Transcript: Jeffrey Sherman, DoubleLine – The Big Picture

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

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

Barry Ritholtz:

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Bloomberg Audio Studios, podcasts, radio News. This is Masters in business with Barry Ritholtz on BloombergRadio

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

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

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

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

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

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

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

Barry Ritholtz: But you Moved to applied mathematics?

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

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

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

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

Barry Ritholtz: They’re actually completely different.

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

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

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

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

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

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

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

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

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

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

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

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

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

Barry Ritholtz:  Dot.com implosion. Absolutely

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

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

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

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

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

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

Barry Ritholtz: It doesn’t have the same internal logic, the same, you can’t derive it hand mathematical rationality where you just have to start with a basic premise. And so much things can be derived logically from that starting point. This is just rules and yeah, it’s00:13:10 Struggle with it. It’s just, especially if you’re a left brain person, the right brain stuff and vice versa. So you mentioned financial repression, you and the rest of the quants in your core group, including gun lock, decide to stand up your own firm in 2009. It’s pretty much in the midst of  the worst of the market

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

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

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

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

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

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

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

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

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

Barry Ritholtz: And these bonds are still profitable

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

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

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

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

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

Barry Ritholtz: Right around the Flash Crash.

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

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

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

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

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

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

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

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

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

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

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

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

Barry Ritholtz: Almost a third increase.

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

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

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

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

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

Barry Ritholtz: Not just year over year.

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

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

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

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

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

Barry Ritholtz: Jeffrey Sherman:

