The Compound and Friends - Is Rick Rieder a Bond King?

Episode Date: December 13, 2024

On episode 169 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Rick Rieder, Chief Investment Officer of Global Fixed Income and Head of the Global Allocation Investment Team at BlackRock. Hear all about how Rick got started in the industry, the future of fixed income, the Fed's successes and failures, private markets, and much more! This episode is sponsored by Public! Lock in a 6% or higher yield with a Bond Account at: https://public.com/compound Take the TCAF audience survey! Sign up for The Compound Newsletter and never miss out! Instagram: https://instagram.com/thecompoundnews Twitter: https://twitter.com/thecompoundnews LinkedIn: https://www.linkedin.com/company/the-compound-media/ Public Disclosure: A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this account are used to purchase 10 investment-grade and high-yield bonds. As of 9/26/24, the average, annualized yield to worst (YTW) across the Bond Account is greater than 6%. A bond’s yield is a function of its market price, which can fluctuate; therefore, a bond’s YTW is not “locked in” until the bond is purchased, and your yield at time of purchase may be different from the yield shown here. The “locked in” YTW is not guaranteed; you may receive less than the YTW of the bonds in the Bond Account if you sell any of the bonds before maturity or if the issuer defaults on the bond. Public Investing charges a markup on each bond trade. See our Fee Schedule. Bond Accounts are not recommendations of individual bonds or default allocations. The bonds in the Bond Account have not been selected based on your needs or risk profile. See https://public.com/disclosures/bond-account to learn more. Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

So Rick, I just missed my flight by 14 seconds on Monday after Vegas. I get to the airport and she said, you can't, you're back to big. You got to go check it. Okay, no problem. I go to the line. She says, you have 45 minutes until the, the, your flight. I said, good. My flight's at seven 30 at six 44. She says, no, it's six 45.

I said, but it was just six 44. She says, and now it's six 45 going downstairs. You missed your flight. Yeah. Why would you miss your flight? If they will is a little minute cut off. They won't check your bag They won't check the bag inside of 45 minutes. Can you imagine and so nasty about it? I had to eat it's brutal and I just stay overnight in Chicago same thing. I'm a reasonable person

All I want was listen, I'm sorry. I know this sucks, but this is the policy it was and now it's 645 go downstairs Yeah, that happened to me with my son. We went downstairs. It's Florida So it was another flight 20 minutes later But I mean now the true if it's your life future last way do you have to get as the worst? Yeah, that's the worst feel the reality is the lounges are so good Yeah, that I had five hours of work to do anyway, but it's just so frustrating They said to me you can't go I said some I saw I had to get back from Chicago I said send my bag to Phoenix you do that anyway, but it's just so frustrating. They said to me, you can't go. I said, I had to get back from Chicago. I said, send my bag to Phoenix.

You do that anyway. So they said, no, you gotta fly with your bag. I was like, I gotta get back to New York. It was the last flight I did. I said, I gotta get back. They said, you're not going anywhere. But they did the same thing though. They took the minute, because the woman said,

you're in first class. Why are you in first class? I said, I don't know. So she said, well, I'm not sure why you should be. She's hitting all the numbers and went over the time frame. I said, I'm over the time because you've been playing knock-ocky on the screen. So they said, don't worry, you'll still be in comfort plus. I got to the gate.

What seat am I in? E29. What zone is that? Zone eight. I said, listen, I've been here for six hours. Can I please just board with the fourth zone, sir? Back to the line. Yeah.

Really? Yep. That was fun. They're not taking any more nonsense from you. That was fun. All right. So we use these. You're going to be able to hear the show and yourself

in the headphones. Now, I know you don't do a lot of media, Rick. So just hang tight. I'll guide you through it, okay, yeah, it's a matter which is right or left Right you're comfortable talking bonds Equities are easier. See if the page we told you he'd have fun. Oh Equities are easier. See, if Paige would have told you, he'd have fought. I mean, I could do it for him. I know what's down the line. Oh, well, what is this, guys?

Hold on. Paige, do you accompany Rick to most of his appearances? I think we're trying out. Okay. Did you ever hear the story about shofar knowledge? No. You've never heard this story? Do you know what I'm talking about? No. Okay. So there's a... I forget... Who was this? Who told the story?

There's a famous Swedish, let's call it physicist. And he gives lectures all over the country. And everywhere he goes, he has the same chauffeur who drives him to all of these. And then one day for fun, he says to the chauffeur, he says, let's try something different. How about today you give the talk. And nobody there knows what he looks like.

So the chauffeur gets up on stage and does the entire talk flawlessly until someone in the audience asks a question so that's isn't there a punchline that is the punchline no it doesn't say that question is so dumb I'm gonna let my chauffeur answer so so I'm not I'm not saying you have chauffeur knowledge, but it's not the worst thing to have. Paige can definitely do better than me. I feel the same way about Michael. He could do my shtick if I ever lose my voice.

Thank you, Josh. I like the new setup. I like it. Oh, you got a different mic? Yeah, what do we think? Yeah, it's way better. Way better. What was it before, Like a metal arm?

It was a, yeah. Thank you, gentlemen. You had to pay your dues to earn that mic stand. Oh, I feel good. I feel like I made it. We're looking out for you, Mike. Alright. How are we looking, guys? Everything's okay? Yeah, we're pretty good. Is that parade outside going to affect the show or no?

Alright. Let's pod. Yeah, let's do this. Let's do this. He's got an important man. He's a very important man here, guys. There we are. Episode 169. Whoa, whoa, whoa. Stop the clock.

Here's a word from our sponsor. Ho, ho, ho. Merry Christmas. Lock in your yield at public.com. It is the reason for the season. You can lock in 6% or higher with a bond account at public.com. Ho, ho, ho. Merry Christmas.

Lock in your yield at public.com. It is the reason for the season. You can lock in 6% or higher with a bond account at public.com. Ho, ho, ho. Merry Christmas. Lock in your yield at public.com. It is the reason for the season. You can lock in 6% or higher with a bond account at public.com. Ho, ho, ho. Merry Christmas. Lock in your yield at public.com. It is the reason for the season. You can lock in 6% or higher with a bond account at public.com. The Federal Reserve is probably going to cut

this month. Maybe they'll cut next year. Maybe they'll cut as many as three times, which means you will earn less on your cash. Public has a solution. It's bonds, corporate bonds, treasury bonds. You can learn a lot about it by going to public.com slash compound. This has been brought to you by Public Investing, member FINRA and SIPC. As of 9-26-24, the average annualized yield to worst across the bond account is greater than 6%. Yield to worst is not guaranteed, not an investment recommendation. All investing involves risk.

Visit public.com slash disclosures slash bond dash account to learn more. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

Nice! Episode 169. It's almost like it was meant to be. Ladies and gentlemen, with us today is a very special guest. His first time on The Compound and Friends, but he says he will be back once a week. friends, but he says he will be back once a week. I like that.

