BlackRock's Global Co-Head of iShares Fixed Income ETFs Stephen Laipply

Barry speaks with Stephen Laipply, global co-head of iShares Fixed Income ETFs at BlackRock, for a conversation about uncertainty in markets, the impact of the Trump administration's tariff and trade policies, the Fed's rate path this year, what's driving institutional and household investors from the fixed income perspective and more.

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. This is Masters in
Business with Barry Ritholts on Bloomberg Radio.

Speaker 2 (00:16):
This week on the podcast, yet another extra special guest.
Steve Lpley is global cohead of bondytfs and investment giant Blackrock.
He helps to oversee over a trillion dollars in bondytfs.
He's got a fascinating background at both Bank America, Merrill
Lynch and since two thousand and nine at BGI and Blackrock.

(00:39):
I thought this conversation was really fascinating. There are a
few people in the world of fixed income that understands
the bond market, the ETF market, what the Fed's doing,
what is driving both institutional and household investors on the
fixed income side. I thought this conversation was absolutely fascinating,

(01:01):
and I think you will also with no further ado,
my conversation with black Rock's co head of bondi pfs, Steve,
Steve likely, welcome to Bloomberg.

Speaker 3 (01:14):
Thanks for having me, Berry.

Speaker 2 (01:15):
So what a perfect time to have somebody who specializes
in fixed income and bonds. We've had all sorts of
mayhem with tariffs on tariff's off rates up, rates down,
yields starting to creep higher and hire. But before we
get into what's going on today, let's talk a little
bit about you and your background. BS degree in finance

(01:38):
from University of Miami, NBA from Wharton Finance. Always the career.

Speaker 3 (01:43):
Plan, not quite. So I went to Miami University in Ohio.
Actually I grew up in a small town in Ohio. Yeah,
so went there for ultimately ended up in the business school.
I did start off thinking, you know, as many people
might that, oh what should I do? Should I be
a doctor or a lawyer? I decided to try doctor.
I love biology, Organic chemistry not so much.

Speaker 2 (02:05):
That's the that's the gut course that the reins a
lot of future docs out.

Speaker 3 (02:10):
Yeah. So I had a good friend who said, hey,
I'm taking finance. I really like it, Maybe give it
a shot. I took a finance class, really liked it
a lot. It's sort of like math with dollar signs
attached to it. So that's sort of the way I viewed.
I really enjoyed it, and that was kind of that
was kind of it. I was hooked.

Speaker 2 (02:28):
So University of Miami in Ohio is gonna scratch out
my next question, which which is how do you get
anything done in the Florida Sun in Miami? But Ohio,
I bet is a little easier study type of regime.

Speaker 3 (02:42):
A little bit. It's still it's a beautiful campus, a
lot of fun. But but yeah, it's uh, it was.
It was a good experience.

Speaker 2 (02:47):
So you come out of work and we'll talk a
little bit about I shares and your previous history at
Bank America Merrill Lynch. But what was it that drew
you to fixed income?

Speaker 3 (02:58):
I think a couple of things. One, I really I
really did enjoy sort of the variety of things in
fixed income. You know, I mean, you know, equities can
be complex in their own right, but fixed income you
can have so many different types of instruments and cash
flows and structures. And it was just really interesting to

(03:18):
me to see that variety.

Speaker 2 (03:20):
And what do we have something like thirty five hundred
individual equities outside of the pink sheets, and how many
q SIPs are there for fixed income?

Speaker 3 (03:29):
So I did this, I did this exercise on Bloomberg.
Depending on how you filter, well north of a million,
right well north, and it's you might even get multiples
of that depending on how you filter. But yeah, fixed income,
as you know once you once you issue that a
company is going to issue debt, you know perpetually, they're
going to keep issuing newq SIPs over time. So it

(03:51):
adds up, no doubt.

Speaker 2 (03:53):
So you're at Bank America Merrill Lynch as a senior
member of the Interest Rate Structuring and Strategic Solutions. Sounds
very institutional. Tell us a little bit about your time
at Bank America Merrill Lynch.

Speaker 3 (04:08):
Yes, so I think that group. The idea was to
work with institutional clients to really help them manage risk, right,
and so it was about using derivatives in particular in
a sensible way to come up with hedging strategy. So
my particular focus was on the mortgage servicing community. They

(04:30):
had a very very complex asset they still do, it's
a little bit different now all these years later, but
they had a tremendous amount of interest rate risk in
those servicing right assets, right, So my job was to
work with them to come up with, you know, thoughtful
ways to hedge that risk. And there are you know,
some very very vanilla ways to do it, but you know,

(04:51):
we wanted to really try to be you know, more
thoughtful and much more tailored. And that was that was
what I spent a lot of time doing. I really
enjoyed it.

Speaker 2 (04:58):
When I think of hedging risk on the fixed income side,
not specific to that era, which was kind of unique,
I think of interest rate risk, credit risk, the underlying
security that subsequently gets securitized. Am I warm? Tell me
if that's about right?

Speaker 3 (05:17):
Okay?

Speaker 2 (05:17):
What else do you consider when you're trying to find
a way to hedge a fixed income risk?

Speaker 3 (05:22):
Yeah, and so you just nailed almost all of it.
So depending on what it is. So when you're dealing
with something like a mortgage servicing, right, that's that lender
you know, sells the loan off and then somebody retains
that annuity that can get prepaid. So you go pay
off your mortgage. I go pay off my mortgage, that
annuity disappears. There's optionality there. You have to hedge that, right,

(05:44):
So you have interest rate risk, volatility risk. Things move
up and down the more likely you are to decide
if rates fall to prepay. So it's all of that
good stuff, and then yes, you can have credit risk
and other types of assets as well.

Speaker 2 (05:57):
You use one of my favorite words, option because every
time I have a discussion with people who are not
in the world of finance. And they say, have you
ever calculated how much it costs to take your boat
or jet ski out? And figure out what each ride
costs you? And I'm like, you don't understand optionality. I
have the ability to do that every single day. Whether

(06:19):
I choose to exercise that or not, that is still
a value that would cost somebody something you join a
boat club or a rental club or whatever. Lay people
don't get optionality. Tell us how that applies and fixed income.

Speaker 3 (06:35):
Yeah, and you see this in different ways, Barry, So
I mean not dissimilar. Right. So as an example, again
going back to the homeowner part, if you have a mortgage,
you can decide to prepay that. A lot of people don't. Interestingly,
there are stories that exist, and I'm sure you've heard
them where people still have ten percent mortgages somewhere get out.

Speaker 2 (06:53):
Is that true?

Speaker 3 (06:53):
There are stories about that, And so if you look
at statistics, I haven't done this in a while, by
the way, so hopefully after this law long period of time,
maybe they've paid them off. But you can find these
very high coupon mortgages that are still out there, and
nobody really knows why. They haven't paid them off, but
it is your right, but you're not forced to pay
it off. You would think you'd want to if interest

(07:15):
rates were low enough, but that exists in different ways.
Just like when companies issue debt, a lot of times
they'll issue callable debt. So same idea. If interest rates
fall or credit spreads titan, they can call that debt
an issue cheaper debt, right, And so that's just sort
of a basic tenet of how people like to structure
their liabilities.