It’s a theory. But in the real world, it just doesn’t,00:27:39 [Speaker Changed] It’s what rich people say because they own assets, right? Andthey’re like, if I, if I own more money, you know, like, you know, Barry, I’m gonna probablygive you some, Barry, I haven’t given you any more money as I made more money, but in theoryI’m gonna do so Right. Cut my taxes, I’m gonna help you out. And I just, I, I don’t think it hasthis broad economic impact. I think it sounds good. That’s why we all argue in politics, but I, itjust, I I’m not, I’m not convinced that any of it works.00:28:06 [Speaker Changed] I I, I, I a hundred percent agree and I can’t help but notice thatwealthy people, and I mean very wealthy people, their spending happens. Whether the market’sup 30% That’s right. Flat down, maybe during a crisis, some of the more conspicuousconsumption gets throttled back. Yeah. Because, you know, Marie Antoinette and all of that.Yeah. Yeah. But for the most part, the wealth effect, since, since 80% of stocks are owned byfive 10% of people, how big of an impact can the wealth effect have on the bottom? 80% of, of, I00:28:43 [Speaker Changed] Think the only place that it could potentially happen is with thehousing market. And so I think that’s part of what you’re seeing today and some of this as well.So we were talking about the M two growth and the money supply out there, but don’t forget ifpeople feel confident, they’re willing to spend money. And I think part of this last push we’veseen is that, you know, with the advent of Zillow and, you know, Redfin, and we can look up theprice of our homes and we can creep on our neighbors and you know, our friends, what do theybuy? I think that that has created something in the psyche of people that they feel a littlewealthier if they’re a, if they’re a homeowner, right.00:29:18 [Speaker Changed] Especially if the neighbor’s house went for a butt ton of money.Right. But00:29:21 [Speaker Changed] You used, you used to have to see that transaction. Now we havethis algorithm and you can go log in every day and look at your house and it moves every day.Kind of, or you know, it, it, it’s, I think there is something in there, but, well, let00:29:34 [Speaker Changed] Me throw a curve ball at you. ’cause you mentioned psychpsychology and sentiment on the one hand, even though it’s off the lows, consumer sentiment hasbeen awful. Like below the financial crisis below the.com Yep. Below nine 11. Yeah. But whenwe look around in the world of consumer spending on the high end, you want a Porsche, Ferrari,or Lamborghini, there’s a wait list. Yep. On the upper medium end, you want to go buy a Rolex,you can’t get ’em. They’re, they’re00:30:02 [Speaker Changed] Getting cheaper though, right? Yeah, yeah. You probably can’t buya brand new one, right? Yeah. It’s00:30:06 [Speaker Changed] Hard to get. So if you go to the certified pre-owned, or even just theused one, a watch that costs 10 grand MSRP, that was $22,000 used is now down to 17. But it’sstill much more than new. ’cause you can’t get new, there’s no supply of homes or very, at leastdramatically reduced. You wanna buy a boat or a jet ski, you’ll wait a few months. It’s, it’s, or ora big truck. All right? You could probably get the00:30:33 [Speaker Changed] Big trucks. Now I, I got something that you could buy. You canbuy a Tesla right now. You know, there’s a lot of those on, there’s a lot of those on offer rightnow.00:30:38 [Speaker Changed] You know, we, we maybe the takeaway from that is if, if you are, ifthe demographics of your primary customers are, you know, left of center, save the planet, anti-global warming people, maybe owning the libs is a bad marketing strategy. Yeah. Yeah. But, butthat, who knows? And there’s also a ton more competition today in that space.00:31:01 [Speaker Changed] Sure, sure. But my, I I guess where I’m going with this is consumersentiment. Okay. So why, why does it feel abysmal? Well, let’s talk about inflation. So instead ofdoing what, what Jay Powell is doing, or what all of us do, and they’re gonna cite the year overyear inflation number. And by the way, the core PC is looking a little bit better after this lastprint Sure. Too. But Jay has a problem. He’s been talking about CPI for the last few years, right?So moving the goal sticks is just not good for him right now. And he doesn’t need to do anythinganyway. So he’s, we can talk about that later. Listen,00:31:33 [Speaker Changed] Inflation came down regardless of what the Fed did, here’s theproblem. But it was so late and it, by the time they started it, it was just about to peak and comedown.00:31:40 [Speaker Changed] But here’s the problem. Now let’s go back on Euro, not instead ofyear over year, let’s go back two years. Let’s go back three years. And if you ask people whatinflation looks like, usually the common person will give you one of two statistics. They’ll talkabout their grocery bill or they’ll talk about fuel pump prices. That that’s really how people thinkabout inflation. But if you think about what’s happening right now, I think people’s anchor is prepandemic00:32:06 [Speaker Changed] And we’re, we’re what, 20% generally you’re,00:32:09 [Speaker Changed] You’re in the mid to high twenties now. And so that I think isweighing on sentiment, but it’s not changing the dynamic of the spending. And I I also think thisis part of the whole fed’s policy is that when you, when you’re hiking rates, you’re, you’re tryingto do two things for this transmission mechanism, make credit more expensive. They’ve donethat. Okay. Mission accomplished, but also to curtail cons, to curtail consumption. You alsowanna incentivize savings. That’s the missing part in this, I believe. And I, I saw the, you know,the JP Morgan CFO come out and no disrespect there, but he’s complained about how clientswant CDs. But if why he’s complaining is because they’re paying a basis point on their savingsaccount. Right. And if you’re, you have a great relationship, you get two basis points. Well,there’s, there’s your repression, Barry, you’ve00:32:55 [Speaker Changed] Moved to a money market, you’re getting about 5%. Right?00:32:58 [Speaker Changed] But that’s called financial literacy, right? So that’s the gap we havehere. My right. But it, it’s true. And, and this is not a US phenomenon. This is a globalphenomenon, right? That there is just not this robust financial literacy. But, so if you think abouta person that I I, I was contending probably two years ago going into 22 or sorry, going yeah.Going into 23 after we had higher rates that people are gonna save money. I didn’t realize that thebanking system wasn’t transmitting that mechanism. We work in capital markets, right? Right.And so we know what rates00:33:27 [Speaker Changed] Are. And that’s, that’s what, six or $7 trillion, some crazy number.00:33:30 [Speaker Changed] It was 6 trillion. We got to in money market obviously went downbecause of tax payments a couple weeks ago. Right? But the thing is, is that what you find is thatthat savings wasn’t there. Now, I would’ve contended in 23 that people thought inflation wasgonna continue at the nine handle. Right. Or the eight handle. And so they didn’t think that thatmoney market account was enough. Now, I think it’s that they’re not getting paid on theirdeposits either, right? Yes. Sophisticated people do people we know do this. And our job is toeducate more people. All my friends ask me about that don’t work in markets. What, what shouldI buy? I was like, Janet Yellen’s money market account, government money market. Don’t worryabout it. I promise you won’t lose money.00:34:10 [Speaker Changed] What’s the yield today? What’s Janet Payne?00:34:12 [Speaker Changed] Janet’s Payne about five and five and five and00:34:14 [Speaker Changed] 3, 3 5, right? Right. That’s an impressive listen, especially comingon top of a decade of practically zero. That’s that’s an oasis in the desert.00:34:24 [Speaker Changed] It is. But, so let’s continue on this path of, of why the consum, whythe sentiment’s so bad is because I don’t think that what we see in the slowdown is the, thesavings rate go up. Right? If you look at the percentage of disposable income, they’re, they’rereally at, at low levels.00:34:39 [Speaker Changed] Let’s, because you took all their excess savings.00:34:41 [Speaker Changed] I haven’t yet. I’m, I’m making a plea. Okay. I’m making a plea still.But where I’m going with this still is that I don’t think people have been incentivized to save.And you know what? We have the YOLOs, they have the, there was the