.S. war effort to defend Ukraine. So now we see an upsurge in attacks on the grid, and it's weird stuff that only white supremacists are the focus, given the age we are in now.  We know that CBS last year brought up the possibility of Russian attacks on the grid in its February 2022 report.  This year (weird how these grid threat reports seem to happen on an annual basis each February), the possibility of Russians stepping up the attacks is absent from every news report I looked at. The Russians couldn't be behind any of this activity?  That would be the same Russians who launched successful grid attacks on Ukraine and Estonia in the run-up to the invasion of Ukraine?  The same Russians who have engaged in hundreds of electrical grid attacks in Ukraine since the war started?  They'd never think to take that show on the road? The Chinese, who collect amazing amounts of data from America's land mass, including its power stations on the grid, and from America's individual citizens, and who have been accused of manipulating the grid already, would never dream of taking out an American power grid now?  The same China that threatened to take out India's power grid? No, it's just ragtag white supremacists we need to be on the lookout for to protect the grid, based on the reports out now.  We all know that the FBI seems to be obsessed with white supremacists — at school board meetings, in the military ranks, and at Latin Masses — while catching remarkably few actual Russian and Chinese spies and saboteurs.  The last one they caught who made headlines, Charles McGonigal, was one of their own.  Might there be just a little slacking off on the core mission as money floods into the ever-expanding agency from Biden? It's just strange stuff that the possibility of retaliatory sabotage from nations Biden has effectively declared war on are not named as suspects for the huge upsurge in power grid attacks because those white supremacists are just too powerful.  It sounds like a spin operation, one that might be covering up something pretty serious. Tyler Durden Sun, 02/26/2023 - 12:00.....»»

Lucas recently spoke with Insider about the challenges of governing during a pandemic and his approach to tackling tough, multilayered policy issues. Kansas City Mayor Quinton Lucas has focused intently on public safety and affordable housing since taking office.Caroline Brehman/CQ-Roll Call, Inc via Getty Images Kansas City Mayor Quinton Lucas strives for collaboration as he works on tough policy issues. "You stay dedicated on and with the issue. You've got to be straight up," Lucas told Insider. Since becoming mayor, Lucas has focused on public safety, housing, and boosting city services. When Quinton Lucas entered the race for Kansas City, Missouri mayor in 2018, he had a plethora of public policy issues that he sought to shape, including housing affordability and public safety in neighborhoods across the city.After he was elected in 2019, Lucas would have the opportunity to make his mark on how the city would approach some of its most vexing issues.But then the coronavirus pandemic struck, which presented a raft of public-health challenges that touched virtually every aspect of society. Public officials were faced with a host of enormous challenges, but Lucas said that mayors, often on the frontlines of huge policy debates, had to push through.And he looks at Kansas City — whose Chiefs won Super Bowl LVII earlier this month — as an example of resiliency."We've been pretty successful post-pandemic. We're a city that obtained the 2026 World Cup [as a host city]. We're a city that I think has continued to grow in population at a time many other major Midwestern cities have not," said Lucas, an attorney who had served as a councilman and a lecturer at the University of Kansas School of Law."My friends in Washington and our state capitals can wallow in negativity, fighting in battles and all of that," he continued to say. "We've got to get stuff done. And I think that's what you see responsible mayors trying to do."Lucas, who's running for reelection to a second term this year, recently spoke with Insider about the bipartisan infrastructure law, the challenges of governing during a pandemic, and his approach to tackling some of the larger social issues faced by mayors across the country.Questions and answers have been edited for brevity.Insider's John L. Dorman: President Biden during his recent State of the Union address spoke about the bipartisan infrastructure law, which has funded many projects that had been delayed for years. What have been some of the most tangible and immediate benefits of the law for Kansas City?Mayor Quinton Lucas: There are several things that we're working on here in Kansas City, and probably the most important long-term is our investment in 71 Highway. Like many cities, it was a highway that cut through the middle of our city. It dissected, bisected our Black community, forcing thousands of people to leave their homes. It was something that was a travesty when created, and thanks to the bipartisan infrastructure law, we're able to actually start addressing it. It is something that is incredibly important, in my view, that we get right. We've also invested in electric buses and making sure that our fleet, which is already zero-fare, will also be zero-emissions.Mayor Lucas speaks during the Kansas City Chiefs' victory celebration in Kansas City, Missouri, on February 15, 2023.AP Photo/Reed HoffmannJD: Kansas City's population sits at just above 500,000 people, its largest population size in history, based on the 2020 Census. With so many people attracted to living in the city core, how do you see it evolving over the next 10 to 15 years? What types of things do you think this growth will spur?QL: I think these updates are allowing for greater sustainability, which is something that this country needs badly. I think that these updates are allowing us to actually once and for all make sure that we are better addressing the long-term density in our communities. A lot of the things that we got away from in the '50s and '60s, we're still paying the price for now. And so I'm very excited and heartened by the fact that I think we're going to take real steps to both modernize our infrastructure, but also address fundamentally where we were underinvesting for generations.JD: What's been a big issue for your city that you've been able to raise with President Biden?QL: I've talked to the president a lot about public safety. I think he recognizes that public safety isn't just a story of sending cops somewhere all the time. There's also an important part of what are we doing to help prevent crime. A lot of that relates to our investments in things like housing, an area that is traditionally underinvested. So I've been able to share concerns with the underinvestment in HUD [Department of Housing and Urban Development] for generations. I think this administration has shown a real interest in doing better long-term and investing in HUD and transitional housing, and helping to fix homelessness issues all around our country.JD: At the federal level, we saw talks surrounding the George Floyd Policing Act basically collapse in 2021. However, with the death of Tyre Nichols at the hands of Memphis, Tenn., police officers, there are calls for members of Congress to get something passed. As a mayor and someone who deals with public safety every day, how are you able to influence the debate on such an issue?QL: Certainly our voices are important. We have the ability, even in a city like mine, with 500,000 people, to impact millions. I think that is one important step for what it is that we can do. So for us, visiting not just with the president, which has been an absolutely amazing, tremendous honor, but the other big thing that we can do is to make sure that we're prioritizing with our senators and our congressional delegations to state how important these steps are.Mayor Lucas takes the stage during a watch party for the announcement of the FIFA World Cup 2026 host cities on June 16, 2022.Jay Biggerstaff-USA TODAY SportsIt's easy here in the rest of the country, sometimes, to not know in many ways or not care what the heck is happening in Washington. Right? You can see it at the State of the Union, with [Georgia Rep.] Marjorie Taylor Greene shouting out and saying someone's a liar, which is the sort of thing that turns off a lot of people in our country. But the issues, the things that are done in Washington do matter to us. So that's why I think it is important for us, despite I think a lot of the rhetoric and the fact that our public has perhaps tuned some of that out, to make sure that we're actually participating in these important policy discussions in Congress.JD: You've spoken of the need to tackle poverty, homelessness, and housing insecurity in the city. What challenges have you faced in addressing these major issues?QL: I think, first of all, you stay dedicated on and with the issue. You've got to be straight up. We ain't gonna solve it in a decade. You may not solve it in one season. And I think a lot of the challenge in 2020 and 2021 was everybody was trying to solve homelessness like in a month. Everybody was trying to solve any questions on American policing in a month and that's not the way it works. In Kansas City, we've said: "How do we keep talking to people even if everybody's mad at each other in the room?" Make them sit there and make them work together and ultimately see what we can try to get accomplished.JD: What has been one of the more challenging things that you've had to face as the mayor of a city during a pandemic?QL: I think probably the hardest thing is when we were making decisions on emergency orders. Contrary to what the rhetoric was in the world, there was no mayor in the history of time who wants to shut down their city. And to do that, particularly at a time when you see the urbanization trend — a lot of our cities were rising. More people were moving downtown. They were becoming safer. There was a lot of good stuff that was happening. And to see that arrested was hard. So that remains one of the tougher things that I hope I never have the misfortune of repeating again in my life.Read the original article on Business Insider.....»»

The World Wants To Be Deceived Authored by Edward Curtin via off-guardian.org, My title comes from a 19th century author whose name does not matter nor would it mean much if I mentioned him.  It’s an old truth that has not changed a bit over the centuries. I think, however, it would be more linguistically accurate to say that most people want to be deceived, for the world, the earth doesn’t give a damn, as the French poet Jacques Prévert reminds us in “Song in the Blood”: There are great puddles of blood on the world where’s it all going all this spilled blood is it the earth that drinks it and gets drunk funny kind of drunkography then so wise…so monotonous… No the earth doesn’t get drunk the earth doesn’t turn askew it pushes its little car regularly its four seasons rain…snow hail…fair weather never is it drunk […] It doesn’t give a damn The earth But people, the thinking reeds as Pascal called us, we, who through the support of wars and violence of all sorts, care just enough to want to be deceived as to what we are doing by making so much blood that is inside people get to the outside for the earth to drink. I could, of course, quote liberally from truth-tellers down through history who have said the same thing about self-deception with all its shades and nuances. Those quotations are endless.  Why bother?  At some very deep level in the recesses of their hearts, people know it’s true.  I could make a pretty essay here, be erudite and eloquent, and weave a web of wisdom from all those the world says were the great thinkers because they are now dead and can no longer detect hypocrisy. For the desire to be deceived and hypocrisy (Greek hypokrites, stage actor, a pretender) are kissing cousins.  I write this to try to say something of value about the mass idiocy of the media’s daily barrage of lies and stupidities that pass for news on the front pages and newscasts of the corporate media.  And the people who believe them. It is not easy. No matter how obviously absurd the claims about Chinese “spy” balloons, the shooting down of unidentified flying objects, reports of how Russia is losing the war in Ukraine, all the support for presidents and prime ministers who shill for the war industries, etc. – a list that could be extended indefinitely on a daily basis – these media are relentless in presenting government propaganda juxtaposed with trivia. When you think they must realize they have gone too far since even a moron could see through their fabrications, they double down.  And I am referring only to what they do report, not what they omit – e.g. how the US has restricted aid to the earthquake victims in Syria or Seymour Hersh’s report on the US blowing up the Nord Stream pipelines, two examples of terror by a terrorist state that must be protected at all costs.  This is the protection racket by omission and commission. Maybe an anecdote would help. A week ago, I ran into an old friend at a coffee shop.  Hersh’s article, aspects of which I question, had just come out and I asked him if he had seen it.  He said he hadn’t but didn’t know anything about such pipelines being blown up. I was stunned.  A devout consumer of mainstream media, yet he somehow missed this major September 2022 event in the U.S. war against Russia that was reported widely by the media he relies upon.  Those media went on to suggest that Russia blew up its own pipelines, a claim beyond ridicule but one that was part of its war propaganda narrative. My friend is a guy who has strong opinions about everything and finds NPR, The Guardian, The New York Times, CNN, etc. to be credible news sources.  How could he have missed one of the major stories of 2022, one that The New York Times, etc. was reporting on into December, still suggesting that Russia did the deed?  How could he have missed the pipeline story whose reverberations spread through all aspects of the US war against Russia via Ukraine when it was referenced in so many reports of gas and oil prices, a cold winter for Europe, and so many other issues?  Its ramifications are manifold and have been reported as such, but he had never heard of it.  I was stunned. I wanted to quote him Dylan’s facetious words from “The Ballad of the Thin Man”: “’Cause something is happening/And you don’t know what it is/Do you, Mister Jones?”  But I did not. I have spent a week wondering how it is possible that he didn’t know anything about the pipeline explosions. I am sure he wasn’t lying to me.  So how explain it? In the interim, as I have been trying to comprehend these matters, the Super Bowl with its mesmeric half-time spectacle replete with crotch grabbing has come and gone, and I have read an interesting article by Ethan Strauss, a sports journalist, “Why America Needs Football. Even its Brutality” that raises important questions. Much has been written about football’s violence and the injuries it causes, the most recent example being the near fatal injury to Damar Hamlin of the NFL’s Buffalo Bills that garnered headlines for weeks (even though why he suffered cardiac arrest has been left unanswered since that would raise the COVID vaccine problem, which is also taboo). Strauss notes the many arguments calling for the banning of football – the war game – because of its violence.  He notes that it is very true that football is very violent but that this is part of its great appeal.  He writes: And the NFL gives Americans that war, as spectacle, week after week. Today, at 6:30 p.m., eastern time, begins the biggest spectacle of them all: the Super Bowl, where we channel those ancient animal spirits into a highly commercialized event that ends with fireworks and a shiny trophy. We should celebrate that. He doesn’t argue for the celebration of war, which he opposes, but for the war-like game of football.  To Malcolm Gladwell’s statement in support of the banning of football as “a moral abomination” – “This is a sport that is living in the past that has no connection to the realities to the game right now and no connection to American society.” – he responds quite rightly that Gladwell is wrong: In 2022, 82 of the top 100 TV shows in America were NFL games, and the top 50 most viewed sporting events were football games or events that immediately followed football games. By contrast, in 2016, only 33 of the top 50 were football-related. The country has lost interest in so much else, but football remains a huge draw and, in fact, is gaining relative market share. Americans love violence, not just the military propaganda that precedes the Super Bowl game, but the smashing hits that players make and take in the games.  It is hard to deny.  Strauss goes on to show how over ninety percent of former NFL players who suffer from daily lifelong pain say they would do it again.  The violence is intoxicating and Americans get drunk on it.  It is the American Way. I don’t agree with all of Strauss’s points or assumptions, especially his imperative that “we have war within us, whether or not there’s one to wage,” but he clearly is right that despite all the rhetoric about how terrible violence is, there is something about it that Americans love.  D. H. Lawrence’s point a century ago still applies: “The essential America soul is hard, isolate, stoic, and a killer.  It has never yet melted.” But this killer soul must be hidden behind a wall of deceptions as the U.S. warfare state ceaselessly wages wars all around the world.  It must be hidden behind feel good news stories about how Americans really care about others, but only others that they are officially allowed to care about. Not Syrians, Yemenis, Russian speakers of the Donbass, Palestinians, et al. The terrorist nature of decades upon decades of U.S. savagery and the indifference of so many Americans go hand-in-hand but escape notice in the corporate media.  The major theme of these media is that the United States government is the great defender of freedom, peace, and democracy.  Every once in a while, a scapegoat, one rotten apple in the barrel, is offered up to show that all is not perfect in paradise.  But essentially it is one massive deception. There’s a make-believe quality to this vast spectacle of violent power and false innocence that baffles the mind.  To see and hear the corporate masked media magicians’ daily reports is to enter a world of pure illusion that deserves only sardonic laughter but sadly captivates so many adult children desperate to believe.  This is so even as the propagandists’ trial balloons are popped in the society of the comedic spectacle. But back to my friend I mentioned earlier. He hates violence in all its forms, is strongly opposed to war, and has a most compassionate heart, yet he remains devoted to the media that have lied us – and continue to do so – into war after war, a media that clearly fronts for the warfare state.  I still can’t explain how he knew nothing about the pipeline explosions.  Nor can I explain his allegiance to the media that lie to him daily. Even as his government, led by that very media, leads the world toward nuclear annihilation, he remains true to his media informants. I am stunned. In the Blood Born in a normal time, The periodic slaughter of millions By the civilized nations of the earth I grew to adulthood half-crazed With fear and numbed wonder. I always wished to believe otherwise, That people were good at heart, Wanted to live in mutual peace And tend the green earth as if It were a garden As if pity vivified all living things. Somehow the blood that was in me Said otherwise, Spoke truth to the power Of my wish, While everywhere around me lay the lie. But my blood, this blood that became me While millions were being butchered And Bing Crosby crooned I’m dreaming Of a white Christmas, This red blood said otherwise. Do not accept the way they say “Good Morning” And the way they nod as they pass, As though they didn’t want to kill Each other. Do not believe their eyes And the way they pray to the skies To save them. Do not believe their beliefs, All lies woven to deceive. For at heart they truly hate The green earth. Do not believe the way they say “Good Evening” For they wish the darkest night To descend upon us, The nothingness of their knowledge To swallow all. That is what will release them, That is all. Thus my blood spoke to me, A child of a sanguine century, Born in a normal time, The periodic slaughter of millions By the civilized nations of the earth. And despite all appearances, I have never believed them. Never.  Not at all. Edward Curtin is an independent writer whose work has appeared widely over many years. His website is edwardcurtin.com and his new book is Seeking Truth in a Country of Lies. Tyler Durden Sun, 02/19/2023 - 21:30.....»»