Speaker 2 (07:34):
My equity version of that is Blackrock SMP five hundred
fund is like five BIPs, four BIPs. It's like practically free.
And sometimes portfolios come into the office and why are
you paying one hundred basis points for what's effectively an
SMP five hundred index. Why don't we save you ninety

(07:54):
five BIPs a year compounded over twenty years. That's a
lot of money. So the market is kinda sort of
almost efficient, is I don't know how else to describe it.

Speaker 3 (08:04):
No, I think that's right. I mean, and over time,
you know, we we've really started to see investors gravitate
towards this idea of efficiency. And you know, again, you
you this is a theme that you really really hammer home,
which is, you know, basic sort of blocking and tackling
is don't surrender a lot of your return to fees.

(08:25):
Everybody thinks that's incredibly important. It took a while for
people to wake up to it, but I do think
over time people have really started to understand fees matter.
The strategy matters too, but the fees matter as well.
And so we have want both. Yeah, you want both.
You want both.

Speaker 2 (08:41):
So I know we'll get to black rocks starting in nine.
But how long will you at Bank America for?

Speaker 3 (08:47):
From ninety seven through nine?

Speaker 2 (08:49):
Oh? So you watched the debacle front row row? Did
you start at Merril? Did you start at Bank America?

Speaker 3 (08:56):
I started at Meryl, Oh you did. So.

Speaker 2 (08:58):
A lot of people slag was John Thune. I thought
he cut a great deal that worked out really well
for metal employees and relatively well for Mental shareholders, at
least compared to you know, Bear Stearns and Lehman and
so many other companies. He he did a solid and
it took a while before people recognized it. What was

(09:19):
your experience like going through that mayhem?

Speaker 3 (09:22):
I mean it was stressful, you know. I was not
involved with the particular businesses that were under stress, but
it was stressful for all of us as the headline
scrolled day after day after day. You know, it was
a front seat in history, as it turns out. And
so I think, you know, hopefully a lot of lessons
have been learned from from you know, that period of time.

(09:46):
As you know, and I think you've said this many times,
each crisis looks a little bit different, so hopefully we
take lessons from the last one, and that starts building
a knowledge base up over time. So maybe then next
time we're a little bit better equipped to deal with it.
But it was, Yes, it was an interesting time.

Speaker 2 (10:02):
Yeah, to say that very Hopefully we take the right lessons.
Sometimes we drove the wrong lessons. That's a whole nother story.
So how did you find your way over to black
Rock in two thousand and nine? I'm assuming that was
once the dust settled a little bit. Was it late
past March on nine?

Speaker 3 (10:18):
Yeah, it was.

Speaker 1 (10:19):
It was.

Speaker 3 (10:19):
It was interesting, you know, you you have sort of
contact and networking with different folks, and I had and
it was at the time Barclay's Global investors, and I
did know, I did know a couple of a couple
of folks over there, and we had just you know,
had casual conversations. But at one point, and this is
a former mentor of mine, gentleman named Matt Tucker, reached

(10:41):
out to me and said, hey, you know, this is
an interesting opportunity. It's called bondy tfs. It's it's a
business that that I've really been working hard on over here,
and I'm looking for a skill set that that sort
of maps to that. And and you know, I kind
of think that that your background might be might be
interesting for this. Oh you know, let's let's talk about it,

(11:02):
and then you know, sort of the rest is history.
But I was very very excited about it. And there
is a funny story to this, which is I discovered
bond ETFs on my own, sort of accidentally. I was
trying to buy treasuries and I was very frustrated by
the commissions I was getting charged on that. A colleague
actually pointed me to the Aischer's website and showed me

(11:25):
that bonditfs actually exist and you could simply buy this
on exchange without actually having to buy physical bonds and
you know, pay a commission for it.

Speaker 2 (11:33):
So and not only was the commission, you know, next
to nothing. The spread and the price discovery seemed to
be a little friendlier to buyers.

Speaker 3 (11:42):
I was really blown away by that, and I could
not stop, you know, scrolling through that website and fascinated
by the idea that you could take bonds and put
them on exchange. Absolutely fascinated by that, and feeling a
little stupid that I hadn't stumbled on it before, but
so so the fun part about that was it helped
a little bit in the interviews to be able to say, yes,

(12:02):
I'm familiar, and you know, by the way, yes I'm
actually a customer, albeit at a small scale.

Speaker 2 (12:08):
For those people who are unfamiliar with BGI or Barclay's
Global investments. Eventually, what I have argued is the single
greatest acquisition in at least wealth management history. Barclay's Global
gets brought up by black Rock, and the whole I
Shares product line gets really supersized with just a much

(12:35):
savvier group of product developers, marketers, traders, just everything about
it went next level. How much of that were you
there to witness? Did you start a BGI started blacks.

Speaker 3 (12:48):
It's funny because people often asked me what was BGI
like I was there for one month before the actual Yeah.

Speaker 2 (12:55):
Like what I've heard through the grapevine is it was
a solid shop with a great product, a little sleepy,
kind of backwater. If you are at Bank America Merrill
Lynch and you still haven't discovered their bondy TF somebody
is not doing the marketing job they should.

Speaker 3 (13:12):
Well, it was interesting. They were very much i think
quantitative and academically oriented, and I think I think a
little bit of the culture was okay with with being
you know, somewhat under the radar because it was, you know,
a very proprietary place, and so that that might be
might be some of it. But yeah, Blackrock did come

(13:34):
in and uh, you know they did. That deal was interesting.
If I don't know if you remember Barry, there were
there were some discussions about whether, you know, it would
be some sort of a private deal or what have you,
and then Blackrock kind of came in and said we'll
take the whole thing in that that was announced I
think in June, so I'd only been there a very
short period of time, and then it closed in the fall,
and I will never forget you could tell that Blackrock

(13:56):
was was very efficient at this because the day after
the merger closed, the signage was up on the building.
You walked in, all the screen savers that changed overnight.
You had a nice pad, no pad with the logo
on it, and you know, nice pens and all that stuff.
So very very impressive. How they were able to do
this so cleanly and quickly.

Speaker 2 (14:17):
That's fascinating. And I failed to mention Black Rock is
a little shop over on the west side of the city.
Eleven twelve trillion dollars an asset someone in that range,
how big chunk is fixed income and fixeding? Come ETFs
at black.

Speaker 3 (14:33):
We just hit one trillion in fixing, Come etf.

Speaker 2 (14:36):
So keep at it. You'll get some aum soon. Keep
keep plugging away.

Speaker 3 (14:40):
Keep plugging away. Yeah, And you know, the industry is
now globally the industry is approaching three trillion. We're at
around two point eight trillion and change. And we think
that number is going to get to six by the
end of the decade for the industry. And we hope
to be obviously a sizable chunk of that. But it's
been you know, it's been experiencing double digit growth, you know,

(15:00):
four years and years, and it's just been a very
you know, fast moving river for us.

