January 27, 2025 • 53 mins
The run-up in Big Tech stocks and all the hype over AI has put a bunch of investors on "bubble watch." One of those is Howard Marks, the co-founder and co-chair of Oaktree Capital Management. Howard is one of the most famous credit investors in the world, but he has experience in stock market bubbles too. Back in early 2000 — right before the Nasdaq peaked — he pointed out the frothiness in equities in a famous note titled "Bubble.com." So how does he actually spot a market bubble? How does a bubble differ from a bull run? And what is he seeing right now? We chat with Howard about all these things, including his experiences both in 2000 and during the 2008 subprime crisis.
Read More: Can Howard Marks Spot a Stock Bubble Twice?
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the All Thoughts podcast.
I'm Tracy Allaway and.
Speaker 3 (00:22):
I'm Joe Wisenthal.
Speaker 2 (00:24):
So, Joe, we recently recorded an episode with Kevin Muhror
where we were talking about concentration risk in stock indices,
and I guess historical analogies with the dot com bubble
of the two thousands, and I know that this is
one of your favorite subjects. I think I said it
was like your own personal catnip. That's right, And so
(00:44):
I thought, you know what, I did not get Joe
a Christmas present this year. In fact, I don't think
I've ever gotten you a Christmas present, But wouldn't it
be nice if I got him a whole episode where
we're talking to one of the world's most famous investors
who correctly call the Internet bubble.
Speaker 3 (01:01):
Let's do it. Let's jump right into it. No more intro.
I'm so thrilled about this conversation. Let's just get it started,
all right.
Speaker 2 (01:07):
I will also admit this is a belated Christmas present
to myself as well. So we are going to be
speaking with Howard Marx. He is, of course the co
founder and co chair of oak Tree Capital Management. He's
famously a credit investor, but he did call, as I said,
the dot com bubble correctly. So Howard, thank you so
(01:29):
much for coming on the show.
Speaker 4 (01:31):
It's a pleasure to be with you. Tracy, and also Joe.
Speaker 2 (01:35):
Maybe just to begin with give us some context around
what the early two thousand's late nineteen nineties were like
for you. What were you doing and what were you
observing at that time?
Speaker 4 (01:46):
Well, the nineteen nineties were a slow time for credit investors.
We're kind of opportunistic and bargain hunters, and bargains come
from dislocation and you know, people feeling urgency to get
out of positions. And the nineties were generally a placid period,
(02:07):
except for the around ninety eight we had the evaluation of
the Russian ruble and a Southeast Asian crisis, and we
had the meltdown of a highly levered hedge fund called
Long Term Capital Management. But those were all kind of
vidiosyncratic events, not macro and not broad based. Other than that,
(02:31):
the investment environment was placid. Importantly, it was the best
decade in history I think for stocks and the S
and P five hundred rows an average of twenty percent
a year for ten years, which is an astronomical an
astronomical accomplishment. If you rise twenty percent a year for
ten years, I would guess that something goes up roughly
(02:51):
eight times in ten years, which is incredible. And of
course this was all powered by the what we call
the TMT bubble, tech media and telecom bubble, some people
call it the Internet bubble, which prevailed in ninety eight,
ninety nine and into two thousand. So it was hot times,
not for credit investors, hot times for equity investors.
Speaker 3 (03:13):
You know, you recently wrote a memo that called back
to a memo that you had written basically exactly twenty
five years ago. So right at the start of two thousand,
of course, the dot com bubble or the TMT bubble peaked,
I think it was in March of that year. You
got the timing right. And that's sort of extraordinary because
there were a lot of people probably starting in nineteen
(03:35):
ninety eight, the nineteen ninety nine, maybe even earlier, like
this is ridiculous. There's all these companies they literally don't
have a penny in earnings, or perhaps don't even have
a penny in revenue, they just have the name dot
com in their name. They ipo at crazy prices. What
is the experience like? I mean, that was very fortunate
timing on your part, But there were a lot of
(03:57):
people who you know, were famously correct in early and
they had clients abandoned them and so forth, and they
thought it was like, oh, you don't understand the new paradigm,
et cetera. What's that like in the years before that,
as it feels like the market is becoming increasingly untethered
from any sort of reality and yet there's no payoff
(04:19):
in being correct, right.
Speaker 4 (04:21):
Well, there's so much to say in response to your question.
You know, I use a lot of quotes and adages
and when I write, because you know, other people have
said things so much better than we can. And one
of the first adages I learned in the early seventies
was that being too far ahead of your time is
indistinguishable from being wrong. So yeah, it's painful to say
(04:45):
something and predict something and then have to wait years
and years for it to come true. Alan Greenspand famously
said I think it was in ninety six that we're
beginning to see signs of irrational exuberance in this, and
of course the market went straight up for the next
four years. And you know, there are people who pronounced
(05:07):
that we were in a stock market bubble. I think
I can think of one in June of twenty twenty,
and here we are almost five years later. And of
course we did stall out in twenty two. But if
you went out in twenty and weren't smart enough to
come back in in twenty two, you've missed a big ride.
So I think, well, you know, one thing I argue
(05:31):
strenuously Joe, is that in the investment business there's no
place for certainty. And Mark Twain said, it ain't what
you don't know that gets you into trouble. It's what
you know for certain that just ain't true. And so
you can have opinions, but you should never be certain
that you're right, and you should never arrange your financial
(05:53):
affairs on the assumption that your forecast is right, because
it can be right intellectually or factually irrationally, but just
take a long time to materialize. And if you can't
survive between when you take your position and when it
when your expectation comes true, then obviously it's not something
(06:15):
you should do. And one of my colleagues once wrote
a note to his clients. He says, if you name
a price, don't name a date. And if you name
a date, don't name a price.
Speaker 2 (06:24):
That's anybody advice or journalist too.
Speaker 4 (06:26):
But anybody who names a price and a date is
probably going to get carried out of there sooner or later.
Speaker 2 (06:35):
So what was it like then when you hit the
published button on the note? I think it was called
bubble dot com and you published it. I think it
was right at the start of January first. Still, what
was it, Yeah.
Speaker 4 (06:50):
January, It was January second, two thousand. It was the
first business day of two thousand.
Speaker 2 (06:54):
And then start later that month.
Speaker 4 (06:57):
Right, yeah, No, I think a little later that year.
Joe said it was in March. I don't remember exactly.
I thought it was a little later than that. But
you know, i'd started writing these memos in nineteen ninety
I've been writing for ten years. Of course, in those
days they went out in the mail and to a
limited audience, just my clients, and you know, for ten
(07:17):
years I never had a response. And then I spent
the fall of ninety nine working on this memo bubble
dot com and was ready to push the button. I
guess I polished it over Christmas probably and sent it
out the first day. And you know, let me just
clarify one thing for the record and for the benefit
of the listeners. If you read that memo, it does
(07:40):
not predict the bubble, and it does not say you know,
the market's going to collapse. All it did is describe
the current conditions. And that's two different things. Now. I
don't make predictions. I only describe current conditions. And my
(08:02):
motto is we never know where we're going, but we're
sure as help or to know where we are. And
I believe, you know, this is a little bit of
a matter of semantics. I believe that where we are,
if we properly assess it, informs where we're going. But
I think people who waste their time figuring out making predictions,
(08:25):
which I'm strongly against, are wasting their time. I think
that describing current conditions can be done accurately and obviously
has an impact on what the future holds. So as
I say, read the memo, I think it reads well
(08:46):
in retrospect, but don't expect to find a place where
I say, get out of the market or the market's
going to collapse or there or in a bubble that's
going to pop. What I say there is I just
want to call your attention to all these forms of
excessive or overheated behavior and let you know what I
(09:07):
think is going on. That's all it says.
Speaker 3 (09:09):
So in the art of just identifying where we are,
and when we're talking about financial markets, obviously we can
use all kinds of ratios, etc. You know, price to earnings,
price to forward earnings valuations, a million different ratios that
you can come up with. And then you know there
are sort of cultural markers. And I remember in summer
(09:30):
ninety nine, I would get lunch every day at the
same pizza shop with the pizza shop owner head CNBC
on and he was trading tech stocs at the time,
and these other sort of indicators that people are just
excited about the prospect of making money and making money fast.
And when you do an assessment and you say, okay,
here's where we are, how much do you sort of
(09:52):
hew strictly to the math, so to speak, and how
do you systematically incorporate other indicators of exuberant which perhaps
can't always be captured on a Bloomberg terminal for example.
Speaker 4 (10:06):
No, look, I think you're absolutely on the right track, Joe.
You read the memo. My observations are, I would say
ninety nine percent what you call cultural markers, which I
think is great, or behavioral indicators, and one percent math.
And to me, it's the behavior that is so indicative.
(10:30):
And in my first book, which is called The Most
Important Thing, I have something in there called the poor
Man's Guide to Market Assessment, and it really takes culture,
mostly cultural markers, and puts them on in two columns
(10:50):
left and right, and whichever column is prevailing, it tells
you something. And for example, I say in there that
if people like me are being invited to cocktail parties
and are the center of attention and so forth, then
it probably means that investing is has been doing well
and everybody's optimistic about it. And it indicates that maybe
(11:14):
things are too hot, and if people like me are shut,
not invited, or shunt it off to the corner, maybe
the markets are too cold, too cheap, and it's time
to strike. So I think that these behavioral indicators are
extremely important. And I wrote a memo in I think
(11:34):
it was the summer of twenty three called taking the Temperature,
and I describe what I do in this regard as
taking the temperature of the market to figure out if
it's hot or cold. And when I was working on
my second book, which is called Mastering the Market Cycle,
and I was speaking with my son Andrew, who is
a venture capitalist, I said to him, you know, I
(11:55):
think my forecasts over the course of my career have
been about right. And he says to me, yeah, that's
because you did it five times in fifty years. Five
times in fifty years, I found the market either so
crazy high or crazy low that you could make a
logical case that was either overextended or too cheap, and
(12:20):
you could do so with a high degree of confidence.
