0:00

M. This

0:02

is Mesters in Business with very

0:04

Results on Bloomberg Radio.

0:09

This week on the podcast, I have an extra

0:11

special guest. BoA's Weinstein

0:14

is the founder of SABA Capital,

0:16

of five billion dollar hedge fund that

0:18

specializes in some really interesting

0:21

types of trading um credit

0:23

to fault swaps, tale protection, volatility

0:25

trading UH. SABA is one of

0:27

the five largest investors globally

0:30

in spacts, but not in

0:32

the way you think they've done really well with

0:34

it despite all of the troubles

0:36

that spacts have seen. Previously,

0:39

he was co head of global credit trading

0:41

at Deutsche Bank, and ultimately

0:43

he and Deutsche spun out SABA

0:46

along with his whole team as

0:48

a standalone funds

0:50

man. I don't even know where to begin. This was

0:52

just an absolutely fascinating

0:55

conversation. Not only

0:57

is he a quant with some real insight

1:00

into capital market structures

1:02

and valuation and miss pricings,

1:05

but he's put together an amazing

1:07

track record, uh, not just

1:10

in terms of his trading, but

1:12

his consistent ability to find

1:15

parts of the markets that are

1:17

completely miss priced because people

1:19

fundamentally misunderstand

1:22

what's going on there. Really just

1:24

a fascinating guy, an amazing conversation

1:27

with no further Ado, my conversation

1:30

with BoA's Weinstein of Sabba Capital,

1:33

Hi, Barry, it's great to be here. And am

1:35

I pronouncing your first name correctly Boas?

1:38

Depends where you're from in these parts, that

1:40

would work, and it's really a typical

1:42

Israeli name and it would be Boas alright.

1:45

So so let's start with um

1:47

your background, beginning with you

1:49

started to play chess when you were five and

1:52

eventually became pretty

1:54

highly ranked. How did you get into chess

1:56

and and how long did it take to become

1:58

a ranked player here in the US? Sure,

2:01

so I had those parents that would

2:03

drive us on weekends. I have a sister actually

2:06

been been on Bloomberg many times,

2:08

uh Elana. But we my parents would take

2:10

us to Saturday morning workshops to learn about

2:12

model rocketry or chess or what have

2:14

you. But I didn't actually playing

2:17

tournaments to always thirteen. I got to junior

2:19

high school and I was interested in the game. And

2:21

there was a kid a year above me, and I saw that

2:23

he was ranked in the top fifteen the United

2:25

States, and I thought that's amazing. How

2:27

do I how do I get there? And so how long

2:29

did it take you from when you started playing in tournaments

2:32

to becoming ranked. So I became

2:34

really obsessed with it. And so in

2:36

three years I went from a beginner to number

2:39

two in the country for age fifteen sixteen.

2:41

Wow, that's pretty impressive. And that's thousands

2:44

and thousands of hours. Uh,

2:46

yeah, at least. And and so

2:49

from chess you moved to poker

2:51

and black jack, which seems more

2:54

of a fit with with finance. What

2:56

led you from poker and black jack

2:59

to credit it and derivatives? I

3:02

knew I wanted to be on Wall Street well

3:04

before I knew how to play poker. In fact, I

3:06

didn't really learn poker until I

3:08

was in my mid twenties. Black Jack I

3:10

learned a bit earlier. Maybe we'll get there, But Wall

3:12

Street was always something I was interested in. My

3:15

parents would listen to watch Wall Street Week with

3:17

Lewis Ruckiser. I can tell you the postcode

3:19

for Owens Mills, Maryland. It's two

3:21

one one one seven, because that's they would always do

3:23

that right in the middle of the show. And uh.

3:25

And so I was able to parlay that interest

3:29

into getting an after school job

3:31

when I was a high school student in New York

3:33

City, at Merrill Lynch and then uh summer

3:35

internships at Coleman Sacks, which were really

3:38

among the most fun times in my

3:40

career on Wall Street. Well, we'll talk a little bit about

3:42

Goldman In a bit, Um,

3:44

you mentioned black jack. I understand

3:46

you got pretty good at black jack, eventually

3:49

getting kicked out of the Blaggio as a card

3:51

counter to tell us about that. So

3:53

it's they're very polite. It's a you know, it's it's

3:56

kicked out as more of the nineteen sixties. Um.

3:58

But you know ed Thorpe is a is a

4:00

hero and beat the dealer

4:03

and a man for all markets. Also is I

4:05

think a fantastic book. Um.

4:07

And So I learned how to count cards

4:09

when I was a summer intern on the risk guard

4:12

desk at Goldman from the partner

4:14

in charge, Frank Brozen's almost Marone,

4:16

some of these legendary hedge fund managers,

4:19

UM and UH and I got pretty

4:21

good at it, and UM and I went and was sent

4:23

over to London when I graduated

4:25

college with Merlynch, and I found that

4:28

the games in London had a weakness that

4:30

the games in the US didn't. They had a certain side

4:32

bed that was very crackable, and

4:35

I had to kind of figure it out. There was no

4:37

internet, you know, to look up everything

4:40

back then, and I became quite

4:42

a skilled card counter. Uh that's really

4:44

that's really quite fascinating. So

4:46

so from counting cards, how do

4:48

you end up at Deutsche Bach? Uh?

4:52

So the people at Marylynch that

4:54

I first worked with out of college had

4:57

moved really in mass to Deutsche

5:00

um Edson Mitchell legendary

5:02

Mary Lynch, head of global markets, wanted

5:05

to recreate that at Deutsche Bank without

5:07

having the deep institutional capital

5:09

markets relationships, and so he really wanted

5:12

to build up trading quickly, and credit

5:14

derivatives was a new market,

5:16

and he had someone named Aunt

5:18

Jane, who has really been an amazing mentor to me.

5:21

Um poor huge amount of resources

5:23

into making Deutsche if if not the

5:25

best, the top two year and in year out. And

5:28

at Deutsche Bank you become the youngest

5:30

person to be a managing

5:33

director. Tell us about that path?

5:35

Yeah, so I think, um,

5:38

it's either youngest, your second youngest. Let me let me

5:40

not overstep it. But still I was twenty

5:43

seven and usually it's not until

5:45

you're in your thirties, and I have to

5:47

say there's so many aspects to one's

5:50

career that have to do with

5:52

luck and timing that have

5:55

to go along with skill. Almost all the time, sometimes

5:57

you can even avoid the skill part just be ultra

5:59

lucky. At my My luck was

6:01

that UM, this market creditortives

6:04

basically started when I started, and even

6:06

a year or two after, and I was waiting

6:09

for it. It It was like I was waiting for it to be created, because

6:11

I was never going to be the credit investor

6:14

that can read through the tent

6:17

k and and do the deep uh you

6:19

know, fun fundamental work

6:21

and accounting work that was going to I was

6:23

not going to make my mark in credit that way. I needed

6:25

something more quantitative, more tactical,

6:28

and creditor. It of started really in ninety seven

6:31

and UM and so there was no one, there were

6:33

no adults to learn from. I got to I got

6:35

to UM learn learn

6:37

from experience, and and ninety eight with

6:40

Russia defaulting and LTCM blowing

6:42

up, gave an incredible path

6:45

to that those lessons, and so Deutsche

6:47

Bank kept giving me more and more responsibilities

6:50

UM and so each

6:53

year they promoted me and I and I think another

6:55

bit of luck was not just being at a place that wanted

6:58

to expand in this new area. But

7:00

also Goldman Sachs had hired away my

7:02

boss, an amazing guy, Ron Tannemora,

7:05

and I think Deutsche was a little afraid that that I might

7:07

move over to Goldman, and so, you

7:09

know, earlier than than one would have expected,

7:11

they made me an empty So so good

7:13

timing, right place, right time, plus

7:16

the right set of skills in in derivatives

7:18

trading before we moved to

7:21

spinning out SABA from Deutsche

7:23

Bank. I have to follow up your conversation

7:25

about being an intern at

7:27

Goldman Sachs. You kind of worked with a

7:29

murderers row there and you said

7:31

it was the most fun you ever had. Tell

7:34

us about your time at Goldman, Who did you work for

7:36

and what do they have you doing? Sure, so,

7:38

look, anyone who

7:41

comes to Wall Street needs to read Liars

7:43

Poker doesn't matter we're talking now, ten years

7:45

ago or fifty years from now. And um

7:48

there was a minor character in

7:50

that book, David DeLucia, who Goldman

7:52

hired from Solomon to set up

7:54

the junk bond desk, and he had

7:57

a incredible love of chess.

7:59

He actually has the world's greatest going to

8:01

say something that's not gonna sound so great. World's

8:03

greatest chess book collection. Um um.

8:05

Hopefully no one's gasping at that. But

8:07

he has, you know, fifteen century books

8:10

and and the busts

8:12

of the hand of the world champion from the eighteenth

8:14

century, and so he was obsessed with

8:16

chess. I had met him at a at a chess

8:18

club, and I came to Goldman Sachs to

8:20

interview for a summer internship. And I

8:22

had a very perfunctory meeting with the

8:25

HR person. They they even met

8:27

me, I think only because my sister was

8:29

working in private client services then, so

8:32

they as I have this twenty five minute meeting, the woman

8:34

says, thanks for coming your college freshman,

8:36

why don't you come back in three years and

8:39

shows me to the door, and I said, okay, can I use

8:41

the men's room? And on my way out, I went into

8:43

the men's room and who's standing washing his hands

8:45

at the sink is David de Lucia. He

8:47

says, what are you doing here? Come on back, and

8:50

that began five rounds,

8:52

five interviews per round, and

8:54

finally, after twenty five interviews, he

8:56

calls me back and he says, we tried

8:58

to do everything we could. There's no program

9:01

for you. There's a there's a program

9:03

called s c o UH to

9:05

give minorities a chance to come to Wall

9:07

Street. There's a program for sons and daughters. We

9:09

just couldn't fit you in. And I said

9:12

it's you know, one thing is never

9:14

give up. So I said to him, it's really too bad.

9:17

You have a program for sons and daughters

9:19

but not brothers of sisters. And

9:22

he said, let me try that one. And he and

9:25

he came back and I had another two sets of

9:27

meetings and they they they jammed

9:29

me in with the Summer NBA. So I'm a college

9:31

freshman and I'm there with the the HBS

9:34

and Wharton n B as UH during

9:36

doing training and all sorts of you know

9:38

things, and and the desk I was assigned to. His desk

9:40

was we had a three by

9:42

two rows, so six seats. He was

9:45

directly facing me and it was a murderers

9:47

row. Um on my on

9:49

my left was Bill Troy.

9:52

It was really an amazing mentor to me.

9:54

He was a co founder of a fund called um

9:56

Gray Wolf Capital. Next to him was Jim

9:59

Zelter, who's one of the heads of Apollo Um.

10:01

And then on the other side Jonathan Coleach,

10:04

the founder of Redwood. And then last but not least,

10:06

a guy who was named David Tepper.

10:08

But he was not the David Tepper we all know

10:11

and love now larger than life.

10:13

He was. He was a distressed

10:15

analyst that was working for for

10:17

a group. He wasn't this. I can't even imagine

10:19

him, you know, the way he was then

10:22

versa now he's He's an incredible superstar,

10:24

one of the greatest investors of all time. And

10:26

I got to work with the five of them every

10:28

day for you know, for months. And

10:31

what sort of work did they give you? Because

10:33

I've read that Tepper used

10:35

to bust your chops a little bit, a

10:38

lot, not not a little bit. So he would

10:40

say, what are we paying you for? You're here

10:42

to play chess with DeLucia. That's why Goldman saxes

10:44

paying you as if it was any of his business. So what did

10:47

he do? He didn't teach me much about the market

10:49

that I learned from some of the other guys on the desk. But

10:51

I would have to get broker quotes in the morning, Um,

10:53

Murphy, Duryer or Garband. I'd write down where

10:55

all the bond prices were. And I barely

10:57

knew anything at the time, but what he would do ring

11:00

the course of the day. I remember this was Wall Street

11:02

in the early nineties. Um, they

11:04

would make bets. So he would yell over at Jim's

11:06

alter, how many how many synagogues

11:09

do you think there are in Montana? And and

11:11

Zelter would say not more than three.