Speaker 2 (15:05):
Huh really really quite fascinating. So, Steve, you just mentioned
you think bond ETFs can reach six trillion dollars by
twenty thirty, Is that right? What is the key driver
of that growth that's doubling in less than five years.

Speaker 3 (15:23):
Yeah, And it's a number of things. And we've talked
about these trends. So I think you have you have
a series of waves of adoption that happen. And it's
interesting because where we tend to see the largest uptake
of bond ETFs is when you have stress markets, and
so I think this is we have several several test

(15:45):
cases at this point, so you know, we've had many
one since the financial crisis. So financial crisis happened, and
I think that's the first time where I personally started
getting reverse inquiry from sophisticated investors asking about the bond
because they noticed that even at the worst of it,
let's call it September or October of eight, they were

(16:06):
still trading on exchange very robustly. Other markets not doing
so well, right, and so that got the attention of
a lot of investors at that time. Products are probably
too small for a lot of those investors, but they
became very intrigued by them. Over the ensuing years, you
had to you know, you would have occasional blips in
the markets, whether it was some sort of energy dislocation

(16:28):
in high yield or what have you. But what we
noticed was every single time you would have one of
these stressed markets, you'd see a huge surgeon volumes in
BONDYTF trading on exchange that would get the attention of
larger investors. They would start adopting the products. Why because
when you need to trade something, you were able to
trade bonditfs even if other things were really struggling to trade.

(16:53):
And so every single time you'd have one of these
waves of dislocation and fixed income, you started seeing more
in more and more investors gravitate to bond ETFs. The
big one was COVID, so for sure February March twenty twenty,
you know, even treasuries, high quality investment grade, you know,
the whole thing, everything was seeing dislocation, right, and so

(17:16):
that's when we saw probably our largest wave of adoption
in fixed income ets was during that period of time.
Same story. You saw things that people would just take
for granted, suddenly struggling, you know, in terms of bid
ask and depth of liquidity. But what could you trade?
You could trade bond ets, you could trade them in size.
That got at that point a lot of attention because

(17:38):
now the products has scaled to a level where even
the largest investors could use them in their portfolios, and
so that was interesting.

Speaker 2 (17:46):
So you're absolutely preaching to the choir I have heard
mostly on the equity side, but also on the fixed
income side. You know, these ETFs, you don't know what
the underlying is priced at it. They're filled with all
sorts of stuff. It's really hard to get a print on.
When it hits the fan, you're not gonna be able

(18:06):
to get in or out of it. You're gonna have
giant spreads and no liquidly. That wasn't true in eight
oh nine, that wasn't true during the flash crash COVID
and the most recent tariff volatility. Even in twenty two,
when stocks and bonds were both down double digits for
the first time in four plus decades, ETFs traded like

(18:28):
rock stars. Why is this such persistent squabbling? You know,
you'll say, just wait, is it that people are losing
business to ETFs. Why is there so much fear and
concern that for twenty five years have been completely unjustified.

Speaker 3 (18:46):
Yeah, I think it's a little bit of it, might
be a little bit of the hour grapes a little bit,
but I think part of it too was after the crisis,
there was it felt to me like there was this
search for what's the next thing, right, it's the next
thing that could go wrong. Not quite sure why that
focus shifted to ETFs, but it was ets and probably

(19:06):
a number of other things. But I think the idea
of a bond ETF in particular drew attention because the
talk track was, well, you're taking something over the counter
and you're putting inside this box, and you're putting this
box on exchange and that might you know, cause some
some interesting things to happen. And in reality what we've

(19:27):
seen is just the opposite of those fears buried again.
Just you know, you pointed out the terraf folatility, same story,
different verse, right, so you have you know, markets are
really really stressed. You see a lot of dislocations, volumes
on exchange once again set new records. I think, you know,
on the day of the announcements, I think we saw

(19:47):
close to one hundred billion dollars of bond ETFs train
on exchange. Wow, way more than the previous record during COVID.
But the sort of I think skeptic has always said, well,
you know, we haven't seen a good test yet. We
haven't seen a good test yet. I think COVID was
a good test. This was just a reminder, right, And
so really what happens is, you know, the exchange keeps

(20:10):
trading even if the underlying doesn't. And unlike you know,
the fears, you don't see these quote unquote forced redemptions
or anything like that. Nobody's forced to redeem an ETF.
It can just trade on exchange. And I think that's
the elegance of it, and it gets proven time and
time again.

Speaker 2 (20:25):
So I just want to define some terms you reference
because in the back of my head, I'm always thinking,
does my real estate agent mom or my art teacher
wife know what that means? So when we talk about
on the exchange, we're talking about anything that's publicly traded
that you could just log onto your online trading account

(20:46):
buy or sell instantly. When we talk about over the
count or OTC, that's one bond desk calling another bond
desk and saying, hey, do you guys have this twenty
nineteen you know, Munich California, Muni series whatever, and someone
has to go locate that. So over the counter means
two people literally speaking to each other to engage in

(21:09):
a transaction. Is that Is that a fair description?

Speaker 3 (21:11):
That's exactly right, and so yes, over time, bond trading
has gotten more efficient. You know, in the underlying market
you have electronic trading of treasuries and now and now credit.
But you know, if you've go back twenty years when
ets were first new, bond ets were first new, it
was still very much a voice market. It was a
very much pick up the phone exactly as you described.

(21:34):
And even today, I think even the most sophisticated institutions
still believe in the you know, efficiency and the elegance
of being able to trade a bond etf on exchange.
You're trading if you if you just step back for
a second and think about what you're actually doing, you're
trading hundreds or sometimes thousands of bonds simultaneously at a
penny bit ask on exchange. You actually still can't do

(21:57):
that in the underlying market. So you know, it does
doesn't matter if you're an individual, it doesn't matter if
you're a large sovereign wealth fund. That's still a very
impressive feat to be able to do a transaction like that,
and bonditfs allow you to do that. But I want
to get back to you know, you would ask what
are sort of the long term drivers. I think this
idea of just okay, you can trade these things when

(22:17):
you need to, that's important. Another one would be when
we're building portfolios, and we see this both again on
the wealth and on the institutional side, do we need
to build portfolios with hundreds or thousands of bonds or
could we take a low cost bond e TF as
sort of the core of that portfolio. Could we then
use individual bonds to sort of flavor that or tilt

(22:38):
that in different ways, and then maybe add our favorite
active managers on top of that. Might that be a
more efficient way to do it than just going out
and buying, you know, to your point, picking up the
phone and calling around and putting together hundreds or however
many bonds which might take days or weeks. And so
I think there's this growing realization that you know, what
it's fine to trade in and out when things are volatile,

(23:00):
but actually might be more efficient to use these things
long term in a bomb portfolio. So I think that's
a huge part of the adoption, too, is the recognition
that this might be a smarter way to build bomb
portfolios in general.

