Sun Valley, Regulations, And Markets (Podcast)

she's usually in the Bloomberg Interactive Broker Studio. I think she's somewhere out in like Sun Valley, Ido, hiding in a bush waiting to, you know, just pounce on interviewing. Summer Camp for Billionaires, Summer Camp for billionaires, Media moguls, tech moguls, they're all out in Sun Valley. They get together every year. Um, and that's where a lot of M and A deals in that TMT space actually originate. Many of the big, big deals that we come to

know and love. Shanali, thanks so much for joining us. How Sun Valley, Yeah, it's pretty interesting so far. It is like summer calm. Do you see a lot of people in T shirts and vans and Adida speakers the occasional Valencia Ada and and Valentinos, but it is a pretty chill vibe. You see a lot of people. Remember it's a very small area, but a very restricted area, so you don't have a lot of access here of course, just a few reporters. But really it's a very secretive conference.

A lot of people sitting at the coffee shop and you wonder what they're talking about. You you expect a lot of deals to come out of this, a lot of partnership. It's a lot of media moguls, you know. David daslov Um of Warner Brothers had come out talked to reporters a couple of times. Yesterday. Bob Iger has been walking around as well. We asked what he's up to. Um he reiterated that he's retired. However, he has certainly been holding a lot of meetings here as well. There's

a lot. You know, if you're retired, shouldn't you be like golfing or fishing something. That's what they do. They golf and fish and Sun Valley and then they go to some they go to some meetings during the day and they just see and be seen. And Um channally, as a reporter who has bidden there before, I recommend highly. You have to go out to the bars at night. That's where you find them, and that's where you can

get some good stuff. So, um, you're gonna have to just you know, buck up and and you know, stay out late and have fun with some of these moguls. I think she'll be able to do. Yeah, yeah, you're in earlier here late. We were here at four thirty in the morning. The executive going for runs. You know, Alex Carp's coming in of talent here very early, just this morning. So there is no sleep in Sun Valley. But there's definitely a lot of uh, there's definitely a

lot of you know, smoozing on the side. So what did we hear from Zaslov yesterday? What did he have to say? I thought he had addressed like a range of topics from CNN to HBO. Yeah he did. He talked about how, you know, the advertising market is not in a terrible place right now. You know, it's these copecutives they recognize that, Yeah, the economics times are hard, but they're trying to strike a note of confidence regardless,

they have to resume business. When he was asked about any future deal, the comment he really made was that we feel good about our strategic footprint, our eat, which means, you know, don't expect us to spend all that much

money after a transformative deal already. So there are trying to check a lot of confidence out here and and kind of reaffirm their strategies as they kind of look to their peers and see what else is going on out there, how their peers are are shifting their businesses in the wake of major, major, major descruption, both in the news business as well as the content business. Remember, um,

Jeffer Kastenberg is already here. A lot of these people are well aware and familiar of the trials and tribulations of the streaming business, which has gone through major upheavals. Um. But remember the ad business has a lot of ramifications for a lot of people. Coin based The CEO is also here. Um. You know that's a company that used to spend a lot of money on marketing. I'm surprised they spent the money to even send him there. You know,

they're not even hiring anybody. They're firing like they decimated their employees. Uh. And um, you know cryptos and free fall. That guy should be like saving money somewhere. Yeah, you know, it's interesting. There's some other fintech bolks out here too. I'm speaking with Anthony Nodo a little bit later they so bydo I ran into Max Levchin, this firm CEO as well. Um I might be eating a little bit

later with san Druck and Miller as well. I mean, these are folks that you know, are are you know much more Um blunt about the pains we're seeing in the market, because these are people who feel it every day when they wake up in the morning, unlike the media dos where you know, the first thing David Does once said was I'm not an economist right about the economy. So so how's the like, just the feel the attendance there.

I mean, you know, a couple of years they had to uh not have the conference due to COVID, and I think they had They had it last year maybe with some restrictions. How's the vibe, how's the feel out there? Yeah, it's so interesting because you come here and last year there are no kids allowed, but we hear people can bring their it's in their families, so you do see people running bikes and kind of biking around and it's a very different feel. You're talking about David zaslav and

at CNN. Some of the TNN talent is here, Like Aaron Vernett saw him talking to her asking about her kids yesterday. So people are meeting families where they're they do have the COVID test. There are a lot of maths, you know, at this level, executives are still anxious. Nobody wants to go back with COVID and and not be able to resume their plans next week. It's a short week this week because it's right after the holidays. So you did you feel the rush of people getting in

