The Compound and Friends - Scaramucci Returns To Wall Street, Josh's Rant On Trader Scams, Rob Arnott On The Tesla Bubble

Episode Date: December 11, 2020

This week on The Compound Show, Josh talks with Anthony Scaramucci about his return to Wall Street, taking back the reins at his hedge fund business, North Shore vs South Shore Long Island, the difference between The Street and DC and a lot more. Then Rob Arnott joins the show for a wide-ranging conversation about the growth stock bubble we're now in the midst of, the turning point for value stocks, the truth about interest rates and valuation, why Tesla is one of the biggest bubbles he's ever seen and a lot more. You can watch the full video of Josh's conversation with Rob, including charts, at www.youtube.com/thecompoundRWM Plus! Josh's rant about stock touting services and how to tell the difference between a reputable research product and a scam.If you're enjoying the show, be sure to leave us a rating and a review, they mean a lot and go a long way! Thank you! 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/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

listen up, listen up. I'm not going to have this conversation again. I really, I want to say what I want to say about this topic. And then I just, I want to, I want to leave it alone. And you guys, you guys probably don't need to hear it. Maybe some of you need to hear it, but maybe there are people in your life that need to hear it. So I'm going to give it to you the way I want you to give it to them. Here's the deal. Nobody, nobody on earth has the secret to the market and they're willing to sell it for $20 a month, $50 a month. It sounds so stupid when I say it out loud like that. Like, of course, Josh, who would believe that? Who would ever believe that? You'd be amazed. You'd be amazed. And the kind of people who would believe that, I think fall into two buckets. The first bucket, you really, there's like, you shouldn't shed any

tears for. It's people who like definitely should know better, but they want to believe anyway. And a lot of that is motivated by greed. So they're not dumb. They convince themselves that it's real because they want it to be real. Look, we all do that in our lives. So there are some people that just believe that about trading and stock market stuff. Like, oh, but look how much money people – everyone else is making. There's got to be a secret. There's no secret.

There's no secret. Did you read the Jim Simons book last summer when it came out or last fall? The man who solved the market? Turns out he didn't. Spoiler alert. He didn't solve the market. At specific periods of time, he had an edge on the market. And then that edge went away, and he had to hire all these new people to find a new edge. The story of Renaissance is not a trading story. It's a management story. Jim Simons, of course, mathematical genius. But the real genius of the man was understanding when one edge was fading away and it was time to find a new one.

And then being able to find the people who could help him in pursuit of those new edges. And part of the reason he was able to do that was because of where he came from, the realm of academia. Couldn't really do that if he was a Goldman Sachs guy. In fact, he couldn't stand being around Goldman Sachs guys. Goldman Sachs guys don't have an edge on the market. They don't. We know they don't. And the way we know they don't, the market cap of Goldman Sachs is $65 billion. So if investors actually believed that Goldman Sachs people could consistently beat the market, then they would not be discounting Goldman's future earnings to the degree that they are. Stock basically trades like

any other bank. So Goldman guys don't have the secret. Similarly, Jim Simons doesn't have the secret. He just has a method of finding people who can find new edges using statistics and math. That's a talent. Not taking anything away from him. It's the greatest hedge fund of all time. that's a talent not taking anything away from him. It's the greatest hedge fund of all time. Nothing even actually comes close. Steve Cohen doesn't come close. Buffett doesn't come close.

Soros doesn't come close. Simons is in a league of his own. He does not know the secret to beating the market consistently. He doesn't go ask him if you could find him in, in, in the woods where he's been hiding out for 30 or 40 years out east on Long Island. He doesn't know. So now I'm telling you that as a preface so that when I tell you the next thing, you'll understand how ridiculous it is. managers and Wall Street firms on the planet don't have the key to the market or the secret to producing reliable market-beating returns, why on earth would you think some a**hole who's buying banner ads has that secret? How can you possibly? How can you possibly? Did you fall on your head? You can't possibly. And I know most of you don't, but some of you need to hear this. This week, a company called Raging Bull was charged with fraud by the Federal Trade Commission. So I'm just going to read you. This is from news from New Hampshire, whatever that is. Okay. Quote, the Federal

Trade Commission, as well as state financial regulators are accusing a New Hampshire based company that sells stock tips and investment strategies of defrauding customers out of $137 million. In a court filing, the FTC alleges that Raging Bull, which is headquartered in Lee, FTC alleges that Raging Bull, which is headquartered in Lee, misled customers with promises of fast returns on the market as long as investors adhered to their stock tips, which were available for purchase through monthly newsletters and $800 webinars. Okay, listen. Why is it that the FTC is the agency that's going to bring these guys to justice? Well, here's why. Because they're not registered. They're not overseen by securities regulators because they don't actually deal in

securities. It's a tout service. They're professional bullshit artists. I actually, I've never met them. I don't know anything about them, but that's what's being alleged. Okay. So assume there's some kernel of truth to it. They don't actually manage any money. Apparently, according to the FTC, they lose money on their own trades. And of course they do because it's reckless short-term options trading that's being done in such a way as to generate attention for the firm and its calls, right? So there's no real P&L here and they're certainly not answering to any clients. And that's step one of knowing that somebody's bullshit, right? So they are telling you the trades to do.

They themselves are not doing them. Or you're not doing those trades through them and that way they don't have to answer to you for the horrible results that are generated from those trades. Okay? So that's a first step to know someone's bullshit, total bullshit. Because if there's no accountability in a regulatory setting, if there's no SEC, there's no FINRA, and they could just say whatever they want, well, look at the latitude that that gives them. It's unbelievable. They could just make things up, tell you it's a good trade. You do the trade.

They don't ever have to talk to you about it. Oh, you're not happy? Unsubscribe. That's not the same as I'm unhappy and you screwed up my retirement and I want to go to arbitration. and you screwed up my retirement and I want to go to arbitration. So when you have that kind of oversight and scrutiny, then it'll probably restrain some of the types of trades that you're willing to recommend. And you certainly can't be a registered person and talk about making 50,000% returns. There's no way, actually, there's no way to be a registered person and talk about your track record at all unless you're running a 40 act fund right but if you're just a guy claiming to have

certain returns it's really the ftc's jurisdiction because it's it's not financial it's not financial. It's not financial. If you're a registered person, there is no compliant way to say what returns you've been able to generate for other investors because all these other investors are in separate accounts. And no matter how hard you try, their results are going to be a little bit different from each other. Some of them are going to have to take money out at different times throughout the course of the year. Some of them are adding money. So then we get into time-weighted returns, right?

So every account that you manage will have a different performance number and a different risk number. And you can't pick and choose the one that looks best and then advertise that as your track record. There's no compliant way to do it. And anyone that you see doing that is also bullshit. So anyone saying I made my clients 500% last year or anyone saying I consistently generate 4% a month from my client, bullshit. Show us. You can't show us. You can't have a GIPS compliant track record, right? A GIPS certified track record because you're managing separate accounts. And if you're managing all the money together in a fund, great. Show us the returns of the fund. Is there a third party auditor who has looked at that returns number? If not, shut the fuck up. Shut the fuck up. Okay. So now you've got

people saying, well, look, I'm just giving people the trades, but they choose to do them on their own. And here's my disclaimer. Everything that I'm saying for people to do, it's actually just education. I actually saw a disclaimer that said, no, this is entertainment. Find better entertainment. So these guys now have been accused. We don't, you know, I don't have a legal opinion. I'm not a lawyer, but it sounds pretty bad. Basically, what they're alleging is that these guys, not only are they not making millions of dollars from trading profits, they're actually losing money. And all of the money they make is as a result of selling

the newsletter. So that's basically defrauding the buyers. Then there's more allegations that they are putting on a trade and then telling everyone else to put that trade on after, which of course you obviously can't do. And then there's more allegations that they make it really hard to cancel a subscription. So like people that realize this is – that they're being screwed with, they can't get out of these subscription agreements. So it's a wreck. And look, it's not the first of its kind. There have been tout services for as long as there's