RXO, Inc. (NYSE:RXO) Q4 2022 Earnings Call Transcript February 10, 2023 Operator: Welcome to the RXO Q4 2022 Earnings Conference Call and Webcast. My name is Michelle, and I will be the operator for today’s call. Please note that this conference is being recorded. During this call, the Company will make certain forward-looking statements within […] RXO, Inc. (NYSE:RXO) Q4 2022 Earnings Call Transcript February 10, 2023 Operator: Welcome to the RXO Q4 2022 Earnings Conference Call and Webcast. My name is Michelle, and I will be the operator for today’s call. Please note that this conference is being recorded. During this call, the Company will make certain forward-looking statements within the meaning of the federal securities laws which, by their nature, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the Company’s SEC files, as well as the earnings release. You should refer to a copy of the Company’s earnings release in the Investor Relations section of the Company’s website for additional important information regarding forward-looking statements, and disclosures and reconciliations of the non-GAAP financial measures that the Company uses when discussing its results. I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may begin. Drew Wilkerson: Good morning, everyone. Thanks for joining today’s earnings call, our first since our spin-off from XPO. Joining me today in Charlotte are Chief Financial Officer, Jamie Harris; and Chief Strategy Officer, Jared Weisfeld. Our first quarterly report as a standalone company was a strong one, despite the challenging macroeconomic environment. We reported adjusted EBITDA of $64 million. Our Q4 results were driven by another quarter of profitable volume growth in brokerage, despite a muted peak season. Our complementary services, including last mile and managed transportation, also performed well. Overall, our gross margin remained strong at 19.6%, up 250 basis points year-over-year. Our tech-enabled brokerage business continued to significantly outperform the industry, take share and grow volume profitably. We set a new volume record in the fourth quarter. Brokerage volume was up 4% year-over-year in the fourth quarter of 2022. For the year, we grew brokerage volume by 12%. We are proud of our sustained volume growth. Since the fourth quarter of 2020, RXO’s brokerage volume has increased by 27%. And since 2019, our brokerage volume has increased by 56%. We are focused on continuing this momentum, and we are confident that we will deliver. This is profitable growth. In the fourth quarter, brokerage gross margin was 17.9%, an increase of 290 basis points year-over-year. Many of our complementary services also performed well. Our managed transportation pipeline is especially strong right now, and the business won several contracts with large, new customers. In above-market, large shippers are more likely to outsource their transportation departments to RXO. And when they do, they stay with us for years to come. Additionally, last mile performance in the quarter was strong, despite the difficulties facing the retail and e-commerce sectors. December 2022 was our strongest December in terms of stops since 2019. In freight forwarding, ocean and air rates have declined as expected. We have done a good job of diversifying this business, and domestic offerings now comprise approximately 50% of freight forwarding’s profitability. These domestic services provides synergy spend to other parts of our business. RXO’s business model is capable of generating significant free cash flow, and our balance sheet remains strong. Jamie will talk more about that in a few minutes. We have a playbook for every stage of the market. At this point in the cycle, we are focused on taking market share, while maintaining our best-in-class profitability. Our contract volume is growing, though rates are declining. Additionally, there are limited opportunities in the spot market, and these dynamics are putting pressure on the gross margin per load in the first half of the year. But this is my favorite part of the cycle. RXO is positioned to win as customers consolidate their carriers. They are choosing RXO because of our track record of delivering results for our customers, our best-in-class technology and our massive capacity. This positions us well for when the market inflects. Jared will discuss the market cycle in more detail. Our financial performance was underpinned by our winning sales strategy and best-in-class technology. Our sales team continued to expand business with long-standing customers, while on-boarding new blue-chip companies. New customers are coming to us at an impressive rate, and our sales pipeline is stronger than it has been in several years. RXO bid on about 70% more brokerage revenue year-over-year in the fourth quarter driven by annual bids. Existing customers continue to grow with us. For the full-year, the number of brokerage customers who generated over $1 million of revenue with us increased by 14% versus the prior year. The number of customers generating more than $1 million of revenue has increased by 66% over the last two years. Our customers see value in our unique portfolio of services. In 2022, about 62% of revenue came from customers that utilize more than one of our services. Customers also choose RXO because of our best-in-class technology. In the fourth quarter, 87% of our loads were created or covered digitally, the most ever for us. The RXO Drive app has been downloaded more than 920,000 times, representing 45% growth year-over-year. We will continue to invest in our technology to push for even more adoption. Relative to the market conditions, we are performing well as a stand-alone company, and have significant volume and bid momentum heading into 2023. I’m pleased with how smoothly our new leaders are integrating with those that have been with RXO for years. We’ve assembled some of the best minds in the business, a strong combination of seasoned leaders, best-in-class operators and cutting-edge technologies. We have a great company culture, which combines the experience of an industry leader with the energy and entrepreneurial spirit of a startup. We are proud of what we were able to accomplish in the fourth quarter. And while we are executing well in a volatile macro environment, we are also planning for a variety of scenarios. Our business thrives during volatile times. We have the playbook, the technology and the people to outperform the industry, and I’m confident that we will grow brokerage volume again on a year-over-year basis in the first quarter. Our January volume supports our confidence. RXO’s January brokerage volume grew year-over-year and accelerated when compared to the fourth quarter of 2022 volume growth rate. RXO remains strongly positioned for long-term growth, and we are on track to meet the long-term targets we set at Investor Day last year. And now Jamie will cover the quarter. Jamie? Jamie Harris: Thank you, Drew, and good morning to everyone. In our first quarter as a stand-alone company, we generated $1.1 billion in revenue compared to $1.3 billion in the fourth quarter of 2021. Profitability remained strong with a 19.6% gross margin, up 250 basis points year-over-year. Our adjusted EBITDA was $64 million in the quarter compared to $77 million in the fourth quarter of 2021. And our adjusted EBITDA margin was 5.7%, down 10 basis points from the fourth quarter of 2021. We are very pleased with these results given the overall economic environment. Adjusted earnings for the quarter was $0.28 per share. Our results were driven by another quarter of profitable market share gains in brokerage, as well as good results in our last mile and our managed transportation service offerings. Importantly, we continued to outperform the industry. Despite a muted peak season, we grew brokerage volume by 4% year-over-year and 6.5% sequentially. We are pleased to report that we set a new volume record in the fourth quarter. From a profitability standpoint, brokerage results were again best-in-class with brokerage gross margins up 290 basis points year-over-year. Below the line, our interest expense for the quarter was $5 million. Our adjusted effective tax rate was 21.5% in the quarter, lower than our expectations, driven by discrete non-recurring tax items. Regarding cash, we continue to have a strong balance sheet, and we had a strong cash collections in the quarter. As I will discuss the cash today, I would like to refer you to Slide 10 of the investor deck for reference. We ended the quarter with $98 million of cash. This is consistent with our internal expectations as we had non-recurring cash outflows of $27 million post-spin, which was completed on November 1. $21 million of the cash outflows were related to the spin-off, including items such as rebranding costs, banking and financing costs and tech-related CapEx. The remaining $6 million of cash outflows, which repay the final portion of money received in the prior year related to the CARES Act. Taking these unusual items into account, our ending cash balance would have been $125 million. This translates into a free cash flow post-spin of $25 million, which was very strong. This represents a more than 60% conversion of EBITDA to free cash flow. Prospectively, we expect our EBITDA to free cash flow conversion to continue to be strong, and we expect to grow our cash balance sequentially. We anticipate approximately $10 million to $15 million of spin-related and restructuring costs in 2023, weighted more heavily in the first half of the year. Approximately $10 million of these costs are expected to be cash outflows. Available capital remains strong with approximately $600 million in liquidity, including our $500 million revolver, which remains undrawn, and our December 31 cash balance. Our net leverage at quarter-end was 1.2x adjusted EBITDA, which remained at the low end of our stated target range of 1x to 2x. Regarding 2023 modeling assumptions, we expect depreciation and amortization in the range of $70 million to $75 million, interest expense between $33 million and $35 million, and an adjusted effective tax rate of approximately 25%. You should also model an average diluted share count of approximately 120 million shares. Overall, we are pleased with our financial and operating results as well as our balance sheet position. Now I’d like to turn it over to our Chief Strategy Officer, Jared Weisfeld, who will talk more about our long-term outlook. Jared Weisfeld: Thanks, Jamie, and good morning, everyone. It’s a pleasure to be with you on our first earnings call post-spin. I’d like to start with the structural profitability of our business. We have gained market share with best-in-class volume growth enabled by our technology. Importantly, we have done this profitably, more than doubling our adjusted EBITDA since 2019. We often get asked about our current gross profit per load relative to historical levels. Within our brokerage business, our Q4 gross profit per load was roughly in line with our three-year average. The diversity of our business helped us outperform in the quarter. While our retail and e-commerce volumes declined as expected volumes in automotive, home and building materials, professional services and healthcare, all grew solidly on a year-on-year basis. Our technology also helped us outperform and optimize our profitability and contracts and spot mix. This quarter, we again had a favorable contract mix with contractual volume representing 75% of our business in Q4, up 200 basis points sequentially and 600 basis points when compared to the fourth quarter of 2021. Our technology is also fueling our continued market share gains. In Q4, 87% of our loads were created or covered digitally. This was the result of continued adoption of our technology in addition to a platform capability within RXO Connect that was not previously captured by this measure. We expect the percentage of loads created will cover digitally to grow sequentially into the first quarter. The RXO drive app has been downloaded more than 920,000 times, up 45% year-over-year. Average weekly users increased 30% year-over-year in Q4. Registered carriers increased 42% year-over-year. And importantly, seven-day carrier retention was strong 74%. Looking into Q1, we are cognizant of the broader macroeconomic environment, and where we are in the freight cycle. I wanted to provide some perspective. Historically, at this stage of the cycle, we’ve seen quarters represent anywhere between high single-digit and low-20% of full-year adjusted EBITDA. We still expect our brokerage business to continue its outperformance in Q1 and grow volume again on a year-over-year basis. We have a strong sales pipeline, and our non-retail verticals are growing year-over-year. This volume growth will be mitigated by a continued reduction in gross profit per load, but it positions us nicely for when the cycle inflects. I thought it would also be helpful to provide some puts and takes for the year. Our brokerage business exited 2022 with significant momentum, and we feel confident that 2023 will be another year of volume outperformance supported by the strong January volumes that we referred to earlier. Additionally, some of our customers are telling us that significant retail destocking that occurred in 2022 could lead to restocking in the second half of 2023. However, similar to Q1 dynamics, gross profit per load in 2023 will moderate when compared to 2022, as the cost of purchase transportation stabilizes, and lower contract rates come into effect. It is important to note that even though our gross profit per load is moderating, we are still operating at best-in-class profitability levels. We have a playbook for every cycle, and RXO is in a strong position to gain market share profitably. That brings me to our five-year outlook, which calls for $500 million of EBITDA at the midpoint in 2027, an approximate 60% increase versus the last 12 months. We remain confident in our five-year outlook. This guidance not only contemplates an uncertain macro environment, but it also embeds the moderation of gross profit per load through 2027. It assumes modest EBITDA margin expansion with increased employee productivity. The incremental growth embedded in our guidance is 100% organic. RXO’s asset-light business model and its highly variable cost structure provide us with significant free cash flow generation capabilities. Prospectively, we are confident that we will continue to achieve a strong free cash flow conversion relative to EBITDA and adjusted net income. Our priority is to use excess free cash flow to grow our business organically. It’s important to note that within brokerage, 100% of our growth over the last six years has been organic. We intend to stay within our 1 to 2x net leverage target, and we are currently operating at the low-end of that range, providing us the flexibility to deploy our balance sheet effectively. To summarize, we have taken share profitably. We operate in a $750 billion market with plenty of room to grow. We plan to generate meaningful free cash flow, and our strong balance sheet provides us with flexibility to deploy our capital effectively. We have a small share of an enormous market, a proven team and a winning strategy, and a long runway for profitable growth. With that, I’ll turn it over to the operator for Q&A. Q&A Session Follow Rxo Inc. Follow Rxo Inc. We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Our first question comes from Stephanie Moore of Jefferies. Please go ahead. Stephanie Moore: Hi. Good morning. Thank you, and congrats on a nice quarter. Drew Wilkerson: Thank you, Stephanie. Stephanie Moore: I wanted to touch on just the volume outperformance. Clearly quite strong in the fourth quarter, just continuing into the first quarter. Also, I think what stood out to me was just the increase in bid opportunities, despite the softer market in the fourth quarter. So maybe you could talk a little bit about some of the volume wins that you’re seeing, really what you’ve seen in terms of some large contract wins that might be driving this outperformance? Or if you could kind of pinpoint any other major drivers for the strong results? Thank you. Drew Wilkerson: Yes, absolutely. So thank you for the question, Stephanie. This is Drew. When you look at our volume outperformance in the market, we’ve got great relationships with our customers. Our top customers have been with us for 16 years on average. They come back to us year after year, and they continue to grow with us because we provide a great service, we create solutions for them that contribute to their supply chain efficiency and their transportation budget, and we’ve got the best technology in the market that helps them decide things like what day of the week they should ship something, what mode of transportation they should use, will even help customers decide where they should place warehouses as far as to efficiently route their transportation. So when you look at why customers are choosing us, is because of the service that we offer, is because of the capacity that we bring, is because of the technology. When you look at in the fourth quarter, our bid revenue was up 70% on a year-over-year basis, and that’s even with revenue per load coming down. And we did that with 30% more customer count. So we’ve got a great momentum on the sales side, and we’re positioning ourselves well for when the market inflects. Stephanie Moore: Thank you. And then just a second question for me. On share repurchases, I am just looking at the slide and the repayment of the CARES Act, which I didn’t realize was something that are didn’t account for. Is that €“ would that preclude you from being able to do share repurchases until that’s fully paid? Just any commentary there would be helpful. Thank you. Drew Wilkerson: No, that would not prevent us from doing that. And this is the final piece of the CARES Act €“ payroll deferment that happened a couple of years ago. So we’re totally done with that. But it should not require €“ prevent us from doing anything there. Stephanie Moore: Got it. Thanks so much. Operator: Thank you. The next question comes from Ken Hoexter of BofA. Please go ahead. Ken Hoexter: Hey, good morning, and congrats on the first public quarter. Drew, I guess, maybe you could talk a little bit more on Stephanie’s question on the bid season. How do you €“ maybe can you quantify or talk about, how we should think about volume gains into the year? Is it still too early to talk about that? You obviously are confident on volumes being positive for the first quarter. Is there any insight thereafter? And when you say 87% created or covered digitally, can you kind of pinpoint what is fully digital start to finish, so we can understand, how much of it is just fully on the system? Drew Wilkerson: Yes. So Ken, when you just look at the overall macro environment that we’re in, it’s still a tough macroeconomic environment. So we’re proud of the fact that we’re going to be able to grow volumes again in the first quarter. As you look towards the back half of the year, some of what we’re hearing from our customers is their conversations are shifting from where they were six, nine months ago towards destocking, and now talking a little bit more about restocking. That’s not something that’s unique to us. That’s something that will be €“ potentially be a benefit to the entire industry. What is idiosyncratic to our business is the pipeline and the sales momentum that we have in the quarter. So for that, that’s why I’m positive on when the market inflects, we positioned ourselves very, very well. This market that we’re in right now really separates the haves from the have-nots. And what I mean by that is customers are consolidating the number of carriers that they’re working with. They’re looking for carriers that provide solutions for them to contribute to their supply chain efficiency. They’re looking for carriers that have technology to integrate with their system, and they’re looking for carriers who have access to a lot of capacity and can service them at scale. That’s something that we check the box on all of those for our customers. So we’re excited on that. The second part of your question is we were 87% created or covered digitally. That’s what we feel is the most important metric. The created or covered is something that we continue to gain adoption of, and it’s a significant portion and continuing to grow, but not a number that we’re disclosing at this point. We think it’s important to look at half of the order being carrier, half of the order being customer. And what part of that €“ what life of the cycle of the order is fully digital. Ken Hoexter: Just to clarify, when you talk the share wins in bid season, is that intending gross profit per load. Should we read that as using pricing to win those volumes to outpace the market? Or I just want to understand the message we should read through that in terms of winning that share? Drew Wilkerson: Absolutely not. We price in line with the market. And we feel because of our technology, because of our pricing algorithms, we are able to operate at best-in-class gross profit percentages, what you saw in the fourth quarter. We operated at 18% gross profit percentage in brokerage, which is actually up 290 basis points on a year-over-year basis. So for us, we price business to be able to go and take market share, but to do it profitably. Ken Hoexter: Great. Operator: Thank you. The next question comes from Scott Group of Wolfe Research. Scott Group: Thanks, good morning. Jared, any color on €“ you talked about gross profit per load sort of near historical averages. How much would it have to decline to get to historical troughs, once I assume you get there sort of around the bottom of the cycle, when spot rates start moving up. And then you made some comments about 1Q EBITDA can be high-single to 20% of full-year EBITDA. Should we think about that as a comment relative to sort of the $300 or so million of EBITDA you did last year? Or how should we €“ what percentage of what, I guess, we’re not really sure how you’re thinking about full-year EBITDA. Jared Weisfeld: Sure. Good morning, Scott. Thanks for the question. So with respect to your second question, I’ll take that first. So first quarter as a public company, and we wanted to give you some additional color of current cycle dynamics. We thought it would be helpful and instructive to give you context based on historical results at this point of the cycle. I can certainly appreciate that it’s a wide range. But historically, we wanted to give you some color that we’ve seen quarters represent anywhere between, call it, high single digits and low-20% of full-year EBITDA. And that’s referring to where we are from a cycle dynamic perspective. In terms of your first question with respect to my comment that we’re currently operating in Q4 at a gross profit per load in line with our three-year historical average. I just wanted to give you that as a sense as it relates to the fact that ultimately, we have seen our gross profit per load moderate. We wanted to give you context of where we’re punching at relative to our three years on a go-forward basis. As Drew mentioned in the prior question, we continue to bid and that we’re bidding for profitable growth. These are gross margins in the current quarter, up about 300 basis points year-on-year. I’m not going to go into the dynamics in terms of where we are relative to trough, but you should certainly think about €“ as we think about the year playing out, we are cautiously optimistic into the second half. We are hearing from our customers that there’s the potential for restocking in the second half, and we’ll see how that plays out. Scott Group: Okay. And then just on your commentary on January volumes, it strikes me that most companies have had probably better than expected or maybe better than peers January commentary. Just your perspective, is this €“ are we seeing new signs of the market bottom? Is this just we had some favorable weather? Any thoughts on this better trend in January? Drew Wilkerson: Yes, January it was a strong month for us whenever we look at it on a year-over-year basis. And like Jared said in his comments, that we actually grew that faster on a year-over-year basis than what when we grew volume in the fourth quarter on a year-over-year basis. And for us, it’s more of idiosyncratic to us and where we’re at and the relationships that we’ve got with our customers. We expect our Q1 volume to be an outperformance in the industry again, and we expect to be able to go out and take market share. Right now, we’re at the point in the cycle, where we are positioning ourselves for the point of inflection. And this is what separates carriers for customers, and the service that we have given them over the last five years has put us in a great position. Scott Group: Okay. Great. Thank you, guys. Drew Wilkerson: Thank you. Operator: Thank you. The next question comes from Scott Schneeberger of Oppenheimer. Please go ahead. Scott Schneeberger: Thanks very much. Good morning. I just want to circle back to orders covered digitally. Could you give any covered or created digitally? Could you give us a feel for maybe mix of how much is shipper side and how much is driver side covered just within that? I know you want to disclose it fully. But any sense of magnitude in that? And then as a follow-up on that topic, are you measuring €“ how is productivity per employee looking if you measure by this metric or any track with this technology enhancement, how is that productivity looking? Do you €“ can you give us a sense of how that metric looks now as opposed to maybe a few years ago? And what type of trajectory you expect there? Thanks. Drew Wilkerson: Yes. I’ll start off, and I’ll let Jared take the second portion of your question. When you look at the created or covered, we have made a lot of inroads on the customer side. It is a greater percentage on the customer side for where we’re at in the cycle. We still have a little bit of room to go on the customer side. And on the carrier side, as we’re working with these smaller owner-operators or small trucking companies, we’ve got a lot of green space to be able to continue to go out there and drive adoption in the business. Jared Weisfeld: And on the €“ Scott, on your second question. With respect to brokerage productivity, it did improve in Q4 relative to Q3 from a brokerage standpoint, so we’re very proud of that. We’re anchored to and what we’re focused on is as we look at our long-term guide of 2027 and $500 million of EBITDA at the midpoint, about 60% higher from current levels. That’s going to continue to yield increased productivity going forward. So we’re certainly looking forward to executing on that. I think it’s also important to realize that within our brokerage business, we’re staffed for capacity. When we look at the ability for our €“ our ability to respond to a dynamic environment, we can respond to 10% to 15% upside in volumes, if we need to. Scott Schneeberger: Thanks guys. Appreciate that. For my follow-up, I’m going to switch it over to last mile. Obviously, with peak season, that was a meaningful part of the mix. Just curious, how you’re seeing pricing trending there? I would imagine you have an opportunity. But just that and takeaways from this peak season, and how that €“ that’s going to carry through to how you approach the business in 2023? Thanks. Drew Wilkerson: Yes. First, Scott, there really wasn’t much of a peak season. And so that’s why we’re so proud of the performance of what we had in last mile and having our best December since pre-COVID times. When you look at who we are and last mile, we’re the leader in the space. We have been for a very long time. When customers are doing business with a national footprint, they want to talk to us because we got facilities that put us within 125 miles of 90% of the U.S. population. So for us, in last mile, we’ve got a lot of opportunity to continue to be able to grow and grow with large customers. In your second part of your question on the pricing, that’s an opportunity for us, as we head into 2023. We’re in some of those bid negotiations right now. And we think that, that should be a tailwind. As we’re the leader in the space, we’ve got great service. We want to be compensated fairly according to the services that we provide. Scott Schneeberger: