0:02

This is Master's in Business

0:04

with Barry rid Holds on Bloomberg

0:06

Radio.

0:08

This week on the podcast, ed

0:10

Heiman returns to talk about all things

0:13

economic analysis, what's going on

0:15

in the world, how he's built

0:18

an incredible career. Oh my

0:20

god, forty three times number one

0:22

ranked in the Institutional Investor Survey

0:25

in economics. That's just unprecedented,

0:28

and I'll keep saying, no one will ever beat

0:30

that that streak.

0:34

Ed is a fascinating guy. He's built a fascinating

0:36

company. He is one of

0:38

those people who focuses

0:41

on figuring out what's happening here and

0:43

now and is less concerned

0:46

about making forecasts about the future.

0:49

His clients adore him. He helps

0:51

keep them on the right side of

0:53

the trade, and he's really

0:56

just one of these legends and

0:58

gems on Wall Street. I

1:00

could keep going, but let me just stop and

1:03

say, with no further ado my

1:05

conversation with Isi ever coruse

1:08

Ed Hyman, Great to see you,

1:10

Great to see you. You know, the last time you would hear

1:12

that number was something like thirty five times,

1:14

all right, which was also unbeatable. That

1:17

is a record that I don't

1:19

believe we'll ever be topped. Before

1:22

we get into the details of your

1:24

career and your work. How

1:27

on earth is anyone ranked number

1:29

one for forty three consecutive

1:31

times? That's amazing.

1:33

I don't know.

1:35

I've been really lucky in my career and

1:37

I listened to your show all the time, and most

1:40

people will say that good lucky, and

1:43

frankly, if they've done a lot, they have to have been

1:45

lucky. My greatest talent is

1:47

work. I'm

1:50

really a hard worker. I know

1:52

how to work. I like working, and

1:54

so that's maybe number one.

1:57

Wouldn't you say that in fine

2:00

which is such a competitive field hard

2:03

work and intelligence, that's just table

2:05

stakes to get into the

2:07

game, isn't it.

2:08

It is?

2:08

But it's table stakes in every

2:10

game, and it doesn't

2:12

change much. And they are people I

2:15

know that work harder than I do, and

2:17

they do.

2:18

Better, well, not better than forty

2:20

three in a row. I like

2:23

Peter Lynch's description of what made

2:25

you successful? I think it was in

2:28

his book One Up on Wall Street. Ed Heiman

2:30

is much more practical than most economists.

2:33

He's more interested in examining railroad

2:35

cars than Laugher curves. What

2:38

does that say about what makes

2:40

you special and different from

2:42

other economists?

2:44

First, I like working, and

2:46

I've worked to the point that I've found something

2:49

I really enjoy doing. You know, that's maybe

2:51

the second most important thing for anybody,

2:53

for you or me. I

2:56

have a real interest in helping people,

2:58

which you know, some people have that interest

3:01

and some people don't, but I do.

3:03

And so I met Peter Lynch.

3:06

Was it fifty years ago or forty years ago?

3:08

I said, I got to help this guy, and

3:11

he said, no, thanks. I said, wait a minute,

3:14

I'll come back. And so I tried

3:16

to find something that I could do that

3:19

would be of interest to basically

3:21

an equity investor. And he's,

3:23

you know, maybe the best that's been around. And

3:26

so he set me off in

3:28

a direction that was practical

3:31

and at that point, commissioned business

3:34

that he generated was ginormous,

3:37

I'm sure, and so I was incentivized,

3:40

you know, monetarily to help him.

3:42

I wouldn't put him as a mentor because

3:45

I didn't spend that much time with him, but he

3:47

definitely influenced my career in a

3:49

practical way that I think has

3:51

served me very well ever since then,

3:53

because I'm always trying to find things

3:56

that are practical, and now I happened

3:58

like art Laugher. You mentioned the laugh recur,

4:01

which I think is frankly pretty much

4:03

a Stroker genius. But you know, it's

4:05

not something that people make money off of

4:07

every day. So I'm trying to mix both

4:10

things that are intellectual and theoretical

4:12

as well as things that they have a practical side

4:15

to them.

4:15

So let's talk a little bit about the genesis

4:18

of that practical side. You get your

4:20

BS and engineering from university

4:22

to get asses right, so engineers

4:25

tend to be pragmatic problem solvers,

4:27

and then you get an MBA from

4:30

MIT, so you have all

4:32

of this very pragmatic experience

4:35

as opposed to getting a PhD

4:38

in economics, which tends to be a little more

4:41

abstract and academic. How

4:43

much of your rankings

4:45

come from the fact that you have

4:47

these very problem

4:49

solving oriented academic

4:52

background. How did that affect you a

4:54

lot?

4:55

You know, if you're hard working and you're trying to do

4:57

things that people value

4:59

and my client base, if

5:02

you will, or institutional investors,

5:04

I went all the time.

5:06

So let's talk a little bit about

5:09

the early days of your career. When you come out

5:11

of school nineteen sixty nine

5:13

to seventy one, you're an economic consultant

5:16

at Data Resources. What

5:18

did you do for those guys? That sounds kind

5:20

of.

5:20

Interesting whenever Auto, actually I

5:23

wanted some coffee, I brought

5:25

it to him.

5:26

So you started as a very junior

5:29

person.

5:29

On the tone, I'm pretty junior, but at

5:32

that point I had a pretty

5:34

special knowledge of econometrics.

5:38

At MIT, they had the first time

5:40

sharing big mainframe, big mainframe,

5:42

but you could share the data, share

5:44

the computer programs. And

5:46

the first real practical application

5:50

was the Sage American

5:52

Airlines ticket system, which

5:54

is a time sharing where you get your

5:56

tickets, and.

5:57

That eventually became Saber, right

5:59

Saber.

6:01

And so I had done that at MIT, and

6:04

Auto x Stein, who was a professor

6:06

in the economics department at Harvard,

6:09

he started a company that did that

6:11

exact thing.

6:12

They're right down the street from MIT.

6:14

Right right there, And I

6:17

was working for a professor named

6:19

ed Ko who was a friend of Auto x

6:21

Stein, and so they were talking and I got the

6:23

job. So that was a stroke of good luck.

6:26

Plus I was in the right spot at the right time.

6:28

What was the data like back then, I'm

6:30

thinking of punch cards and very rudimentary

6:33

computing.

6:34

It was before then and actually I did

6:36

a lot of punch cards. You're

6:38

too young for this.

6:40

When I started college, punch cards

6:42

and time shares were still a thing, but

6:45

it was a fading thing and the newfangles

6:47

technology was coming. You saw it on

6:50

the horizon.

6:50

I just jumped right over that card

6:53

deck into data resources,

6:55

where the data was in a computer

6:57

you shared and have

7:00

to carry the deck around, and it

7:02

was a major step forward.

7:05

Pretty much the same technology as today.

7:08

We still use the Data Resources

7:10

system constantly and the data

7:12

is there. The only thing has changed is there's much

7:15

more data.

7:16

More data, faster, bigger. It

7:18

just has obviously scaled up a lot since

7:20

right then.

7:21

So it's not just government data now there's a lot

7:23

of industry data.

7:25

Which you guys will talk a little bit about what ISI

7:27

does in assembling its own data. Let's

7:30

just continue along your career seventy two,

7:32

you end up at CJ. Lawrence. Tell

7:35

us what you did there, What was that work

7:37

like?

7:38

So at Data Resources,

7:41

I worked with our clients and

7:45

Otto Eckstein, who is a

7:47

spectacular human being. He

7:49

passed away, I think in his fifties,

7:52

and he went from the cover of Time magazine

7:54

to not being with us anymore. But

7:57

he was a phenomenal person and

7:59

he had this game plan. He would

8:01

hire people out of school that

8:04

seemed to be over the ball on the ball

8:07

right, and they would work for data resources

8:09

and take care of clients, and then a client

8:11

would hire them.