You guys, this man is, I would say, a paragon of asset management and just market wisdom and trading expertise and analytics and everything that you could ask for in a guest. And we have been dying to have him on the show pretty much since we started. Finally got it together Rick Reader is BlackRock's chief investment officer of global fixed income and head of the global allocation investment team. He oversees roughly 2.4 trillion in assets. Before joining BlackRock in 2009, Rick Reader was president and chief executive officer of R3 Capital Partners and was at Lehman Brothers from 1987 to 2008. And then something happened. I don't know. I don't know what it was. Rick One Morningstar's 2023 Investing Excellence Outstanding Portfolio

Manager Award. And he has flown commercially more than 2 million miles this year. Ladies and gentlemen, give it up for Rick Weider. Not this year. Not this year. Lifetime? Yeah. So 87 to 08, those are some bookends, huh? That was, by the way, I started, and I thought I started EF Hutton and I thought I lost my job. We all thought we lost our job in the financial crisis. And then a couple of us got super lucky and got adopted by Lehman and went over there. But yeah, so that was a rough start,

and then obviously the end was rough. But it was- Before we go there, I have two questions for you. Why aren't you flying private? So the, so by the way- Do you know anything about this? So I fly, I don't know, I've been flying for a, I don't know, it's just all over Europe, just all over Asia.

There are some airlines better than others. And some airlines, by the way, it's pretty nice. Some others, I've had more bad food experiences than anybody. Name names. I get in trouble. But I just flew the one that hit two million miles on, served me a two million miler meal that was heinous. Oh.

I don't know what... Alright, shout to Emirates Air. So, my second question. Why don't they call you a Bond King? You are. 2.4 trillion under your team. I know it's not just you. Gunnlock's a Bond King, Bill Gross was a former Bond King. You're a Bond Sheik. You're like almost a Bond Sultan. I don't know that I want the title.

You don't want it. Why not? Usually because they get overthrown. I don't know. I've said this my whole career. Once you think you've accomplished something, that's when I always think the taller you lift your head up, the better chance it's going to get taken off.

I try to tell him this. But Bond King is like kind of, it's very apropos. I mean we're gonna talk a lot about the fixed income Operations that you guys oversee at Black Rock. It's substantial money of course, but it's not just it's not just the assets under management when you guys speak Everybody listens and that's very bond King-ish from my perspective. So. I don't know. You don't have to have it if you don't want it. Yeah, I don't think it's wisdom.

I think, yeah, we run a lot of assets in the, listen, I will say one thing about when we do speak. I mean, there is the amount of research and work. I do these monthly calls. I mean, I must have spent, I don't know, 80, 90 hours on, you know, it takes, because you do the same thing. The amount of research, the amount of insight. I don't take 80 hours to start talking to get I mean to really know what you're

talking about yeah like it's I just don't think you can wing it I think you got to put an immense amount of time in it so I you know hopefully people it shows without a doubt and when you guys put research out everybody wants to know what you think and it's it's evident that uh obviously the success is self-evident but I think it's evident to people that you choose your words carefully and you're not just doing vanilla like oh here's our marketing content, you have opinions and I think that goes a long way. Thanks.

Yeah, no, we definitely, listen, we try not to be, you know, sometimes, you know, I've learned in my career, you got to be in the consensus and you got to be, sometimes, I've learned in my career, you gotta be in the consensus and you gotta be, I mean, I always said this expression, you gotta ride the wave and you gotta get off before it crashes into the shore. And we try and be where it makes sense to be aligned with everybody else, but try to be a bit differentiated.

You know, there's some pretty strong views about things that are quite different. Yeah, I wanna quote a profile that was written about you in Investor Business Daily. It says, data, reader says, is his guiding light. Downtime for him is pouring through 1,000 market charts and tables on a Saturday morning. Fun is reading big picture market research published

by Wall Street's smart money crowd. His goal? Get a cohesive view of where the world is going and not get caught up in the story of the day. And you said, I just keep reading and reading and reading. It gives you the confidence to make decisions and that you're making the right call. This is like what all the great investors have in common. They're nonstop readers.

I mean, pun intended. Rick Reader, okay. You know, I mean, listen, the only thing I will say is I find, and I don't know if you agree with this, I find that the world has moved, and I know that social media, media, much more to a momentum, the soup of the day, this is the hot thing, and everybody's on that.

And I feel like the real money is made getting deeper into the things that not everybody's focused on and understanding. Like, I read a lot of documents, boring, 10K, 8K. And quite frankly, like economic data, I find the published economic data, everybody gets it. It's usually revised. Like, I read tons of earnings reports.

Like, I learn a ton from what's happening in a margin, why are inventories growing, why are people hiring. You know, the payroll report is interesting, but you've learned a lot more if you read, why are companies hiring? Why are they hiring in leisure? Why are they not hiring in manufacturing? You get all that data from other sources.

So you're on the fixed income side, but you're reading companies earnings reports as though like a stock analyst would yeah I just think I get I get way more out of that than anything else. So how do you separate know if you're reading so much? How do you separate because this is such a momentum driven news cycle. How do you separate noise from signal? It's really hard and I would say some of its old age and some of it is just literally seeing so many things over time. But I also, you get to learn over time, like you all are great at, you get to learn over time

who are their certain CEOs that are very thoughtful, are very tuned in, you see that in retailing, you see it in others, so I like to follow their certain ones, their commentary's interesting. I quite frankly get a lot out of, we use AI to figure out their trends in terms of verbiage and what they're saying. I read cash flow statements a lot. And I think that I think you learn, like when we talk about a company, you hear, well, we like the momentum of this, we got this. And then you read the cash flow statement and it tells you way more than anything else you get. So I like to see what's driving, you know, why is EBITDA what it is?

What's CapEx? What are they buying back in stock, etc. And so- Are these just for companies that you're investing in the debt side or these are like blue chip companies that you think are emblematic of the environment for corporates in general? So first of all, I think the world has separated into there are huge, I mean, whether it's Mag-7, but I think you could go probably another 20, 30 companies beyond that that are big cap companies that are, you know, that are really driving CapEx, R&D,

inventory build, and so I like reading many of those. So you can go beyond Mag-7 to the Walmarts, to the Exxon, to the big companies that are driving so much of the ecosystem today. Right, can I show you a chart that I made in 2018? So that's quite a while ago, right? And we're having the same conversation today. So in 2018, I made this pie chart,

and it shows Apple, Amazon, Alphabet, Microsoft, and Facebook were equal, these stocks were equal to the bottom 282 companies in the S&P 500. Take a guess what you think of this today. I won't put you on the spot unless you want to take a guess. What their equal market cap? The bottom how many stocks? They used to be as big as the bottom 282 stocks in the S&P 500 today. We just updated this chart.

450. Very close. 407. So it was 282. And remember back in 2018, we were screaming, how is this possible? And it's gotten even more extreme. So it's pretty extraordinary. One of the things that I think is driving it, I think companies utilization of data is part of why, you know, we get in this dynamic and I've talked about it, and I don't always certainly have the right call on it. A small cap versus big cap. The companies that have the data that can exploit the data. And it's so hard for any small business to compete.

If you have the ability, I look at the big retailers, the Walmarts, the Amazons, obviously. If you know what price points are, you know what drives inventory versus what doesn't. Who's buying what at what time. It's all about the ability to utilize data. And I think that moat for those big companies keeps growing. So does the ability of companies to have real-time data

dampen the boom bust cycle that the economy has experienced over the last forever? So I've done stuff before. I don't think the US economy goes in recessions. Like I don't, unless it's a pandemic or financial crisis, I actually think I call it the satellite economy. Right, you know that we're being recorded, right? Yes, sir.

