Boaz Weinstein on Credit Investments

all of the troubles that spacts have seen. Previously, he was co head of global credit trading at Deutsche Bank, and ultimately he and Deutsche spun out SABA along with his whole team as a standalone funds man. I don't even know where to begin. This was just an absolutely

fascinating conversation. Not only is he a quant with some real insight into capital market structures and valuation and miss pricings, but he's put together an amazing track record, uh, not just in terms of his trading, but his consistent ability to find parts of the markets that are completely miss

priced because people fundamentally misunderstand what's going on there. Really just a fascinating guy, an amazing conversation with no further Ado, my conversation with BoA's Weinstein of Sabba Capital, Hi, Barry, it's great to be here. And am I pronouncing your first name correctly Boas? Depends where you're from in these parts, that would work, and it's really a typical Israeli name

and it would be Boas alright. So so let's start with um your background, beginning with you started to play chess when you were five and eventually became pretty highly ranked. How did you get into chess and and how long did it take to become a ranked player here in the US? Sure, so I had those parents that would drive us on weekends. I have a sister actually been been on Bloomberg many times, uh Elana. But we my parents would take us to Saturday morning workshops to learn

about model rocketry or chess or what have you. But I didn't actually playing tournaments to always thirteen. I got to junior high school and I was interested in the game. And there was a kid a year above me, and I saw that he was ranked in the top fifteen the United States, and I thought that's amazing. How do I how do I get there? And so how long did it take you from when you started playing in tournaments to becoming ranked. So I became really obsessed with it.

And so in three years I went from a beginner to number two in the country for age fifteen sixteen. Wow, that's pretty impressive. And that's thousands and thousands of hours. Uh, yeah, at least. And and so from chess you moved to poker and black jack, which seems more of a fit with with finance. What led you from poker and black jack to credit it and derivatives? I knew I wanted to be on Wall Street well before I knew how to play poker. In fact, I didn't really learn poker

until I was in my mid twenties. Black Jack I learned a bit earlier. Maybe we'll get there, But Wall Street was always something I was interested in. My parents would listen to watch Wall Street Week with Lewis Ruckiser. I can tell you the postcode for Owens Mills, Maryland. It's two one one one seven, because that's they would always do that right in the middle of the show.

And uh. And so I was able to parlay that interest into getting an after school job when I was a high school student in New York City, at Merrill Lynch and then uh summer internships at Coleman Sacks, which were really among the most fun times in my career on Wall Street. Well, we'll talk a little bit about Goldman In a bit, Um, you mentioned black jack. I understand you got pretty good at black jack, eventually getting kicked out of the Blaggio as a card counter to

tell us about that. So it's they're very polite. It's a you know, it's it's kicked out as more of the nineteen sixties. Um. But you know ed Thorpe is a is a hero and beat the dealer and a

man for all markets. Also is I think a fantastic book. Um. And So I learned how to count cards when I was a summer intern on the risk guard desk at Goldman from the partner in charge, Frank Brozen's almost Marone, some of these legendary hedge fund managers, UM and UH and I got pretty good at it, and UM and I went and was sent over to London when I graduated college with Merlynch, and I found that the games in London had a weakness that the games in the

US didn't. They had a certain side bed that was very crackable, and I had to kind of figure it out. There was no internet, you know, to look up everything back then, and I became quite a skilled card counter. Uh that's really that's really quite fascinating. So so from counting cards, how do you end up at Deutsche Bach? Uh?

So the people at Marylynch that I first worked with out of college had moved really in mass to Deutsche um Edson Mitchell legendary Mary Lynch, head of global markets, wanted to recreate that at Deutsche Bank without having the deep institutional capital markets relationships, and so he really wanted to build up trading quickly, and credit derivatives was a new market, and he had someone named Aunt Jane, who

has really been an amazing mentor to me. Um poor huge amount of resources into making Deutsche if if not the best, the top two year and in year out. And at Deutsche Bank you become the youngest person to be a managing director. Tell us about that path? Yeah, so I think, um, it's either youngest, your second youngest.

Let me let me not overstep it. But still I was twenty seven and usually it's not until you're in your thirties, and I have to say there's so many aspects to one's career that have to do with luck and timing that have to go along with skill. Almost all the time, sometimes you can even avoid the skill part just be ultra lucky. At my My luck was that UM, this market creditortives basically started when I started, and even a year or two after, and I was

waiting for it. It It was like I was waiting for it to be created, because I was never going to be the credit investor that can read through the tent k and and do the deep uh you know, fun fundamental work and accounting work that was going to I was not going to make my mark in credit that way. I needed something more quantitative, more tactical, and creditor. It of started really in ninety seven and UM and so there was no one, there were no adults to learn from.

I got to I got to UM learn learn from experience, and and ninety eight with Russia defaulting and LTCM blowing up, gave an incredible path to that those lessons, and so Deutsche Bank kept giving me more and more responsibilities UM and so each year they promoted me and I and I think another bit of luck was not just being at a place that wanted to expand in this new area.

But also Goldman Sachs had hired away my boss, an amazing guy, Ron Tannemora, and I think Deutsche was a little afraid that that I might move over to Goldman, and so, you know, earlier than than one would have expected, they made me an empty So so good timing, right place, right time, plus the right set of skills in in derivatives trading before we moved to spinning out SABA from Deutsche Bank. I have to follow up your conversation about

being an intern at Goldman Sachs. You kind of worked with a murderers row there and you said it was the most fun you ever had. Tell us about your time at Goldman, Who did you work for and what do they have you doing? Sure, so, look, anyone who comes to Wall Street needs to read Liars Poker doesn't matter we're talking now, ten years ago or fifty years

from now. And um there was a minor character in that book, David DeLucia, who Goldman hired from Solomon to set up the junk bond desk, and he had a incredible love of chess. He actually has the world's greatest going to say something that's not gonna sound so great. World's greatest chess book collection. Um um. Hopefully no one's gasping at that. But he has, you know, fifteen century books and and the busts of the hand of the world champion from the eighteenth century, and so he was

obsessed with chess. I had met him at a at a chess club, and I came to Goldman Sachs to interview for a summer internship. And I had a very perfunctory meeting with the HR person. They they even met me, I think only because my sister was working in private client services then, so they as I have this twenty five minute meeting, the woman says, thanks for coming your college freshman, why don't you come back in three years and shows me to the door, and I said, okay,

can I use the men's room? And on my way out, I went into the men's room and who's standing washing his hands at the sink is David de Lucia. He says, what are you doing here? Come on back, and that began five rounds, five interviews per round, and finally, after twenty five interviews, he calls me back and he says, we tried to do everything we could. There's no program for you. There's a there's a program called s c o UH to give minorities a chance to come to

Wall Street. There's a program for sons and daughters. We just couldn't fit you in. And I said it's you know, one thing is never give up. So I said to him, it's really too bad. You have a program for sons and daughters but not brothers of sisters. And he said, let me try that one. And he and he came back and I had another two sets of meetings and they they they jammed me in with the Summer NBA.

So I'm a college freshman and I'm there with the the HBS and Wharton n B as UH during doing training and all sorts of you know things, and and the desk I was assigned to. His desk was we had a three by two rows, so six seats. He was directly facing me and it was a murderers row. Um on my on my left was Bill Troy. It was really an amazing mentor to me. He was a co founder of a fund called um Gray Wolf Capital. Next to him was Jim Zelter, who's one of the

heads of Apollo Um. And then on the other side Jonathan Coleach, the founder of Redwood. And then last but not least, a guy who was named David Tepper. But he was not the David Tepper we all know and love now larger than life. He was. He was a distressed analyst that was working for for a group. He wasn't this. I can't even imagine him, you know, the way he was then versa now he's He's an incredible superstar,

one of the greatest investors of all time. And I got to work with the five of them every day for you know, for months. And what sort of work did they give you? Because I've read that Tepper used to bust your chops a little bit, a lot, not not a little bit. So he would say, what are we paying you for? You're here to play chess with DeLucia. That's why Goldman saxes paying you as if it was any of his business. So what did he do? He didn't teach me much about the market that I learned

from some of the other guys on the desk. But I would have to get broker quotes in the morning, Um, Murphy, Duryer or Garband. I'd write down where all the bond prices were. And I barely knew anything at the time, but what he would do ring the course of the day. I remember this was Wall Street in the early nineties. Um, they would make bets. So he would yell over at Jim's alter, how many how many synagogues do you think there are in Montana? And and Zelter would say not

more than three. And he would say, I'm I'm gonna buy three bo as, go to the library and figure it out. And this was this is pre internet. So you want to know how many synagogues are in Montana, It's gonna be a lot of work. And so I would settle that bed I would settle were interest rates every negative they were briefly during World War Two. I would settle, you know, bets of all kinds. And in the meantime I would also learn a lot through outmosis

and by asking questions. So it was just a marvelous experience. And if I have a million stories about it, so we'll see what we have time for. So so the Solomon Brothers version of gambling was liars poker, played with dollar bills at Goldman It was a trivia contest for random unknown facts. You know, traders like Tibet and and some of the obscure bets need to be settled. And there was no internet, so you a final word. They trusted you to say what what Boa says, that's what goes.