And I recount the five times I did it and why.
But you know, if I had tried to do it
five hundred times or five thousand times in my career,
I mean I've probably been in an investment business for
about almost twenty thousand days. If I tried to do
it five thousand times every fourth day, you know, I'd
(12:43):
probably be fifty to fifty at best. So to me,
it's noting extremes of behavior. And that's what I was
doing with bubble dot com. And that's what I did
in the five other observations.
Speaker 2 (13:17):
So you've emphasized that you're describing current conditions, not necessarily
making predictions. I'm curious how you translate those, you know,
let's say, accurate assessments of the current environment into actionable
investments or I guess another way of asking this is,
(13:40):
you know, if you're looking at stocks and thinking they're
overvalued or there might be signs of overvaluation, how does
that translate into the credit space?
Speaker 4 (13:52):
Good question, Tracy. To me, the main access along which
one establishes one's behavior as an investor is the access
that runs from aggressive to defensive. Each of us should
(14:14):
figure out based on our personal conditions, our wealth, our income,
our needs are dependents, our age plans, et cetera, and
also ability to withstand fluctuations. Each of us should figure
out what our normal risk posture should be. Normally, should
I be a low risk person normal or a high
(14:36):
risk person? And then you should build the portfolio that
responds to that decision. But then you might try to
vary your position from time to time as conditions in
the markets change. And I believe that as I said
(14:57):
that the main access along which one should should think
about varying one's position is between offense and defense. So
you know, you establish a position which is your normal position,
which has a certain amount of aggressiveness, is a certain
amount of defensiveness. But then are there times when you
should become more aggressive and are times when you should
(15:19):
become more defensive. And that's what I did on those
five occasions. And I'll give you an example. And by
the way, these are all described in Taking the Temperature.
And I've mentioned or you've mentioned the memos from time
to time, and I just want to note for the
listeners that they're all available at Oaktreecapital dot com under
(15:40):
the heading of Insights. There's thirty five years at worth
of memos. There about two hundred and there's no price
of admission. They're all free and anybody wants to sign
up for a subscription can do so. But you know,
in Taking the Temperature, I described the way in nine
in five oh six, I was getting really leary of
(16:01):
the markets. What was my indicator, my indicator, or as
Joe would say, my cultural marker. My indicator was that
I'm reading in the in the paper about new deals
that are getting done, and the deals were crazy deals,
(16:22):
deals that in my opinion, should not get done. They
were too good for the issuer and in my opinion,
too bad for the investor. And the deals were getting
done anyway. And you know, one of the investor's main
jobs is to decline to engage in stupid deals. And
(16:46):
you know, if somebody comes and says, you know, I'm
going to sell you a gold mine and if you
can put up a million dollars, you're going to make
one hundred thousand dollars a month for the rest of
your life. Your job is to say no, that's too
good to be true. Or you know, if I say,
I think there's a gold mine in Australia and if
(17:06):
you put up a million dollars, it'll probably give you
tay you a million dollars a year the rest of
your life. If we find gold, you should say no,
that sounds too risky. You know, I just think that
we're unlikely to find gold. But if you see those
deals getting done, it tells you that investors are not
applying vigilance. They're not doing their job of resisting deals
(17:31):
that are too risky or structured not in their favor,
and in five oh six, I was seeing these deals
done that made absolutely no sense. And I describe myself
as wearing out the carpet between my office and my partner,
Bruce carsh And you know, every day I would go
and say, look at this piece of crap that you
(17:51):
got issued yesterday. A deal like this shouldn't get done,
and if a deal like this can get done, there's
something wrong. Ninety nine percent of my observation at that
time that investors were not being suitably skeptical, cautious, demanding,
(18:12):
and risk averse. And you know, Buffett has a great
saying which feeds right into this. He says, the less
prudence with which others conduct their affairs, the greater the
prudence with which we must conduct our own affairs. And
when others are wacky, we should head to the sidelines.
(18:32):
That was the foundation of that conclusion. Now what happened
was it turned out we were in a housing bubble,
and the housing bubble gave rise to a mortgage bubble,
and the mortgages, the subprime mortgages issued to people who
could not or would not document their income of their
assets were packaged into mortgage backed securities, and the people
(18:56):
who bought the riskier tranches of those securities, lost all
their money, which the rating agencies rated very highly, because
they didn't understand it. And this was going on en mass,
and it was the collapse of the mortgage backed securities,
of which the banks had in many cases retained the
risky portions when they structured them. It was the collapse
(19:19):
that took you know, bear Stearns and Merrill Lynch and
Lehman Brothers and other AIG, etc. Out of business as
independent endings. I hastened to point out I didn't know
anything about mortgage backed securities. I didn't understand subprime. I
didn't know what was going on. It was going on
(19:40):
in a distant corner of the investment world which I
was not in on. I just knew that the climate
was too permissive and the mortgage backed developments were a
manifestation of that. But your question, I always try to
come back to the question. Your question was what do
(20:03):
you do about? So what did we do? We sold
most of our real estate holdings, We reduced holdings in
many areas. We liquidated holdings in large funds, our opportunistic
debt funds that we had formed in two four ET cetera.
(20:27):
We sold those holdings. We raised either small funds or
no funds, and we waited for this behavior to produce opportunities.
After it passed. On the first day of seven, Bruce
and I sent the memo to our clients saying we'd
(20:50):
like to have three and a half billion dollars for
distress debt fund. The largest distress fund in history had
been two billion. It was our one fund. We wanted
three and a half because we thought there was something
big coming, and within a month we had eight billion.
We went to our investors, we said we can't use
(21:12):
eight billion, we'll take three and a half. We closed
that fund in March of seven, but we said we'd
like to have the rest of your appetite for a
stand by fund, and we continued for a year to
raise a stand by fund again in an area where
the biggest fund in history was two billion. We raised
eleven billion and that was our fund seven B and
(21:36):
we put it on the shelf and we said this
is for when the stuff hits the fan, and we're
not going to invest it until that time, and we're
not going to charge any fees, and it's just commitments
on the shelf. Because we'd like to have capital we
can draw. And when Lehman went bankrupt on September fifteenth
(21:57):
of eight, we had that eleven billion dollars. We had
only invested about ten one billion. We had ten billion
that we could call on, and so unlike most people,
we didn't have to worry about where are we going
to get money, or can we invest or our client's
going to withdraw their money. Rather than we had commitments,
(22:19):
we were sure we could draw and so we could
plunge in and we started to invest Bruce. Bruce does
the investing, and we developed our position jointly and we
decided to get down to work. So the next week
after the Lehman bankruptcy was Friday fifteenth. We started investing
(22:42):
and he invested for that fund a loan four hundred
and fifty million dollars a week on average for the
next fifteen weeks, that seven billion in one quarter. Remember
in an area where the biggest fund in history was
two billions. Why because we had prepared mentally, we had
noted the bad climate. We had prepared for a denoument,
(23:09):
and we swung into action when it arrived. And I
was very proud of him for taking that position, and
people on the street have told me that in that
quarter we were the only buyer. Well, that's how you
get good deals. If you can buy where nobody else
is buying, you get your pick of the litter at
(23:30):
low prices. So that's I just gave you a four
or five year I guess four year description of a process.
But man, you have to be patient because in five
to six we were doing nothing, just selling, and we
were not rewarded in five or six for that behavior.
(23:50):
The reward came at the end of eight. But you know,
I think it's not everybody's in a position to apply
that process to that extent, but I think it describes
the process, and of course I use it as an
example for one simple reason. It was successful.
Speaker 3 (24:08):
Always a good always a good outcome when you have
a success from it. Obviously, fantastic story your latest memo
which inspired us to reach out and want to chat
with you on Bubble Watch, And as you mentioned, is
the twenty fifth anniversary of the bubble dot com memo,
and so twenty five year anniversaries are just probably a
good time to go back. But on the other hand,
(24:30):
there is also this moment that we alluded to in
the intro of incredible enthusiasm really for like a handful
of tech ai related names that's lifting the entire market up.
Is this one of the moments? I mean, what is
the temperature right now as you see it? You've mentioned
you've had five moments sort of maybe five calls in
(24:51):
your career. Is this a sixth right now?
Speaker 4 (24:54):
No, it's not okay because you asked before. Behavioral or numerical.
The main observations today are numerical. The peaking ratio on
the S and P five hundred is elevated relative to
historic norms, and the so called Magnificent seven, the biggest
companies in the S and P dominate its behavior. Are
(25:19):
you going up or have been going up rapidly? And
they're hot stocks, And when you see one group perform
especially well, you have to ask whether it's a bubble.
And the S and P, of course, has gone up
more than twenty percent a year for the last two years,
and it's only the I think the fifth time according
(25:42):
to JP Morgan, the fifth time in history. So you
have to ask these questions. But the troubling aspects those
are numerical and what I say in the memo is that,
in my opinion, it lacks the behavioral aspects.
Speaker 2 (26:02):
Of a bubble.
Speaker 4 (26:03):
And I talk about some of them, and I say
that a bubble is not just a numerical it is behavioral.
And a bubble is really it's not a rise. It's
that's a bull market. It's not high prices. A bubble
is a temporary MEMI in which people are so agog
(26:24):
at things that they throw over all discipline, all caution,
and I just don't. It just doesn't feel to me
like we're there. We're high priced, I say, lofty, but
not nutty. And the bubbles I've seen and I've lived through,
starting with the day I joined this business in sixty nine,
(26:45):
we had what we call was called the nifty to fifty.