11:13

And he would say, I'm I'm gonna buy three bo

11:16

as, go to the library and figure it out. And this was this

11:18

is pre internet. So you want to know how many synagogues are

11:20

in Montana, It's gonna be a lot of work. And

11:22

so I would settle that bed I would settle were

11:24

interest rates every negative they were briefly

11:26

during World War Two. I would settle, you

11:28

know, bets of all kinds. And in the

11:30

meantime I would also learn a lot through

11:33

outmosis and by asking questions.

11:35

So it was just a marvelous experience.

11:38

And if I have a million stories about it, so

11:40

we'll see what we have time for. So so the Solomon

11:43

Brothers version of gambling

11:45

was liars poker, played with dollar bills

11:48

at Goldman It was a trivia contest

11:50

for random unknown

11:52

facts. You know, traders like Tibet

11:55

and and some of the obscure bets

11:57

need to be settled. And there was no internet, so

11:59

you a final word. They trusted

12:01

you to say what what Boa says,

12:04

that's what goes. I uh,

12:07

I don't even remember if I had to show evidence or not,

12:09

but I was. I was asked to do all sorts

12:11

of things, and along the way, I asked

12:14

dozens of questions a day. And I think that's really

12:16

important for anyone who is going to have

12:18

an internship on Wall Street is that there are

12:20

things you can do to annoy the

12:22

people around you, but one of them is

12:25

not asking too many decent

12:27

questions about markets. That's that's the

12:29

only way you're going to get to where you want to be, and actually,

12:32

I think it will impress the people around you. So let's

12:34

talk a little bit about your time trading

12:36

at Deutsche Bank before the Great

12:38

Financial Crisis. You

12:41

allegedly made profits

12:43

in forty out of forty four quarters.

12:46

How did you manage to be so consistent? I

12:48

think there are a lot of investors who, if you look

12:50

at how they did in that time frame. So

12:52

let's say the late nineties to

12:54

the Lehman Brothers. The markets really

12:57

were a lot easier than they

12:59

and laws compare editive. There were thousands

13:01

of fewer hedge funds, and we were

13:04

we were relatively consistent because

13:06

there also was a lot of edge in creditoratives.

13:09

Creditoratives being synthetic bonds

13:11

or insurance contracts. You can refer to them

13:14

any number of ways, but how

13:16

to think about, how to price them, miss

13:18

pricings, in credit dioratives against

13:20

equity ritives. Some of those things were really,

13:22

again not well understood, and I

13:24

think Deutsche allowing me to trade

13:26

those relationships, trading out of the money

13:28

puts on a stock compared to hedging

13:31

them with a bond, which is not as crazy

13:33

as it sounds, is something that I think

13:36

gave us a big leg leg up and an ability

13:38

to look across markets and find

13:40

relative value. And so we were we

13:42

were consistent. We were particularly profitable

13:45

when markets were volatile up until

13:48

Lehman Brothers, which is where we had two of our

13:50

four down quarters. That's volatility

13:53

large, so you're looking for medium

13:57

load of medium amount of volatility. Once

13:59

it spikes to very high levels,

14:01

suddenly all the correlations start to fail

14:03

or why does that degree of volatility

14:06

affect trading. Oh, it was really so specific

14:08

to Lehman failing as a counterparty. So

14:11

because I was inside of a bank, if

14:13

you were um whether it's interest rate

14:15

swaps or credit swaps, you were

14:17

part of a daisy chain where you buy protection

14:20

on General Electric or IBM

14:22

from Morgan Stanley, who buys

14:25

it from Lehman. And these hundreds of

14:27

thousands of swaps would remain on the books.

14:29

So even if you bought and sold something, instead of being

14:31

out of the trade, you would have two swaps on. And

14:33

so when Lehman Brothers failed, we had enormous

14:36

exposure to them as a counterparty, just like

14:38

all the other desks at Deutsche

14:40

Bank. So that made it more challenging than

14:42

being at a hedge fund. But the more volatility

14:45

for our strategy is really the better, and we saw

14:47

that and we've seen it again

14:49

this year. But Lehman Brothers was very specific

14:51

because if you couldn't trust not just Lehman

14:53

to pay you, anybody, Mary Lynch, you

14:56

know, and and Goldman, Sax and Morgan Stanley

14:58

were trading like you nearly

15:00

bankrupt identities trading at credit spreads

15:02

that were a thousand basis

15:05

points are higher. So so that was very specific,

15:07

and I think the market has done a great job

15:09

to reduce counterparty risk in

15:11

the intervening fifteen years. So

15:13

let's talk a little bit about the strategies

15:16

that SABA employees. One

15:18

of your funds is a closed end funds

15:21

arbitrage where companies

15:23

are either trading at a substantial discount

15:25

or premium to nav to net

15:28

asset value. Tell us a little bit about trading

15:31

closed end funds. Yeah, this is an amazing

15:33

space. It's one where the product

15:35

has been around a hundred years. Berkshire Hathaway

15:37

in a sense is a closed end fund, and Warren Buffett

15:40

in particular has talked to me and

15:42

showed me how enamored he was with them right

15:44

before he took Benjamin Graham's class. So we're going back

15:46

to nineteen fifty where he had two

15:48

thirds of his holdings in closed end

15:50

funds. Why why are they interesting? Because you get

15:53

to buy a dollar of assets for less

15:55

than a dollar, and there are ways to

15:57

turn it back into a dollar. So the

15:59

there's five hundred of them on the New York Stock Exchange.

16:02

The most venerable managers all

16:04

have tons of them, whether it's black

16:06

Rock or black Stone or Pimpco,

16:09

UM and Templeton, and

16:11

they um sometimes because

16:14

they're not cared for, because the fees are high,

16:16

because the manager is not thinking about

16:19

the investor, they can slip into trading

16:21

for a discounts to any v So objective

16:24

dollar bassets valued properly

16:26

in the same way that ETFs mutual funds are valued.

16:28

You can buy a dollar for eight five cents,

16:31

and if you accumulate enough of it, and if you take

16:33

on an institutional approach to reading

16:35

the documents, understanding the rules

16:38

as a shareholder, your rights to UM

16:41

to vote for a board of trustees

16:44

and UH or or overthrow the

16:46

board if they're not doing the right thing for investors

16:49

UM. If you buy up enough of the shares UM,

16:51

you have a chance to to make change. And

16:54

UH we only started doing that when

16:57

they started to go to deep discounts.

16:59

Some these barry had been at discounts seven

17:02

eight, nine years. They never had a day where they were not at a

17:04

discount. And we've been able in

17:06

dozens of cases two for thousands

17:09

and thousands of investors, tens of

17:11

thousands, to get the discount to

17:13

UM converge back to ny VING. So

17:16

so let's talk about that approach.

17:18

When I think of activist campaigns,

17:21

I think of investors like Carl Icon

17:24

or Dan Loebe or or uh

17:26

Bill Ackman. How is your approach

17:28

similar or different to their sort of

17:31

activist investing campaigns.

17:33

Right, So, they're finding a company where

17:35

they can make change, and that

17:38

change maybe on average, is quite

17:41

valuable, but you can debate it. And certainly

17:43

there are examples where the impact of

17:45

the activist was terrible me in some

17:47

cases even led to the bankruptcy of the

17:49

of the company. Enclosed end funds.

17:51

It's totally different because the medicine,

17:53

the plan for how to get

17:56

the fund trading to ny V works

17:58

every single time. And all I'll tell you why,

18:01

because we're not trying to remake

18:04

J. C. Penny in the image of Apple Computer, which

18:06

might or might not work. Or you know, we could pick some that

18:08

were fantastic successes um general

18:10

growth to follow on with one of

18:13

Akman's amazing longs um

18:15

on the close end funt side, if the manager

18:18

we're just thinking about the investor, they could literally

18:21

press a button turn it into an e t

18:23

F, which they also those same managers. Black

18:25

Rock is selling e t s by the cartload. If they changed

18:28

their closed end fund into an open ended fund, because

18:30

it didn't give investors an exit at

18:33

n a V for five six, seven years, it

18:35

would immediately go to n a V, just

18:37

like all e t f s are

18:40

arbitrage double if they're trading different

18:42

than any of V. So they could change it to an open ended

18:44

fund, they could tender for shares at

18:46

no discount. They could liquidate the fund

18:48

and offer investors the chance

18:50

to go into almost the exact same products, whether

18:52

it's New York communities or or junk

18:55

loans, or UM or energy

18:57

equities MLPs UM. There's

18:59

five hundred closed in funds and there's thousands

19:02

of mutual funds and thousands of e t fs,

19:04

So the ability to go from eighty four

19:06

to a hundred, you're talking about return,

19:09

and maybe it's the recapture of a loss

19:11

that the investor, of course UM,

19:13

if they knew enough, would

19:16

want it every time. And the only thing standing

19:18

in your way is the manager that feels

19:20

like they have some god given right for that capital

19:23

to be permanent capital. And if they tender for shares,

19:25

that means less au M and less fees for them,

19:27

and so there's a huge um.

19:29

There's really a huge problem where

19:32

the managers putting their own interests and the

19:34

board is putting the manager's interests ahead

19:36

of the shareholders. And that's where we come in. So why

19:38

can't closed n funds be arbitrage

19:41

the same way E t f s can? So?

19:44

E t s have a mechanism where

19:46

you can create new shares if or redeem

19:48

old chairs and so if if

19:50

it's ever trading below, you could buy it and

19:52

then redeem it, if it's trading above, you could

19:55

sell it and then create it and always

19:57

at any V. So there's that mechanism that

19:59

tether is E t f s two N

20:01

A V closed end funds. It's like a stock.

20:03

You know, you may think IBM is worth two to

20:06

share, but you've got to find somebody to

20:08

sell to. You can't call our monk New York and ask IBM

20:11

to give you the two d bucks. So so the

20:13

things can trade at a big discount for

20:15

very very long time, and even at a big premium,

20:18

and so um. But there's a very

20:20

simple fix, which is they don't

20:22

have to figure out some new fangled way to

20:24

run the company. They just need to offer liquidity

20:27

like a mutual fund or an e t F that

20:29

would get it back to ny V. And

20:32

so we've basically won all

20:34

of the challenges we've had because we're on the side

20:36

of right. We get letters from octogenarian

20:38

saying I was in this fund for fifteen years. I never

20:41

thought I would see the light of day to get out near n

20:43

a V And um, we're not doing it for them,

20:45

but but at the same time, we're doing it for our investors.

20:47

It is a great joy to be

20:49

able to in certain market environments pick

20:52

through the closed in fund space

20:54

and find literally dollars trading

20:56

for a two cents that

20:58

you can pick up the two cents and turn it back into

21:00

a dollar. And that's true even today. So markets

21:02

are efficient, they're just not that efficient.