I uh, I don't even remember if I had to show evidence or not, but I was. I was asked to do all sorts of things, and along the way, I asked dozens of questions a day. And I think that's really important for anyone who is going to have an internship on Wall Street is that there are things you can do to annoy the people around you, but one of them is not asking too many decent questions about markets. That's that's the only way you're going to get to where you want to be, and actually, I

think it will impress the people around you. So let's talk a little bit about your time trading at Deutsche Bank before the Great Financial Crisis. You allegedly made profits in forty out of forty four quarters. How did you manage to be so consistent? I think there are a lot of investors who, if you look at how they did in that time frame. So let's say the late nineties to the Lehman Brothers. The markets really were a

lot easier than they and laws compare editive. There were thousands of fewer hedge funds, and we were we were relatively consistent because there also was a lot of edge in creditoratives. Creditoratives being synthetic bonds or insurance contracts. You can refer to them any number of ways, but how to think about, how to price them, miss pricings, in

credit dioratives against equity ritives. Some of those things were really, again not well understood, and I think Deutsche allowing me to trade those relationships, trading out of the money puts on a stock compared to hedging them with a bond, which is not as crazy as it sounds, is something that I think gave us a big leg leg up and an ability to look across markets and find relative value.

And so we were we were consistent. We were particularly profitable when markets were volatile up until Lehman Brothers, which is where we had two of our four down quarters. That's volatility large, so you're looking for medium load of medium amount of volatility. Once it spikes to very high levels, suddenly all the correlations start to fail or why does that degree of volatility affect trading. Oh, it was really

so specific to Lehman failing as a counterparty. So because I was inside of a bank, if you were um whether it's interest rate swaps or credit swaps, you were part of a daisy chain where you buy protection on General Electric or IBM from Morgan Stanley, who buys it from Lehman. And these hundreds of thousands of swaps would remain on the books. So even if you bought and sold something, instead of being out of the trade, you

would have two swaps on. And so when Lehman Brothers failed, we had enormous exposure to them as a counterparty, just like all the other desks at Deutsche Bank. So that made it more challenging than being at a hedge fund. But the more volatility for our strategy is really the better, and we saw that and we've seen it again this year.

But Lehman Brothers was very specific because if you couldn't trust not just Lehman to pay you, anybody, Mary Lynch, you know, and and Goldman, Sax and Morgan Stanley were trading like you nearly bankrupt identities trading at credit spreads that were a thousand basis points are higher. So so that was very specific, and I think the market has done a great job to reduce counterparty risk in the intervening fifteen years. So let's talk a little bit about

the strategies that SABA employees. One of your funds is a closed end funds arbitrage where companies are either trading at a substantial discount or premium to nav to net asset value. Tell us a little bit about trading closed end funds. Yeah, this is an amazing space. It's one where the product has been around a hundred years. Berkshire Hathaway in a sense is a closed end fund, and Warren Buffett in particular has talked to me and showed me how enamored he was with them right before he

took Benjamin Graham's class. So we're going back to nineteen fifty where he had two thirds of his holdings in closed end funds. Why why are they interesting? Because you get to buy a dollar of assets for less than a dollar, and there are ways to turn it back into a dollar. So the there's five hundred of them

on the New York Stock Exchange. The most venerable managers all have tons of them, whether it's black Rock or black Stone or Pimpco, UM and Templeton, and they um sometimes because they're not cared for, because the fees are high, because the manager is not thinking about the investor, they can slip into trading for a discounts to any v So objective dollar bassets valued properly in the same way

that ETFs mutual funds are valued. You can buy a dollar for eight five cents, and if you accumulate enough of it, and if you take on an institutional approach to reading the documents, understanding the rules as a shareholder, your rights to UM to vote for a board of trustees and UH or or overthrow the board if they're not doing the right thing for investors UM. If you buy up enough of the shares UM, you have a

chance to to make change. And UH we only started doing that when they started to go to deep discounts. Some these barry had been at discounts seven eight, nine years. They never had a day where they were not at a discount. And we've been able in dozens of cases two for thousands and thousands of investors, tens of thousands, to get the discount to UM converge back to ny VING. So so let's talk about that approach. When I think of activist campaigns, I think of investors like Carl Icon

or Dan Loebe or or uh Bill Ackman. How is your approach similar or different to their sort of activist investing campaigns. Right, So, they're finding a company where they can make change, and that change maybe on average, is quite valuable, but you can debate it. And certainly there are examples where the impact of the activist was terrible me in some cases even led to the bankruptcy of

the of the company. Enclosed end funds. It's totally different because the medicine, the plan for how to get the fund trading to ny V works every single time. And all I'll tell you why, because we're not trying to remake J. C. Penny in the image of Apple Computer,

which might or might not work. Or you know, we could pick some that were fantastic successes um general growth to follow on with one of Akman's amazing longs um on the close end funt side, if the manager we're just thinking about the investor, they could literally press a button turn it into an e t F, which they also those same managers. Black Rock is selling e t

s by the cartload. If they changed their closed end fund into an open ended fund, because it didn't give investors an exit at n a V for five six, seven years, it would immediately go to n a V, just like all e t f s are arbitrage double if they're trading different than any of V. So they could change it to an open ended fund, they could

tender for shares at no discount. They could liquidate the fund and offer investors the chance to go into almost the exact same products, whether it's New York communities or or junk loans, or UM or energy equities MLPs UM. There's five hundred closed in funds and there's thousands of mutual funds and thousands of e t fs, So the ability to go from eighty four to a hundred, you're talking about return, and maybe it's the recapture of a loss that the investor, of course UM, if they knew enough,

would want it every time. And the only thing standing in your way is the manager that feels like they have some god given right for that capital to be permanent capital. And if they tender for shares, that means less au M and less fees for them, and so there's a huge um. There's really a huge problem where the managers putting their own interests and the board is putting the manager's interests ahead of the shareholders. And that's where we come in. So why can't closed n funds

be arbitrage the same way E t f s can? So? E t s have a mechanism where you can create new shares if or redeem old chairs and so if if it's ever trading below, you could buy it and then redeem it, if it's trading above, you could sell it and then create it and always at any V. So there's that mechanism that tether is E t f s two N A V closed end funds. It's like a stock. You know, you may think IBM is worth two to share, but you've got to find somebody to

sell to. You can't call our monk New York and ask IBM to give you the two d bucks. So so the things can trade at a big discount for very very long time, and even at a big premium, and so um. But there's a very simple fix, which is they don't have to figure out some new fangled way to run the company. They just need to offer liquidity like a mutual fund or an e t F that would get it back to ny V. And so we've basically won all of the challenges we've had because

we're on the side of right. We get letters from octogenarian saying I was in this fund for fifteen years. I never thought I would see the light of day to get out near n a V And um, we're not doing it for them, but but at the same time, we're doing it for our investors. It is a great joy to be able to in certain market environments pick through the closed in fund space and find literally dollars trading for a two cents that you can pick up the two cents and turn it back into a dollar.

And that's true even today. So markets are efficient, they're just not that efficient. Well, yeah, there's you need someone to come along and say I'm gonna change that. And the closed in fund space really was lacking an institutional manager to do that in size because institutions are also that are an activists are also beholden to those same managers.