What you see going on is what they call in
literature the willing suspension of this belief. You know, I
know it's high, but if I don't go in, I
could miss something. Or I know it's high, but I
(27:06):
don't think it's going to end tomorrow. And by the way,
it's if it ends, I'll just get out. And of course,
as I mentioned in the memo, the real hole mark
of a bubble is when people say it's so great
this thing we're talking about, whether it's the nifty to
fifty stocks in sixty nine or Nvidia today or TMT
(27:27):
in ninety nine, they say it's so great that there's
no price too high. And that was the official dictum
in the money center banks in sixty nine. With God
to the nicety fifty. It was the official victim. With
regard to the Internet in ninety nine, what do people say?
(27:47):
The Internet will change the world, and so for the stocks,
there's no price too high. Well, guess what. The Internet
did change the world. But because they bid up the
stock so high, the people who invested in them lost
almost all their money. So, you know, people become psychologically
(28:09):
unhinged and not tethered to reality, and their portfolios slipped
their moorings, and they think that they found the perpetual
motion machine or a tree that'll grow to the sky.
And I just don't see those psychological or behavioral aspects today.
Speaker 2 (28:30):
So one of the things that Joe likes to emphasize
when it comes to well the tech bubble specifically, is
the importance of stories or narratives. So one of the
things that will drive this kind of behavior is you'll
see a company come out with like this huge ambition.
I think Joe's favorite example wasn't there like a car
(28:51):
company that claimed to have found the cure to AIDS.
Speaker 3 (28:55):
That's right, this is a good story. This was nineteen
ninety nine, and people were just so up mystic that
they thought he used car dealership in Nevada head in
their back office founding cure for AIDS.
Speaker 2 (29:07):
That never sees a story story.
Speaker 3 (29:09):
Yeah, well, I'll tweet out a link when this episode
comes out.
Speaker 2 (29:11):
So nowadays, there's an argument that some people make that
we have a faster tech cycle than ever, and that
means more stories can be generated more quickly. And given
that you're a veteran in the space, can you maybe
compare and contrast the tech cycle now to previous history.
Speaker 4 (29:32):
Well, listen, Tracy number one, I'm not an equity guy.
Number two, I'm not a tech person. I have no
personal knowledge of the tech companies of today. I have
an idea about AI. I've seen it do wonderful things.
So far. Most of my direct experience is with what
(29:53):
I would call parlor games. You know, I did an
interview like this one with a Korean media company that
I've worked with over the over the years. They sent
me a video clip of it, and in the video clip,
I'm sitting there speaking Korean. It wasn't titles, it wasn't dabbed.
(30:17):
I'm speaking Korean, and not only it, and it's it's
not somebody else's voice coming out of my mouth. It's
my voice coming out of my mouth in Korean, and
my lips are moving correctly. Now that's an incredible accomplishment.
I don't know if it's a money maker, but so
I guess what I'm saying is, I don't know exactly
(30:40):
how AI is going to be used in the future,
but I can imagine that it's going to have a
significant impact when when computers can start thinking and doing
things like that, it will change the world and jobs
are going to be created, jobs are going to be lost,
(31:01):
efficiencies are going to be created, maybe whole new products.
But I listed the memo a couple of the mistakes
people make, and I saw it with the nifty fifty
by the way, so that in nineteen sixty nine, this
was a list of roughly fifty companies the best and
fastest growing companies in America, Companies that were so great
that number one nothing bad could ever happen A number two.
(31:23):
As I said, there was no price too high. And
if you bought those docks in sixty nine, you held
them for five years. As I recall, you lost about
ninety five percent of money because the price turned out
to have been to I, and it came down by
ninety percent the pe ratio. And some of them ran
into fundamental problems and had to be rescued, or went
through bankruptcy or disappeared from existence. So people assume that
(31:49):
the trends that are underway will continue. One is the
trend toward the internet in ninety nine, another is the
trend toward AI today, and that it will be of
great consequence, and I'm sure it will. They also believe, however,
that the companies that are successful today will continue to
be successful, that they won't be challenged or disrupted or displaced.
(32:14):
When the thinking really gets optimistic, they conclude that every
company can succeed, and we know that that's highly unlikely.
There are going to be winners and losers. We can't
always predict which is which. If we find a company
that's that's a leader today and dominant, and we pay
a price consistent with that dominance, and they turn out
(32:35):
not to be dominant. Price may turn out to have
been excessive, and then ultimately people engage in what's called
lottery thinking, or what I call lottery, which is, well,
it's nowhere as a competitor in this new thing, but
you know, maybe it has a two percent chance of
(32:58):
being becoming a big one. Are in going up a
thousand times? And if it could go up a thousand times,
then I can pay a pe ratio of one hundred
x because I'll still make money. So they will buy
into things that have a very low probability of producing
(33:20):
a very good outcome. And that's like buying a ticket
in the lottery, and most lottery tickets are losers. But
this is what happens in bubbles. Now. You asked me
to differentiate. Since I'm not an expert on AI, I
can't differentiate. But I think there's a very good comparison
to the Internet. We expected the Internet to change the world.
(33:41):
We can't imagine today living in the pre ninety five
world without all the tech we have today. And yet
the vast majority of internet and e commerce companies that
were minted in ninety eight, ninety nine, two thousand are
out of business and worthless. I'm not sure it's going
(34:03):
to be the case with AI, but it has to
give you a caution. That's all I'm saying. Just keep
your eyes open and don't drop all reason in a
rush to get in. And by the way, one of
the great differences in a bubble is that usually people
are afraid of losing money. But one of the hallmarks
of the bubble is that people forget to worry about
(34:27):
losing money and only worry about missing out FOMO. When
Fomo takes over it, people say, you know, yeah, well,
you know, the price seems high. But if my competitor
or my golf buddy or my brother in law buys
it and I don't buy it and it triples, I'm
going to kill myself. So I got to buy it regardless.
(34:52):
And you know, so, I think, I guess, maybe to
sum up on bubbles, a great way to characterize that
is that it's when say I gotta buy it regardless,
and I would argue prudently that nobody should ever do
something regardless.
Speaker 3 (35:24):
I guess I'm interested a little bit more in why
you don't see those characteristics today, because all people talk
about is AI we just had the president, you know,
make this big announcement We're gonna spend half a trillion
on data centers and so forth. It's, you know, just
this dominant mode of conversation. You know, I'm sort of
(35:46):
two minds of this, because you know, I've been hearing people,
you know, regular people on the street talk about their
speculations or their Robinhood accounts or their crypto accounts whatever
for years now, and mostly the prices have been going up.
It certainly feels to me like some of the indicators
that you describe of fear of missing out and so
(36:07):
forth currently exists in this incredible this incredible hype. I'd
like to hear you talk a little bit more about
why right now, Mostly you just see, yes, the math
is expensive, the numbers are expensive, but you don't feel
that sort of that sort of euphoria that has characterized
past bubbles.
Speaker 4 (36:27):
Well, you know, I guess, Joe, part of it is
that I don't I don't live in that world. You know,
since I'm a credit guy and not a tech person,
I don't spend much time talking to people who who
are interested in AI stocks okay, or who are doing
AI businesses. So it might just be that I'm missing that.
(36:49):
So you know, some of the conditions, some are all
of the conditions of a bubble might be present in
a few stocks or in the AI and related niche.
I'm just saying that I don't feel it across the world.
And if you take the magnificent seven out of the equation,
(37:12):
I think things are rich, but not crazy. I did
read an article on that subject. I did read an
article about a month or two ago which said that
if you look at the S and P and leave
out the magnificent seven, and you compare the S and
P companies with their non US equivalent in something like
(37:33):
the MSCI Index of Non US equities, you'll find that
the US equities in every industry just about sell at
higher PE ratios than their counterparts outside the US. So
I think the US is more expensive than the rest
of the world. Again, not crazy. And by the way,
(37:54):
I'm convinced that the US has the best economy in
the world. And you know all these questions, especially in
the stock market, in the bond market where I mostly work,
the credit market, you have an indicator of value, which
is the yield, and you look at the promised return
from a given investment, and you say, well, you know,
(38:17):
I think that's sufficient to reward for the risk or not.
In otherwords, I think the price is fair or it's
not fair, or it's too cheap or too high. In
the stock market, it's hard to do that because in
the stock market you can enumerate the pluses and minuses
of a given company or industry or a phenomenon like AI.
(38:39):
But it's hard to say, you know, but the current
price is fair or too high or too low. It's
hard to turn the recitation of merit into the fairness
of value. And so yeah, people may be too excited
(39:01):
about AI, and that may result in prices that are
too high for their stocks. And you know, I spent
in twenty twenty during the pandemic. I spent a lot
of time living with my son and his family. And
one thing he talked me out of he says, Dad, Yoda,
stop talking about things you don't know anything about. Only
a son can say that to his father. But I
(39:22):
think it's good advice. As we get more specific in
this conversation and it goes from stock market to SMP
to AI, you know, I become more reticent to say
anything concrete, because I really don't have superior knowledge. And
my hero John Kenneth Galbraith said that one of the
shortcomings of the market is the species relationship between money
(39:47):
and intelligence, and most people tend to look at somebody
who's made money, and especially who's made money in the markets,
and credit them with general intelligence, which is usually a mistake.