21:05

Well, yeah, there's you need someone

21:07

to come along and say I'm gonna change that. And the

21:09

closed in fund space really was lacking

21:11

an institutional manager to

21:14

do that in size because

21:16

institutions are also

21:18

that are an activists are also

21:21

beholden to those same managers. They need

21:23

black rocks votes when they're an activist, so

21:25

they so they might say I'm not going to upset the Apple

21:27

card and annoy black Rock to the

21:29

benefit of thousands of investors and our

21:31

investors if I need to come to black Rock

21:33

on my regular way, activism when

21:35

they're a big shareholder, so you have a little bit

21:37

of you know, people don't necessarily

21:40

want to fight UM the big asset

21:42

managers, but we UM,

21:45

We're very happy to. We're not We're not activists

21:47

in any other place. And this is one of the best

21:49

ARBs uh that that

21:51

you can find. And there's only one entity

21:54

that suffers. It's the asset manager

21:56

that goes from managing seven trillion to managing

21:59

six point nine nine trillion. Thousands

22:01

of investors get to make gains

22:04

that they would never otherwise get really really

22:06

interesting. Let's talk about one of the most

22:08

popular investment vehicles out

22:10

there, SPACs special

22:13

purpose acquisition companies. SABA

22:16

has about five and a half billion dollars in

22:18

that space. Is that right? That sounds like a lot of money.

22:20

You're the fifth largest SPACK

22:22

holder along with peers like Citadel,

22:25

Millennium d E share. Your

22:27

approach is different than

22:29

how retail investors look at SPACs.

22:32

Tell us a little bit about what you guys do. Yeah,

22:35

SPACs are this amazing

22:37

thing in that it's all over the press

22:39

whenever there's an acquisition. It's also

22:42

critiqued, sometimes maligned

22:44

for being a product that that ought

22:47

not to exist. Um uh,

22:49

in the in the number of offerings

22:51

that exist. So so in the last year

22:53

there's generally been a negative

22:56

ting tinge to the to

22:58

the coverage about SPACs, and

23:00

they've performed poorly. They've performed poorly

23:02

when they do SPAC. So what's

23:05

important to understand with spacts is the

23:07

life cycle that they start by being

23:10

extraordinarily safe. And by that I mean

23:12

when the I p O happens, the money

23:14

is taken into trust, the

23:16

manager doesn't touch it, and the trust must

23:18

buy us T bills. So from

23:21

time zero to the day that they

23:23

are converting into the company

23:25

that they're taking public, you have the risk

23:28

of T bills, but you have some mark to

23:30

market risk as sentiment goes

23:32

up and down. That sometimes that ten dollars that

23:34

you pay for at I p O. You know,

23:36

back in the heady days of

23:39

let's say Ark, when arquestrating at a hundred and fifty

23:41

and flying cars were you know, we're

23:43

exciting people's imaginations. Um

23:46

even before the spack manager would find

23:48

someone that ten dollars are traded eleven or

23:50

twelve or even higher. UM Today

23:53

you can find and for the last year, you can

23:55

find many billions offered at

23:57

a discount. Instead of ten dollars you get to pay

24:00

is something like and

24:02

UM one year later or even ten months later

24:04

that for certain

24:07

will be worth ten dollars. So on

24:09

top of that you also get the yield that is

24:11

in T bills, which right now is another

24:13

hundred forty basis points. And so

24:15

you could put together something where if

24:17

you screened for SPACs and you look

24:20

for high quality managers, you can

24:22

still find a four and a half percent

24:24

return, which is a certain return. But

24:27

on top of that, in case they find a

24:29

company to buy and the market gets very excited

24:31

about it, whether it's electric vehicles or

24:33

media companies or whatever it may be. UM,

24:36

you are a stockholder and you don't have to take

24:38

only ten dollars back. That goes to fifteen

24:41

or to the moon. That's that's your profit. And so

24:43

I I really look at spacts like an

24:45

incredibly valuable product in these

24:48

times were worried about inflation, because

24:50

it's a guaranteed return in the fours

24:52

plus an equity option for free and

24:55

um, it's really hard to find something this

24:57

safe in the history of specs back

25:00

a before you know the environment today where they're

25:02

actually quite a bit safer. Not one time

25:04

in history could you not get back

25:06

trust value. You always have trust value to look

25:08

to, and trust value is us T

25:10

bills. What happens if the announcement

25:12

comes out of the acquisition and

25:15

the public doesn't like it, and the

25:17

spact trades at a discount, there is

25:19

a subsequent vote about that eventually.

25:21

Isn't that there's a vote You can vote

25:23

for the spack to to do

25:26

the deal or against. But that is even a

25:28

separable question from

25:31

can you vote to get your money back? So you could say, I've

25:33

support the deal, but give me my trust value

25:35

back, which should be your ten dollars, let's

25:37

say, plus the the yield that you made on

25:39

the T bills, so you

25:42

always have the ability to get your money back. And

25:44

so then as an investor, I have to think about,

25:46

well, how the market is

25:48

not just driven by the way things ought to

25:50

be, even though it's T bills. If there's

25:52

six hundred of these running around trying to find companies

25:54

to buy. There could be a period

25:57

where because of losses, one is suffering

25:59

in their portfolio. You you might dump your

26:01

SPACs and put pressure on that market. It's

26:03

I have to think about how cheap get spacts

26:05

get, even if they're basically the safest

26:07

investment I know of T bills in

26:09

a box UM and

26:12

UM with a ten, ten month, eleven

26:14

month average life. You know you're gonna get your

26:16

money back, but in the meantime you have to be ready

26:18

for some mark to market pain. Let's talk about

26:20

tail hedging and crash protection funds.

26:23

How do you find efficient tail

26:25

protection and what's the difference

26:28

between paid for tail protection

26:30

with a zero carry and more expensive

26:33

tail protection. Yeah, so

26:36

I've been running tail protection

26:38

funds since two thousand nine, and

26:41

um so I've seen many

26:43

hundreds of investors and heard from them. How

26:45

are they thinking about it? How much premium do they

26:47

want to spend? Do they look at it as an insurance policy

26:50

where you know, just because your car doesn't get stolen

26:52

or house doesn't go on fire, you're you're

26:54

not thinking that something bad happened. You bought

26:56

a policy and you spent it and its portfolio

26:59

insurance and then their investors that say,

27:01

well, look, I don't have a budget for that. I have to keep

27:03

up with the joneses, I have to make my expected

27:06

return. So is there a way that

27:08

since I'm not going to do the first one can is

27:10

there a way that you can find something that will have

27:13

very low um negative

27:15

carry or burn or bleed some

27:17

people call it and um and so in

27:19

the credit or of market, in the last two

27:21

or three years, there has been, in my

27:23

view, way to have your cake and eat

27:25

it too, to have a very low cost or no cost

27:28

portfolio of tail

27:31

protection and still benefit and so

27:33

in um, you know, this

27:35

strategy was incredibly

27:37

profitable even though it didn't have the

27:40

negative carry that one assumes

27:42

they need to get a big

27:44

payout. So that sounds a bit

27:46

like a free free lunch. How

27:48

do you get tail protection

27:51

with with no cost to carry? What risks

27:54

are you assuming in order to execute

27:57

that? Uh So, there

27:59

there's an there's no free lunch anywhere,

28:02

not even at Bloomberg. Uh So,

28:04

um, I'm

28:06

getting free lunch. At

28:08

least we got that going for So that's the only

28:10

free lunch on Wall Street. Well, so the

28:13

free lunch is not free. You

28:15

are you are making a bet. But what I see

28:17

now and for the last few years in the

28:19

credit space is that there is not enough

28:22

differentiation between safe

28:25

companies and less safe or

28:27

safe and dangerous. And by that I mean if

28:29

you look at the credit spreads of

28:32

fifty different companies rated triple B or

28:34

single A, some of them are ultra

28:36

safe. They go by the names of McDonald's,

28:38

IBM, E, T and T, you know, Verizon,

28:42

Um, Disney and But

28:44

the thing is that banks, federal

28:46

express banks make

28:48

loans to these companies when Disney, when

28:51

when IBM, but Red Hat or Philip Morris,

28:53

Bud Jewel and so banks have exposures,

28:56

and that when they go out and buy CDs, they

28:58

are not They are not brilliant

29:00

hedgehow manager saying what's the next en round?

29:02

Like Jim Chainos. They're saying,

29:04

what's in my book, and I need to hedge it. And

29:07

so the CDs spread

29:10

on some of the best companies in the world market

29:12

caps between a hundred and three hundred billion dollars

29:15

um, trade at very similar levels.

29:17

Because of that upward pressure pushing up the spread

29:20

to names that they're the banks are not pushing

29:22

up higher, and so you can set up a portfolio

29:25

where you go long risk to the IBM

29:27

s of the world and take that carry

29:29

and buy protection on companies

29:31

that are not as safe. And so, just to use the example

29:34

of I was amazed

29:36

coming into the COVID environment where

29:39

McDonald's had the same credit spread

29:41

as a double B rated online

29:44

travel company called Saber, and

29:47

Saber double B was trading

29:49

at twenty five basis points and McDonald's

29:51

trading but if you pay

29:54

twenty five enough times, it can add up. So

29:56

we we put on these trades. You know, imagine

29:58

a book of thirty or forty names. You're you're

30:00

selling the McDonald's and buying the Saber

30:02

exactly. And and of course Saber

30:05

was negatively affected by COVID, but even

30:07

today Saber trades at five hundred and

30:09

guess where McDonald's trains back at. And

30:12

so there is a free

30:14

lunch, so to speak, that I didn't see

30:16

until two thousand, nineteen or twenty, which

30:18

is that credit when it got ultra tight

30:21

because people were so confident that

30:23

the FED had the markets back, and the FED did

30:25

extraordinary things, you know, since two thousand

30:27

and eight that credit spreads

30:29

were too clumped together and one could

30:31

pick through the portfolio, find

30:34

the names that would be good tail hedges and the names

30:36

that would be bad ones, and set

30:38

up that trade and it it's worked in better

30:41

than I thought, and it's working again in so

30:44

to put some numbers on that, I recall

30:46

reading the first couple of months

30:48

of that fun was up like

30:52

to start the year, you gave a little bit back,

30:54

but not a whole lot. I think you finished the

30:56

year up some crazy number

30:59

like that. So we we have different

31:01

funds, and not to speak about any any in particular.

31:03

Those numbers are are in the frame correct,

31:06

So so pretty close to

31:09

a zero carry, pretty close to a free launch.

31:11

You are assuming some risk, but it sounds like

31:13

not a lot of risk. Well, you know, I'm agnostic

31:16

as to which which strategy

31:18

is right. It's really up to the individual. If you say,

31:21

well, should everyone have insurance? Should we walk around

31:24

with uh? You know, insurance? Sometimes we're mandated.

31:26

You want to get a car, you need insurance. In portfolios,

31:29

you get this problem where people don't

31:33

necessarily think they have a budget for it. If there

31:35

and if they have that constraint, I think paid

31:37

for tell protection is a whole lot

31:40

better than not having anything because look

31:42

at what's going on now in the market, and I've been seeing

31:44

for the last year, whether it's from state pensions.

31:47

We just got one on board last month. UM

31:49

and university endowments. Incredible

31:52

desire for strategies that will

31:54

pay off when there's volatility. Quite

31:57

quite interesting. Last question about

32:00

about SABA Capital Hedge Fund. Where

32:02

did the name SABA come from?

32:05

Uh? So, I was at I was at Deutscha,

32:07

and there were a lot of Deutsche prop groups

32:09

and I wanted to to brand it.

32:12

And so I was trying to think, what's

32:14

easy to say, easy to spell, and

32:16

hasn't been taken and there wasn't really much

32:19

much left. And Saba means grandfather

32:22

in Hebrew. My mother was raised

32:24

in Israel after the Holocaust, and her father,

32:27

my Saba, saved the

32:29

family, saved her, you know, and

32:31

and saved a lot of innocent people

32:33

of Um hid them. So I really

32:35

felt, as a kid, an incredible

32:38

debt to to him, and

32:40

I wanted to honor him by by calling

32:42

it that. So we named it that at Deutsche was called SABA Principal

32:45

Strategies, And when we lifted the team

32:47

out in oh nine, we we kept the name.