And so I know it's a crazy statement, but I have a very strong point of view that 70% of consumption in the United States driven by services today. Service economy's only gone in recession twice in 75 years. Pandemic financial crisis. When you have a service oriented economy, what people spend on healthcare, education, what they spend on their phone bill, their cable, etc., it's incredibly constant. Unless you have some systemic shock, this whole idea

of hard landing, soft landing, I just don't think it lands. And I'm not saying there's not iteration around a trend that generally is driven by the demographic, but I just don't believe in this cyclical, China's cyclical export manufacturing hard action. That's what I was gonna say, when you understand the causes of previous recessions, it's like they raise interest rates, the banks charge more to lend money, all these industrial companies

are able to borrow less and as a result, they like start hiring less people or lay people off. Those people stop buying cars and refrigerators and then an industrial economy, it's guaranteed, it's a recession. If we no longer have companies, public companies that require bank funding at prevailing rates, then what are we talking about? So also, you think about the free cash flow generation in these companies, actually not only do they not borrow,

they're long cash. And so actually if you raise interest rates and make more money, it's actually- And their margins are 30%. Interest expense went down. To me, that was the chart of corporate interest expense went down in 2023. Totally agree.

By the way, the other side of it, or the corollary to that, is you think about the consumer today. So who's driving consumption in the economy? It's people 65 and above. They're net savers who don't have any debt. So what ends up happening is the more you actually raise the interest rate,

the more they've got. So you and I knew this and both very publicly said this over a year ago. I think it was you. You said something like, I'm not completely convinced that raising overnight rates is not stimulus. I think you said it first. Can I give Josh because he said he said this on TV with the bond king Yeah, and Jeff gunlock didn't like it. He laughed at the time. It sounded It's not an original insight by me. Would you steal it from my father-in-law is a CPA and he got his start in the early 1980s Yeah, and he said in the early 1980s

I knew older richer people who did not have mortgages, were not paying for college tuitions, they were past that part of their life, and the cash in their accounts was like a geyser spitting out more cash, which produced a wealth effect, which is where eventually you get Lifestyles of the Rich and Famous. We had a boom in the early 80s for wealthy people, not for everyone, for wealthy people. I think we just experienced another version of that. So can I throw out one other addendum to that? So you think about the housing market,

and so part of why I think the interest rate tool doesn't work today or it's not effective, there is you look at the last CPI report, not as much in this one, but the last CPI report, is shelter inflation's still sticky. If you brought the interest rate down, you'd create more velocity of housing, you'd bring down affordability, you'd build more homes.

We were looking today, D.R. Horton, Toll Brothers. So you look at the dynamics, and all they talk about is, you gotta use margin to stimulate. Well, what if they actually brought the rate down? You'd get more home building, you'd bring inflation down. It's counterintuitive, historically. It's counterintuitive, because you think we're keeping rates high

to stop the inflation. Actually, no, that's not the issue. The issue now is housing affordability and rents. Bring the rates down and maybe people will build more. It takes a long time though. There's a lag. I want to bring you back a little bit. We're going to go a little bit into your career because I think for the listeners, one of the things they get out of the show when we bring on people like yourself who have truly succeeded in business, they want to have an idea of where it started and they want to hear about the road.

We talked to your first high school girlfriend. I didn't have one. You must have done quite a bit of research. So you took a job right out of school as a financial analyst at Chemical Bank, but then right before you start, a recruiter for EF Hutton offers you a fixed income trading job instead, and you spend a day on the floor at EF Hutton, and you got hooked by the trading.

You said, I fell in love with the concept of taking risk after sitting with several of their traders. I completely reversed course that day and decided to pursue a career in trading. Talk about that. Well, that's good research. That is 100% right. So, listen, my family didn't come, my parents were entrepreneurs. I didn't grow up around finance.

You know, a lot of people come into the industry. Finance, see? In this case, he's right. Okay. Well, he says finance. Nah, you and I. I said we finance a vehicle. Keep going, Rick.

Rick Reader and I say finance. You could argue with us if you want. So my parents, my parents were in it, I didn't have a relative, my relatives were orthodontists and optometrists, so I went there, I didn't know a thing, I couldn't understand a word they were saying. I didn't understand it, by the way, I didn't get a job when I was interviewing out of business school. Like EF Hutton thankfully hired me and it was this one person who, you know, whatever.

I played sports, you know, I was interested in, I gambled on sports, and yeah, but I liked the competitive nature, what have you, but I wasn't offered a job other than I got this one at EF Hutton, other than being a strategist, because I was pretty good at writing reports. So anyway, I did it, so anyway, I took the risk.

And I never- Where is their office in 87? Oh my God it was right here. It's 52nd and 6th. Now this is 1987 so it's like Gecko Times. Yes sir. It's like the movie. Oh yeah.

It was definitely right. And by the way I remember I called my dad and I said I'm going to take this shot at trading and he said it's not a career. He said, you've got a business school degree. It's not a career, it's a hobby. And so I'm like, you know how much I still trade today? I'm like, I still am doing it.

So 37 years later, I'm still doing it. So you like the competitive nature because there was an echo to the athletic stuff. It's a score. Totally. It's a scoreboard. No, I, to this day, you know, I'm an investor, but I look at my numbers every single day.

And it is, you're trying to generate return every single day. And you can't really, if you have a bad day, you can't say get out of your positions. But it allows me to look at, gosh, I made a mistake here. My models are suggesting this. My correlations aren't working. But I love every day knowing exactly what happened. And you can see it quantitatively. So you're not there long before the crash of 87 happens.

How long are you in the seat at that point? Four months. Did they blame you for it? He was short. I didn't get by for that. I didn't understand any of it. All I did was we sat around playing liar's poker for hoping we'd get jobs. So Black Monday stock market, it's a 22% we'd get jobs. So black sorry. So black Monday stock market

It's a 22% crash in the Dow in a single day Didn't really end the world in the way that the great financial crisis did but obviously it was international headlines But some firms stumbled and he F Hutton gets absorbed into Lehman at that point Yeah, okay, so you just like came with the firm? I got lucky, I mean there were 34 of us and somebody was kind enough to, on the mortgage business, decide we should hire this person. And so I got super lucky and I got,

and I was gonna trade mortgages, I ended up trading corporate bonds just because I thought the people who were doing it were phenomenally talented, what have you. And so I ended up going there. So you rose through the ranks of Lehman, just because I thought the people who were doing it were phenomenally talented, what have you. And so I ended up going there. So you rose through the ranks of Lehman. You start on the corporate bond desk, then they make you the head of it.

Then you're the head of credit businesses. Then you're the head of global principal strategies. So now you're doing global trading. Then you're the head of the firm's credit businesses. Then they make you chairman of the corporate bond and loan capital committee loan capital commitment committee Then you're the member of a member of the management committee And then you're a member of the board of trustees for the Lehman corporate pension fund

What is it about you in those years that enables you to keep getting promoted and what was special about? This is like Lehman's golden age, this period we're describing. So it was a pretty cool place. I mean, obviously, the firm made mistakes in their word, real estate that was purchased. And it's disappointing because it was, quite frankly, people were in the industry.