idea that we, we werelocked down for a year or two depending on where your jurisdiction00:34:57 [Speaker Changed] Is. People died. It’s fair to say the, my big takeaway from thepandemic aside from, hey, these vaccines are, are a miracle, was life is short, open that expensivebottle of wine, what are you waiting for? People who were like otherwise fairly healthy,suddenly dying, you know, a lot of people had that moment of existential dread wear. Hey, I onlygot so many years left, let’s go live life. That’s00:35:23 [Speaker Changed] Right. And I think that that has changed the psyche. So if youwanna talk about a regime change, I think that’s changed. And I think that’s missing in this fedtransmission mechanism right now, is that we’re not curtailing this or we’re not increasing the sasavings and curtailing consumption we are spending still. And so from that standpoint, as long aspeople stay employed, that’s probably gonna continue. And by the way, we’re here in April, we’rein New York. It’s actually a beautiful day outside.00:35:50 [Speaker Changed] Spectacular.00:35:50 [Speaker Changed] Right? And this is the seasonal part where you guys on the eastcoast start to go out and spend more money too out in la We’re we’re just drinking jet sun all thetime. Yeah, we do it all the time. But, so the seasonal component will probably kick in here too.So this is the idea of waiting for a catastrophe to happen. What’s missing in a lot of this is alsojust the dynamic of the consumer. And look, people have criticized the labor market statistics,birth death models, all of that. But what I, what I look at in the labor market today is I watchunemployment claims. ’cause we can argue about service00:36:23 [Speaker Changed] Weekly unemployment claims about a 200 KA week now. Yeah.Why do I watch00:36:27 [Speaker Changed] This pretty low? But why do I watch that? The one thing I can sayis that I, I’m pretty confident in our fellow Americans, I mean, Barry, you’ve worked a long timein your career. You paid in the system, right? Sure. If Bloomberg lets you go, let’s say Ritholtzdoesn’t want you anymore, that would be kind of weird. But it could happen. I whatcha00:36:43 [Speaker Changed] You probably gonna do myself. Yeah.00:36:44 [Speaker Changed] You you may you you may just get match00:36:46 [Speaker Changed] Yourself if I decide to pick up golf and spend my time doing that.But think,00:36:49 [Speaker Changed] But, but I want to go the other way. I wanna say you lose your jobif you lose your job. I’m pretty sure that most people don’t have an issue going and filing thoseclaims. So when I look at unemployment claims and not seeing spikes that, or continuing claimsnot being out there, to me it says something about we can’t dismiss the jobs data. Right?00:37:08 [Speaker Changed] Well the labor market is tight during the previous administration,legal immigration, I’m not talking about people coming under the fence at the Mexican border.But legal people coming in dropped off about a million persons per year. Then you have thepandemic and00:37:24 [Speaker Changed] The pandemic took a couple million out of the workforce. Butwe’ve actually seen that that foreign born cohort00:37:31 [Speaker Changed] Starting to tick up, starting00:37:32 [Speaker Changed] To grow. It’s above trend now. Right. So,00:37:33 [Speaker Changed] But you still have a very tight labor market with a shortage ofavailable workers. That’s right. That’s gonna keep wages up and that’s gonna keep theunemployment claims down. And00:37:42 [Speaker Changed] If you keep, keep wages up, if people are making it, even thoughthey may be living paycheck to paycheck, they are spending money. And so this is the thing youcan’t dismiss in the overall cycle. And so I think when you start to look at it and you take adifferent perspective versus year over year and you go back a couple years, you find that you’regetting a different signal in the marketplace. And that’s something that we had to recognize lastyear. Well00:38:04 [Speaker Changed] Let’s talk about that. ’cause you came into this year, you came into2024 specifically saying, Hey, rate cuts in March seems kind of optimistic to me. You were dead.Right? And I’m gonna assume between the strength of the economy and sticky inflation, at leastin the services and, and apartment rental market was the basis for that. The market’s caught up toyou. Yeah. I think the market has, now00:38:33 [Speaker Changed] You got about one and a half. You got one, one and a half kind ofcuts this year. And it’s really back00:38:38 [Speaker Changed] Loaded June, July00:38:39 [Speaker Changed] It’s way back loaded. You’re, you’re talking about you, you’retalking about probably fourth like September or something. A lot of people will say, well the Fedcan’t cut right in front of the election. They’ve00:38:48 [Speaker Changed] Cut every year during an election. They can cuts00:38:50 [Speaker Changed] Wrong. It’s crap. Right? It’s this thing where they’re gonna beviewed politically. I say I tell other people if the Fed cut a hundred basis points two monthsbefore the election, do you think it changes the election? It does nothing. If everyth anything’sout in the cycle,00:39:03 [Speaker Changed] If anything that hurts the incumbent. ’cause it’s saying, Hey need,00:39:05 [Speaker Changed] There’s something wrong. We00:39:06 [Speaker Changed] Need it. Right? What’s going on? I know you’re a data wonk andyou’re not afraid to dive deep into the numbers. Let me ask you a kind of counterintuitivequestion. I I read a fantastic stat. Half of the homes that are owned that have mortgages, so onlyabout 50 60% of homes have mortgages. But half of the homes with mortgages have mortgagesat 4% or less. And I think it’s like two thirds at 5%.00:39:32 [Speaker Changed] It’s gotta be high. I think it’s, well at least in the agency market,which is easy to look at, if you look at, you can pull up the, what’s called the effective coupon ofthe agency mortgage market. So the effective just means that you’re taking it all together, theaverage and averaging it. Right? And that number’s about three and three quarters today.00:39:49 [Speaker Changed] C so much refinancing took place. It00:39:51 [Speaker Changed] Took place. But this is also another reason for that strength of theconsumer. Yeah. Is that like corporate America who was smart and refied their debt and00:40:00 [Speaker Changed] So did owners,00:40:01 [Speaker Changed] So did homeowners. But, but here’s what’s caused an inventoryproblem because now, so00:40:06 [Speaker Changed] That’s where I wanted to go is how much has the Fed taking ratesup and bringing, forcing mortgages to seven and a half percent created a sort of persistentinflation both in single family homes, apartment rentals and, and of course owners equivalentrent and Yeah. In BLS data for, for CPI for consumer price index, is it sort of perverse that thefed raising rates has raised inflation or at least made it sticky?00:40:35 [Speaker Changed] Well that’s, that’s the whole, that’s the whole thing. If, if I’d told yourates were going to a seven handle on mortgages, I, I don’t think you would’ve said that houseprices go up from where we were when we were talking about a 2.5% mortgage. Right? Well,00:40:48 [Speaker Changed] It’s because of exactly what you said. It’s the inventory, it’s thesupply is gone. Right.00:40:50 [Speaker Changed] So think about it this way, one thing we’ve been thinking about andwe’ve been throwing around the table in, in some of our discussions is that what if the fed cutsrates meaningfully? And what if mortgage rates come down 200 basis points? You’ll00:41:02 [Speaker Changed] Free up a ton of inventory and prices00:41:04 [Speaker Changed] Will go down. Prices will, my contention is if if mortgage ratescame down, 200 prices go down because you have a people that are landlocked or they’re, they’restuck in this home golden00:41:14 [Speaker Changed] Handcuffs.00:41:14 [Speaker Changed] Correct. And on top of that, you have, you know, a boomergeneration that ultimately is looking to maybe downsize and things like that where they’ll, they’lljust say at some point, well now I can afford the mortgage on the smaller place. Right? And I’mup so much on my home, I’ve doubled my price in the last,00:41:31 [Speaker Changed] Or even we added a second or third kid. We want a little morespace. Right? To go from three and three quarters to seven and a half is exorbitant on the samesize house. You want to add a bedroom or two? Yeah, it’s much easier. Oh my god. No one coulddo it. So, you know, you