32:49

So it's Saba capital. And if I recall

32:51

reading correctly, your your grandfather

32:54

built a double wall of false

32:56

wall and on in order to hide people from

32:59

the Nazis that are looking for people's

33:01

children. Is that right? Yeah, So he

33:03

was a carpenter and um, he had a

33:06

hardware store after the war in Israel.

33:08

He didn't have um any wealth of

33:10

significance to speak of, but he was he

33:13

had a lot of vision. And there

33:15

was a moment. My mother was born in July forty

33:17

one in the war saw Ghetto, and sometime

33:20

around forty two he realized

33:22

he needed to get her out of there, and he got fake

33:25

papers that showed he

33:27

was a gentile with his wife

33:29

and um, and my mother was hidden on

33:31

a farm, and so um, yes

33:33

he's he was a real hero. And I actually, just

33:35

a month or two ago, got

33:37

to take my eldest daughter to

33:40

Yad Vashem in Israel and

33:42

and explained to her a bit about the history,

33:45

really really intriguing stuff. So

33:47

so it made a lot of sense to spin out

33:49

and be a free standing fund

33:52

instead of being part of a larger bank

33:55

and all of the baggage that comes

33:57

with that. Yeah, I I I love my time

33:59

at Deutsche In. But I had taken on enough responsibility

34:02

that when my boss left and

34:04

UH left the bank and he's actually now the

34:06

head of the vision fund at soft Bank, I had

34:09

to make a choice. Am I going to be a manager

34:11

or an investor? And I chose investor.

34:13

And that was in late oh seven, and the spinout

34:15

happened early or nine. And along the way

34:18

came Lehman Brothers, which was, you know, just

34:21

a mind blowing experience. I was

34:23

at the New York Fed the weekend Lehman failed,

34:25

and you know, we lost quite a bit of money in

34:27

a eight like like most desks are all desks,

34:30

but um, but incredible, incredible

34:32

experience and lessons to well, what

34:34

were you doing with the New York Fed UH

34:37

that weekend? It looks it's

34:39

gonna sound so silly, like they call us

34:41

in um and they wanted

34:44

us to game out on the weekend. Um.

34:47

If Lehman was closed

34:49

for business on Monday, if it was done, UM,

34:52

could you on Sunday, the day

34:54

before, could you unwind all sorts of trades

34:57

contingent on them not being there? Like, let's

35:00

let's do a pre mortem. What can

35:02

we do to reduce the amount of counterparty

35:04

exposure, and it was really like dectures

35:06

in the Titanic. I think Deutsche Bank had hundreds

35:09

of thousands of swaps facing

35:11

Lehman, and it was like we were able to

35:13

that week and unwind maybe a dozen of them. Really,

35:16

And that's before we start talking about one step

35:19

removed, where you have counterparties

35:21

who then threw it off to Lehman on top of it, or

35:23

were you including that in that list? No, just

35:25

direct exposure was hundreds of thousands of

35:27

rates, fcs and credit swaps. I

35:29

was in charge of credit, so we

35:31

were there. I was in a room of you

35:34

know, all the major banks sent their head of credit,

35:36

and there were other rooms had head of you

35:38

know, mortgages had CEO. But

35:40

um I got in on a Saturday at at

35:43

one pm and I left maybe Sunday at

35:45

five am. So I've heard people

35:47

complain that the FED made a

35:50

terrible mistake not rescuing Lehman.

35:52

But no matter how I've looked at

35:54

Lehman Brothers, hold aside the fact that

35:56

they were technically insolvent,

35:59

it sounds like it was all but impossible

36:02

for Lehman to be rescued. There was just far

36:04

too much risk, far too much exposure for

36:07

everybody, and it was really sort of a mercy

36:09

killing, you know. I think

36:11

if the FED knew what

36:14

was going to happen in just the intervening

36:16

days with A. I. G. And the others, I think they

36:18

would have rescued it. The price tag would

36:20

have been a drop in the bucket

36:22

compared to um what they eventually

36:25

had to do with all the different programs and

36:27

everything that came after it. So

36:29

so I think that there was a

36:31

moral imperative they thought to not rewarding

36:35

uh greed and treating

36:38

risk like it's always gonna get bailed out. But

36:41

we learned that the FED couldn't see in front of

36:43

their nose, because only days later we have

36:45

Fannie and Freddie any I G that needed massive

36:48

bailouts, and so Barry. I don't know the price

36:50

tag, but whatever it was, I think it was a

36:52

tiny drop compared to the damage. You

36:54

know. I always thought a lot

36:57

of people don't remember that

36:59

buff It made an offer to

37:01

Fold to bail out Lehman, and

37:03

Fold rejected him, and ultimately Buffet ended

37:06

up taking a small piece of goldman Um.

37:08

But I always imagined that the conversation

37:10

with Bernanke, and the desk was,

37:13

wait, he turned down Buffett's

37:15

money, how can we give money to this yachts

37:18

if he turned down Berkshire

37:21

hath Away And I always felt that

37:23

was the moral hazard, that you an opportunity

37:25

to save the firm you refused, Sorry,

37:28

we can't help you. Yeah, so they did take

37:30

money, if I'm not mistaken, from a Korean bank, and

37:33

I think it was just Buffet's terms were

37:35

worse than the Korean bank. But of course you're right,

37:38

they should have taken it from from both, because

37:40

once in a financial institution with

37:42

such massive leverage starts to unravel, it's

37:45

uh, it's self fulfilling, it has its own the

37:47

decline has its own gravity. And

37:49

you take it from the Korean bank, and you

37:51

take it from Buffett and uh

37:54

and you uh, you know, you count your blessings

37:56

that you didn't go under. This would have been after he

37:58

already rescued Solomon Brother. It's

38:00

the financial sector. Goodhouse

38:02

king being seal of approval. Lehman

38:05

might have might have survived if he took the money

38:07

from Buffett. Who knows. Yeah, I don't think they

38:09

had such large losses that couldn't

38:12

you couldn't put umpty empty back together again. But

38:14

so so you know, I was already

38:16

h planning the hedge fund from

38:18

well before that. And so when I

38:20

left Deutsche Bank in February, around February,

38:23

middle of February O nine. By April

38:25

one, O nine's only six weeks later, I was already

38:27

up and running with the fund that I had been prepping.

38:30

Uh Saba has had some spectacular

38:33

trades. Let's let's talk about

38:35

some of your most successful ones. I

38:37

mentioned earlier. The Tail fund practically

38:39

doubled in um

38:42

The fund itself was up thirty three percent

38:44

in that year. How does

38:47

having one of your strategies

38:50

up a hundred percent affect how you

38:52

think about trading? Do you just

38:54

leave it and and not interfere

38:57

or are those sort of returns do

39:00

do the mean reversion light start flashing

39:03

and encourage you to start paring

39:06

back a bit? Right? So specifically

39:08

in the tail fund, since investors

39:10

in that fund or using it for a purpose, or using

39:12

it for a hedge I don't want to be the one to say,

39:15

hey, the loads are in, let's let's

39:17

take it off. And you know, people's

39:19

crystal balls are I think always cloudy

39:22

if if not worse. But in those environments

39:24

it's especially hard to see. I would say

39:26

when we talk about two, this is another

39:28

one of those hards to see environments. So I'm

39:30

not generally tweaking that too

39:33

much. In our flagship fund where tail

39:35

doesn't have to be the biggest part or you

39:37

know, and we had very similar returns. Um

39:40

we did find in that environment

39:42

incredible miss pricings, and so we

39:45

were able to monetize some of the tail protection

39:47

and invest in the then you know, most

39:49

miss priced things, which was relationships

39:52

between the credit rutives and the bonds

39:55

or various et fs. Basically, the bond

39:57

market broke, and

40:00

Uh, there was an incredible opportunity

40:02

to do things that I didn't even think I'd

40:05

ever see again after a wait, really

40:07

really intriguing. Let's let's talk a little bit

40:10

about Bruno excel

40:12

a k A. The London whale Uh,

40:14

that trade lost over two billion

40:16

dollars for JP Morgan. You

40:19

were on the other side of that trade and

40:21

ostensibly picked up some of that, not

40:23

all, but some of that two billion. Tell

40:26

us a little bit about the London whale trade,

40:28

which I recall reading you

40:31

discussing at a conference before

40:33

everything went to hell, tell us about that, yes,

40:36

and and the eventual price tag

40:38

what they had started the estimated too. I

40:40

think they acknowledged some number like six point

40:42

six billion ended up being even a lot worse.

40:45

So I am I noticed,

40:47

being that we're looking very closely

40:49

at miss pricings in derivatives,

40:52

I noticed that an older series

40:54

of the index, the creditor at of index, by

40:56

the way, I should say, is the most liquid product in

40:59

fixed income, certainly in credit.

41:01

The the investment grade one trades about fifty

41:04

billion a day. It has basically zero

41:06

bid offer cost. You can get in and out

41:08

very cleanly with in billions, and that's why firms

41:11

like Bridgewater and a q R use it

41:13

in enormous quantities. Back then, I

41:16

noticed that an older series one that was not

41:18

current anymore, retained having

41:20

a lot of interest, and that interest all

41:23

came from one counterparty, according to market

41:25

sources, and one counterparty was kind

41:27

of driving the interest in it. And one

41:29

thing that I noticed was that um

41:32

it was priced very differently

41:34

than the others. So if you have just imagine the SMP

41:36

five hundred and it has an at asset value

41:38

of one, well it's gonna trade right at one

41:40

or someone's gonna arbitrage it. Now, if you have the

41:43

older series before they change three or four names.

41:45

If if the current series at one

41:48

and the older series that you know, point

41:51

nine or something, that's that's really strange that

41:54

that you have this kind of difference, UM,

41:56

where the some of the parts is not the same

41:59

as the whole. And I and I noticed that it was it

42:01

was too low. You're able to buy credit

42:03

protection for too low a number comparing

42:07

the pieces to the whole. And I wanted to understand

42:09

why. And through a lot of work we

42:12

started to see some strange patterns.

42:14

We knew that it was a trader in London

42:17

that had by all accounts

42:21

of this there was it was basically everybody against

42:23

one and UM

42:25

and we noticed patterns where in the final

42:27

days of a week, or particularly

42:30

the final days of a month, there would be unusual

42:32

trading which smelled like someone trying to mark

42:34

market. You know, I'm

42:36

not saying that's what they did, but that's what

42:38

the data showed that there

42:40

was something going on. And so we took the

42:42

other side. And as you said, I went

42:45

to speak at a conference for boys

42:47

and boys girls Harbor. I think the charity

42:49

was called and I wanted to come up

42:51

with something accessible. I want to talk about

42:53

an index, not some weird single company.

42:56

I go to present and it's at JP Morgan. The

42:58

conference is held at JP Morgan,

43:00

and I talked about and I say, you know, you have this trader

43:03

that's really uh taking on everybody

43:05

and and it's and we can all do the same math, and

43:07

why why is it trading there? And uh.

43:09

It took about six months but

43:11

eventually cost the bank six

43:14

billion dollars. And so despite you know Jamie Diamond

43:17

highly regarded as one of the great bank CEOs

43:19

of all time, the idea that the bank could

43:21

have lost that much on, by

43:23

the way, a notional quantity. So that's the lost

43:26

six billion, a quantity probably three

43:28

to four hundred billion, uh

43:30

and out of some London desk taking risk

43:32

to us credit. It really is mind blowing.