It was a really good culture with a lot of good people and it was very entrepreneurial in nature. The great irony that people don't realize, like when we ran, I worked in a big part of fixed income, I ran a part of fixed income, a gentleman named Bart McTade, who was incredible, I learned a ton from. But our business was built on research and if you remember, we had the Lehman Ag. So the Lehman Ag, people still call it the Lehman Ag. It's the Barclays Ag now.

Bloomberg Ag now. And so... Did you guys invent... I was told that was invented to sell bonds. So I'll tell you one thing about Lehman Ag, which is literally, and I was thankful that I started there. Like our whole business is built on research. We were ranked number one in research for many, many straight years.

But it was all about research and how do you beat an index. And so we had, because we had the Lehman Ag, so much of our business was working with clients and advising them around, this makes sense, the index has too much duration here, what have you. And it's been a huge help today. But anyway, it's a good culture, it was entrepreneurial. And...

Sorry, Conor, was the index built to be beat? Oh, I don't know. Tell the truth. I mean, it was built to be a benchmark, but listen, I still think today, I still think today it's, you know, Water Street or Madison Avenue. Where did I work? Which Lehman branch? I was at, I was down at the World Financial Center.

Oh, okay. Yeah, all right. Because, Rick, the bond guys have a lot better time with their benchmark than the equity guys do with theirs. I mean, in one man's opinion, I think the bond benchmarks are much easier to beat because there are so many inefficiencies, too much duration along in the yield curve. There's a lot of assets that traded very tight spreads. Listen, I think it's a lot easier. S&P 500 is a pretty hard index to beat,

particularly when you've got seven companies that drive so much return. I also have 68,000 securities in fixed income. They're not enough stocks. Yeah, there's 3,000 stocks. Right. But even the ones that, I mean, you know better than anybody in the world, the ones that trade

are the ones that have real market count. So it's, yeah, I know it's easier to beat, I think, a fixed income index. So as a bond guy, how much attention do you pay to the stock market? A ton. I mean, I run our Global Allocation Fund, which is an equity fund.

And it's a big fund. So I spend a ton of time in the equity market. And quite frankly, it helps me a huge amount in terms of looking at credit and looking at different companies. We talked about economic trends, regime identification. And I trade a tremendous amount of equity volatility. Like I think the equity, the options market

is the most inefficient market in the world. And I manage a ton of my volatility, my beta using the options market. So I spend a ton in equities. Do you think that because you were at Lehman and it wasn't quite JP Morgan or Goldman, you had more large opportunities and more ability to be promoted up.

Did that help you? I wouldn't say they were second tier, I would just say they weren't Goldman. So I would say I interviewed with all those other places, nobody offered me a job, so I didn't really have a choice to make anyway. So, but I don't know, I will say one thing I've learned over the years.

Like I got really lucky because the culture was so good and I got, you know, I would say there was always this bit of this sense of we're the underdog. Yeah, Bear Stearns had that too. Yeah, and it was a sense of we had to work harder, we had to provide more research, we had to more, and you know, quite frankly, we couldn't compete based on Titus bit ass spread, and so we had to compete based on insight and analysis.

And I liked, we had a great culture. I mean, I brought, you know, I've worked with people that I have now at BlackRock. A bunch of people have been with me for over 30 years. It's unbelievable. But you know, it's testimony. It was a good culture with a lot of good people. Listen, every firm has people that are not as good as others. But we had a lot of good people that allowed you to...

So when it all goes down the tubes, you spin your own group out, and you call it R3 Partners, and this is right before BlackRock. What was R3? What is that? Is it Robert Griffith III? No, so people against my initials, it's not.

So actually, I'm a big believer in urban education. I chair the board for 20 years now. Charter schools in Newark, and I'm a big believer in urban education. I chair the board of, for 20 years now, our charter schools in Newark, and I do have big programs in Atlanta. It stands for reading, writing, and arithmetic. Oh, okay. So the idea, yeah, so our charter was that, I think it was 15% or 20% of our top line

was going to urban education. Top line, that's amazing. Wow. So that was sort of, that was the idea. So then BlackRock calls, and then we get well where we are now So we had a tough time in 08 and uh, you know what happened? So we were Yeah, well, yeah, we didn't have any money to give away at the end So, you know, they made the eye obviously we were a credit hedge fund. It wasn't exactly the perfect time to spend

Oh, so you were like a two and 20 shop? Yeah Yeah, so this is May. So we spent out May of 2008. Crisis obviously I hit. So it wasn't like I had any pressions about the financial crisis or leaving Lehman because I certainly wouldn't have started a hedge fund at that time.

But we had a tough 08, and then we started really well in 09. And then we had a tough call, but I think being working at BlackRock, and we thought at the time, this is a place that could be one of the epicenters of finance. We certainly had no idea. Oh, you brought the crew in with you. I brought 42 people. That's incredible. Look at you.

You probably saved a lot of these people, frankly. So it was a good... I mean, the firm was... BlackRock was really good about these people have been with me for 20 years. And so a bunch of them... So to this day, I'm super proud of, I think we have 25 people that are still including, running a lot of businesses.

So I'm pumped about that. That's an incredible story. So before we get to the story of today and what's going on in your world, I'm curious. You must be thrilled to not have to invest billions of dollars in a world with trillions of dollars of negative yielding bonds. So I don't understand negative interest rates.

I think it's the craziest. I don't understand why it doesn't create. I get crazy when people talk about negative interest rates. The fact that, I mean, you think about how much of the last decade were spent. Negative interest rates doesn't create any velocity. It doesn't create, it destroys your pension system. It destroys your banking system. It doesn't create the impact you want. And I've always said, so you think about a normal capital

structure. If the debt people are going to get paid negative interest rates and the equity people require a return on equity of 12% to 14%, everybody will sign up for the equity. Nobody signs up for the debt. So what happens is actually you increase the cost of capital. It doesn't work. Like the aggressive monetary policy, same thing

that we were talking about. Once you get interest rates out of a zone of, you know, we could argue 0% to 4%, it doesn't help to be at 5 and 1 half. And it's not stimulative. And it's not stimulative. At all. And that was the original intent,

is let's support the economy with low rates. How low is too low? Who cares take them negative No, it doesn't work that way. I mean it's it's it's I think it destroys velocity You look at the European bank stocks over that period of time and how much capital was destroyed It doesn't think about pension insurance company. It doesn't stimulate investment. So I know we know ever is a long time You think we'll ever see that again? Never. It's a failed experiment.

Ever is a long time. But it would be zero should be the lower bound. And then, by the way, QE works, like providing liquidity to the system, creating gearing in the system, creating more velocity, that works. The main offenders, look at Japan. They have rising yields and a 33 year record high

in the stock market. I agree. That should be the takeaway, I hope, for everyone else watching. I think that's right. I think that's right. I think monetary policy can only do so much. I mean, the way monetary policy was supposed to work

is it's supposed to work with fiscal. There's a time, and you talk about the housing market, like what would drive the housing market? It's not cutting, it's not, interest rate doesn't do a lot. If you did subsidies, if you created incentives, if you created home builder incentives, that stuff works. But to the detriment of society,

the central banks have had to carry the load entirely because the fiscal hasn't worked. So the road between negative interest rates and where we are today, we have been telling clients for years, we need, if you want to get some income from your fixed income, we need the interest rates to go up. We need to take one step back to take two steps forward.