8:12

And he said that's great, and.

8:14

He just locked in as a client. They locked

8:17

in as a client. So I remember telling him. I

8:19

think I called him auto. I shouldn't have, but I did.

8:22

I said otto, I said, I have a job, offer

8:24

to go to work for one of our clients, c

8:27

J. Lawrence, And he said,

8:29

oh, ed, that's great. I

8:32

kept waiting for the counter. So

8:35

I remember he took me to lunch

8:37

at Friendlies.

8:40

For a fribble and some fries.

8:43

But anyway, so that was how I got to C. J.

8:45

Lawrence.

8:46

Didn't they end up getting purchased by was

8:48

it Deutsche Bank?

8:48

By Deutsche Bank?

8:49

Right? How did that affect your plans going

8:52

forward? Did you want to go to a big

8:54

bank or is that what led to the next

8:56

step in your career?

8:57

That was the next step, and that was is.

9:00

I So that's ninety one. So you were you

9:02

were CJ. Lawrence for a good, good while for

9:05

twenty years as Wow, all right, so you

9:07

found ISI group with some

9:09

partners. Tell us a little bit about

9:11

the plan for launching

9:13

an independent economics research

9:16

shop.

9:16

So at that point I had a pretty

9:18

big career. I'd been ranked

9:21

I back in the seventies, if

9:24

you can do the math, and I had a

9:26

to.

9:26

Be fair in the beginning, you were only

9:29

like runner up. And secondly,

9:32

you really weren't carrying your share

9:34

of the workload. You were coming

9:36

in second place. I mean, that's just no.

9:38

You have to start somewhere.

9:41

Start at number two and up.

9:43

And it was easy.

9:44

Transition to start my own shop.

9:47

And I had a group of people and

9:50

Jim Moltz ran CJ Lawrence

9:52

and he was and still is like a

9:54

father to me. So he was very helpful.

9:57

We all could tell that it probably

9:59

wasn't the best fit for somebody who

10:01

liked working for small companies to work for

10:04

a big bank. I told I told him.

10:06

He said, okay, would

10:08

you stay until we find a replacement for

10:10

you? I said, of course. He

10:13

came in one day he said that we've got some good news.

10:15

We found a replacement for you. It's ed Yardinney.

10:19

And I said, okay, that's great. I said,

10:21

okay, if I sent an announcement out, he

10:23

said, it's okay, I've already sent one out.

10:27

Yordini was at Deutsche Bank for a long time

10:29

until he launched Yordini Research.

10:32

Yeah. He's very good.

10:33

Really, he lives in the next town for me. We actually

10:36

go out to dinner. Yeah, yeh, super nice guy. So

10:39

let's talk a little bit about is I was

10:41

both a research shop, but you also

10:43

set up IS a funds management for

10:46

investors and clients. Two different groups.

10:49

How did they co exist under the same roof?

10:51

It was Okay, It wasn't a

10:53

great business. Frankly, it's not as strong

10:56

as your business in the asset management business.

10:58

I think I got up to maybe did get up to maybe three

11:01

billion.

11:01

Yeah, but your research side of the

11:03

shop generated that was enough activity

11:06

to make up for it. Yeah, that was I

11:08

forget what what you call it the side

11:10

hustle. Your side hustle was managing

11:12

institutional right assets. Your real

11:14

business is having

11:17

the best perspective of what is happening

11:19

this moment in the economy. And

11:22

again, according to II, nobody does that

11:24

better than you did. How

11:26

long after you launched II did

11:29

you get a sense that hey, we really

11:31

have this figured out. We're

11:33

providing research product

11:36

that nobody else on the street seems to be doing.

11:38

Actually, that had happened at CJ.

11:40

Lawrence.

11:41

You know, by the time I started is I had already

11:44

gotten a strong following and

11:46

knew what I was doing in that space,

11:48

and so I just made a transition.

11:50

At that point ninety ninety one or

11:53

recession years and stop market,

11:55

you know, had a pretty big drop, and I

11:57

thought, well, this is a bad idea, your

12:00

own coveny.

12:00

It turns out to be the perfect time to start your.

12:02

Own Nay, it is a perfect time.

12:03

But you know that you learn that

12:06

a little later, but it is a perfect

12:08

time. At that point, I thought, well, if it doesn't

12:10

work out better than what I was doing, right,

12:13

So I had very low expectations. And then it

12:15

turns out, you know, the market, if you go

12:17

from ninety one forward, market just

12:19

sort of went up and business was good. It was

12:21

good basically until maybe twenty ten,

12:24

and since then it's it's been very

12:26

difficult.

12:27

So you've seen changes in the seventies

12:29

and eighties, right, you had the bull market

12:31

in the nineties, the financial

12:34

crisis in the two thousands, the

12:37

twenty ten seemed totally

12:39

uneventful other than the fact that you

12:41

know, there was no yield on the fixed income side.

12:44

And here we are in twenty twenties, first

12:46

the pandemic, now the increase in

12:49

rates. In your long career

12:51

in Wall Street, is there ever a decade

12:53

where something isn't blowing up

12:56

or going crazy? Isn't that just

12:58

the normal state of affair? I

13:00

try to explain this to the younger guys in my office,

13:03

like, Wow, this is crazy. It's like, no, no, something

13:05

crazy is always going on.

13:07

The crazy is always crazy, right, am I am?

13:09

I like not overstating that, or I

13:11

would.

13:12

Say, you know, in a research response

13:14

to you, So, I've been through thirteen

13:16

FED tightening cycles, right, and

13:19

everyone has had a financial shocker

13:21

crisis Cutton, Illinois eighty

13:24

four, for example, But every single one

13:27

New York community bank it's just par

13:29

for the course, might even not even quite

13:31

par. But I mean, so I would be surprised

13:34

if we don't have another one. It's

13:37

part of the tightening cycle.

13:38

I think, even if the FED is

13:41

arguably done tightening, you

13:43

think there's still more cockroaches

13:45

coming out. Yeah, fascinating.

13:47

But I would also say, trying to put

13:49

things into a historic perspective that we

13:51

might enjoy a decade from now.

13:54

They'll curve still inverted, right, which

13:56

is a tightening move. And every week

13:58

the FED shrinks is balance sheet and

14:01

it's doing about a trillion a year,

14:03

which is not exactly.

14:05

So you're saying, you're saying the financial

14:07

conditions are tighter presently.

14:10

Then people seem to realize.

14:12

Not just the financial conditions, because the market's

14:14

up so much and credit spreads are very

14:16

tight. But I'm saying the FED tightening

14:19

is probably ongoing. And bank

14:21

deposits go down every week.

14:23

Well, if I get five percent of money market, why I'm

14:25

going to leave cash in a savings or checking

14:28

account.

14:29

So I think the FED is still in a

14:31

tightening mode, which is why I think

14:33

for example, New York Community Bank popped

14:35

up, and if you are looking

14:38

for it, which I am every

14:40

two or three days, there's some story

14:42

about a problem here or there. It could

14:44

be a problem with the German banks and

14:46

commercial real estate, for example.

14:48

It's been a little backstory.

14:49

Are you seeing this as a systemic issue

14:52

or just isolated?

14:54

I think the FED tightening,

14:57

and also ECB has been tightening, says

14:59

all the but I do think that

15:01

every period has problems,

15:04

and like you mentioned, the smooth sailing

15:06

in the twenty tens.

15:08

Didn't feel that way at the time.

15:09

I remember the.

15:10

You're blowing up in Greece right,

15:13

right, there was a lot.

15:14

Of stuff that was that. It seemed pretty bad.

15:16

Right, you look at a stock chart, it's a little misleading.

15:18

Oh we started down here and we ended up here.