know, Nick Hanover of second wave capital has been talking about thisexact issue, which is if the Fed wants lower inflation, especially on the housing side, they need tolower rates. Yeah. The pro and people seem to not wrap their heads around. You obviously get00:42:02 [Speaker Changed] It. It’s, it’s tough though because on the other side, think about whathappened starting in November one of last year when the Fed kind of authorized that, hey, let’sstart talking about cuts. And what you saw was really, I’m gonna call it excess into the market,right? Rates, rates rallied meaningfully spreads came in meaningfully, equity prices went upmeaningfully, gold went up strangely meaningfully that, that’s the one I can’t get my head aroundas much is00:42:28 [Speaker Changed] Gold. Yeah,00:42:29 [Speaker Changed] Well how it went up so much recently,00:42:31 [Speaker Changed] Right? While it ignored decade while printing and00:42:34 [Speaker Changed] Yeah, we have these real yields that are positive. It is everything,you know, has kind of been thrown upside down. However, crypto, all, all these speculativeassets, and again, I’m, I’m not here to criticize any of ’em are up. If the Fed truly believes thewealth effect, they think if you cut rates more, you fuel that again. And so that’s another reasonwhy, you know, coming into the year I thought that the, we should be patient on the rate cuts andyou know, it doesn’t look that strange today, but a couple months ago I was telling people thebiggest risk to the market is that the Fed doesn’t cut this year. And people looked at me like I wasinsane Barry. Right. Well, more insane than they usually did usually, right? Yeah. Right. Yeah. Imean, so there’s a baseline there. But, but I just said like, why do we have to have cuts at thispoint? And what if the economy continues? Do you think the Fed wants to cut to have to turnaround and hike again later on? Now I’m not in the Larry Summers camp, but we should behiking this year. I think we’re just fine where we are.00:43:28 [Speaker Changed] Who’s left in the Larry Summers camp? He’s been dead wrong for acouple of years now. At what point do people say maybe the 1970s and the 2020s are somehowdifferent decades? You00:43:40 [Speaker Changed] Know, you know, maybe there’s a thing called technology that’s alittle different. I, I don’t know. But, but where I’m, where I’m thinking about all of this is that,you know, it’s not just falling the path of, of what the market is telling you. Because rememberthe bond bond guys get a lot of credit for, you know, being smarter than than other folks. And thebond market knows more than, than other markets. But remember we’re just people too. Thatforward curve is a bad indicator of where rates are going. It always has been. And you know, ifyou think about when rates were,00:44:10 [Speaker Changed] How about that dot plot?00:44:11 [Speaker Changed] Yeah. I mean look at where rates were pinned down in the early2010s through the whole, the whole decade of the tens, the market always had cut. Hikes arecoming, hikes are coming. So effectively I thought the market got way too giddy at this point.You know, it’s, it’s harder to make a decision now. ’cause it was very easy to say, look, I wannafade the full cover. I want to continue to own some floaters in the market. There’s nothing wrongwith owning some floating rate debt. Yes, you gotta be careful with it. ’cause they can beproblematic. But I can buy floating rate mortgages for instance. Right? And they’re guaranteedby the government. They’ve got seven caps, meaning that mortgage, you know, the, the rates andmember, these, these were issued before, they would have to go up to over seven before you’repenalized. You know, they trade a hundred over. Right. That seems like a a no brainer trade fornot taking credit risk right now. You know, it’s kind of priced right into the market and so thingsaren’t as exciting there. But as you, as you look through it, I just think there was just so muchfervor that everyone thinks the fed’s gonna go down in rates. But as I, as I tell people on the desk,what’s wrong with yield? What is wrong with having a positive real yield? You00:45:17 [Speaker Changed] Sound like a bond manager.00:45:19 [Speaker Changed] I know. And you know what, it’s kind of funny because you know,these, these younger analysts and things, they, they just think it’s okay to have zero real yield likethat the rate should equal inflation. And I’m like, you have to have a premium. And I think that’salso what’s changed is because inflation has come back into the market, the bond folks are gonnarequire an inflation premium, which means we need real yield00:45:42 [Speaker Changed] Was did you say this in one of your notes? Like the current crop ofbond managers have never experienced a bond market where they were generating real returns.Real yield relative to, to rates. They only know decades going back to the 22,000 of pretty closeto 0% fed funds rate.00:46:04 [Speaker Changed] Yeah, I think I said something like that. I won’t say there’s none outthere. ’cause obviously we have some00:46:09 [Speaker Changed] Tenure,00:46:09 [Speaker Changed] But like a lot of folks this mean00:46:10 [Speaker Changed] This new generation course who are the under 40 crowd has neverseen higher rates.00:46:14 [Speaker Changed] Well they had never seen a hiking cycle either. They’ve never seeninflation briefly00:46:18 [Speaker Changed] Like 18,00:46:19 [Speaker Changed] 16. Yeah, you got a little bit and I, I think I said that back in the 16era. Like there’s people out there having you ever seen a hiking cycle that are making investmentdecisions. But you know, the thing about it is, is that that’s why we have to be students of history,right? We have to know some of the dynamics. But I think that’s a Buffett quote, right? Wherenot Jimmy, but Warren, where he says that if history was all there was or past his prologue, thenthe richest people in the world would be librarians, right? And so you have to have that in yourtoolkit. You have to have the behavioral side in your toolkit, but also you have to be willing tokind of just think about things differently. And you know that that’s what’s, that’s what’s greatabout this business and that’s why I’m glad I didn’t become a teacher, Barry, because I think I te Iteach through this, right? I i I try to, I try to help our analysts, I try to educate our clients and tome it’s, it’s solving these mysteries all the time. It’s way more fun than just teaching you how to,how to do PDOs and, and figure out the order operation.00:47:14 [Speaker Changed] And, and it’s pretty, it’s pretty clear you made the the correctchoice. So I want to talk about what you’re doing at the firm with some of the new funds youhave, but I have to talk a little bit about how this year has gone for bond investors. What are we,we looking at? We’re off about two and a half percent in bonds. Nothing like 2022, but it reallyseems like the bond market has been off sides. What, what’s going on there?00:47:38 [Speaker Changed] Yeah, well you, you gotta rewind the clock. I mean we were talkingabout year over year, you gotta expand the window. So yeah, we all looking calendar years, butlet’s go back to November one. You’re up meaningfully in the bond portfolio right? Last year,right? For sure. So we got a little too excited. Look, we cut a duration back in back in January alittle bit in our portfolio. So especially on the intermediate term side, we did so because I, I wasjust adamant that j Powell was not gonna let this thing keep going. We’re not gonna get ratesdown to, you know, three, 3% on the 10 year. It just seemed ridiculous. And,00:48:09 [Speaker Changed] And that was like a hundred basis points very quickly came out ofthe00:48:12 [Speaker Changed] Market. Yeah, it did. It it did. And Jay just added fuel to the fire inDecember and so I, I was kinda licking my wounds for a little bit and say, man that was a badcall. I’ll own it here. It looks like a good call now. But the thing is, is that, you know, if you rollback the clock, bonds have done very well in the last 18 months or so since, since we really gotto those kind of peak levels. Yeah, we had that 5% tenure last year for about, I dunno why youwere sleeping minute, right? Yeah, it was, it was overnight really what you saw. And look, Ithink we’re gonna try to test it again. And so we’ve been in the stance that coming in the year thatbonds probably have, you know, rates probably fluctuate around. They probably go up in the firsthalf of the year. Maybe you