Unfortunately, it didn't work out that way. We took like 19 steps backwards. So what was 22 like for you? 22 was painful, I think for everybody, because what ends up happening in those environments. I mean, so I said painful. How much was the add down? Seventeen percent to end the year?

I thought it was... Thirteen? Oh yeah, I thought it was fifteen and a half. Treasurers were down more than junk bonds. So by the way, that was... And so if you think about what is the normal hedging, how do you manage your risk? You know, we ran, I think, you know, while it was painful in terms of negative return, I think we did it, you know, our funds did okay.

You know, it's always hard telling clients we'll be outperformed by 800 basis points. Like, great, you're negative, thanks for helping. How much did you lose though? Yeah, exactly, thanks for helping. The, but it's, you know, so what happens is your hedges go away. The only thing that, the only thing you use

as a hedge is cash. So what we ended up doing is we got lucky. We just, we built a ton of cash into the portfolio. But I'm a big believer. The reason why I think now is Nirvana. All of a sudden, Equity Vol goes to, including today, buying Equity Vol at 8 and 1 half. And you can run an equity portfolio. You can manage your beta.

You can trade around. You don't need the market to move much to move your deltas around and move your exposure around. When volatility spikes, and then you get everything moving together in correlations, it's brutal. Bonds and stocks selling off together. It's just cash. This is a dangerous thing to say, but it does feel like today, it won't last forever, it does feel like a golden age of investing. Yeah. It's like I never want to say that. I know, I know. So I mean, I think there is, by the way, part of why that is, A, because I love vol when it's this low, because you can really do a lot of things. The other thing is, listen, I think technology

and the change and innovation and like, boy, oh boy, the next two, three years could be really different than we are today. And let alone political change, let alone there's some really cool things to think about and invest around and knowing you're not going to get them all right. I want to get into some of your economic takes because we've had a bunch of data in the last two weeks, as we always do. You reacted to the December 6th employment report. You said, broadly speaking, we think labor markets remain solid, but this month's strong non-farm payroll gains of 227,000 jobs in November largely represented the reversal of the hurricane and labor strike effects of prior months, which subsequently boosted

hiring last month. And then, yes, it's not accelerating or anything like that. It's a little bit of a reversal. We got a higher than expected unemployment number today. But I think the shifts are so minor relative to the bigger picture, which is that for most people if they want to work, they can work. There are still wage gains all over the economy. They're moderating somewhat.

Joltz is moderating. You don't have as many people quitting. It's a super conducive environment for now for both employers and employees. It feels more balanced today than it has in a long time. What do you think about that? I agree with everything you said. So you actually, if you look at the beverage curve, you're actually in a place where you look at vacancies to the unemployment rate. It's actually at the perfect spot. But there are some, I mean, we were, there was massive hiring, leisure, hospitality,

nurses, teachers, healthcare, education, unbelievable amount. Some of it was post-COVID, you had this incredible need. Now it's much more normalized, you're not seeing that significant pressure on wages. We're going from maybe an overheating labor market to something that is just normalized. There's some parts of it. By the way, if you look at hires, job hiring,

it's definitely come off a lot. You look at temporary hiring, come off. But normalized. Normalized. Remember that the chart, the biggest theme of 2021 was the best way to get a raise is to leave your job. That's right. And that environment, thank goodness, is well passed.

Yeah, there's something really interesting where companies are holding on to workers. And so what you're seeing is- Warehousing the quality. Totally. And I think that's right, but like you say, I think that's pretty healthy. And then you don't see as much transitional labor.

The CFO calls down and says, hey, we need you to cut 20 people. And the phone call in return is, you know what, actually, I really can only cut 15. These five, if I let them go now, I'll never be able to replace them. I can't find another one. And that's the warehousing effect.

And it's good for labor. I think so. The other thing that's, immigration and where does immigration go? There's a lot of a lot of particularly in tech companies and otherwise if you lose people and you think about like can you bring them back? There's a lot of issues around greed card and otherwise. So I think it's a pretty healthy labor market and you know, quite frankly, it allows the Fed, the fact that it is softening somewhat, is allows the Fed to get the rate to where they need to get it to.

We got another CPI print today or was it yesterday and today was PPI? Okay. You said the Federal Reserve can feel largely pleased with the progress made on lowering high levels of inflation. There's progress but it may remain stubbornly sticky near current levels for a time. I think a lot of people are saying the report that we just got cements the December cut but then maybe lessens the amount of cuts we'll get next year. Our friend Neil Dutta is saying now it's probably three cuts next year and December locked in. You said indeed

headline CPI increased 0.31% month over month, greater than its gains from last month as both food and energy prices gained. That resulted in CPI rising to $275 from $260 on a year-over-year basis amid unfavorable base effects. The market didn't really seem to react too much to this though. I think the yield trade is maybe like dividend stocks came in. Here's the Fed funds expectations as a result of the report. So I'd say a couple of things. One, listen, I think inflation coming down is over. I think we have seen... Shelter is still coming down.

What do you mean it's over? So we got this tremendous impact from goods inflation coming down. So you had what was functioning deflation from goods for a long period of time after COVID, logistics, et cetera. You're not going to get, we don't think you're going to get anything real benefit from goods inflation going forward. I agree with shelters coming down. But now we're entering this period of, which is hard to predict, tariffs, de-globalization, what does strategic decoupling mean globally, that maybe you're going to get a bit more inflation into it.

And I just don't think you can count on much. So we have inflation generally. When we look at, we model it about being here. So we could do core PCE. We're stuck at 3.3 for like the last six months. Sorry, I would say the run rate core PCE, 2.3 to 2.5 in that zone. We don't think it can come down of any significance from there.

And maybe you drift up a little bit again. Why can't it come down? I was talking about core CPIs like still over three. Correct, correct. The services part? So there's two parts to that. One, because you've got this big benefit from goods, that's probably you're not going to see going forward.

And two, it is so hard to get service level inflation with the demand for services. It's so hard to get service level inflation with the demand for services. It's so hard to get it significantly lower from here. And then you build into it the near term effect from what's going to happen to potentially the tariffs, et cetera. So by the way, I don't think you're going to see a spike in inflation of any significance,

but I just think the improvement, part of why, I don't think anyone's going to make any real money on interest rates next year. I think it'll be on income. You mean on a real basis. On a real basis. I think it'll be on income. You mean on a real basis? On a real basis. I think real rates, so where you can buy fixed income today at six, six and a half yield is pretty attractive,

even if inflation runs two and a half, two and three quarters. Real rates though, it's like half of that, the return. Correct. Yeah, correct. So you just have to get accustomed to that's the new situation. Correct. Okay.

So where does the Fed fit into how you think about markets today? Obviously they were front and center for the last couple of years, but. So I mean, I agree with what you were saying that, listen, I think they got to go in December and I've said for a long time, get the funds rate to four, get it to four. You're killing lower income people. We talked about the housing market, get it to four and then look around to see where you are. You're going to get pretty darn close to four.

I'm just not sure. I think they're going to sit back and watch the data from here, see what policy looks like, see what growth. If you take the phenomenon today, we're going to print this year nominal GDP of five again. Pretty close to five again. It's pretty good. You could see a dynamic next year

where we grow real to 2 and 1 half, inflation runs to two and a half, and then you got financial conditions, arguably as easy as they've ever been, for the Fed to ease aggressively into that pretty hard. So Josh and I were discussing last night Jerome Powell's legacy. What do you think? That's a long discussion.