15:20

Must have been great, always climbing

15:22

the wall. Worried. Right, it

15:25

seems like you're much less focused

15:27

on the here and now than predictions.

15:29

So let's talk a little bit about forecasts.

15:32

How do you use them or

15:35

not? How do they fit into your research

15:37

products?

15:38

Well, you have to do forecast. Maybe

15:40

forecasting is impossible, it's certainly

15:42

difficult, but you have to do it because

15:45

in order to make money, you have

15:47

to have some sense about where things are going.

15:49

And the difficult thing is to know when to hold

15:51

it, know when to fold it. So that's like

15:53

a mosaic you put together and

15:56

you come up with a view that's based

15:58

on whatever you would

16:00

like. I always would like to have

16:02

pretty strong theoretical or intellectual

16:05

framework that I'm uperating within

16:07

and then see how things fit into that and

16:10

sometimes they continue to fit in, and sometimes

16:12

they don't, and there'll be plenty of times when

16:14

they'll get bumped in the road. But I try and

16:16

have a framework, so I'm not just reporting

16:19

the latest data point. Put it into

16:21

a perspective. That's helped me because

16:24

I most often have a view that when I talk

16:26

to people, they can understand where I'm

16:28

coming from. Not only where I'm coming

16:30

from, but why have a particular

16:32

viewpoint.

16:33

I want to talk about the thing that

16:36

first caught my eye with

16:38

the work that you do, starting

16:40

with your survey of people

16:43

in the real economy of businesses and

16:46

sectors. Rather than just rely on

16:49

economic data that comes out of the government

16:51

or earnings, tell us about the surveys

16:53

you created when you first started

16:56

doing the sort of work you do.

16:57

Early on, there was a business called Johns

17:00

in red book. Don't write

17:02

it down, but they surveyed

17:04

retailers and.

17:05

That was like a weekly thing.

17:07

Right, It sound

17:09

like a really good idea. I took that idea

17:11

and took it to the limit. So now we survey

17:14

about thirty industries, maybe three

17:16

hundred companies in each industry,

17:19

three hundred companies overall, thirty industries

17:22

like retail for example, or

17:24

autos, trucking companies, you

17:27

name it. We do wine and spirit, hoostsalers.

17:30

Right, we have a survey we do at

17:32

the end of the year of Christmas tree sales.

17:35

We survey the people that grow them, people

17:38

that truck them, and the people that sell

17:40

them in the cities.

17:41

So you're getting like a real time

17:43

snapshot of what's happening,

17:45

not just across the economy, but

17:47

within very specific subsectors.

17:50

I'm sort of a contrarian at heart, is I

17:53

don't trust government data.

17:55

Right.

17:56

It's also very difficult. How do

17:58

you measure GDP two

18:00

weeks or three weeks after the

18:02

quarter ends, or retail sales eight

18:05

days after the month ends?

18:06

Too much data to assemble.

18:08

If you think about it across the whole country

18:11

and plumb it's the same way. How can you possibly

18:13

Well.

18:13

That's why they do three of them, the early

18:16

release, the update, and then the final across

18:18

three. It takes them three months to do GDP. But even

18:21

that's difficult. So then on the other side,

18:23

you're a practical person. If

18:26

you meet somebody, say that runs

18:29

a business, and you say house business,

18:31

they'll always tell you with actually

18:34

vivid detail, real granularity

18:37

because they live it twenty four to seven.

18:40

So if you can get a

18:42

group of those, say a dozen, you

18:44

have a pretty good leg up on what's

18:46

happening in a particular sector. It's

18:48

certainly different and in some ways it's more

18:50

reliable than trying to measure retail

18:53

sales, for example. So what's their

18:55

incentive to participate? And to be honest,

18:57

I'm always fascinated by this.

19:00

So if they participate with us, I send

19:02

them our research.

19:03

So they get it for free, and that's

19:05

not an inexpensive product. So in

19:08

their space, they get to see what their competitors.

19:10

Are saying, if not all of them bite, that's

19:14

one incentive. The second incentive

19:16

is they get to see the result. Trucking

19:18

survey we do comes to mind. I

19:20

think we have a dozen truckers, and boy, there

19:23

really aren't any more than that country.

19:25

They're only probably five big trucking

19:27

companies. But we get a

19:29

dozen trucking companies.

19:30

They all want to see what the other truckers are saying.

19:32

Yeah, and so you can imagine if

19:34

you're in a business that has some homogeneity

19:37

to it and you see the survey

19:40

and it drops sharply, you say

19:42

we're doing great. Or if your business

19:44

drops sharply the other and the survey doesn't, you got

19:47

hey, guys, we're doing something

19:49

wrong here. Sometimes you do things and

19:51

after a while you conclude it's not the best idea,

19:54

so.

19:54

You retired if it's not working, and you move on

19:56

to the next.

19:57

But this just keeps working.

20:00

Year after year. So let me tell you, say, three other.

20:02

Thing week after week.

20:04

Right, you know, anytime we talk about economic

20:06

data, I love the George Box quote.

20:09

All models are wrong, but some are useful.

20:11

It's an incredibly insightful insight

20:14

into statistics and modeling. You obviously

20:16

pick that up forty three years

20:18

ago because you said, I don't want

20:20

anything to do with government data. Let's build

20:23

our own models. Let's do a real time

20:25

assessment and try and keep it as close

20:27

to objective reality, because the

20:29

more and more you model stuff out, the

20:31

more it diverges from what's

20:33

happening. So weekly, real time

20:36

it's as close as you're gonna get to the real thing. The

20:39

other thing you did, though, that just really

20:41

caught my eye, is you would take a

20:43

chart and it was either a survey result

20:46

or a stock chart or a bond whatever

20:48

it was and you would hand mark these

20:50

up with a sharpie and

20:53

it just jumped off the page

20:55

and it was one of the first things that

20:57

I'm like, Wow, this is really fascinating. How

21:00

on earth did that come about?

21:02

So I don't think I've invented a single thing in

21:04

my life.

21:05

I give you credit for inventing that because

21:07

before you I've never seen

21:10

marked up shorts.

21:12

Well, so that way, so let

21:14

me explain.

21:15

So on the company surveys, there

21:17

was just one group that did a survey of retailers,

21:20

which turns out what that was our first survey

21:23

we did. It just worked out. But I really

21:25

told the idea from this other group.

21:28

I was working in this business and still

21:30

in at CJ. Lawrence and

21:33

the sales team, which

21:35

is an important part of the

21:37

way you operate. You have to generate

21:39

ideas for them and get them to

21:41

believe in you. They were taking my work

21:44

and marking it up, meaning literally

21:47

they would mark it up. So I

21:50

thought, boy, if they're marking it up, I

21:53

can do a better job marking it up than they are, And

21:55

so I started doing that, and frankly,

21:58

the rest is history.

22:00

Amazing thing is when you look you can look at a million stock

22:02

charts. But if you or whatever, but if you

22:04

look at a chart and there's in a sharpie

22:07

and bold script, it goes

22:09

to it, you can't help but see it, and it it

22:11

changes how you perceive that

22:14

chart. It shows you what's important,

22:16

it shows you what to focus on, but it

22:18

it just draws you right into it. Was that

22:21

a purposeful strategy or was this just

22:24

something you were doing to show

22:26

the guys in the office. No, no, you want to focus on

22:28

this part, I would say the latter.

22:31

But then you know if I'm working

22:33

and that works for those guys, that approably works

22:35

for other people like Peter Lynch.

22:37

Right, So I think of

22:39

you not as a pure economist,

22:42

but as somebody who is both

22:44

a business cycle expert and

22:47

who has watched market cycles

22:49

over the decades and has

22:51

become an expert in market cycles.

22:54

Is that a fair description to

22:56

make?