get something that stabilizes here. It just depends on the outcome ofthe economy. But as a bond investor, there’s nothing wrong with having higher yields, youknow? And so if you were patient and you weren’t aggressive with this bond allocation. You gota good rally in January, don’t forget. Right. So we got rates pretty dang low in January, and thenit just got sucked out all of a sudden because the inflation data came in.00:49:15 [Speaker Changed] Right? Still a little hot.00:49:16 [Speaker Changed] Right? And so ultimately, I, look, I, if I’m sitting at the Fed, there iszero urgency of cutting rates at this point, right?00:49:23 [Speaker Changed] I, you know, my, my argument has been, yeah, the CPI is coming inhot, but to quote George Box, all models are wrong, but some are useful. OER, the, theapartment side, it’s on such a lag itself.00:49:37 [Speaker Changed] But just, but just take, take the services exit. Let’s look at the supercore stuff. It, it’s, it’s not comforting. And that’s because people are spending, right? They arespending, yeah. Oh, absolutely. And so forget the OER side. Strip it out. That’s what, that’s whatJay was trying to do, right? But super core is now annualizing it like 4% if you take super corepc CPI. So he has a problem still. And why, if the economy is still performing, people aren’tlosing their jobs. What, what are we, why are we asking for00:50:05 [Speaker Changed] Rate cuts? What’s the, what is the, the incessant ubiquity of doing itnow, other than freeing up that supply of housing, bringing rates down? And let, let me talkabout something else that I want to ask you about. So it’s pretty well understood that huge invest,huge advantage for equity index investors if you have a 10 year time horizon. However, when welook at fixed income index investors, it seems that a skillful bond manager can do better than the,the Bloomberg Barclays bond for a variety of ways. You, you can, you can make durationchoices. Yep. You can make credit quality choices. 2022 was a tough year for bonds. Yep. Downabout 15% across the Barclay Ag. You guys are, are discretionary, unconstrained bondmanagers. What were you thinking during 2022? Well, look,00:51:05 [Speaker Changed] Rem remember, even though we have some of that, you haveguardrails and you have to own some duration and like, there’s, there’s limits to howunconstrained or unconstrained really is. And so, you know, what we were seeing in that marketwas just pain. Right? And what you also have to remember, if you’re running a bond fund, you’reproviding liquidity. And remember when bonds go down, people sell bonds. Just like whenstocks go down, they sell stocks. And so what happens during this too is that you’re forced tosell. Everybody’s forced to sell. There’s no money to go buy things. And so we all complainedabout the same thing. Look at the value in some of this stuff, but it keeps going down. Right?Right. And so I think what you see in today’s market, I don’t think we’re gonna have a repeat of22 at this point, why we’re not starting with a 1% tenure. Right? Right. You know,00:51:54 [Speaker Changed] Or fed funds at zero or00:51:55 [Speaker Changed] Fed funds at zero, you’re starting where you get yield. So basicmath today says if I own a 4.5% tenure and it has a duration, you can call it seven point a half.Maybe it’s closer to eight today, that says that, okay, if I think about that ratio between the yieldand the duration, that tells me how much yields can go up in a calendar year and my yield willoffset it. Right? So that’s high break even with a duration trade. And so from that standpoint,there is some value in it because I do believe that if we do fall apart in the economy, if we haveproblems, I do think the tenure rallies, I don’t know if it rallies like it has historically because ofthe debt loads that we see out there, because of the big deficit, and this is the other side of it, weneed some inflation. Barry, we need nominal GDP growth. Right? We’ve gotta grow ourselvesoutta these deficits. But the problem is, is that we’ve, we’ve changed the, the, the script andsomething changed under the previous administration where during the good times, which thatera was pretty good, right? In the 16 era, we actually expanded the deficit historic allydramatically. Right. Historically we decreased the deficit. To be fair,00:53:04 [Speaker Changed] A lot of it was pandemic related. No, no, no,00:53:06 [Speaker Changed] No. It, no, I’m saying the path that Trump had us, I won’t sayTrump, let’s say the entire Congress had, right? We were spending more money, we wereincreasing the budget deficit on an annual basis. It’s the first time, really in the last 70 yearswe’ve seen an absent a war. Right? Okay. And so, fair enough.00:53:22 [Speaker Changed] And00:53:22 [Speaker Changed] Then we’ve continued it during this administration. Right? Sothere’s no change on which team you play on here politically. It they’re, they’re, they’re both badfor bond money.00:53:29 [Speaker Changed] Wait, people in DC spend money they don’t have00:53:32 [Speaker Changed] That’s right. Well, lemme write that down. Yeah. Yeah. So I knowbreaking news put put that on the marquee for Bloomberg today. Right. But the thing is, is that,you know, we, we aren’t, we aren’t keeping the house in order. And so I think it’s gonna befearful next time we have a recession. So my boss has been talking about this for a while now,and it’s not that this is a 2024 problem. The deficit is not a 24 problem. But when we haveanother recession, what if Congress sees what we did during the pandemic and says, you know,we should print 15% of00:54:01 [Speaker Changed] Dp, this fiscal stimulus thing seems to work. It worked00:54:03 [Speaker Changed] And it does00:54:04 [Speaker Changed] Work. That kings guy, he knew what he was talking about,00:54:05 [Speaker Changed] Knew he was talking about, but also there isn’t a ramification on theother side of inflation. And the bond market will sniff that out quickly. So I think you can get arally going into a recession, but once the fiscal authority start to act, you may not want to beowning that bond. You may not wanted to rent it over that period.00:54:21 [Speaker Changed] Let, let me ask you my pet peeve question, not so much from theprior administration, but from the ERA before the pandemic, when rates were zero for a decade,how big of a missed opportunity was it? So households refinanced, I know corporationsrefinanced. Congress said, no, no, we have no, you know, if we refinance, it’ll just encouragemore spending. Well, look, historically, it’s like the single dumbest thing I’ve ever heard in my00:54:48 [Speaker Changed] Life. It okay. That is, but let, let me give them a little bit of credit.And I’m not here to, to give Congress credit or, or the treasury at all. But historically the Fed, I’msorry. Here I am screwing this up. Historically, treasury has issued more short than long. Right?Right. And that’s because of the shape of the yield curve. Right. Effectively. But also there’s a,there’s an argument that most people miss in this Barry. And what it is, is, remember the treasurymarket is one of the most liquid markets in the world. Sure. Except during March of 2020,nothing was liquid. Mean. Our, our treasury folks that traded in the eighties, by the way, theywere telling us that they’ve never seen such a horrible00:55:26 [Speaker Changed] Market worse than, you know, September oh eight. Worse than00:55:28 [Speaker Changed] S worse than Leman. Absolutely. You, you, there was liquidity inthat stuff. You, you couldn’t trade off the runs. You couldn’t trade. They, they wouldn’t eventrade. Wow. You couldn’t make an appointment. You couldn’t call someone to, to try to do it onthe run stuff. You were hard pressed to do 10 million bucks. Wow. No desk wanted risk at all.And even treasuries. But where I’m going with this on the whole liquidity is remember we have aterm structure of rates. We, we advertise our auction calendars. Right. The quarterly refundingassets, which there’s one coming up by the way.00:55:57 [Speaker Changed] And they’ve been pretty mediocre the past few ones that00:56:00 [Speaker Changed] We’ve seen. Yeah. And this one looks a little scary. Janet’s got a lotof work to do there. She’s issuing a lot of frontend paper this week. We’ll see how that getsdigested. But, but00:56:07 [Speaker Changed] Let me just00:56:08 [Speaker Changed] Real quick, let’s go back to the term structures, because they needto have the market. You can’t just say, all we’re gonna do is issue 50 year treasuries. You