been Wall Street. It's just a part of investor psychology that when someone comes along saying, hey, do this, do that. I got a tip. I have a secret. I know this. I know that. There are going to be people that they want to hear it. And then there'll be people that want to hear it so bad they'll pay for it. And if you're doing it as a non-registered entity, you probably can get away with more than someone who's registered can get away with for obvious reasons, right? Okay. So now this is the Washington Post. Quote, to sustain this illegal operation, defendants have poured millions of dollars each year into their deceptive marketing campaigns filled with false earnings claims and targeting scores of new consumer

victims. The FTC says Raging Bull used celebrities, including former baseball star Jose Canseco and former stockbroker Jordan Belfort, yes, that Jordan Belfort, to promote their services. Belfort was the inspiration for Scorsese's 2013 movie, The Wolf of Wall Street. They were launching a product for Jordan Belfort, literally one of the biggest stock market criminals in history. They were launching this, the mind of the wolf bullshit where he wasn't going to give people stock tips, but he was going to give people market commentary. Can you imagine being the person that pays for that? Whatever. I don't want to get off on a tangent. But here's the other thing. So using celebrities, there's actually new rules coming to Wall Street where they're thinking about allowing firms to have testimonials. So if you think Jose Canseco and Jordan Belfort is weird, what if we start seeing registered firms start an arms race to pay like Tom Hanks or Harrison Ford to come out and do commercials like, I'm a client of XYZ Asset Management.

You should be too. I mean that – to me, that's just going to be another shit show. But fine. It is what it is. Okay. So most of the victims of this waging bull thing are people who are, let's just say, not financially literate and probably not financially in a position where they can afford to be defrauded, right? It's like very stupid people or it's in a lot of cases, and this is not cool at all. It's like immigrants who they don't even know our securities laws and they see an ad for this, like on Yahoo Finance or something, and they figure it must be legit.

Like this ad couldn't run if this was fake, right? So the ad is like, we'll show you how this gym teacher was $250,000 in debt and used options trading to make millions in the market. And these guys are giving Porsches away and they're driving in Lamborghinis and they're boarding private jets. And it's like this whole thing. And if you come to America, even if you're like a doctor from India, like you're an educated person where you came from, you don't know how it works in America. So you see this and you say, well, how could this be fake? You can't just say this if it's not real. Yes, you can. Yes, you can for a long time before somebody does something about it. before somebody does something about it. So I don't know what was the thing that made the FTC pay attention, but I'm guessing it's all these people complaining

that they can't get out of their subscriptions or that the subscription, the price they were paying was not worth the service. And not only were they not making the money advertised, but they were actually getting killed. And enough people reporting that to – look, and again, you can go to a securities regulator, but they don't oversee these people because these people are fake. They're not even in the – they're not offering an investment service, right? So they're offering an entertainment, and I guess it's like freedom of speech, First Amendment, but they're lying.

And I guess it's like freedom of speech, First Amendment, but they're lying. So I guess enough people complained that the FTC said, let's look at the claims these ads are making, and then let's see what the actual service is delivering. And it probably didn't take them long to realize the whole thing's a lie because the claims are ridiculous. Ridiculous. If you were real and trading options and earning thousands of percent a year, you would become so big through compounding those gains that you would become the whole market. Mathematically, you can't earn those returns consistently. You can't even earn hundreds of percent before becoming bigger than Bridgewater. You would be $100 billion if you were compounding your money at those advertised rates of return. You obviously can't do it, which brings me to my second point. You had this magical edge or this hidden, this is their, they use this term, quote,

we found a hidden bull market in the pandemic. Imagine how disgusting you have to be. Okay. So let's say it's true and you found this hidden bull market and you had it all to yourself. And all you had to do was take your system, plug in your capital, and just day after day, grind out those market beating returns. Why on earth would you then sell it to someone else? Why? What would make you do that? Of course you wouldn't do that. Nobody would do that. What would be, oh, I feel guilty keeping this to myself. So for the low price of $49.99 a month, I'm going to let you in on how I beat the market every week.

Are you serious? Okay. But that's what's going on out there. That's literally what's going on out there. And again, there's, other than the FTC, there is no regulator over this because these people don't manage money. So you have to ask yourself, why is this opportunity being offered to me? Who am I? Well, if you're like me, just a regular schmuck, not a genius, right? Not a billionaire. Why would

somebody want to bring me in on that secret? They wouldn't. Why would they want to bring you in on that secret? Of course they wouldn't. What are you? What are you going to do for them? You're going to pay them $50 a month? Oh, that's a good trade. Here's the key to the market. I just want $50 a month from you and a few hundred other people. Who would do that? Nobody would do that. You must, you must, when being presented with something that's too good to be true, with something that's so outrageously profitable that you almost can't believe it, forget about believing whether or not it's true. That's hard for you to figure out.

How about this? Ask yourself, why me? Why is this being offered to me? How many other people above my station in life have passed on this in order for it to have fallen into my hands? It's the same thing with private placements. I've worked at brokerage firms where we were told to pitch private placements over the phone. I never did. There were guys that did. But just conceptually, if you're taking that phone call and someone says,

hey, I have this note, going to pay you 20% a year, and there's almost no risk. If you're on the other end of that call, well, why? Why would you give that to me? That sounds amazing. Why wouldn't you just take that for yourself? 20% guaranteed? You don't have enough money to put into that? You need my money too? Of course, they don't. Okay. So you have to ask why me. That's my second point. And here's my third point. When you're thinking about trading and becoming active in the market and you're saying, yeah, I understand what market returns are historically, but I don't think I could rely on them going forward or I want to do better and this is actually my hobby and I'm into this and I want to be involved in it. There's nothing wrong with that. And if you want to buy research to help you

in that endeavor, you should. There are great research for sale products on the internet. And a lot of these research products are not being run by people who manage money. And there's nothing wrong with that. In fact, it actually takes a lot of the conflict out. So I don't hate it. I like it. So I think you should invest in research. And I think you should invest in getting people's insights sent to you. And that is different from paying money to a tout service. It's give a man a fish versus teach a man to fish, right? So a tout service is go do these trades. A research service is this is how we think about the markets and then take this information and do with it what you will. Use it as the basis of

your own research, right? So that's the difference. And reputable research products do not tout percentage gain returns. You'll never see it. You'll never see someone with a legitimate product make a promise, implicit or otherwise, about what kind of returns you would have earned with their research and what kind of returns you might earn prospectively. You will never see a legitimate research product come with a percentage gain promise. Why? Because it's not a legitimate shop if they have to say things that they can't back up. And nobody, of course, can back up forecasts of gains. Nobody can. It's impossible. It's impossible. No one could do it. Warren Buffett can't do it. So some asshole on the internet definitely can't do it. So if they

can't promise returns, but they're promising returns, well, then that's all you need to know that these guys are not real and I don't need their product, right? That's to me, if you ask, what's the dividing line between a tout service and a legitimate research product, it's the way they market themselves because you're not going to know the quality of the information until you actually see that research product. So how do you know if it's real or fake prior to that? Just look at how they market themselves. they market themselves. And if they're promising returns or implying returns or using terms like beat the market, crush the market, dominate the stock market, if those are the terms being used, then you already know it's not legit. If on the other hand, it's about the quality of information or the insights being produced from that information or access to experts, that's a little bit more

legitimate because that's people basically saying, look, we don't know what your returns will be from our work. We can't know, but we think these insights are valuable and take a 90-day trial to find out for yourself. Nothing wrong with that. I get all this stuff. I read all this research. I think it's great. It makes me smarter. Doesn't mean I act on it. Doesn't mean that I sit in front of my desktop in the basement of my house and think I'm about to turn into Ray Dalio. That's not what I'm doing with research. Okay. So, in conclusion, look, anyone promising you returns, you already know they can't fulfill

that promise. So anything else they're going to tell you has to be colored with that skepticism, right? And the line between legitimate research and a tout service is the way the thing is marketed. Pay close attention. If the marketing is designed to entice you and tell you that you can have something that you know intellectually you can't really have, it's fake. Ignore it. Please use your brain. I want you to use your brain.