Great. Thanks, guys. I will turn it over. Congrats on the quarter. Drew Wilkerson: Thank you. Operator: Thank you. The next question comes from Tom Wadewitz of UBS. Please go ahead. Thomas Wadewitz: Yes. Good morning. I wanted to ask you a bit about revenue per load. I’m thinking about the comment that you were 75% contractual loads in 4Q, but you still saw a pretty big decline in revenue per load, something on the order of 25%. So how do I think about revenue per load if you look at 2023? Do you think that as the bid season goes through and you have contracts repriced, that there’s further step down that’s meaningful in 2Q, 3Q? Or would we think about your revenue per load more being driven by spot rates that maybe as you see spot market kind of bottom out, say in 1Q, that your revenue per load might stabilize more quickly? Drew Wilkerson: Yes. Thanks for the question, Tom. When you look at our performance in the fourth quarter, we’re proud of our performance in the fourth quarter, and especially of having a gross profit percentage up 18% and brokerage. In regards to the revenue per load declining. When you look at that, there were three reasons for it. And the first is spot volume and spot rates are down. They’re at a low. You look at contract pricing, we talked about this in the last quarter. And I told you last quarter that we expect a contract pricing on a full-year 2023 basis to be at the midpoint, somewhere down around 10%. We’re still holding to that number. And then the third thing is length of haul. We have to be able to shift with our customers. We’ve done a great job of answering our customers’ demand, and we saw our length of haul reduced on a year-over-year basis in the fourth quarter. Thomas Wadewitz: So €“ but I guess in terms of the forward look, how would €“ do you have any thoughts on when revenue per load might bottom for you? Is it €“ 2Q do you think you stabilize? Or should we think about contracts shifting down that maybe you fall further as you look in the second half? Drew Wilkerson: Yes, Tom, we didn’t call the top towards the bottom in the previous market. We’re not going to call it in this one. We’re confident that we’ll be able to go out and take share and outperform the industry overall. And the point to anchor to is for full-year, we expect contract pricing to be down roughly 10% on a year-over-year basis. Thomas Wadewitz: Okay. Yes, fair enough. Second question would just be on headcount. Obviously, you guys have nice momentum on volume growth in 4Q continuing in January. Are you adding headcount this year, just to support that growth? Kind of how are you thinking about the resource versus volume in 2023? Thank you. Drew Wilkerson: The biggest thing that we look at for headcount, as Jared said, is being able to be staffed for growth. And continue to be staffed and where we felt like we could grow volume 15% to 20% overnight, if we have to. And those are good conversations to be able to have with your customers to talk about having the capacity to grow with them, as they grow their business. So for us, we’re looking out to be able to continue to staff up and gain efficiencies within our employee base through technology, but we want to stay staffed for growth. Thomas Wadewitz: Okay. Great. Thank you. Drew Wilkerson: Thank you. Operator: Thank you. The next question comes from Allison Poliniak of Wells Fargo. Please go ahead. Allison Poliniak: Hi. Good morning. I’m going to ask about the carrier retention. You talked about the seven-day being in the sort of that mid-70s range. Is there any color you can give us as we expand out maybe that timeframe, three to six months, what that trend has been? Has it been above or below that? Just trying to understand, if there’s been any shift there? Thanks. Drew Wilkerson: It’s roughly in line with that, Allison. And for us, that’s an important base because whenever you’re talking about smaller carriers coming back to do business with you, they’re coming back to do business with you within a week. And that tells you that a lot of times their next load is coming from RXO Connect. And RXO Connect is an easy system for them to be able to use, is something where, as an owner-operator, you can pick up your cellphone, you can book a load, you can negotiate, you can do all that with little to no human interaction, while getting access to our RXO Extra program, which just carries discounts on things like fuel, tires, roadside maintenance, the things that matter most and a truckers life, we’ve built a system around that. So that’s why you see such a high retention rate and it pays dividends for us. Allison Poliniak: Great. And I want to go back to sort of that capital deployment question earlier. Leverage is at that lower end. I know there’s some cash outflows in the first half. But as you think about maybe revisiting, can you maybe talk about how you’re thinking through sort of those capital deployment objectives as we sort of get towards the end of 2023 here? Thanks. Jamie Harris: Yes. Allison, this is Jamie. Thanks for the question. We did €“ we had a really good strong cash quarter. We entered the year with a really good balance sheet, as you know. Capital deployment, organic growth is our top priority. As Jared mentioned, the last six years, 100% of our growth is organic. So we’re going to be focused on that. We still have a lot of good opportunities there. If you think about our overall framework, M&A is not a top priority. We will look at it. If things came along that made a strategic sense, we take a look. If you look at capital returns in the form of a buyback or dividend, something that’s also in our framework that we’re going to look at as the market dictates. But organic is our number one priority right now. And we’re going to have a really good, strong quarter with cash. And so we’re going to look at all those things. But I think the keyword I’d leave you with is, we’ve got a lot of options. Allison Poliniak: Perfect. Thanks, guys. Operator: The next question comes from Brian Ossenbeck of JPMorgan. Please go ahead. Brian Ossenbeck: Hey. Good morning. Thanks for taking the questions. So Drew, I know you don’t want to talk about on the bottom of the market or the topic of the matter, but can you just give us some context in terms of your carrier base is a pretty choppy December, January, strong December, weaker January. What are you seeing in terms of people turning in their keys? What’s the retention look like? Are you still adding more to that base? How do you feel about the support you got there on the supply side as you go into 2023? Drew Wilkerson: Yes. Carriers, we actually added carriers again in the fourth quarter to our RXO Connect platform. And it’s something that we’re proud of carriers want to come to us to do business because we’re a company of scale, where they can book their next load without having to lead the system to be able to find it. We’ve got a great rewards program for us. So we have not seen that from our carrier base as far as turning in the keys overall. Brian Ossenbeck: Okay. Good to know. So I think the other comment that you mentioned on integrating some €“ I guess, people who are maybe from the outside. Maybe I’m reading too much into that. But could you just talk about hiring from the technology side. There’s been some account reductions across the space. Are you picking up any talent that you find interesting and attractive on that front? Or are you able to kind of do what you have internally and not looking to add more talent above and beyond what you would consider normal? Drew Wilkerson: We’re always looking to add great talent to the organization. It’s one of the things that is part of our DNA, is we want to have people who make us better. And when you look at our technology space, we’ve hired the best technologists, not just in the industry, but some of the best technologists in the world to be able to create what is a game-changing solution for us in our RXO Connect. So very happy with where we sit and what technology is able to provide into our business, and look forward to continued growth. We can pick up talent off the street to add to that, we’ll absolutely do it. Brian Ossenbeck: I guess do you think with some of the pullbacks and the more digital natives out there, do you find this time is better than usual to pick up some of that talent? Drew Wilkerson: We haven’t seen a huge number come over to us from the digital folks. And again, we’ll talk to folks who are out there in the industry. And if it’s something that we feel like is additive to our organization, we’ll do it. But I’m very confident in the technology team that we’ve got. They’ve delivered amazing results over the last decade. And if I’m putting money behind somebody, I’m putting money behind them. Brian Ossenbeck: Okay. Thank you, Drew. Appreciate it. Drew Wilkerson: Thank you. Operator: Thank you. The next question comes from Jack Atkins of Stephens. Please go ahead. Jack Atkins: Okay. Great. Good morning and thank you for taking my questions. So I guess I’d like to maybe dig into the volume growth a bit, just kind of circling back to that. So when you think about the components that’s driving that 4% volume growth. Obviously, significant outperformance versus the rest of the market. But are you seeing any changes to mode mix there? Like for example, is that all full truckload driving that? Or is €“ are you seeing increased drayage volume, increased LTL volume? Just trying to square the lower revenue per load with strong net revenue margins and higher volumes. So just those things typically don’t sort of all move in that same direction. Drew Wilkerson: Yes. We’re looking at all modes of transportation to be able to continue to grow out. We’ve built the business off of truckload driving and freight. That’s something that continues to grow for us in the fourth quarter. And LTL and other modes also grew as well. Jack Atkins: Okay. So it’s a combination of not just full truckload there. So I just want to kind of clear that up. Drew Wilkerson: That’s correct. Jack Atkins: And then, I guess, Jamie, if you could maybe kind of talk a little bit about some of the expense buckets in 2023. I appreciate the interest guidance and the depreciation guidance. But as we sort of think about OpEx below net revenue, any sort of commentary either around inflationary cost pressures, or any sort of kind of commentary there to kind of help us square up the OpEx side, as we sort of think about 2023, that would be helpful. Jamie Harris: Yes. So if you look below the line there on OpEx, specifically, we’ve got a highly variable cost structure, first of all. So we’re able to do with demand. We are €“ as we begin our journey being RXO as a separate company, stand-alone company, the first thing that we’ve done is take a look at optimizing our cost structure from end-to-end. We’re doing a lot of process engineering views in the company, how we can make decisions quicker, how we can make easier decisions, which ultimately will translate into cost efficiencies and cost savings. In terms of directly guidance on our OpEx, we can’t really provide that. But what we can say is the market from an inflationary standpoint, we’re seeing good, able to negotiate with vendors well. We’re seeing our overall cost structure €“ our overall cost structure stay in line with where we want it to be for the year. Back to the interest, one thing I do want to point out is it is coming in lower and what we provided as some modeling pools back at Investor Day. So we’re down €“ I think we modeled about $37 million back in Investor Day. We came in at $32 million to $34 million range. And as you mentioned, depreciation is something we also see down year-over-year. Jack Atkins: Okay. Maybe just a real quick follow-up on that. If we think about like the SG&A line item. What portion of that would you say is variable would flow revenue? Drew Wilkerson: Yes. We haven’t given that specifics before. I mean if you think about the cost of transportation is almost all variable. So if you take that, we’ve mentioned 87% of our total cost structure was variable. So if you go down to the SG&A line, by definition, it’s going to be less variable than the 87%. I think depending on what the topline looks like; you could see that being in the 50% to 65% range at times. Jack Atkins: Okay. That’s super helpful. Thanks very much for the time. Operator: Thank you. Our next question comes from Jordan Alliger of Goldman Sachs. Please go ahead. Jordan Alliger: Yes. Hi. Good morning. Just curious, can you talk a little bit about contract negotiation timing? Like, where are you in the process? Is it just started? You’re 30% through? And then following on that, I think you mentioned down 10% contract rate is kind of what you’re looking at. I think that was for the full-year. So I’m just curious, have you hit that point yet? Or is that something you still think is yet to come as you discuss the contracts? Thanks. Drew Wilkerson: Yes. As far as where we’re at in the bid cycle, the heaviest part of the bid cycle for us is starting at the midpoint in Q4 and going through Q1. So we’re right and we’re wrapping that up, coming out of it. When you look at the 10% comment on contract, that was looking at full year €“ it was looking at the full-year. And so for that, we’re implementing those rates right now coming out of bid season. Jordan Alliger: Okay. So that’s sort of about the ballpark that you’re seeing during this heavy period that you just talked about. Just to make sure I understand. Drew Wilkerson: That’s correct. Jordan Alliger: All right. And then just a quick follow-up. The transaction and integration costs, the $40 million in the fourth quarter and I think you said $10 million to $15 million of restructuring in 2023. Like, what is €“ can you give some sense of what the components are of these costs? Thanks. Drew Wilkerson: Yes. So the things like rebranding, and I’m going to focus on what happened post-spin that impacted the $21 million we called out in our cash flow. Rebranding costs, where we want to move things from the logo of XPO to the new RXO logo. We had some cash costs of banking and financing fees that fell into that. We had some CapEx that we had to stand to start up a stand-alone business. You think about mainly in tech type areas. We had some other general restructuring. If you go prior to the spin, there’s a lot of duplicate costs that we were running while we were pulling the spin together. As we look forward into 2023, as you would expect, those numbers come down quite substantially. We mentioned in the comments, $10 million to $15 million of restructuring or spin-related costs into 2023, I would think about $10 million plus or minus of that being cash expenditure versus just the P&L expenditure. And I think those will be predominantly in the first half of the year more so than the second. And you’ll see that €“ but you will see those come down materially throughout the year. Jordan Alliger: Thank you. Operator: Thank you. Our last question comes from Bascome Majors of Susquehanna. Please go ahead. Bascome Majors: Thanks for taking my question. Just to follow-up with one more on the OpEx side. Are there any duplicate or excess cost from transition agreements, where you’re really kind of running Dube systems and that sort of thing. Just any costs that come out naturally as those agreements age over the next year or two that we can think about on the cost side? Thanks. Jamie Harris: Yes. Thanks for the question. This is Jamie. As we transition through the spin, we had a number of transition service agreements. Most of those agreements had very short lives attached to them. In fact, we have ended a number of those agreements already. We actually had some agreements that we call reverse transition service agreements where we were providing services. I think if you look into 2023, a number of those have already been completed. We have a large amount that we’ll be rolling off in the first quarter as we complete this first year of €“ this first quarter of being separate. As we look forward to the balance of 2023, that’s not a material impact on our cost structure, really one way or the other. I think the good news about it is this business as a stand-alone was already very sort of self-contained. And so setting it up as a new publicly traded stand-alone company is going very well, and we’re very pleased with both the cost side as well as the performance side. Bascome Majors: That’s great news. And thank you for the color there. And maybe to cap it off here, you understand the desire not to give a full-year outlook given the uncertainty around here as far as EBITDA goes. But can you just €“ if we were to anchor to call it the Street’s $235 million of annual EBITDA, can you walk us through the components of how you would get to free cash flow from there and what that could look like, if EBITDA were to come in roughly in that range? And maybe even higher level. I mean I understand your kind of giving your as a public company here. But when we get to a more stable environment, any thoughts on how you want to guide, whether it will be annually, go forward a quarter, not really at all. We’ve just seen a lot of different approaches from different brokerage-related companies. I’d love to hear, how you’d like to come at it once the market stabilizes and you’ve got more experience as a public company. Thank you. Jamie Harris: Yes. So this is Jamie. I’ll take the first part of that and let Jared take the second. If you think about free cash flow conversion, we use EBITDA as a reference point or a starting point, we will have an annual debt service. We’ve modeled that out in the range of $32 million to $34 million for the year. We will have CapEx. We’ve talked about that over the long-term, about 1% of our revenues. There will be years where that exceeds that. But on average, I think you can see about 1% over the long-term. You’ll see a cash tax payment, obviously. But also, you’ll see working capital. And what we’ve talked about is the way we think about working capital as we grow dollar revenue, about 8% of that dollar growth is a use of working capital. So it’s an investment in growth. Conversely, if revenues were to decline, it’s about 8% per dollar decline. Now if you go back to fourth quarter, we converted in excess of 60% of our EBITDA into free cash flow, which we were very pleased with. And as we look forward, you can use kind of the 50% to 60% conversion rate in a time of kind of stable revenue. At Investor Day, we talked about a 40-plus times of growth. And so we see those two holding true in the future. Jared Weisfeld: Hi, Bascome, it’s Jared. With respect to your second question on guidance, we’re not going to be providing formal guidance when we think about the company going forward. But we will certainly give you more color when appropriate like we did today. Bascome Majors: All right. Thank you, guys. Jared Weisfeld: Thank you. Operator: Thank you. We have reached the end of our question-and-answer session. I’ll hand the floor back to Drew Wilkerson for closing remarks. Drew Wilkerson: Thank you, Michelle. I’m pleased with RXO’s performance and our first quarterly report as a stand-alone company. We continue to gain share and grow brokerage volumes year-over-year and quarter-over-quarter. We also drove increased adoption of our technology with customers and carriers, and are effectively navigating through a very challenging macro environment. We have the right team, the technology and the playbook in place to outperform the market. The playbook, which at this point in the cycle is focused on growing volume, will put us in a position of strength, as the freight cycle turns. Our management team remains focused on continuing to deliver results for our shareowners, customers, carriers and employees. Thank you all for your time today. Have a great rest of the week, and I look forward to seeing you at the upcoming investor conferences. Operator: Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Follow Rxo Inc. Follow Rxo Inc. We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»

Part 2 of a Two-Part Look at: 1. Principles for Navigating Big Debt Crises, and 2. How These Principles Apply to What’s Happening Now If we don’t agree on how things work, we won’t be able to agree on what’s happening or what is likely to happen. For that reason I like to begin by […] Part 2 of a Two-Part Look at: 1. Principles for Navigating Big Debt Crises, and 2. How These Principles Apply to What’s Happening Now If we don’t agree on how things work, we won’t be able to agree on what’s happening or what is likely to happen. For that reason I like to begin by describing how I believe things work to see if we can agree on that. In Part 1, I provided a simplified description of how I believe the money-credit-debt-markets-economic “machine” works that’s available here. It is a part of my more comprehensive description of the cause/effect relationships that lead countries and their markets to rise and decline. .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Ray Dalio Series in PDF Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q4 2022 hedge fund letters, conferences and more   That more comprehensive description was laid out in my book Principles for Dealing with the Changing World Order. I hope you will examine my description of the cause/effect relationships that drive how things work to assess whether you by and large agree with it. In this Part 2, I will briefly review some of the timeless and universal cause/effect relationships that drive how “the machine” works, then I will review what happened from 1945 until now to compare what actually happened with my template, and then I will focus on what’s happening now and what this template leads me to believe about the future. While I’d love for you to read the whole thing because I think it’s packed with valuable stuff, if your goal is to blast through it and glean the highlights quickly, there are highlights that I put in bold or you can skip to what you’re interested in by looking at the subject headings. By the way, I put the principles that I believe are timeless and universal truths in italics. The Big Picture If you want to see how and why big events have unfolded, be careful not to focus precisely on small events. People who try to see things precisely typically miss the most important things because they are preoccupied with looking for precision. Also, if you look at things up close, you will never see the most important big things. Instead, when looking for the big things pay attention to the big things. The world order that began at the end of World War II, which was shaped by the United States being the dominant power, is now changing to produce a very different type of world order. This transition is happening in classic ways that drove how transitions occurred throughout history. Throughout history there have always been rich and powerful countries and poor and weak countries and there have always been changes in their relative strengths that occurred for logical and measurable reasons that have changed the world order. To benefit from these changes rather than be hurt by them, one must understand the cause/effect relationships behind them and adapt to these changes, ideally being ahead of them rather than being significantly behind them.   Because there is too much that is important that is happening in too many places for me to be able to stay on top of in my head, I have systemized data that describes the most important measures of strength and shows how they’re changing. I have found that 18 types of strength have driven almost all changes in countries. I monitor these in 24 countries. They are described in my book Principles for Dealing with the Changing World Order and updated on my website www.economicprinciples.org. The five most important drivers of changes that are important to understand are: The debt-money-economic dynamic The internal conflict dynamic The external conflict dynamic Acts of nature (droughts, floods, and pandemics) Human invention and technology development  In this report I will focus just on these five and just in the biggest countries. I should however point out that some of the most attractive pictures that I am seeing reflected in both these measures and in my firsthand contact are coming from some smaller countries that aren’t on this top 24 list. In Part 1, I briefly reviewed the mechanics of money and debt cycles and the principles for dealing with them well. In this Part 2, I will very briefly review my template, show how events have been transpiring relative to this template, and then show what’s happening now and what I think about it. A Brief Review of My Template I have a template for explaining how “the machine” works that I hope to convey in an easy-to-understand way so you and others can assess it for yourselves. Very simply a) money (i.e., the access to resources) + b) talented people + c) an environment that is conducive to conjuring up and building out developments = d) economic success (and economic success contributes to all sorts of other successes such as health, education, social, and military). In fact, any two of these ingredients will be enough (though all three together is best). For example, talented people in the right environment will earn or attract the money/resources that they need to succeed, and money with the right environment will attract talented people.   As explained in Part 1, I’d like to start by describing money because it’s of paramount importance and it’s what I know best. I believe that the money-credit-debt-markets-economic dynamic is the most important dynamic to understand and to stay on top of both for investing and for understanding the changing world order, so I will start with that. As explained in Part 1, it is driven by borrower-debtors, lender-creditors, and central bankers that both produce and respond to incentives to lend and borrow that lead to two interrelated cycles—a short-term one that has averaged about six years in length +/- three years and a long-term one that has averaged about 75 years +/- 25 years—which evolve around an upward trend line in productivity that is due to humanity’s inventiveness. By “short-term debt cycle” I mean the cycle of 1) recessions that lead to 2) central banks providing a lot of credit, which creates a lot of debt that initially leads to 3) market and economic booms that lead to 4) bubbles and inflations, which lead to 5) central bankers tightening credit that leads to 6) market and economic weakening. There have been 12.5 of these since 1945. By “long-term debt cycle,” I mean the cycle of building up debt assets and debt liabilities over long periods of time to amounts that eventually become unmanageable. This leads to a combination of big debt restructurings and big debt monetizations that produce a period of big market and economic turbulence. I believe that we are now roughly about 85% through the one that began in 1945.  