Speaker 2 (40:00):
Well, I just have one more question, and I guess
it's about the aftermath of bubbles, and it's based on
a conversation that you had with Mike Milkin at the
Milking Conference, and both of you were on stage and
reminiscing about your time in the markets, and one of
the stories you were telling was about the bursting of
(40:21):
the nifty fifty bubble and its impact on the development
of the financial industry. And I think the idea was
that all these people had put their money into things
that were, you know, expected to be quite reliable, reliable stocks,
stalwarts of corporate America, and then they lost virtually all
their money. And that development ended up catalyzing the money
(40:45):
management industry because if you could lose money on boring
stuff like blue chip stocks, then why not you know,
try high yield or some alternative credit instead. And I
guess I'm curious, do you see any interesting developments in
the finance industry right now? Perhaps not in the immediate
(41:09):
aftermath of a bubble, but you know, maybe related to
a paradigm shift like higher interest rates.
Speaker 4 (41:17):
First of all, I have been writing something about something
called the sea change. I met Mike in seventy eight.
That's when Citybank asked me to look into hio bonds,
and I was very fortunate. It was maybe the luckiest
day in my life that I got that called, because
you know, that put me at the front of the line.
That that's kind of the year that the hio bond
market began and became very important. And here I was
(41:38):
no fault of my own, you know, working there, And
the higo bond fund that I started at City in
seventy eight might have been the first one from a
mainstream financial institution. And as Malcolm Gladwell said in his
book Outliers, you know, it's great to be demographically lucky.
So in nineteen eighty, the FED funds rate each twenty. Vulcar,
(42:00):
as head of the FED, put the FED funds there
to battle the inflation that was rampant at the time,
and it worked, and I had a loan from the
bank and I got a slip in the mail saying
that the rate on your loan is now twenty two
and a quarter, And that was eighty and in twenty
twenty I was able to borrow at two and a quarter.
(42:22):
So rates came down by two thousand basis points over
forty years. I believe that was a paradigm shift and
that it changed the whole world, and it made a
lot of people a lot of money. But I published
a memo in December of twenty two called seat Change,
saying that it's over. We're no longer in an environment
where declining rates and ultra low rates are going to
(42:44):
be the rule. We're going to have higher rates and
they're going to be essentially stable, not downward trending all
the time. The other thing that you know is that
prior to the meltdown of the nifty to fifty, the
simplistic thought in investing was that it's responsible to buy
a high quality assets and it's irresponsible to buy low
(43:07):
quality assets, and the job of the fiduciary was to
buy high quality assets. Well, here the best companies in
America is lost almost all your money, and then I
shifted to hijo bonds. Now I'm investing in arguably the
worst public companies in America and making money steadily and safely.
(43:28):
So it did occasion a sea change in how investing
is done, and it was a very important lesson that
I was happy to learn at the very beginning of
my career. You know, I was twenty three years old
when I started working sixty nine, and I lived through
this whole collapse in my twenty and it's very important
(43:49):
to learn your lessons early. And the lesson I learned
was that successful investing doesn't come from buying good things,
but from buying things well and if you don't know,
and the difference, it's more than dramatical, and that it's
not what you buy that matters, it's what you pay.
The price has to be fair. And there is no
(44:13):
asset which is so good that it can't become overvalued
and dangerous, and there are very few assets that are
so bad that they can't become cheap enough to be attractive.
It was an epiphany for me, and I think it
changed the whole world, and we no longer say is
(44:33):
it a good asset or a bad asset or a
good company or a bad asset. We say, is it risky?
How risky is it? What return do we expect? Is
the return sufficient to compensate for the risk? And that
is the change that has dominated the investment world to
the last I would say, forty seven years since seventy eight.
(44:57):
And you know, we do so many things today like
venture capital and private equity and transecurities which entail conscious
risk bearing that couldn't have been done in the old
world of good and bad or safe and risky.
Speaker 3 (45:20):
I just have one last question. I was gonna let
Tracy have the last question, but you said one thing
that's that hit something that's been on my mind. And
you mentioned in the summer of twenty twenty being able
to borrow money for two percent. One of the questions
that's been debated the last several years is why haven't
the interest rate increases that we've seen across the curve
(45:40):
had a more dampening effect on the strength of the
US economy. And one story that gets put out is
that a lot of borrowing entities, whether their households like
yourselves or various firms, locked in very low borrowing in
those couple of years, and that the effect of higher
rates therefore has been muted, hasn't transmitted to the real economy.
(46:01):
Have we felt that adjustment yet? Is there something coming
because those rates can't stay locked in forever, especially for
shorter term borrowing. Have we felt the impact of this
seed change yet on the economy or is there more
to come downstream from this reversal of what may be
a forty plus year trend.
Speaker 4 (46:21):
No, I think it clearly hasn't worked a twelve way
through because when you borrow money, you borrow for a
period of time, and if you borrow at a fixed rate,
there's also a flooding rate borrowing. But if you borrow
at a fixed rate, you fix your rate for a
maturity of five or seven years, then even if rates
go up, you're immune to it. You don't feel the
impact until your debt matures and has to be rolled over.
(46:45):
You know, people in this business are in the business
world in general, are not brain dead. And many of them,
as you say, rolled over their debts in twenty twenty
or twenty one, and you know, locked up costs debt
until twenty six or twenty seven, so they're fine. But
(47:07):
you know, maybe they took on too much debt when
debt was cheap and readily available, and maybe they won't
be able to refinance all of it, or some of
them may not be able to refinance all of it
when it rolls over in twenty six or twenty seven.
That's what we call a credit crunch, when you can't
roll over your debts. Nobody ever repays their debts. They
(47:29):
just roll them over, and sometimes you can't. You know,
we believe that they're I mean, look there there are
already some defaults, not many compared to the crises in
the past, but you know, when maturities start coming due
in twenty six, twenty seven, and if Wall Street or
(47:50):
the banks are a little less generous and optimistic, maybe
there'll be some difficulty rolling it over. And then you know,
and it's just the cost of money. So you know,
the federal government has a portfolio of debt. They don't
own a portfolio. They owe a portfolio of debt, some
of which is long and some of which is short.
(48:11):
And you know, so they're paying the low rates on
the long debts. But you know when that when again,
when that comes due, they'll have to roll that over
at higher rates, and it'll cost the money. And so
if the interest rate merely stays where it is, the
cost of capital to the US government will rise over
time as they replace low rate, low cost debt with
(48:33):
high cost debt. So this has not fully worked itself
through through the economy yet, and there's more of it to.
Speaker 2 (48:39):
Come, all right, Howard marks, We could easily keep going
for a couple more hours, probably longer than that, but
this has been an absolute treat. Thank you so much
for coming on the show.
Speaker 4 (48:52):
Well, thank you for your good questions, and I'd be
glad to do it too, and let's do it again sometimes.
Speaker 3 (48:57):
Absolutely love to thank you so much those I.
Speaker 2 (49:00):
Guess Joe, I thought that was so interesting. So first
of all, you know that I love just listening to
like wartime financial crisis stories, so that was great. And
(49:23):
then I thought one thing that was really interesting. Well,
first of all, there aren't as many cross asset investors
as you might think out there, and so it's really
interesting to hear someone that is, you know, firmly in
the credit space, but is also looking at other asset
classes in order to judge current market conditions. And then
(49:45):
the other thing I thought was the emphasis on action
being sort of a spectrum of caution and risk. So
it's not the tech bubble is about to come and
you know, sell all your tech exposure. It's more like,
maybe I should ratchet down a little bit, maybe start
(50:06):
raising you know, some dry powder for a rainy day.
Speaker 3 (50:10):
That was really interesting the specific story this sequence, Yeah,
raising that dry powder starting with the warning in two
thousand and five that didn't get deployed or wasn't able
to be paid off for years. But the idea of okay,
if you see something coming down to the horizon is
not enough to say, well, yes something there's going to
(50:30):
be an opportunity. The idea of you know, raising one
fund and then having that other fund on the shelf,
cash that can be callable for the day that it comes.
You know, there were a lot of people that probably thought, oh,
there are really good deals to be had in September
two thousand and eight or March two thousand and nine
or whatever. But there's no good in having stuff being
(50:51):
cheap if you don't have any cash available to buy it.
Speaker 2 (50:53):
Do people still call it patient capital? I remember people
used to call you know, dry powder patient capital because
the idea was you set it aside, and it might
be a long time until you're actually able to invest
in you.
Speaker 3 (51:06):
Also, you know, this also strikes me as where like
brand value of a firm really matters, right, because you're
not going to get billions and excess commitments into that.
You know, you and I aren't going right. It's like
Tracy and I was like, oh, we think AI is
going to crash in a few years or want to
get buy bill We want to buy data center real
(51:27):
estate on the chief, so give us a billion. But
you know that's the only that's a thing that you
can monetize only after having you know, years of success.
I thought it's interesting this idea of you know, there's
a difference between expensive and a bubble, and that in
his assessment, we're not there yet. And I really appreciate
(51:47):
his perspective because it's easy for me to say on
the day, oh, everyone's to talk about AI all the time,
et cetera. I'm therefore, you know, we must be near
the top or a bubble. But I don't have you know,
experience in markets going back to the nineteen sixties of
like what that actually feels like.
Speaker 2 (52:04):
Well, when a car company or car rental company in
Nevada says that it's like a model.
Speaker 3 (52:11):
Yeah, yeah, that's going to start.
Speaker 2 (52:14):
I don't know that's going to revolutionize the world. Yeah,
then maybe that's the time to be concerned.
Speaker 3 (52:20):
That's how well.
Speaker 2 (52:20):
No, all right, shall we leave it there.
Speaker 3 (52:22):
Let's leave it there.
Speaker 2 (52:23):
This has been another episode of the Audots podcast. I'm
Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3 (52:30):
I'm Joe Wisenthal. You can follow me at the Stalwart.
Follow our producers Carmen Rodriguez at Carmen armand dash ol
Bennett at Dashbot and kill Brooks at Kilbrooks. From our
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including markets, including credit, anything you want twenty four to
(52:51):
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Speaker 2 (52:55):
And if you enjoy odd Lots, if you like it
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And remember, if you are a Bloomberg subscriber, You can
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(53:15):
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Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:18):
Hello and welcome to another episode of the All Thoughts podcast.