If you're listening to this show, you're already smarter than the average investor. The average investor isn't listening to financial podcasts, so I think you're already smarter than most people. Act that way. Don't get caught in obvious, obvious traps. All right. Today's show is amazing. I know I say that every week, but I really, really feel that way. And I wouldn't do this if I wasn't into it. So I'm not fulfilling a contractual obligation. There's no ads on this show. I do it because I love it. And I love the interaction with the audience after and hearing feedback from you guys. So if I say the show is amazing every week, it's because I'm doing the show that I want to do.

And I'm having the guests that I want to have on. And nobody tells me what to do on the show. So if I think it's amazing, if I say it's amazing, I really think so. Okay, what are we doing this week? Well, Anthony Scaramucci is in the house. You may have heard his name in connection with certain political stuff over the last couple of years. think so. Okay. What are we doing this week? Well, Anthony Scaramucci is in the house. You may have heard his name in connection with certain political stuff over the last couple of years, but Anthony is the founder and co-managing partner of Skybridge Capital, which he founded in 2005. That's how I first met and became friends with Anthony. And he also founded the really monumental series of conferences called the SALT Conference, which is SkyBridge Alternatives.

And this was a conference that prior to the pandemic year, I think he had run every year or maybe he missed a year or two during the Trump period. But Anthony has had all of the great hedge fund managers out there to speak, all of the great asset managers, former presidents, former vice presidents, four-star generals, et cetera, at that event. And now he's doing a version of that online. So Anthony and I are going to talk about his career, his return to Wall Street, what he's doing with the Salt Talks channel on YouTube, which I highly recommend, and whether or not we're going to have a Salt conference ever again, and what it's like coming back to the hedge fund industry after a five-year absence, what's changed, what hasn't. So Anthony is one of the nicest guys I know. And I know he's become somewhat controversial, although maybe

less so in the last year, but he's had a rough couple of years and he took a shot on something and he really tried to be a part of something and things don't always work out and people make mistakes and people come back from those mistakes. And I'm really happy for Anthony and the place that he's in right now. So I'm really looking forward for you guys to hear that conversation. And we also have Rob Barnott today. Rob is the founder and chairman of Research Affiliates. Research Affiliates is this massive global asset management firm.

They run two large funds for PIMCO. One is called the All Asset Fund. The other is the All Asset, All Authority Fund. And Rob is one of the most well-known and highly regarded thinkers, speakers, and writers in our industry. He's written over 130 articles for peer-reviewed journals, like the Journal of Portfolio Management. His research is all over the place. Everybody reads their stuff. And Rob is just this legendary guy in asset management. And we had this really fascinating conversation about growth stocks versus value stocks. And Rob's contention is that what's going on in Tesla might be one of the five largest bubbles he's ever seen or read about.

one of the five largest bubbles he's ever seen or read about. And Rob talks about just this idea that value may have finally hit its low versus growth. We may have seen the turn this summer. And of course it'll, it'll take a long time to know if that's true, but that conversation with Rob is going to be great too. So I'm looking forward to you, to hearing that and,

and we'll get right into it. I'm going to have Duncan hit the music and let's hear from Anthony. Let's hear from Rob. And I hope you guys enjoy the show. Welcome to The Compound Show with downtown Josh Brown. Josh is the CEO of Ritholtz Wealth Management. All opinions expressed by Josh or any podcast guest 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 investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

Hey, guys. It's downtown Josh Brown here with my friend Anthony Scaramucci. You may have heard of Anthony before, but Anthony originally came to prominence as the founder and he is managing partner of SkyBridge. Anthony's been involved with investing, alternative investing his entire career. And that's what we're going to focus on today. So happy to have you on the show today, Anthony. What's up, man? Well, no, my biggest claim to fame is that Josh Brown recommended my book, The Little Book of Hedge Funds, eight years ago. That's true.

So I think it's the only book that I saw. I mean, listen, I've written four international bestsellers, Josh. And if you don't believe me, come into my basement. I can show you every copy I had to buy to make an international. But I actually think The Little Book of H Hedge Funds because of you, I think maybe a few copies actually did sell. Was that your best selling book? I think so. Yeah. I read two of your books. What's weird about that Little Book series is that it's eternal. It's like blades and razors. And so that hedge fund book is actually still selling, believe it or not.

Okay. So when are you going to do the book about like the last five years? Is that like, is it too, it's too soon to reflect and do that book or you don't really know how you want to say it? Like what, what's your plan for that? You know, listen, I don't know. I mean, I have two, it's interesting you say that. Two publishers have come to me. I'm sure.

With book ideas. And I may, I may write a book, but it's going to be a different book than I think people are expecting. Because like you, I grew up out here on Long Island. There's a unique culture to Long Island that has led to your success and has led to me doing what I'm doing. And there's almost like a Long Island elegy story to be told, which is different than I think people are expecting from me, but we'll see. Okay.

So you grew up, I think you grew up North Shore, right? North Shore, my dad. So there's a little bit of quick trivia for all the people that don't live on Long Island. This is a glacial deposit, right? So the Catskills were bigger than the Himalayas. They got mowed down by the ice age. When the glacier receded, it left Long Island, Block Island, the elbow of Cape Cod, Nantucket, and Martha's Vineyard. And so those places are loaded with sand. The largest sand

deposit on Long Island was in the peninsula of Port Washington. And so for 95 years, that sandbank was mined out. My dad was the crane operator there for 42 of those 95 years. Were those the sandhogs? Sandhogs is a little different. That's more in the Port Jefferson area. Okay. Up here in Nassau County, it was basically the Port Washington sandbank. It was owned by McCormick Sand and Stone. It got mined out, Josh, 05, 1905 to 2000. 65% of the concrete in New York City for the New York City skylines came from my hometown. And my dad mined that sand. He was operating that crane, lifting the sand into the hopper. And then a conveyor belt took it out to the barges, which took it to Long Island City

where the concrete was made. And I'm really getting obscure here, but I think it's interesting. In 1909, when they built the Queensborough Bridge, that was the precursor to the New York City skyline because you couldn't get the concrete into Manhattan without a bridge. So those trucks started driving it over. And my dad was there, like I said, 42 years. Ken Langone, who you and I both know, who lives pretty close to me, he put a monument down there. So that mine is now closed. It's now a public golf course. And Kenny put a monument there to recognize all the Irish and Welsh and Italian immigrants that built that

mine. So my dad was a blue collar worker and didn't go to college. My mother didn't go to college. And so when I got into Tufts, my parents thought it was T-O-U-G-H-S, Josh. Like tough guys. Right. They had no clue what the hell is going on. You know, it's fine. You know, God bless them. Right. So I want to talk about your plans for SkyBridge.

So now you are, it appears, back at the helm. And we're going to talk about some of the stuff that you've been doing online to talk more about investing again, which I love. But let's talk about the state of the fund and the hedge fund industry. Where do you guys fit into the 2021 alternatives slash hedge fund world? And what are your ambitions now? What do you want to do? Well, I think there's a good backdrop. When I started Skybridge in 05, what was the idea behind Skybridge? I wanted to democratize the hedge fund space. I felt like it was for university endowments and it was for large capital allocators and very, very wealthy people. But there was mass affluent people that

weren't getting exposure. And so one of my taglines 10 years ago was I wanted to be the hedge fund manager for every dentist in America. So if you had a twenty five or fifty thousand dollars, let's say you were worth a million dollars, Josh, you wanted to put five percent of your money into hedge funds. Well, you could come to Skybridge and I would give you an allocation to Steve Cohen and to, you know, Paul Singer or Dan Loeb. And you did that largely through wealth management at the big banks. Correct. So that was the conduit. Correct. And so it was a registered fund. So it's a 1940s Act fund. And so our clients don't get a K-1, they get a 1099. And so that makes it, it's almost like a corporation with an NAV. The way you think about it is like an interval fund or it's a closed-end fund, if you will, that has quarterly liquidity. Or in our case, it has semi-annual liquidity domestically and quarterly liquidity offshore. And that became a very popular product.