As for the mechanics of this dynamic, history has shown and logic dictates that the return relative to the inflation rate (the real return) will follow the strength of the borrowers with a lag. That is because the financial ability of debtors to meet their obligations to pay back is the most important determinant of the value of the debt. If their finances aren’t good, they won’t be able to fully pay back and the only question is which way they won’t pay back to be relieved of their debt burdens. That’s largely up to the central banks and the central governments. If central banks keep interest rates high and money tight, creditors will get less real money because of debt defaults and debt restructurings. On the other hand, if central banks keep interest rates low and/or print money, creditors will get the money promised but at a depreciated value (i.e., the money will have less buying power.) For this reason, when there are a lot of debt assets and debt liabilities, it’s a risky situation for both debtors and creditors that puts central bankers in the difficult position of trying to simultaneously 1) keep real interest rates high enough and money tight enough to satisfy the lender-creditors without 2) having real interest rates so high and money so tight that it hurts the borrower-debtors intolerably. Getting this balance right is critical because if real interest rates are not high enough and money is not tight enough borrower-debtors will over-borrow and lender-creditors won’t adequately lend and will sell the debt assets they own, forcing the central bank to have to choose between a) allowing real interest rates to rise to high enough levels to bring about a supply-demand balance that will have devastating effects in markets and the economy, or b) printing a lot of money and buying the debt assets that others won’t buy which will lower real interest rates and devalue the money. In either case, when there are a lot of debt assets and debt liabilities it isn’t good to hold debt assets except for short tactical moments. Whether central banks are tight or loose will however make a difference in which debt assets are good. If central banks go the tight money route, credit spreads will widen because risky debtors need to devote more of their income to debt service. Meanwhile, those debt assets that are default-protected by the central government and central bank will still perform poorly but won’t be hurt as much. If they go the easy money route, there will be less differentiation because credit spreads won’t increase as much, though all debt is likely to be devalued in real terms. So, as a general rule, when there are a lot of debt assets and liabilities outstanding relative to both the debtors’ abilities to service the debt and the creditors’ abilities to get a good real return from the debt assets, watch out. For a much more complete look at this dynamic and many case studies over several hundred years see Chapters 3 and 4 in my book Principles for Dealing with the Changing World Order. As explained in that study of past cases, in all cases where there have been big debt crises and the debt is denominated in currencies that central banks can print, central banks have always printed the money and bought the debt because this is the least painful way to deal with the debt restructuring. In any case, the reduction in the debt assets and debt liabilities occurs and a new cycle can begin. These cycles move markets and economies around an upward-sloping trend line of rising living standards that is due to people’s inventiveness and the increases in productivity that come from it. The incline of its upward slope in productivity is primarily driven by the inventiveness of practical people (e.g., entrepreneurs) who are given adequate resources (e.g., capital) and work well with others (their coworkers, government officials, lawyers, etc.) to make productivity improvements. Over a short period of time (i.e., one to 10 years) the cycles are dominant. Over a long period of time (i.e., 10 to 30 years and beyond) the upward-sloping trend line has a much bigger effect. Conceptually, the way this dynamic transpires looks like this to me: dsadsa During the big money-credit-debt-market-economic cycles (which I will henceforth, for brevity, call debt cycles), different monetary regimes come and go mostly to accommodate and facilitate continued credit and economic growth. Within each of these money/currency regimes there were sub-phases that I call paradigms. For example, the 1970s paradigm was one of high inflation and slow growth while the 1980s paradigm was one of falling inflation and strong growth, while both occurred in the same monetary regime. Over time, from one cycle to the next, debt liabilities and debt assets have virtually always increased to make the long-term debt cycle expansion. In all cases that has continued until the debt burdens have become unsustainably large or the debt assets have become intolerably low-returning, at which time there are big reductions in debt liabilities and debt assets that take place through some mix of debt restructurings and debt monetizations. These are the big debt crisis periods. These big debt restructurings and debt monetizations end the prior big debt cycle by reducing debt burdens and eliminating the prior monetary order, leading to the next new big debt cycle and monetary order. They take place much like big changes in domestic political orders and big changes in world orders—like seismic shifts due to the old orders breaking down. That is a simplified version of what the first of the five big forces—i.e., the money-credit-debt-market-economic cycle—looks like to me. The Other Four Big Forces Affect How This Debt Cycle Transpires Just as This Debt Cycle Affects How the Other Four Forces (and All of the 18 Previously Mentioned Forces) Transpire Together More specifically, 1) the money-credit-debt-markets-economic cycles, 2) the cycles of peace and conflict that take place within countries, 3) the cycles of peace and war that take place between countries, and 4) the acts-of-nature shocks of droughts, floods, and pandemics create big swings in conditions around 5) a productivity-driven uptrend that is due to humanity’s ability to invent and produce. The interactions between these forces drive how conditions change. They tend to reinforce each other both upwardly and downwardly. For example, periods of financial and economic crisis tend to reinforce periods of internal conflict, and periods of internal conflict worsen financial and economic conditions. Similarly, periods of internal financial problems and internal political conflicts both weaken the country that they are happening in and increase the likelihood of external conflicts. Together these forces create the Big Cycles of ups and downs in countries and the big changes in domestic and world orders. These big rises and declines are easy to see by monitoring the 18 forces (particularly the big five) that I’m sharing with you. For example, you can see the big evolutionary decline of great powers and their monies reflected in 1) the decline of many indicators of health (e.g., education, infrastructure, law and order, civility, government effectiveness, class and ethnic conflict, etc.) relative to those other world powers, and 2) the unwavering rises of indebtedness accompanied by the steady weakening of the types of monetary systems used to restrain credit-and-debt-growth-motivated attempts to raise credit and economic growth.  While I won’t now delve into how all these work—both because doing that would be too much of a digression and because it’s better explained in my book or even in my relatively brief video, both titled Principles for Dealing with the Changing World Order—I now will move from describing this template to looking at what has actually happened over the 78 years since 1945 when the money and political world order last changed. That way you will go from looking at my theoretical template to looking at what happened and why. It will also give you a perspective that I think will help you imagine the future.     While I think the next section is important because it shows how this template and actual developments have worked and it explains how we got to where we are and it helps to understand where we are, if you don’t want to read it all read what’s in bold and quickly get to the 2020-2022 section to set the stage for seeing where we are and then read the section on looking ahead. A Brief Review of What Actually Happened Relative to My Template: 1945 until Now In order to paint the big picture of how things work, what happened, and where we are, I will start in 1945 and will quickly bring you through what I believe are the most important things up to now. Since the money part of what happened was most important in shaping what happened, I will look at what happened through the lens of the previously described money-economic lens of the short-term and long-term debt cycles evolving around the productivity-living standard uptrend. I will divide the post-1945 period into four phases that correspond with the four monetary regimes that drove the credit-debt dynamic since 1945. 1945 was the year the war ended so it was the first year of the new monetary and geopolitical world orders. Because the United States was the strongest economic, geopolitical, and military power, these new orders had US money and US geopolitical power at the heart of them.  Phase 1: 1945 to 1971—A Gold-Linked Monetary System From 1945–1971 there was a gold-linked monetary system in which dollars (which were considered like checks with no intrinsic value) were exchangeable for gold (which was considered the real money) at a fixed exchange rate and other currencies were exchangeable for dollars at agreed-upon and changeable rates. During this 26-year period there were five short-term debt-economic cycles, which were wiggles around an uptrend in GDP and indebtedness. From 1945 until 1970 Great Britain declined, and Germany and Japan rose economically, so the British pound fell and the German deutschemark and Japanese yen rose in importance. In 1956 something called artificial intelligence was invented. In 1957 key inventions included lasers, personal computers, and satellites. In the ’60s came high-speed rail, Kevlar, the technical foundations of the internet, and the pocket calculator. During this 1945-1970 period the US overspent and financed that overspending by borrowing, especially in the 1960s on the Vietnam War and the War on Poverty, so debt assets and debt liabilities increased far more than incomes and the quantity of gold that the US had in the bank. The civil rights movement conflicts added to the tensions. Some of those who held dollar assets (such as France under President Charles de Gaulle), which were claims on gold, chose to turn in their dollar assets for gold. This created the beginning of a balance of payments problem and a tightening of monetary policy that led to a recession in 1970. Because the dollar claims on gold had become much larger than the gold in the bank and that became more apparent, a “run on the bank” occurred. It took the form of holders of debt assets turning them in for money to get the gold which led this monetary order to break down in 1971. That is when the first of the post-war monetary orders broke down. Phase 2: 1971 to 2008—A Fiat Money, Interest-Rate-Driven Monetary Policy (MP1) 1971 was the transition year when the gold-linked monetary system was replaced by a fiat monetary system in which central banks ran a monetary system that stimulated and restrained money/credit/debt growth by changing interest rates. I call this type of monetary system—i.e., one in which fiat currencies are managed via interest rate changes—Monetary Policy 1 (MP1). There are two other types of monetary policy that take place at the different stages of the long-term debt cycle that I call Monetary Policy 2 (MP2) and Monetary Policy 3 (MP3). If you are interested in learning more about them, I describe them beginning on Page 36 of my book Principles for Navigating Big Debt Crises, which you can get in PDF form here. While the gold-dollar-based system broke down, the US remained the dominant world power economically, militarily, and in most other respects, and most world trade and global lending was done in dollars so the dollar remained the world’s leading currency. Because of the big devaluation of the dollar (and all other currencies) versus gold in 1971 and because of the way the new fiat monetary system was managed (with low real interest rates and plenty of credit availability) being a borrower-debtor was rewarded so there was a large increase in money/credit/debt that produced a lot of inflation with slow growth in the 1971-1980 period. Lots of money was lent to emerging countries, especially those in Latin America. That 10-year period consisted of two short-term money-credit-debt-economic cycles that each transpired in classic ways with the Fed’s decisions to ease or tighten monetary policy driving them, though the second money/credit/debt and inflation surge was much bigger than the first. Naturally the pendulum swung in the classic way to the opposite extreme—i.e., easy money and credit causes very high inflation which led to an equal and opposite reaction in monetary policy, so money and credit was very easy early in the period which led to high inflation which led to the greatest tightening of monetary policy “since Jesus Christ” (according to German Chancellor Helmut Schmidt) to fight inflation at the end of the 10-year period. As always this tightening took the form of a sharp rise in real rates that shifted the conditions from benefiting borrower-debtors early in the decade to benefiting lender-creditors in a big way at the end of it. That ended the decade-long stagflation paradigm and began the 1980s decade-long disinflationary growth paradigm. In the 37 years from 1971 until 2008 there were five short-term credit-debt-economic cycles. These cycles occurred within the greater long-term debt cycle trend of rising debt levels supported by declining short-term real and nominal interest rates. After the two large tightenings in the ’70s and early ’80s until 2008, every cyclical peak and every cyclical trough in interest rates was lower than the one before it. These declines supported asset prices and economic activity. The declining trend of real and nominal interest rates shifted conditions from those that benefited lender-creditors back to those that favored borrower-debtors, which allowed debt/income levels to rise until there was the 2008 debt-economic crisis and interest rates hit 0%. Hitting zero eliminated central banks’ abilities to ease and stimulate the next wave of credit/debt/economic expansion through interest rate cuts, so they turned to MP2. During this time period, the geopolitical landscape changed as the Soviet Union fell, China rose, and wealth gaps increased. The big inventions were the microprocessor, video game consoles, laptop computers, GPS, lithium-ion batteries, satellite television, DNA profiling, the internet, search engines, smartphones, social media, apps, digitalization of thinking, and the earliest blockchains. Phase 3: 2008 to 2020—Fiat Money, Debt Monetization, Independent Monetary Policy (MP2) In late 2008 the interest-rate-driven monetary system (which I call Monetary Policy 1) couldn’t be used for easing anymore because interest rates couldn’t be lowered enough to create a credit-debt-economic expansion. As a result, the prior type of monetary system (MP1) was replaced by central banks printing money and buying debt in large quantities (MP2) which ushered in the era of “debt monetization” or “quantitative easing” as they are now called. Said differently, central banks started to become big lender-creditors making up for the shortage of free-market lender-creditors. They needed to do this to keep the expansion phase of the big credit-debt-economic cycle going. That was the first time this set of circumstances and this monetary policy happened since 1933 (i.e., 75 years earlier). Such moves to debt monetization have occurred throughout history and are symptomatic of being in the late phase of the long-term debt cycle. This buying of financial assets by the Fed helped push up the prices of financial assets and push down their yields. The stimulative monetary policies that flowed through the system freely favored the rich who had financial assets that rose and good access to borrowed money. These developments and rising wealth gaps increased class conflict. The government bailing out the banks contributed further to the environment of animosity toward the capitalists. Also, because the Chinese and other emerging market producers had become more competitive which took away jobs at the same time that new technologies took away jobs which contributed to the hollowing out of the middle class, that also increased class warfare. People who were hurting economically believed that the “elites” running things and the system were rigged against them. That led to the rise of populist sentiment and nationalism. These developments were also analogous to those that happened in the early 1930s and many times before under similar circumstances. In the US these developments led to Donald Trump’s election and his moves to nationalism which included aggressive trade, technology, and geopolitical policies to confront and contain China. In this 2008-2020 period there were two short-term credit-debt-economic cycles (including the one we’re currently in) with each amount of debt creation and each amount of debt monetization greater than the one before it. During this period China continued to rise and the wealth and opportunity gaps continued to rise. Technologically, computer chips rapidly advanced, cryptocurrencies were launched, self-driving car features began to be rolled out, movie streaming became more widespread, 4G (and then 5G) wireless began, and reusable rocket ships began to be used. Climate change began to garner greater attention. In 2020, the world was hit with the COVID pandemic. That necessitated a change in monetary policy to what I call Monetary Policy 3.    Phase Four: Since 2020—Big Fiscal Deficits Monetized (MP3) Monetary Policy 3 is the type of monetary policy in which there is coordination of fiscal and monetary policies because this type of monetary policy is required to get money and credit in the hands of those who would not get it in a free-market capital markets system. That is because free-market capitalism naturally provides capital to those who are financially well-off. Throughout history MP3 has happened under similar circumstances in similar parts of the long-term debt cycle. Since 2020 we have experienced the big easing part and most of the big tightening part of the short-term debt cycle. The big easing part happened in 2020 because of the combination of COVID-induced debt and economic crises, large wealth gaps, and political moves to the left via the elections of a Democratic president, a Democratic-controlled House of Representatives, and a Democratic-controlled Senate. These things together led to huge government spending increases, huge increases in government fiscal deficits, and huge increases in the amounts of debt that governments had to sell to finance these deficits. This selling of debt assets was much greater than free-market lender-creditors would buy which required central banks, most importantly the Fed, to buy/monetize the debt. That increased the amount of money/credit/debt/spending a lot. This massive MP3 type of coordination of fiscal and monetary policies to allow the central government to both tax and direct money as it chooses via the central bank buying its debt with printed money is explained starting on Page 37 of my book about debt crises if you’re interested in knowing more and seeing past cases. That is what happened in 2020-21; it has happened repeatedly for similar reasons throughout history. The 2020-2021 debt monetization was the fourth[1] and the largest big debt monetization since the original big debt monetization/QE in 2008 (which was the first since 1933). Since 2008 the nominal Treasury bond yield was pushed down from 3.7% to 0.5%, the real Treasury bond yield was pushed from 1.4% to -1.1% and non-government nominal and real bond yields fell a lot more (because credit spreads narrowed). As money and credit became essentially free and plentiful the environment became great for borrower-debtors and terrible for lender-creditors which led to new bubbles forming. My bubble indicator, which was at only 8% in 2010, rose to 82% at the end of 2020, showing the bubbles in companies and assets that had little or no profits and were funded by selling equity and/or borrowing money based on promises of doing well in the future and speculative buying fever. It was analogous to the “Nifty-Fifty” bubble in the 1970-72 period, the “Japan bubble” of 1989-90, and the “dot-com bubble” of 1999-2000. That decline in interest rates took them so low that they couldn’t continue to fall. I estimate that the interest rate decline raised stock prices about 75% more (compared to pre-financial-crisis peak) than they would have risen without that decline. In addition, profit margins on average doubled as a result of technologies and globalization which also boosted profits and with them asset prices in unsustainable ways (because profit margins are now more likely to decline than to rise). Corporate and personal taxes declined which helped asset prices, and they are now more likely to rise than decline which will be a negative for asset prices over the next 10 years. All these factors drove asset prices up to levels that were extremely stretched. From the post-crisis lows of 2009 to 2020 the nominal value of wealth in US financial assets (i.e., “paper wealth”) rose from $22 trillion to $88 trillion, so there was a quadrupling of paper wealth. That money/credit/debt surge in 2020 produced a huge increase in inflation which was exacerbated by the external conflicts (i.e., which is the third of the five major forces that I will touch on later). That led to the short-term cycle pendulum swinging back to a big tightening via the Fed and other central banks raising interest rates and curtailing their debt monetizations. That flipped the short-term debt cycle from the easing mode to the tightening mode.  Nominal and real interest rates went from levels that were overwhelmingly favorable to borrower-debtors and detrimental to lender-creditors, to levels that are more balanced. Since the tightening began, US Treasury bond nominal yields have risen from 0.5% to over 4%, real yields have risen from about -1.1% to 1.6% and credit spreads have risen significantly, all of which hurt most asset prices, particularly those with weak or negative profits and/or needs for new equity funding. Naturally that shift especially hurt prices of assets that were in bubbles. My bubble index fell from 82% to 30% and the bubble stocks in the index have fallen an average of 75%. The nominal value of wealth in stocks and bonds has fallen by ~12% in the US and the real value of wealth fell by nearly 18%, which are the greatest declines since 2009. Since these peaks in rates were reached in October these nominal and real interest rates have declined a bit which has helped markets to rally a bit.  More specifically, due to the Fed’s rapid tightening, dollar-denominated debt assets and debt liabilities, and all assets affected by them, very quickly repriced as short-term nominal and real interest rates were brought to levels that were/are relatively attractive for lender-creditors and relatively unattractive for borrower-debtors. The rising of interest rates and tightening of money had the very classic effect of lowering the present values of future cash flows as the discounted interest rate rose and it strengthened the dollar relative to the currencies of other countries whose central bankers were slower to tighten. In other words, the Fed’s quick movement brought US dollar-denominated cash to relatively attractive levels in relation to most assets, cash denominated in other currencies, and gold—i.e., cash went from “trash” to “attractive.” As usual that hurt interest-rate-sensitive sectors like commercial and residential real estate, as well as low or negative cash flow bubble companies, both public and private, though public more so. For example, the FAANG stocks and the NASDAQ are down from their peaks by around 30% and 25% respectively. Non-public market assets—private equity, venture capital, and real estate assets—have not been marked down commensurately as there is a great reluctance to accept the markdowns. Write-downs and having down fundraising rounds became too painful for both the companies and the venture capital and private equity managers in these markets, so there is a standoff in which sellers and buyers can’t agree on prices and transaction volumes have plunged. Now negative cash flow companies are figuring out how much cash they have on hand to survive and how to cut costs to wait out the market. In my opinion they will never see prices rise to levels that won’t require them to have write-downs and down rounds. That means selling stocks for prices that are less than when the stock was last sold which leads those who bought it last time to have losses, shows that the company is falling short of expectations, and means that the venture capital and/or the private equity managers have to report poor performance numbers. For those reasons the incentives are not to have the write-downs. I believe these assets will generally be well below their historic highs for a very long time because I believe we will never see nominal and real interest rates go to such levels and cash be given away so freely again.  The internal and external conflicts intensified during this 2020-2022 period and moved the world much closer to the brinks of civil war and international war. However, most recently there have been small steps back from the brinks as the fears of going over them have become more vivid and terrifying to those involved. Regarding the internal conflicts between the extremists, while their increasing intensity showed up in elections and in other ways—especially in the US, Italy, Brazil, and throughout Latin America—and while they began to surface in strikes in Europe, by and large there was a stepping back from the brinks rather than a moving toward them. In the US midterm elections, for example, extremists of both the right and the left lost to moderates so there was a small stepping back from the brink. Regarding external conflicts, while over the 2020-present period there was significant movement closer to brinks of catastrophic economic and military warfare, that movement brought into focus to all parties that crossing these brinks would be disastrous, which has led to restraints. More specifically we have seen a) Russia, Ukraine, the US, and NATO go into a military war that they have thus far contained geographically to be in Ukraine and in severity by using only conventional weapons and b) the US and China’s geopolitical war regarding Taiwan and China’s support of Russia, while having moved closer to the brinks of terribly damaging economic and military war during the 2020-2022 period, exhibited great restraints to prevent going over these brinks. At the same time Iran-Israel-US and related countries face a big decision as Israel (and the US) will be considering whether to militarily destroy Iran’s nuclear capabilities and/or Iran’s leadership to prevent Iran from becoming a nuclear power or if they will let Iran become a nuclear power.    As for the use of capital and economic warfare, US sanctions against Russia proved ineffective but they raised the worry of a number of countries’ leaders that holding dollar debt assets could be risky. This came at the same time as the internationalization of the RMB—i.e., China increasingly denominating trade and capital flows in RMB—advanced. While these developments can undermine the long-term demand for dollars and dollar assets, they have not yet become large enough to drive markets.  Seeing how these wars transpired in 2020-2022 has given us some indications of how they might transpire in the future. For example, over the last couple of years it has become clearer how countries would probably line up against each other and how far each would go and in what ways these conflicts would play out. Indications came in the form of UN votes and what countries traded what items with whom. The ways these “wars” transpired in 2020-2022 made clear that a) while the two sides—the US and NATO countries on the one side and Russia and China on the other side of their “wars” (most importantly over Ukraine and Taiwan)—were willing to go to the brink, they are afraid of going over it, b) virtually all other countries didn’t want to be drawn into these wars, and c) those countries that are uninvolved and rising powers, such as India, Singapore, the rising ASEAN countries such as Indonesia and Vietnam, Saudi Arabia, and the UAE have benefited from what is going on. This dynamic is creating clarity about where the good places are and where the riskier places are. More specifically we have seen that my three criteria for identifying places that would do relatively well in this new environment—i.e., those that 1) earn more than they spend so they have strong income statements and good balance sheets, 2) have internal order and other favorable conditions for prosperity, and 3) are unlikely to be involved in a bad international war—have thus far proven to be valuable.  