I'm Tracy Allaway and.
Speaker 3 (00:22):
I'm Joe Wisenthal.
Speaker 2 (00:24):
So, Joe, we recently recorded an episode with Kevin Muhror
where we were talking about concentration risk in stock indices,
and I guess historical analogies with the dot com bubble
of the two thousands, and I know that this is
one of your favorite subjects. I think I said it
was like your own personal catnip. That's right, And so
(00:44):
I thought, you know what, I did not get Joe
a Christmas present this year. In fact, I don't think
I've ever gotten you a Christmas present, But wouldn't it
be nice if I got him a whole episode where
we're talking to one of the world's most famous investors
who correctly call the Internet bubble.
Speaker 3 (01:01):
Let's do it. Let's jump right into it. No more intro.
I'm so thrilled about this conversation. Let's just get it started,
all right.
Speaker 2 (01:07):
I will also admit this is a belated Christmas present
to myself as well. So we are going to be
speaking with Howard Marx. He is, of course the co
founder and co chair of oak Tree Capital Management. He's
famously a credit investor, but he did call, as I said,
the dot com bubble correctly. So Howard, thank you so
(01:29):
much for coming on the show.
Speaker 4 (01:31):
It's a pleasure to be with you. Tracy, and also Joe.
Speaker 2 (01:35):
Maybe just to begin with give us some context around
what the early two thousand's late nineteen nineties were like
for you. What were you doing and what were you
observing at that time?
Speaker 4 (01:46):
Well, the nineteen nineties were a slow time for credit investors.
We're kind of opportunistic and bargain hunters, and bargains come
from dislocation and you know, people feeling urgency to get
out of positions. And the nineties were generally a placid period,
(02:07):
except for the around ninety eight we had the evaluation of
the Russian ruble and a Southeast Asian crisis, and we
had the meltdown of a highly levered hedge fund called
Long Term Capital Management. But those were all kind of
vidiosyncratic events, not macro and not broad based. Other than that,
(02:31):
the investment environment was placid. Importantly, it was the best
decade in history I think for stocks and the S
and P five hundred rows an average of twenty percent
a year for ten years, which is an astronomical an
astronomical accomplishment. If you rise twenty percent a year for
ten years, I would guess that something goes up roughly
(02:51):
eight times in ten years, which is incredible. And of
course this was all powered by the what we call
the TMT bubble, tech media and telecom bubble, some people
call it the Internet bubble, which prevailed in ninety eight,
ninety nine and into two thousand. So it was hot times,
not for credit investors, hot times for equity investors.
Speaker 3 (03:13):
You know, you recently wrote a memo that called back
to a memo that you had written basically exactly twenty
five years ago. So right at the start of two thousand,
of course, the dot com bubble or the TMT bubble peaked,
I think it was in March of that year. You
got the timing right. And that's sort of extraordinary because
there were a lot of people probably starting in nineteen
(03:35):
ninety eight, the nineteen ninety nine, maybe even earlier, like
this is ridiculous. There's all these companies they literally don't
have a penny in earnings, or perhaps don't even have
a penny in revenue, they just have the name dot
com in their name. They ipo at crazy prices. What
is the experience like? I mean, that was very fortunate
timing on your part, But there were a lot of
(03:57):
people who you know, were famously correct in early and
they had clients abandoned them and so forth, and they
thought it was like, oh, you don't understand the new paradigm,
et cetera. What's that like in the years before that,
as it feels like the market is becoming increasingly untethered
from any sort of reality and yet there's no payoff
(04:19):
in being correct, right.
Speaker 4 (04:21):
Well, there's so much to say in response to your question.
You know, I use a lot of quotes and adages
and when I write, because you know, other people have
said things so much better than we can. And one
of the first adages I learned in the early seventies
was that being too far ahead of your time is
indistinguishable from being wrong. So yeah, it's painful to say
(04:45):
something and predict something and then have to wait years
and years for it to come true. Alan Greenspand famously
said I think it was in ninety six that we're
beginning to see signs of irrational exuberance in this, and
of course the market went straight up for the next
four years. And you know, there are people who pronounced
(05:07):
that we were in a stock market bubble. I think
I can think of one in June of twenty twenty,
and here we are almost five years later. And of
course we did stall out in twenty two. But if
you went out in twenty and weren't smart enough to
come back in in twenty two, you've missed a big ride.
So I think, well, you know, one thing I argue
(05:31):
strenuously Joe, is that in the investment business there's no
place for certainty. And Mark Twain said, it ain't what
you don't know that gets you into trouble. It's what
you know for certain that just ain't true. And so
you can have opinions, but you should never be certain
that you're right, and you should never arrange your financial
(05:53):
affairs on the assumption that your forecast is right, because
it can be right intellectually or factually irrationally, but just
take a long time to materialize. And if you can't
survive between when you take your position and when it
when your expectation comes true, then obviously it's not something
(06:15):
you should do. And one of my colleagues once wrote
a note to his clients. He says, if you name
a price, don't name a date. And if you name
a date, don't name a price.
Speaker 2 (06:24):
That's anybody advice or journalist too.
Speaker 4 (06:26):
But anybody who names a price and a date is
probably going to get carried out of there sooner or later.
Speaker 2 (06:35):
So what was it like then when you hit the
published button on the note? I think it was called
bubble dot com and you published it. I think it
was right at the start of January first. Still, what
was it, Yeah.
Speaker 4 (06:50):
January, It was January second, two thousand. It was the
first business day of two thousand.
Speaker 2 (06:54):
And then start later that month.
Speaker 4 (06:57):
Right, yeah, No, I think a little later that year.
Joe said it was in March. I don't remember exactly.
I thought it was a little later than that. But
you know, i'd started writing these memos in nineteen ninety
I've been writing for ten years. Of course, in those
days they went out in the mail and to a
limited audience, just my clients, and you know, for ten
(07:17):
years I never had a response. And then I spent
the fall of ninety nine working on this memo bubble
dot com and was ready to push the button. I
guess I polished it over Christmas probably and sent it
out the first day. And you know, let me just
clarify one thing for the record and for the benefit
of the listeners. If you read that memo, it does
(07:40):
not predict the bubble, and it does not say you know,
the market's going to collapse. All it did is describe
the current conditions. And that's two different things. Now. I
don't make predictions. I only describe current conditions. And my
(08:02):
motto is we never know where we're going, but we're
sure as help or to know where we are. And
I believe, you know, this is a little bit of
a matter of semantics. I believe that where we are,
if we properly assess it, informs where we're going. But
I think people who waste their time figuring out making predictions,
(08:25):
which I'm strongly against, are wasting their time. I think
that describing current conditions can be done accurately and obviously
has an impact on what the future holds. So as
I say, read the memo, I think it reads well
(08:46):
in retrospect, but don't expect to find a place where
I say, get out of the market or the market's
going to collapse or there or in a bubble that's
going to pop. What I say there is I just
want to call your attention to all these forms of
excessive or overheated behavior and let you know what I
(09:07):
think is going on. That's all it says.
Speaker 3 (09:09):
So in the art of just identifying where we are,
and when we're talking about financial markets, obviously we can
use all kinds of ratios, etc. You know, price to earnings,
price to forward earnings valuations, a million different ratios that
you can come up with. And then you know there
are sort of cultural markers. And I remember in summer
(09:30):
ninety nine, I would get lunch every day at the
same pizza shop with the pizza shop owner head CNBC
on and he was trading tech stocs at the time,
and these other sort of indicators that people are just
excited about the prospect of making money and making money fast.
And when you do an assessment and you say, okay,
here's where we are, how much do you sort of
(09:52):
hew strictly to the math, so to speak, and how
do you systematically incorporate other indicators of exuberant which perhaps
can't always be captured on a Bloomberg terminal for example.
Speaker 4 (10:06):
No, look, I think you're absolutely on the right track, Joe.
You read the memo. My observations are, I would say
ninety nine percent what you call cultural markers, which I
think is great, or behavioral indicators, and one percent math.
And to me, it's the behavior that is so indicative.
(10:30):
And in my first book, which is called The Most
Important Thing, I have something in there called the poor
Man's Guide to Market Assessment, and it really takes culture,
mostly cultural markers, and puts them on in two columns
(10:50):
left and right, and whichever column is prevailing, it tells
you something. And for example, I say in there that
if people like me are being invited to cocktail parties
and are the center of attention and so forth, then
it probably means that investing is has been doing well
and everybody's optimistic about it. And it indicates that maybe
(11:14):
things are too hot, and if people like me are shut,
not invited, or shunt it off to the corner, maybe
the markets are too cold, too cheap, and it's time
to strike. So I think that these behavioral indicators are
extremely important. And I wrote a memo in I think
(11:34):
it was the summer of twenty three called taking the Temperature,
and I describe what I do in this regard as
taking the temperature of the market to figure out if
it's hot or cold. And when I was working on
my second book, which is called Mastering the Market Cycle,
and I was speaking with my son Andrew, who is
a venture capitalist, I said to him, you know, I
(11:55):
think my forecasts over the course of my career have
been about right. And he says to me, yeah, that's
because you did it five times in fifty years. Five
times in fifty years, I found the market either so
crazy high or crazy low that you could make a
logical case that was either overextended or too cheap, and
(12:20):
you could do so with a high degree of confidence.
And I recount the five times I did it and why.
But you know, if I had tried to do it
five hundred times or five thousand times in my career,
I mean I've probably been in an investment business for
about almost twenty thousand days. If I tried to do
it five thousand times every fourth day, you know, I'd
(12:43):
probably be fifty to fifty at best. So to me,
it's noting extremes of behavior. And that's what I was
doing with bubble dot com. And that's what I did
in the five other observations.