22:57

So if you do what I do well, you

23:00

have to be market focused. You

23:02

have to listen to the markets, You have to respect

23:04

the markets, You have to learn from

23:07

the markets. I look at the markets

23:09

all the time on Bloomberg,

23:12

but I mean I'm a junkie,

23:14

probably look at the markets three

23:17

or four times an hour. Right, And just

23:19

as I'm sure you do frankly, and you

23:22

let it sink in, you say, does that fit with my

23:24

picture I have in my head about what should be happening.

23:27

How do you separate the intra

23:29

day noise from stuff that really

23:31

matters? Because I started

23:33

on a trading desk, so I was staring at the

23:35

screen all day, and I have to force

23:38

myself. You're looking at the

23:40

market four times an hour. I'm forcing

23:42

myself to look at the market less and less.

23:45

I don't want to look at it constantly because

23:47

it just makes me want to get in there and start trading.

23:50

Each of us finds their own voice.

23:52

I know.

23:53

For me, being aware of what the markets

23:55

are doing is part of my sauce.

23:58

And so when I'm dealing with investors,

24:01

obviously they're consumed by what's

24:03

happening in the markets, right, And so it's

24:06

not a foreign language to me at

24:08

all. I think it helps me understand

24:10

what I should be doing for a practical

24:12

approach to what's happening. And

24:14

I view myself as a business

24:16

analyst.

24:18

A business anist.

24:19

So when I say business cycle, that

24:21

that's significant. Right on a

24:24

business cycle, you're part of the business cycle. Or

24:26

the financial markets. I remember early

24:28

on in my career, I'd met a guy and

24:31

then they had an article about him in the Wall

24:33

Street Journal. The market was doing something

24:35

and he said, it's just too much money and irresponsible

24:38

hands. I thought to myself, this

24:40

guy's a loser, and

24:42

how did his career work out? Not well,

24:45

too much money in irresponsible hands

24:48

or the state of the world every

24:50

day anyway? Isn't that how it is?

24:52

How useful is that as a market insight?

24:55

Yeah? Not useful.

24:57

I want to share a quote from

24:59

your Lions who puts this up online

25:02

and someone asked him about Ed Heyman

25:05

and he responded ed, Heyman sticks

25:07

to his core mission of providing

25:10

high quality and independent research.

25:13

He helps portfolio managers

25:15

make sense of the world. He

25:18

sorts through the reams of economic

25:20

data and government surveys to

25:22

provide an objective and independent

25:25

assessment. That's that's the high

25:27

praise from a client. Does that sound

25:30

like the goals that you're aiming for?

25:33

Is that is that from my wife? Or

25:36

well?

25:36

No, that was from a client who actually answered

25:39

a question about you.

25:40

That is high, high praise, and obviously

25:43

that's what I want to do. I also part

25:46

of My job is to connect the dots, to

25:48

look at one hundred different observations

25:50

and find the three that have an

25:53

important message. And sometimes

25:55

I get I get the right three, and some I

25:57

don't. It's something that people can understand,

26:00

and when it doesn't work out, then I move on to another perspective.

26:03

Huh, really interesting. So let's

26:05

talk a little bit about the state of the economy

26:08

today, and let's start with where's

26:10

our recession in twenty two? I

26:13

just kept hearing there's a recession

26:15

coming in twenty three. Here

26:17

comes a recession. What do you make of the

26:20

economist's consensus? That

26:22

seems to have been pretty wrong for I

26:24

don't know, eight ten quarters in a row.

26:26

I'm a student of history.

26:28

The last cycle, for example, it took

26:30

eighteen months, but

26:32

when the yokur inverted to when the recession

26:35

started in two thousand and eight, eighteen

26:37

months. During a good part of that, the S

26:39

and P went up twenty percent right

26:42

and peaked eight weeks before the

26:44

great recession hit. You don't know it's

26:46

happened until it happens.

26:48

As a student of history, you know it's not

26:50

when the yield curve inverts, it's

26:52

when it begins to uninvert that

26:55

bad things start to happen.

26:57

But that takes a long time, and you can

26:59

see once you get that perspective,

27:01

you can see real estate projects

27:04

they get started and it takes

27:06

probably eighteen months for them to finish up.

27:09

That's just one example of why it takes

27:11

so long. It takes a while for increase

27:13

in interest rates to actually get into the system because

27:15

people first they're living off low interest

27:18

rates. It takes a while for people to

27:20

get a seven percent mortgage whereas

27:22

now they have a three percent mortgage. But aside

27:24

from that, the practical observation

27:27

is it takes a long time. It takes

27:29

so long that people give up on it. So Bernank

27:32

in OK seven concluded we weren't

27:34

going to have a recession.

27:35

That was the subprime is contained. I

27:39

remember it was just contained

27:41

contains the planet Earth. Once you the

27:43

rest of the solar system was fine.

27:45

But boy, you mentioned rein

27:48

Hard and rogue Off. Sure, they

27:50

wrote a piece in early eight how

27:52

silly it was that people had concluded

27:54

it was different this time. But that's what had

27:56

happened, and so we're in that phase now.

27:59

I think the recession might not start

28:01

for another six months. In life. There's

28:03

a certain combination of being confident

28:06

and being humble. You know, you have

28:09

to be humble, but you have to have a

28:11

certain amount of self confidence that you know what's

28:13

happening. So I think we're just going

28:15

through the normal lags. At dinner

28:17

the other night and with clients, no

28:19

one expected a recession, no one.

28:21

That's a reversal from a year ago.

28:23

Everyone expected recession.

28:25

So I want to talk about inflation. But before

28:27

I get to that, obviously

28:30

the Federal Reserve has a big impact

28:32

on the economy. They raised what

28:34

are we five hundred and twenty five basis points

28:36

in eighteen months. You got to go back to Paul

28:38

Volker to see a rate hike

28:41

that radical and that quickly if

28:43

the higher for longer argument

28:46

wins out and the Fed does

28:49

not cut rates from here, and some people are

28:51

now talking about raising rates from here, that

28:54

sounds like that's a pretty sure fire

28:57

strategy for a recession. Is

28:59

that a fair assessment?

29:01

Is a fair The economy is

29:03

booming.

29:04

It is booming. It's booming, I mean, but

29:06

you're yet you're saying into this year

29:08

we could see a recession.

29:09

Right, It looks okay

29:12

until it's not it's the leg it's

29:14

the lag latter part of seven. Even

29:16

though housing was imploding, right,

29:19

the economy was okay, and I mentioned the SMP

29:21

had a big rally and people were

29:23

saying, well, it's different as time, et cetera.

29:25

At the same time, I don't want

29:27

to get too crazy about

29:30

things. I don't want to make a fool of myself, right,

29:32

and so I'm just saying it's coming, and

29:35

confident or hopeful. It's the confident

29:38

that when it starts to hit, I won't

29:40

be the last person to know, right.

29:42

I mean, I have a whole set of indicators

29:44

that I think will help me know when

29:46

a recession is starting to hit. It's not hitting

29:48

now. I mean, economy is booming. It's

29:51

probably booming. It's a little strong. We

29:53

do these companies serve A fifty is as

29:55

expected? They got up to sixty. Last

29:58

week they were forty nine, so

30:00

forty five is recession territory.

30:03

So they've cooled off quite a bit.

30:05

So if we see, as some people

30:07

are talking about June or maybe even May,

30:09

rate cuts, don't assume you're not

30:11

going to get rate cuts in an election year. There have been

30:14

rate changes every presidential election

30:16

going back forty years, just about

30:20

if the Fed cuts rates in May, cuts

30:22

rates in June, cuts rates in July

30:25

or September, can we avoid

30:27

a recession in twenty four or twenty

30:29

five?

30:30

Might avoid it anyway, But monetary

30:33

policy works with long legs, the.