43:35

And so when it all ended, someone

43:37

from JP Morgan came over to our office and

43:39

we were one of the larger people on the

43:41

other side, but as you said, we were not nearly

43:44

their size. UM came over

43:46

with a piece of paper and said, write down your number

43:48

for letting us out. Of this trade, and

43:50

if you do, we're going to have an extra great relationship

43:52

from now on. Uh. I wrote

43:55

the number down we traded. It was we traded

43:57

fifteen billion and one one

43:59

trade. That was the size we had. And um,

44:03

we have a good relationship with JP Morgan. I

44:06

would imagine you would after being on the other

44:08

side of that trade. Did they do that with

44:11

all of their counterparties? I think

44:13

so? Um, Look, we weren't. It was nothing

44:15

personal. It's just someone's again like closed

44:17

in fund, someone selling a dollar for seventy five cents,

44:20

and and it's that's

44:22

that's our bread and butter, and especially the

44:25

the spacks. It's it's a little easier

44:27

because you know you're gonna get any v back, But

44:30

this one's tougher because you know, we're tiny compared

44:32

to JP Morgan and UH and so

44:34

we were one of four or five

44:36

counterparties that were quite large in the trade.

44:38

We made a few hundred million dollars from it. But um,

44:41

but it was more the

44:44

detective work to find it than the

44:47

than the actual game that I think is is

44:49

what stays with me. Huh, really really

44:51

quite fascinating. Let's talk a little bit about

44:53

ever Grand, which has become a bit of

44:55

a debacle over in

44:57

China, tell us a little bit about your involved

45:00

in that. So I thought, Barry, we were gonna

45:02

only talk about my greatest trades, and now you're mentioning

45:05

a giant loss maker. So let's do it. Not well,

45:08

this is this is a great trade,

45:10

just not a positive one. Um

45:13

No, it's only fair. So Evergrands

45:15

stuck out to us as

45:18

really interesting because we run a screen that

45:20

says, show me the

45:22

credit spread of a company, what

45:25

the you know, with the spread over treasuries or library

45:27

or sofur is, and and chart

45:30

that against the market cap

45:32

of the company. So how big it

45:34

is and how volatile the stock

45:36

is the you know, if you look at the equity options.

45:39

So if you look for companies that have a credit

45:41

spread like Evergrand of over a thousand basis

45:43

points, it did. It had that credit spread

45:45

when it was totally healthy, when it had a market cap

45:47

of forty billion dollars and holdings

45:49

in various entities that are

45:52

not even in the real estate space, like of

45:54

like electric cars. You know,

45:56

on top of the being the behemoth

45:59

in the needs property market, you

46:01

you have forty billion of equity, but you have

46:03

a credit spread of eleven d basis point that's basically

46:06

unheard of, and you have equity

46:08

options that are trading at a pretty attractive

46:10

level. If you wanted to buy that bond, you

46:12

have eleven hundred basis points. And if

46:14

you go and spend that eleven hundred and equity puts,

46:17

you can hedge yourself quite a bit on

46:19

the all the way down from far down to

46:22

you know, near zero. So so

46:24

why didn't that trade work out? So

46:26

we didn't hedge ourselves down to near zero?

46:28

We we you know, we

46:30

thought that the We didn't think the company the

46:32

company was going to blow

46:35

up, and we also um thought that

46:37

there would be decent recovery value and there may still

46:39

be by the way, but um, the way

46:41

everything went south so quickly. Um,

46:44

we ended up having not enough hedge on and

46:46

it was it was a loss making trade. But

46:48

I would say even just it,

46:51

these kinds of screens can help identify things

46:54

that become problems, and we've we've seen that

46:56

in a number of cases where you know, the

46:59

markets today Barry should

47:01

be more connected when you think about the passage

47:03

of time and technology. But when I

47:05

was at Deutsche Bank, the

47:07

credit and equity departments were on different

47:09

floors and they spoke to each other, but you had

47:12

this segmentation, and you assume over time things

47:15

will get more and more connected. But it requires

47:17

different disciplines, different mandates, and

47:19

so sometimes you can get a very high credit

47:22

spread and a low equity of vol or a very low credit

47:24

spread and a very high equity of vault, and that might

47:26

point to UM something

47:28

that that can lead to, whether it's

47:30

us doing the r V or someone saying

47:33

I see a short here, I see along here, And so

47:35

I really do love UM looking

47:37

across markets for clues. And the

47:40

reason I asked you about ever grand is I

47:42

began my career on a trading desk, and

47:45

anybody who only talked about the winners

47:47

and never talked about their losers, I

47:49

know they were full crap, and I can pay any

47:51

attention. But people who are

47:55

really UM skilled and polished

47:57

traders, their losses are a badge

47:59

of honor and they treat it that way. And so

48:01

that's why I had to ask you about that. Following

48:04

the London whale, let's talk about a

48:06

couple of other things you do that I think are

48:09

really really interesting. You

48:11

mentioned closed and funds.

48:14

Uh and some mispricings in that space

48:17

in my prep for this, and and you might

48:19

have referenced this to me. Um Bill

48:21

Ackman was a Deutsche banklin for a long

48:23

time. He has some closed and funds,

48:26

some of which run at a pretty substantial

48:29

discount to n A V. Tell us a little bit

48:31

about trading with Acman. Sure,

48:34

so I I met Acman and oh

48:36

two and Uh I went to go

48:38

see him after we had done some trades in NB

48:41

I A the bond insure

48:44

and UH defunct bond insure.

48:47

Basically, Uh, so

48:49

I went to his office and uh there

48:51

were boxes piles to the ceiling.

48:54

They were full. They were with offer show of the

48:56

work he had done on n B I A.

48:58

And so I saw first hand how

49:01

he understood that UM

49:03

aside from and looking at investing

49:05

that h you know, is this an attractive stock

49:08

god to go up twenty or thirty percent? He

49:10

also understands when there's potentially

49:13

ways to make fifty times your money or twenty

49:15

times your money, like he did in n BIA. And he's

49:18

done in general growth and coupang and

49:20

you know, things like that his closed end

49:22

fund because it happened to have

49:24

launched at a time where he hit a draw

49:26

down. As all investors you

49:28

know, great and not so great do. UM.

49:31

His closed end fund has stayed

49:33

at a very large discount. So I talked to before

49:35

about buying stuff at eight eight five cents in the dollar.

49:37

Bill Ackman's fund trading at about sixty

49:40

eight cents in the dollar. But that's not something

49:42

that we as activists can can

49:45

take on because he's already set the

49:47

rules so that he has the majority of the voting rights.

49:49

So there wouldn't be a way too for the activist

49:51

to have an activist UM couldn't

49:54

force a result on him. Yeah. But at the same

49:56

time, you know, he has, to his credit, bought

49:58

back a lot of the stock and UM.

50:01

And he's also UM uh you know, done quite

50:03

well over the last few years. Uh leave leave

50:05

aside. Uh you know a recent trade that he

50:07

exited. UM. But he's he's been an

50:10

amazing investor. UM. He's

50:12

really, in my view, amazing for understanding

50:15

asymmetry because I've seen whether

50:17

it's Enron with UM. You know, the

50:20

incredible work Jim Chainos did to UM

50:22

to find Enron. If you go in short of stock

50:25

and you make it a three percent position and it goes to zero.

50:27

Okay, you made three percent, but credit

50:30

derivatives if you bought protection

50:32

and end run and you you only have to pay one

50:34

percent. Even after ken Lay was out, it only

50:36

cost one percent a year for five years.

50:39

A year later it's gone and you you turned

50:41

one point of premium into about ninety

50:43

five points. You made ninety five times your money. That

50:45

kind of payoff profile is a different

50:47

skill set than the skill set of analyzing

50:50

companies. And I see examples where people

50:52

get things right, whether it's Enron or Lehman,

50:54

but they but it didn't change, it

50:57

didn't change their the outcome for their fund that year.

51:00

And I think Acman a number of times has shown

51:02

he really gets a symmetry. Now his

51:04

clothes End fund is is at a very big discount,

51:06

and if one we're looking for a top quality

51:08

manager to be able to buy

51:11

in at that discount, I think um

51:14

is really compelling. But there's

51:16

nothing we as activists can do to our the discount

51:18

really interesting. So I mentioned earlier

51:21

your tail funds. Uh, there are

51:23

some pretty famous people who run similar

51:26

or I guess not so similar tail funds. Let's

51:28

talk about now seemed teleb and spitz

51:31

Nagels funds um

51:33

Int Integral Integral. I don't

51:35

remember the name of the fund. How

51:37

does their approach differ or is

51:39

similar to your approach?

51:42

Yeah? So universe universe

51:45

But uh so, look I'm

51:48

here. You want to have good stories, you want to hear

51:50

here the so I

51:53

I've never I've never

51:55

been at first of all, let me say before I say nerve

51:57

been a fan of that

51:59

seemed to his I Q is twice

52:01

as high as mine. Brilliant, brilliant, the

52:04

smartest guy in the world, just ask

52:06

him. Okay, and but he but he happens

52:08

to be but he happens to be super smart. Um,

52:11

I don't smart. But anyway, but

52:13

you know I had I had a couple of experiences

52:15

from afar or from clothes. I'll share with you so

52:17

we can have a little fun. And so

52:20

I'm at Deutsche Bank and I'm still a pretty young guyme

52:22

speaking at a conference that we're having in Barcelona.

52:25

And he's the lunch speaker. Okay, I'm the Deutsche

52:27

whatever speaker, and he's the entertainment

52:29

for lunch. And

52:32

and so we've been all given in our in our satchels,

52:35

his book Fooled by Randomness, which is a

52:37

legendar, it's a crisis. I had

52:39

not read it, so so there he's showing

52:41

up. I'm sitting with them at some cocktails and

52:44

um, and I read the flap Jacket.

52:46

And Peter Bernstein, who was one

52:49

of my has written one of the great books about

52:51

about risk and finance, Against

52:53

the Gods. I mean when I just say those

52:55

words and I want to reread it

52:57

when I got out. Absolutely so,

53:00

Teleb somehow has gotten Bernstein

53:03

to say the most wonderful things about Fooled by Randomness?

53:06

And so what am I going to say to Toleb? I don't know him.

53:08

He sits down and I say, you know, I haven't read

53:10

your book. But but Peter Bernstein

53:13

on the five Jacket, he said, you know, he said

53:15

something that was so strong, and I really loved Against the Gods.

53:17

Now there's a range of answers that one

53:19

can say, thank you appreciated.

53:22

I hope you enjoyed the book. Can

53:24

do you have any others? Barry? Because I'll tell you what's not

53:26

in the range. How dare you not read

53:28

my book? Okay, that's that's

53:30

in the range, But it's not the range. When someone says that

53:32

to another person at that venue, and I'm

53:34

from Deutscha and common decency,

53:37

he says, Peter Bernstein is

53:39

not a very intelligent man, which

53:41

by the way, could not be further from

53:43

the truth even if it were true. So

53:46

so that the the the hubrist, the arrogance,

53:48

the so so anyway, so look

53:51

fleds fast forward the number of years. I'm

53:53

now at a different Japing Morgan conference,

53:55

not talking about the London Well, they've had me back

53:58

and I'm speaking, and I get off the stage, and now they're

54:00

introducing to Seem to Live and instead of

54:02

you know, with me, they're like, okay, he played chess,

54:04

he's Deutsche Bank whatever. With to Leb, they say

54:07

he speaks twenty six languages, and they say a

54:09

fifty other things, and he's given it to them, and

54:12

he speaks twenty six languages. Every put your

54:14

hands together. When he Seemed to Leb, he gets up and

54:16

he says, I have to make a correction. I speak

54:18

twenty seven languages. But he's not

54:20

kidding. He's he needs to make

54:22

that correction, and so I I he's

54:24

brilliant, But you know, I have to tell these two stories because

54:26

we gotta keep it interesting. On to

54:29

Universa. They have said

54:32

to Bloomberg effect, to Eric Schatzker in too

54:34

many other places, that they made four

54:36

thousand, one d and forty four percent

54:38

in thousand. Okay,

54:42

but is that that's a trade annualized,

54:44

that's not their total return for

54:47

the year. They can't possibly be

54:49

talking about those numbers. Well, so that's

54:51

a thing. If I'm talking fahrenheit and

54:54

all of a sudden, you want to talk forget Celsie's,

54:56

you want to talk Vin, you want to talk Kelvin, you gotta

54:58

say Kelvin. So there,

55:00

because you end up having false expectations

55:02

and reporting you know by the you know, innocent

55:05

journalists. But they were not saying annualized.