Speaker 2 (13:17):
So you've emphasized that you're describing current conditions, not necessarily
making predictions. I'm curious how you translate those, you know,
let's say, accurate assessments of the current environment into actionable
investments or I guess another way of asking this is,
(13:40):
you know, if you're looking at stocks and thinking they're
overvalued or there might be signs of overvaluation, how does
that translate into the credit space?
Speaker 4 (13:52):
Good question, Tracy. To me, the main access along which
one establishes one's behavior as an investor is the access
that runs from aggressive to defensive. Each of us should
(14:14):
figure out based on our personal conditions, our wealth, our income,
our needs are dependents, our age plans, et cetera, and
also ability to withstand fluctuations. Each of us should figure
out what our normal risk posture should be. Normally, should
I be a low risk person normal or a high
(14:36):
risk person? And then you should build the portfolio that
responds to that decision. But then you might try to
vary your position from time to time as conditions in
the markets change. And I believe that as I said
(14:57):
that the main access along which one should should think
about varying one's position is between offense and defense. So
you know, you establish a position which is your normal position,
which has a certain amount of aggressiveness, is a certain
amount of defensiveness. But then are there times when you
should become more aggressive and are times when you should
(15:19):
become more defensive. And that's what I did on those
five occasions. And I'll give you an example. And by
the way, these are all described in Taking the Temperature.
And I've mentioned or you've mentioned the memos from time
to time, and I just want to note for the
listeners that they're all available at Oaktreecapital dot com under
(15:40):
the heading of Insights. There's thirty five years at worth
of memos. There about two hundred and there's no price
of admission. They're all free and anybody wants to sign
up for a subscription can do so. But you know,
in Taking the Temperature, I described the way in nine
in five oh six, I was getting really leary of
(16:01):
the markets. What was my indicator, my indicator, or as
Joe would say, my cultural marker. My indicator was that
I'm reading in the in the paper about new deals
that are getting done, and the deals were crazy deals,
(16:22):
deals that in my opinion, should not get done. They
were too good for the issuer and in my opinion,
too bad for the investor. And the deals were getting
done anyway. And you know, one of the investor's main
jobs is to decline to engage in stupid deals. And
(16:46):
you know, if somebody comes and says, you know, I'm
going to sell you a gold mine and if you
can put up a million dollars, you're going to make
one hundred thousand dollars a month for the rest of
your life. Your job is to say no, that's too
good to be true. Or you know, if I say,
I think there's a gold mine in Australia and if
(17:06):
you put up a million dollars, it'll probably give you
tay you a million dollars a year the rest of
your life. If we find gold, you should say no,
that sounds too risky. You know, I just think that
we're unlikely to find gold. But if you see those
deals getting done, it tells you that investors are not
applying vigilance. They're not doing their job of resisting deals
(17:31):
that are too risky or structured not in their favor,
and in five oh six, I was seeing these deals
done that made absolutely no sense. And I describe myself
as wearing out the carpet between my office and my partner,
Bruce carsh And you know, every day I would go
and say, look at this piece of crap that you
(17:51):
got issued yesterday. A deal like this shouldn't get done,
and if a deal like this can get done, there's
something wrong. Ninety nine percent of my observation at that
time that investors were not being suitably skeptical, cautious, demanding,
(18:12):
and risk averse. And you know, Buffett has a great
saying which feeds right into this. He says, the less
prudence with which others conduct their affairs, the greater the
prudence with which we must conduct our own affairs. And
when others are wacky, we should head to the sidelines.
(18:32):
That was the foundation of that conclusion. Now what happened
was it turned out we were in a housing bubble,
and the housing bubble gave rise to a mortgage bubble,
and the mortgages, the subprime mortgages issued to people who
could not or would not document their income of their
assets were packaged into mortgage backed securities, and the people
(18:56):
who bought the riskier tranches of those securities, lost all
their money, which the rating agencies rated very highly, because
they didn't understand it. And this was going on en mass,
and it was the collapse of the mortgage backed securities,
of which the banks had in many cases retained the
risky portions when they structured them. It was the collapse
(19:19):
that took you know, bear Stearns and Merrill Lynch and
Lehman Brothers and other AIG, etc. Out of business as
independent endings. I hastened to point out I didn't know
anything about mortgage backed securities. I didn't understand subprime. I
didn't know what was going on. It was going on
(19:40):
in a distant corner of the investment world which I
was not in on. I just knew that the climate
was too permissive and the mortgage backed developments were a
manifestation of that. But your question, I always try to
come back to the question. Your question was what do
(20:03):
you do about? So what did we do? We sold
most of our real estate holdings, We reduced holdings in
many areas. We liquidated holdings in large funds, our opportunistic
debt funds that we had formed in two four ET cetera.
(20:27):
We sold those holdings. We raised either small funds or
no funds, and we waited for this behavior to produce opportunities.
After it passed. On the first day of seven, Bruce
and I sent the memo to our clients saying we'd
(20:50):
like to have three and a half billion dollars for
distress debt fund. The largest distress fund in history had
been two billion. It was our one fund. We wanted
three and a half because we thought there was something
big coming, and within a month we had eight billion.
We went to our investors, we said we can't use
(21:12):
eight billion, we'll take three and a half. We closed
that fund in March of seven, but we said we'd
like to have the rest of your appetite for a
stand by fund, and we continued for a year to
raise a stand by fund again in an area where
the biggest fund in history was two billion. We raised
eleven billion and that was our fund seven B and
(21:36):
we put it on the shelf and we said this
is for when the stuff hits the fan, and we're
not going to invest it until that time, and we're
not going to charge any fees, and it's just commitments
on the shelf. Because we'd like to have capital we
can draw. And when Lehman went bankrupt on September fifteenth
(21:57):
of eight, we had that eleven billion dollars. We had
only invested about ten one billion. We had ten billion
that we could call on, and so unlike most people,
we didn't have to worry about where are we going
to get money, or can we invest or our client's
going to withdraw their money. Rather than we had commitments,
(22:19):
we were sure we could draw and so we could
plunge in and we started to invest Bruce. Bruce does
the investing, and we developed our position jointly and we
decided to get down to work. So the next week
after the Lehman bankruptcy was Friday fifteenth. We started investing
(22:42):
and he invested for that fund a loan four hundred
and fifty million dollars a week on average for the
next fifteen weeks, that seven billion in one quarter. Remember
in an area where the biggest fund in history was
two billions. Why because we had prepared mentally, we had
noted the bad climate. We had prepared for a denoument,
(23:09):
and we swung into action when it arrived. And I
was very proud of him for taking that position, and
people on the street have told me that in that
quarter we were the only buyer. Well, that's how you
get good deals. If you can buy where nobody else
is buying, you get your pick of the litter at
(23:30):
low prices. So that's I just gave you a four
or five year I guess four year description of a process.
But man, you have to be patient because in five
to six we were doing nothing, just selling, and we
were not rewarded in five or six for that behavior.
(23:50):
The reward came at the end of eight. But you know,
I think it's not everybody's in a position to apply
that process to that extent, but I think it describes
the process, and of course I use it as an
example for one simple reason. It was successful.
Speaker 3 (24:08):
Always a good always a good outcome when you have
a success from it. Obviously, fantastic story your latest memo
which inspired us to reach out and want to chat
with you on Bubble Watch, And as you mentioned, is
the twenty fifth anniversary of the bubble dot com memo,
and so twenty five year anniversaries are just probably a
good time to go back. But on the other hand,
(24:30):
there is also this moment that we alluded to in
the intro of incredible enthusiasm really for like a handful
of tech ai related names that's lifting the entire market up.
Is this one of the moments? I mean, what is
the temperature right now as you see it? You've mentioned
you've had five moments sort of maybe five calls in
(24:51):
your career. Is this a sixth right now?
Speaker 4 (24:54):
No, it's not okay because you asked before. Behavioral or numerical.
The main observations today are numerical. The peaking ratio on
the S and P five hundred is elevated relative to
historic norms, and the so called Magnificent seven, the biggest
companies in the S and P dominate its behavior. Are
(25:19):
you going up or have been going up rapidly? And
they're hot stocks, And when you see one group perform
especially well, you have to ask whether it's a bubble.
And the S and P, of course, has gone up
more than twenty percent a year for the last two years,
and it's only the I think the fifth time according
(25:42):
to JP Morgan, the fifth time in history. So you
have to ask these questions. But the troubling aspects those
are numerical and what I say in the memo is that,
in my opinion, it lacks the behavioral aspects.
Speaker 2 (26:02):
Of a bubble.
Speaker 4 (26:03):
And I talk about some of them, and I say
that a bubble is not just a numerical it is behavioral.
And a bubble is really it's not a rise. It's
that's a bull market. It's not high prices. A bubble
is a temporary MEMI in which people are so agog
(26:24):
at things that they throw over all discipline, all caution,
and I just don't. It just doesn't feel to me
like we're there. We're high priced, I say, lofty, but
not nutty. And the bubbles I've seen and I've lived through,
starting with the day I joined this business in sixty nine,
(26:45):
we had what we call was called the nifty to fifty.
What you see going on is what they call in
literature the willing suspension of this belief. You know, I
know it's high, but if I don't go in, I
could miss something. Or I know it's high, but I
(27:06):
don't think it's going to end tomorrow. And by the way,
it's if it ends, I'll just get out. And of course,
as I mentioned in the memo, the real hole mark
of a bubble is when people say it's so great
this thing we're talking about, whether it's the nifty to
fifty stocks in sixty nine or Nvidia today or TMT
(27:27):
in ninety nine, they say it's so great that there's
no price too high. And that was the official dictum
in the money center banks in sixty nine. With God
to the nicety fifty. It was the official victim. With
regard to the Internet in ninety nine, what do people say?