30:35

Long invariable lang is so hard

30:37

to get away from, right

30:40

And guess, although you see it in real

30:42

estate first, it seems that seems

30:44

to be whether the rubber meets the road or do you

30:47

see other sectors get hit before

30:50

that?

30:50

You know, I'll look for wherever

30:52

it is. But real estate right

30:55

now, the commercial real estate space,

30:58

there's a story probably every two

31:00

or three days about some problem here or there.

31:02

So that problem hadn't gone away. It

31:04

just takes a while for it to work itself

31:06

out. Ninety eight with

31:09

a recession coming up a couple

31:11

of years later, one you

31:14

had LTCM, which

31:17

long term what is it?

31:19

Long term capital management?

31:21

And I'm not even sure I knew what

31:23

it was at the time at the time

31:25

before it hit, Actually I knew pretty

31:27

well what it was.

31:28

But you had no idea they were hunting one hundred to

31:30

one leverage.

31:31

No, apparently they didn't either.

31:34

But anyway, you know, that you

31:37

know, darn near blew up the global financial

31:39

system right out of the blue.

31:41

An early warning shot, right, if

31:43

only anyone who paid attention, maybe eight

31:46

or nine might not have happened.

31:47

And then you had the Asia crisis

31:50

in the same year, and then you had Russia.

31:52

And these are not things that you would.

31:54

Have thought of.

31:55

First off, if asked what could

31:57

be a problem in ninety eight.

31:59

Ninety was the was

32:01

the tie Boy crisis ninety seven?

32:03

And I think, yeah, maybe maybe not?

32:04

I said Russia, which al ended

32:07

up blowing up LTCM in ninety

32:09

eight. Also, right, So you had two

32:12

major events and two considerative views.

32:14

Well right, right, And the market continued

32:17

going higher until the commy hit in a recession.

32:20

So I'm just sort of pushing

32:23

ahead. Commedy's doing fine.

32:24

Now. I don't think I'm adding a lot of value

32:27

on this topic, but I'm

32:29

just waiting to see, you know, if we

32:31

actually get into our recession. In

32:33

the meantime, inflation

32:35

is coming down, So.

32:36

Let's talk about inflation, because I

32:39

feel like lots of economists

32:41

got that wrong. Also, And

32:44

when you look at I'm trying to

32:46

figure out a polite way to say

32:48

this, when you look at the well

32:51

known economists who came of age

32:54

during the inflationary nineteen seventies.

32:57

I'm thinking of like Larry Summers,

32:59

former Treasury secretary. They

33:02

see inflation as structural.

33:05

They see it very similar in nineteen

33:07

seventies, and I get the sense that

33:09

the transitory nature and granted

33:12

transitory took a little longer than people expected.

33:15

But again that long and variable

33:17

lag. Inflation peaked

33:19

in June of twenty twenty two. It's come down.

33:22

Your pal ed Yardini says, historically,

33:25

as fast as inflation goes up, it tends

33:27

to come down very symmetrically. You

33:30

had a huge and rapid rise,

33:32

and you've had a pretty rapid fall off

33:34

from nine percent to three percent.

33:37

So one question is why did so

33:39

many people seem to get this wrong?

33:42

You tell me very I don't know.

33:44

I mean, I'm playing pop psychologists and say,

33:46

well, if you were a seventies era economist,

33:48

well, you're just going back to your roots and

33:51

not looking at the supply shide

33:53

shock and supply chains and all

33:56

these pandemic related issues

33:58

that unwound more organically

34:00

than I think people expected.

34:03

So in the seventies, I'm at MIT

34:06

and they have a debate posted

34:08

on the bulletin board between Milton

34:11

Friedman and Paul

34:13

Samuelson. Right, not sure who

34:15

they are, but I'll go and

34:17

they're probably twenty kids in the room.

34:19

That's unbelievable.

34:20

I was blown away because

34:23

they both were incredible intellects.

34:25

Samuelson eventually wins the Nobel Prize.

34:27

Right, Freeman doesn't do badly either, another

34:30

giant absolutely anyway.

34:32

So I really got into

34:35

his logic, and he became in the seventies

34:37

a very major figure.

34:39

One hundred percent inflation is

34:41

and always will be a monetary phenomena.

34:44

And then he had, you know, extreme views

34:46

on capitalism, which are not popular

34:49

now at this point, he's not woke,

34:51

sort of Larry Summers of the world, who

34:54

I think is brilliant. They've

34:58

sort of pushed away from that, but

35:00

I haven't.

35:01

And well, I bet you've pushed away on

35:03

some of the stuff. I was always surprised

35:06

that sort of

35:08

the free market absolute stuff like

35:10

we don't need an FDA. If baby

35:12

formula kills a baby, well then well

35:15

then they'll change the formula or they'll go out

35:17

of business. I mean, I think that.

35:19

Was that's a little extreme.

35:20

I understand what he was saying intellectually,

35:23

but I think the way it came across just did

35:25

not resonant with even with a lot

35:28

of economists, but no doubt

35:30

one of the most influential economists

35:32

of the past century. Right.

35:34

And so in the seventies,

35:36

the money supply would accelerate, maybe

35:39

ten to fifteen percent, and then inflation would

35:41

accelerate. And it happened three times.

35:44

And by the third time, Freeman

35:48

was a major figure on Wall Street. When

35:50

the mighty supply numbers would come out on Thursday

35:52

afternoon trading floors, which I

35:55

was on a trading floor waiting for the

35:57

numbers, they would erupt up

36:00

thirty billion, only up two billion

36:02

or whatever I mean it was. It was something

36:05

else, and so I

36:08

bought that. And so in the in

36:10

the eight in the seventies, inflation

36:13

you could see it coming and see it going away,

36:15

right, And and this time money

36:18

growth got up to thirty percent, and

36:20

inflation took off. And now money growth

36:22

is slightly negative. I'm in the case

36:24

that inflation is going away. Plus you

36:26

know, take everything into account, like you mentioned,

36:28

the supply chain issues, transitory,

36:31

those things are there. Demand destruction

36:34

is there because prices go up, so much and

36:37

you don't want to buy it if it goes up anymore, et

36:39

cetera.

36:40

Commodity traders love to say the cure

36:42

for high prices is high crisis,

36:44

right. I mean I heard that my whole uh,

36:47

my whole career. So so let's talk a little bit

36:49

about you as as watching

36:52

money supply. I again, I tell the

36:54

young guys in my office. You

36:56

know, back in the day, the Fed didn't

36:58

announce the change in rate polo. See, they certainly

37:00

didn't hold a press conference.

37:03

You found out about changes

37:06

and interest rates when the bond market told

37:08

you interest rates are Now this tell

37:10

us about that era. I'm assuming

37:13

that's in part why you're watching

37:15

things like money supply.

37:17

Well, I've always watched the money supply, and the FED

37:19

can operate through interest rates,

37:22

or through the money supply, or through Joe

37:24

boning the markets, which they do. Now

37:26

you can see them saying we're not going to cut rates. So they are

37:29

going to cut rates. So that's been a

37:31

familiar territory for me for

37:33

fifty years.

37:34

Really.

37:35

In the early part, Volker said

37:37

he liked to keep his cards close to his vest,

37:39

and he had a big vest, so tall

37:42

Paul Tall, full and so that was that, and

37:44

then the German Central Bank.

37:47

I'm going to better that, I'm going to give

37:49

the market a fake out. I'm going to indicate

37:52

I'm not going to do this, and then I'll do it, because

37:54

you get more bang for your buck if you really

37:56

surprise the markets. But now we're in a situation

37:58

where the FED is totally transparent

38:01

and they have what a dozen people

38:04

a week right coming on

38:07

what they're doing.

38:08

Speeches, transcripts, q

38:10

and as. I mean, it's such a

38:12

different world than the

38:15

nineteen seventies or eighties. Does

38:17

that make it easier to track what

38:19

they're doing? Or is it harder because now everybody

38:22

sees the same story at once.