55:08

What they are saying is we

55:11

spend premium as we go. So we

55:13

spend let's say it's twenty basis points a month, so

55:16

point to twelve months, will every

55:18

three months, will spend sixty basis points,

55:20

will spend two point four percent a year. And on

55:22

that that you know

55:25

batch of protection. We we paid

55:27

twenty cents on we got back forty times

55:29

or money. We got eight points, So twenty cents

55:32

went to eight points. Now the

55:34

batch beforehand, and the batch before that and before

55:37

that that expired worthless. Did you see

55:39

them say they lost a hundred percent? The lost er h

55:42

percent. So we have investors to say, well, how do you make

55:44

four thousand percent? I mean, my god like

55:46

people make forty our legends. So if you run

55:48

around not just miss quoted

55:51

about four thousand, but affirmatively talking about

55:53

it, I think you're doing the investment space

55:55

at disservice to talk about returns like

55:57

that. When we talk about our returns and in the way

55:59

that we've talked about them, it's all the exact

56:01

same way that we know returns to be, which is return

56:04

on assets UM, not return

56:06

on the return you made on the a U M, not return

56:09

on an options trade you did UM. And so I

56:11

did it for fun. I looked under

56:13

their framework of what the return was for

56:15

us. It was not four thousand percent, but

56:18

because we had very little negative carry, just like

56:20

we were talking about before, it was actually

56:22

twelve I remember. But it's a

56:24

gobbledea economy. Sure the SEC would

56:26

bless those sort of numbers in a public document.

56:29

They'd be thrilled. I can't speak to

56:31

that, but we you know, for we

56:34

it's a silly way to boast about

56:36

your returns, I think so. So,

56:39

so let's talk about another big

56:41

brain. Nobody bust my chops

56:44

better than Cliff Assens. I

56:46

love mixing it up with him on Twitter. Um,

56:49

not because I expect to win, but

56:51

if I could survive fifteen rounds with him,

56:54

that that's a victory. That's more than a part of victory.

56:57

It's like, all right, I defended my position.

56:59

We just ad greed, but at least he didn't

57:01

say, you're an idiot, go away. And I love

57:03

Cliff. I find him to be endlessly amusing. Sometimes

57:07

he and to Leb get into these bizarre

57:10

fights. Tell us a little bit about what you've

57:12

seen with Asthnes and to

57:14

Leb doing battle. Yeah, so you

57:17

picked another guy who's twice as smart as

57:19

me, but he handles it with grace and humility.

57:21

How how bright he is, and he's and he sounds like a vaudeville

57:23

comedian. He's one of my favorite people

57:26

to listen to. So so he wrote

57:28

a paper that tail protection is

57:30

is not additive to portfolios, and that caused

57:33

to Leb to really critique

57:35

not only the paper but also a

57:38

QRS returns. And they got into a big Twitter spat,

57:40

which Cliff seems to seems to do every

57:42

now and again. And I was reading it really as an outsider

57:45

looking in, but as being an expert in some of

57:47

this, and I feel like, um, some

57:50

of the some of the praise that teleb

57:53

was giving himself was you can't

57:55

just look at what this two

57:57

percent that we invested out of your hundreds

58:00

sense you took two and bought the tele protection

58:02

did He says, well, what

58:04

did it allow you to do with your sixty forty

58:06

plan? Instead of being sixty forty

58:08

equities bonds? You could go ninety

58:11

eight or ninety seven equities

58:13

and two percent me. And because of me,

58:16

you've got to have all these stocks that beat bonds,

58:18

you know, mercilessly until uh,

58:21

you know, for for quite a long time with the

58:23

SMP. And he picked the smpino less and so

58:26

so when he was comparing the apples

58:28

to apples, he was taking the gains that

58:30

his tail protection allowed by

58:33

adding on top of it the gains of SMP

58:36

over over treasuries. But he

58:38

has the benefit of seeing that this was a world

58:40

or SMP app into have beaten treasuries. What

58:43

if SMP had done worse than treasuries that wouldn't

58:45

be true, which which they did for long periods

58:47

of time over the past forty years. Yeah. So

58:49

it's a little bit like like why when people have that

58:51

intuitive understanding of why

58:53

the Monty Hall problem works, why does

58:56

that behind the door there's a prize, behind

58:58

one door, there's a lion the and the

59:01

the guy shows you, the host shows you the empty

59:03

door, do you make the switch? It's because the host

59:05

already knows that there's nothing behind that door,

59:08

and so you already know that anything you

59:10

can say that allowed you to have more SMP

59:12

risk into the biggest SMP rally

59:15

after the fact, you know. So I think,

59:17

um, uh, maybe I kind

59:19

of am in between because I think if

59:21

Cliff is saying that tail production is not worth

59:24

it, well I beg to differ there. But um, but

59:26

they had Yeah, you're right, they had quite a quite

59:28

a big spat something that I I've thus

59:30

far, um you know, managed

59:32

to avoid uh in my my career. Yet

59:35

you're inserting yourself right into the middle of it. Well,

59:37

you know, I came on your show and I wanted to make it interesting.

59:39

So yeah, I appreciate that. I really appreciate that.

59:42

So, so you've mentioned certain phrases

59:44

which are really books

59:46

that Tolb has written. We've talked offline.

59:49

We've talked about the fragility of

59:51

certain institutions, certain sectors,

59:54

um and and certain investment strategies,

59:56

as well as the advantages of

59:59

skin in the game. These are two really

1:00:01

big concepts that to Leb has champions.

1:00:04

Tell us a little bit about both

1:00:06

of those issues relative to the world of

1:00:08

investment. Yeah, so look,

1:00:11

um, I think that skin

1:00:13

in the game so the head fund manager

1:00:15

having enough exposure so that if

1:00:18

the fund is going to do very poorly, and we've seen

1:00:20

a number of funds this year even you know news breaking

1:00:23

today about a fund that is down this

1:00:25

year. That the you want, um

1:00:27

not from a shot and Freud perspective, but just

1:00:30

from a equity, equity and fairness perspective.

1:00:32

You want the manager to have

1:00:35

a lot of money invested in their funds so that they're

1:00:37

treating that fund like they with their own personal

1:00:39

net worth and not literally and and I

1:00:42

am no one forced me to do it,

1:00:44

but I've had effectively all of

1:00:46

my net worth, uh that is in investments

1:00:49

in SAVA funds because I want to eat my

1:00:51

own cooking. I want to have skin in the game. I

1:00:53

think it sets the right example. And also, you

1:00:55

know, it's not so bad to be able to invest without fees

1:00:57

in a fund which at the moment my my my

1:01:00

own fund is the only one that is not charging me

1:01:02

fees. So um. So I've and I

1:01:04

have a number of different strategies. So I've really

1:01:07

put skin in the game into practice

1:01:09

by having something in the upper ninety percent

1:01:11

of of my of my network now. But

1:01:14

there have been times where I see venture

1:01:17

tech and all sorts of growth stocks going

1:01:19

up a lot, which is not my expertise, and I wonder it should

1:01:21

I diversify And so I'm having these thoughts right

1:01:23

now Verry, like should I into this giant

1:01:25

swoon um, you know, diversify

1:01:28

a bid into things with other managers

1:01:30

or index funds that I don't have any personal

1:01:32

domain expertise like tech. But um,

1:01:35

thus far um. I've really

1:01:37

ate my own cooking. And the last few years

1:01:39

it tasted very good. There have been years where it didn't.

1:01:42

Uh. And I think to the second

1:01:44

point about fragility, you do see a lot

1:01:46

of funds that go through periods

1:01:49

where they're amazing, and then they'll hit a bump,

1:01:51

and if the bump lasts more than a year or year

1:01:53

and a half, sometimes they're just done. And without

1:01:56

mentioning any names, there are long list of funds

1:01:58

that were more than ten Allien had

1:02:01

some kind of style drift issue or some whatever

1:02:04

issue and UM, and they're over in

1:02:06

a year. And I think, UM, it is a

1:02:08

fragile business. We're seeing a fund now trying

1:02:10

to figure out what to do. Should it launch a new fund,

1:02:12

should it shut down the old one after a

1:02:14

long success and then and then a failure? And

1:02:17

I think that UM. Having been through

1:02:19

draw downs myself, I went through a

1:02:22

period from the time Mario Drag said

1:02:24

trust me, it's enough, and I should have trusted

1:02:27

him. So from that period

1:02:29

of let's say June two twelve to maybe

1:02:31

June two, I couldn't,

1:02:34

you know, I couldn't get anything right and

1:02:36

UM. And to be able to come through that and out the other

1:02:38

side, UM and not succumbed

1:02:41

to the to the fragility problem

1:02:43

with hedge funds is actually something I'm more

1:02:45

proud of than the than the good years we've had. And

1:02:47

I can maybe even if you like, tell you a bit

1:02:49

about why I think we survived. Sure,

1:02:52

go ahead, Why why do you think you survived? I

1:02:54

think the first thing is you have to love

1:02:57

what you're doing. And I think back to that three

1:02:59

year drawing own, and it was not severe.

1:03:01

The losses were not severe per year. It just took a long

1:03:04

time. UM, I loved even

1:03:06

then coming into work. I love the markets. I'm

1:03:08

a just you're junkie.

1:03:10

It's the greatest puzzle. It's

1:03:13

it's it's it's a game, but it's important.

1:03:15

It's it's it's people's financial future.

1:03:17

And um, I love it. I love it, and

1:03:20

it it made it it's it's especially

1:03:22

fun when you're winning. But it made it very tolerable

1:03:25

even when I when I was in and I have a great

1:03:27

competitive drive to um to not give

1:03:29

up. And maybe some of that is the fortitude

1:03:31

even just from thinking about my grandfather

1:03:34

and so forth. UM. And then and then

1:03:36

secondly, you have to be

1:03:38

so thankful for where you are that you you could

1:03:40

be in an industry that has this type

1:03:43

of compensation that when

1:03:45

times are tough, you need to actually

1:03:47

um dig into your pocket and and fund

1:03:50

the business a little bit. And I think there's some managers when

1:03:52

the going got rough and they didn't have bonuses to

1:03:54

pay people. They you know, it

1:03:56

folded and when in our draw

1:03:59

downs, we went through some periods where I was willing

1:04:01

to invest back into the firm, earn nothing

1:04:03

in those years for myself, but knowing

1:04:06

that, UM, I have all the upside of things turned

1:04:08

around, and I think it's surprising

1:04:10

to me that more institutions

1:04:12

don't make that investment, even

1:04:14

if it doesn't look amazing

1:04:16

in that exact moment, but they there's

1:04:19

a lot of enterprise value that is there

1:04:21

for that turnaround. And UM, and

1:04:23

so uh, you know that's my antidote

1:04:26

to fragility is actually UM to invest

1:04:29

and those draw downs, I'm going to assume

1:04:31

we're fairly modest. You

1:04:33

weren't cut in half and trying to think about

1:04:35

how do I get back over that high water

1:04:37

mark. I'm assuming you had faith

1:04:40

in the process and said the

1:04:42

environment is changing and we just have to ride this

1:04:44

out. Yeah, three three percent, six

1:04:46

percent nine survival.