(27:47):
The Internet will change the world, and so for the stocks,
there's no price too high. Well, guess what. The Internet
did change the world. But because they bid up the
stock so high, the people who invested in them lost
almost all their money. So, you know, people become psychologically
(28:09):
unhinged and not tethered to reality, and their portfolios slipped
their moorings, and they think that they found the perpetual
motion machine or a tree that'll grow to the sky.
And I just don't see those psychological or behavioral aspects today.
Speaker 2 (28:30):
So one of the things that Joe likes to emphasize
when it comes to well the tech bubble specifically, is
the importance of stories or narratives. So one of the
things that will drive this kind of behavior is you'll
see a company come out with like this huge ambition.
I think Joe's favorite example wasn't there like a car
(28:51):
company that claimed to have found the cure to AIDS.
Speaker 3 (28:55):
That's right, this is a good story. This was nineteen
ninety nine, and people were just so up mystic that
they thought he used car dealership in Nevada head in
their back office founding cure for AIDS.
Speaker 2 (29:07):
That never sees a story story.
Speaker 3 (29:09):
Yeah, well, I'll tweet out a link when this episode
comes out.
Speaker 2 (29:11):
So nowadays, there's an argument that some people make that
we have a faster tech cycle than ever, and that
means more stories can be generated more quickly. And given
that you're a veteran in the space, can you maybe
compare and contrast the tech cycle now to previous history.
Speaker 4 (29:32):
Well, listen, Tracy number one, I'm not an equity guy.
Number two, I'm not a tech person. I have no
personal knowledge of the tech companies of today. I have
an idea about AI. I've seen it do wonderful things.
So far. Most of my direct experience is with what
(29:53):
I would call parlor games. You know, I did an
interview like this one with a Korean media company that
I've worked with over the over the years. They sent
me a video clip of it, and in the video clip,
I'm sitting there speaking Korean. It wasn't titles, it wasn't dabbed.
(30:17):
I'm speaking Korean, and not only it, and it's it's
not somebody else's voice coming out of my mouth. It's
my voice coming out of my mouth in Korean, and
my lips are moving correctly. Now that's an incredible accomplishment.
I don't know if it's a money maker, but so
I guess what I'm saying is, I don't know exactly
(30:40):
how AI is going to be used in the future,
but I can imagine that it's going to have a
significant impact when when computers can start thinking and doing
things like that, it will change the world and jobs
are going to be created, jobs are going to be lost,
(31:01):
efficiencies are going to be created, maybe whole new products.
But I listed the memo a couple of the mistakes
people make, and I saw it with the nifty fifty
by the way, so that in nineteen sixty nine, this
was a list of roughly fifty companies the best and
fastest growing companies in America, Companies that were so great
that number one nothing bad could ever happen A number two.
(31:23):
As I said, there was no price too high. And
if you bought those docks in sixty nine, you held
them for five years. As I recall, you lost about
ninety five percent of money because the price turned out
to have been to I, and it came down by
ninety percent the pe ratio. And some of them ran
into fundamental problems and had to be rescued, or went
through bankruptcy or disappeared from existence. So people assume that
(31:49):
the trends that are underway will continue. One is the
trend toward the internet in ninety nine, another is the
trend toward AI today, and that it will be of
great consequence, and I'm sure it will. They also believe, however,
that the companies that are successful today will continue to
be successful, that they won't be challenged or disrupted or displaced.
(32:14):
When the thinking really gets optimistic, they conclude that every
company can succeed, and we know that that's highly unlikely.
There are going to be winners and losers. We can't
always predict which is which. If we find a company
that's that's a leader today and dominant, and we pay
a price consistent with that dominance, and they turn out
(32:35):
not to be dominant. Price may turn out to have
been excessive, and then ultimately people engage in what's called
lottery thinking, or what I call lottery, which is, well,
it's nowhere as a competitor in this new thing, but
you know, maybe it has a two percent chance of
(32:58):
being becoming a big one. Are in going up a
thousand times? And if it could go up a thousand times,
then I can pay a pe ratio of one hundred
x because I'll still make money. So they will buy
into things that have a very low probability of producing
(33:20):
a very good outcome. And that's like buying a ticket
in the lottery, and most lottery tickets are losers. But
this is what happens in bubbles. Now. You asked me
to differentiate. Since I'm not an expert on AI, I
can't differentiate. But I think there's a very good comparison
to the Internet. We expected the Internet to change the world.
(33:41):
We can't imagine today living in the pre ninety five
world without all the tech we have today. And yet
the vast majority of internet and e commerce companies that
were minted in ninety eight, ninety nine, two thousand are
out of business and worthless. I'm not sure it's going
(34:03):
to be the case with AI, but it has to
give you a caution. That's all I'm saying. Just keep
your eyes open and don't drop all reason in a
rush to get in. And by the way, one of
the great differences in a bubble is that usually people
are afraid of losing money. But one of the hallmarks
of the bubble is that people forget to worry about
(34:27):
losing money and only worry about missing out FOMO. When
Fomo takes over it, people say, you know, yeah, well,
you know, the price seems high. But if my competitor
or my golf buddy or my brother in law buys
it and I don't buy it and it triples, I'm
going to kill myself. So I got to buy it regardless.
(34:52):
And you know, so, I think, I guess, maybe to
sum up on bubbles, a great way to characterize that
is that it's when say I gotta buy it regardless,
and I would argue prudently that nobody should ever do
something regardless.
Speaker 3 (35:24):
I guess I'm interested a little bit more in why
you don't see those characteristics today, because all people talk
about is AI we just had the president, you know,
make this big announcement We're gonna spend half a trillion
on data centers and so forth. It's, you know, just
this dominant mode of conversation. You know, I'm sort of
(35:46):
two minds of this, because you know, I've been hearing people,
you know, regular people on the street talk about their
speculations or their Robinhood accounts or their crypto accounts whatever
for years now, and mostly the prices have been going up.
It certainly feels to me like some of the indicators
that you describe of fear of missing out and so
(36:07):
forth currently exists in this incredible this incredible hype. I'd
like to hear you talk a little bit more about
why right now, Mostly you just see, yes, the math
is expensive, the numbers are expensive, but you don't feel
that sort of that sort of euphoria that has characterized
past bubbles.
Speaker 4 (36:27):
Well, you know, I guess, Joe, part of it is
that I don't I don't live in that world. You know,
since I'm a credit guy and not a tech person,
I don't spend much time talking to people who who
are interested in AI stocks okay, or who are doing
AI businesses. So it might just be that I'm missing that.
(36:49):
So you know, some of the conditions, some are all
of the conditions of a bubble might be present in
a few stocks or in the AI and related niche.
I'm just saying that I don't feel it across the world.
And if you take the magnificent seven out of the equation,
(37:12):
I think things are rich, but not crazy. I did
read an article on that subject. I did read an
article about a month or two ago which said that
if you look at the S and P and leave
out the magnificent seven, and you compare the S and
P companies with their non US equivalent in something like
(37:33):
the MSCI Index of Non US equities, you'll find that
the US equities in every industry just about sell at
higher PE ratios than their counterparts outside the US. So
I think the US is more expensive than the rest
of the world. Again, not crazy. And by the way,
(37:54):
I'm convinced that the US has the best economy in
the world. And you know all these questions, especially in
the stock market, in the bond market where I mostly work,
the credit market, you have an indicator of value, which
is the yield, and you look at the promised return
from a given investment, and you say, well, you know,
(38:17):
I think that's sufficient to reward for the risk or not.
In otherwords, I think the price is fair or it's
not fair, or it's too cheap or too high. In
the stock market, it's hard to do that because in
the stock market you can enumerate the pluses and minuses
of a given company or industry or a phenomenon like AI.
(38:39):
But it's hard to say, you know, but the current
price is fair or too high or too low. It's
hard to turn the recitation of merit into the fairness
of value. And so yeah, people may be too excited
(39:01):
about AI, and that may result in prices that are
too high for their stocks. And you know, I spent
in twenty twenty during the pandemic. I spent a lot
of time living with my son and his family. And
one thing he talked me out of he says, Dad, Yoda,
stop talking about things you don't know anything about. Only
a son can say that to his father. But I
(39:22):
think it's good advice. As we get more specific in
this conversation and it goes from stock market to SMP
to AI, you know, I become more reticent to say
anything concrete, because I really don't have superior knowledge. And
my hero John Kenneth Galbraith said that one of the
shortcomings of the market is the species relationship between money
(39:47):
and intelligence, and most people tend to look at somebody
who's made money, and especially who's made money in the markets,
and credit them with general intelligence, which is usually a mistake.
Speaker 2 (40:00):
Well, I just have one more question, and I guess
it's about the aftermath of bubbles, and it's based on
a conversation that you had with Mike Milkin at the
Milking Conference, and both of you were on stage and
reminiscing about your time in the markets, and one of
the stories you were telling was about the bursting of
(40:21):
the nifty fifty bubble and its impact on the development
of the financial industry. And I think the idea was
that all these people had put their money into things
that were, you know, expected to be quite reliable, reliable stocks,
stalwarts of corporate America, and then they lost virtually all
their money. And that development ended up catalyzing the money
(40:45):
management industry because if you could lose money on boring
stuff like blue chip stocks, then why not you know,
try high yield or some alternative credit instead. And I
guess I'm curious, do you see any interesting developments in
the finance industry right now? Perhaps not in the immediate
(41:09):
aftermath of a bubble, but you know, maybe related to
a paradigm shift like higher interest rates.