Speaker 2 (23:11):
On the equity side, I'm fond of telling people, before
you go chasing alpha, why don't you at least lock
in beta. And I'm pleased to hear that's a similar
approach on the fixed income side.

Speaker 3 (23:25):
Very much, very much, And I think it's a and
this has been a journey because you know you've run
into this, and I've heard you talk about this on
your show before. Everybody wants to believe that, you know,
if I'm buying this security, I have intent, I did
my homework, it matters a great deal. And that may
be true for that security, But when you do that
one hundred times, some of that starts getting canceled out right.

(23:47):
And so that's when you have to step back and say,
all right, if I'm looking at my portfolio holistically, I
want a certain beta, I want a certain tilt, I
want a certain amount of yield coming from you know,
one place or another. What's the most efficient the cheapest
way to do that, and that's I think people are
slowly recognizing that maybe the ETF actually that has that utility.

Speaker 2 (24:10):
So this is a good time to ask a question
about active fixed income investing. It seems like it's super challenging.
On the equity side. We all know the stats. Sixty
percent of active managers underperform the benchmark in year one.
By the time you get to five years, it's eighty plus,

(24:30):
ten years it's ninety plus, and by the time you
get to twenty one, it's a handful of guys like
one and Buffin and Peter Lynch. I don't see that
uphill battle of the same. On the fixed income side,
it seems like fixed income active does much better than
fixed income equity. Is that fair or.

Speaker 3 (24:52):
I think there are a few things. So One, we
think that all investing is active to a degree. Right,
you're making decisions, So if you're using ETFs, you're making
sort of these broad beta calls and you're deciding, you know,
which beta, which sector, what have you. So there's an
active choice there in how you build that portfolio. But
to your point, strictly active in fixed income, what does

(25:13):
that mean? That means that Hey, I'm going out and
I'm assembling a bond portfolio. I'm going to compare that
to a benchmark, and I'm going to see if I
beat it.

Speaker 2 (25:21):
And you guys have the benchmark, the I shares core
us AG, whereas everybody calls it the AG.

Speaker 3 (25:29):
Yeah, the AG, we have agg we have the universal,
which is I USB. One of the things that we've
been vocal about is which benchmark are you looking at?
Because sometimes you'll see a manager buy a bunch of
high you bonds in their portfolio, not all, but like
they'll hold, you know, a large allocation of high old

(25:49):
bonds benchmark to the aggregate which has none, and say,
oh look I'm beating the aggregate. Now that's that's fine,
taking on more risks. They're taking on more risks. Okay,
that's fine. You may give some of that back every
call it five years.

Speaker 1 (26:02):
Right.

Speaker 3 (26:04):
What we sort of preach to is, okay, let's get
benchmarks that look a little bit closer to the risk
you're taking and see what you're actually adding through security selection. Right,
So some of it's benchmark misspecification, but fixed income markets
still are less liquid, they're more fragmented. So yes, there
are opportunities there, and so you know, people often ask me,
do you believe in active or quote passive? We call

(26:26):
passive index because actually even in an index choice yeah, exactly.

Speaker 2 (26:32):
So market cap waiting, that's a choice.

Speaker 3 (26:34):
It's a choice. And so my answer to that is
we believe in all of the above. We think the
best portfolios have elements of both of these things. Index
and quote unquote active together, much better portfolio, much more
resilient than just sort of suiciding one or the other. Oh,
I'm all active or I'm all index, right, So we
think both makes a lot of sense, and that's that's

(26:56):
how we sort of design our products at give.

Speaker 2 (26:58):
Given the million play plus q SIPs, the million plus
bonds that are out there, my simple thesis was always,
if you want to be an active fixed income manager,
how hard is it to screen out the lowest quality,
weakest credit, poorest yield relative to risk you have to take?
And if you're just cutting out the bottom half of that,

(27:22):
that should do better than whatever the AG is going
to do or whatever your benchmark is, because as you know, hey,
this thirty five hundred stocks, not all of which are great.
A million bonds, there's a lot of room for the
bottom pick a number decile quartz asle half a lot
of junk can get mixed up into that. I don't
mean high yield, I mean lower quality fixed income opportunities.

Speaker 3 (27:46):
Yeah, and this is the trick with fixed income. You
could see great opportunities, but when you try to act
on them, it can be really costly to actually implement.
And that cost or just can you find that bond? Right?
So you're okay, the search costs the actual transaction costs.

Speaker 2 (28:02):
Wait, there's a search cost for locating a bond. I
always thought it was kind of built into the transaction costs.
I didn't realize, Hey, find me this, that's going to
cost you just to ask that question.

Speaker 3 (28:13):
Well, let's call let's call that the time it takes
to actually get a hold of it. You're sitting in cash, right,
and and I've I've heard you say this many times.
You probably should not be singing in cash very long.
It's a medium of exchange, right, So that's right, But
this is the time it takes you to locate that
particular bond, and then you have to pay the transaction cost,
you know, the bit ask on top of it. So

(28:35):
you know, yes, optically, you could see opportunities all over
the place. The question is are you able to actually
move on them and implement them at the right at
the right price. And that's that's where there's a lot
of skill involved in fixed income, I think.

Speaker 2 (28:48):
And I've heard some clients say, especially institutional clients, listen,
my cash, my money allocation. I've got that I've hired
you to do. You're my equity guy, you are my
fixed income you are my opportunistic distress guy. I don't
need you to carry cash. And I wonder how that

(29:09):
impacts people's thoughts of when you start to see one, two, three,
four percent creeping up as a cash balance. Got to
put that money to work. There's an opportunity cost of
just sitting in cash.

Speaker 3 (29:20):
Yeah, yeah, and there is. I think what has happened
the last couple of years is, you know, money market
assets are you know, in the trillions.

Speaker 2 (29:30):
Well, now that it's four and a half, that it's.

Speaker 3 (29:32):
A five percent, and so there's been a little bit
of what I would call, I think apprehension of giving
up that certain or what people view as certain, you know,
four and a half to five percent and then moving
out the trick to that is, you know, if you
wait too long, the market's going to move past you.

Speaker 2 (29:50):
And we've watched it. You know, it broke below four,
it went back over five. You're not locking that in,
you're taking what Look, if you're saving for a house
or something, six months, it's a year down the road
and you're afraid of you know, twenty twenty two type year.
Of course, a money market makes perfect sense. But if
you're looking out a couple of years, you want a

(30:11):
product where you can sort of lock in a higher
yield fair statement.

Speaker 3 (30:16):
Yeah, and you also want to be able to have it.
So look, cash is great. We launched money market ets.
Cash plays a role in a portfolio. To your point,
it shouldn't be a huge part of the portfolio. You
need to get those assets allocated, you know, on a
risk basis, so whether it's you know, equities, safe bonds,
riskier bonds. It's like an orchestra, right, you have your

(30:38):
string section, your horn section, they all need to play
together and just sitting on the sidelines that's okay for
a while, but it's it doesn't make very good music.
You need to actually have everything you know kind of
playing its role in the portfolio. And so I long term,
that is what's going to actually, you know, build your return.