1:04:49

Yeah. And also, um, the other thing

1:04:51

is in my world, so the credit market could

1:04:54

not be more different than the equity market in

1:04:57

a way that people I think don't appreciate. So let me tell

1:04:59

you so if I'm short and credit

1:05:01

spreads are going tighter and tighter. So

1:05:03

now let's say the spread on hy yold is to

1:05:06

an a half percent or three, there is

1:05:08

a boundary condition where it's not going to go below

1:05:10

x. There's still gonna be a couple of faults. Whereas

1:05:13

if you're short of stock and I think game stop,

1:05:16

the stock doubles, you have to recognize

1:05:18

your risk more than doubled, or at least doubled,

1:05:20

because now you have twice the market value. And the more

1:05:22

it goes up, the bigger position is. The more

1:05:25

credit protection, the more shorting

1:05:27

bonds, let's say, goes against you, the smaller

1:05:29

your exposure is. And so one of the things

1:05:31

about credit is it's

1:05:34

a it's an accordion. There's a boundary um

1:05:36

and and in those moments where

1:05:39

owning volatility and owning protection was

1:05:41

not um the best thing to have, credit

1:05:43

spreads were ultra low and really you just couldn't lose

1:05:46

much more. And maybe that's part of where the confidence came

1:05:48

from. So so let's talk about you

1:05:50

mentioned equity. Let's talk about another

1:05:53

fund that did spectacularly

1:05:55

well in but

1:05:58

seems to have stumbled. And there's

1:06:00

no clear path to recovery right

1:06:02

now ARC. And and by

1:06:05

the way, I'm not part of the Schaudenfreud crew

1:06:07

who don't like her. I think she's

1:06:09

really interesting and innovative and

1:06:12

has the um, you know, conviction

1:06:14

and confidence in her beliefs. In she

1:06:18

was the top performing fund I think a hundred

1:06:20

and sixties something that no one was even close.

1:06:22

Number two was like fifty percentage points

1:06:26

under her. But since the

1:06:28

fun peaked, it's been almost straight

1:06:30

down. She sold off. I think she's

1:06:32

excess of sixty down, maybe even

1:06:35

sent down, and filled

1:06:37

with things like tele aduc and Netflix

1:06:39

and um Tesla.

1:06:41

A lot of the big winners became big win losers.

1:06:44

I don't remember she's in Netflix, but certainly

1:06:46

Tesla tell doc um the

1:06:49

bitcoin five hundred thousand,

1:06:51

call the fifty percent a year for

1:06:54

the next five year call. Uh.

1:06:56

She seems to have lost her way. What

1:06:59

are your thoughts of about that sort

1:07:01

of self confidence heading into what's

1:07:04

been a reopening buzz all.

1:07:07

Yeah, So we're actually tracking ARC

1:07:09

quite closely because the ARC portfolio

1:07:12

is not altogether different than the

1:07:14

list of companies that SPACs are requiring.

1:07:16

They're all future innovative

1:07:19

unprofitable tech companies, I

1:07:21

think flying cars and UM. And

1:07:24

so we've we've seen

1:07:27

what happened to ARC. And one thing we like about

1:07:30

about SPACs is that all the deals that will be struck

1:07:32

here from now on are gonna be

1:07:34

struck at the current market, whereas in in

1:07:36

ARC you're really hoping for it to return to the glory

1:07:39

days of of the past.

1:07:41

UM. But I think there are some good deals

1:07:43

that can be made in this more difficult environment.

1:07:46

And so those warrants you own in a spack

1:07:48

or struck at the market, they're not out of the money. If you

1:07:50

think about if you had along dated option

1:07:52

on on ARC, that's very far out of the money. Now.

1:07:55

Now, as far as her confidence,

1:07:57

I do witness you know,

1:08:00

if someone's down that much, this

1:08:04

is a humbling market. And it's

1:08:06

not particular to Cathy would but I think I've

1:08:08

seen a number of cases where people are

1:08:10

way too confident about the future, and if they

1:08:12

were up fifty would be one thing. If you're down, probably

1:08:15

there's there's an extra dose of humility. So

1:08:17

one thing I thought was kind of uh telling,

1:08:20

there was in February she

1:08:23

um spoke, I don't remember which which

1:08:25

program was on and said, um, some

1:08:28

of those calls that you mentioned very about bitcoin, uh

1:08:31

and make a year. And

1:08:34

by the way, you know, great claim should be backed

1:08:36

by a great evidence, such Carl Sagan. So I didn't.

1:08:38

I didn't see the evidence. But but but

1:08:41

she said also that something that really kind

1:08:43

of it's a pet peeve of mine. She said, the lows

1:08:45

for ARC were in January, and this is in February.

1:08:48

I guess what happened within two days? Another

1:08:50

leg down. So you know, you want to say

1:08:52

something about what will happen in five years. We

1:08:55

were not going to remember in five years whether

1:08:57

you're right or wrong, but we're gonna remember when the thing you

1:08:59

said and happen happens the next

1:09:01

day. And I saw it also a few weeks ago one

1:09:03

of the big banks said oil

1:09:06

will not be lower than a hundred for

1:09:08

the remainder of the decade. We we don't want to

1:09:10

beat up on JP Morgan because they were on the

1:09:12

other side, but I saw that hundred dollar in

1:09:15

oil trade. Um, you'll never see

1:09:17

below hundred. What did it take three days to break

1:09:19

below hundred? I actually think that one was the next day

1:09:21

tree day in true day. So so you know, don't say what's

1:09:24

not gonna happen for three thousand days or whatever, and

1:09:26

and and get it wrong the next day. There should

1:09:28

be a Murphy's Laws. There should be some someone

1:09:30

should name the what that law is, where if

1:09:32

you say it, you're damning yourself. So so I see

1:09:34

way too much hubris over

1:09:37

confidence, even in the face

1:09:39

of giant losses. And it really it

1:09:41

kind of drives me crazy because when I get asked,

1:09:44

well, what does your crystal ball tell you? I say, first

1:09:46

of all, this is the wrong time,

1:09:49

you know, it's foggy. It should be like, like

1:09:52

people get so used to recency

1:09:55

bias. What's been true for the last month, what's

1:09:57

been true for the last three years? Extrapolating

1:09:59

for a yeah, and we're now in the world. Maybe you're

1:10:01

supposed to look at charts in the nineteen seventies and

1:10:04

uh, you know we're talking given more inflation

1:10:06

is and we should all be super humble because

1:10:08

prediction is a very hard business. And I

1:10:11

think the problem is that people who predict

1:10:13

the loudest, you know, get the most attention. And

1:10:16

and it's um uh,

1:10:18

boy, is a tough sledding right now. This market is so challenging.

1:10:21

So so there are two other um

1:10:24

post pandemic issues I wanted to talk

1:10:27

to you about. One is the

1:10:29

meme stocks um game

1:10:31

stop amc Robin Hood. Uh,

1:10:34

tell us a little bit about what you were

1:10:36

thinking with those? Were you trading

1:10:38

those? Were you on either side of that trade?

1:10:41

And were these

1:10:43

just people board at home or or what's

1:10:45

going on with this? I think there's

1:10:47

a lot. There's a lot to the story.

1:10:50

Um. And Uh, you

1:10:53

know, we've seen cases where somebody's too

1:10:55

short and they didn't realize being too short

1:10:57

can create its own problem, and that could be the entire

1:11:00

your investment thesis is is if

1:11:02

we push it up high enough, they have to be be squeezed

1:11:04

out and um, and it more more becomes

1:11:07

a supply demand thing. Um. But

1:11:09

but I also see that in one

1:11:12

right around the time that people are getting stimulus checks

1:11:15

and you know, the the rise of and

1:11:17

you see n f t s taking off and crypto

1:11:20

taking off even another leg higher, that

1:11:22

there's basically been a degradation

1:11:25

in the importance of what

1:11:27

something ought to be worth, what the

1:11:29

value ought to be, and the price of something

1:11:32

is much more determined by the

1:11:34

physics of it. The puh,

1:11:37

the push and the pull and and and not

1:11:39

about economic models, more about physical models.

1:11:41

And so so you see the combination

1:11:43

of people buying out of the money call options,

1:11:46

whether it's with their stimulus checks or their net worth,

1:11:48

and it working. And I saw you in

1:11:50

the heart of game stuff. So we were basically

1:11:53

uninvolved. But I couldn't resist Barry when like

1:11:55

maybe game stop was three fifty, I was. I was actually

1:11:58

using to fine h a brush because

1:12:00

I knew if I lost money and this would be embarrassing. So I was I

1:12:03

did it too small and and waited

1:12:05

for too too good a level and didn't get any

1:12:07

kind of reasonable size. But there was a day where

1:12:09

like the game stop was near the highs were

1:12:12

a call for three weeks a hundred percent

1:12:14

out of the money, like game stops at three eight.

1:12:16

But the eight hundred call is that such

1:12:18

an astronomical number that it costs like a

1:12:21

hundred and fifty points or something, And the vall literally

1:12:23

broke people's computers. They couldn't they couldn't

1:12:25

do pn L that night because it was the vault was

1:12:27

some four digit number. And so I

1:12:30

don't think those investors are sophisticated

1:12:32

on on equity options. But but for

1:12:34

many of them it worked, and it was it was

1:12:37

a you know, it was an incredible

1:12:39

moment. But it reminds me that that

1:12:42

love of call options started

1:12:44

last the summer before um soft

1:12:46

Bank set up an entity to trade short term call

1:12:48

options on the tech names they liked, and

1:12:51

the sellers of these options,

1:12:53

as sellers of all, whether it's puts

1:12:55

or calls, you know, basically blew up during COVID

1:12:58

short vall funds that had done incredibly

1:13:00

well when there was no volume, not surprisingly

1:13:03

blew up. And so you didn't have the supply, you

1:13:05

had the demand. And so I see today um.

1:13:08

You know, n f T s are kind of like an option. They have an

1:13:10

asymmetric payout that people are

1:13:12

in love with option like payouts and um

1:13:14

and as a consequence, volt is

1:13:17

elevated even in the nine times even

1:13:19

last year. You know, Barry, you've been. You probably

1:13:21

know way more about the VIX and the history

1:13:23

of it than I do. But the VIX never

1:13:25

really went below twenty last year for more than a day

1:13:27

or two. Even in tranquil times go back five

1:13:30

years earlier, twenty was like a read

1:13:32

alert. You know, all we're in a we're in a correction

1:13:34

or a bear market, but we've been between twenty

1:13:37

and forty since COVID, and I

1:13:39

think these volatile times are going to

1:13:41

stay with us. One last question

1:13:44

before we get to our favorite question, which

1:13:46

is you hired Stephanie

1:13:48

Rule at Deutsche Bank and

1:13:51

she tells me that you had a business

1:13:54

as a New York City dog walker. So you

1:13:57

have to tell us about hiring

1:14:00

and dog walker? What the hell is that, Barry?

1:14:03

This is this is low. You've really gotte low. I'm

1:14:05

trying to go high and uh, you gotta

1:14:08

Okay. So I was thirteen. My

1:14:10

parents wouldn't let me watch TV and the Sony

1:14:13

Watchman had come out, and uh, black

1:14:15

and white TV about two by two, and this

1:14:17

is the nineteen eighties, and so I thought if

1:14:19

I had some money, I could buy one for a hundred dollars. And

1:14:22

um, So I used to walk dogs. I grew up

1:14:24

on the Upper West Side, uh, which was

1:14:26

not the safe place it is today back then

1:14:29

in the in the late eighties. And um,

1:14:31

and I tell my kids that in one

1:14:33

instance I had one of those extended

1:14:35

Alisha's. The dog ran ahead, ran

1:14:37

into the elevator, elevator closed, and

1:14:40

it started going up and I'm holding this big plastic

1:14:42

thing that I can't even get rid of, and

1:14:44

it gets pulled from my hand, and it

1:14:47

seemed like way too many seconds. It's

1:14:49

up in the corner of the elevator door,

1:14:51

and I'm thinking the dog is dead because the elevator

1:14:53

went up and came down, you know,

1:14:56

bouncing around. But it was totally okay. So

1:14:58

my my dog like career was literally the almost

1:15:00

uh ended in in one in

1:15:02

one cut. Um. But I um, when

1:15:05

I when I was a kid, I did that. But

1:15:07

two years later I was working as a summer

1:15:09

intern and after school at Marylynch, so

1:15:12

um. Stephanie really got me with that one. She

1:15:14

is basically one of the best things

1:15:17

that ever happened to me. At Deutsche Banks,

1:15:19

I knew a credit sueez. She was so good as

1:15:21

my salesperson that I would forego

1:15:24

that benefit to have her at

1:15:26

the bank, and I helped bring her in. Huh. That's

1:15:28

that's really interesting. All right, Let's jump to our favorite

1:15:30

questions that we ask all of our guests,

1:15:33

starting with tell us what you've

1:15:35

been streaming these days on your two by two

1:15:38

sony uh TV man? Whatever

1:15:40

that was? I remember that was like a Dick Tracy

1:15:43

watch almost. Um what are you watching

1:15:45

on Netflix or Amazon Prime or whatever?