Speaker 4 (41:17):
First of all, I have been writing something about something
called the sea change. I met Mike in seventy eight.
That's when Citybank asked me to look into hio bonds,
and I was very fortunate. It was maybe the luckiest
day in my life that I got that called, because
you know, that put me at the front of the line.
That that's kind of the year that the hio bond
market began and became very important. And here I was
(41:38):
no fault of my own, you know, working there, And
the higo bond fund that I started at City in
seventy eight might have been the first one from a
mainstream financial institution. And as Malcolm Gladwell said in his
book Outliers, you know, it's great to be demographically lucky.
So in nineteen eighty, the FED funds rate each twenty. Vulcar,
(42:00):
as head of the FED, put the FED funds there
to battle the inflation that was rampant at the time,
and it worked, and I had a loan from the
bank and I got a slip in the mail saying
that the rate on your loan is now twenty two
and a quarter, And that was eighty and in twenty
twenty I was able to borrow at two and a quarter.
(42:22):
So rates came down by two thousand basis points over
forty years. I believe that was a paradigm shift and
that it changed the whole world, and it made a
lot of people a lot of money. But I published
a memo in December of twenty two called seat Change,
saying that it's over. We're no longer in an environment
where declining rates and ultra low rates are going to
(42:44):
be the rule. We're going to have higher rates and
they're going to be essentially stable, not downward trending all
the time. The other thing that you know is that
prior to the meltdown of the nifty to fifty, the
simplistic thought in investing was that it's responsible to buy
a high quality assets and it's irresponsible to buy low
(43:07):
quality assets, and the job of the fiduciary was to
buy high quality assets. Well, here the best companies in
America is lost almost all your money, and then I
shifted to hijo bonds. Now I'm investing in arguably the
worst public companies in America and making money steadily and safely.
(43:28):
So it did occasion a sea change in how investing
is done, and it was a very important lesson that
I was happy to learn at the very beginning of
my career. You know, I was twenty three years old
when I started working sixty nine, and I lived through
this whole collapse in my twenty and it's very important
(43:49):
to learn your lessons early. And the lesson I learned
was that successful investing doesn't come from buying good things,
but from buying things well and if you don't know,
and the difference, it's more than dramatical, and that it's
not what you buy that matters, it's what you pay.
The price has to be fair. And there is no
(44:13):
asset which is so good that it can't become overvalued
and dangerous, and there are very few assets that are
so bad that they can't become cheap enough to be attractive.
It was an epiphany for me, and I think it
changed the whole world, and we no longer say is
(44:33):
it a good asset or a bad asset or a
good company or a bad asset. We say, is it risky?
How risky is it? What return do we expect? Is
the return sufficient to compensate for the risk? And that
is the change that has dominated the investment world to
the last I would say, forty seven years since seventy eight.
(44:57):
And you know, we do so many things today like
venture capital and private equity and transecurities which entail conscious
risk bearing that couldn't have been done in the old
world of good and bad or safe and risky.
Speaker 3 (45:20):
I just have one last question. I was gonna let
Tracy have the last question, but you said one thing
that's that hit something that's been on my mind. And
you mentioned in the summer of twenty twenty being able
to borrow money for two percent. One of the questions
that's been debated the last several years is why haven't
the interest rate increases that we've seen across the curve
(45:40):
had a more dampening effect on the strength of the
US economy. And one story that gets put out is
that a lot of borrowing entities, whether their households like
yourselves or various firms, locked in very low borrowing in
those couple of years, and that the effect of higher
rates therefore has been muted, hasn't transmitted to the real economy.
(46:01):
Have we felt that adjustment yet? Is there something coming
because those rates can't stay locked in forever, especially for
shorter term borrowing. Have we felt the impact of this
seed change yet on the economy or is there more
to come downstream from this reversal of what may be
a forty plus year trend.
Speaker 4 (46:21):
No, I think it clearly hasn't worked a twelve way
through because when you borrow money, you borrow for a
period of time, and if you borrow at a fixed rate,
there's also a flooding rate borrowing. But if you borrow
at a fixed rate, you fix your rate for a
maturity of five or seven years, then even if rates
go up, you're immune to it. You don't feel the
impact until your debt matures and has to be rolled over.
(46:45):
You know, people in this business are in the business
world in general, are not brain dead. And many of them,
as you say, rolled over their debts in twenty twenty
or twenty one, and you know, locked up costs debt
until twenty six or twenty seven, so they're fine. But
(47:07):
you know, maybe they took on too much debt when
debt was cheap and readily available, and maybe they won't
be able to refinance all of it, or some of
them may not be able to refinance all of it
when it rolls over in twenty six or twenty seven.
That's what we call a credit crunch, when you can't
roll over your debts. Nobody ever repays their debts. They
(47:29):
just roll them over, and sometimes you can't. You know,
we believe that they're I mean, look there there are
already some defaults, not many compared to the crises in
the past, but you know, when maturities start coming due
in twenty six, twenty seven, and if Wall Street or
(47:50):
the banks are a little less generous and optimistic, maybe
there'll be some difficulty rolling it over. And then you know,
and it's just the cost of money. So you know,
the federal government has a portfolio of debt. They don't
own a portfolio. They owe a portfolio of debt, some
of which is long and some of which is short.
(48:11):
And you know, so they're paying the low rates on
the long debts. But you know when that when again,
when that comes due, they'll have to roll that over
at higher rates, and it'll cost the money. And so
if the interest rate merely stays where it is, the
cost of capital to the US government will rise over
time as they replace low rate, low cost debt with
(48:33):
high cost debt. So this has not fully worked itself
through through the economy yet, and there's more of it to.
Speaker 2 (48:39):
Come, all right, Howard marks, We could easily keep going
for a couple more hours, probably longer than that, but
this has been an absolute treat. Thank you so much
for coming on the show.
Speaker 4 (48:52):
Well, thank you for your good questions, and I'd be
glad to do it too, and let's do it again sometimes.
Speaker 3 (48:57):
Absolutely love to thank you so much those I.
Speaker 2 (49:00):
Guess Joe, I thought that was so interesting. So first
of all, you know that I love just listening to
like wartime financial crisis stories, so that was great. And
(49:23):
then I thought one thing that was really interesting. Well,
first of all, there aren't as many cross asset investors
as you might think out there, and so it's really
interesting to hear someone that is, you know, firmly in
the credit space, but is also looking at other asset
classes in order to judge current market conditions. And then
(49:45):
the other thing I thought was the emphasis on action
being sort of a spectrum of caution and risk. So
it's not the tech bubble is about to come and
you know, sell all your tech exposure. It's more like,
maybe I should ratchet down a little bit, maybe start
(50:06):
raising you know, some dry powder for a rainy day.
Speaker 3 (50:10):
That was really interesting the specific story this sequence, Yeah,
raising that dry powder starting with the warning in two
thousand and five that didn't get deployed or wasn't able
to be paid off for years. But the idea of okay,
if you see something coming down to the horizon is
not enough to say, well, yes something there's going to
(50:30):
be an opportunity. The idea of you know, raising one
fund and then having that other fund on the shelf,
cash that can be callable for the day that it comes.
You know, there were a lot of people that probably thought, oh,
there are really good deals to be had in September
two thousand and eight or March two thousand and nine
or whatever. But there's no good in having stuff being
(50:51):
cheap if you don't have any cash available to buy it.
Speaker 2 (50:53):
Do people still call it patient capital? I remember people
used to call you know, dry powder patient capital because
the idea was you set it aside, and it might
be a long time until you're actually able to invest
in you.
Speaker 3 (51:06):
Also, you know, this also strikes me as where like
brand value of a firm really matters, right, because you're
not going to get billions and excess commitments into that.
You know, you and I aren't going right. It's like
Tracy and I was like, oh, we think AI is
going to crash in a few years or want to
get buy bill We want to buy data center real
(51:27):
estate on the chief, so give us a billion. But
you know that's the only that's a thing that you
can monetize only after having you know, years of success.
I thought it's interesting this idea of you know, there's
a difference between expensive and a bubble, and that in
his assessment, we're not there yet. And I really appreciate
(51:47):
his perspective because it's easy for me to say on
the day, oh, everyone's to talk about AI all the time,
et cetera. I'm therefore, you know, we must be near
the top or a bubble. But I don't have you know,
experience in markets going back to the nineteen sixties of
like what that actually feels like.
Speaker 2 (52:04):
Well, when a car company or car rental company in
Nevada says that it's like a model.
Speaker 3 (52:11):
Yeah, yeah, that's going to start.
Speaker 2 (52:14):
I don't know that's going to revolutionize the world. Yeah,
then maybe that's the time to be concerned.
Speaker 3 (52:20):
That's how well.
Speaker 2 (52:20):
No, all right, shall we leave it there.
Speaker 3 (52:22):
Let's leave it there.
Speaker 2 (52:23):
This has been another episode of the Audots podcast. I'm
Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3 (52:30):
I'm Joe Wisenthal. You can follow me at the Stalwart.
Follow our producers Carmen Rodriguez at Carmen armand dash ol
Bennett at Dashbot and kill Brooks at Kilbrooks. From our
odd Lots content, go to Bloomberg dot com slash odd lots,
where you have transcripts of blog and the newsletter and
you can chat about all of these topics, including AI,
including markets, including credit, anything you want twenty four to
(52:51):
seven in our discord Discord dot gg slash odd lots.
Speaker 2 (52:55):
And if you enjoy odd Lots, if you like it
when we speak to prominent investors and reminisce about previous bubbles,
then please leave us a positive review on your favorite platform.
And remember, if you are a Bloomberg subscriber, You can
listen to all of our episodes absolutely add free. All
you need to do is find the Bloomberg channel on
(53:15):
Apple Podcasts and follow the instructions there. Thanks for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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