We had great performance. Unfortunately, we slipped up in March. We had a very difficult time in March because we were loaded with structured credit and so we had a difficult time in March but we've climbed out of that now we probably had a 20 percent rally since April 1st but we're a retail shop so we lost some capital so if you talk to me on March 1st I had nine billion dollars under management talking to me today I've got seven and a $9 billion under management. Talking to me today, I've got $7.5 billion under management. And some of that is redemptions. Some of that is lost capital. But the good news is

we're having a very strong recovery. We were up 3% last month, up about to this month. And it's a very stable business, Josh, because we have 29,000 clients that are in that pool of capital. Because again, it's $50,000 investments. There's a couple of guys that have $20 million with us, but it's that range of people. Right. So that business has been a very, very good business. So Anthony, that range of people, it's a very different client than typical hedge funds are working with. And what's different is that your clients, leaving aside the advisors that recommend your fund, your end clients, the end investors, they don't answer to boards.

They don't do these 90-day postmortems on performance and try to separate alpha from beta. They don't have boards of directors. They really are making decisions with their own money for their own money. So it's not that the month-to-month performance doesn't matter at all. Of course it does. But maybe you get a little bit more leeway from that audience because it's not as intense for them. There's no question.

So could you ask an interesting question at the beginning? What is our role in the hedge fund community? Well, fund-to-funds have a bad rap in the community. You know, they're they're quote unquote fees on top of fees. And so therefore they don't do as well. And people sort of see that as you're in the typewriter business as the PCs are about to be introduced, you know, or you're in the carriage business with horses as the horseless carriage about to introduce. you're in the carriage business with horses as the horseless carriage about to introduce.

But I don't see it that way because you've got people that want exposure to hedge funds, and they are in the mass affluent, Josh, and they may not have the sophistication of, say, some of these university endowments that want to go direct, but they do want somebody to be their outsourced chief investment officer for a sleeve of hedge funds. They also can't go direct. They don't have enough money to go direct. Exactly. So they're putting $50,000 with me. I'm putting 300 million with Steve Cohen. Right. Now they have this allocation with Steve Cohen. And they're by and large, very happy with it. I mean, we did slip up in March, but our 15-year record, we're probably 30% over the fund of funds index net of fees. So that makes it a pretty compelling product,

but that's not our only product. We do secondaries. We just did a secondary for SpaceX. We're in the marketplace right now doing Chime. What does that mean you do secondaries? So I got a ton of clients and I got a ton of relationships. We'll talk about salt in a chime. What does that mean? You do secondaries. So, uh, I got a ton of clients and I got a ton of relationships. We'll talk about salt in a second. And so there are venture capitalists that are sometimes wanting to sell private shares. Okay. Got it. They'll come to somebody like me. I'll call up my buddies and say, Hey, uh, one of my, one of my friends in the venture space owns SpaceX, but they're looking to lighten up a little. Do you want to participate in that prior to its IPO?

You've heard of Chime, the largest internet bank, the neobank. Same situation right now. I'm in the marketplace marketing that through my broker dealer. And so we have an eclectic mix of opportunistic strategies. You know, I'm launching a new product in January. And so we have an eclectic mix of opportunistic strategies. You know, I'm launching a new product in January. Unfortunately, until I get the approval from the SEC, I can't talk about it right now. But hopefully by the first week in January.

Are we doing a coin? Well, you know, like I said, I can't talk about it. But there have been some filings and disclosures that I've had to make with the SEC. But unfortunately, I'm not allowed to talk about it, but there have been some filings and disclosures that I've had to make. Sure. With the SEC, but unfortunately, I'm not allowed to talk about it. That was the only thing my general counsel said to me. Josh is an effing Long Islander like you. He'll try to pull it out of you. Don't think. I'm definitely not. People ask the difference between North Shore, South Shore, Long Island, and so I am emblematic of South Shore, Long Island. And so I am emblematic of

South Shore, Long Island. I think North Shore, and I know this doesn't necessarily go across the board, doesn't pertain to your family, a blue collar family, but North Shore is known for Gatsby-esque estates on the Gold Coast and old money. And South Shore is like guys like my dad came from the Bronx, A lot of Brooklyn on the South Shore. We got a lot of Russians these days. We got a lot of people coming out of Flushing. It's great. It's like revitalizing our towns. I benefited from that, what you just talked about, because I went to a public high school in Port Washington that had a huge tax base from those Gatsby's mansions that you're talking about.

Yeah. I'm a direct beneficiary of a very good public school system with a very big public school budget. Now, of course, you know, a lot of my friends lived in Sands Point. You may know where that area is. That's where the houses were, the swopes, etc. So, you know, I will tell you a funny story, which you'll enjoy because you're a South Shore guy. I'm at a Maroon 5 concert at Jones Beach in 2011. Remember concerts? I run into somebody I knew in high school.

Right. And she looks at me, she goes, oh, you're the townie that happened to do well. I love that, right? I mean, isn't that classic North Shore idiom? And you know what I'm talking about, right? Totally. I looked at her and I backed up because she lived in a big estate down on the water in Port Washington. And she admitted to me that I was a townie that done well.

So you guys have all the good restaurants. So on Friday, Saturday nights, we all drive up to your restaurants, but we have better pizza, better bagel stores. I don't know which you'd choose if you had a choice, but that's why I break it down. You have great bagel stores. You got great lox and salmon. We got the beach, the real beach. Right. And you got the beach. Listen, I was a West End 2 kid. Okay. What were you? Field 4, Jones Beach. For those of you who don't know what we're talking about, West End 2 was at the end of the beach on the west side. It was a very expansive beach, but Field 4 had everything. That was like the main beach. So Josh went to the main beach where there was a swimming pool on one side and the ocean on the other. Where you could drink.

Field 4, you could roll coolers onto the beach. Nobody looked at you twice. Right. So back to hedge funds. So now you're in a situation where you've had this huge shift in the mindset. I think over the last five years up until the pandemic, the thinking was everyone's going to become 100% passive. Index is going to take over the whole market. Everyone's going to become 100% passive.

Index is going to take over the whole market. No one will ever make an active bet again or pay somebody else to make an active bet on their behalf. That's been turned on its head. You've never seen more new traders, new investors interested in active management all hit the market at once as we've seen this year. Broke every record. Brokerage accounts being open, Robinhood, margin accounts being funded. So active investing is back in terms of the public's interest,

but a lot of it is young investors and they have even less than the generation of clients that you're accustomed to dealing with. Do you have a plan to start talking to that generation about alternatives, about hedge funds, et cetera. What are your thoughts on that? Yes. So, I mean, the answer is yes. And so we are in the process of doing that. We are in the RA channel bigger than ever before. We are in the direct channel now. And we've got, as you know, with all the e-signature stuff that's gone on on the Internet now, you almost have like an Amazon one click for investing as long as the person is qualifiable. And obviously we have to go through the rigors of making that happen. Right. But I think these new product offerings that we're talking about, which hopefully you'll invite me back on once I'm able to talk about them.

on once I'm able to talk about them. You'll be like, okay, Ant, that's exactly where you need to be to capture those people that you're describing, which is a younger crowd that wants to do it themselves, that has all of these tools that Robinhood is giving them or places like Robinhood. And it's a different environment than the one that you and I were in because, you know, when we were their age, we had to open up a Quotron system or a Shark system to get market data. Now they can get the market data basically for free and they can get the transactions for free because of all of the great technology and data transmission that we have today. Right. And, but here's the thing I would say to you that is scarce, and you know this and I know this.