Paige, please leave the room. I think that's a long discussion. So I think the Fed... Wait, let him speak. Hold on, hold on, hold on. I want to hear your response, but let's be clear. We were not disagreeing. I said, as a student of history,

Powell would not himself give himself an A. You would have to agree with that. Yes, I would. Okay, all right. Now I want to hear what you have to say. So, first of all, I think it's a hard job. And so I'd give some credit with that. Okay, all right. Now I want to hear what you have to say. So first of all, I think it's a hard job. And so I'd give some credit to that. I think they did a spectacular job at COVID.

And I think that they waited way too long on the QE dynamic and starting to move the rate up. I think that created more inflation, that created excess in the system that you shouldn't have had. So way too late to identify that they need to raise rates. What about on the other side? So then, I think they, quite frankly,

I think they've been slow to get them back down. And I think, per the comments you talked about, sitting at a five and three eighths funds rate for that long was creating no good, and you were creating arguably more stimulus. So I think that was- Creating more millionaires. So Rick, it sounds like-

So can I say one thing that I think is really important? Listen, I think it's a hard job. I think I agree with you. I think they did a great job during COVID. So do I. And so, you know, now I think they're managing it. They're doing okay job managing. I think they're going to take the sidelines.

I think there's a lot of credit given for who made the US economy into what it has been, what it's showing today. And I just think it's- Consumers, it's us. That's what I think. And by the way, there's still a ton of fiscal that's still coursing its way because this massive- Well, that's what I want to ask you.

Powell comes into the job with Trump in 17 and he's in an environment where Congress can't agree to do anything and nobody has a big majority. And so it's just gridlock gridlock gridlock on the fiscal side. And then something changes during the pandemic, where all of a sudden there's huge fiscal action. A Fed chair has to understand that the backdrop is now different.

Everything in the post financial crisis was on the Fed's back. Because fiscal couldn't agree if it was Monday or Tuesday. Yes, agree. Okay? This is not the environment anymore. Agree. So in the pandemic, everyone agreed, the government, the treasury, Trump is going to do things

that historically only Democrats did. Almost like a new deal spun up overnight. The Fed has to factor that in to what they're doing on their side. They did not. They did not. And then Biden comes in and he has, it's not a mandate, but he has the ability to pass a massive infrastructure package. The Fed has to say, okay, I can't talk them out of doing that.

What I can do on my end is maybe make it less easy credit, easy money. Maybe I could shrink my balance sheet faster. He does not do that either. Maybe stop buying mortgage bonds? And you know, they have this whites of their eyes mentality where they want to wait till it's $11.59. And it's I think you I think when there's fiscal action to the extent and wait till you see what Trump does on the fiscal side He's got both houses of Congress. He has a Supreme Court. He'd do whatever he wants

So I think that's the Fed chair's job not to interfere with fiscal to recalibrate based on Like what's happening? And so that's like my critique of the Fed It's like dude, are you not listening to what they're saying they're about to do? So I would say one thing. One, you have to give, the Fed has been the only engine, like you say, for a long time. So that's a hard thing,

and I think too much is on their back. I think 50 years from now, though, people will look back and say the US economy, no matter what you did, it would be pretty hard to hurt. You have energy independence, you have extraordinary innovation, technology, pretty good demographic, immigration, US economy. Bad policy has a hard time hurting it.

They tried to crash the car and they couldn't. I think that's right. They said recession may be necessary. And we said multiple people. We said, oh yeah, watch this. No, I think it's, I think in history, it will go down as like a pretty extraordinary, and you think about it, it's the only one in the world

that really has all those tools. That's pretty incredible. You watch Europe Today, and I just spent the last week in Europe, and you know, they're going to go down a path of austerity to bring the debt down. It's like- Have they learned nothing? It's just, it's unbelievable. It's like what Trump will do,

and I think what this administration will do, and we have a debt problem in the United States, but if we can out, the only way to really get it, you gotta outrun it, and you gotta grow your way out. I just heard Jeff Bezos say that on stage last week. That seems to be the consensus now. Let's focus more on outgrowing the debt versus austerity programs.

And Trump doesn't do austerity, so I think it's obvious that that's the direction we're going to go. Austerity has no velocity to it. So, I mean, think about it. If you grow, and you know, we say if you put money into things like infrastructure, you build ports, chip factories, etc. You put people to work, the vendors end up. It's got a durable tale to it that's... That austerity does not. Let's talk fixed income and private credit

and all the things that are hot in the street right now. You said, we are underweight long-term U.S. treasuries on both a tactical and strategic horizon. You also said combining public and private credit. No, no, no, the CFO said this. Oh, BlackRock said this, sorry. This is Martin Small. I don't know. The CFO said this. Oh, BlackRock said this. Sorry. This is Martin Small. I don't know if you have lunch with him.

Combining public and private credit is the future of fixed income. In those two statements, I think there's a lot to unpack. Why don't we start with the underweight long-term bonds? You think there's a lot of risk there or just you're not getting paid for the amount of risk you're taking? I mean if you're a life insurance company pension fund I get why you have to own it. If you're not, I don't know why. You've got a pretty flat yield curve. The volatility in the back end of the yield curve. So there's two forms of long-durated assets in the public markets.

Equities and long bonds. Equities create 18% return on equity. Your book value goes up. Bonds you create nothing off of, and it's not a hedge. It doesn't hedge your equity portfolio. Inflation is higher, your bonds are going to kill like 2022. The TLT hedge was not helpful. No, no. And so I don't really understand if I get all the yield I need in the front to the belly of the yield curve,

and you know the biggest risk, and people say, I get all the time I need in the front to the belly of the yield curve, and you know the biggest risk, and people say, I get all the time what keeps you up at night. Listen, I mean, these auctions, we had a 30-year auction. Every auction that goes by, I'm like, we got through another one. We're issuing, on average, almost $600 billion a week of treasuries. The total debt of Australia is $600 billion. Mexico is $700 billion. There's some weeks we're getting $700 billion a week.

So you're relieved to see people show up. But is this part of where the stimulus is coming? Because we're paying ourselves. Are we not the biggest buyers of our own treasures right now? Well, we better be because China's selling them and Japan's not buying them. Point being, we are, we, the US households, are buying the debt.

We've got to keep, are buying the debt. We've gotta keep showing up for the debt, and it's the biggest risk that we have today is that you're gonna have auctions that people don't show up for the auctions. This is the bond vigilante risk. Yeah, and I think it's, and by the way, I don't think it's your base case,

but I think there is a tail risk that, by the way, I'm gonna sit in the long end of the yield curve, and if I'm wrong and rates move up 50, 100 base points, I'm gonna lose 10 10 15 points But if you're worried about that, what do you do? Because that seems to me like like, you know We're all in we're all in big trouble meteor, right? Yeah So I think there's only one thing to do is like playing in that part of the yield curve It's like somebody else can have that fun

It's just not it's not worth it Just hold the front end of the yield curve buy a lot of assets in the front of the belly, and then manage your equity. Like I always, you know, I learned, I think it was from Kamansky, who said this years ago, it's like the best hedge is to own less of the asset you're trying to hedge. It's exactly right. That's my, well, my hedge is like,

if you're worried about it, own less. Just don't, just have cash instead. That's what I think. And or, it's like now. What are we hedging it for? Just sell some. Yeah, now, or like if you're long equities, you can use the fall market.