A Few More Evolutionary Developments over the Whole 1945-to-Now Period While I showed you some of the big evolutionary developments that occurred since 1945 and focused a bit on what has happened recently, there are a few important big evolutions that I’d like to point out. The ones that I think are most important are:  While I made clear that major monetary regimes in the world’s reserve currencies became progressively less restrictive which has led debt assets and debt liabilities to grow to dangerously high levels in the United States, Europe, and Japan without any prospect of being seriously restrained, what is not yet clear enough is how big changes in wealth have taken place. Wealth changes, which are very important, are not given adequate attention because most people mistakenly focus more on GDP than wealth. Think of it this way. GDP is like revenue that shows up in the income statement and tells you essentially nothing about wealth or profitability. Wealth, which shows up in the balance sheets, goes down when liabilities increase faster than assets. An examination of real wealth changes shows that there has been a very big decline in the relative wealth levels of Americans, Europeans, and Japanese relative to Chinese and many other nationalities such as Norwegians, Indians, Saudis, and Indonesians because the debts that have funded the three major reserve currency areas have increased faster than the assets. While borrowing allowed these countries to spend more than they earned, paying back will require them to spend less than they earn. That day of reckoning will certainly come. Another big shift in wealth has been from central governments and central banks to the private sector (especially to the household sector)—i.e., the government sectors worsened their balance sheets to improve the household sector’s balance sheets. This is cushioning the negative effects that the tightening is having on the household sector. This shift in wealth happened via central governments borrowing a lot and central banks printing a lot of money and buying a lot to get money in the hands of those in households. These shifts affect the money-credit-debt-economic dynamic a lot. For example, since central governments supported by central banks don’t have default risks and since central bank losses from buying bonds that have gone down in price don’t have losses that squeeze them in any way, this dynamic has created less credit risk and more ability to borrow than would have existed, and that has created more “value of money” inflation risk than would have existed. These shifts in wealth will become extremely important when creditors start moving to getting back and converting these debt assets into real goods and services. That it will happen is not questionable, though when it will happen is questionable. While I am not anticipating its timing, I am able to identify it when it starts to happen and begins to accelerate. It will look like a classic run on a bank in which there is big selling of debt assets which will put central banks in the position of having to choose between a) real interest rates rising fast and a lot and damaging the markets and the economy, and b) printing a lot of money and buying a lot of debt which will devalue money a lot.   The vulnerability of the dollar and dollar-denominated debt has been steadily increasing because of a) the supply of dollar-denominated debt being much larger than the free-market demand for it which has been requiring central banks to buy large quantities of the debt with money and credit they print, b) the growing desire of foreign countries to diversify their central bank and sovereign wealth fund holdings away from the dollar because they are too concentrated in dollars and diversification is prudent, c) foreign countries doing more trade and capital transactions with China than with the United States, meaning it’s natural from both China’s and other countries’ perspectives to denominate more transactions in China’s RMB, d) US sanctions having raised the concerns of some foreign holders of dollar bonds about these holdings being sanctioned, and e) US political and social conflicts, including the handling of the debt limits, undermining confidence in the US and its policies.  Some countries have been ascending while some have been declining. China is the most important ascending power to understand, but other, less-watched ascending powers also warrant greater attention. Let’s look at China and then look at the others.  Seeing the whole evolutionary arc of China and its impact on the world is important. Since it doesn’t come across by looking at it in pieces, I will briefly review it here. From 1945 until around 1980 China was unimportant to the world because its economy was insignificant in size and isolated from the rest of the world. Then in 1978 Deng Xiaoping came to power and pursued his “open door” and “reform” policies which led to China having huge economic effects, which changed not only China but the whole world. From around 1980 until now, China went from being a poor, weak country to being a rich (judging by its total, rather than its per capita, GDP and wealth levels) powerful country. Peoples’ reactions also evolved with China’s success, which is having a big effect on the world order. When China entered the world economy around 1980 and it was small and trying to be integrated into the world community, it was perceived favorably because it brought its inexpensive labor and high productivity gains to provide the world with attractively priced manufactured goods. The US and most of the world liked getting attractively priced manufactured goods, especially because China used a lot of its earnings to lend money to those who bought the merchandise. Those sales built up China’s income and allowed it to both get stronger and lend to the United States. Then, during the 2008-2016 period, the pendulum of sentiment toward China began to swing from positive to negative because of lost employment, especially in middle class manufacturing jobs as Chinese could do these jobs less expensively. To Americans, deals previously thought of as good seemed exploitative, intellectual property theft became a contentious issue, and restrictions against highly competitive foreign (especially US) companies being allowed to freely enter the Chinese market and freely compete were contentious issues. Also, China’s economic power grew, which gave it the resources to develop its military, geopolitical influence, and technology powers, which led it to become more assertive. The combination of these developments not only had an economic effect but it also contributed to the emergence of populism, nationalism, and anti-Chinese sentiment. As a result, US-China policies shifted from cooperation and opening up to confrontation and closing down. The United States and China are now—and will likely continue to be for the next 10 years or more—locked in a classic great power conflict. How that transpires will have a huge impact on these two countries and the world so it’s important to follow this closely. While what is going on in the United States, China, and, to a lesser extent, Europe garners most of the attention, it’s time that we start focusing on rising countries with strong fundamentals (as reflected in my 18 measures) such as India, ASEAN countries such as Singapore, Indonesia, and Vietnam, the UAE, and Saudi Arabia, which have benefited by being neutral vis-à-vis the power conflicts. A number of them are at take-off points in their developmental cycles because their people, governance systems, and capital markets are approaching being capable of competing in ways that didn’t previously exist. Also, the wars between the United States and China are making the United States and China less desirable places to be which is driving capital, businesses, and talented individuals to these places. All these countries are experiencing the Big Cycle changes in the 18 indicators, with some ascending while others are declining. Hurtful acts of nature in the forms of climate change, loss of biodiversity, and pandemics have been increasing.  As previously expressed, the greatest of all forces is the force of human innovation. At no time in history, including the Renaissance and Industrial Revolution, has this force been as powerful as it is now. The unwavering evolutionary development of thinking technologies such as computers, expert systems, machine learning, AI, and quantum computing started in the middle of the 20th century and will radically change how we think and use that thinking to create new inventions that will move us forward. Over the next five years you will see mind-blowing advancements in many areas. Because these thinking tools help thinking in almost all areas, we are seeing revolutionary advances in almost all areas. I and others at Bridgewater have experienced and capitalized on this (r)evolution via the computerization of investment decision making, so I’m excited by what will be happening. I believe that we are now at the brink of a new era in which machine thinking will replace human thinking in many ways in the same way that machine labor replaced human labor during the Industrial Revolution. Just as we have seen doing math in our heads and remembering facts become much less important with the invention of computerized tools that do these things, and just as we go to Google (or its equivalents) to find information rather than gathering information in more traditional ways, we will soon be going to computers to get instructions on what to do when we are in different situations because the computer will come up with better guidance more quickly than we can. For these reasons, while I’m concerned about the value of money and debt assets, the internal and external conflicts, and acts of nature, I am very excited and optimistic about the revolutionary improvements that are likely to take place as the result of inventive/practical people put together with capital that gets them the resources that they need (perhaps most importantly, these new thinking technologies), operating in great environments that are conducive to advancement. Of course, new technologies are double-edged swords. For example, they have advanced how we can do each other harm as well as how we can do each other good. Looking Ahead First of all, I want to re-emphasize that what I don’t know, especially about the future, is much greater than what I do know, and for that reason diversification among seemingly good bets is of paramount importance. As for what seem to be the good and bad bets, it appears to me that the big power countries that are plagued with the big problems that I described, and the world as a whole, are in what I call Stage 5 of the Big Cycle—i.e., near the brinks of financial/economic crises and big internal conflicts/wars, and in the early part of an evolving, costly climate crisis—at the same time as the world is near the brink of having amazing technological breakthroughs that will affect our daily lives. Stage 5 is the last-chance stage before going into Stage 6 which is the financial crisis and war part of the cycle. It seems to me that that will make the environment very challenging for those who are following the traditional leveraged long approach to investing in traditional areas, while it will provide great opportunities in those geographic and subject areas that are benefiting from these changes. Re: 1) The Money-Credit-Debt-Markets-Economic Cycles In my opinion the tightening that began in March 2022 ended the last paradigm in which central banks gave away money and credit essentially for free, which was great for the borrower-debtors. We are now in a new paradigm in which central banks will strive to achieve balance in which real interest rates will be high enough and money and credit will be tight enough to satisfy lender-creditors without interest rates being too high and money and credit being too tight for borrower-lenders. In my opinion this will be a difficult balance to achieve which will take the form of slower-than-desired growth, higher-than-desired inflation, and lower-than-expected real returns of most asset classes.  Regarding where exactly we are in the short-term debt cycle, it appears to me that we are now approaching the end of the tightening phase but not approaching the easing phase that is priced into the markets. While all these short-term debt cycles are basically the same in the most important ways, each one is a bit different. This one is severe for some and mild for others and overall pretty mild. More specifically, in this short-term debt cycle, the over-levered, cash-short, interest-rate-sensitive, and/or bubble companies and those investors who invest in them are being hurt while corporates and banks are being squeezed but not in trouble, and the household sector is doing pretty well. The household sector is doing pretty well because there was a big shift in wealth to the household sector from the government sector which is now carrying a lot of the debt. This happened in most developed economies, most importantly in the reserve currency economies—the US, Japan, and the Eurozone—via the central governments’ borrowing a lot to make distributions to households and central banks lending them a lot. Said differently, this came about because central governments and central banks deteriorated their balance sheets so that households could improve theirs. This has created a safer environment because, unlike the private sector, central governments and central banks don’t get squeezed for money and don’t have to worry about market losses causing them financial trouble. Regarding where we are in the long-term debt cycle it appears that we are in the late stages, about 85% through it, but I can’t say exactly. I guesstimate that the likelihood of a major restructuring of debt assets and debt liabilities denominated in the major reserve currencies happening over the next 10 years to be something like 60%. That is because the debt assets and debt liabilities are already very large, and they are projected to rise to significantly higher levels that will make it increasingly difficult to have interest rates high enough and money tight enough to satisfy the lender-creditors without having interest rates too high and money too tight to not hurt the borrower-debtors.  Re: 2) Internal Conflicts and 3) External Conflicts As for the internal and external conflicts, I have conveyed my concerns which are also reflected in the conflict gauges I use to measure and anticipate different types of wars. Based on these I now estimate the probability of a profoundly disruptive civil war to be about 35-40% and the probability of a profoundly disruptive international war also being about 35-40% over the next 10 years. I don’t expect a big military war between nuclear countries because it is widely recognized that using nuclear weapons would lead to mutually assured destruction. For that reason, based on what I know, I expect the United States and China to avoid an all-out military war. The only way I can see any side winning a war is by secretly building a technology of overwhelming power that can be inflicted without triggering an intolerable retaliation so that simply demonstrating it to the other side would lead to some form of capitulation by the country not having it—like the secretive development of the atomic bomb and demonstration of its power to the Japanese via the attacks on Hiroshima and Nagasaki. To be clear, I am not ruling out such a scenario because I know that there are developments of mind-blowingly powerful technologies that remain unknown to us.   Regarding my estimated probabilities, please understand that they are unreliable, though the measures of the risk levels are higher than at any time in the post-1945 period because the number of militarily powerful (e.g., nuclear) countries and the measured conflict levels between them are both greater than at any time since the last world war.   Re: 4) Acts of Nature In the years ahead it’s likely that acts of nature, most importantly climate change, will be very costly in one way or another—i.e., either because we expend the amounts of money and endure the inefficiency costs to make fast enough progress to minimize the environmental and adaptation costs in the future or we don’t spend the money now and endure the costs later. The climate problem is one of those classic types of problem that isn’t well-handled because the pain is increasing at a pace that is too slow to prompt action and because what’s good for the whole isn’t the same as what’s good for all of the parts so agreeing on how to share the costs is damn near impossible.  Re: 5) New Technologies It appears to me virtually certain that many big changes fueled by artificial intelligence working with human intelligence will lead to shocking advances in many areas over the next 10 years (in fact over the next three years). For example, OpenAI and products that are competitive with it will be shocking game changers that you will see imminently. I think such technological developments will be mind-blowing in changing how we think and what we think in ways that are enormous and probably far more good than bad. For example, I think that this sort of OpenAI technology (ChatGPT) is a technology that will in many cases give wisdom that can only come from seeing across subject matters, geographies, and histories and that is currently impossible for the human brain to gain, with these perspectives being void of different cultural and religious biases. This is a subject for another time. However, from an investment perspective it is not clear how much profit will come in relative to the costs that will go out to invest in and create these new technologies. I think there will be exceptionally big differences between the performance levels of countries, investors, and companies that will penalize those who choose poorly and reward those who choose well enormously. Stepping back from all these things to see them from a big-picture level, it seems that events are continuing to track the Big Cycle template due to the most important and most classic cause/effect relationships continuing to work in the same logical ways that they worked in the past.  Footnotes [1] Counting QE1, QE2, QE3, and then QE during COVID lockdowns. Article by Ray Dalio, via LinkedIn.....»»

Following is the unofficial transcript of a CNBC exclusive interview with Disney CEO Bob Iger on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Thursday, February 9th. Following are links to video on CNBC.com: Bob Iger: We have pricing leverage when it comes to Disney+ Bob Iger: ESPN needs to find a sustainable growth […] Following is the unofficial transcript of a CNBC exclusive interview with Disney CEO Bob Iger on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Thursday, February 9th. Following are links to video on CNBC.com: Bob Iger: We have pricing leverage when it comes to Disney+ Bob Iger: ESPN needs to find a sustainable growth path .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Ray Dalio Series in PDF Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q4 2022 hedge fund letters, conferences and more   Bob Iger: Everything is on the table now with Hulu Bob Iger: Everything is on the table now with Hulu Bob Iger: Here’s why Nelson Peltz won’t be joining the Disney board Bob Iger: Animation will continue to be an important business for us for a long time DAVID FABER: Welcome back to “Squawk on the Street.” I'm David Faber here at the Disney lot and of course joined by the aforementioned Bob Iger, the CEO of Disney. It is nice to see you. BOB IGER: It is nice to see you too. Welcome to Disney. FABER: Thank you. I think it's fair to say that neither one of us could have imagined being here even a couple of months ago. It's only what 14 months since we did your exit interview, Bob. So, you know, I'd love to just start off when you got a call, maybe it was from Susan Arnold or from the board and they said, we'd like you to come back. Why did you say yes? IGER: It was from Susan Arnold. She called me on the Friday before the Sunday that it was announced. And much to my surprise, I was not looking for a job and I was not anticipating that I would be asked back. But this is a company that I worked for for almost 50 years. I have a huge passion for the company, tremendous respect for the people. And she made it very, very clear that it was a time of need, they decided to make a change at the CEO level. And I felt that I guess I had a sense of obligation. And I also wanted to help them not only transform the company during a pretty critical time, but I wanted to help them succeed at succession, which is quite important to me too. FABER: You know, you mentioned both of those things transforming and obviously we're going to get to a lot of the news that came out yesterday after the close. But I've talked to a number of executives in the business who think two years isn't enough time for you to do that. That, you know what, you're back. You're gonna be here for five, you're gonna be here for more than two years. It just the things you began just yesterday with the announcements that we're obviously going to get into can't see fruition in two years. How do you respond to that? IGER: Well, my plan is to stay here for two years. That's what my contract says, that was the agreement with the board. That would be my preference as well. FABER: Why your preference? IGER: Well, look, I'm I'm going to be 72 years old tomorrow, I’ve put in almost 50 years. There are other things in life that I'd like to do. I also am confident that the board will be able to identify an able successor and I'd love to have an opportunity to help that person be successful. And right now, it would be premature to even speculate there are no plans right now for me to stay any longer. As it relates to two years in the sense that maybe that's too short a period of time, you can get things done very quickly. You obviously have to know what you want to do and show incredible resolve in terms of accomplishing those things and, you know, get buy in from key people. And I think we've already demonstrated in what has been just over two months since I came back that you can make a lot of changes very quickly. FABER: So your belief is two years is enough time for you to see through some of the things you announced yesterday, the cost cuts, obviously, the reorganization that has taken place. And you know, any number of other efforts that are underway? IGER: Well, I don't think you should look at it in terms of accomplishing everything in a period of time. It's setting the company up for long term success and what happens thereafter. So my goal is in talking about a transformation is to set it on the right course for what could be many years. Years beyond my tenure. That's the goal. FABER: I'm curious when you got that call and then you went to work not long after. IGER: I went to work, I got the call on Friday. I was working on Monday. FABER: On Monday. IGER: Yes. FABER: Yeah, and not the you had you know, obviously that was a change for you a significant one. You were kind of retired you were busy. I know. You seem to be enjoying your life by the way. IGER: I had a great life. I figured out a way to have plenty of stimulation and zero stress. FABER: So then you decided to take this job? IGER: Well, again, it was a sense of obligation. It was a, it was the love that I have of this company and the appreciation that it was a time that the board really needed me to come back and help them in deal with certain issues that were very important not just to them but to shareholders. FABER: The company that you found when you did return, was it as expected? Was it worse than you expected? IGER: Look, I was aware of some of the issues that the company was dealing with. It's a challenging time for many companies, particularly given the global pandemic and the macroeconomic issues and of course, as it relates to these businesses all the disruption. I would say it was as expected. FABER: It was? IGER: Yeah, there were there were you know, I watched closely. I was close enough in terms of my my observer status being out to have a sense of what was going on. I knew. There were no surprises. FABER: There were no surprises. IGER: No. FABER: Well, you moved pretty quickly though to change things fairly significantly, haven't you? IGER: Yes, because I felt it was essential to do that right away. FABER: Why? IGER: Well, the structure of the company that had been changed by my my I guess my successor, my predecessor by Bob, and he had a reason why he wanted to do that and he articulated that but it created a huge divide between the creative side of the company, the content engines, movies and television. And the monetization, distribution side of the company and while I think he again he had certain, maybe valid reasons why he wanted to do that at that time, it was very, very apparent to me both while I was out and when I came back, that that was a mistake. That there had to be a direct linkage that the people making the content had to be fully accountable for how it performed in the marketplace and have some say in how it was brought to market, timing to market, pricing, marketing very, very important. How much to make, how much to spend, and that distance that was created by that structure, I don't think was healthy for this company at this time. And so, my first step was to say that I was going to change that. And it took me a couple of months to actually design with the senior team. You know what we would change it to and that's what we announced yesterday. FABER: Right. That announcement, that reorganization and what is it we have four people, right? IGER: Yes. FABER: Who are— IGER: Four people, three key divisions. FABER: Three key divisions. Is anyone a priority for you over the other? IGER: Well, I said yesterday on our calls streaming is a priority, you know, as you look at the businesses that we've been in both movies and television put parks aside for a minute, it’s very, very clear that the disruptive forces created by technology have had a real impact on those businesses particularly the legacy part of those businesses. And streaming is the future. It's not the only future but if it looms large in terms of the future, eventually it will grow to the point where it is not only profitable, but it turns into a growth business for the company. And so we must make that transition. Look, we've already transitioned to it. Now we have to transition it into a growth business. FABER: Yeah,I, you know, uh, you and I obviously sat down together in April of 2019 when you announced the streaming business, Disney+, and I wonder, we had this conversation then Bob which is can you ever fully replace the profitability of the linear cable business with direct to consumer. You know, three years in, almost four, it would seem perhaps the answer's no. IGER: Well, I don't agree with that. Obviously, that has not happened to date. But if you think about it, in the last since we sat down in 2019, we've seen consumption of television and movies actually increase globally. So, if consumption is increasing, we're in the business basically of serving those consumers that want to obviously watch what we make. And streaming is for them, I think a very pro-consumer method or means of doing that. So, you've got a consumer base that's growing and avid in terms of its, its interest in what we make. You have a technology that is serving them well and actually serving us well too. It's very great. It's a great technology to distribute content on as we proved. Going back for a minute, it’s just interesting when we sat down in April of 2019 to talk about the launch of Disney+, our goal was not publicized, but our goal at the time was to sign up 4 million subs in a year. We signed up 10 million subs in 24 hours in one day. FABER: I remember. IGER: That's an incredibly successful launch, but it speaks volumes about what we're just talking about. People, one, they want our content. Two, they want it that way. So, if you have that much demand and we have the ability to essentially serve the consumer well using that technology, then profitability in my opinion is inevitable. You have to manage it well. You have to spend appropriately, you have to price appropriately. You have to time it to market appropriately, but it will work. It is working. Look there's tremendous consumption. FABER: You have 104 million subscribers, there's no doubt about that. I wonder though, going back to that time, you know, 6.99, I remember the gasp in the room at the time because the price was so low. Some