late last night and early this morning. Uh, they didn't have that kind of you know weekend as they normally would, right. So, um, you know it's interesting this kind of destination conference. You know, it's something similar Anthony Scaramucci and FTX to do this now in Bahamas, also bringing more families and kids around so that it's a place you can go enjoy as well as network and make new contacts and feels on the side, great stuff. Enjoy your time out there, Good

luck getting snagging some interviews. Uh, it's very competitive out there, but I know you and Ed Ludlow will get your fair share of Shiney Bassk Wall Street reporter for Bloomberg knew she's at its sun Valley, Idaho, the Allen and Company media conference retreat where all the media models hang

out in this summer. It's good stuff the discussion of the morning for me at least UH Roger Roger Rottenham, former head fund manager Global, UH co founder and former managing general partner of the Galilean Group and author of Uneven Justice, joins us, and of course, in October two thousand nine, Raj was arrested by the FBI for insider trading.

Found guilty in May of fourteen counts of conspiracy and securities fraud sends to eleven years in prison, released a home and confinement in the summer of twenty nine, Team Matt, but rog back in the day was the absolute pinnacle of the hedge fund business. So big Matt that he would not even take my phone call as a subside analyst. That's how big is. Roger. Thanks so much for joining

us here. You know, it's a fascinating conversation. You know, I'd love to get your perspective, maybe one key takeaway that you have given that now you have some perspective of time of the last dozen years with your legal issues, I'd love to get your sense of just maybe one key takeaway if you have one. Well, the key takeaway is the communal justice system today in the United States. It has a lot leaves a lot to be desired. It's not a fair system. The prosecutorial power is unchecked,

and there's a nine seven percent convich rate. Um wow, that bears repeating. There's a nineties seven percent conviction rate in America. That's the kind of thing you hear about like Japan and you think something's not right. Yeah, it's similar to China or Russia. Right. And if you lose a trial, you get a trial penalty, which is twice what you would get if you didn't go to trial. But Roger and Real for you specifically, you had the

absolute best legal representation anyone could ever have. Did you not get a fair shake? No? The The uphill battle is the government uses cooperating witnesses who they train and cous into a narrative that they want to give out. And in my case, the chief witness retracted his testimony. In another case in the same circuit the same stocks and the jury found the and then in that case

not guilty. So so I would argue, and I know you want to talk about the markets, I would argue that causing witnesses and threatening them with long sentences unless they co operate is really the underbellue of the American justice system. I mean, I also want to hear about your book. You've got um a book out, Uneven Justice, And I assume this is what it's about. What are your what are the solutions that you propose? And do

you think you can get anything done on this? Because from from from what we're hearing from you, um, and I guess what we see on TV and what we all know happens, you know, make a deal, uh and testify this way or you're going to go to trial and lose. Um. What can be done about it? Well? Number one, I think you should hold the prosecutors to the same standards as a defense lawyer. If a difference lawyer lies in court, he can be convicted of perjury

and his license would be terminated. Number Two, if you're going to use cooperating witnesses, sentenced them for their crime prior to the testimony, so they have no incentive to lie. Ah. So Roger's just just to put a point on is your contention today, again, given the benefit of hindsight and perspective, that you were unfairly convicted? Uh? My contention is that I you know, I'm an American citizen. I respect the

verdict of the jury. But when you have government cooperating witnesses who like to save their skin and then later on retracted in another isle under oath, then only one of the two is correct. And so I'm saying that the cooperating witnesses, um, who are lying that testing my nie should not be admitted. And you know, in my opinion, it's not a fair trial. This is why I wrote the book. I'm not trying to read try the case. The entire peaks of the book go to justice the phone.

And I've spent a fair amount of my time talking to law students at Stanford and other universities two, you know, to create awareness of the comminal justice system. I'm just wondering if you think something can really change now. I mean, we've got a new head of the sec Gary Gensler, right, We've got a Supreme Court that is looking very activist. Um, do you think now is the time where you can actually achieve change. Well, in the last several years, there's

been bipartisan support for criminal justice to phone. Unfortunately it's mainly focused on police brutality on the street against minorities. I would submit that the brutality in the courtrooms, where prosecutors are more interested in winning than getting the truth, should be also addressed. And you know it's not going to be easy, it's going to be slow, but you know,

we have to take one step at a time. If if people like me, who my resume includes being arrested, fighting it all the way, going to jail and coming out, and I believe I have firsthand or front seat. Hey, rocher Love, I would love to get the benefit of your experience here on the markets here, you know, crazy times we live in. What's your market? Call here? What

are you thinking about these markets? Okay? So I've been in the markets for thirty or forty years and I've never seen a market as turbulent as this, and I think it's time to be cautious. Let me explain one last year, I mean, this year, you've seen the unminding of several bubbles, the spack market, the crypto market, and um the meme stock bubble. So you have the unlinding of a bubble together with the fat tightening. So I

would be very cautious. It's like, you know, if you know the roads are slippery, you're not going to take a motorcycle and driving it right. You're gonna stay at home. So we have you know, so I run a family office, market is treacherous, and what we have done is we've reduced our portfolio from sixty five stocks to twenty five stocks.