1:15:47

Sure, so um uh,

1:15:50

I definitely watched my favorite bit of TV.

1:15:52

I'm doing with one eye, so i'm you

1:15:54

know, the other I'm I'm at

1:15:56

least when my kids are asleep. I'm definitely following

1:15:58

the markets at you're closest here. But

1:16:00

I just finished the first six episodes

1:16:03

of Slow Horses with Gary Old. I just started

1:16:05

that this week. I have to tell you

1:16:07

there are so many lines of his that

1:16:10

are just so quotable, and they're they're just there.

1:16:13

I think the writing is brilliant and m

1:16:15

and the show I'd give it an a minus,

1:16:18

but his lines are in a plus. Um. So that

1:16:20

that's what I finished. I'm about to start season two

1:16:23

of Tehran and my wife is

1:16:25

from Tehran, and in season

1:16:27

one, right in the heart of COVID before

1:16:29

Apple started uh streaming

1:16:31

it, um, it was a

1:16:34

an Israeli show in Farsi

1:16:37

and sometimes in Hebrew and so um

1:16:39

so my COVID memory is my in laws and

1:16:42

my wife doing simultaneous translation

1:16:44

for me. Because there were no English subtitles. I

1:16:47

certainly couldn't understand the Farsi and so

1:16:49

we that was a really nice family activity. And

1:16:51

I thought that was really a great show. Huh. Have

1:16:54

you watched another Israeli show, Fouda?

1:16:58

I have. I've actually met the cast.

1:17:00

I think it is very good. I've seen all those

1:17:02

shows. Um, I can't watch it

1:17:05

before you go to bed because you just like so stressed

1:17:07

out. It's the it's the most suspenseful,

1:17:10

exciting thing on TV. Yeah, yeah,

1:17:13

really interesting. Tell us about some of your mentors

1:17:15

who helped shape your career. So

1:17:18

my start is because a woman who went

1:17:20

to Hunter Elementary School as

1:17:22

a kid put up an ad at Hunter and it's Dyvesant

1:17:25

where I went looking for someone to come

1:17:27

in after school and help her arrange

1:17:29

meetings and put you know, cards in uh

1:17:32

in folders and listen to

1:17:34

uh read stock research in my spare

1:17:36

time. So that was Jeanine Crane. I'm still

1:17:39

close with her to this day. She was a high

1:17:41

net worth broker at Meryl and I worked there from

1:17:44

fifteen to seventeen. And then the great

1:17:46

David DeLucia from a Wars poker

1:17:49

who ran the junk bond desk at Goldman,

1:17:51

the chess player who gave me my start

1:17:53

at Goldman was an incredible mentor to

1:17:56

me. But you know, Barry, I I think

1:17:58

the importance of having some that you can ask those

1:18:00

questions too, and why did this happen? And

1:18:03

what do you think? And why did you sell this? Are

1:18:05

so crucial when you're young. But when I got into

1:18:07

credit ord of January

1:18:09

night i joined Deutsche, I'm still only

1:18:13

years old, and um there's

1:18:16

no one to really learn about credit orders from because

1:18:18

it's the things brand new. And my my

1:18:20

two bosses actually left the bank six

1:18:22

months after I started. So I really was alone

1:18:25

in the wilderness during LTCM

1:18:27

in Russia and it was it was a it

1:18:29

was an incredible experience. I was the most junior person

1:18:32

on the desk and the most senior because it became a

1:18:34

group of one and they let me in hire

1:18:37

some people and the rest is history. Interesting.

1:18:40

Let's talk about books. What are

1:18:42

some of your favorites and what are you reading right now? Uh?

1:18:46

Well, so I'm gonna read I'm about to reread

1:18:48

Against the Gods. Now that we had this awesome

1:18:51

conversation about Peter Bernstein, Um,

1:18:54

I'm not that into reading

1:18:56

the latest book. Um, so I've

1:18:59

gone back and read some books that I should have read

1:19:01

before. So this uh, the last

1:19:04

few months, I read The Powerbroker by

1:19:06

Caro and um just

1:19:08

feeling a little bit uh interested

1:19:10

in my own personal history um

1:19:13

and this trip to Yad Vashem.

1:19:16

Quite recently I reread Man Search for Meaning

1:19:18

by Victor Frankel. UM. But a few

1:19:20

years ago a book that is kind of one of those

1:19:22

books like that that

1:19:24

people in our community read about

1:19:27

different topics about whether it's finance

1:19:29

related or or skill versus

1:19:31

uh, nurture nature.

1:19:34

Uh. There's a book called Range by David

1:19:36

Epstein that I thought had some really

1:19:39

interesting chapters that I was unfamiliar with.

1:19:41

Whether it's the spatial disaster is

1:19:43

a little familiar with, or violinists

1:19:46

of the eighteenth century. It's it's really a tourtive force.

1:19:48

Um. You can get the basic ideas from it pretty

1:19:51

quickly. But I quite enjoyed it. Huh.

1:19:53

Really interesting. You mentioned Liars

1:19:55

Poker before. I just reread

1:19:58

it for the first time in like thirty years

1:20:01

when I had Michael Lewis on recently, and

1:20:03

it's surprising how well it holds

1:20:05

up over time. And there's a book I'm

1:20:07

gonna recommend to you, because I get

1:20:10

a sense of your likes and dislikes. Have

1:20:12

you ever read godal escher Bach.

1:20:15

It seems like that's right up your alley. So

1:20:17

I tried to read it as a college student, and I kept

1:20:20

trying because I knew this, well, this is a book

1:20:22

that's people who think, you know that they can understand

1:20:25

complicated things should read and I am. I loved

1:20:28

parts of it. I'm I need to

1:20:31

need to give it another look because it's been thirty years.

1:20:33

I literally had the same experience. I fought

1:20:35

through it in college and said, I got to reread

1:20:37

it, and it's on my list to reread

1:20:40

same same exact things. Um. Last

1:20:42

two questions, what sort of advice would

1:20:44

you give to a recent college grad

1:20:46

who was interested in a career? Uh

1:20:49

in finance. You know, I

1:20:51

had people over the years very

1:20:54

frequently at Deutscha asked me. Let's

1:20:56

say they were summer intern that wanted to get a full

1:20:58

time job, or as a person in operations that

1:21:01

wanted to get a trading job. And they'd

1:21:03

say, at the end of the summer or at the at the end of

1:21:05

some period, how do I get a job on the trading desk?

1:21:08

And I would sometimes, and we we were pretty

1:21:10

good about actually giving those opportunities.

1:21:13

I'd say to the person who didn't

1:21:15

deserve it, let's say, well, you know, we have this

1:21:17

seven thirty meeting where all the traders

1:21:19

go over their top positions and the salesforce asked

1:21:22

questions, why haven't I seen you in those

1:21:24

meetings? Oh? I you know, I didn't

1:21:26

my job starts at date, or that's I didn't know I

1:21:29

could go to those meetings, you know. And there's decisions

1:21:31

like that, like should you go to that meeting or should

1:21:33

you read the week's research and ask a question,

1:21:36

even if you work in operations, or even if you're a summer

1:21:38

intern and a reasonable person

1:21:40

on the other end will should look at that

1:21:43

with loving eyes. And I feel like some

1:21:45

people want it, but they don't do the

1:21:47

things they need to do to deserve it. And if

1:21:49

it's if it's about business, there's

1:21:52

almost nothing that would be too aggressive

1:21:54

for someone to do, like showing up at a meeting

1:21:56

they weren't invited to that fifty people are in. It's

1:21:58

not a secret meeting. And I think young people

1:22:01

who want to get ahead, um, who

1:22:03

want to be doing something different, need

1:22:05

to uh do those

1:22:07

things and our final question, what

1:22:09

do you know about the world of investing today

1:22:12

you wish you knew back when

1:22:15

you were first getting started as

1:22:18

an investor. I mean, this is an amazing

1:22:20

question as an investor that has

1:22:23

to think about when is it cheap

1:22:25

enough? How what's the discount one needs on a

1:22:27

spack or on a closed in fund, or the mispricing

1:22:31

between a credit and an equity to put

1:22:33

on a trade. I think that, um, if

1:22:37

I could go back, I would tell myself

1:22:39

that my imagination for how crazy

1:22:42

things could get is not enough.

1:22:44

You know, if you think about, like if you took the

1:22:46

government bond traders of pre

1:22:49

O eight and sent them to the moon and left

1:22:51

them there for years, and brought them back and tell

1:22:53

them that interest rates, oh you're back, you know, here's

1:22:55

your you know, uh, here's

1:22:58

your newspaper. Interest rates are negative. I think to

1:23:00

them would think like you're playing a prank on them. We

1:23:02

have we have Swiss rates negative to fifty years,

1:23:04

like it's not just a three month bond, like fifty

1:23:06

thirty years negative and and so so

1:23:09

I think the market never will cease

1:23:11

to surprise and people who

1:23:14

get tracked into recency

1:23:17

bias and this is the way things are,

1:23:19

and this is the way they'll be. They're not imaginative

1:23:21

enough about what can happen, and it's it's those

1:23:24

extraordinary things that happened where the real

1:23:27

amazing payouts are. You know, maybe an

1:23:29

example now something that hasn't worked instead is

1:23:31

there are probably some currency pegs that people

1:23:33

assume are going to be there forever and you

1:23:36

know, you just have to be right one time in a hundred

1:23:38

years and you're gonna get paid back five dred times

1:23:41

or a hundred times and things. I

1:23:43

think, Uh, with what's happened now

1:23:45

with with Ukraine and Russia and COVID

1:23:47

and China and inflation, I think we're in

1:23:49

a world where the impossible can

1:23:51

be possible and we should think creatively

1:23:54

about um a range of outcomes

1:23:56

instead of what's the central what's the central

1:23:59

theory? Thank you o As for being so generous

1:24:01

with your time. We have been speaking with BoA's

1:24:03

Weinstein, founder of Saba Capital.

1:24:06

If you enjoy this conversation, we'll

1:24:08

be sure and check out any of the four hundred

1:24:11

previous ones we've done over the past eight

1:24:13

years. You can find those at

1:24:15

iTunes, Spotify, wherever you find your

1:24:18

favorite podcasts. We love your comments,

1:24:20

feedback and suggestions right to us at

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might be podcast at Bloomberg dot net.

1:24:26

Follow me on Twitter at rid Halts. Check

1:24:28

out my daily reads at Dholts dot

1:24:30

com. I would be remiss if I

1:24:32

did not thank the correct team that helps put these

1:24:34

conversations together each week.

1:24:36

Mohammed Ramaui is my audio engineer.

1:24:39

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1:24:42

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1:24:45

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1:24:48

I'm Barry Results. You've been listening

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