would say streaming is not a business that’s structured with, to make money with that low a price. Given churn, do you think that you priced it too low to begin with? IGER: No, not at all. FABER: And that has been part of the problem even though you grew subscribers so substantially, that ultimately you didn't really give it a chance to become profitable in any near term time? IGER: I was very focused at the time on achieving three things by basically by pricing it that low. One was I was convinced that the investment community, the street would measure us first on how many subs we achieved. Think I was right about that by the way. I also felt because Disney is what it is that accessibility was I think an important brand attribute. I wanted was the first time we're putting almost everything that Disney's ever made in one place, let's make it as accessible as possible to as many people as possible. And then I thought about the competitive landscape. I knew that Paramount was was cooking something up. We knew that your company NBCUniversal was and Comcast was cooking something up. Netflix has been in the marketplace. Mindful of what they were doing, I thought if we priced low, it would actually one make it a little bit more difficult for them pricing wise. And secondly, it would give us a bit of a competitive advantage in terms of signing subs. I also was well aware that we were launching with very little original content “The Mandalorian” was and “High School Musical” were two of them.  think we had five original pieces of content and it would take time. As it turns out, it took more time because of the pandemic to fill that pipeline with enough original content to justify more pricing. As I said yesterday on the earnings call, the price was taken up by $3 from 7.99 to 10.99 just recently, and we had a de minimis, de minimis churn in subs, which says that now that we fuel that pipeline with more original content. And the consumer is also I believe getting more used to using streaming as as a primary source of material that there is pricing leverage and we have pricing leverage, particularly as we continue to invest in our— FABER: But you have moved away, I mean, when it started, as you said, you were very focused on obtaining subs as quickly as possible. You did that. You seem to be moving away from that now not seem to you are I mean, you're not talking about sub growth in the same way that you were certainly two years ago or three years ago. You're talking now about profitability, and about cutting costs to get to that profit. IGER: Well, I think one of the things that happened was we we got a little bit maybe intoxicated by our own sub growth, we said 60 to 90 million subs in five years— FABER: Well so did your investors Bob. IGER: We blew through that— FABER: That took the stock up enormously when you kept exceeding those until suddenly everybody starts saying is this business ever really going to generate cash. IGER: Well, but before that we blew through that in a year. And suddenly everybody was on board with this meteoric sub rise, and that it would continue— FABER: Right. Others followed you into the market as well though at fairly low price points. IGER: And we leaned into that because it seemed like that was the primary metric that we'd be measured by. Now, we also said at the time, we'd be profitable in five years, which coincidentally is the end of 2024. We reiterated that yesterday on the call. So now as we've looked to basically becoming profitable and figured out how do we do that, it's clear to us that we do have to continue to grow subs, but it's not just about that. We have to, we have to have the right pricing. I talked yesterday about promotion, we have to have the right marketing, we have to have the right content. And if you go back to the structure that we put in place which is a direct linkage between the creative side and the distribution side, there, there is more a greater likelihood that we will have the right content. They'll make choices because they're accountable for delivering that profitability. FABER: Right. All understood. I want to, I want to actually ask a couple of questions specific to that that you discussed yesterday. You said on the call you're going to lean into franchises. You've been too aggressive in promotion. What does that mean? IGER: Well, sitting in front of this lovely poster, this company possesses and has made some of the all-time great franchises. The five highest grossing movies of all time came from this company. Two of them by the way from Jim Cameron, “Avatar” and obviously Marvel has contributed to that as well. These are stories I guess you'd call them that are very valuable globally, that are leverageable across multiple businesses of ours, that have have a long life they, “Avatar” one was just on Disney+ did extremely well. You look at the movies that we made years ago that are still performing extremely well in new platforms because there's a we say that they're evergreen in some form but because of the audiences that we make them for and that audience is constantly being regenerated literally new generations— FABER: Totally, but do you pull away from general entertainment though under this new guise where you're trying to obviously save some money? IGER: Look, I like general entertainment in the sense that there's a lot of quality there and in fact, we make a lot. “The Bear” is a great example of that or “Old Man,” what FX makes for us, what Searchlight makes for us with the just look at the Academy Awards. We want to curate that more aggressively. When I say that, that's primarily because in order for us to be more profitable as a company in this business, we have to reduce our expenses. We talked about that yesterday in order to do that you have to make some choices. I happen to believe because general entertainment is not as differentiated. And look, there are seven or eight platforms in the streaming business alone that are in general entertainment. That's a tough business to be in competitively and it's it's not our strongest suit, our strong suit— FABER: But do you worry about churn going up as a result of not providing perhaps as broad an array of programming? IGER: Well, I think there's a way to balance that. We're gonna lean even more into Disney and Marvel and Pixar and “Star Wars” and “Avatar” of course, and we've had higher returns on those businesses over the years anyway, so that makes a lot of sense. Adding to that, augmenting that with some form of I’ll call it more curated general entertainment is what we would likely do. FABER: Yesterday, you know, you talked about, sorry for all my different notes here, 3 billion in non-sports content. IGER: You get to take notes. I don’t have to. FABER: You just have to give me the answers. That’s all you get to do. 3 billion in non-sports content cuts. So that's a lot, what what is that? Where does those cuts come from and how do you maintain quality when you're cutting 3 billion in non-sports content? IGER: We can achieve that. I'm confident of that. First of all, we talked about volume, some in general entertainment, we have to look really hard at how much we've made and what's really worked. And now that we are even more focused on delivering profitability, we have to be I think more discerning in terms of basically what we say yes to. In addition, you know, technology is interesting in when it as a tool, and I'll call it the creator's hands or the artist’s hands, extremely powerful. You look at what Jim Cameron has been able to do with technology and “Avatar” or what Pixar has been able to do over the years, special effects by Marvel. When you see “Ant-Man,” you'll be blown away by it for instance. That's great because we're adding more quality to the screen. It's also added a lot of expense and I think we have an opportunity to really look at what it costs us to produce everything and reduce particularly in not only a more challenging time, but in a time where we owe our shareholders better returns on that business. FABER: Yeah. Well then when you said though, for example, that linear channels and movie theaters can provide monetization capability, again to this point, are you going back to the older model where you're actually going to produce things for other for other distribution models, other distribution schemes? Is that something that perhaps should never have not had been pushed aside? IGER: I think we've all including me spent a lot of time the last four years essentially, you know, writing the obituary of sorts of linear television. I you know, I plead guilty to that and movies. Now movies had significant displacement because of the pandemic. But, you know, recent data will show you or recent experience will show you that it's not those platforms are not gone. They actually still are somewhat relevant. “Avatar” over $2.1 billion in global sales, billion dollars. That's from a legacy platform. So it says to us that, you know, maybe we were leaning a little bit away from that too much. Now, again, a lot of it was done because of the pandemic. Now that people are going back to movie theaters, we have to look carefully at how we're bringing movies to market with an eye toward still using what is a valuable platform for this company. Same thing in linear TV. We can put programming on ABC and on FX and on the Disney Channel and on our streaming service and have a completely different attract a completely unduplicated audience so we're gonna use those platforms. I'm not suggesting that linear television is not imperiled. FABER: I mean, no. IGER: I think it is. The numbers speak for— FABER: The numbers speak for themselves. You’re down 5% in revenues in the linear cable business. IGER: Right. FABER: 16% in earnings. Obviously I assume there's fewer ESPN subs this quarter than they were last quarter or last year? IGER: Well, I don't know. I don't know about this quarter by the way. FABER: Year over year though. We know where it’s going. IGER: The recent sub we're experiencing at ESPN has been fairly decent, but yes, it's gone down since we started. When you started interviewing me it's— FABER: We've had this conversation for a very long time. IGER: It's still profitable, still important. And look, I think— FABER: But you’re not going to get ESPN, you're not going to you're not going to spin it off. You made that very clear yesterday. IGER: I did. I did. FABER: You see it as part of this company. IGER: I did. FABER: And yet— IGER: By the way, as long as it continues to be profitable, and it too needs to find a path that basically enables it to continue to deliver the kind of results that we'd like it— FABER: When you said you're going to be more selective in terms of sports rights. What does that mean? IGER: Well, again, it means saying no to things that don't deliver the value and saying yes to things that do. We're very grateful and pleased that we have a new long term NFL deal. Extremely important with more basically more product than you had before. You know, more games postseason, the SuperBowl, for instance. We've got great, great rights, license agreements in college sports. We have an MBA negotiation coming up. FABER: How’s that going to go? You’re at 1.4 billion I think a year, people say that could double. IGER: It's a very, very valuable property for this company. It's a great sport. And not only is there a lot of volume, there's a lot of quality and it would be a priority of ours to extend our deal with them. FABER: But with sports rates going up, Bob as they seem to and with the number of people paying you each month for the linear product, I mean, at what point does it get out of balance and you say, “you know what, we've got to take this thing fully over the top.”? IGER: Well, I think the model ultimately will change. It will become an over the top model. I said yesterday, I don't know when that will be. We've had conversations about it. I actually think as a so-called over the top model, a streaming model, it will be a phenomenal product for the sports fan. So it will give them more flexibility. FABER: And they will pay a lot for it. IGER: Well, I think pricing is obviously something we have to look at very carefully and you know, a combination of – or balance of pricing and how many subs do you need to have it make sense in terms of the bottom line. FABER: So one day ESPN will be sort of largely a streaming service? IGER: One day. FABER: But that day is not here. IGER: No. FABER: Do you know when that day comes? Does whoever succeeds you going to know? Like when did you just see it come in like “okay, that's it. We can't afford this anymore. We've got to try something else.”? IGER: I think if you do the math – you’ve obviously done the math. FABER: Yes. IGER: I should turn the question back to you. If you do the math, you have to – there’s an inevitability to it I believe. But I can't say when. It will – and we're not going to do something that's either precipitous or reckless in any way. We'll time it right. FABER: Speaking of math, I want to get to some numbers. I mean, the company has not been generating a lot of free cash flow. In fact, your negative free cash flow is a significant amount recently, you only did 1.5 billion last year. Is that a concern to you at all? IGER: Well, most of it has to do with Covid. Look at what happened in March of 2020. Other than streaming, every one of our businesses basically shut down – no live sports, no movie going on, our parks shut down. Our cash flow basically stopped – FABER: Although this year you’re not going to generate a lot of free cash either. IGER: We’re still recovering from that and we're still obviously losing money on streaming. And obviously that's one of the reasons why we have to turn that around. But as we said on the call yesterday, we're going to get to a point where we're going to recommend to the board a dividend at the end of the year, that suggests some confidence in our cash flow directory. And how we not only generate capital but how we allocate capital – FABER: How do you have confidence and you know when you put out a number of 5.5 billion in cost cutting, a billion of which is already underway, what gives you the confidence you'll get there to the extent you can say, “hey, we are going to reinstate a dividend.”? IGER: Well, not all the 5.5 billion in cost cutting will hit us right away because some of the content is baked in. We've made commitments to it. But we're starting today to achieve that number and to achieve the number that we set on what we call SGNA general expenses. So combination of that, a combination of continued recovery from the pandemic. We talked about our parks and resorts results as a for instance, phenomenal business for us. Higher margins. I think real growth potential in the future, including our cruise ship business where we launched the new ship and that business has been fantastic. When you look at recovery by the way, it’s an amazing story. FABER: I know, I mean, we have so many things we haven't yet gotten to including the parks, but – IGER: The only thing – look, we obviously have confidence in our ability to grow free cash flow over the – we'll call it next five years or so. Some of that will come with obviously turning a business that has not been profitable into a business that's profitable –streaming. FABER: Right, which again by the end of 2024, it will be. IGER: That’s what we said yesterday. FABER: I heard you. IGER: I haven't changed my opinion on that yet today. FABER: Good I’m glad that less than 24 hours hasn't changed. In 2024, though, there's something else coming up and that's Hulu. You didn’t get any questions about it yesterday on the call, but that could be a $9 billion bill to you if my parent company puts their interest to you as they are able to. If you were to buy that that would take your leverage up significantly. Some question whether that would be a good strategy, how do you view it? IGER: Well, first of all, our leverage is not a huge concern to us right now. Not the concern that others would suggest that it is. That said, we are intent on, over time, reducing our debt. FABER: Well you have a lot of fixed costs. I mean, you get up to leverage or four times let's say people do get concerned. You have a high fixed costs business. IGER: I would imagine that would be the time when our other businesses starting to generate more free cash flow. But I'd rather not get more specific about that. Because we're not really prepared to give any forward statements in that regard, for instance. But I've talked about general entertainment being undifferentiated. Hulu, by the way, is a very successful platform and I think a good consumer proposition. But we're – everything's on the table right now. So I'm not going to speculate about whether we're a buyer or seller of it, but I obviously have suggested that I'm concerned about undifferentiated general entertainment, and particularly in the competitive landscape that we're operating in. And we're going to look at it very objectively and expansively. FABER: If there's an opportunity, for example, then to potentially sell your interest to Comcast if Brian Roberts were interested, that's a conversation you would have? IGER: You’re leading the witness there a little bit. I said we're open – we will be open minded. FABER: I just want to make sure because I think the assumption has been that you guys will buy what you don't already own of Hulu. IGER: And I think I'm suggesting that isn't necessarily the case. FABER: Okay. It's not that far away from kind of starting to make a decision, right? IGER: Why it's on my mind. FABER: Understood. Something else that I don't know if it's on your mind or not is Nelson Peltz. We obviously had him on some time ago, taking a lot of shots at the company, although you seem to have met some of his objectives even very recently with your announcements. But I wonder Bob, why engage at all? You've got so much on your plate, a proxy fight is distracting by its very nature. Why not just say, “hey he’s one guy, put him on the board and over with.”? IGER: Well I have to ask – the question really why and why not. A number of people suggested like why not, why not just let him on the board. I think you have to start with our board. Which he has been quite critical of. In fact he has been critical of one member of our board. We have a very diverse board. Diverse in gender, diverse in ethnicity, diverse in business background. And each one of those board members comes to the boardroom with very relevant business background. You look at Mary Barra and Mark Parker and Safra Catz running big companies, global brands, complex companies in a complex world. You're looking at Calvin McDonald from Lululemon, you know, an upstart of sorts retail brand, Amy Chang and Carolyn Everson and Francis Desouza come out of the tech world. Maria Lagomasino, who is in private wealth management probably manages more money than Nelson Peltz wakes up every morning thinking about her investors for instance. She brings that into the boardroom. And then there's Michael Froman, who Nelson has come after – FABER: Yes, he has come after him specifically because of the universal proxy that kind of is the easiest way to do. Give me more votes than him. IGER: But let's look at Michael Froman as a Disney board member. His experience at Citibank, he's the vice chairman of MasterCard. He was US Trade Representative in the Obama administration, someone that I spoke with during that period of time about global trade initiatives, global regulation, a number of other issues that were extremely relevant to us at Disney and continues to be. So we have a good board. We have a board by the way that holds us accountable, that represents shareholder interest well, that challenges us all the time, that actually – and served me very well when I was CEO in my prior tenure with good ideas, with input that had real value to the shareholders of this company. So you start with there is not a need. Plus, he has not articulated either a vision or even ideas that are of particular value to us. Now some he has, but we were already working on those. And when I came in, we talked about cost cutting right away. We reorganized the company, we've recommitted to profitability and streaming. So where's the need? And by the way, just from a shareholder perspective, where's the need? In addition, obviously, I have a big job right now to contend with. And focusing my time, my energy and the time and energy of the entire team is extremely important. Disruption from a force like that is not something that would be healthy to the shareholders of this company. FABER: You surprised that Ike Perlmutter –somebody obviously, I mean, you bought Marvel – has been so involved with trying to get Peltz on the board. Is there a feud between the two of you perhaps that is fueling this? IGER: Well, I think that's a curious dynamic that I think you know, our filings indicate that both Ike and Nelson were working together to try to encourage the board or convince the board to put Nelson on the board. They have a relationship that dates back quite some time. We bought Marvel in 2009. I promised Ike the job that he would continue to run Marvel after that. Not forever, necessarily. But after that. And in 2015 he was intent on firing Kevin Feige who was running Marvel's studio, the movie making at the time, and I thought that was a mistake and stepped in to prevent that from happening. I think Kevin is an incredibly, incredibly talented executive that you know, the Marvel track record speaks for itself. And so I moved the moviemaking operation of Marvel out from under Ike into the movie studio under Alan Horn. FABER: So that created some ill will you think. IGER: Well, you'd have to ask Ike about that. But let's put it this way. He was not happy about it. And I think that unhappiness exists today. And you know, what the link is between that and Nelson, his relationship. I think that's something that you can speculate about. I won't. FABER: I want to end on a couple of quick questions, Bob. Because there's things we haven't gotten to. The animation business which has been so key to the success of this company for so long, the creative engine. I mean, the Pixar deal which sort of reignited that, do you feel like that has fallen off? I can't remember the last Pixar movie that really generated a lot of conversation, perhaps because some gone direct to consumer, but also others that have just not done as well. IGER: Well, it's interesting because Turning Red would be the last one that did well. But it was a direct streaming – direct to consumer film. Nominated for an Academy Award by the way, and it's interesting because I looked at numbers recently, it's one of the most streamed movies of the last year. So I think there has been success, it's just not the kind of success generated when a movie is taken at the box office. By the way, Encanto from Disney Animation, also very, very successful film. We actually won an Academy Award. FABER: Right. So you don’t feel like the animation businesses is not up to par? IGER: No, I think we had a couple of creative misses I'll say. That's the nature of the business. One at Pixar, one at Disney Animation. You know, we've all learned for those of us who have been in the creative side of the business a long time. You know, you have to move past that you got to process failure successfully. I love the slate that we have coming up. I spent a day at Pixar a week and a half ago and reviewed a number of projects. Talked yesterday on the call about a Toy Story 5, a Toy Story sequel. They have great original movies in development and including one called Elemental, which is coming out which is brilliant. Same thing at Disney Animation, but they're also going to make a Frozen sequel and Zootopia sequel. And they were actually working on a Moana television series for Disney Plus. So I think we've got talent, we've got the talent that we need. And we've got a pipeline that I think is really creative. And I'm confident that animation will continue to be an important business for this company for a long time. FABER: I have to wrap up but I do want to come back to succession. You've obviously indicated it is your intent to stay the two years that was outlined when you joined. How involved are you going to be in this succession process? Are the four people who are now running the key businesses here the logical potential successors? IGER: Well, first of all, it's a board-led process. Mark Parker, who's the incoming chairman of the board is chairing a succession committee like we have a meeting tomorrow on that. Their work is already underway. I will be involved with them. But again, it's a board-led process. FABER: Well, what is your role going to be? IGER: Well I think, obviously having had the job for quite a long time I think my input is valuable to them about one, what are the qualities that are necessary that the CEO of The Walt Disney Company should have for instance, we've already talked about that. I'll help them assess candidates, obviously, but it'll be their decision. I have one vote as a board member. FABER: Right. Are you going to look outside? Do you think they will look outside as well? IGER: They are going to be expansive – FABER: You guys don’t typically go outside. IGER: Well look, when I was in the process in 2004, 2005, the board looked inside at me and outside. We considered outside candidates when we made the decision about Bob. And I'm certain they will do that again. FABER: Back to that decision about Bob. Do you regret it? Are there things that have informed that decision that will help you in terms of making the next decision on your successor? IGER: This is a big complex company and a hard company to run even in good times. We thought we made the right decision when we chose Bob back in 2020. The board obviously decided recently in November, that he was not the right person for the job and they made a change. I think there are some – with anything, that any big decision that you make, particularly if it doesn't work out right, you should learn from, you know, what went wrong. And that's something the board has discussed, but I'm not going to get into those. FABER: Not going to get into what went wrong or what you may not have seen properly? I mean, the guy was working at the company for a long time. He shadowed you, you took endless trips to China together, for example.   IGER: We did. No, I'm not going to get into that. FABER: All right. Doesn't seem like a great place to end but I think we've got to. IGER: You can change the subject. I mean, you have the right. FABER: I do. Well, all right. One final question because it has come up. IGER: Uh oh. That might have been a mistake on my part. FABER: It was probably a mistake. Our exit interview. You were talking about the reasons why you were leaving. And one of them you said to me, “I wasn't listening, as well as I used to, you know, I was coming to the conclusion before I listened.” And I thought of that a few times because people had mentioned it to me and said, “well is Bob working on his listening?” IGER: We should put that in context.  I said, and I was serious about it that I felt over time because of all the experience I gained over those years and the fact that it was relatively successful run that I got overconfident in my own instincts, my own decision making and then I thought it caused me to be a little bit more dismissive of other people's ideas. And I think that was a healthy what do you call it, self analysis of some sort. FABER: It was. People enjoyed hearing that. IGER: I had the benefit of being gone for 11 months, it was a great 11 months. It was a refreshing, rejuvenating 11 months. I sound like I long for those – that time again in my life, which maybe there's some truth to that. I come back with a lot of energy, a lot of passion. I think a lot of self awareness right now. I have a great team of people in place and you know extended some of their responsibilities yesterday. I'm obviously confident in their ability to take on more. I'm an optimist at heart. I feel great about being here. I feel great about where the company is today and where I believe we'll be able to take it. FABER: Perfect place to end. Much better, much better. IGER: Better place to end. FABER: All right, ending but not over. I hope we'll do this again soon. Bob, thank you for having us. Thank you for being here......»»