38:23

It doesn't strike me as any particularly harder.

38:25

Or the question is what's the impact.

38:29

So, for example, you mentioned the BEG increasing

38:32

interest rates five hundred

38:34

and twenty five basis points, you correctly point out

38:37

in addition to that, the FED has shrunk the

38:39

balance sheet a trallion dollars.

38:41

They went from quantitative easing to quantitative

38:43

tightening, meaning they're no longer

38:46

buying bonds, are now selling.

38:47

Bonds big time.

38:49

And so a general rule of thumb

38:52

that Bernanke's talked about Bill

38:55

Dudley that was the chairman of the New York

38:57

Fed. Is that a trayon dollars

38:59

is in the neighborhood of one

39:01

hundred basis points on the fund rate.

39:04

In other words, buying or selling a trillion

39:06

dollars worth of bonds is the equivalent of one

39:09

hundred bases A percentage higher,

39:11

a percentage lower, and rates.

39:12

Right, So I think the fund

39:14

rate is about six and a half percent because

39:17

it's five and a half and they've shrunk the balance sheet

39:19

by a tray in.

39:20

So historically six and a half percent is

39:23

pretty average if you go back fifty years.

39:25

But if you go back to two thousand, six

39:28

and a half percent cent really high, right.

39:30

And there's some rates like consumer

39:32

credit card rates are up to twenty one

39:34

percent or twenty two.

39:36

Which seems a bit stiff.

39:39

It's prohibitive. And I

39:41

think used car rates are fifteen or sixteen.

39:44

I mean, there are some rates mortgage mortgage rates

39:46

are up to seven percent, so

39:48

there are some rates that are high.

39:50

But then there's also the mystical

39:53

about the mind supply, you know, how

39:55

does that impact And then they also

39:57

mystical about the Yelkur you

40:00

know, when it's inverted as

40:02

a negative signal, it basically tells you that the fund

40:04

rate is high because

40:07

it's higher than bond yields. So you have

40:09

all three of those conditions

40:11

in place, and at the moment the economy's

40:13

fine. So the average person

40:15

says, look, it didn't work, and I say,

40:18

just wait.

40:19

You have to be patience. Speaking

40:21

of transparent Jerome Powell shows

40:23

up on sixty Minutes for a long

40:26

Q and A. First, did you get to see

40:28

him on idea? What was your

40:30

thoughts on how he described

40:33

the economy, the

40:35

state of the world rates,

40:37

What was your takeaway? Seems like a pretty

40:39

impressive guy.

40:41

I agree.

40:41

He's very easy on the eyes. He's

40:44

easy to listen to it.

40:45

He looks like a central doesn't he.

40:48

That maybe one of the reasons that he got appointed.

40:50

Straight from central casting. I mean, yeah,

40:52

but very very

40:55

thoughtful and reassuring

40:58

in a lot of ways.

40:59

So the only thing that I

41:02

disagree with him on is

41:04

he presents the case that the

41:06

economy is doing this now. Therefore

41:09

it means that mantre policy is either tight

41:11

or loose, And I said, no, that

41:14

doesn't work that way. You have to wait a year

41:16

and a half to find out. And that's what

41:18

makes it so difficult to do Mantrey

41:20

policy because what you do today is

41:22

like turning a tanker takes

41:25

I don't know, ten miles or so to

41:28

turn it, and it takes a year and a half from

41:30

martre policy.

41:31

So when was the last tightening was

41:33

July twenty twenty

41:36

three, So we're still we're

41:39

still six months away from feeling

41:41

the effect of what they six

41:43

months, probably longer than that,

41:46

where till the end of twenty twenty

41:48

four we haven't fully felt the impact

41:51

of the last hikes correct

41:54

and the heel curve inverted in late

41:56

twenty two, so we're about

41:59

fourteen or fifteen months. What's the

42:01

average eighteen is from

42:03

inversion to recess to recession eighteen

42:06

months. That's a long time.

42:07

And this, you know, Milston Freeman,

42:11

I'm saying the Obviously he was very smart

42:14

and he didn't say they're long lags.

42:16

He said they're long and variable

42:19

lags. And sometimes

42:21

I get a little trigger, like I mentioned I think I think

42:23

I mentioned eighteen months five times too, like

42:26

I said.

42:26

But he would tell you it's six to thirty six

42:29

months, not eighteen months, right.

42:31

And so I mean it could last longer than eighteen

42:33

months, which would take you and then you have the

42:36

election coming up, right, and

42:39

at this point, there's really nothing that fit can do to

42:42

influence the economy, you know, during

42:44

November of this year.

42:46

So someone else recently commented,

42:49

I'm glad you brought that up. So you

42:51

have a number of So he had the

42:53

Cares Act one, two, and three, and

42:55

each of them, the first two under Trump, the

42:57

third one under Biden. Each of them just

43:00

a ton of fiscal stimulus into the economy

43:03

all at once. A lot of the recent

43:06

legislation, so the Infrastructure Bill,

43:09

Semiconductor Bill, the

43:11

Inflation Reduction Bill, all three

43:13

of these are like ten year legislations

43:17

that they have a lot of discretion

43:20

as to how that gets meted out. Now,

43:22

you can't dump all of it into hey

43:24

it's an election year, spend the whole thing, because

43:26

they're all much longer term projects. But

43:29

I was always in the impression that the

43:31

White House can goose

43:33

the economy a little bit if they

43:35

planned to head the year before and

43:38

pass some legislation. Is that oversimplifying

43:40

this?

43:41

I don't think so, And I

43:43

would be surprised if there's not some of that going

43:46

on little thumb on the scale, and

43:48

the same probably is true.

43:51

For energy prices.

43:53

Really well, if you can you know influence,

43:56

You know our friends in Saudi Arabia

43:58

or the Middle East.

44:01

You got a warrant between Russian and Ukraine,

44:03

you got a hot war in the Middle East. It's

44:05

kind of amazing that oil prices aren't

44:07

ninety two dollars.

44:10

It is unless you look at the fact

44:12

that the money supply growth has gone

44:14

from thirty percent down to minus

44:16

two, right. And I'd

44:18

also say in a practical way, because

44:20

I find the money supply story it

44:23

gets old after a few months,

44:26

eighteen months, people say forget

44:28

off.

44:28

Already, like you're gonna miss the end.

44:30

It's like leaven before the ninth ending of the game.

44:32

You don't know what's gonna happen.

44:34

But I think you know, China

44:37

is a major factor in this,

44:39

and China's economy is

44:41

still pretty soft. We survey

44:44

twenty one companies that have sales

44:46

in China, and that survey

44:49

this past week was thirty

44:51

one. I mean way below forty

44:54

five, way below forty five. That percession

44:58

our survey is forty nine. And

45:01

it's only been this low thirty one for

45:03

a few weeks during the pandemic. Really

45:05

in China. Wow, So that's one measure

45:09

before you move on.

45:09

To the next measure. Let's stay with China. This

45:11

is the second largest economy in the world.

45:14

It's the industrial heartland

45:17

of the global economy. If they're

45:19

deep in a recession, like I know,

45:22

we used to say the US catches a cold

45:24

and the whole world gets pneumonia. But has

45:26

that changed over the past fifty years.

45:28

If China is deep in a recession, are

45:31

they dragging the rest of the world down

45:33

with them? Or are they a reflection

45:36

of a slowing Europe and a soft

45:39

South America and Africa.

45:41

One question is why are they slowing?

45:44

And another question is what's the implication of

45:46

them slowing. The first part is more complicated

45:49

why they're slowing. But the

45:51

property market in China

45:54

apparently is a real mess giant

45:56

and going to stay that way for a long time

45:59

decades.

46:00

Right when you say a long time, this isn't fifth And

46:02

this is like a deep structural problem

46:05

they created by ourselves.