Speaker 2 (30:55):
Right, And I'm spit balling these numbers off the top
of my head. I have to double check them, but
I want to say cash is a drag on performance
four to five years in equity and nine out of
ten years in fixed income? Am I close there? Bullpark?

Speaker 3 (31:09):
Haven't heard that part in fixed income, But I see
your point. I mean, you know, if you just sit
forever in the FED cuts rates, you're going to miss it, right,
And so that's that's right, that's and you know, and
I think the consensus right now is, ah, you know,
maybe they'll cut a couple times this year, maybe a
couple times next year. Things can move pretty quickly on
the ground, and you know, it's one of those things

(31:29):
where you know, yeah, by the time you wake up
and decide to move, the market may have already moved
past you. I mean, to your point, we were at
around four and a half percent almost a year ago,
and guess where we're sitting at today around four and
a half percent. But it's been quite a bumpy ride
up and down, and so who knows where we'll be
in six months.

Speaker 2 (31:48):
So the question is of if you were sitting in
money markets for the past year, or you had bought
some equivalent bond ETF which performed better over the past
twelve months given all the volatility.

Speaker 3 (32:02):
Well, on a risk adjusted basis, you could say, all right,
I had less risk in the money market, and I'm
sort of sitting where I was.

Speaker 2 (32:08):
You know, But if you have high quality dons, how
much risk.

Speaker 3 (32:11):
Is if you bought sort of last if you think
about where we were closer to five percent, you know
you actually ended up locking in pretty good yields. Now,
the one thing I would say is it's hard to time.
It's hard to time rates. It might be actually the
hardest thing to do is to time the top and yields.
That can be a very very fleeting thing. So it's

(32:32):
more about get invested, build a durable portfolio. Make sure
you have risk in the right buckets. You need some
high quality bonds for ballast, you need some riskier bonds
for income. Right, that all plays together with the equity
side and the oult side of your portfolio. All these
things need to come together. Yes, cash plays a role,
but you will probably miss out on some very good opportunities.

(32:53):
We haven't had yields like this in twenty years, right,
So are you really going to try to hit the
top when you're seeing yields that are as good as
they've been in a generation. Yeah, so you can get greedy, right, But.

Speaker 2 (33:05):
Which is kind of funny because it I always laugh
when I think about someone who's forty forty five years
old on a stock desk, on a bond desk, have
not seen seven percent yields in their entire professional career.
And I recall people's bonds coming up, like the New
York City geo bonds finally got called seven percent, like

(33:29):
they were again, I'm getting fifteen percent? What am I
going to do with seven percent? That was when New
York City was going to collapse? You can't get fifteen
percent today. Seven percent treasuries. Hey, that's a good deal.
No one realized how great a deal it was twenty
five years ago, but that's just the reality.

Speaker 3 (33:46):
Yeah, And you do have to go back to the
mid two thousands to see yields at these levels. So
it's a great opportunity. And you know, rather than saying,
well I really want to hold on until five percent,
you know, I mean, you just may miss it. So
we think it's just a great, great time in fixing.

Speaker 2 (34:02):
Absolutely, And I want to just remind everybody who thinks
they can time yield. So the FED, collectively, everybody has
been completely wrong about when the FED was going to
start cutting, how far they were going to cut, how
often they would have cut, Like the consensus could not
possibly have been more wrong for like what three years,

(34:23):
four years? Here comes the recession, Here comes the Fed cuts,
Here comes if you're waiting because you think you can
guess if you're going to be a macro tourist, best
of luck.

Speaker 3 (34:33):
To you, right, yeah, exactly. It's build a portfolio for
the long term, you know. And you may say, well
I could have gotten a higher yield or hey I
locked in a pretty good yield here. Either way, it's
about the next ten years. It's not about the next month.

Speaker 2 (34:48):
Huh. Really really interesting. So let's start out talking about
fixed income today and the obvious spike in bond market
volatility we've seen this year. Tell us what's going on.

Speaker 3 (35:02):
It's we've covered a couple of these things, but it's
pick your theme, okay, So let's let's go back a
few years. We had COVID, we had the policy response
to that. We then had transitory inflation, which became not
transitory inflation. We then had the we had the reverse
policy response, which was too aggressively high grates, the most

(35:24):
aggressive tightening cycle in forty years. Right, So people were
used to seeing rates, you know, bumping up against zero.
I think at one point the tenure yield was you know,
somewhere in the you know, sixty seventy basis point range
at the very very very lows. And I think this
was quite a shock to people who were just sort
of used to seeing the post crisis, post crisis story

(35:47):
quantitative easing regime. All of a sudden, you have yields
moving you know to a two handle, three handle, four handle,
and then ultimately a five handle something. To your point,
many investors haven't seen this before, and so it was
quite a shock to the system. Then we kind of
hit sort of equilibrium. The economy seems to be doing

(36:08):
all right. As we talked about, you know, people were
worried about recession, it hasn't materialized yet. The Fed you know,
paused for a while, started easing. Then all of a sudden,
you get new policy initiatives coming in, specifically tariffs, right,
and so that caused a general rethinking of the way
the economy is going to move going forward. Will inflation

(36:28):
come back, won't it? It's just been you know a
lot of up and downs. And as we were talking,
if you just look at the trajectory of the tenure yield,
you know, we just sort of do this large, you know,
kind of sime wave between you know, call it sort
of high threes and high fours. And we've been doing
that now for a few years. So you're just sort

(36:49):
of stuck in the middle of you know, kind of
a fore handle. But you get these ups and downs
depending on what the driver is.

Speaker 2 (36:56):
And just to put some specifics on this, when when
when we look at the broad economic consensus about tariffs,
they're generally perceived as inflationary, sort of a giant vat
tax on consumers. I know a lot of people in
the administration push back on that characterization. But if you're

(37:17):
spending more money on tariffs, you have that much less
money to spend on other things. Therefore it should hurt
corporate revenues and perhaps be someone inflationary. Is that a
fair assessment.

Speaker 3 (37:29):
It's it's hard to say, so I think, you know,
I've heard both arguments. I think, really what inflation is about, right,
so we whether it's tariffs or something else. You know,
people often talk about these things is well, that's a
one time shock versus something that happens repeatedly, over and
over again. I think some of that's academic Inflation's really
I almost think it's a mind game or an expectations game.

(37:53):
The real, I think question is does inflation, you know,
a higher expectation for inflation somehow get embedded or get
sort of resurfaced, right as a result of whatever policy initiative.
And so I think what the Fed's looking at is
less about a specific thing and more about whether people
start worrying that inflation will be at X level like,

(38:15):
which may be above where the FED wants it to be.
To me, I think that's what they're really focused on,
is you know, hey, we got things down. We're at
two point three percent. And by the way, what's interesting
I actually looked at this. If you go back to
let's call it ninety five to two thousand and five,
average inflation was around two and a half not two. Right,
So if you kind of look at a long, long

(38:36):
time series on Bloomberg as an example, right now where
we're sitting isn't too far off where we've been on
a long, you know, twenty odd thirty odd year journey.
But I think what the Fed's worried about is will
any particular action cause people to start worrying that inflation
will be hiring. As you know, sometimes that can become
sort of a self fulfilling thing. I think that's kind

(38:56):
of the concern.