Following are excerpts from the unofficial transcripts of CNBC interviews which aired on CNBC’s “Worldwide Exchange” (M-F, 5AM-6AM), “Squawk Box” (M-F, 6AM-9AM ET), “Squawk on the Street” (M-F, 9AM-11AM) and “TechCheck” (M-F, 11AM-12PM) today, Wednesday, January 18th for Davos 2023 in Davos, Switzerland. Interview with Pfizer Chairman & CEO Albert Bourla Bourla On China And […] Following are excerpts from the unofficial transcripts of CNBC interviews which aired on CNBC’s “Worldwide Exchange” (M-F, 5AM-6AM), “Squawk Box” (M-F, 6AM-9AM ET), “Squawk on the Street” (M-F, 9AM-11AM) and “TechCheck” (M-F, 11AM-12PM) today, Wednesday, January 18th for Davos 2023 in Davos, Switzerland. Interview with Pfizer Chairman & CEO Albert Bourla Bourla On China And Vaccines ALBERT BOURLA: Everybody has their own healthcare priorities and how they want to be able to control it. They have their own, apparently they have their own vaccines, they rely on Chinese vaccines and as far as I know, they didn’t ask for western vaccines, but they did ask for treatments from the west. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q4 2022 hedge fund letters, conferences and more   Bourla On CDC Investigation BOURLA: What the CDC said was they saw a signal in one small little database and as a result, they triggered a very comprehensive review of all the databases in existence and they discovered nothing. Bourla On Pfizer Vaccine Safety BOURLA: Irrelevant from conspiracy or not, we have a team that constantly does this. They are collaborating with major scientific institutions and they are doing with them and alone ourselves digging into databases and we constantly review and analyze data. It’s not a signal, although we have distributed billions of doses. Bourla On Covid Strains BOURLA: Every time a strain comes up, we treat it like it would be a suspicious strain. We start working on it. Once we discover there is, we start working on it to see if we’ll overcome protection of the vaccine. Possibility, immediately we develop a kind of vaccine just in case the authorities will ask us to do it. Bourla On RSV Vaccine BOURLA: For us, we submit it. So we’re going to get it whenever the FDA will provide this approval. We have priority review because of the strong data and the disease doesn’t have any vaccine right now. Interview with Nasdaq CEO Adena Friedman Friedman On Interest Rate Environment ADENA FRIEDMAN: I think there's still a lot of unknowns that people want to see have a little more certainty around most notably the interest rate environment and what I think we should expect is within the first three to four months, we'll have a pretty known interest rate environment. Friedman On Recession Concerns FRIEDMAN: I'd like to think that we don't actually have to plan for a recession. And it's not it's not an absolute certainty that it's going to happen. But what people really want is a known environment, right. So they want to understand their cost of capital as a company. We want to understand that in terms of underwriting investments, as an investor, you need to understand that in terms of you to model investment, and then understand what your hurdle rate is, in terms of your investment return versus your cost of capital. If we can get to that point where we have a known interest rate environment, even if inflation is still a little elevated, I think we can operate in that environment for a long time. That will allow investors to make decisions on companies to make capital allocation decisions. And I think we're gonna end up hopefully, even you know, starting a recession, but even if we live in one for a little while, we'll know the environment and that it creates a better environment for investors Friendman On The Cost Of Growth FRIEDMAN: This notion of growth at all costs is gone for some period for the foreseeable future. I, the cost of capital is real. So, money costs money and so access to capital is going to have some sort of consequence. That'll make it so companies are making more discerning investment choices in terms of how to grow and expand their business. They're going to be focused on cash flow a little bit more, I think probably a lot more. And then I think investors are going to underwrite companies that can show profitable growth or a clear path to profitability. And in that in that environment, that's a nice sustainable way for us to manage for a while and a much more sustainable market environment as well. Friedman On Digital Transformation FRIEDMAN: The digital transformation of the economy is something that's going to happen. It's happening. It's an unstoppable force. I think companies will continue to focus on that making their use of their data much more strategic, being able to leverage their infrastructure much more efficiently. And frankly, with the labor environment, they're trying to do more with less. So they want that technology, that technological transformation is real. I think that's one of the threes, right? That's the one that's going to go into three and then they're gonna have to look at what what growth pillars are really painful and as like we have three key growth pillars and we're continuing to be very bullish on us. But we have to make sure we're very efficient internally to be to have the benefit to be an investment Friedman On Blockchain And Crypto FRIEDMAN: I think that the blockchain technology continues to be something that could have really interesting, you know, for in finance but when you look at cryptocurrencies that that particular ecosystem went through a massive reckoning. And I like to say that way you kind of saw what would happen in the framework, that there was no regulation, right? It's just, you have to think about regulation is actually helping create sustainable high integrity, trusted markets. I also think about the crypto world we had, it's lost trust, it's lost the confidence of investors. So what's gonna happen next, I don't think it's gonna die. I think, frankly, there are going to be there certain cryptocurrencies that have real utility. More adults want to come into the room. And it is time for, it's time for some really trusted players to come into the space. However, the regulatory environment needs to be clarified. Interview with Accenture CEO Julie Sweet Sweet On Shaping The Economy JULIE SWEET: For us, working with emerging technologies, being ahead of the curve is what we do, and what is most interesting about this work is that because we’re doing it with not-for-profits, governments and companies, we’re actually shaping the technology at scale, and that’s, you can’t put a price on that. Sweet On Metaverse Use Cases SWEET: Consumers want to do it. 55% all say they want to do it in the next 12 months. Industrial metaverse – huge. Enterprise metaverse – I’ve already got 150,000 people going through it to onboard. First diversity fair in the metaverse starting next month. The use cases are enormous. Interview With NYSE President Lynn Martin Martin On Pipeline LYNN MARTIN: The pipeline is strong. The pipeline’s never been stronger. The power of the public market currency has never resonated more than it’s currently resonating. However, as you know and as you report on every day, we’re in a period of deep uncertainty, and that’s being reflected by the market. Market doesn’t like uncertainty. So what that’s caused is CEOs of companies looking to go public have postponed their plans, and they’re just waiting for the market volatility to abate. Martin On Coming To Market MARTIN: We’re excited about the pipeline. We’re excited about the amount of innovation that’s coming to market. We’re just really looking forward to the time when the market volatility could abate just a bit so some of these amazing companies could come public. Martin On Crypto MARTIN: I’ve long said that crypto is a market in need of regulation. We need to know what the regulatory guideposts are. We need to know what a framework is to bring this asset class under the more traditional structures that have served volatile markets, volatile periods well, and that’s more the centrally traded, centrally cleared types of frameworks. Interview with EY Global Chairman & CEO Carmine Di Sibio Di Sibo On Market Optimism CARMINE DI SIBIO: I think people are starting to think that maybe the major markets in the world are getting inflation under control. Maybe with China opening in terms of COVID, there'll be more physical interaction between individuals which will be helpful in terms of any kind of relationships, in particular on the business side. Interview With Cisco Chairman & CEO Chuck Robbins Robbins On US And China CHUCK ROBBINS: I think it’s more important from a global stability perspective more so than it is about whether I invest in China or not. I think we need the U.S. and China to find a way to compete and disagree but do it in a way that it works for the global economy. Robbins On Recession ROBBINS: Somebody asked me last night, what are you hearing from all of your peers? And I said, well publicly everybody’s being asked are we going to have a recession, and most people are saying, yeah we’re going to have a mild one. Beyond that we’re not really talking about it. And I think most people are generally over the mid-term and long-term very optimistic, and hopefully it turns out to be like Davos. If everybody’s talking about a recession, it won’t be as bad because we’re just going to be wrong. Robbins On Companies Investing ROBBINS: The pandemic taught the C-suite executives and government leaders around the world really up close and personal the power of this technology and what it can do, and I think they’re now understanding. Whether it’s connecting industrial systems to the internet or changing the way you interact with your customers, companies are investing. Interview with Georgia Governor Brian Kemp Kemp On Being In Davos BRIAN KEMP: I'm here selling our great state. I mean, we have so many good things going on in our economy. We've had two record years in a row with job growth and investment. Our mid-year numbers that I got while I was on the way out here are set to break last year's record if you take out in the Rivian and Hyundai deals which you don't get those maybe once in a decade if you're lucky if that. So we're still doing incredible even in this environment. Kemp On EV Legislation KEMP: Well when the legislation passed, it treated our Georgia based companies unfairly. You know, it helped because we're, you know, I think a right to work say I believe the legislation the way it was drawn up and passed was designed to help the union base workforce in other states. You know, we made that aware to our US senators. Before the legislation passed, we worked with the White House and them since to get some changes so that just every company that's building electric vehicles in the United States is treated fairly. That's all we're asking for. It's unfortunate that was not the case when the legislation passed and we continue to urge them to fix it. Interview with Goldman Sachs Chairman & CEO David Solomon Solomon On Consumer Business DAVID SOLOMON: We probably took on more than we should’ve, too much too quickly. But I think we now have a very good deposits business. We’re working on our cards platform, and I think the partnership with Apple is going to pay meaningful dividends for the firm over time. We have this acquisition of GreenSky. We think it’s a good business and so we’re going to give people a clearer view, there’s more transparency around how they can contribute. Solomon On Executing Goldman’s Strategy SOLOMON: We’re focused on executing our strategy. We’ve made a lot of progress over the last few years. We’ve got more to do, but I think the firm is incredibly well-positioned. And we have a business mix that’s very sensitive to capital markets activity and asset prices. We’re trying to evolve that, but we still have a distance to go and we’re working on it. Solomon On Job Cuts SOLOMON: During the pandemic for 2 and a half years, we stopped our normal process of reviewing underperformers for 2 and a half years. The environment’s changed, and we made the difficult decision and it’s kind of a reset, and I think it was the right decision, and it positions us very well as we go forward as we see the environment forward. So I hate the fact that we had to do it, but given how we’ve grown the firm and the headcount, it was the right decision to do. Solomon On Views Of Soft Landing SOLOMON: I think the sentiment is softening a little bit and the view the chance of a softer landing both in the U.S. and Europe is actually increasing. Our economists, you know, our economics team has been pretty soft landing over the last 6 months. I was more in a position because I was talking to CEOs who have been more cautious that I was more uncertain. But I see CEOs softening a little bit. Solomon On Dealmaking SOLOMON: Dealmaking has slowed a little bit, but I point you to our M&A revenues in the 4th quarter and the relative performance of our M&A franchise. We’re still seeing good performance in our M&A franchise, but it’s off the peak. Interview with Liberty Global CEO Michael Fries Fries On Broadband In The Pandemic MICHAEL FRIES: In the broadband business, the pandemic wasn't that bad to us, right? Nobody was disconnecting internet or mobile during the pandemic, they were actually looking for faster speeds and more connectivity. So we kind of did pretty well during the pandemic period. And I think, you know, we're an essential service and that's been positive. Fries On Cable TV Business FRIES: I think the pay TV business or the cable TV business traditionally has done better in Europe, principally, because streamers came later. And I think the broadcasters in Europe are actually pretty strong. Fries On Fixed Wireless FRIES: US cable guys have started selling horizons mobile product and they're having to get to four or 5 million customers, each still small. In Europe, one out of every two broadband subscribers takes a mobile product from us, I think in the US, it's 20%. So we're highly converged and we're approaching each home and each business with a fixed and mobile proposition and with equal, equal weight and equal dependence fixed wireless, which is trying to provide 5G access to the rural markets. Not as big an issue here because Europe is dense and urban. Interview with Guggenheim Partners CIO Anne Walsh Walsh On Being Ahead Of Market Peers ANNE WALSH: We’re a little ahead of our market peers in terms of our viewpoint. Our market peers are sort of anticipating a recession maybe at the end of 2023, maybe into 2024. But we think that this quantitative tightening, which is both a combination of rate hikes, which we anticipate the Fed will continue. Certainly the market has priced in 2 25-basis-point rate hikes this year still. And of course the addition of the quantitative tightening coming from the reduction of the balance sheet will also help to drive down prices further. So all this is sort of feeding into our narrative for this year. Walsh On Time To Reposition WALSH: I think this is a time to reposition portfolios. As a long time fixed income manager, there’s one thing the Fed has done for us, and they put the income back in fixed income. So right now, there’s a very good time to be in investment-grade fixed income relative to equities. Equities haven’t repriced yet, and as we go through a recessionary timeline, we will see that. But certainly right now, the fixed income story is a good one. Interview with Carlyle Group Co-Founder & Co-Chairman David Rubenstein Rubenstein On Inflation Concerns DAVID RUBENSTEIN: I think the Fed has telegraphed that it's likely to do 25 basis points at its February meeting, and they haven’t telegraphed it but it’s probable that they'll do maybe 25 in March and then I think they'll pause for a while and see what the impact is. And hopefully by the end of the year, they might be able to do the reverse and actually begin to lower rates. That's the hope. Rubenstein On The Best Time To Invest RUBENSTEIN: In my own view is that the best time to invest is when there's some uncertainty or when the economy is seen to be a little bit nervous in terms of where it's going. That's the best time to invest. It’s not when the markets are going this way. RUBENSTEIN: It's a good time to invest now because I think the markets are not going to see another 20% drop in public prices. I think that's probably past us. I think we're probably coming back to the point where people are gonna feel very comfortable investing at least in my view. I think prices between the sellers and buyers are still a big gap and because the sellers are are afraid that— ANDREW ROSS SORKIN: They're holding on. RUBENSTEIN: Right and the buyers don’t want to look stupid by buying now but there's too big a gap and it's that is a bigger problem than anything else right now. Rubenstein On Congress RUBENSTEIN: I do think that in terms of fiscal policy, Congress is not likely to default in my view, they will go right up to the end. And then at the end, somebody will plank and I think that's probably a good thing. The markets are not going to want to have a default. We've never had a default. I think that's not a good thing. And I think we shouldn't be playing chicken but I think— Rubenstein On China RUBENSTEIN: When you change your government policy, you can't do it overnight so quickly. All of a sudden, it looks like you were making a mistake before. So you evolve. And I think the Chinese government is now evolving from a complete Covid shutdown to the kind of more different different Covid policy. I think they would like a better relationship with the United States and they are astounded that we think they're going to invade Taiwan sometime soon. They just don't think that's in the cards for them. So I don't think they are against having a better relationship. The real problem, I think, is the US doesn't have a situation where we can get into a better relationship with China without causing all the Republicans to be upset with Biden and vice versa. Interview With Uber CEO Dara Khosrowshahi Khosrowshahi On Consumer Spend DARA KHOSROWSHAHI: Consumer spend remains strong and a lot of people are thinking about, oh, there’s a recession coming, etc., there’s demand weakness. We obviously haven’t announced our results, but generally I’d say across the world the consumer stays strong, and we’re a consumer company in terms of demand. Khosrowshahi On Uber Drivers KHOSROWSHAHI: We need more drivers. We are now the single largest source of work in the world. There are 5 million drivers. Not gig work. Work in the world. There are 5 million drivers on our platform, and we could add another 500,000 drivers tomorrow and they would have work, so we absolutely need to add drivers. Khosrowshahi On Inflation KHOSROWSHAHI: At the same time, 70-80% of drivers who are joining the platform are saying that one of the reasons they’re joining the platform is because of inflation. It is because of cost of living and earning on Uber is helping them buy their groceries or otherwise continue to live their lives. Khosrowshahi On Volatility In Earnings KHOSROWSHAHI: There’s volatility in the earnings. You have good days, you have bad days, there are good situations, etc. And if we can remove some of that volatility, which means benefits, minimum earning standards, etc., we can actually make driving more attractive. Interview With Moderna CEO Stephane Bancel Bancel On RSV Vaccine STEPHANE BANCEL: So pre-Covid in 2019 if you look at the respiratory viruses that drove specialization in the US and around the world, RSV was number two. It's not very well known. It used to be not tested. And because there's no vaccine, nobody really talks about it. There's a flu vaccine, of course, as you know, and so as we just looked at the impact on the world, hospitalization and death, we need to find a solution. And so we deployed the mRNA technology and actually if you look at one of the amazing things about this technology is we started with Phase I for the RSV vaccine in January 2021, just after the COVID-19 vaccine was approved and here we are just 24 months after, we are now seeing Phase III positive data. Bancel On How Covid Is Handled BANCEL: I think governments and industry have to work together. We're, of course, the scientific and academic community to figure out how do we educate people? How do we share the real-world evidence? Bancel On Combining Vaccines BANCEL: We're trying to combine them so we currently have in the clinic Covid booster and flu booster in one dose. Covid booster, flu booster and RSV also in one dose because I agree with you when we talk to consumers, people don't even remember now did I get a Covid shot this winter or the flu shot? Think about when you had third one- for people who are 50 or 60 years old. Interview with Illinois Governor J.B. Pritzker Pritzker On Crime J.B. PRITZKER: Crime is coming down gradually in the city and across the state. It’s going to take a little while. These things don’t come down immediately. But it’s getting better. Pritzker On Jobs And Business PRITZKER: We’re in a much better fiscal situation in the state and a much better position to help businesses. It has not been a high tax state. 4.95% individual income tax is not a high rate. We’re not raising that rate. The rate has remained steady. And we’re attracting jobs and business to the state. Interview With Coca-Cola Chairman & CEO James Quincey Quincey On China JAMES QUINCEY: What matters to our business is the mobility of consumers in the country. Obviously there’s an increase in mobility so that’s going to be good for us. Chinese New Year is a couple of weeks away so we’re going to have to wait and see how that all plays out. We typically don’t know how the end of the year start from the beginning of the year has gone in China until we get past Chinese New Year because it’s such a big occasion for them and with the reopening it’s a little confused so we’ll see. The trajectory of them reopening I’m sure will be very like the U.S. and the European reopens. Quincey On Consumer Stress QUINCEY: Cleary there’s consumer stress you cannot go on long when inflation runs ahead of wages without consumer stress. That happened in the U.S., happened in Europe. Our focus has been we’re going to past on the cost increases come through, whether from services or commodities or other inputs. Of course, we try and adapt our packaging strategy to give the consumers the price point that works for their pocketbook.   Quincey On Commodity QUINCEY: We’ve seen commodity pressure slightly reduce. Obviously, we’re a large corporation, large system so we hedge forward so sometimes commodities come up and then come down but the underlying price is still higher today than it was necessarily before. Quincey On Inflation QUINCEY: The inflation has moved to the service sector, to the wage sector and so some costs are slowing down and some are ramping up if you like, but overall, I think everyone’s expectation is that the inflation pressure will soften if only we’re going to start comparing to the high numbers from last year. Quincey On Having The Right Portfolio For Consumers QUINCEY: The number one thing about us is there is no silver bullet. What’s really working for us is having the right portfolio for the consumer and backing it up with the market and innovation. Interview With Mastercard CEO Michael Miebach Miebach On Consumer Resilience MICHAEL MIEBACH: The consumer has been resilient so that’s the headline. And if you peel the onion a bit, what you generally see is depending on the country, the inflation is clearly a trend that is global, but the impact on the consumer has been different country by country depending on policy reactions. Miebach On Credit Delinquencies MIEBACH: If you look across the industry, we talked to our financial services partners, banks and the like, we are still finding our way back to pre-crisis delinquency levels on the long-range normal so it’s still in below average territory. Miebach On How Inflation Is Affecting Business MIEBACH: Medium, short-term, moderate inflation has been good for our business because it raises the overall volume but this is, this is the kind of impact on a business you don’t really want as you look at having a sound economy. Miebach On China MIEBACH: Northeast Asia has been shut and now it’s starting to really gain a lot of momentum. So I think we should all look forward with optimism on what that will do for a global economy. We have seen the last few years, wherever travel restrictions have been removed, people just travel they go and they go out and we expect the same thing here and it’s going to be big volume. Miebach On Blockchain MIEBACH: We have been bullish on blockchain technology and what it can solve so that’s really where our investments went, where we went out to the market to partner with banks and so forth and see how we can further optimize cross-border payments, make them cheaper, more effective, things like that. That’s where our focus was, so the noise that we have, unfortunate noise in the crypto winter, and those are things that we are staying close to to make sure that we protect Mastercard holders there. But, it’s really the focus on technology and what can it do......»»