can’tjust do all that. Should they have issued some Yes.00:56:18 [Speaker Changed] The market claim report, when the Fed was at zero and 10 yearswe’re at 1%. I get it. But you can’t, they couldn’t have done 30 years at three and basically changethe,00:56:27 [Speaker Changed] But you would have no liquidity for the next few years if you tookthe entire I I’m saying at the Extremo. Right? Right. So if you went out there, you, you, youcould put some into it. But the treasury market, you have to have this functioning market ofpeople rolling paper and moving around. There are people that buy thirties and lock ’em up.Right? Right. They’re called, they’re called sovereign funds. But in general, you’ve gotta havesome dynamic of providing that liquidity to different points on the curve. So don’t disagree. Andso, and so there is something he said now, should they have done as much on the front end?Absolutely not. But they were shortsighted thinking about the zero Look, you could have done a,you could have done a 50 year sub two at that time. Really? Oh yeah. You definitely could havein the mar Remember the long bond in 2020 got to one. Right?00:57:09 [Speaker Changed] That’s00:57:10 [Speaker Changed] Right. One. Exactly. That was the low in yields. And so you couldhave done stuff like that. Two, two, and the market clamored for that sub, remember? I mean,there was, there was like this Austrian a hundred year paper that traded with almost a negativeyield for a while. Right? A hundred years. And you know, so ultimately when you pull it all backtogether, some of it is just the function of the market. They couldn’t do, but they should havedone some of it because there was a massive demand for it out there, specifically in theEurozone, where a positive real yield or a positive nominal yield would’ve cleared the marketvery strongly. But you couldn’t take the entire budget and do the whole thing in there.00:57:44 [Speaker Changed] Obviously you can’t refi all of the United States, but you certainlycould have made the circumstances where we are today much less. You could,00:57:51 [Speaker Changed] You could have made it better. Right. And again, I’m not trying togive them a lot of credit, but I’m giving you the reason why some of it is there. And it’s also, it’sthis entrenched thinking that they have to issue short.00:58:02 [Speaker Changed] So let’s come back to a couple of, of funds that you guys run. Igotta start with, I don’t know who coined this, but the first person I heard say it was you. Whatdo you make of the idea of TBI and chill? Oh,00:58:15 [Speaker Changed] Look, I I it’s been a great place. If, if you’re a TBI and chill person,meaning that you just buy t-bills, forget your bond allocation. It’s worked for you.Congratulations.00:58:25 [Speaker Changed] When does that stop working?00:58:26 [Speaker Changed] At some point it does. And it has risk. And I, I tell people that andthey’re like, well, yeah, we could default. I’m like, no, that, that’s not the risk. I’m talking, it hasrefinancing risk. Right? Right. Every month you TBI and chill, if J cuts rates, you, you don’t getto chill as much. And so at some point you gotta, you gotta move it out a little bit. But thatphrase alone is working. And Jay has given you a renewed sense on life there. You00:58:49 [Speaker Changed] Got at least another six months. Right.00:58:51 [Speaker Changed] Got at least a few more months. But the question is, what if theysurprise you? Right? So again, we all think we know, but we, what we’d all know is we don’tknow.00:58:58 [Speaker Changed] Let’s talk about surprise because the Fed has been so transparentand there have been criticisms from a variety of quarters that hey, you know, the Fed is moreeffective when it can occasionally shock the market. My fantasy is Jay cuts in June, startles themarket. Yeah. And then we have a little bit of a reset.00:59:17 [Speaker Changed] If he did that, I think the knee jerk reaction would be to sell thingsand because it would, it would the, the market,00:59:23 [Speaker Changed] Which he doesn’t mind.00:59:24 [Speaker Changed] Yeah. The market would say that takes the fed know something00:59:27 [Speaker Changed] Consumer out. Right. That takes the, the consumer, it does all thesethings that he says he wants, he wants to calm down the consumer, he wants to calm down.00:59:33 [Speaker Changed] It’s not gonna happen. Barry Inflation, you, you00:59:34 [Speaker Changed] May want it, I know it isn’t, but if I was a birdie whispering in hisear just 50 basis,00:59:39 [Speaker Changed] When’s the last time Jay shocked the market? They didn’t evenshock the market with the fifties and the 70 fives, they’d went to Nick leaks. Right. As Right.You know, one of the banks called him. And00:59:48 [Speaker Changed] So Nick leaks. So I’m like Nick Tess at the Wall Street Journal.00:59:52 [Speaker Changed] Yeah. I don’t even say, that’s why I call it that. I can’t pronounce thelast name Nick. That’s great. But it, but what you see is that they don’t, and who shocks themarket today, the BOJ. And look at what it creates. It, it’s not what the Fed wants because there’sripple effects. If the Fed shocks, then the ECB does too. If you notice the ECB follows our leadin all of this right now. So it’s much more dangerous for J to shock the market. And they feel likethey want forward guidance to be there. And that’s what they set off back in November. So,alright,01:00:21 [Speaker Changed] 25 bips01:00:22 [Speaker Changed] In June, but what does it matter? It doesn’t change anything. We’retalking about 25 bips Oh. Than01:00:27 [Speaker Changed] Housing.01:00:28 [Speaker Changed] Not 25 basis points does not change the housing market. Barry,come on. Alright. But here’s the thing. TBI and chill, you should be moving out the curve a littlebit. Look, b buy one year, like we run low duration funds for these reasons. Right. You know,look, they’ve been great for, for clients, you can pick up yield. So from my standpoint, there’sbetter things to do. But look, my cash sits in money market. Right? Right. And look, I’m, I’mready to, to move some of that out. And look, I’m looking for yields like 4 75 on tens. I think it’sa great point. I think when we have our next conversation was every five or six years you inviteme, we could, we can, when we do that, we01:01:02 [Speaker Changed] Can tighten that.01:01:03 [Speaker Changed] But, but when we do that, what we’ll do is we’ll review this and I, Iknow you, you have it all recorded, so I’ll be on tape for that. But I, I think you’re, you’re gonnawant that for this period. All01:01:12 [Speaker Changed] Right. So let’s talk about two other funds that you guys havelaunched. The equal weighted ETF focused on Fortune 500. Yeah. Where you’re ranking theholdings by revenue. Very smart beta ish or fundamental beta, whatever you wanna call it. Tellus the thinking behind the equal weight ETF with the Fortune five oh hundred revenue basis.01:01:32 [Speaker Changed] So first of all, what it does, the Fortune 500 list published annually,right? It includes public and private companies. Ah, so before I say that, we’re not investing inthe private companies. Okay. So it’s all public, but what happens is that it’s us domiciled names.So you don’t have any conglomerate, you know, like a Schlumberger or something that’screeping into there like an s and p. And it’s very, you know, it’s very rules based, right? You justrank on revenue. So what this does, if you compare this to like the s and p 500, there’s about onaverage in any given year, that’s called 110 to 130 different names that are in the s and p. So weall know that there’s equally weighted s and p out there. Sure. And what we find is that thisthrough a cycle does significantly better than equally weighted. And in today’s01:02:16 [Speaker Changed] Environment, this is, and this is revenue ranked not market capital,right? Not01:02:19 [Speaker Changed] Market cap ranked on how they deduce it. You don’t have somesubjective committee like an s and p that comes in there. So names that are growing and actuallygenerating revenue show up sooner in this index than it would in the s and p. Why?01:02:31 [Speaker Changed] And if they’re not yet profitable, ’cause they’re reinvesting, they stillshow up,01:02:34 [Speaker Changed] They’re at the top, they’re out. So you, you’re gonna be wayunderweight, like service as a, so software as a service, I always get that backwards. Software asa service, you’re gonna be under, you’re gonna be, wait, some of these tech names too,unprofitable tech isn’t in there. So