They need black rocks votes when they're an activist, so they so they might say I'm not going to upset the Apple card and annoy black Rock to the benefit of thousands of investors and our investors if I need to come to black Rock on my regular way, activism when they're a big shareholder, so you have a little bit of you know, people don't necessarily want to fight UM the big asset managers, but we UM, We're very happy to. We're not We're not activists in any other place.

And this is one of the best ARBs uh that that you can find. And there's only one entity that suffers. It's the asset manager that goes from managing seven trillion to managing six point nine nine trillion. Thousands of investors get to make gains that they would never otherwise get really really interesting. Let's talk about one of the most popular investment vehicles out there, SPACs special purpose acquisition companies. SABA has about five and a half billion dollars in

that space. Is that right? That sounds like a lot of money. You're the fifth largest SPACK holder along with peers like Citadel, Millennium d E share. Your approach is different than how retail investors look at SPACs. Tell us a little bit about what you guys do. Yeah, SPACs are this amazing thing in that it's all over the press whenever there's an acquisition. It's also critiqued, sometimes maligned for being a product that that ought not to exist.

Um uh, in the in the number of offerings that exist. So so in the last year there's generally been a negative ting tinge to the to the coverage about SPACs, and they've performed poorly. They've performed poorly when they do SPAC. So what's important to understand with spacts is the life cycle that they start by being extraordinarily safe. And by that I mean when the I p O happens, the money is taken into trust, the manager doesn't touch it,

and the trust must buy us T bills. So from time zero to the day that they are converting into the company that they're taking public, you have the risk of T bills, but you have some mark to market risk as sentiment goes up and down. That sometimes that ten dollars that you pay for at I p O. You know, back in the heady days of let's say Ark, when arquestrating at a hundred and fifty and flying cars

were you know, we're exciting people's imaginations. Um even before the spack manager would find someone that ten dollars are traded eleven or twelve or even higher. UM Today you can find and for the last year, you can find many billions offered at a discount. Instead of ten dollars you get to pay is something like and UM one year later or even ten months later that for certain will be worth ten dollars. So on top of that you also get the yield that is in T bills,

which right now is another hundred forty basis points. And so you could put together something where if you screened for SPACs and you look for high quality managers, you can still find a four and a half percent return, which is a certain return. But on top of that, in case they find a company to buy and the market gets very excited about it, whether it's electric vehicles or media companies or whatever it may be. UM, you are a stockholder and you don't have to take only

ten dollars back. That goes to fifteen or to the moon. That's that's your profit. And so I I really look at spacts like an incredibly valuable product in these times were worried about inflation, because it's a guaranteed return in the fours plus an equity option for free and um, it's really hard to find something this safe in the history of specs back a before you know the environment today where they're actually quite a bit safer. Not one time in history could you not get back trust value.

You always have trust value to look to, and trust value is us T bills. What happens if the announcement comes out of the acquisition and the public doesn't like it, and the spact trades at a discount, there is a subsequent vote about that eventually. Isn't that there's a vote You can vote for the spack to to do the deal or against. But that is even a separable question

from can you vote to get your money back? So you could say, I've support the deal, but give me my trust value back, which should be your ten dollars, let's say, plus the the yield that you made on the T bills, so you always have the ability to get your money back. And so then as an investor, I have to think about, well, how the market is not just driven by the way things ought to be, even though it's T bills. If there's six hundred of

these running around trying to find companies to buy. There could be a period where because of losses, one is suffering in their portfolio. You you might dump your SPACs and put pressure on that market. It's I have to think about how cheap get spacts get, even if they're basically the safest investment I know of T bills in a box UM and UM with a ten, ten month, eleven month average life. You know you're gonna get your money back, but in the meantime you have to be

ready for some mark to market pain. Let's talk about tail hedging and crash protection funds. How do you find efficient tail protection and what's the difference between paid for tail protection with a zero carry and more expensive tail protection. Yeah, so I've been running tail protection funds since two thousand nine, and um so I've seen many hundreds of investors and heard from them. How are they thinking about it? How

much premium do they want to spend? Do they look at it as an insurance policy where you know, just because your car doesn't get stolen or house doesn't go on fire, you're you're not thinking that something bad happened. You bought a policy and you spent it and its portfolio insurance and then their investors that say, well, look, I don't have a budget for that. I have to keep up with the joneses, I have to make my

expected return. So is there a way that since I'm not going to do the first one can is there a way that you can find something that will have very low um negative carry or burn or bleed some people call it and um and so in the credit or of market, in the last two or three years, there has been, in my view, way to have your cake and eat it too, to have a very low cost or no cost portfolio of tail protection and still benefit and so in um, you know, this strategy was

incredibly profitable even though it didn't have the negative carry that one assumes they need to get a big payout. So that sounds a bit like a free free lunch. How do you get tail protection with with no cost to carry? What risks are you assuming in order to execute that? Uh So, there there's an there's no free lunch anywhere, not even at Bloomberg. Uh So, um, I'm getting free lunch. At least we got that going for So that's the only free lunch on Wall Street. Well,

so the free lunch is not free. You are you are making a bet. But what I see now and for the last few years in the credit space is that there is not enough differentiation between safe companies and less safe or safe and dangerous. And by that I mean if you look at the credit spreads of fifty different companies rated triple B or single A, some of

them are ultra safe. They go by the names of McDonald's, IBM, E, T and T, you know, Verizon, Um, Disney and But the thing is that banks, federal express banks make loans to these companies when Disney, when when IBM, but Red Hat or Philip Morris, Bud Jewel and so banks have exposures, and that when they go out and buy CDs, they are not They are not brilliant hedgehow manager saying what's the next en round? Like Jim Chainos. They're saying, what's

in my book, and I need to hedge it. And so the CDs spread on some of the best companies in the world market caps between a hundred and three hundred billion dollars um, trade at very similar levels. Because of that upward pressure pushing up the spread to names that they're the banks are not pushing up higher, and so you can set up a portfolio where you go long risk to the IBM s of the world and take that carry and buy protection on companies that are

not as safe. And so, just to use the example of I was amazed coming into the COVID environment where McDonald's had the same credit spread as a double B rated online travel company called Saber, and Saber double B was trading at twenty five basis points and McDonald's trading but if you pay twenty five enough times, it can add up. So we we put on these trades. You know, imagine a book of thirty or forty names. You're you're

selling the McDonald's and buying the Saber exactly. And and of course Saber was negatively affected by COVID, but even today Saber trades at five hundred and guess where McDonald's

trains back at. And so there is a free lunch, so to speak, that I didn't see until two thousand, nineteen or twenty, which is that credit when it got ultra tight because people were so confident that the FED had the markets back, and the FED did extraordinary things, you know, since two thousand and eight that credit spreads were too clumped together and one could pick through the portfolio, find the names that would be good tail hedges and the names that would be bad ones, and set up

that trade and it it's worked in better than I thought, and it's working again in so to put some numbers on that, I recall reading the first couple of months of that fun was up like to start the year, you gave a little bit back, but not a whole lot. I think you finished the year up some crazy number like that. So we we have different funds, and not to speak about any any in particular. Those numbers are are in the frame correct, So so pretty close to

a zero carry, pretty close to a free launch. You are assuming some risk, but it sounds like not a lot of risk. Well, you know, I'm agnostic as to which which strategy is right. It's really up to the individual. If you say, well, should everyone have insurance? Should we walk around with uh? You know, insurance? Sometimes we're mandated. You want to get a car, you need insurance. In portfolios, you get this problem where people don't necessarily think they

have a budget for it. If there and if they have that constraint, I think paid for tell protection is a whole lot better than not having anything because look at what's going on now in the market, and I've been seeing for the last year, whether it's from state pensions. We just got one on board last month. UM and university endowments. Incredible desire for strategies that will pay off when there's volatility. Quite quite interesting. Last question about about