What is scarce is competitive advantage. What is scarce is a value-added person. Steve Cohen is having an amazing year. Dan Loeb is having an amazing year. Net of his fees, he's probably up 15% this year. Been up 35% on a net basis since April. And these guys aren't taking full market risk to do that. They're not taking full market risk to do that. Their betas are below one, obviously, in their cases, like two, 0.2, 0.3. But here's the beauty of what I'm saying. There's enough

at the buffet table for everybody. So if you want to own ETFs, no problem. If you want to be on Robin Hood and doing do it yourself, sort of the Home Depot investment management, no problem. But if you want to avail yourself to that sophisticated hedge fund manager, you can sort of plug into SkyBridge and we'll give you that. You can sort of plug into SkyBridge and we'll give you that. We'll give you access even to, you know, we take fragments of their investment letters that we're allowed to, once it's approved by their compliance and our compliance, put it into our investment letters. And now all of a sudden you have a portal into that world as well, which may help you in those other worlds. So if you're a regular, I say this jokingly, if you're a run-of-the-mill millionaire, you do not have the ability to get money into 0.72, which is why a platform like yours has that scarce factor to it.

And then the question is on the part of the investor or the investor and their advisor, do we want this or not? Is this a worthwhile sleeve for some of our assets? And for some advisors, the answer is yes. And for some it's no. And in any given year, one of those camps will look better than the other. And that's the game. Exactly. Exactly right. I mean, something you and I know intuitively, which I'm going to state explicitly, we like to think of ourselves in the investment management business, but we're actually in the fashion industry. And let me explain to you why we're in the schmata business, okay? Because passive is in favor, and then all of a sudden,

it starts to fade out of favor. Now, active is in favor. I can remember before the 2008 crisis, endowment investing was in favor. That's right. You had a 75-year horizon. And then the crisis came, and then you went from a 75-year horizon to a 75-minute horizon where the hedge fund manager had to have an ATM machine in their lobby. And so- You skipped one. Think about how in favor macro became in 2010. Yeah, of course.

And now we look at the biggest macro event in a century and the market laughed at it, right? Right. So like everyone thought they'd be Ray Dalio for five years and then they realized, oh, I won't be. And even if I could be, it might not even matter. A thousand percent. So you're making my point with great emphasis. We're in the fashion industry. And I think what's very important for your clients and for your listeners is to stay disciplined. Don't chase, have a discipline. For me, it's a well-diversified portfolio and in good times and bad times, we'll do reasonably well. I'm not looking to kill it. I don't need to be at the golf course. I don't even know how to swing a golf club, but if I did, I wouldn't be at the

golf course bragging about the unicorn that I own. I'm more interested in the slow, steady, safe way to get to the results. Well, when you're dealing with people who are already wealthy, I think it's a big distinction from people who are 25, just started investing last year and have the wherewithal to take a lot of risk and try to kill it. That's a very different investor than a 60-year-old who's five years from retirement. they don't need the risk that is associated with trying to kill it. They're looking for something different. A thousand percent. I'll tell you a quick story. I'm at this FA, I think it was at a Morgan Stanley

event. It's in Wyzeta, Minnesota, this beautiful lakefront resort near Minneapolis. And there's an 80-year-old woman in the back of the room and she's raising her hand and she says, Anthony, I read your bio and you were a wealth manager at Goldman. Were you not? I said, yes, I was. She says, okay, forget about this hedge fund malarkey. What is your advice to me as a wealthy individual, as in your former role as a wealth advisor, I said, ma'am, I got it down to two words. Do you want to hear the two words, Josh? Go. Stay wealthy.

Yeah. Stay, you're wealthy, stay wealthy. No unicorns. You don't have to chase Facebook, the new IPO. You don't have to do anything other than have a well-diversified plan and use that compounding table to your advantage. It's hard enough to do it once. Why put yourself in a position where you have to do it twice? You don't have to complicate it. Okay. So that's why market leaders like Amazon and Apple are market leaders for a reason. They slayed their competitors to be in that position. You don't have to overcomplicate it. Here's why your advice is great, but here's why it's so hard to follow. And we see this because

we talk to millionaires all over the country. We have 40 to 60 families each week come to us and ask exactly that. What do I do with my money? The problem is when you make $7 million as your net worth, which is a lot of money in America, you're top 1%, right? Net worth 7 million. No question. But you start hanging out with people who are 10 plus and you don't understand why the am I not 10 plus? And that's what makes it so hard to say I've won already because other people are doing things that you can't do. Even at that level, it's crazy. So you all have the second home in Florida, but then these three families also have the

ski chalet in Vail. And why aren't I there? And everyone says, I'm too smart. I'll never fall into that trap. But so many people still do. Even if they're aware of it, it's really, really hard. And I'm sure you see this all the time also. That's why stay wealthy is really hard advice to follow. Well, yeah, but you also got to like, you know, I think some of it comes from your upbringing

and you should get, if you haven't had a mind, you should get Morgan Household. That's my boy. He's been on, he's been on. Yeah. He's wrote the psychology of money. One of the best books I've read in 35 years. Shout out to Morgan. been on. Yeah. He's wrote the psychology of money. One of the best books I've read in 35 years about psychology, a big shout out to Morgan. But when I read his book, I was like, okay, this explains how I got to where I am because my old man, okay, was like the bus driver in a Bronx tale. Remember the De Niro character? No money business. You can't be with any guys with broken noses. The working guy is the tough guy.

A working guy. And he would, I can remember, I'm eight, nine, 10 years old, Josh. I'm on Main Street in Port Washington. My father's coming out of the Brothers All, which is a grocery store. And there's a parking ticket on his Chevrolet Impala. You know what he does? He puts the groceries in the car. He puts the coin in the meter. He takes the parking ticket. He walks up to the post office and he gets a money order to pay the parking ticket before we go home. And he always said, if you can't afford the price of the ticket, don't go to the movies. And so my father had grounded into us this sort of discipline about money.

Was he first generation or second generation? My grandfather came from Italy. My dad was a second generation. Close enough. And the biggest mistake my dad made, he's 85 now and he would admit this, is when he came out of the army, he had the opportunity to participate in the GI Bill. Yeah. to participate in the GI Bill. He came out of the army, but he had so much anxiety about money, he went to go do what he was good at, which was operate that crane. And he always said to me, you know, when we were kids, you got to go to college, don't make the mistake I made.

And you're going to go to college, you're going to go to college, you're going to get a career together and so forth. But that grounding, and this is a big lesson for your people, start with appreciation in the morning. You know, the fact that we had an air conditioner, my brother and I put it in a, in the window. We took it out on, we took, put it in on Memorial Day. We took it out on Labor Day. That was great. I'm living in central air now. I think it's the greatest thing that ever happened. My point being, love your life. Don't look at other people's lives. Love your life. Focus on your life. Focus on the gratitude. One of the best 2020 memes is, I didn't get what I wanted this year, but I got to appreciate what I have. And I think you got to really think about that

when you're looking at your wealth and looking at your perspective. And like, when I got my ass fired from the White House, which was a rough day, Josh, let's just face it. Okay. And then I got rolled in broken glass and I felt like I was going through the sewer pipe. I saw you shortly after that time. We bumped into each other at 30 Rock doing Stephanie Ruhl. You were like, try getting punched in the face a thousand times a day. Yeah. I mean, I got my ass kicked. I got rolled on the late night comedians and all this other stuff. But you know what? Got up the next day and I'm like, I'm kicked. I got rolled on the late night comedians and all this other stuff. But you know what? Got up the next day and I'm like, I'm alive. I'm vertical.