46:06

I'm seventy eight, so

46:09

let's not talk in decades, you.

46:10

Know what, not your lifetime, maybe

46:13

not my lifetime. I only

46:15

have. You know, you only have a decade or so on

46:17

me. I'm not. I don't know if

46:19

I'm ever going to see a robust real estate

46:21

market in my lifetime in China.

46:23

Yeah, well, you know, I'm not a big fan

46:25

of long term forecasting. But

46:28

anyway, it's pretty tough in China now.

46:31

And you know, one of the other things I do

46:34

is I talk to clients relentlessly,

46:37

and when I get to talk to somebody who's just

46:39

back from China, I really grow them.

46:41

And what I'm hearing now

46:44

is that the locals in China are

46:46

not optimistic. They're pretty down

46:48

in the dumps. Animal spirits are

46:51

pretty somber, which you're not surprising.

46:53

But I'm just saying, if you talk

46:55

to people here in the States, you know, things

46:57

seem to be the way rights direction.

47:00

And she turned around and

47:02

say, all right, here's a whole

47:04

new plan and we're gonna the US

47:06

just did a giant fiscal stimulus or three,

47:09

We're going to do one also.

47:10

So I'm a team player,

47:13

and I love working with people,

47:16

working with our clients, and I love working

47:18

with our research team and our research

47:21

team, if I may sure

47:23

them on the back is the number one team

47:26

on the street is now the second year in a

47:28

row. We have a really good research team

47:30

and we have an analyst,

47:33

a research team that covers China, Neo

47:36

Wang. He's Chinese. He knows what he's

47:38

talking about. So far, they

47:40

haven't done anything dramatic. Say,

47:43

she has not done something. I

47:45

thought by now he would have done something. But

47:47

he has a kind of surprising right.

47:49

So let's China

47:51

is its own entity. What else do you

47:53

see in the global economy that's worth

47:56

mentioning? Europe seems to be unable

47:58

to get out of its own way.

48:00

Europe is weak.

48:01

So we do a survey of twenty eight

48:03

companies in Europe

48:06

and that survey is thirty five. Also

48:09

is almost as soft as China, almost as

48:11

soft ast China, not as it's

48:13

soft, and they have problems, you know

48:16

themselves, And so you have hindsight

48:19

is.

48:19

Great, but always

48:22

twenty twenty.

48:23

But now you know, sitting here with you, we're

48:25

trying to look through the fog, and

48:29

we talked about China. Looks like China's

48:31

second biggest economy in the world

48:34

is not doing well, not

48:36

strong. And then

48:38

Europe is not strong either, and no one

48:40

is. There's no particular physical

48:43

stimulus there, central

48:45

bank there, the ECB, they're

48:48

still tight, not as tight as the Fed,

48:50

but they're still tight. Invertedial curve contraction

48:52

and bank loans and money. So

48:55

you know, we might look back at this and say that was simple.

48:58

The royal economy was soft and

49:00

the course inflation came down, which I

49:02

think is at the moment. I think

49:04

inflation coming down has been the

49:07

most important aspect

49:09

in the past year for getting

49:11

the markets to turn around, getting the Fed to pause

49:14

talk about rate cuts, increasing the odds

49:16

of a soft landing because inflation

49:19

is going away.

49:20

So the last question I'm going to ask you about

49:22

the state of the economy today or in

49:24

the near future. What else

49:26

should we be paying attention to if

49:29

we want to see the signs that either

49:32

the US is sliding into a recession

49:35

or accelerating out of

49:37

it and is going to avoid a recession.

49:39

What are the most important signposts

49:41

investors should be looking at.

49:43

So I watched our company surveys

49:46

the most closely. Now,

49:48

your viewers or listeners, they

49:51

don't have that, but so that's that

49:54

influences me the most. And

49:57

right now they're they're okay, they're not great,

49:59

but you know, they're definitely not recession. Secondly,

50:03

the best government data are the weekly

50:05

unemployment claims,

50:08

and they are strong as garlic.

50:10

I mean, I get a headache.

50:13

We've had a short you know, we have

50:15

not had enough. It's so funny

50:17

when we looked at inflation. We didn't have enough

50:19

chips for cars, we hadn't enough houses. We underbuilt

50:22

houses for a decade, and we don't

50:24

have enough workers. We don't have enough labor. This

50:27

has very much been a lack

50:29

of supply driving

50:32

inflation. And how

50:35

do you get above three

50:37

and a half four percent unemployment if

50:39

there aren't enough bodies?

50:41

So that to wig in the economy. But it's

50:43

I think you put your finger on it perfectly. We've

50:46

had an unusual lack of supply at

50:49

the same time we've had an unusual

50:51

increase in monetary and physical stimulus.

50:54

It's like it created a great

50:56

economy but also created a real

50:58

bad inflation problem.

51:00

And a number of people warned about the

51:02

inflation. I remember Professor Jeremy Siegel

51:04

saying we've never had this much fiscal

51:06

stimulus without a huge inflation spike, and

51:09

people looked at him. In like twenty

51:11

twenty one, like he had two heads

51:13

and he turned out to be yeah right,

51:16

all right, So enough of the US

51:18

and global economy before I get

51:20

to my favorite questions. I have to throw a curve

51:22

ball at you. The International

51:25

Tennis Hall of Fame. What do you

51:27

do with the International Tennis Hall

51:29

of Fame?

51:30

So I love tennis.

51:32

I picked up the game less than

51:34

ten years ago and fell in love with it. Also, it's

51:36

wonderful. I'm a lousy player. I've been playing,

51:38

I guess since I was about twenty years old, and

51:42

I know how to play tennis. I've been trying

51:44

to play golf recently, and I

51:46

can see that I don't know how to play golf, but

51:48

tennis, and I love tennis, right,

51:51

And so years back, a

51:53

friend of mine was on the board of the Tennis

51:55

Hall of Fame, and so I got on and

51:57

I was on there for maybe a decade. But

52:00

I'm still fascinated by the game. And

52:02

boy, the players now are unbelieved, unbelievable,

52:06

and the depth of the players like

52:08

al Charez came along and that looks

52:10

like he's beatable. Unbelievable, really

52:12

really interesting. All right, So let's jump to

52:14

our favorite questions that we ask all of our

52:17

guests, starting with what's keeping

52:19

you entertained these days? What are you streaming

52:21

or watching or listening to.

52:23

I don't stream at all,

52:26

not really. You know, I'm

52:28

a big consumer of

52:31

business news anything.

52:34

You know, I'd be embarrassed to tell you

52:36

how much time I spend listening to Bloomberg.

52:38

Right, it's a real treasure.

52:41

Well, it's geared towards you and

52:43

your clients. It's not a coincidence

52:45

that that's the target market

52:48

institutional investors.

52:49

So I'm all over that. I read probably a dozen

52:51

newspapers a day, and the amount

52:54

of news coming out.

52:55

Is just it's a fire hose.

52:57

It's a fire hose, and frankly, it

53:00

made my job much

53:02

much more difficult because it's so hard

53:04

to add value. I mean, it's very

53:06

difficult to add value, and so I'm always

53:08

intently aware of that

53:11

that I have to pick

53:13

and choose what I try and put

53:15

in front of people because it's

53:17

just redundant.

53:18

Is that why you said the twenty tens

53:20

were such a challenging decade running

53:23

a research shop because of the just massive

53:26

amounts of well news

53:28

coming out.

53:29

It's not that really for that one

53:31

thing in twenty ten that

53:34

was the peak of this of my business,

53:36

and the dynamic has been

53:38

active to passive. Active

53:41

managers use my work

53:44

and use my firm's work.

53:46

So is that shrinks a little bit.

53:48

It's gonna that much less demand

53:50

from that side.

53:52

It's now fifty to fifty, fifty

53:54

percent active, fifty percent passive

53:57

in.