So it's a much better hedge, because it's a direct relationship, as opposed to something that I hope works. Okay, I want to talk about private market assets, because in wealth management in our world, this is now all the rage. We're like the last category, we're the final frontier for private equity, private credit.

They've discovered wealth management is a really fertile field for raising money, bringing products. I think it makes sense when you think about just how much money there is. Like there's a limit to how much investors can do in public markets. Especially you talk about an S&P at 22 times earnings. Should we take it up to 25 or should we look at something else? OK, so I understand the popularity of it.

I also understand that a lot of asset managers need to replace actively managed stock mutual funds, which people will no longer pay for. Private assets they will pay for management of because they can't do it themselves. How do you see this ecosystem developing? Are you surprised at all by it? Do you think it goes much further next year?

Have we like hit a moment? So, you know, I do a lot of my funds. I have a bucket that I can do private. So in my unconstrained fixed income, I could do up to 15% less liquid bespoke financing. I will say today, the ability to provide financing in real estate, in bilateral credit, the terms you get. So when people say it's a bubble, if you can actually, if you're lending and you're getting collateral, low LTVs, cash flow sweeps, like the terms you get today are outstanding to the point that you can get 10% to 12%

to 14% IRRs, that's pretty darn good. And what you're giving up in exchange is illiquidity, which everyone understands. Yes, but if I know my IRR, and it's different, think about the growth of venture or SPACs or what have you, like that speculative cash flow, as long as you're buttoned up in terms of, gosh, I know what my LTV is, I know what my collateral is,

hard for it to blow up. What I think happens is the opportunity set becomes de minimis over time because- Because everyone's investing in the same place. And by the way, I also think the banking system will deregulate to some extent. So they're coming. So what I think happens is the companies that are really good at privates will continue to grow.

I think the merger of public and private is real, particularly in the credit markets. And so I think that I think that will be a trend. It becomes like a sleeve for not just family offices, but now for regular wealth management. It's maybe not a huge sleeve. I know the expectations on the private market side is everyone will get to about 20%, which is where institutions are.

Let's say it gets to 10. That's still huge growth from here. So you guys have a chart from Prequin, who you acquired earlier in the year and it's showing the rise of private markets from private equity to real estate to venture capital infrastructure and private debt which as Josh mentioned is all the rage these days and Rick you mentioned a 12 to 14% IRR which is the target but at least for today I'm sure it's a moving target and no guarantees and there's a compliance person probably having a heart attack.

But 22 trillion dollars in private market assets. It's a big opportunity. So I guess the question that I would have is, at what point do those returns become unsustainable? From the point of view of the borrower, how are they able to deliver that sort of rate of return back to the lender of capital? So it's a great question. So by the way, the thing that's really cool about the chart as well, if you take private equity and the years of growth of private equity as a percentage of the public equity

market and you look at where private credit is a percentage of the public credit markets, the runway for private credit is probably two to three times bigger. Wow. So that just to catch up. Yeah, just to catch up. And so I know I do think I do think that will manifest itself your point is well taken the reason why private equity it's so hard today if you're getting 12 percent IRR or 12 percent lending you know you got to get

on the equity you got to get 20 percent plus to make the equity worthwhile so how does the math math right so do you run out of opportunity in real estate today you know given you know we could talk about different areas of whether it's data center, logistics, some parts of multifamily, hotel, hospitality, you still got to have IRRs on the equity that are really good. But your point is well taken that you'll run out of the ability to be on the equity side to create equity. I want to spend the time that we have remaining on BINC, which is your active ETF. It's called the iShares Flexible Income Active ETF and it's BINC or B-Inc.

How do you refer to it? BINC. So it's not like B-Cred or B-Inc. It's like it's... No. All right. BINC. Wrong company. Okay. When did you guys launch this

and what are you trying to accomplish with the flexible income active ETF? So we launched it in May of last year, May of 23. It still has that new ETF smell? Yes. But it's grown, I mean we're almost, we're about seven billion now. Has BlackRock ever done any ETFs before this one?

No, it's the first one ever. So we've tried. So I mean, the cool thing, we talked about the bond indices. The neat thing about this is we're creating 6% to 6.5% yield and diversifying it around the world. And you know, why I buy personally and why fixed income is really hard to do. Figuring out, I'm going to buy a single A, tranche of a CLO from this manager. The attachment points here, the collaterals here is too hard. We've got teams around the world that do it. You can diversify it like

crazy. So BINC today is a high triple B rated, two and a half year duration. So we're not taking interest rate exposure of any significance. And we're diversifying it. So what happens when you get drawdowns, rates move higher. We don't really draw down that much. High yield. Because the maturities are so near term. Correct. And then so what we're doing is just

providing a product that's stable with a lot of yield. The beauty of it, and I think why it's getting into all these models today, is it's stable yield. And if you marry it to equity, particularly to high velocity equity, you create what is the right amount of growth potential with income and you keep your volatility in a reasonable flexible, meaning you can change your posture on where you want to take risk or you can change how much corporate, how much sovereign. You can make all those decisions. Yeah, but the core of what we're doing

is we're trying to provide yield above an index. So about 150 off of... So you're targeting the yield and then the holdings will flow from that decision. Correct, correct. And so there are times we're going to use more liquidity and use agency mortgages and then try and keep that yield up,

but then manage the risk around it. Can I tell you something amazing? Like what a world we live in. Somebody that wants to have fixed income in their portfolio could have literally Rick Reader managing the portfolio. No, because in another era this might have been like something only available in a hedge fund structure or only available as an SMA with a million dollar minimum. This is an ETF. Like a dentist could wake up tomorrow and buy this in a Robinhood account. I mean, the neat thing about the growth of ETNY,

active ETFs will keep growing. One, we talk about fixed income. I think most managers over time, I think it's some crazy number outperform the benchmark over time. Thanks to you. Not about thanks to me. I think, no, all managers in fixed income, in aggregate.

But it's because the index, A, is inefficient, and B, there's so much yield available in different parts of the world. I'm buying European credit. I like buying credit in Europe. I like buying equities in the US. Can you optimize where you have your fixed income and then to be able to buy it and sell it constantly.

So let me give you some laudatory facts about Bink. Named one of the best new ETFs of 2023 by Morningstar, was the top active ETF flow gatherer in the third quarter of 2024. You guys took in $2.2 billion in 90 days. The fund has amassed $6.7 billion in AUM since launch in May of 2023. For an active product, equity, or fixed income, that's a pretty big launch. That's a pretty big year and a half. Not because returns are good. They're consistent and their equity is up 28% is pretty good.

Not a bad environment. And to that point, let me ask you, are you at all concerned about how tight credit spreads are, about how consensus the good times ahead are? Like, there is nothing that's not priced for the good times to remain. Yes, sir. So, and funny, my presentation today, I gave you these monthly calls, and it was talking about how to get comfortable with being uncomfortable

because multiples are high, like Josh was saying, in equities, spreads are super tight. They're pretty close to start. Cap rates in real estate, cap rates. It all rhymes. Where's the value? It all rhymes.