At the time you were on the street, Raj Paul was working on the street as well as investment banker, and he tells me that the Galleon model was that you picked a small number of stocks around rich you had high conviction, and you would just trade around them. Um. Is that still the model in your family office? And uh, you know, how have you been doing in the first half because it was difficult for everyone else. Yeah, So

we focus on companies that disrupt the way we live. Um, so companies in cybersecurity, clout computing, m e commerce, electric vehicles. The point is these are high beta stocks. They move a lot. So if you're able to trade the volatility pretty well, you can make extra returns rather than you know, by a stock at ten and make five dollars. If it goes to fifteen, if you're able to trade around the volatility, you could probably make seven dollars eight dollars.

So that's a model. We have ten analysts each sectors specialists, and we've changed our strategy in the last six months in the sense that the entire portfolio is focused on companies that generate cash, profitable and grow in excess of so that leads us to sectors were long like cybersecurity, where we have tail winds almost every day. The bad guys are hacking companies for ransomware, cloud computing, the digital transformation of enterprises, and electric vehicles. But how how have

you done? Because you know the first half UM retail investors got Clauber, the sixty forty portfolio, which clearly isn't your model, UM got smashed, and all the big hedge fund you know, you're former colleagues from you know, the Tiger Globals of the world got destroyed as well. Oh, how did you do you want a single number? Seven

point down? So Roger, So you know you think about these markets here, I mean, you know there's been so much volatility here, what do you make of some of like these crazy tradings that we've seen in meme stocks for example, or I guess more to the point, in crypto crypto. How do you think about this whole crypto space. That's something new for you since you were running galleon. Yeah, I mean, you know, I don't know how you value a bit, right, it's what somebody else is going to

pay for it. Um. What we've learned in the last couple of months, it's a huge leverage that's been taking place. Now whenever somebody promises you an eight percent returned to for you to lend your bitcoin to them, you know that's not regather right. So there's too much money running around because of the fuddle reserve, you know, in an accommodative phase. Um. And you've seen you know, when I was managing money, the retail investor was not a big

not a big factor. Today they account for about of the trading volume, and computer algorithmic based trading account for about So you have this money running around the casino not really understanding the risks. And because we've been in a bull market, you know, everybody was parting like crazy. Now they have to pay the piper, right, things are not as easy as it seemed last year. And this is why I tell I, I say to you that I've never seen a market this treacherous and this turbulence.

If I was an investor, I would wait for three months. We would by then we wouldn't know what the Fed's going to do. The consensus is seventi five basis points. Race number two will come through the earning season and we will see what management is saying about their business and the mac and the environment they operate in. And we'll also probably have some charity on how the Russian Ukraine war is UH evolved. Me these are mostly things that you cannot know right. These are big macro issues.

But the retail investor, especially the sort of Wall Street bets crowd um is confirmed concerned about a narrative that you know, the game is fixed, the casino is rigged, and you know your case, maybe one your former case, maybe one that they site as evidence. Do you think that's the case? Um? These days? Are are are big hedge fund managers? Do they need an edge, possibly a

gray area or even illegal edge. Well, you know, it's difficult to compare the retail investors to the professional investor who spends ten hours a day reading quarterly's, listening to conference calls, ten case meeting with management. And in the good old days, if you wanted to invest in the market, you would give it to Fidelity or Morgan Stanley or

Dray first professional money managers to manage. What has happened more recently some of these approprictions that allowed retail investors to buy partial chess so you can buy one share of Amazon. And while retail parties participation is good for everybody, I think you need to do your homework. Yeah, absolutely, I mean it needs Volato markets, no question about it. Roger. I just want to thank you for your time. Appreciate

you taken the time. Roger Roger Rottenham former He is the former managing general partner and co founder of Galleon Management Group, a hedge fund, also author of Uneven Justice. Appreciate getting his perspective because Matt back again, back in the day, the nineties to two thousand's, he was as big as they come in terms of the hedge fund business on the Wall Street. Absolutely, so it will be

interesting to see how um his book has received. Uneven Justice is the name of the book and he takes uh. He has a real problem with um uh, with prosecution and prosecutors and and and the advantages he thinks they enjoy, and and the tactics that they use. It will also be interesting to see how his advice to investors plays out. He says, wait, wait for wait for earnings, and wait for this federal reserve. Let's keep it moving. Matt Winkler,

editor in Chief emeritus from Bloomberg News. He's the founder of Bloomberg News. For for goodness sake, he's in our Bloomberg Interactor Broker Studio. Matt, thanks so much for joining us. Forgot some stuff talk about one of my favorite cities, Boston. But first I want to just get your thoughts on our discussion the mat and I just had with Roger.