SABA Capital Hedge Fund. Where did the name SABA come from? Uh? So, I was at I was at Deutscha, and there were a lot of Deutsche prop groups and I wanted to to brand it. And so I was trying to think, what's easy to say, easy to spell, and hasn't been taken and there wasn't really much much left. And Saba means grandfather in Hebrew. My mother was raised in Israel after the Holocaust, and her father, my Saba, saved the family, saved her, you know, and and saved a lot of

innocent people of Um hid them. So I really felt, as a kid, an incredible debt to to him, and I wanted to honor him by by calling it that. So we named it that at Deutsche was called SABA Principal Strategies, And when we lifted the team out in oh nine, we we kept the name. So it's Saba capital. And if I recall reading correctly, your your grandfather built a double wall of false wall and on in order to hide people from the Nazis that are looking for

people's children. Is that right? Yeah, So he was a carpenter and um, he had a hardware store after the war in Israel. He didn't have um any wealth of significance to speak of, but he was he had a lot of vision. And there was a moment. My mother was born in July forty one in the war saw Ghetto, and sometime around forty two he realized he needed to get her out of there, and he got fake papers that showed he was a gentile with his wife and um, and my mother was hidden on a farm, and so um,

yes he's he was a real hero. And I actually, just a month or two ago, got to take my eldest daughter to Yad Vashem in Israel and and explained to her a bit about the history, really really intriguing stuff. So so it made a lot of sense to spin out and be a free standing fund instead of being part of a larger bank and all of the baggage that comes with that. Yeah, I I I love my

time at Deutsche In. But I had taken on enough responsibility that when my boss left and UH left the bank and he's actually now the head of the vision fund at soft Bank, I had to make a choice. Am I going to be a manager or an investor? And I chose investor. And that was in late oh seven, and the spinout happened early or nine. And along the way came Lehman Brothers, which was, you know, just a

mind blowing experience. I was at the New York Fed the weekend Lehman failed, and you know, we lost quite a bit of money in a eight like like most desks are all desks, but um, but incredible, incredible experience and lessons to well, what were you doing with the New York Fed UH that weekend? It looks it's gonna sound so silly, like they call us in um and

they wanted us to game out on the weekend. Um. If Lehman was closed for business on Monday, if it was done, UM, could you on Sunday, the day before, could you unwind all sorts of trades contingent on them not being there? Like, let's let's do a pre mortem. What can we do to reduce the amount of counterparty exposure, and it was really like dectures in the Titanic. I think Deutsche Bank had hundreds of thousands of swaps facing Lehman, and it was like we were able to that week

and unwind maybe a dozen of them. Really, And that's before we start talking about one step removed, where you have counterparties who then threw it off to Lehman on top of it, or were you including that in that list? No, just direct exposure was hundreds of thousands of rates, fcs and credit swaps. I was in charge of credit, so we were there. I was in a room of you know, all the major banks sent their head of credit, and there were other rooms had head of you know, mortgages

had CEO. But um I got in on a Saturday at at one pm and I left maybe Sunday at five am. So I've heard people complain that the FED made a terrible mistake not rescuing Lehman. But no matter how I've looked at Lehman Brothers, hold aside the fact that they were technically insolvent, it sounds like it was all but impossible for Lehman to be rescued. There was just far too much risk, far too much exposure for everybody, and it was really sort of a mercy killing, you know.

I think if the FED knew what was going to happen in just the intervening days with A. I. G. And the others, I think they would have rescued it. The price tag would have been a drop in the bucket compared to um what they eventually had to do with all the different programs and everything that came after it. So so I think that there was a moral imperative they thought to not rewarding uh greed and treating risk

like it's always gonna get bailed out. But we learned that the FED couldn't see in front of their nose, because only days later we have Fannie and Freddie any I G that needed massive bailouts, and so Barry. I don't know the price tag, but whatever it was, I think it was a tiny drop compared to the damage. You know. I always thought a lot of people don't remember that buff It made an offer to Fold to bail out Lehman, and Fold rejected him, and ultimately Buffet

ended up taking a small piece of goldman Um. But I always imagined that the conversation with Bernanke, and the desk was, wait, he turned down Buffett's money, how can we give money to this yachts if he turned down Berkshire hath Away And I always felt that was the moral hazard, that you an opportunity to save the firm you refused, Sorry, we can't help you. Yeah, so they did take money, if I'm not mistaken, from a Korean bank, and I think it was just Buffet's terms were worse

than the Korean bank. But of course you're right, they should have taken it from from both, because once in a financial institution with such massive leverage starts to unravel, it's uh, it's self fulfilling, it has its own the decline has its own gravity. And you take it from the Korean bank, and you take it from Buffett and uh and you uh, you know, you count your blessings that you didn't go under. This would have been after

he already rescued Solomon Brother. It's the financial sector. Goodhouse king being seal of approval. Lehman might have might have survived if he took the money from Buffett. Who knows. Yeah, I don't think they had such large losses that couldn't you couldn't put umpty empty back together again. But so so you know, I was already h planning the hedge fund from well before that. And so when I left Deutsche Bank in February, around February, middle of February O nine.

By April one, O nine's only six weeks later, I was already up and running with the fund that I had been prepping. Uh Saba has had some spectacular trades. Let's let's talk about some of your most successful ones. I mentioned earlier. The Tail fund practically doubled in um The fund itself was up thirty three percent in that year. How does having one of your strategies up a hundred

percent affect how you think about trading? Do you just leave it and and not interfere or are those sort of returns do do the mean reversion light start flashing and encourage you to start paring back a bit? Right? So specifically in the tail fund, since investors in that fund or using it for a purpose, or using it for a hedge I don't want to be the one to say, hey, the loads are in, let's let's take it off. And you know, people's crystal balls are I

think always cloudy if if not worse. But in those environments it's especially hard to see. I would say when we talk about two, this is another one of those hards to see environments. So I'm not generally tweaking that too much. In our flagship fund where tail doesn't have to be the biggest part or you know, and we

had very similar returns. Um we did find in that environment incredible miss pricings, and so we were able to monetize some of the tail protection and invest in the then you know, most miss priced things, which was relationships between the credit rutives and the bonds or various et fs. Basically, the bond market broke, and Uh, there was an incredible opportunity to do things that I didn't even think I'd

ever see again after a wait, really really intriguing. Let's let's talk a little bit about Bruno excel a k A. The London whale Uh, that trade lost over two billion dollars for JP Morgan. You were on the other side of that trade and ostensibly picked up some of that,

not all, but some of that two billion. Tell us a little bit about the London whale trade, which I recall reading you discussing at a conference before everything went to hell, tell us about that, yes, and and the eventual price tag what they had started the estimated too. I think they acknowledged some number like six point six

billion ended up being even a lot worse. So I am I noticed, being that we're looking very closely at miss pricings in derivatives, I noticed that an older series of the index, the creditor at of index, by the way, I should say, is the most liquid product in fixed income, certainly in credit. The the investment grade one trades about fifty billion a day. It has basically zero bid offer cost. You can get in and out very cleanly with in billions, and that's why firms like Bridgewater and a q R

use it in enormous quantities. Back then, I noticed that an older series one that was not current anymore, retained having a lot of interest, and that interest all came from one counterparty, according to market sources, and one counterparty was kind of driving the interest in it. And one thing that I noticed was that um it was priced very differently than the others. So if you have just imagine the SMP five hundred and it has an at asset value of one, well it's gonna trade right at

one or someone's gonna arbitrage it. Now, if you have the older series before they change three or four names. If if the current series at one and the older series that you know, point nine or something, that's that's really strange that that you have this kind of difference, UM, where the some of the parts is not the same as the whole. And I and I noticed that it was it was too low. You're able to buy credit protection for too low a number comparing the pieces to

the whole. And I wanted to understand why. And through a lot of work we started to see some strange patterns. We knew that it was a trader in London that had by all accounts of this there was it was basically everybody against one and UM and we noticed patterns where in the final days of a week, or particularly the final days of a month, there would be unusual trading which smelled like someone trying to mark market. You know, I'm not saying that's what they did, but that's what

the data showed that there was something going on. And so we took the other side. And as you said, I went to speak at a conference for boys and boys girls Harbor. I think the charity was called and I wanted to come up with something accessible. I want to talk about an index, not some weird single company.