Speaker 2 (38:57):
So I'm going to play devil's advocate on every point
you said, and I want to hear you pushback. But
before I get to that, former Vice Chairman of the FED,
Roger Ferguson, did this accidentally very funny piece about the
two percent target, and he could not find an academic

(39:17):
basis for that number, but he traced it back to
an interview from the Australian, their central bank chief on
TV in the nineteen eighties, and he mentioned two percent
as their target. That was the first mention of it.
I mean, it certainly was a credible target. In the

(39:38):
post financial crisis, while we were trying to get up
to two percent, inflation and deflation was the fear. But
once the Cares Act and the new era of fiscal
stimulus passed, isn't two percent kind of the wrong target?
Why doesn't two and a half or three percent make
sense in an era of fiscal not monetary stimulus.

Speaker 3 (40:00):
I'm gonna I'm gonna say that is above my pay grade.
But what I will say is, if you look at
a long, long time series, whether it's two, whether it's
two and a half, I mean, I think generally right
now we're sort of in that zip code, right So
can they get it all the way down to a
perfect two? I don't know. And do they want to
or you know, does do you risk going to one

(40:22):
and a half? I mean, that's that's for them to
worry about. I do think that we're not too far
off if you if you were to look at this
over many, many, many years. The worry is, somehow does
everything that's happening right now start sending you in the
other direction again, people worrying about it, Does that start,
you know, causing you know, specific actions that actually lead
to it, to it becoming more of a reality. I

(40:44):
think that's what the Fed's sort of focused on.

Speaker 2 (40:46):
And I think transitory has become a dirty word, but
we sometimes want stuff right now. I can make the
case that this bout of fiscally driven inflation was transitory.
Transitory just took a little longer than everybody expected compared
to the sort of deep structural inflation we saw in

(41:09):
the nineteen seventies. This wasn't structural. We passed a joint everybody,
stay home. Here's two trillion dollars. Takes a little while
for the pick to work its way through the python.

Speaker 3 (41:19):
Yeah right, that's interesting. I mean, yeah, you had a huge, huge,
fiscal impulse, you know, very very significant fiscal impulse, and
sure it could take time for that to work through.
If you couple that with the idea that you unleashed
that fiscal impulse at a time when policy was still easy,
the textbooks would tell you that you probably should expect

(41:40):
some inflation. But I think, you know, if you look
at just the way people had sort of entrenched their
thinking post crisis, they were caught off guard.

Speaker 2 (41:47):
When you were at Wharton, did you have Jeremy Siegel
as a.

Speaker 3 (41:50):
Profession I did not. I did sit I was a
little bit I was a little bit disgruntled about that
work didn't work out scheduling. I did sit on in
on some of his lectures, just as a guest.

Speaker 2 (42:01):
But yeah, I had him in here two months after
the first Cares Act was passed, and he was the
first person I recall saying, Hey, this is economics, one
on one, two trillion dollars, the largest fiscal stimulus as
a percentage of GDP since World War Two. We're going
to see a giant bout of inflation, maybe even double digits.

(42:24):
And I got emails we love Jeremy, you've had him
on the past, but he's crazy. We're not going to
get anywhere near nine ten percent. He doesn't know what
he's talking about. And it was kind of shocking to
hear someone stocks for the long run talk about inflation
and bond yields, and he turned out to pretty pretty
dead on.

Speaker 3 (42:44):
Yeah again, if you just sort of go back and
you look at a large fiscal impulse coupled with easy
monetary policy, that's right out of the textbooks.

Speaker 2 (42:54):
And yet it was so hard another failure of imagination.
Was so hard to say, no, no, we've had inflation
two percent for twenty twenty five years. What are you
talking eight, nine, ten percent. It just seemed that regime
change was so hard to incorporate because it just seemed
like such a break from everything we've experienced before.

Speaker 3 (43:17):
And it happened quickly, very very very quickly.

Speaker 2 (43:20):
So so let's talk a little bit about the next
easing cycle. I'm assuming that six months from now, by
the time we get into the fall, the worst of
the tariff is behind us, things will have stabilized. At
that point, is the Fed starting to think, all right,

(43:40):
we can unfreeze the housing mark a little bit and
talk talk about a few more rate cuts this year
or next, Like what sort of timing should we be
thinking about.

Speaker 3 (43:50):
That's what the market I've looked at this this morning.
The market's pricing in a couple cuts by the end
of the year, pricing in a couple cuts next year.
And so it looks to me the markets sort of
settled on this idea that maybe wind up with a
terminal rate of around you know, three and a quarter,
three and a half somewhere in that zip code. So
we'll we'll see. I mean, the cut definitely got pushed

(44:12):
out to September, right, I think originally, you know, if
you go back even you know, a few weeks ago,
we were still thinking sort of you know, mid to
late summer. But that's that's now pushed into September for sure,
so we'll see.

Speaker 2 (44:24):
So the big question is everybody's been expecting cuts for
so long and has been so wrong. Is there anything
in the data that you look at that suggests maybe
we're going to get right this time in terms of
the Wall Street consensus as to when the timing of
rate cuts might think.

Speaker 3 (44:41):
Well, you just said it. Consensus has a funny way
of maybe not actually materializing, right. So I think everybody's
sort of locked in on this, on this path. Now
it looks like just the way the curve is shaped
and everything else. Well, we will see the data has
come in, you know, it depends you can find you
can find people who have raised growth concerns, but then

(45:02):
you can also find the resiliency crowd. There's just a
lot of I think, sort of mixed data right now.
But overall, you know, the economy seems to be holding
in pretty well so far.

Speaker 2 (45:13):
Pretty resilient. You know. One of the things I always
look at are spreads, and they seem to be relatively
low for all the people running around with their hair
on fire, they are. What does that tell us of
the state of the economy and the state of the
fixed income markets.

Speaker 3 (45:30):
Yeah, I think whether you're looking at investment grade spreads
or high yield spreads right to spreads to treasuries, they're
both pretty tight relative to historical, long term, historical averages.
So yeah, the credit markets are telling you that so
far they are buying the resiliency story. They think that,
you know, balance sheets are still in pretty good shape.

(45:51):
I mean, you've heard the say anecdote before that when
yields were low, corporations did do you know, very thoughtful
issuance and they were able to lock in yields and
really you know, shore up their balance sheets and have
these strong cash flow profiles. Now, ultimately people will have
to refinance, and you know that may be at higher yields.
So we'll see how long that holds. But so far,

(46:13):
spreads are telling you that the resiliency story is intact.