I'm not six feet underground. And I've had a great career and it was a rough experience. But you can't, like you, and this is the reason why I feel close to you, even though you and I don't talk that much, is like you, I'm a risk taker. Like you, I could have never gotten to where I am if I wasn't throwing the ball. So of course I'm going to get intercepted a few times, you know, or my bell rung or get a concussion on the field. But another great line, which I'll share with everybody, and I think about it every morning is from Mel Brooks, the legendary comedian

and his line, Josh, is relax. none of us are getting out of here alive oh that's great what is that from that's so great yeah no it's from young frank he oh and frankenstein had it in young frankenstein and and he was being interviewed for the broadway show the broadway show didn't do as well it failed after a few weeks a year or two whatever the hell it was and they said well well, your Broadway show failed. And Mel Brooks looked at her and said, relax. None of us are getting out of here alive. Meaning you got to enjoy your life.

It's so great, but you just hope that you don't have to get to 70, 80 years old to have that realization come over you. But look, if you're having a bad day, and this is to all your listeners out there, if you're having a bad day, think of my ass getting fired for the one day. And you'll be feeling better about yourself, okay? If you need to pick me up. Can I tell you something? I think just knowing absolutely nothing about the inside story, which you'll tell someday to the world, I think while that might have been one of the worst days of your life, it's probably one of the best things that ever happened to you.

I agree. No, there's no question. Yeah, it definitely helped one of the best things that ever happened to you. I agree. No, there's no question. Yeah, it definitely, it definitely helped save my marriage, Josh. You know, my wife and I were in the middle of fighting with each other, save my marriage. We love each other. Thank God we're stronger than ever. And, but that's a good lesson for your listeners. You can go through bad in your life. If you've got your health, be grateful and rebuild. That's all you got to do. It's never as bad as it looks at the bottom. Yeah. I went through a version of that personally in like 2009, trying to leave

the brokerage industry and just being told by everybody, this is the biggest mistake you'll ever make. How could you drop your series seven? This is like before I had anything going on and I had a tough year getting the hell out of there. It's honestly the best year that I ever had in my life though. Looking back, like sometimes you have to go through that to your point. So. I learned a lot. I got a PhD in, I got an 11 day PhD in Washington scumbaggery. It's different than wall street scumbaggery. It is. They're totally different, Josh, because the great thing about us, we care about money, right? So we're on the green team. So if you and I are competing, at least we know each other. You know what I'm saying? We know where we're going.

So what is it about there? Green team, there's a red team, there's a blue team. You don't know what the fuck's going on. You don't even know where the shots are coming from. At least if you're coming to stab me, you're going to stab me in the front. Right. Do they have longer or shorter careers than we have on the street? Like is the Washington insider, is that a 30-year career or is it 10 years? I think they survive. The insiders survive. They always find a way to land on their feet.

They always find a way to survive, you know? Right. It's the outsiders like me that enter the space. They have like this immunological system where they reject your ass immediately, you know? Right. It's the outsiders like me that enter the space. They have like this immunological system where they reject your ass immediately, you know? All right. So now you're back with us and you're the ultimate insider. And that's a good segue to talk about some of the stuff that you've been doing during the pandemic. And I hope it continues way past that. So you've got a YouTube channel where you're basically doing an ongoing version of the SALT conference,

channel where you're basically doing an ongoing version of the SALT conference, which anyone who's ever been to had a lot of fun and got a lot of networking and great stuff out of, myself included, which we'll talk about. But you're doing that now online in the format of like 20-minute interviews with very influential people, a lot of people I've never heard of, but who are extremely accomplished. I love the channel. How do we get more people to watch it? And is that one of your big goals right now? How do you come up with all these ideas of people to talk to? Well, first of all, thanks for bringing it up. And I appreciate you reaching out to me

to talk about it. You can go to salt.org backslash talks. And you can see all of the library. We've had everybody from General Kelly, White House Chief of Staff, General McMaster, National Security Advisor. I just interviewed Phil Murphy, who's my old boss at Goldman Sachs, now the governor of New Jersey. Andrew Cuomo and I are close personal friends last 25 years. I interviewed him, but I'm also interviewing guys like Morgan Housel or I've, I interviewed Valerie Jarrett, you know, and I'm trying to make it not left-centered or right-centered. It's just everybody. It's policymakers, it's politicians, it's money managers. I've had Loeb on from Third Point. I've had Josh Friedman on from Canyon. Some of these guys never do media, by the way. Like Dan Loeb does not Third Point. I've had Josh Friedman on from Canyon. Some of these guys never do media,

by the way. Like Dan Loeb does not go on TV. No, no, he doesn't go on TV, but I'm one of his investors. We know each other forever. And we're going to have a, you know, fairly dense investment conversation. But the flip side is with Governor Murphy, you know, we're talking about, you know, the COVID-19 situation in the state, what he's trying to do to stem the migration, all the different issues. And then you have Vivek Murphy, who is now the Surgeon General again, he's going to be President-elect, Joe Biden, Surgeon General. He was on in May talking about the pandemic. So I try to get industry leaders and a blend of different people. And by the way, I've had fiction writers on, I had Daniel Silva on. I don't know if you read

the Gabriel Alon spy series, but I had him on. I had Brad Thor on who runs, he has another spy. So where do you get these ideas to come to all these different people? Cause they're not all, they're not all old friends of yours. You know, Josh, I'm doing what you did at the early part of your career. And what I did, pick up the phone and call. Yeah. It's amazing. You know, I had Michael Warren, uh, today, former ambassador, U S ambassador from Israel. Unfortunately, his dad passed. So we had to postpone that one. My heart goes out to the Oren family. But he was going to talk about the Israeli

relationship, the Abraham Accords and all that stuff. And so, again, very, very eclectic, different authors, economists. I had the Winklevi, as they call themselves, Tyler and Cameron on last week. Those guys are super impressive. I met them and moderated the panel with them. They are exactly what you think they are. They are, and more so. They came to Salt in 2014 to talk about something called Bitcoin. Those coins were trading at $152 a coin when they were at SALT. Now, I will remind you, they were hard to access. You were putting them on USBs. I didn't even watch that panel at that time. So now that coin is trading at, I don't know, $17,000, $18,000, $19,000. But the point being

that if you come to SALT, and Lee Cooperman, a friend of both of ours, will tell you that SALT is about the future. And so I'm always trying to get somebody on our podcast or our Zoom call that can talk about the future. Where's the pup going? And so that's been a lot of fun for me. Do you miss the live event? I do. You do, right? I was in Abu Dhabi at this time last year doing our first Middle East SALT conference.

Wow. December 9th to the 12th. And it was a great time. And we had 2,000 delegates and we had a whole eclectic blend of people from the U.S., Europe, the MENA region. We were scheduled to do another one this year, had to cancel it. We had to cancel our Vegas conference, which you know is in May. We probably cannot have a Vegas conference this coming year because- I was going to say, when are we going to be back at the Bellagio?

I've been talking to Governor Cuomo about hosting a SALT event in New York City, our hometown, if you will, because we've been devastated by COVID-19. And so I'm going to bring the event once it's safe to do it. Hopefully by September, it will be. We're going to have a pretty fun event. We're going to do it in conjunction with the governor's help. And so I think we're going to scale it a little bit differently. But I think what your point is about these talks, rather than doing a three-day conference on Zoom, which everybody would be bored by, we're trying to do one or two 45-minute conversations a week, which all of a sudden people say, hey, yeah, I could do that. I'll listen to Anthony. What size is your technical team in order to film those, edit those, get them posted,

get them published? How many people do you have doing that? Five or six people. We probably haven't done an amazing job of marketing it, which is why I appreciate you bringing me on to talk a little bit about it. We'll start to do that. But you know, the original vision was just to have a 2000 person live conference. I'll tell you what, when I had Andrew on Governor Cuomo two and a half weeks ago, we had seventy thousand people. You know, you don't just see it on the YouTube channel, right, because we're streaming on LinkedIn, we're streaming on Twitter. And so apparently across all those platforms, there were seventy thousand people. That's not that's not a

bad TV rating on cable television, as you know. It's fantastic. So, all right. So I think more people should be watching these and hopefully my people will go check it out. And what you're building, look, the difference between, I think, what you can do with YouTube versus what you could do with the news on TV. The news on TV has to be about whatever outrage or whatever major breakthrough or good or bad news, whatever just happened in the last hour. Whereas these interviews that you and I do on YouTube,

they can be evergreen. They could be about how do you build a career for yourself? How do you make business contacts? How do you do stuff like this? And that's evergreen. People can watch your salt talks in 2025. And I think a lot of them will still be every bit as relevant. And that's the I think that's the gem that that you can build when you're doing online content. Oh, listen, I appreciate Sam. I'm certainly trying to make make it like that. We get a lot of young viewers as you do. You have an unbelievable demographic for your stuff because of your pizzazz. And because we're immature. Well, yeah, but you're knowledgeably immature. You know what I mean? That's true.