Jordan Peterson: Enemy Of The State Authored by Jeffrey Tucker via The Brownstone Institute, The famed psychologist and scholar, and global media personality, Jordan Peterson is being told that he must report to the Ontario College of Psychologists for re-education or else lose his license to practice. He is challenging the order in court, for whatever that’s worth. No question that this follows his aggressive questioning of the whole of the Covidian agenda, including mass forced vaccination of the population. It’s hardly the first time he has gotten in trouble with the powers that be. His initial fame came from his brave refusal to acquiesce to the “preferred pronoun” movement in Canada that came before lockdowns. That he is now ensnared in the machinery of the biomedical security state is predictable; this is today’s means by which regime enemies are punished and silenced. It so happens that I heard Jordan speak in Budapest only months before the lockdowns that coincided with his own grave problem that he encountered with prescription medicine: as with many he was misled about what he believed was a simple medication. The timing was a tragedy because it took him out of the space of public intellectual life right when we needed him most: during the early months of lockdowns. His voice went silent during these times. It was heartbreaking. The very small resistance continued despite his incapacitation. Once he got better, he gradually became aware of what had taken place and then became ferocious, as any thinking person must. Thus his current issues with the authorities. Looking back at this date, it seems almost like he saw what was coming. In those months before lockdowns, I wrote the following report on what I saw in Budapest. *  *  * Almost from the first words of his outdoor lecture in Budapest, Hungary, held in the courtyard of the St. Stephen’s Basilica, Jordan Peterson’s eyes teared up and his voice cracked with emotion. Not just once. It happened repeatedly. His eyes never entirely dried. The audience could see it all because of the cameras and the huge monitors that made him some 25 times life-size, which is pretty apropos to his status as an intellectual in this part of the world. Indeed, in most parts of the world. Tonight was interesting, however, because his tears were clearly not performative in any sense. It was a show of extreme vulnerability that he surely hoped that he would not show. He strikes me as a deeply emotional person—a temperamental cryer—who has probably practiced a lifetime to stop this. It didn’t work this time. Before long, during his impassioned presentation on behalf of the dignity of every individual and the responsibility of living a life of truth, audience members too were tearing up in the midst of the awesome silence that fell over this massive crowd during the hour-long presentation. He never quite got around to explaining his emotion. I think I can, however. So here is my go at it. The first issue had to do with his introduction in this hugely dramatic space, which was filled with flares and fanfare and oceans of love from those who gathered, not just people with tickets (which were hard to get) but an equal number behind the barricades, extending as far back as one could see. It was impossible not to view this as a show of incredible affection for the man, his work, his influence, his personal courage, and his message. The crowds and the anticipation were overwhelming. Now, if you are Peterson, you would have to contrast this scene with the raging nonsense you will read about yourself in the mainstream press, to say nothing of the academic literature along with various left-wing hit sites out there who routinely twist anyone’s words to confirm their wild narratives. His every word is picked apart, his footnotes followed, his analogies deconstructed in an unending game of gotcha in order to put him into some kind of predefined political category for easy dismissal. For the easily led, he is a target. For the witch hunters in media and academia, he is a convenient scapegoat. Within the academy, he is the object of unrelenting envy. In the face of all this, including campus protests and media hectoring, he has been steadfast and brave, refusing to be intimidated and instead using the attention to get his message out there. To cut through all this nonsense, and like and appreciate him in any case, already marks you as being in possession of a discerning mind, a rebel against conventional wisdom. Apparently, there is no shortage of such rebels. The crowds—I don’t have an estimate but there were 20,000 people at the Brain Bar event at which he was a main draw—might have seemed to him as a tribute to the resiliency of the human spirit. That people were there at all, seeking not a confirmation of political bias but rather to gain a greater sense of personal purpose, shows that the powerful in this world cannot finally rule the day. He is just one man with a message against the world’s most powerful voices in media, academia, and government—and yet through ideas alone, beginning as nothing but one man in a classroom, he has become the world’s most influential public intellectual. As for his emotion this night, Jordan probably felt a deep sense of gratitude for being the recipient of this affection and for his place in inspiring people to become intellectual dissidents. That is enough to cause tears of gratitude. There is far more that overwhelms you about being in this remarkable and indescribably beautiful city. The history is deep and rich and present everywhere you look. There is drama within eyesight of anywhere you stand. The Danube river and bridges, the castles, the stunning Parliament building, the churches and universities, all of it, are not dusty old monuments but currently in use amidst a teeming commercial life that is equal parts old and new. The whole city also feels extremely young, similarly today to what it might have been like in the late 19th century, in the last years of the Belle Époque when Budapest’s cultural and commercial life rivaled Vienna’s. It’s a magical place, as delightful to visit as anywhere on the planet, in my view. But what you see is only on the surface. The scars of this city are extremely deep, having been put through astonishing traumas of totalitarianism of the left and right, the bombings, the terror and cruelty and poverty—the experience is not that far back in history. It was tyrannized by Soviet occupation twice, first after World War I and then following World War II, between which it experienced Nazi occupation and devastating Allied bombing that destroyed its infrastructure (all of which has since been rebuilt). And yet you can walk the city and not see this deep suffering overtly. The city, which wears this grim past lightly, is a tribute to the survival of hope in the face of overwhelming forces that sought to destroy it. The city lives. It thrives. It dreams anew. In addition to being a psychologist, Peterson is also a historian of totalitarianism. There are ways to read history as a dry reportage of events. That is not how he reads history. Good historians recount events. Great historians tell stories as if they lived them. Peterson is next level: he has sought the inner philosophical and psychological turmoil that shape history through the moral choices of both the oppressed and oppressors. He seeks to understand the inner horror from the point of view of human nature. As he exclaimed in a slightly terrifying moment, he has read about the history of Hungary and totalitarianism “not as a victim, not as a hero, but as a perpetrator.” What he means is that we must come to terms with evil not just as something external to ourselves but as a force deep within the human personality itself—not excluding our own personalities. What character traits do we need to acquire, what values do we need to adopt, that can prepare us to resist when evil invites our participation in violence and terror? He never stops reminding us what we are capable of doing both good and evil, and urges that we steel ourselves to live good lives even when it is not in our political and economic interests to do so. So here we were in St. Stephen’s square outside the great Basilica, packed with young people there to hear his message, in this remarkable city, a tribute to the resiliency of the human personality in the presence of one hundred years of oppression and violence. And yet there we were in this year, an age of hope, everyone given yet another chance to get it right, to live well, to treat others with dignity, to build peace and prosperity yet again. The look on his face, and tears in his eyes, seem to suggest to himself and others: we can do this. We will not give in to evil. We can be strong. We can learn, build, and achieve. Against all odds, he has emerged as a leading voice to add to the possibility of success in our times. I’ve heard Peterson live before and, like you, watched many of his speeches and interviews on YouTube. I can tell you, I’ve never heard anything like what he said on this evening. It was for the ages. The latter part of his presentation was lighter, with some very charming “one-minute therapy” sessions on stage with audience members that variously turned profound once again. And here is what is amazing: you discover that the real core of Peterson is not his political outlook or his role as a cultural pundit, historian, or philosopher but his professional training as a psychotherapist, just one man there to help one individual find a way forward through the terrifying struggles of life. Through technology, he finds himself in the blessed role of serving millions of willing readers and listeners. Even now he can’t possibly know the full impact of his influence. I suspect, for example, that he is unaware of the crucial role he played in American political life when only two years ago, young men were being drawn to the invidious politics of the so-called alt-right as an alternative to the false moralism of the social-justice left. They were drawn to his brave stances against speech controls, but he knew better than to side with any mob on either side of the extremes. He schooled even his new fans in the evils of every brand of identity politics—and the moral urgency of universal human dignity—and justly earned the wrath of alt-right leadership. Thus did he contribute to saving a generation from perdition in extremely volatile times. For this, he deserves the gratitude of every genuine liberal, but, so far as I know, he has never been publicly credited for this achievement. “Ego Sum Via Veritas et Vita,” read the sign above the entrance to the Basilica. I am the way, the truth, and the life. The sign reminds us of the universal hunger to find direction, purpose, meaning, and redemption in the midst of the chaos and anomy of the historical narrative. Peterson is not a religious man but he respects its ethos and contribution. This night he became a preacher of goodness, of civility, of moral strength in the face of struggle. The poetry of it all, and the promise that goodness and decency can prevail, was manifest in the crowds and the city right here, this night, in Budapest. It combined to inspire him to find the fullness of his voice. And this is why he cried tears of joy. *  *  * Soon after this presentation, Peterson was in the hospital in recovery at the same time the world of freedom and rights fell apart. He woke to a different world. He began to fight again. And here we are, exactly as he predicted: he is the enemy of the state. He has spent his entire professional career not only as a scholar and therapist—really a genius—but also as a resistor and a bringer of light in dark times. Tyler Durden Tue, 01/10/2023 - 23:25.....»»

Luongo On 2023: Biden Impeached, Riyal De-Pegged, & Fed Terminal Rate Closer To 7% Authored by Tom Luongo via Gold, Goats, 'n Guns blog, Consider this, Consider this the hint of the century Consider this, the slip, that dropped me to my knees, failed. What if all these fantasies come flailing around? And now, I’ve said…. too much - R.E.M. – Losing My Religion I probably should have codified these before the turn of the new year but I didn’t even think of doing one of these lists until someone mentioned it on Twitter a few days ago. So, here it goes.   My predictions for 2023 and all center around the big theme of 2023, the loss of confidence in the world we’ve always known. In other words 2023 will embody the phrase we use down here in the South, “Losing my Religion.” 1)  Inflation will return with a vengeance.  What we’ve experienced so far came from the big commodity pump-and-dump post-COVID.  Commodities went through a massive run as more money chased broken supply chains in 2020-21. Then in 2022 the inevitable bust happened, but left us with commodity prices across the board at levels which used to be resistance on the long-term price charts which has now become support. The next round of commodity-based cost-push inflation will mix dangerously with the growing realization that we can’t avoid things breaking.  There will be no ‘soft landing.’ The hard landing may not happen in 2023, but the set up for it will certainly take place.  Cost-push will mix with Loss of Institutional Confidence to light the fire of real inflation versus tangible assets in a way we haven’t seen since the late-1970’s.  We should see a return to increasing YoY CPI levels beginning in Q2 after the baseline effects are past and China’s reopening keeps a bid under commodities. January will not set the tone for commodities in 2023, but more likely be a ‘false move’ overcorrecting against the primary trend, which is clearly higher. 2) The Fed’s terminal rate is closer to 7% than the ~5% the markets are handicapping. The Fed hiked by 50 bps in Dec.  The markets are signaling 25 bps on Feb. 1st.  I think it will be another 50.  In fact, my base case now is four 50 bp hikes followed by four 25’s by December for a terminal rate of 7% by this time next year.   Even I was surprised by the violence of Powell’s hawkishness in 2022.  He did what I wanted him to do, be aggressive and attack the source of Davos’ power, the leveraged offshore dollar markets.  He forced out into the open the unsustainability of a weaker dollar based on the clown show on Capitol Hill being worse than the real collapsing governments across Europe. Powell’s plan has worked so far, forcing everyone to climb the wall of worry that The Fed Put is dead. That so many refuse to accept this is why markets this January, like last January, are completely mispriced. Until this is accepted, Powell will use every excuse to keep raising rates as fast as he can to ‘finish the job.’ Today’s job’s number and unemployment rate support this. Revised Q3 2022 GDP at +2.6% is another. The market keeps wanting to believe in a 5.25% to 5.50% terminal rate for this move. But if I’m right about #1 and structural inflation returns in Q2, the Fed will not slow down until we reach near parity with, of all people, the Bank of Russia. Rising inflation makes this prediction a slam dunk 3) The Euro will collapse to $0.80 or lower The ECB is trapped.  It can’t accept higher rates but it can’t afford for the euro to collapse either.  A falling euro means energy input costs skyrocket in real terms.  While a zombie banking system and Sovereigns in debt to someone else’s eyeballs (e.g. $1.1+ trillion in TARGET2 liabilities) see budgets blow out with higher debt servicing costs. ECB Chair Christine Lagarde bought herself some time in 2022 with the TPI — Transmission Protection Instrument — and some big moves to subvert the UK government, putting Brexit on the ropes.  She’s behind the inflation curve worse than Powell is.  But she can’t attract capital today without big rate moves, Powell’s beat her to that punch. Ultimately, Lagarde will protect credit spreads while letting the euro go. The EU still believes it can bolt on more problems like the UK and now Croatia (#20 in the euro-zone) to stave off the collapse of the euro by expanding its reach. We ended 2022 with the euro ‘painting the tape’ at $1.07. It’s already given us a preview of the volatility we should expect in this first week of trading. The Eurocrats in Brussels still believe in the EU’s inevitability, not because it is true, because they have to. The EU is a religion to the political class of Europe and its Davos paymasters.  They, like real communists, see this period as the end-state of capitalism and that the dialectic is true.  History was written, as it were. They are wrong.  And the beginning of the end of the European Union starts in 2023 with another 20% to 25% collapse of the euro. 4) The War in Ukraine Will Continue Dangerously The West is suffering under many illusions about what’s going on in Russia and, by extension, its war in Ukraine.  The UK/US neocons believe, like the EU, that history is already written about Russia’s future –balkanization and collapse. All pressure that the West places on Russia only exacerbates their demographic time bomb.  China’s as well.  And in that sense this is the race they are running.  Can they grind up enough Russians to ensure that even if Russia wins the war in Ukraine the West wins because the long-sought breakup of the USSR/Tsarist Empire will be achieved. For this reason neither the UK/US Neocons nor Davos believe having a reverse gear vis a vis Russia is the right play.  This is their strategic vision, regardless of the costs to the West itself. For Russia there is no other play for them but to continue increasing the costs on the West.  The longer the war goes on the deeper divisions within the EU get.  Those divisions then drive even more animosity within the Eurocracy towards the Brits and the Yanks, who some feel are taking advantage of the situation. When as ardent an Eurocrat as Guy Ver Hofstadt is now frothing at the mouth about the costs of sanctions, you know the Mafiosi in Brussels are getting nervous. They are beginning to crack under the strain of this war of financial and political attrition Russia is so good at playing against its European partners. Even though I’ve argued strenuously that the EU leadership walked into Ukraine with its eyes open, the 2nd tier of the Eurocracy did not.  And those are the ones having cold feet now and who the Russians are hoping will drive a pivot from Davos off Ukraine.   At the same time, expect Putin to keep opening up new fronts for the US/UK to deal with, see my next point. The UK/US Neocons’ only play, then, on the battlefield then is further escalation to the brink of a nuclear exchange, which these insane people think they can win. The other option is assassinating Putin in the hopes that Russia goes mad, nukes someone and that justifies the unthinkable. Either way we’re inching way too close to midnight for my tastes. 5) The US Will Leave Syria in 2023 The recent meeting between Russian, Syrian and Turkish Defense Ministers paves the way for a similar upcoming meeting between the three countries’ Foreign Ministers.   Once that happens, Syrian President Assad and Turkish President Erdogan will presumably sit down with Russian President Putin and end Turkiye’s involvement in Syria.  This will hang their pet jihadists in Idlib out to dry and leave the US forces there heavily exposed.  We’re already seeing them come under rocket fire though you’d never hear about this in the Western press.  I went over this in grave detail in a recent post. By making the deals with Erdogan over becoming the new “Gas Hub” into Europe, Putin has effectively done to the US and UK what they always try to do to Russia, open up another front to distract it from the main problem, i.e. Ukraine. Now Syria becomes the 2nd battleground for the US to decide if it will defend or will it suffer another ignominious retreat like Afghanistan?   6) De-Dollarization Will Accelerate / USDX Will Rise. Along with the collapse of the euro, the US dollar will lose more ground in the global payment system for international commodities and trade.   These two dynamics will create a very weird moment where the USDX — the US Dollar Index — will rise but the US dollar will be under sincere pressure vs. gold, commodities, and other rising emerging/developed market currencies. The USDX is heavily weighted towards the euro and the British pound but the Chinese yuan is not represented at all.  So, from one perspective the US dollar could be in a bull market but from another be in a bear market. The one thing holding gold back has been its lack of bull market versus the dollar. It’s not a ‘secular’ bull market in gold until it’s rising versus all currencies. Even if the USDX does nothing but hold its ground in 2023 versus the rest of its fiat competition, a rally in gold will still be fed by people the world over ‘losing their religion’ with respect to the dollar. That said, that fall in faith will likely not outpace the fall in faith of the “Fed Put.” I expect the ‘religion’ of the Fed Put is still stronger than the dollar itself which should put upward pressure on the US dollar overall. Because, let’s not forget that overseas US dollar synthetic short positions, known as US dollar-denominated debt, are still pretty biblical in size, keeping a strong bid under the dollar globally even as its position as a reserve and trade settlement currency erodes. Because of all of these competing forces — inflation, de-dollarization, war, etc. — the last US dollar bull market for the foreseeable future should be on tap in 2023.  For how long? It’s a good question, I can’t answer.   But I do know that it’s tied to #7 and to the Fed’s need to keep raising rates… 7) Saudi Arabia will de-peg the Riyal  In fact, I also expect the Hong Kong Dollar peg to fall, but maybe not in 2023.  It depends on the strength and rate of internationalization of the Chinese yuan this year. Oil prices are going higher once China’s economy is past the Omicron 2.0 wave crashing over it right now. The Saudis have been tendered the offer by China’s Xi to begin weaning itself off the US dollar.  Crown Prince Mohammed bin Salman seems agreeable to this.   When (not if) the Saudis put their first oil tender up for bid in Shanghai, that will signal the end of the currency peg that created the petrodollar.  It will be a subtle thing that will gain steam over time, just like Russia and China diversifying their holdings into each other’s debt and currencies has taken years to develop. So, the petrodollar will continue to die by a thousand cuts.  The Saudis will lead OPEC+ out of the US dollar arena, validating both China’s onshore futures markets while also moving a significant amount of the gold trade away from London to Hong Kong. By hedging their oil profits in gold on China’s international exchange they strengthen both the onshore (CNY) and offshore (CNH) yuan markets and laying the foundation for a much different financial future, including one where the Hong Kong dollar either floats or re-pegs itself to the yuan, likely the former. 8) Oil will Open 2023 Near the Yearly Low The fundamentals for oil are truly bullish.  China ending Zero-COVID just after the EU put its idiotic price cap on seaborne Russian oil was a strategic move to subvert “Biden’s” wish to refill the now nearly depleted US Strategic Petroleum Reserve at or below $70 per barrel.   He may get that from domestic producers for a while.  But Brent ended 2022 at $86 and a little downside momentum may be in place with early US dollar strength, but then fundamentals easily overcome this. “Biden” will not refill the SPR at $70 per barrel now that China just blew up the entire “deflation through higher rates” narrative.  The US economy has held up better to the Fed than expected.  Even Q3 GDP wasn’t uniquely terrible. The jobs report and low unemployment rate, while possibly artifacts of a changing labor market, still give us signals that the US economy isn’t as bad as many want it to be at 4.5% Fed Funds Rate to validate their place in the commentariat. Europe is getting a small reprieve with the extremely mild winter so far, pushing energy prices down, especially natural gas, for now. The global recession talk is vastly overblown until something fundamentally breaks. Anyone looking at the end of the year book squaring in things like the Reverse Repo balance (+$300b in one week) is overthinking the problem. The banks are allowed to tailor their reserves to present whatever quarterly numbers they want. It’s been going on since the Bernanke Era. As such, I see a kind of perfect storm for oil here.  Russia will pull production off the market and shift exports from St. Petersburg (Urals grade) to Kosmino, near Vladivostok (ESPO grade), nabbing higher prices in the long run. Arab OPEC can’t hit its production quotas as it is and China’s reopening its entire economy. The Davos demanded ESG investment protocols have the oil industry anywhere from $600b to $1trillion underinvested in exploration and production and that number is rising. Increased demand, tight supply, low replenishment investment and WAR.  Even a moron or Joe Biden can see that $70 per barrel Brent is out of the question for any significant period of time. 9) Dow Jones 40,000+ As we enter 2023 the Dow Jones Industrials sit right around 33,000.  It was a tumultuous 2022. After hitting a new all-time high a year ago at 36952.53 it was all downhill for most equity indices. The stronger USD fueled a lot of capital reorganization, interest rates were finally forced higher by the Fed and incessant talk of recession kept everyone selling first and asking questions later. But in this ‘pivot-obsessed,’ low pain environment, relief rally after relief rally was snuffed out until finally in Q4 the Dow made everyone stand up and take a little notice as to what was happening… flight to quality into tangible assets with deep liquidity pools. The Dow lost 8.7% in 2022.  The S&P 500?  15.8%.  The NASDAQ?  27.7% For all of the bitching gold bugs did in 2022, gold was up 1.6%  If we begin to move into the next stage of stagflation (#1) then the Dow will continue to outperform the broader US equity markets as well as major foreign equity markets. 2022 Foreign Performance: German DAX in 2022: -9.2% Euro Stoxxx 50: -7.2% FTSE 100: 1.2% Are those indexes sustainable given the economic outlook for Europe and the ECB following the Fed up the rate curve lest everyone ‘lose their religion’ in it? Or will the still weakly expanding US economy look more tasty to global investors and the hopeless Brits look insanely overvalued? If we have another year like we did in 2022 where high inflation outpacing nominal growth drives tangible asset investment we should see an outperformance from the US vs. Europe as the currencies collapse and the ECB’s tools prove inadequate. Emerging Markets, depending on their proximity to China and the US may have banner years, especially those that underperformed in 2022. 10) Biden is Impeached This looks like the long-shot of 2023, but I think we are very close to the moment where Sen. Joe Manchin (D-WV) goes one step further than Kyrsten Sinema (I-AZ) and not only leaves the Democrats but flips to the GOP, giving them the outright majority in the Senate (50-49-1) Even though Kevin McCarthy didn’t lose his bid for re-election as House Speaker, which has turned CSPAN into must-see TV these past few days, the fight itself is indicative of serious change coming to Capitol Hill. This is the essence of the ‘counter-revolution’ in the US I wrote about a few weeks ago. The soft underbelly for Biden at this point is FTX and divulsions of the US Gov’t’s censorship activities on Twitter.  All of these things, along with corruption in Ukraine, can easily be tied back to Biden.   The majority of people are so black-pilled at this point that they believe nothing will ever change on Capitol Hill.  But the first rule of good investing is remembering that the majority is almost always wrong. And it is the sudden realization of their real power by a critical mass of people that alter the landscape literally overnight. So, while it looks like Matt Gaetz (R-FL) and Lauren Boebert (R-CO) tilted at windmills against a terminally corrupt Uniparty, they are simply fanning the smoldering embers of long-thought-dead principles on Capitol Hill. This was the subject of my latest podcast with Bill Fawell, the state of the revolution in the US. {N.B. Bill and I discussed his Cycle of Revolutions in Episode #110 last summer} And when you read the rules deal that McCarthy signed to get elected, this is a recipe for the weakest Speaker from a Uniparty perspective we’ve had in decades. It’s a win. A small win but a win nonetheless. Since the mid-terms, this transition period has exposed yet even more malfeasance by GOP leadership and the natives are more than restless.  They are angry.  There is no appetite for what the GOPe is selling (out) anymore.   The façade of the two-party system is over.  The 2024 election cycle begins in a few months and the mood of the country will tell you which of those up for re-election that will happily cross party lines to save their skins. It still leaves open the idea of Donald Trump swooping in after McCarthy tries to betray this deal. Matt Gaetz told you the plan when he nominated Trump from the floor. Embedded in the deal crafted are sincere nods to exactly the kind of signals to fiscal conservatism – halting the budget at FY 2022 levels, balanced budget in 10 years, 3/5ths vote on tax increases, etc. — that I’ve argued is needed to back up Powell and the Fed’s monetary tightening. Congress has a bigger wall of worry to climb to regain its credibility than the Fed does, but this is a good first step. It’s the step the world wants as well. Whether it will hold together or not is absolutely up for grabs. But more weakening of the Uniparty in the coming weeks sets the stage for getting rid of Biden and the rest of the vandals on Capitol Hill. There are a ton of ‘manilla envelopes’ being passed out right now. There is a lot of arm-twisting and overt threats happening. The Davos Mafiosi on The Hill will call in every marker.  We will see a lot of surprising behavior from unlikely sources in 2023.  The energy is there for something big and the incentives are lining up. Sacrificing “Biden” on this altar may be a small price to pay. In closing I want you to remember that few of America’s “enemies” want the US to collapse in a disorderly manner, not even China.   Davos is the only one with that agenda in mind because it fuels their megalomania. The strident anti-US commentariat is a curious mix at this point of shills for foreign powers, egoists who can’t bare to be wrong, and anti-capitalist ideologues talking their book.  The thoughtful are few and far between and I fear they’ve been gaslit into making huge analytic errors about what’s really going on. But when you think through what’s happening right now, everyone wants a rational, less arrogant US to settle down, accept a smaller piece of the future pie, and get back to business.  Our criticisms leveled at both Europe and the US is their colonial behavior and their imperial attitude.   So many will ‘lose their religions’ in 2023 that the changes which come will blindside people, including me.  Honestly, looking at this list, I think many of these predictions err on the side of caution. That’s the core issue driving all of these trends and my predictions stem from it. *  *  * Join my Patreon if you are the change you want to believe in. Tyler Durden Sun, 01/08/2023 - 11:30.....»»