I go to present and it's at JP Morgan. The conference is held at JP Morgan, and I talked about and I say, you know, you have this trader that's really uh taking on everybody and and it's and we can all do the same math, and why why is it trading there? And uh. It took about six months but eventually cost the bank six billion dollars. And so despite you know Jamie Diamond highly regarded as one of the great bank CEOs of all time, the idea that the bank could have lost that much on, by the way,

a notional quantity. So that's the lost six billion, a quantity probably three to four hundred billion, uh and out of some London desk taking risk to us credit. It really is mind blowing. And so when it all ended, someone from JP Morgan came over to our office and we were one of the larger people on the other side, but as you said, we were not nearly their size. UM came over with a piece of paper and said,

write down your number for letting us out. Of this trade, and if you do, we're going to have an extra great relationship from now on. Uh. I wrote the number down we traded. It was we traded fifteen billion and one one trade. That was the size we had. And um, we have a good relationship with JP Morgan. I would imagine you would after being on the other side of that trade. Did they do that with all of their counterparties? I think so? Um, Look, we weren't. It was nothing personal.

It's just someone's again like closed in fund, someone selling a dollar for seventy five cents, and and it's that's that's our bread and butter, and especially the the spacks. It's it's a little easier because you know you're gonna get any v back, But this one's tougher because you know, we're tiny compared to JP Morgan and UH and so we were one of four or five counterparties that were quite large in the trade. We made a few hundred

million dollars from it. But um, but it was more the detective work to find it than the than the actual game that I think is is what stays with me. Huh, really really quite fascinating. Let's talk a little bit about ever Grand, which has become a bit of a debacle over in China, tell us a little bit about your involved in that. So I thought, Barry, we were gonna only talk about my greatest trades, and now you're mentioning

a giant loss maker. So let's do it. Not well, this is this is a great trade, just not a positive one. Um No, it's only fair. So Evergrands stuck out to us as really interesting because we run a screen that says, show me the credit spread of a company, what the you know, with the spread over treasuries or library or sofur is, and and chart that against the market cap of the company. So how big it is and how volatile the stock is the you know, if

you look at the equity options. So if you look for companies that have a credit spread like Evergrand of over a thousand basis points, it did. It had that credit spread when it was totally healthy, when it had a market cap of forty billion dollars and holdings in various entities that are not even in the real estate space,

like of like electric cars. You know, on top of the being the behemoth in the needs property market, you you have forty billion of equity, but you have a credit spread of eleven d basis point that's basically unheard of, and you have equity options that are trading at a pretty attractive level. If you wanted to buy that bond, you have eleven hundred basis points. And if you go and spend that eleven hundred and equity puts, you can hedge yourself quite a bit on the all the way

down from far down to you know, near zero. So so why didn't that trade work out? So we didn't hedge ourselves down to near zero? We we you know, we thought that the We didn't think the company the company was going to blow up, and we also um thought that there would be decent recovery value and there may still be by the way, but um, the way everything went south so quickly. Um, we ended up having not enough hedge on and it was it was a

loss making trade. But I would say even just it, these kinds of screens can help identify things that become problems, and we've we've seen that in a number of cases where you know, the markets today Barry should be more connected when you think about the passage of time and technology. But when I was at Deutsche Bank, the credit and equity departments were on different floors and they spoke to each other, but you had this segmentation, and you assume

over time things will get more and more connected. But it requires different disciplines, different mandates, and so sometimes you can get a very high credit spread and a low equity of vol or a very low credit spread and a very high equity of vault, and that might point to UM something that that can lead to, whether it's us doing the r V or someone saying I see a short here, I see along here, And so I

really do love UM looking across markets for clues. And the reason I asked you about ever grand is I began my career on a trading desk, and anybody who only talked about the winners and never talked about their losers, I know they were full crap, and I can pay any attention. But people who are really UM skilled and polished traders, their losses are a badge of honor and they treat it that way. And so that's why I

had to ask you about that. Following the London whale, let's talk about a couple of other things you do that I think are really really interesting. You mentioned closed and funds. Uh and some mispricings in that space in my prep for this, and and you might have referenced this to me. Um Bill Ackman was a Deutsche banklin for a long time. He has some closed and funds, some of which run at a pretty substantial discount to n A V. Tell us a little bit about trading

with Acman. Sure, so I I met Acman and oh two and Uh I went to go see him after we had done some trades in NB I A the bond insure and UH defunct bond insure. Basically, Uh, so I went to his office and uh there were boxes piles to the ceiling. They were full. They were with offer show of the work he had done on n B I A. And so I saw first hand how he understood that UM aside from and looking at investing that h you know, is this an attractive stock god

to go up twenty or thirty percent? He also understands when there's potentially ways to make fifty times your money or twenty times your money, like he did in n BIA. And he's done in general growth and coupang and you know, things like that his closed end fund because it happened to have launched at a time where he hit a draw down. As all investors you know, great and not so great do. UM. His closed end fund has stayed

at a very large discount. So I talked to before about buying stuff at eight eight five cents in the dollar. Bill Ackman's fund trading at about sixty eight cents in the dollar. But that's not something that we as activists can can take on because he's already set the rules so that he has the majority of the voting rights. So there wouldn't be a way too for the activist to have an activist UM couldn't force a result on him. Yeah.

But at the same time, you know, he has, to his credit, bought back a lot of the stock and UM. And he's also UM uh you know, done quite well over the last few years. Uh leave leave aside. Uh you know a recent trade that he exited. UM. But he's he's been an amazing investor. UM. He's really, in my view, amazing for understanding asymmetry because I've seen whether it's Enron with UM. You know, the incredible work Jim

Chainos did to UM to find Enron. If you go in short of stock and you make it a three percent position and it goes to zero. Okay, you made three percent, but credit derivatives if you bought protection and end run and you you only have to pay one percent. Even after ken Lay was out, it only cost one percent a year for five years. A year later it's gone and you you turned one point of premium into about ninety five points. You made ninety five times your money.

That kind of payoff profile is a different skill set than the skill set of analyzing companies. And I see examples where people get things right, whether it's Enron or Lehman, but they but it didn't change, it didn't change their the outcome for their fund that year. And I think Acman a number of times has shown he really gets a symmetry. Now his clothes End fund is is at a very big discount, and if one we're looking for a top quality manager to be able to buy in

at that discount, I think um is really compelling. But there's nothing we as activists can do to our the discount really interesting. So I mentioned earlier your tail funds. Uh, there are some pretty famous people who run similar or I guess not so similar tail funds. Let's talk about now seemed teleb and spitz Nagels funds um Int Integral Integral. I don't remember the name of the fund. How does their approach differ or is similar to your approach? Yeah?

So universe universe But uh so, look I'm here. You want to have good stories, you want to hear here the so I I've never I've never been at first of all, let me say before I say nerve been a fan of that seemed to his I Q is twice as high as mine. Brilliant, brilliant, the smartest guy in the world, just ask him. Okay, and but he but he happens to be but he happens to be super smart. Um, I don't smart. But anyway, but you know I had I had a couple of experiences from

afar or from clothes. I'll share with you so we can have a little fun. And so I'm at Deutsche Bank and I'm still a pretty young guyme speaking at a conference that we're having in Barcelona. And he's the lunch speaker. Okay, I'm the Deutsche whatever speaker, and he's the entertainment for lunch. And and so we've been all given in our in our satchels, his book Fooled by Randomness, which is a legendar, it's a crisis. I had not

read it, so so there he's showing up. I'm sitting with them at some cocktails and um, and I read the flap Jacket. And Peter Bernstein, who was one of my has written one of the great books about about risk and finance, Against the Gods. I mean when I just say those words and I want to reread it when I got out. Absolutely so, Teleb somehow has gotten Bernstein to say the most wonderful things about Fooled by Randomness? And so what am I going to say to Toleb?