Speaker 2 (46:16):
So corporate debt issuers refinanced that at lower rates, households
did it. Everybody did it except Uncle Sam. We'll save
that for another time. But if you're a buyer of debt,
how should you be thinking about duration? When do you
start extending your duration looking to lock in a little

(46:37):
higher yield on the possibility that we see lower rates
in the future.

Speaker 3 (46:42):
This this is the debate capital thg right, So I
think we've been very much in the camp of you know,
the intermediate part of the curve is pretty attractive. So
you know, if you're looking inside five to seven, three
to seven, somewhere in that zip code, you know, whether
it's in treasuries or or high grade or even even
high yields in that area. Anyway, that's the maturity profile.

(47:05):
But if you look at that versus say thirty years,
I think that, you know, right now, a lot of
debate going on on the fiscal situation. Moody's actions sort
of resurface that debate if you look at it term
premium meaning and you know, again let's define terms. The
amount that investors want for holding very long term bonds

(47:26):
has gone up quite a lot over the last several months,
and I think all of this is sort of playing
into this idea that, yeah, longer term yields are flirting
with five percent, could they go higher? They might. There's
a lot of ambiguity around what our fiscal trajectory is.
Are we at risk for further deterioration? We are running
deficits with a growing economy and that is, you know,

(47:49):
and we're running larger ones than we historically have with
a with a growing economy. So that's what's caused this
fear of the long end. Now our longer term bonds
to be avoided completely. I think there's healthy debate on that.
I do think that they still hold some shock absorber
value depending on the situation. So, you know, we like
we kind of frame this as being positioned, you know,

(48:12):
overweight in sort of this belly of the curve because
we think that's a sweet spot. It doesn't mean that
you should have zero long term minds, you know, it
could be having some might be a good sort of
you know, insurance policy in a way.

Speaker 2 (48:23):
So when when yield comes down, bond values go up
and vice versa. If you're making a bet, what's the
next two hundred basis points in yield? Is it more
likely to go higher and more likely to go lower.
It would take a pretty big screw up to send
yields up two hundred basis points not a zero possibility,

(48:45):
but is that kind of the core bet we're more
likely to see move down then up.

Speaker 3 (48:51):
I think the current view is that long term yields
could edge higher on this edge higher, edge higher, like
twenty five to fifty basis point that's been discussing because
of this idea that depending okay, depending on how the
tax and spending bills come out and how people score that,
and what's that going to look like for the deficit,
et cetera, et cetera. You know, the discussion could be

(49:12):
could you see further pressure on the very very long end.
The intermediate part is probably okay. So the real debate
is are we going to see more of a steepening
depending on the outcome of the you know, tax and
spending bills, et cetera, et cetera. That's been the debate. Now,
if you get an unexpected slow down, you could see
long term yields come down temporarily. And so to your point,

(49:36):
you know, do you get two hundred basis points up
or do you get fifty to one hundred down. It
all depends on you know, the unexpected by definition, If
you get a sharp slow down, then nobody saw coming.
You probably do see longer term yields coming down, and
I think not a lot of people are expecting.

Speaker 2 (49:51):
That at all, well except everybody for the past five
years predicting recessions that never showed up. The other question
that I always like to ask is, hey, what happens
if we yields don't go appreciably higher or lower? Can
we just be stuck in a four and a quarter
to four and three quarter, you know, money market yields

(50:11):
plus or minus around four and a half percent. What
does that look like? Can we just stay in that
range for three, four or five years?

Speaker 3 (50:19):
Sure? Are you likely to? Probably not? History would tell
us that except for you had this long period, that
doesn't look really like anything that we wanted in the
twenty tens, right totally. So unless we go back to
the twenty tens, probably not. But I think you know
my earlier point, it's gonna be really hard to call
like this is the best yield that I want to

(50:41):
get into. It's more about we're gonna have ups, we're
gonna have downs, we'll have cycles. It's really about building
that portfolio out for the long term and getting income.
So it's the first time in twenty odd years the
income is back in fixed income. So that's pretty compelling.

Speaker 2 (50:56):
So if someone's fixed then come investor or looking to
add fixed income as a sort of shock absorber to
their equity. Portfolios. What segments of the fixed income market
do you find attractive? Where are the opportunities today?

Speaker 3 (51:12):
We've been seeing flows mostly go into very high quality
so that being treasuries, that being investment grade. That's where
you know, the bulk of flows have been moving into.
And again much of it has been in that sort
of belly of the curve type of exposure. Now, mathematically,
as a shock absorber, you're going to get your biggest
kick from the very long end of the curve. We

(51:33):
just talked about that, Right, You're taking some risk there.

Speaker 2 (51:36):
So because if it goes the other way, it goes the.

Speaker 3 (51:38):
Other way, it hurts. And so the debate's going to be,
you know, will it play that role if you get
a big slowdown, right, if you get a huge risk off,
will you see long long term yields rally like they
have in the past in light of some of the
fiscal concerns. That's the big, big.

Speaker 2 (51:53):
Defence the doll Yeah, that's the debate. And what about
you know, we always have clients who are looking into
their retirement. You know, I just want X dollars and
not worry about taxes. Uh, if you're in a high
tax state, how are you looking at the muni markets
these days?

Speaker 3 (52:12):
Yeah, and I think munis have have really you know,
seen some whipsaw as well. Right, so a lot of
folks now look look at muni's and see some opportunities there. Again,
this discussion around tax policy has really really sort of
caused a lot of volatility. At some point, you just
have to really make an allocation decision. And if you're

(52:33):
if you are, you know, in a high tax bracket,
I mean, unis can be pretty compelling, and they've cheapened
up a fair amount.

Speaker 2 (52:40):
All right, so I only have you for a limited
amount of time. Let's jump to my favorite questions that
I ask all of my guests, starting with what's keeping
you entertained these days? What are you watching or listening to?

Speaker 3 (52:53):
H Well, so, the funny part about this is it's
so masters in business, big fan and I we already
talked about that.

Speaker 2 (53:01):
But no, I also whenever someone says that, I always
feel like Rodney Dangerfield and Pattie Shack, keep it fair,
Keep it fair.

Speaker 3 (53:08):
No right now, you know, streaming wise, my wife makes
this joke. So she and and my my older sons,
you know, will watch Yellowstone or something like that. I've
always got my laptop.

Speaker 2 (53:19):
Right.

Speaker 3 (53:20):
It's so she's like, you don't really watch TV with us,
You pretend to, But I think one of the fun
things I'm watching, you know, friends and neighbors right now.

Speaker 2 (53:29):
So interesting, it's fun. Are you are you caught up?

Speaker 3 (53:32):
Not caught up?

Speaker 2 (53:33):
Not caught up from so the what whatever? The last
episode was five really fun twist no spoilers, no spoilers, absolutely,
but yeah on it not unexpected, but the way they
execute it was really well done.

Speaker 3 (53:48):
All right, cool, that'll be some good bit. And I
am still very fond of binge watching Law and Order.
I will try purposely to hold out because I do
like binge watching all of the above. Right, So, whether
it's organized crime or what have you.