you’re gonna have some more industrial type names, you’regonna have more value kind of names over a cycle. But in general, these are still names, youknow, and when you look at the list, it’s like, okay, but what it ends up doing is it gives you adifferent cohort to play with. Huh. And what you find is that these names get overlooked becausethey’re not in the s and p 500. And so over time, you know, if you go back and compliance wouldhate me on a back test and everything, but you can generate about 150 over the s and p equalweight per annum. Wow. And look, if you can do something like that, and we all know over longterm equal weight tends to do better than market cap. Now we go through periods. By the latenineties we had the one we’ve just been through. And so for us, the timing perspective was veryinteresting because at the end of the day, we, we couldn’t, it’s hard for us to really love the Magseven or now it’s down to four five, who, who even knows what we changed it all. It was a01:03:33 [Speaker Changed] Fantastic, fantastic four, right? We changed all went from Fang AAto Mag seven F. Yeah. So let’s talk about another fund, which is avoiding the Mag seven. Yeah.Which is the double line Schiller enhance Cape. And I know you can’t say this ’cause ofcompliance, but I could say top 1% of large cap value crushing 14% a year for the past threeyears beating the s and p 500. Why did you guys partner with SHIELD to come up with theenhanced cape other than the obvious performance?01:04:04 [Speaker Changed] I mean, like, it, it, it, it fills with us philosophically. One, as a bondmanager, we are sector rotators, right? So that’s something we focus on. And the other thing wefocus on is valuation. So if, what, what the Shiller methodology does is that it’s, it’s, it’s lookingat the relative cape ratio. So it takes the cape ratio of each sector and compares it to its ownhistory. So it says it’s for each sector, the market, where are we in the cycle effectively. And itranks them and just says, which are the cheapest, which are the most rich? So avoid the rich, buythe cheapest, right? So you take the universe, there’s 11 sectors, cut it in half, call it five, fivecheapest. What you wanna look at and you apply momentum like any good academic would doto control for, for kind of the value trap. And you’re left with four and you equally weigh ’em. It’sas simple as it gets.01:04:49 [Speaker Changed] Barry, you know, there is something to be said for bond managersbeing better PMs on the equity side because of the focus on valuation, return of capital and, andjust tracking the math in a way that the equity side tends not to. Yeah.01:05:08 [Speaker Changed] But look, they’ll beat us through different parts in time. The long,the goal is to have a long tenure. And if you can do it over a full cycle and you can do muchbetter, then why wouldn’t you do it?01:05:17 [Speaker Changed] Alright. So I have to get at you outta here sooner rather than later.So let’s turn our favorite five questions into a speed round. Perfect. Answer these as quickly asyou can, starting with, tell us what you’re streaming these days. What are you watching orlistening to?01:05:31 [Speaker Changed] One of my colleagues turned me on to something called the XFilesand told me that you should watch this because it well, because01:05:39 [Speaker Changed] The truth is out01:05:40 [Speaker Changed] There and Exactly. That’s what I was gonna end with, but yes. Andit actually does hold up pretty well. So anyway, so something that I’ve been revisiting. I I don’thave any of the new ones out there. It’s, it’s, it’s kind of plus01:05:52 [Speaker Changed] Plus the coy was, and Jillian, they’re, they’re both so fantastic and01:05:56 [Speaker Changed] You gotta remember the song David Decoy, why don’t You LoveMe? Right?01:05:59 [Speaker Changed] Tell us about your early mentors, although I kind of have a feelingwho those are gonna be who helped guide and shape your01:06:05 [Speaker Changed] Career. Yeah, that’s, I I think I mentioned this before when we werehere, but there was a guy I worked with named Claude Irv too, on the commodity side. Really,really a guy that taught me to question everything. And then there was this guy named JeffreyGunlock too, very kind of prominent guy who said not only question everything, but question itagain, you know, too. And, and that’s very helpful. And also I think what was, what’s been verygood about Gunlock and why he has such a loyal crew around him is that all of us are reallypushed to challenge each other. And there’s no dumb questions. Yeah. We’ll call each otherdumb at times. You know, we’re, we’re like a family that way, but it’s, it’s encouraging people tocome up with ideas. And we’re an idea business, right? You have to create, you have to, youhave to have new things in the market.01:06:49 And we want people to poke holes. And I think that’s something that’s very good aboutthe team is that it’s not being a contrarian for the sake of being a contrarian, but what are we allmissing when we’re all nodding vertically up and down? You know, that’s the time where youquestion and like, that’s what we’ve been doing in our last asset location meetings. It’s like, we’vebeen sitting around going, credit looks expensive, but we don’t want to sell it. And we’re allcringing and we’re all just saying, okay, we’re just gonna let it run for right now. And you know,Gunlock keeps saying, I just wanna make everyone aware it, we keep doing this each month. I’mnot, I don’t have another idea right now, but it’s starting to say we’re maybe rates look prettydecent too.01:07:25 [Speaker Changed] How do you hedge credit short of going out and buying creditdefault swaps and, and they’re not cheap.01:07:31 [Speaker Changed] No. You, you really don’t. If you’re having to hedge your credit,you should own it. That’s one thing I’ve learned, huh? ’cause the hedge costs you money. If youwant to hedge the credit, maybe you should own it. And the best hedge out there, I think todayare longer data treasuries. I think they work, I think if we have a meltdown, and I’m not sayingcredit spreads wide in 10 basis points. I’m saying01:07:51 [Speaker Changed] Extended duration isn’t gonna01:07:52 [Speaker Changed] Hurt you. It’s not gonna hurt you, and you get paid to do it. So that’sa hedge that, that makes you money. It’s what we call a positive carry hedge.01:07:58 [Speaker Changed] There you go. Let, let’s talk about books. What are some of yourfavorites? What are you reading right now?01:08:02 [Speaker Changed] Yeah, I think I said to you last time was against the Gods ofBernstein. That hasn’t changed. That’s,01:08:07 [Speaker Changed] Oh, it’s so, it’s a classic. It is.01:08:08 [Speaker Changed] Everybody should read that out there. You know, I, I’m a big fan of,of the Michael Lewis stuff. I, I know he got a, he got a bad rap with the, the latest one too aboutgoing in Definite. Yeah. On SBF. I thought01:08:19 [Speaker Changed] That I was a lot of fun.01:08:20 [Speaker Changed] If you read it. I think a lot of people read like 50 pages and thought,oh, he’s a fan boy, this is Michael Lewis. He’s building a character, first of01:08:28 [Speaker Changed] All. Exactly. You01:08:29 [Speaker Changed] Know, if you haven’t read him his other stuff, then maybe youcould get there. But if you read the whole book, he’s pretty caustic at the end, right? I mean, hewas a01:08:35 [Speaker Changed] Hundred01:08:35 [Speaker Changed] Percent right. It, it was, it’s Total Lewis. And so I, I think thatpeople that was cri were criticized up front, but Chip Wars is the one that someonerecommended to me01:08:43 [Speaker Changed] That keeps coming01:08:44 [Speaker Changed] Up. I love it. Everybody loves that. Everybody should, everybodyshould read it. That is where it’s at. You talked about the CHIPS act. I think that’s the only greatthing that’s come outta Congress in this last, you know, kind of rounds. I think building the chipplants, getting our own security, that direction and being a preeminent player there is extremelyimportant. Huge. I’ve always aided the iPhone where it says designed in Cupertino. Right? Butit’s manufactured somewhere else, right? They forgot that part out. They only kept the Cupertinopart. I think this is something very powerful. Why would you not wanna be the next TSMC?Why not? We, we call01:09:18 [Speaker Changed] USC or bring here they’re building a plant in Arizona,01:09:20 [Speaker Changed] Right? We could call it USMC, but we got a few of those already,you know, so, so yeah,01:09:25 [Speaker Changed] The