Roger Rottenham, former managing general partner co found of Galleon Management, a unbelievable story that I know Bloomberg News covered extensively back in the day and we were television and over it when he got us to covering the trial extensively. What are your thoughts? And Kenny, I know you were listening to our conversation, so we're all concerned about what

comes next. And I think relevant to the discussion you just had is that if you read carefully recent Supreme Court decisions, both the Dodd decision which related to abortion, and UH the decision that essentially UH negates much of what the e p A under the Biden administration has set out to do to deal with climate change. That's about a much bigger issue, which is against regulation per se,

and that includes, by the way, securities regulation. If you look at the say, the six justices on the Supreme Court who were in agreement, UM, where they're going at this point is to you know, eviscerate government regulation, maybe take us back before the New Deal. Really, and we all know what happened before the New Deal. There was the Great Depression and crash before that, and out of

that came UH securities regulation. Really for the first time, the sec was born, if you like, out of the ashes of the stock market crash and the Great Depression. So UH, there is clearly an ideological bent um at this point, and it's coming from the court. There's a couple of an I code that all type on the Bloomberg. I always look at an I l are and I look at an I authors uh now and I Gilbert had. I've looked at it ever since Mark taught me about the bond market. And I Winkler, of course is uh

my mainstay. As Matt hired me. Um, you've got a piece on uh, not only on your on the opinion side, but on your your columns. Here about Michelle wou the new mayor of Boston and how she's going to change it with the help of a big boost of stimulus.

Tell us about it. Well, she's, as we say, a mayor of many first because she's the first woman and first person of color elected as mayor uh Boston, and that was in November, and she inherited about three and fifty million dollars in one time federal funds that came out of COVID nineteen relief money. And she immediately set about using that money. Uh. She puts it to make

Boston the greenest city in America. But what really is, um, if you like, the secret sauce of Boston is, and maybe not so secret anymore, is that it's exceptional really in the world as a center for biotechnology. And we can say that at Bloomberg because we have data that shows that there's no city in the world. There's no country in the world, there's no state in the United States where you have the convergence of biotechnology and three

companies in particular what you've heard of. Of course, Maderna and Biogen are probably the best well known, but there are actually many UM companies that you haven't heard of. And uh, this is really about the twenty one century. And this is where Boston benefits more probably than any other city. Do they have a corruption problem because I obviously think about M I T and Harvard and Vertex and Maldierna, and but I also think about the Big Dig when I think about Boston. Well, it's not so

much that the Big Dig was UH corruption. It was a very long term government project. Having said that, if you ask anyone in Boston today how they feel about what was achieved by the Big Dig, the answer I think is unanimous, which is Boston is a beautiful city because of the Big Dig. It's a cleaner, more vibrant, UH, more connected city than it ever was. And so the Big Dig was in fact a far sided UH decision

and only benefited Boston. You know, as a former sell side analysts, Boston was after New York, my top top market. I'd go up there at least once a quarter, big financial services, big mutual fun industry. If there's that's still the case, well sure, I mean if you think about Fidelity for example alone, Uh, Fidelity is such a huge generator of revenue. Uh, you know, it's gargantuan and uh.

Then you think of healthcare. Health care amounts to about corporate Massachusetts, and of that business is biotech and pharmaceuticals. So there's a reason why you would beat a path there because, uh, for example, they're fifty seven Massachusetts based biotech firms in the Russell three thousand. They produced a total return of thirty seven uh and two during the

past two and three years. That substantially outperforms California and New York, New Jersey with comparable healthcare and pharmaceutical in biotech companies. So you get some sense from this data of just what a juggernaut this industry is for Boston. Can I just ask you one thing I haven't seen mentioned in these columns. You did one on Atlanta before Boston. I've just moved from Berlin, and I've noticed that we have a real problem when it comes to childcare. Why

why isn't their pre K childcare right again. I mean it's a political decision in this country, not a moral decision or an economic decision. It's a political decision, all right. Matt Winkler, thanks so much for joining us. Always appreciate it. Matt Winkler, Editor in Chief Emeritus, Bloomberg News. Joining us here. Phil Taps, CEO of TAPS Asset Management film more importantly of your assets in cash talk to us about that. Yeah.