Right, so my whole presentation today was, I think 2025 is all going to be about compounding, like are you compounding in the right places? Meaning, are equities, I think equities can get you 15 next year without a lot of if you think the economy is growing at nominal GDP of four and a half ish. Like I don't think it's that hard to get 15 in equity, but compound on the right parts of equity.

Where are you going to get tech, we talk about financials and some other places. And then can I in fixed income, the yields are super attractive. The spreads are not. But companies aren't going to default because they term their debt out. So it's like, can you diversify it and just compound? If I can compound a six, six and a half, and I get 15 in equity, can I finish the year with a blended return of eight or nine? It's pretty good. It's not going to be as good as 23, 24.

But it doesn't stink with inflation running at just under three. I know we're almost done and I'm curious to ask you this and you can punt if it's not for you. With private credit, there's all these payment and kinds going on and back in the day, and you can explain this better than I can, back in the day, the way that these loans used to work is the bank would make them and syndicate them and distribute them and it was every man for himself, every man and woman for himself in terms of,

if something went bad, then take it to quarter, good luck finding somebody to take it off your hands. Today, it's one of your competitors or you making the loan and you're able to work directly with the company if there is any distress and you're able to turn it out or do a payment in kind to whatever. Is that good? Is it too much payment in kind?

Like where do you- For the listener, the payment in kind is, we don't have the cash to make this quarterly interest payment, we're just going to give you more of the debt and we'll stack it on top. And it's almost like a restaurant owes money. That's it, it's an IOU. It's kind of the cash.

You own more of the restaurant. I'm sure it's a block or wipe, but where do you come down on this? So there's certain things that are barometers of, gosh, you got to, your eyes have to be a little more open. The growth of payment and kind is one of those things you got to be, and quite frankly, you see a lot of deals that come to market and then all of a sudden they get oversubscribed and you know nobody's doing the work.

Nobody's reading the document. So they have money to burn it. If they don't put it to work, they have to return it. So some of those things make me a bit nervous and valuations like you said make me a bit nervous The one thing gives me some comfort today is like you were saying the growth of private credit You're able to restructure and there's so much money to restructure. So you don't won't see a lot of defaults You'll see a lot of restructured transactions and because you can monetize the assets effectively you can gear Am I crazy and saying that's not a terrible thing?

I think it's a good thing because it's hedge funds. Let them work it. It's not, this is not pension fund money. This is Aries and Apollo. They can afford it. Maybe returns come down but it's not it's not defaulting because. Yeah, it's not. And we talked about as long as you believe if you were in a very cyclical economy that was subject to some significant

Significant swings that would be different by the way You know you think about you know how much risk you want to take in emerging markets when you've got you know It's pretty hard to do some of these things so today Public markets develop markets us pretty good place to do that financing today, and you feel pretty good about the durability of it But did you have fun on the show today? Yeah, it was a lot. Is that it? I had to promise, nope.

I had to promise like 10 different people at BlockRap that you would have a good time on the show. All right, I want to get that on the record. We always end the show. I wanted to ask you what you do for fun, by the way. When you're not reading thousands of pieces of research on a Saturday morning. What does Rict Reader do?

I have a very simple, boring life. So I do. I enjoy what I do, so I work a lot. I think you're not looking to travel more, it sounds like. No, no, definitely not travel more. So I mean, I spend a lot of time with friends and family. I'm a crazy music person. I listen to tons and tons of music.

Have you watched the Yacht Rock documentary on Max? There's a Yacht Rock documentary on Max. Really? I will watch it. A lot of music. I love a lot of concerts. So you watch the Yacht Rock documentary on Max? There's a Yacht Rock documentary on Max? Really? I will watch it. A lot of fun. So I'm crazy to music and then sports. And I am... Who do you like? So I'm a...

By the way, I was thinking about it today. The Orioles, the Dolphins and the Devils, which is kind of odd actually. When I think about Orioles and Dolphins, it's kind of odd. How? How did that happen? It's all... I'm a... Since a little kid, I'm a big Orioles fan.

I've gotten involved in the team. Carl Ravkin Jr.? He was my hero. My daughter's name, Cali. So the, what do we think of Hawk Toa? You like Toa? I think he's good. He's not great.

Okay, he's not great. He's not great. And then, so yeah, so I, because I live in Florida some of the years. Oh, so your era, I got it now. Your era is like Dan Marino, Cal Ripken Jr. What was the other team? Devils.

The Devils. Auden Brodeur? Yeah. So he's aookin Jr. What was the other team? Devils. That one I can't. Audemar Adour? Yeah, he's a friend of mine. What? Oh, look at that. Yeah, so no, I'm pretty maniacal about it. So that's my whole life. Like, you know, I don't spend a lot of time in art museums,

so I got a pretty simple life. Will you come back on? Yeah, no, this is awesome. I still can't believe that. What are you doing tomorrow? I'll be here if you're around. So we're going to ask you a final question that I'd love to get your answer to. But before I ask it, I have a gift for you.

Can I give you a gift? Yeah, that's awesome. I didn't think that was getting a gift from coming. This is for you. Oh, thank you. Look, we know your schedule is insane. Please, you can open it. Okay.

We know your schedule is insane and we know you have a lot of people to see when you're out and about. We just wanted to say thank you so much for you have a lot of people to see when you're out and about, and we just wanted to say thank you so much for spending this time with us. He can't get it out. It's a trick. Is it literally a trick? Do we have a way to help him?

Is there a scissors or something that'll allow me to? It's a trap. By the way, this is sort of explains my life. Like I can't screw in a light bulb, but I'm pretty good at understanding companies. Hey guys, he's a bond manager. Get him something to cut this. Oh, hold on, I think I got it.

I think I've severed it somehow. So that's a bond manager. Get him something to cut this. Oh, I think I got it. I think I've severed it somehow. So, you may not be a bond king, but we consider you to be peerless. Peerless. The peerless bourbon. I like it. Alright. Thank you so much. Bourbon guy?

Yeah, more tequila. More tequila, same with me. Yes. Oh, you're going to drink bourbon later. There you go. What is the thing you are most looking forward to? In markets or in... That's our parting question. You can answer it any way you want to. Markets, life... The end of the year. I'm exhausted. I feel the same way.

I just want to get to the Christmas party. How many Christmas parties do you have to go to? I'm going, so I'm hosting one tonight and a few more and then, I don't know, the idea of playing golf and just relaxing for a bit for a week will be great. You're going to take a week off at the end of the year? That's all, yeah, that's my visibility is beyond. I'm going to do the same thing. Yeah, that'll be good. All right, I think we're all feeling it this time of year.

Ladies and gentlemen, Mr. Rick Reader. Thank you so much for coming. Guys please, if you enjoyed the show, please follow Rick Reader and Black Rock's excellent commentary everywhere. Rick is on LinkedIn, at Rick Reader. He's on Twitter, at Rick Reader. Very easy to do. Thank you so much to Rick. Thank you to Black Rock.

Great job this week, everybody. John, Duncan, Rob, Chart Kid Matt. Great job this week, everybody. John Duncan, Rob, Chart Kid, Matt. Great job, Sean, Nicole, Daniel, all the people that helped us put together. Sean, all the people that helped us put together the show, we appreciate you. And thank you all Compound listeners. Thank you, Rick Reader.

We'll talk to you soon. Thank you. Man, we're just getting started. That's the warm up. I just wanted you guys to sense that.