Marine Corps, you don’t wanna piss those guys off.01:09:27 [Speaker Changed] You. I’m a big fan of the Marine Corps. I do not wanna sayanything and shout out to the, the Marines out there that take care of us.01:09:33 [Speaker Changed] By the way, I loved the Michael Lewis going infinite. If you want adifferent perspective, that’s every bit as well written and entertaining. Just a little more horrifyingis a Zeke Fox’s number go up. Okay. Which it, which is really a, you read the two of those andnow you know everything you need to know right about, about FTX crypto and I gotta fly01:09:55 [Speaker Changed] Back to LA later in the week. So I’ll, I’ll take a look at it.01:09:58 [Speaker Changed] Our final two questions. What sort of advice would you give arecent college grad interested in a career in either applied mathematics, bond management orinvesting?01:10:08 [Speaker Changed] I think you need to stray from what you’ve learned thus far.Meaning that if you’re the mathematician, you need to learn another side of the business. Learnthe fundamental side, which is something that I didn’t appreciate. Be a student of history thatapplies to everyone. Unless you’re a history major, then you already know that. But a student ofhistory, financial markets rhyme a lot of times, right? They’re, they’re not the same. But you’lllearn a lot through that. And you’ll learn that a lot of things we’ve been, we’ve experienced thesethings before. And most importantly, learn psychology, learn the behavioral side, realize we’reall people. There is no smart money, dumb money. It’s all ran by people. Institutions are ran bypeople. They behave a little differently because their own career risk. Your hedge fund’s gonnabehave a little differently ’cause of its career risk.01:10:52 But understand that all these dynamics are in play. So the last advice I have when itcomes to this, and the CFA institute hates it when I say this. Yeah. You know, and I’ve, I’vegiven a couple speeches recently and I, I I put that caveat out there. Fundamentals work. Theyjust can be, they can, they can be off for a while. Right? And ultimately, fundamentals comehome to roost. Technicals teach you how to trade te technicals. There’s levels like they, theywork relatively well ’cause of the psychology. So that leads into psychology. But the one thingyou can never, ever, ever ignore is money flow. Money flow is the most powerful thing. Ifpeople are buying price go up, people are selling price go down. And when you see that in themarket, when you see that, that’s called momentum. Right? Note to the quants out there, that isthe most powerful force in the universe if we’re short term timeframe. So if you can marry thosethree things together, that’s, that can give you success.01:11:45 [Speaker Changed] How do you track money flow?01:11:47 [Speaker Changed] Well, you watch fun flows. We watch ETF flows. We watch ETFcreation units. You watch also the demand from the institutional when it comes to RFP demand.So all of these things are somewhat in our toolkit. But remember we talked about M two, that’s apowerful force as well when we print money and create money that it has to go somewhere.Right? Right. And you gotta track where it’s going.01:12:09 [Speaker Changed] It, it goes where it’s treated best. And01:12:11 [Speaker Changed] Water finds its levels.01:12:12 [Speaker Changed] That’s exactly right. Our final question, what do you know aboutthe world of investing today? You wish you had in your toolkit you wish you knew 25 years orso ago when you were first getting started?01:12:24 [Speaker Changed] It’s that behavioral aspect. Hands down. Hands down that, youknow, when I came in as a naive quant, I thought mass solved the world. You can modeleverything. Right? And I realized that, you know, the models, they’re guides. Everything wehave in the toolkit’s a guide because it’s people making decisions. And we are inherently strangecreatures, right? We do not act in our best interest, right? We, we don’t, we are not utilitymaximizers, you know, to, to borrow the economic phrase. And so at the end of it, I think it’sunderstanding that dynamic of psychology is very important. How does one model psychology?You don’t, but you know it, you can can feel it. And there’s something about markets where wesay we feel something’s happening. That means we’re talking about that psychology.01:13:10 [Speaker Changed] What, what’s the famous Richard Feynman quote? I know I’mgonna mangle this, but if you think physics is difficult, now imagine what would happen ifelectrons had emotions,01:13:19 [Speaker Changed] Right? Classic. I mean, classic Feynman is is is amazing. There’sactually something on Twitter where someone does fineman quotes. Yes, yes. I love, I love thattoo. And is Twitter01:13:28 [Speaker Changed] Still around? I’ve been, you know, sad sadly watching it circle thedrink.01:13:32 [Speaker Changed] Yeah. I mean I think it, something happened with the managementthere. I don’t know. It kind of changed the dynamic. So I, I actually haven’t been using it as muchof myself either. And so, but01:13:43 [Speaker Changed] The glory days of Twitter peak Twitter was a fabulous period.01:13:47 [Speaker Changed] It was. And I remember you giving me some advice, Mary, me,Barry. So you, me, you can go onto the mentor list with this out. I think way you should wrap it01:13:54 [Speaker Changed] Up. Oh, let’s hear this horrible advice I give you.01:13:57 [Speaker Changed] So I was a, a young guy in here sitting here ’cause I was youngerthan I am today. And the thing you told me about, I was like Twitter. I was like, it’s so just ahorrible, it’s a cesspool. And all of this you said true. Which you, that’s great advice, right? Youwere like, yeah, true. And you said if you want to do it, block and curate. Oh,01:14:15 [Speaker Changed] The list. Yes. Oh, a01:14:16 [Speaker Changed] Hundred percent. And you know what? It changed my life01:14:18 [Speaker Changed] Really01:14:19 [Speaker Changed] Block and curate because I got what I was looking for. Now I havesome self-reference in there. And that’s the other thing. But going back to your previousquestion, follow people who you don’t wanna follow, follow, follow,01:14:31 [Speaker Changed] Get outside of your I ideological bubble.01:14:33 [Speaker Changed] Correct. Understand the other side. And you may not understand it,but listen to it and it’ll make you better for doing that. ’cause you’ve gotta realize that no one hasyour experience, they have their experience. And so to put yourself in someone else’s shoes andtry to try to grow from that, it’s very important. And don’t just read everyone who agrees withyou. It’s really fun for me to walk on the desk. I was like, yeah, yeah. Great job, Sherman. Yeah,yeah. Well if it’s not truthful, it doesn’t matter. Poke holes in it. And I think that’s the thing, we’reall looking,01:15:04 [Speaker Changed] It’s as if every trade has a buyer and a seller.01:15:08 [Speaker Changed] It’s funny how that works, right? That’s why like prices went out.There’s more buyers and sellers. By definition. There can’t be, you01:15:13 [Speaker Changed] Know, by the way, that as someone who started on a trading desk,that expression has always annoyed me because the true expression is more buyers than why didwire stocks up today? More buyers, seller buyers at01:15:24 [Speaker Changed] A higher price.01:15:25 [Speaker Changed] Sellers at this level. Yes. Correct. Once you exhaust the sellers atthis level, now you go up. Thank you Jeffrey, for being so generous with your time. We havebeen speaking with double lines. Jeffrey Sherman. He is Deputy Chief Investment Officer at thefirm, helping to oversee about a hundred billion dollars in fixed income and equity. If you enjoythis conversation, be sure to check out any of the 500 plus discussions we’ve had over the pastalmost 10 years. You can find those at Apple Podcasts, Spotify, YouTube, wherever you findyour favorite podcast. Be sure and check out my new podcast Act, the money expertconversations about earning spending, and most importantly, investing your money. Find thatwherever you find your favorite podcasts or in the Masters in Business Feed. I would be remiss ifI did not thank the crack team that helps put these conversations together each week. JohnWasserman is my audio engineer. Atika Val Brown is my project manager. Shorten Russo is myresearcher. Anna Luke is my producer. I’m Barry Ritholtz. You’ve been listening to Masters inBusiness. I’m Bloomberg Radio.

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