Speaker 2 (54:02):
So my wife makes eight o'clock the screens go away,
you can watch TV. You have to put that away.
So that means right before I go to bed. Ye,
last couple of minutes. Let me just try to impose
that rule.

Speaker 3 (54:14):
It kind of falls apart.

Speaker 2 (54:15):
No, No, she's a strict, stern task master, she who
must be obeyed. All right, So let's talk about you
mentioned one of your mentors. Tell us about the folks
who helped shape your career.

Speaker 3 (54:27):
Yeah, and many of them are are folks who have
moved on. But I think there are certain people that
I remember, you know, who really gave good advice. And
you know, I'll give you a couple of examples. I
had a boss, one of my first ones out of
business school, and he basically said, look, I viewed my

(54:47):
job as teaching you. I want you to listen and learn,
and then if you work hard, have you My other
job is to help you create financial security for yourself
and your family. But you have to do those things
in order for that to happen. So if you listen
and you work hard, I'll try to keep up my
side of it as well. And that always struck me

(55:10):
and I thought that was a great way to put it.
You know, he viewed his job as teaching but also
if I did the right things to help me in
the long term, and so I thought that was really interesting.
Another mentor, you know, told me that you can be
really good at what you do, but you really have
to get along with people. You really have to be
able to know where somebody else is coming from. Work

(55:32):
well with people, because you can be great at what
you do, but if you're not pleasant to work with.
It's not going to get you too far at all,
And so I think that's that's another lesson. I mean,
you know a lot of times you like to think
you're right in a certain debate or whatever, but you
really do have to learn to bridge those gaps or
it doesn't even matter how good you are what you do.

Speaker 2 (55:51):
Huh. Good, good advice for anyone listening. Let's talk about books.
What are some of your favorites. What are you reading currently?

Speaker 3 (55:58):
Well, reading How to Think Like a Monk.

Speaker 2 (56:02):
I saw that Amazon was Yeah.

Speaker 3 (56:05):
No, it's pretty cool. I had a friend of mine.
I'm not sure why he recommended that book to me,
and there might be a hidden message in there, but
I think that's pretty cool. Read too much one of
my you know, I I like history books, and so
you know, I've read a lot of the ken Burns stuff.
I think, in particular, the things I've been fascinated with
the sixties I think really helped shape the world that

(56:25):
we're living in this So I've been a junkie of
a lot of that stuff and authors and books ken
the ken Burns stuff, all. Yeah, I really like that.
So but but I'll watch any number of documentaries. I
just think that really was a pivotal time for the
country and the world, and it kind of has echoes
and you know, really long shadows. So I always thought
that was that was really interesting. I like a book

(56:48):
that really kind of stuck with me over the years.
It was about you know, I love math, statistics, all
that stuff. It was a book called Against the Gods
and it was the story.

Speaker 2 (57:00):
Oh my god, so one of my favorite, one of
the old time great finance books that most people absolutely
one should be reading, no doubt about that. So I
always pick out a handful of books to read over
the summer. I'm so happy sitting on the beach, waves
crashing in the background, banging through book after book. What

(57:23):
just came a couple of days ago was Ron Churnow's
Mark Twain. Oh wow, and you know Churnout, did Hamilton
need a bunch of giant books. I'm super excited about that.
So I'll let you know if that's interesting. I can't
imagine it's not, given both the author and the subject matter.
All Right, our final two questions, what sort of advice

(57:44):
would you give to a recent college grad interested in
a career in either investing, or specifically fixed income and ETFs.

Speaker 3 (57:53):
Yeah, I think the most important thing is you have
to be honest with yourself about what you like to do.
And so I I have met I've met students who
say they want to get into the markets, and you know,
when you ask why that is, they have trouble articulating why.
So I think part of it is you just really
got to want to do this, because if it's gonna

(58:13):
be your life's pursuit, you've got to wake up on
good days and bad days and still want to do
it right. And there are good days and there are
very bad days, and you still have to have that
same sort of love of it. And so if you
don't love it right, if it's not if you're just saying, well,
you know, I heard it's a profitable thing. I want
to you know, I have these certain personal goals, that's
that's not a good reason to do it. But if

(58:34):
you really do love the idea of markets and just this,
you know, really elegant thing where somebody, you know, two
people on the opposite sides of the planet can somehow
find a common price. You know, what's the saying a
trade is an agreement on price, A disagreement on value.
I always thought that was the coolest thing, right, So

(58:55):
you know, just this idea that you know the markets
find a way. I think if you love that, then
it's the right career for you. But that's the key thing.
Find what you love and be really really honest with yourself.
And you know, it's fair to say I don't know yet,
And that's why you have to feel around a little bit.
You know, whether you're trying different things. You know, you
may land on one desk and hate it, rotate to
another one and love it. It's a process, but you

(59:17):
got to really be honest with yourself.

Speaker 2 (59:19):
Huh. Really really interesting. And our final question, what do
you know about the world of fixed income ETFs and
investing today? You wish you knew back in the nineteen
nineties when you were first getting started.

Speaker 3 (59:30):
Yeah, I'm gonna admit this to you. I know many
of your your admonishments about investing, I was. I was
an original sinner, many of them.

Speaker 2 (59:42):
No one bigger than me. I learned the hard way.

Speaker 3 (59:44):
So I did, in fact do a lot of the
common mistakes. You know. I chase things. I remember, you know,
during the original Internet boom buying some really expensive, racy
mutual funds, which I subsequently rode into the ditch. So
I think part of it is, you know, the long

(01:00:05):
term idea, you know, really really taking like that long
term view. Now, I did learn not to panic over
the years, right and not, you know, sort.

Speaker 2 (01:00:13):
Of useful skill set if you're running a trillion dollars.

Speaker 3 (01:00:16):
I think, try to try to you know, keep your money,
you know, don't pay away too much of fees, and
definitely don't chase the hot hot thing. I think being diversified.
You look, it may not be fun to talk about
with your friends, but having a broad, diversified portfolio over time,
you're gonna be fine. It's it's it's hair raising sometimes,
but you're gonna be fine over the long term.

Speaker 2 (01:00:36):
Yeah, very often the cocktail chatter, it's not what makes
you money. I love the title of Ned Davis's first book,
do you want to be right? Or do you want
to make money? And that really sums it up well. Steve,
this has been really fascinating. Thank you for being so
generous with your time. We have been speaking with Steve Likely,

(01:00:56):
Global cohead of BONDI tf's at black Rock. If you
enjoy this conversation. Well, check out any of the five
hundred and thirty we've done over the past eleven years.
You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever
you find your favorite podcasts, and be sure and check
out my new book, How Not to Invest The ideas, numbers,

(01:01:20):
and behaviors that destroy wealth and how to avoid them.
I would be remiss if I did not thank the
crack team that helps put these conversations together each week.
John Wasserman is my audio engineer, and A. Luk is
my producer. Shortan Russo is my researcher. Sage Bauman is
the head of podcasts at Bloomberg. I'm barr Utltz. You've

(01:01:43):
been listening to Masters in Business on Bloomberg Radio.