So our strategies, we have funds and ETFs and s m a s and we have been managing this way since. So it's not something that we came up with last week. But we use trend following algorithms, and our trend following algorithms attempt to get us out of the way of market train wrecks in the very early phase of decline. So we moved for the first time out of US equities in and international equities on January thirteenth of this year. Um,

we've been in. We've been in a couple of times and out very briefly, but we've been defensive now for at least the last month and a half. So the idea is that when market chaos happens, sometimes it's just best to be on the sidelines and wait for better value to come along. We just heard this from Raj Rajaratnam. Actually we spoke to the former hedge fund manager and

convicted insider trader. I guess I should say that legally, um And he he said, he advises investors to wait like three months until we see get a better picture of what the Fed is doing, of what the economy is doing versus inflation, and what's happening in the Russian war against Ukraine. What do you think about that? Well, so it's it's really hard to put a time frame on it because you don't know whether it's going to uh, you know, become escalated and bottom out in the next

week or two months or three months. So if you just have a period of time like three months, it could take six months or nine months. So instead of doing that, I think someone needs to come to this idea with a well thought out system. And what that might look like is a trend following algorithm that then detects when trends turn higher and attempts to come back in. Just as we got out in the early phase of

this decline. What you want to try to do is come back in in the early phase of a rise in the markets, and so you know, for for this to end, we'd expect for volatility to be way higher than where it is, you know, vix it in the range of isn't full capitulation. So once that finally happens and trends move higher than there cans to be some very big gains ahead. I mean three months would put us about where an average recession would end, sometime in October of this year, but I'd hate to put a

specific time period on it, like that. Is this the kaboomer thing, because you're not a dooomer or a gloomer, but a kaboomer. What a boomer? Yeah? Yeah, So some people sometimes say that I'm a doom and gloomer, but I came out this year out of the closet as a boom boom kaboomer. Because if you're a duman gloomer, it's like being at a cocktail party and tell it, reminding everyone of the hangover that's going to happen eventually. But so we have to do is embrace the boom

and realize that markets are advancing of the time. But the thing that almost no one is prepared for in the markets is when the market when they go completely off the rails, and so you can look to the financial crisis of client, but it could be worse and the Great Depression stocks went down, So some combination of both decreasing earnings and compressing valuations, it could be even

worse than what we saw in the financial crisis. So acknowledge it and build contingencies around what would happen to your portfolio if we see that kind of a huge that's a great general perspective we've seen now specifically the valuation compression. What kind of earnings drop or collapse do you expect. So if you look at the last to bear markets, the both the Internet double burst and the financial crisis, what happened is the economy was fine going

into it and the stock markets fell. And after the stock market fall, that's felt that's when you saw a recession and a decrease in earnings. That appears to be what's happening this time as well, because coming into the end of last year, you know, still the unemployment number looks looks quite good. There are more jobs available than our people to fill them. But I think it depends on how serious the stock market fall gets. I think it depends on how bad inflation and how long it persists,

and that will help determine how bad earnings go. But I don't think we've seen a lot of compression and valuations yet. I mean, if you're still bumping up around twenty times trailing on the SMP five hundred, that doesn't even look like average, much less low multiples. So really, you know, looking back at the history of the fact that we've been at that five and a half times earnings on the SMP five hundred, we're nowhere near that

kind of a low. I'm not saying we'll get there, but that's the kind of risk that we're talking about. Still thirty seconds here, Um, if you had to buy something today, would you what would you buy? Well, frankly, I mean, I know that the energy complex has come

out under come under pressure recently. But if I was going to put a small allocation into something that I thought might have a prayer of advancing in the next two to three months, it would be in the energy sector, and that that trade could go wrong if we see

us come into our recession. But I think there's a possibility still we all know of Russia doing some things with oil that could cause oil prices to spike, so I would I'd look to that, and then for broader portfolios if you're not going to be in hedge equity funds like we manage, or things that can be fully on the sidelines. I looked at things like low ball stocks and and think they're going to be less volatible and moved down less than the broad markets. So people

accuse him of doom and gloom. I just don't see it. Phil Taves, thanks so much. We appreciate Phil Taves, ce CEO of Taves Asset Management. And that's how you pronounce it, right, Yeah, Taves, I'm going with that. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Mat Miller. I'm on Twitter at Matt Miller nineteen seventy three and on false Sweeney I'm on Twitter at p T Sweeney.

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