I'm also immature. You know, I could star in Jackass the movie, as you know. But I also know a little bit about what the hell is going on in the investment world. So when they invited me on part of my take and the big cat was coming after me, I used the Josh Brown, Barry Riddholtz magic penny. You know how Barry always talks about the magic penny? And I had to, I stumped. I'm like, okay, I'm going to give you $10,000 a day for 30 days or the magic penny that doubles every day. That's right. You know, what do you want? And of course those guys were like, I'll take the 30, you know, I'll take the 10, the 10 grand, I'll take the $300,000. Then you point out, well, the penny, you look like shit in the first week. You're only at $1.28 or $2.56, but by the 30th day,

you're at $5.4 million. All of a sudden the penny looks pretty good. Right. So, so, And then those guys take the $30,000 and they parlay it with like a six-team teaser and a birdcage weekend in the NFL. Those guys are hilarious. Who do you want to interview that you haven't had yet? I'm guessing Barack is probably on the list. Look, President Obama and I know each other very well. We went to school together. I've been to more Barack Obama Christmas parties than I have Donald Trump Christmas parties, let's put it that way. And I would love to interview him, but he has been interviewed a tremendous amount. Especially with the new book. But yes, 100% because of his marquee status and

who he is, iconic figure. I would be more interested in Vice President Biden, President-elect Biden, because he was at SALT. He came to the SALT conference in 2017. We built a nice relationship. Obviously, I was helping him over the last six months. But I think he would have something to say to the investment community that I think would be valuable. Janet Yellen would be somebody that I would love to have on. As you know, Dr. Bernanke's been to the conference and other Federal Reserve people. What do you think about Janet Yellen coming back to, it's a different role, but it's every bit as prominent. How should Wall Street feel about that? Well, I mean, I can tell you how I feel about it. And I can tell you what my

perception is of how Wall Street feels about it. I'm very bullish about it. You know, I got to meet her through Jeff Sonnenfeld, the dean of the Yale School of Management. She's a brilliant, very thoughtful person. I think she understands the new economy about as well as anybody that would be an old school economist. And so she's taking a new school toolbox to the Treasury Department. And I but I will say this, Steve Mnuchin did a great job of building that treasury. And so my message to the Biden people is, you know, you may want to keep some of those people. You know, there's some very good people over there that are nonpartisan, that are not looking to politicize the Treasury Department as much as they're looking to continue to find ways to enhance growth. We've always been told to think

about the Fed as being autonomous and independent. But this year, out of necessity, we saw the Fed and Treasury work more, obviously, in concert with each other than ever before. And now you've got a former Fed chair taking the reins at the Treasury. My question is, the next time we have some sort of a panic or economic event, it's not like the Fed and Treasury are going to forget that they now have this new thing where they team up with each other. Like they're not going to. So now is this just the new way it is that. I think so. Treasury and Fed are a team and much more overtly working together.

I think so. And I think the same thing could be said about the 2008 crisis. Dr. Bernanke's book, Courage to Act, was a great book. It's still relevant right now. Dr. Bernanke's book, Courage to Act, was a great book. It's still relevant right now. But if you want to read a shorter book, Firefighting by Bernanke, Geithner, and Paulson, it came out in 2018, 10-year anniversary of the 2008 crisis, Josh. And it is literally the handbook for what is being deployed right now in 2020.

And so if you read the book, what does Geithner say in the book and Paulson, we needed to be more integrated. We needed to work more closely together. And oh, by the way, we were too cautious. We needed to be bigger. We would have gotten out of it faster. And if you want to bring somebody on your podcast, fellow Long Islander, Stony Brook University professor, Stephanie Kelton just wrote a bestseller called The Deficit Myth. I haven't gotten to that yet. I mean to. But I will tell you right now, she was on salt. I invited her on salt. The book is a bestseller. And whether you believe in modern monetary theory or you do not, it doesn't matter because we're

practicing it. You just created $3 trillion. You've got a 25% increase in the money supply. And what Stephanie's trying to explain in the book, Professor Kelton, is that, well, you know what? You can get away with that. There's a lot of different reasons why the US has this Keynesian flexibility to get away with it. And so the combination of Bernanke, Janet Yellen, people like Jerome Powell, and now the Powell-likely Yellen combination, I think is very powerful. And by the way, you know, there was speculation on Wall Street that Elizabeth Warren, Senator Warren was going to be the Secretary of Treasury. I don't think Wall Streeters would have loved that. But I do think

that they like the Janet Yellen selection. Well, they feel that they know her. And I think she had four years or five years. She was a successor to Bernanke. The irony of the Trump presidency and the quote unquote conservative takeover that we've had over the last four years is that this will be remembered as the period of time where we instituted universal basic income. It'll be the period of time where both parties basically agreed, don't worry about deficits, don't worry about debt. We're going to do anything that we have to do. And they seem to have started to pull back the reins with the second round of stimulus, but we'll see. But those are some ironic things,

considering, you know, a lot of the rhetoric about the failures of the Obama administration. We just did the same thing they did under Obama, but like 10x to get out of this recession. The 2008 crisis was a dress rehearsal for COVID. I guess the only thing I would say, and I know we don't want to make this political, and this really isn't political, but it's just an expression of abiding by science. And so I really hope and pray that on a going forward basis, we don't politicize public health and safety measures necessary to curtailing the pandemic. Because if you look at our death rates, Josh, per capita, if you look at our COVID-19 cases, and again, per capita, it's not the volume of testing because again, the death rate is the death rate. It doesn't matter what the tests are. It's unnecessary to be where we are. As an example,

the South Korean economy, you're getting 22 deaths per million. In the United States right now, it's 635 deaths per million. And it's having a paralytic effect on the economy. And I just hope we can figure out a way to use the public health and safety tools and measures to contain the virus without breaking the economy or closing down the economy. I'm optimistic about that. When all this bullshit is over, we'll get together again and we'll do this in person. And I'm looking forward to Salt Brings Back NYC. I would love to see you pull that off. I'm looking forward to that too, John.

I appreciate you having me on, man. You're the best. Of course, man. All right. So where are we sending people? We want people to go to salt.org backslash talks. Yep. Okay. And where could people find out more about the investment products? Where do they go for that? Well, skybridge.com. You can find out about our investment products. We're about to launch something that will go live on January 4th,

subject to a few more comments from the SEC. Once that process is complete, I'd love to talk to you about it because I think you'd be somebody that could help me with it. And I think it's an interesting thing. And it's in your sweet spot in terms of what you're thinking about and where you want to be. And, you know, it's a going to where the puck is going sort of strategy. All right. It's too much suspense now. Now you've got to put up. We'll talk about is going sort of strategy. All right. It's too much suspense now. Now you gotta, now you gotta put up,

we'll talk, we'll talk about it in January for sure. All right, Anthony, thank you so much. Really appreciate you coming on. And if I don't talk to you between now and then Merry Christmas, happy new year. Happy Hanukkah, happy everything to you guys as well. Hey everyone. I'm here with Rob Arnott. And Rob has been on the show before. And we had a really interesting conversation last time about value versus growth. And at that time, I was in the camp that I don't know what would turn it, but I couldn't imagine. Looks like we may have found it.