I don't know him. He sits down and I say, you know, I haven't read your book. But but Peter Bernstein on the five Jacket, he said, you know, he said something that was so strong, and I really loved Against the Gods. Now there's a range of answers that one can say, thank you appreciated. I hope you enjoyed the book. Can do you have any others? Barry? Because I'll tell you what's not in the range. How dare you not read my book? Okay, that's that's in the range,

But it's not the range. When someone says that to another person at that venue, and I'm from Deutscha and common decency, he says, Peter Bernstein is not a very intelligent man, which by the way, could not be further from the truth even if it were true. So so that the the the hubrist, the arrogance, the so so anyway,

so look fleds fast forward the number of years. I'm now at a different Japing Morgan conference, not talking about the London Well, they've had me back and I'm speaking, and I get off the stage, and now they're introducing to Seem to Live and instead of you know, with me, they're like, okay, he played chess, he's Deutsche Bank whatever. With to Leb, they say he speaks twenty six languages, and they say a fifty other things, and he's given it to them, and he speaks twenty six languages. Every

put your hands together. When he Seemed to Leb, he gets up and he says, I have to make a correction. I speak twenty seven languages. But he's not kidding. He's he needs to make that correction, and so I I he's brilliant, But you know, I have to tell these two stories because we gotta keep it interesting. On to Universa. They have said to Bloomberg effect, to Eric Schatzker in too many other places, that they made four thousand, one

d and forty four percent in thousand. Okay, but is that that's a trade annualized, that's not their total return for the year. They can't possibly be talking about those numbers. Well, so that's a thing. If I'm talking fahrenheit and all of a sudden, you want to talk forget Celsie's, you want to talk Vin, you want to talk Kelvin, you gotta say Kelvin. So there, because you end up having false expectations and reporting you know by the you know,

innocent journalists. But they were not saying annualized. What they are saying is we spend premium as we go. So we spend let's say it's twenty basis points a month, so point to twelve months, will every three months, will spend sixty basis points, will spend two point four percent a year. And on that that you know batch of protection. We we paid twenty cents on we got back forty times or money. We got eight points, So twenty cents went to eight points. Now the batch beforehand, and the

batch before that and before that that expired worthless. Did you see them say they lost a hundred percent? The lost er h percent. So we have investors to say, well, how do you make four thousand percent? I mean, my god like people make forty our legends. So if you run around not just miss quoted about four thousand, but affirmatively talking about it, I think you're doing the investment

space at disservice to talk about returns like that. When we talk about our returns and in the way that we've talked about them, it's all the exact same way that we know returns to be, which is return on assets UM, not return on the return you made on the a U M, not return on an options trade you did UM. And so I did it for fun. I looked under their framework of what the return was for us. It was not four thousand percent, but because we had very little negative carry, just like we were

talking about before, it was actually twelve I remember. But it's a gobbledea economy. Sure the SEC would bless those sort of numbers in a public document. They'd be thrilled. I can't speak to that, but we you know, for we it's a silly way to boast about your returns, I think so. So, so let's talk about another big brain. Nobody bust my chops better than Cliff Assens. I love mixing it up with him on Twitter. Um, not because I expect to win, but if I could survive fifteen

rounds with him, that that's a victory. That's more than a part of victory. It's like, all right, I defended my position. We just ad greed, but at least he didn't say, you're an idiot, go away. And I love Cliff. I find him to be endlessly amusing. Sometimes he and to Leb get into these bizarre fights. Tell us a little bit about what you've seen with Asthnes and to Leb doing battle. Yeah, so you picked another guy who's twice as smart as me, but he handles it with

grace and humility. How how bright he is, and he's and he sounds like a vaudeville comedian. He's one of my favorite people to listen to. So so he wrote a paper that tail protection is is not additive to portfolios, and that caused to Leb to really critique not only the paper but also a QRS returns. And they got into a big Twitter spat, which Cliff seems to seems

to do every now and again. And I was reading it really as an outsider looking in, but as being an expert in some of this, and I feel like, um, some of the some of the praise that teleb was giving himself was you can't just look at what this two percent that we invested out of your hundreds sense you took two and bought the tele protection did He says, well, what did it allow you to do with your sixty

forty plan? Instead of being sixty forty equities bonds? You could go ninety eight or ninety seven equities and two percent me. And because of me, you've got to have all these stocks that beat bonds, you know, mercilessly until uh, you know, for for quite a long time with the SMP. And he picked the smpino less and so so when he was comparing the apples to apples, he was taking the gains that his tail protection allowed by adding on top of it the gains of SMP over over treasuries.

But he has the benefit of seeing that this was a world or SMP app into have beaten treasuries. What if SMP had done worse than treasuries that wouldn't be true, which which they did for long periods of time over

the past forty years. Yeah. So it's a little bit like like why when people have that intuitive understanding of why the Monty Hall problem works, why does that behind the door there's a prize, behind one door, there's a lion the and the the guy shows you, the host shows you the empty door, do you make the switch?

It's because the host already knows that there's nothing behind that door, and so you already know that anything you can say that allowed you to have more SMP risk into the biggest SMP rally after the fact, you know. So I think, um, uh, maybe I kind of am in between because I think if Cliff is saying that tail production is not worth it, well I beg to

differ there. But um, but they had Yeah, you're right, they had quite a quite a big spat something that I I've thus far, um you know, managed to avoid uh in my my career. Yet you're inserting yourself right into the middle of it. Well, you know, I came on your show and I wanted to make it interesting. So yeah, I appreciate that. I really appreciate that. So, so you've mentioned certain phrases which are really books that

Tolb has written. We've talked offline. We've talked about the fragility of certain institutions, certain sectors, um and and certain investment strategies, as well as the advantages of skin in the game. These are two really big concepts that to Leb has champions. Tell us a little bit about both

of those issues relative to the world of investment. Yeah, so look, um, I think that skin in the game so the head fund manager having enough exposure so that if the fund is going to do very poorly, and we've seen a number of funds this year even you know news breaking today about a fund that is down this year. That the you want, um not from a shot and Freud perspective, but just from a equity, equity

and fairness perspective. You want the manager to have a lot of money invested in their funds so that they're treating that fund like they with their own personal net worth and not literally and and I am no one forced me to do it, but I've had effectively all of my net worth, uh that is in investments in SAVA funds because I want to eat my own cooking. I want to have skin in the game. I think

it sets the right example. And also, you know, it's not so bad to be able to invest without fees in a fund which at the moment my my my own fund is the only one that is not charging me fees. So um. So I've and I have a number of different strategies. So I've really put skin in the game into practice by having something in the upper

ninety percent of of my of my network now. But there have been times where I see venture tech and all sorts of growth stocks going up a lot, which is not my expertise, and I wonder it should I diversify And so I'm having these thoughts right now Verry, like should I into this giant swoon um, you know, diversify a bid into things with other managers or index funds that I don't have any personal domain expertise like tech. But um, thus far um. I've really ate my own cooking.

And the last few years it tasted very good. There have been years where it didn't. Uh. And I think to the second point about fragility, you do see a lot of funds that go through periods where they're amazing, and then they'll hit a bump, and if the bump lasts more than a year or year and a half,

sometimes they're just done. And without mentioning any names, there are long list of funds that were more than ten Allien had some kind of style drift issue or some whatever issue and UM, and they're over in a year. And I think, UM, it is a fragile business. We're seeing a fund now trying to figure out what to do. Should it launch a new fund, should it shut down the old one after a long success and then and

then a failure? And I think that UM. Having been through draw downs myself, I went through a period from the time Mario Drag said trust me, it's enough, and I should have trusted him. So from that period of let's say June two twelve to maybe June two, I couldn't,

you know, I couldn't get anything right and UM. And to be able to come through that and out the other side, UM and not succumbed to the to the fragility problem with hedge funds is actually something I'm more proud of than the than the good years we've had. And I can maybe even if you like, tell you a bit about why I think we survived. Sure, go ahead, Why why do you think you survived? I think the first thing is you have to love what you're doing. And I think back to that three year drawing own,

and it was not severe. The losses were not severe per year. It just took a long time. UM, I loved even then coming into work. I love the markets. I'm a just you're junkie. It's the greatest puzzle. It's it's it's it's a game, but it's important. It's it's it's people's financial future. And um, I love it. I love it, and it it made it it's it's especially fun when you're winning. But it made it very tolerable even when I when I was in and I have a great competitive drive to um to not give up.