53:57

Etf some mutual funds, but not overall

53:59

in the toet equity.

54:01

Markets total equity markets, really

54:03

fifty to fifty.

54:04

That's a big number. I keep reading so much low,

54:06

like twenty five and thirty.

54:08

Well, anyway, whatever it is, right, it takes.

54:10

But you know it's always taking, you

54:13

know, audience away from and trading

54:16

volumes away, and then the sense

54:18

for share of and trading sure has come

54:20

down. John, So it's a much more difficult

54:23

business than it was. Let's

54:25

talk about mentors who helped shape

54:27

your career. It's a good question, Barry,

54:29

because I think for anybody a big

54:32

part of their success depends

54:34

on this working out in a positive

54:36

way. My first job

54:38

was working for Professor Otto Eckstein,

54:41

who was Council Economic Advisor's cover

54:43

of Time magazine, taught the

54:45

freshman course at Harvard, A wonderful

54:48

person, a wonderful family person, and

54:51

I was just lucky working for this guy.

54:54

Usually influential in going and.

54:56

He's also extremely hard working. I

54:58

remember he would come back from a trip to

55:00

Europe and he would have written a whole

55:02

paper. I thought, my on

55:05

vacation, No on business

55:08

coming back a business trip from Europe. He

55:10

was always working and he

55:13

was just a fine person. And I

55:16

know, whatever positive attributes

55:18

I have, I picked up a lot from him.

55:20

And then I went to work for C. J. Lawrence

55:24

and Jim Olt ran

55:26

that firm. He was my boss, and

55:29

I just scored big a second time prince

55:31

of a person, a great intellect, a

55:33

very serious investor, a good macro

55:35

guy, but a real stock person.

55:38

And he was very helpful to

55:41

me in culture

55:44

ethics. Just a great role

55:46

model. And then I worked for myself. That was

55:48

a pretty low point.

55:50

But that seemed to have worked out. I seemed to work

55:53

worked out. Okay, let's talk about

55:55

books. What are some of your favorites? What

55:57

have you read recently?

55:59

Is a book called Truck and

56:01

it's a It's a fiction. I

56:04

haven't read a fiction, I don't

56:06

know thirty years.

56:08

I know the feeling and I read it.

56:10

It was It just was delightful and I

56:12

learned a lot from it,

56:14

and it made me think a lot of it's

56:16

written about the depression and

56:19

going up to it and after that, and

56:21

it's made me think differently about the Depression

56:24

than I did before. And now

56:26

I read my buddy Ed

56:28

Yordini's trying to make out like we're

56:30

headed to a new roaring

56:33

twenties period. But that's

56:36

a good read. Recently, Chip

56:38

Wars.

56:39

Is a mush read, fascinating book.

56:42

Fascinating book, you know, brings up

56:44

you know, you think about Taiwan

56:46

and China, Taiwan and China, Taiwan

56:49

and China, and you know what could happen

56:51

there. Henry Kissinger has

56:53

a book out about leaders.

56:55

It's actually all the leaders he worked

56:57

with, and it's.

56:59

A interesting read.

57:01

But you know the ones that have been

57:03

most influential in

57:05

a long term

57:08

for anybody in this business. Reminiscence

57:10

of a stock Operator. Sure by

57:13

what the Jesse livermore right? I

57:15

mean, you have to read that. Hopefully you read

57:17

it when you're young.

57:18

It's amazing how fresh it still is

57:20

today. You would think it's dated, but it's not.

57:23

So Those are some of the books I've been trafficking

57:25

in but I read. One thing I've found

57:27

is that people that do well read a lot.

57:29

No doubt about that. Our final

57:31

two questions, what sort of advice

57:34

would you give to a recent college grad who

57:36

is interested in a career in either investing

57:39

or economic research.

57:41

The most important advice I can give people is

57:44

to work hard. Boy, that sounds superficial,

57:47

but I'm sure that is. You

57:49

know, everybody you can

57:51

think about, that's the common denominator.

57:54

So for a young person, they just have to work

57:56

hard at finding their voice,

57:58

finding their path.

58:00

I was lucky.

58:01

I found it easily. You know, I can

58:03

see some young people don't find it easily. So

58:05

that's you got to work hard. And

58:08

first you got to work hard finding your path.

58:10

And then once you find it that it's easy.

58:12

Frankly, I think you found your path and.

58:15

That just meanwhile, but I eventually got here.

58:16

You got it right.

58:18

And now in terms of this business

58:20

being the best business, yeah,

58:23

you know as well as I do. It's an enormously interesting

58:26

field. And I get

58:28

up in the morning, I sort of jump out of bed. The

58:31

first thing I do is I start

58:33

reading my Bloomberg to see what.

58:34

Happened that's really fabulous.

58:37

Let's jump to our final question. What

58:39

do you know about the world of investing today

58:42

that you wish you knew back in nineteen

58:44

seventy when you were first getting started

58:46

fifty years ago?

58:47

You know, this is one I've gotten before, and

58:50

I think about it, nothing comes to mind.

58:53

I'm surely yeah, I'm sure.

58:54

Nothing would have helped you out that you know today.

58:56

Gee, if only I knew fifty years ago

58:59

that I shouldn't do this.

59:00

Well, you know you can do that. You say, you know what you

59:02

know? I should have you know got.

59:03

I mean by Amazon at the IP

59:06

right, I mean what what? What knowledge

59:09

do you have now? What wisdom have you acquired?

59:11

Hey? That would have been useful?

59:13

Well, nothing comes to mind. Maybe I'm

59:15

just brain dead.

59:16

No, that's fascinating because what

59:18

you're really saying is it's the it's

59:21

the road, not the destination. It's

59:24

what you learned along the way and when

59:26

you learned it.

59:27

What I think is a better question now,

59:29

maybe for me, but maybe for even a young

59:31

person, is if you go out a decade

59:34

from now and you want to look back at

59:36

your life, what do you want to see? That's

59:38

an open slate. You can make that happen.

59:40

And that's a question you can think about at

59:42

any point in your your.

59:44

Pre litional and so right now that's what

59:46

I think about the most, and nothing just

59:48

jumps out at me. I knew I was going to enjoy

59:51

doing this with you.

59:52

Well, I always enjoy chatting with you. It's

59:54

always a delight.

59:55

So may people do it in another decade.

59:57

I'm not going to wait another decade. We'll

59:59

do it sooner than that. Thanks Ed

1:00:01

for being so generous with your time. We

1:00:04

have been speaking with Ed Hyman. He is

1:00:07

the chairman and co founder of ISI

1:00:09

Evicor. If you enjoy this

1:00:11

conversation, well check out any of the five

1:00:14

hundred we've done over the past

1:00:17

ten years. You can find those

1:00:19

at iTunes, Spotify, YouTube,

1:00:22

Bloomberg, wherever you find your

1:00:24

favorite podcasts. Be sure and check

1:00:26

out my new podcast at the Money,

1:00:29

where I sit down for a quick Q and A

1:00:31

for ten minutes to chat with an

1:00:34

expert about issues that

1:00:36

affect your money, earning it, spending

1:00:38

it, and mostly investing it. Find

1:00:40

that wherever you get your favorite podcasts,

1:00:43

and in the Masters and Business podcast

1:00:46

feed. I would be remiss if I

1:00:48

did not thank the crack team that helps put these

1:00:50

conversations together each week.

1:00:53

Sebastian Escobar is my audio

1:00:55

engineer. Attikavalbrun is my project

1:00:58

manager. Sean Russo is my head

1:01:00

of research. Anna Luke is my producer.

1:01:03

Sage Bauman is the head of

1:01:05

podcasts at Bloomberg. I'm Barry

1:01:07

Riddholtz. You've been listening to

1:01:09

your Master's in Business on Bloomberg

1:01:12

Radio.