We'll get into that. We're also going to talk about the addition of Tesla into the S&P 500. So with no further ado, Rob, welcome to the show. Thanks for coming back. We really appreciate it. Glad to have a chance to join you again. Absolutely. And you are the managing partner at Research Affiliates. And how long have you been managing money professionally? Just for those who don't know you that well. It goes back to 1977. Okay. So you've seen a thing or two. I've seen a couple of things along the way. Okay. I don't think, you could correct me, I don't think you've ever seen anything quite like Tesla. It gets added to the S&P 500 as one of the top five market caps or top 10 market capitalization companies ever.

And certainly at present, it goes in at three times the size that Berkshire Hathaway went in and barely profitable, at least at making cars, they're barely profitable. They may have found some other ways to earn profits consistently over the last few quarters, but certainly not by straight up selling their primary product to consumers. So this has to be a first for you, right? It is. I mean, we've seen bubbles that are bigger than this before, but not a lot of them. Bitcoin being one vivid example. If you look at Tesla, the valuation as of today is approximately $600,000 for each car they have ever produced in their history. That sounds reasonable. No? Yeah, yeah. And now Toyota, which hasn't had a losing year since the 1970s and produces about 14 million cars a year, is priced at $20,000 for each car that they've produced in the last 10 years, 20,000 per car, 600,000 per car. So Tesla's pricing bears no resemblance to the fundamentals. A couple of years ago, we wrote a paper in which we offered up a definition for the term bubble that can be used in real time. And I think that's important that you don't have to wait until two or three

years later and say, yep, that was a bubble. You can use it in real time. And the definition is very simple. It's one, using a valuation tool like discounted cash flow, you'd have to use implausible growth assumptions to justify the current price. And two, the marginal buyer doesn't care, doesn't pay any attention to valuation. Well, with Tesla, if their sales grow at 50% per year compounded for the next 10 years, and their profit margins at the end of 10 years are higher than any automaker in the world today, then yes, today's price is almost justifiable. A lot has to go right for that to play out. That's an implausible outcome, not impossible, but implausible. And so when we look at the issue of

valuation, it's easy to look at that and say, Tesla is a bubble. Doesn't mean that it will burst tomorrow. And you certainly don't want to short sell bubble stocks because they can go way beyond anything that you could possibly imagine, as Tesla already has done. I mean, it's up 700% year to date. I think that's a really important point. And the other thing that I think Tesla people would say, or maybe dispassionate market observers who are just watching this whole thing play out, at first they would say, well, forget about the cars. The cars are an entryway into things like automated taxis and drilling holes in the earth and landing on the moon and the solar capabilities of the shingles on the houses and et cetera, et cetera.

So they would just say like the cars are a Trojan horse for Tesla really becoming the next generation supplier of energy for all manner of transportation and activity. And then on that basis, my valuation makes sense. And then the- And Amazon, Amazon was a bookseller. Right. Right. So they would point to that and say, you ain't seen nothing yet. The cars are the books for Amazon. And then the more dispassionate person who's looking on and seeing not only Tesla, but 50 other versions to obviously a lesser extent would just say, well, with interest rates where they are, growth is worth a lot more than historically. It's been in the eyes of people who have capital to allocate and time to let it compound.

So how do you answer that or do you not even bother answering those two questions? Well, the interest rate issue is interesting. We have a paper coming out in a few weeks that looks at interest rates and the growth versus value valuation spread. And that's a narrative we hear a lot. The low rates mean you're discounting future growth of growth companies at a lower and lower rate, which means higher and higher value of those future profits 10, 20 years out, which is absolutely legitimate. But you've got a numerator and a denominator. If rates come down and growth comes down, para pasu, then valuations don't change. So if growth companies in general are going to have less growth proportional to the drop in interest rates, then the relative valuation is unchanged. The other element that is overlooked is that value companies, now Tesla is an exception to this rule, but value companies usually have more debt. Tesla has a lot of debt, even though it's a growth company.

But on average, value stocks have more debt and lower rates are helpful to them. So when you go back historically, what you find is that low yield environments are generally very mildly beneficial to growth relative to value, but not enough to even register in any statistical test. It's a very weak relationship. The notion also is belied by comparisons between U.S. and Japan and Europe. U.S. interest rates are higher than Japan or Western Europe, considerably higher, one and a half percent versus zero. And so why on earth are Japanese and European stocks so much cheaper than US stocks?

If it were just an interest rate explanation, meaning. Right. Right. In theory, you would see bigger valuations there if that relationship were universally accepted as the way stocks are valued. Now, of course, the other thing with Tesla is it's a prospective addition to the S&P 500. The indexers love to say, we don't move share prices. We're not buying stocks because we're taking fundamentals. We're price takers. And if anything puts the light of that, it's Tesla's behavior. The first time I heard somebody speculate that Tesla would be a must add for the S&P was in early March. And split adjusted the share price dipped briefly to $70 a share. Of course, it was $350, but that was before a five to one split. So $70 a share was the low point after people first started talking about, okay, first quarter might be their fourth

profitable quarter in a row. And the S&P has had a longstanding rule. If you haven't made money in four quarters in a row, we're not going to add you. And so the presumption was as soon as the earnings were announced in April, S&P committee would have to add the stock. Well, they chose to overlook the four quarters and just ignore it for a little while. And then finally, the pressure became too great. just ignore it for a little while. And then finally the pressure became too great. And so they decided, they announced in early November that they were adding the stock. And then by mid-November, they announced the date was going to be December 21. We did a paper entitled buy high and sell low with index funds, kind of a provocative title. But index funds aren't passive in the sense of never trading. They have very low turnover. But when they add a stock,

it is inevitably a stock that is popular, beloved, and trading at a lofty valuation multiple. When they delete a stock which interestingly happens much less often than adding a stock you'd think it's one for one but a lot of stocks disappear because of mergers mergers and acquisitions right and if a stock disappears you go from 500 stocks to 499 to 498 and then the next stock that's added they don't have to delete one there's no deletion because it was absorbed into one, usually one of the other components. Right. But, um, when they have a deletion, uh, historically, uh, those stocks are deeply out of favor, unloved trading at low valuation multiples. So the valuation spread between

stocks that are added and stocks that are deleted is about four to one in terms of price to earnings or price to book value. Huge spread. Now, the other thing that's interesting is where the indexers say we don't move share prices, their evidence is the stock is added at the closing tick on the effective date, it's called. And it's announced anywhere from 10 days to a month ahead of time. So you have an announcement date and an effective date. And the indexers aren't comparing the price here to the price here. They're comparing the price at the previous tick at 3.59 p.59 PM with the closing price where it's effectively

in. They do all of their buying at that closing price in a jumbo block trade. That way they lock in perfect tracking relative to the index. And so from 3.59 to 4 o'clock, there's no price movement. So they say we don't move markets. Now, if you go back to the announcement date, and then the effective date, you find that the share price on average rises about 10% in those few days. How much did it go up for Tesla? 200%? percent in those few days. How much did it go up for Tesla? 200 percent? Well, Tesla is a peculiar case. The announcement, from the announcement date, they're up 47 percent. Right. Skewing that average higher for generations to come. Right. And what we found in our work was the bigger the addition to the index, the bigger the price move. Okay. But in the case of Tesla, there's speculation back in March that it was going to be added

and that the S&P would really have no choice. They'd have to add it. And ultimately, that speculation turned out to be correct. They did have to add it. From here to here, that was 700%. Rob, where do you want people to go to find more of your insights? Researchaffiliates.com would be the best place to be? Researchaffiliates.com. We have a couple of interactive tools that a lot of people find interesting. One is called Asset Allocation Interactive, where we provide forward-looking return estimates for 130 different

asset classes and markets around the world. And that's based on very simple, what's the yield? What's the historical growth in income for this asset class? And how is it expensive or cheap relative to history? So some mean reversion is embedded into the return forecast. We'll certainly link