And maybe some of that is the fortitude even just from thinking about my grandfather and so forth. UM. And then and then secondly, you have to be so thankful for where you are that you you could be in an industry that has this type of compensation that when times are tough, you need to actually um dig into your pocket and and fund the business a little bit. And I think there's some managers when the going got

rough and they didn't have bonuses to pay people. They you know, it folded and when in our draw downs, we went through some periods where I was willing to invest back into the firm, earn nothing in those years for myself, but knowing that, UM, I have all the upside of things turned around, and I think it's surprising to me that more institutions don't make that investment, even if it doesn't look amazing in that exact moment, but they there's a lot of enterprise value that is there

for that turnaround. And UM, and so uh, you know that's my antidote to fragility is actually UM to invest and those draw downs, I'm going to assume we're fairly modest. You weren't cut in half and trying to think about how do I get back over that high water mark. I'm assuming you had faith in the process and said the environment is changing and we just have to ride this out. Yeah, three three percent, six percent nine survival. Yeah.

And also, um, the other thing is in my world, so the credit market could not be more different than the equity market in a way that people I think don't appreciate. So let me tell you so if I'm short and credit spreads are going tighter and tighter. So now let's say the spread on hy yold is to an a half percent or three, there is a boundary condition where it's not going to go below x. There's

still gonna be a couple of faults. Whereas if you're short of stock and I think game stop, the stock doubles, you have to recognize your risk more than doubled, or at least doubled, because now you have twice the market value. And the more it goes up, the bigger position is. The more credit protection, the more shorting bonds, let's say, goes against you, the smaller your exposure is. And so one of the things about credit is it's a it's

an accordion. There's a boundary um and and in those moments where owning volatility and owning protection was not um the best thing to have, credit spreads were ultra low and really you just couldn't lose much more. And maybe that's part of where the confidence came from. So so let's talk about you mentioned equity. Let's talk about another fund that did spectacularly well in but seems to have stumbled. And there's no clear path to recovery right now ARC. And and by the way, I'm not part of the

Schaudenfreud crew who don't like her. I think she's really interesting and innovative and has the um, you know, conviction and confidence in her beliefs. In she was the top performing fund I think a hundred and sixties something that no one was even close. Number two was like fifty percentage points under her. But since the fun peaked, it's

been almost straight down. She sold off. I think she's excess of sixty down, maybe even sent down, and filled with things like tele aduc and Netflix and um Tesla. A lot of the big winners became big win losers. I don't remember she's in Netflix, but certainly Tesla tell doc um the bitcoin five hundred thousand, call the fifty percent a year for the next five year call. Uh. She seems to have lost her way. What are your thoughts of about that sort of self confidence heading into

what's been a reopening buzz all. Yeah, So we're actually tracking ARC quite closely because the ARC portfolio is not altogether different than the list of companies that SPACs are requiring. They're all future innovative unprofitable tech companies, I think flying cars and UM. And so we've we've seen what happened

to ARC. And one thing we like about about SPACs is that all the deals that will be struck here from now on are gonna be struck at the current market, whereas in in ARC you're really hoping for it to return to the glory days of of the past. UM. But I think there are some good deals that can be made in this more difficult environment. And so those warrants you own in a spack or struck at the market, they're not out of the money. If you think about if you had along dated option on on ARC, that's

very far out of the money. Now. Now, as far as her confidence, I do witness you know, if someone's down that much, this is a humbling market. And it's not particular to Cathy would but I think I've seen a number of cases where people are way too confident about the future, and if they were up fifty would be one thing. If you're down, probably there's there's an

extra dose of humility. So one thing I thought was kind of uh telling, there was in February she um spoke, I don't remember which which program was on and said, um, some of those calls that you mentioned very about bitcoin, uh and make a year. And by the way, you know, great claim should be backed by a great evidence, such Carl Sagan. So I didn't. I didn't see the evidence. But but but she said also that something that really

kind of it's a pet peeve of mine. She said, the lows for ARC were in January, and this is in February. I guess what happened within two days? Another leg down. So you know, you want to say something about what will happen in five years. We were not going to remember in five years whether you're right or wrong, but we're gonna remember when the thing you said and happen happens the next day. And I saw it also a few weeks ago one of the big banks said oil will not be lower than a hundred for the

remainder of the decade. We we don't want to beat up on JP Morgan because they were on the other side, but I saw that hundred dollar in oil trade. Um, you'll never see below hundred. What did it take three days to break below hundred? I actually think that one was the next day tree day in true day. So so you know, don't say what's not gonna happen for three thousand days or whatever, and and and get it wrong the next day. There should be a Murphy's Laws.

There should be some someone should name the what that law is, where if you say it, you're damning yourself. So so I see way too much hubris over confidence, even in the face of giant losses. And it really it kind of drives me crazy because when I get asked, well, what does your crystal ball tell you? I say, first of all, this is the wrong time, you know, it's foggy. It should be like, like people get so used to recency bias. What's been true for the last month, what's

been true for the last three years? Extrapolating for a yeah, and we're now in the world. Maybe you're supposed to look at charts in the nineteen seventies and uh, you know we're talking given more inflation is and we should all be super humble because prediction is a very hard business. And I think the problem is that people who predict the loudest, you know, get the most attention. And and it's um uh, boy, is a tough sledding right now.

This market is so challenging. So so there are two other um post pandemic issues I wanted to talk to you about. One is the meme stocks um game stop amc Robin Hood. Uh, tell us a little bit about what you were thinking with those? Were you trading those? Were you on either side of that trade? And were these just people board at home or or what's going on with this? I think there's a lot. There's a

lot to the story. Um. And Uh, you know, we've seen cases where somebody's too short and they didn't realize being too short can create its own problem, and that could be the entire your investment thesis is is if we push it up high enough, they have to be be squeezed out and um, and it more more becomes

a supply demand thing. Um. But but I also see that in one right around the time that people are getting stimulus checks and you know, the the rise of and you see n f t s taking off and crypto taking off even another leg higher, that there's basically been a degradation in the importance of what something ought to be worth, what the value ought to be, and the price of something is much more determined by the

physics of it. The puh, the push and the pull and and and not about economic models, more about physical models. And so so you see the combination of people buying out of the money call options, whether it's with their stimulus checks or their net worth, and it working. And I saw you in the heart of game stuff. So we were basically uninvolved. But I couldn't resist Barry when

like maybe game stop was three fifty, I was. I was actually using to fine h a brush because I knew if I lost money and this would be embarrassing. So I was I did it too small and and waited for too too good a level and didn't get any kind of reasonable size. But there was a day where like the game stop was near the highs were a call for three weeks a hundred percent out of

the money, like game stops at three eight. But the eight hundred call is that such an astronomical number that it costs like a hundred and fifty points or something, And the vall literally broke people's computers. They couldn't they couldn't do pn L that night because it was the vault was some four digit number. And so I don't think those investors are sophisticated on on equity options. But but for many of them it worked, and it was it was a you know, it was an incredible moment.

But it reminds me that that love of call options started last the summer before um soft Bank set up an entity to trade short term call options on the tech names they liked, and the sellers of these options, as sellers of all, whether it's puts or calls, you know, basically blew up during COVID short vall funds that had done incredibly well when there was no volume, not surprisingly blew up. And so you didn't have the supply, you

had the demand. And so I see today um. You know, n f T s are kind of like an option. They have an asymmetric payout that people are in love with option like payouts and um and as a consequence, volt is elevated even in the nine times even last year. You know, Barry, you've been. You probably know way more about the VIX and the history of it than I do. But the VIX never really went below twenty last year

for more than a day or two. Even in tranquil times go back five years earlier, twenty was like a read alert. You know, all we're in a we're in a correction or a bear market, but we've been between twenty and forty since COVID, and I think these volatile times are going to stay with us. One last question before we get to our favorite question, which is you hired Stephanie Rule at Deutsche Bank and she tells me that you had a business as a New York City

dog walker. So you have to tell us about hiring and dog walker? What the hell is that, Barry? This is this is low. You've really gotte low. I'm trying to go high and uh, you gotta Okay. So I was thirteen. My parents wouldn't let me watch TV and the Sony Watchman had come out, and uh, black and white TV about two by two, and this is the nineteen eighties, and so I thought if I had some money, I could buy one for a hundred dollars. And um,

So I used to walk dogs. I grew up on the Upper West Side, uh, which was not the safe place it is today back then in the in the late eighties. And um, and I tell my kids that in one instance I had one of those extended Alisha's. The dog ran ahead, ran into the elevator, elevator closed, and it started going up and I'm holding this big plastic thing that I can't even get rid of, and it gets pulled from my hand, and it seemed like

way too many seconds. It's up in the corner of the elevator door, and I'm thinking the dog is dead because the elevator went up and came down, you know, bouncing around. But it was totally okay. So my my dog like career was literally the almost uh ended in in one in one cut. Um. But I um, when I when I was a kid, I did that. But two years later I was working as a summer intern and after school at Marylynch, so um. Stephanie really got me with that one. She is basically one of the

best things that ever happened to me. At Deutsche Banks, I knew a credit sueez. She was so good as my salesperson that I would forego that benefit to have her at the bank, and I helped bring her in. Huh. That's that's really interesting. All right, Let's jump to our favorite questions that we ask all of our guests, starting with tell us what you've been streaming these days on your two by two sony uh TV man? Whatever that was? I remember that was like a Dick Tracy watch almost.

Um what are you watching on Netflix or Amazon Prime or whatever? Sure, so um uh, I definitely watched my favorite bit of TV. I'm doing with one eye, so i'm you know, the other I'm I'm at least when my kids are asleep. I'm definitely following the markets at you're closest here. But I just finished the first six episodes of Slow Horses with Gary Old. I just started that this week. I have to tell you there are so many lines of his that are just so quotable,

and they're they're just there. I think the writing is brilliant and m and the show I'd give it an a minus, but his lines are in a plus. Um. So that that's what I finished. I'm about to start season two of Tehran and my wife is from Tehran, and in season one, right in the heart of COVID before Apple started uh streaming it, um, it was a an Israeli show in Farsi and sometimes in Hebrew and so um so my COVID memory is my in laws and my wife doing simultaneous translation for me. Because there

were no English subtitles. I certainly couldn't understand the Farsi and so we that was a really nice family activity. And I thought that was really a great show. Huh. Have you watched another Israeli show, Fouda? I have. I've actually met the cast. I think it is very good. I've seen all those shows. Um, I can't watch it before you go to bed because you just like so stressed out. It's the it's the most suspenseful, exciting thing on TV. Yeah, yeah, really interesting. Tell us about some

of your mentors who helped shape your career. So my start is because a woman who went to Hunter Elementary School as a kid put up an ad at Hunter and it's Dyvesant where I went looking for someone to come in after school and help her arrange meetings and put you know, cards in uh in folders and listen to uh read stock research in my spare time. So that was Jeanine Crane. I'm still close with her to this day. She was a high net worth broker at

Meryl and I worked there from fifteen to seventeen. And then the great David DeLucia from a Wars poker who ran the junk bond desk at Goldman, the chess player who gave me my start at Goldman was an incredible mentor to me. But you know, Barry, I I think the importance of having some that you can ask those questions too, and why did this happen? And what do you think? And why did you sell this? Are so

crucial when you're young. But when I got into credit ord of January night i joined Deutsche, I'm still only years old, and um there's no one to really learn about credit orders from because it's the things brand new. And my my two bosses actually left the bank six months after I started. So I really was alone in the wilderness during LTCM in Russia and it was it

was a it was an incredible experience. I was the most junior person on the desk and the most senior because it became a group of one and they let me in hire some people and the rest is history. Interesting. Let's talk about books. What are some of your favorites and what are you reading right now? Uh? Well, so I'm gonna read I'm about to reread Against the Gods. Now that we had this awesome conversation about Peter Bernstein, Um,

I'm not that into reading the latest book. Um, so I've gone back and read some books that I should have read before. So this uh, the last few months, I read The Powerbroker by Caro and um just feeling a little bit uh interested in my own personal history um and this trip to Yad Vashem. Quite recently I

reread Man Search for Meaning by Victor Frankel. UM. But a few years ago a book that is kind of one of those books like that that people in our community read about different topics about whether it's finance related or or skill versus uh, nurture nature. Uh. There's a book called Range by David Epstein that I thought had some really interesting chapters that I was unfamiliar with. Whether it's the spatial disaster is a little familiar with, or

violinists of the eighteenth century. It's it's really a tourtive force. Um. You can get the basic ideas from it pretty quickly. But I quite enjoyed it. Huh. Really interesting. You mentioned Liars Poker before. I just reread it for the first time in like thirty years when I had Michael Lewis on recently, and it's surprising how well it holds up over time. And there's a book I'm gonna recommend to you, because I get a sense of your likes and dislikes.

Have you ever read godal escher Bach. It seems like that's right up your alley. So I tried to read it as a college student, and I kept trying because I knew this, well, this is a book that's people who think, you know that they can understand complicated things should read and I am. I loved parts of it. I'm I need to need to give it another look because it's been thirty years. I literally had the same experience.

I fought through it in college and said, I got to reread it, and it's on my list to reread same same exact things. Um. Last two questions, what sort of advice would you give to a recent college grad who was interested in a career? Uh in finance. You know, I had people over the years very frequently at Deutscha asked me. Let's say they were summer intern that wanted to get a full time job, or as a person

in operations that wanted to get a trading job. And they'd say, at the end of the summer or at the at the end of some period, how do I get a job on the trading desk? And I would sometimes, and we we were pretty good about actually giving those opportunities. I'd say to the person who didn't deserve it, let's say, well, you know, we have this seven thirty meeting where all the traders go over their top positions and the salesforce asked questions, why haven't I seen you in those meetings? Oh?

I you know, I didn't my job starts at date, or that's I didn't know I could go to those meetings, you know. And there's decisions like that, like should you go to that meeting or should you read the week's research and ask a question, even if you work in operations, or even if you're a summer intern and a reasonable person on the other end will should look at that with loving eyes. And I feel like some people want it, but they don't do the things they need to do

to deserve it. And if it's if it's about business, there's almost nothing that would be too aggressive for someone to do, like showing up at a meeting they weren't invited to that fifty people are in. It's not a secret meeting. And I think young people who want to get ahead, um, who want to be doing something different, need to uh do those things and our final question, what do you know about the world of investing today you wish you knew back when you were first getting

started as an investor. I mean, this is an amazing question as an investor that has to think about when is it cheap enough? How what's the discount one needs on a spack or on a closed in fund, or the mispricing between a credit and an equity to put on a trade. I think that, um, if I could go back, I would tell myself that my imagination for

how crazy things could get is not enough. You know, if you think about, like if you took the government bond traders of pre O eight and sent them to the moon and left them there for years, and brought them back and tell them that interest rates, oh you're back, you know, here's your you know, uh, here's your newspaper. Interest rates are negative. I think to them would think

like you're playing a prank on them. We have we have Swiss rates negative to fifty years, like it's not just a three month bond, like fifty thirty years negative and and so so I think the market never will cease to surprise and people who get tracked into recency bias and this is the way things are, and this is the way they'll be. They're not imaginative enough about what can happen, and it's it's those extraordinary things that

happened where the real amazing payouts are. You know, maybe an example now something that hasn't worked instead is there are probably some currency pegs that people assume are going to be there forever and you know, you just have to be right one time in a hundred years and you're gonna get paid back five dred times or a

hundred times and things. I think, Uh, with what's happened now with with Ukraine and Russia and COVID and China and inflation, I think we're in a world where the impossible can be possible and we should think creatively about um a range of outcomes instead of what's the central what's the central theory? Thank you o As for being so generous with your time. We have been speaking with

BoA's Weinstein, founder of Saba Capital. If you enjoy this conversation, we'll be sure and check out any of the four hundred previous ones we've done over the past eight years. You can find those at iTunes, Spotify, wherever you find your favorite podcasts. We love your comments, feedback and suggestions right to us at might be podcast at Bloomberg dot net. Follow me on Twitter at rid Halts. Check out my

daily reads at Dholts dot com. I would be remiss if I did not thank the correct team that helps put these conversations together each week. Mohammed Ramaui is my audio engineer. Sean Russo is my head of research. Paris Wald is our producer. Batika val Brund is our project manager. I'm Barry Results. You've been listening to Master's in Business on Bloomberg Radia