Masters in Business: Altegris Group CIO Jack Rivkin (Audio)

and now managing director at Altegri's. Jack is really a legend and and the way his legend um forms is he was hired to take Lehman Brothers research department, which was literally dead last in the i I rankings, just the worst research department on Wall Street. And he was hired to improve that. And he did a lot of things that actually turn out to be quite common today, but back in the day when he was doing this, it was relatively unheard of. He hired lots of women

and minorities. People just didn't do that way back when. He also started tracking how people's research report was used by the Street, how often people requested a specific analysts report, how much revenue it generated, how much commission dollars had generated, simple basic quantitative metrics to evaluate um the research product, and we take all those things for granted today. He

was the first guy who did this. So not only did he do a lot of for then, out of the box hiring and outside of the box thinking, he engaged in a lot of off campus retreats and lots of stuff that were considered touchy feely back then and again fairly common fair today. And over the course of three years, he took Lehman Brothers Research from the worst to the best on Wall Street, who was the number

one ranked research department. For his troubles, he was subsequently fired by Dick Folds and his inner circles of yes men, as I like to call it um, But he was so successful. Jack was so successful in this that the process, the methodologies, what he did became the basis of a Harvard Business School case study. For those of you not familiar with Harvard Business School, they teach through a series

of case studies. Here's how a manager, Here's how a CEO, Here's how a company addressed a specific problem and solved it. And so I actually met Jack through a mutual friend. It was at a dinner with the famous art cassion of Ubs and John Moulden where I met Jack, and it turned out we had a lot of things in common, even though he's got a few um years and a

few gray hairs on me. We're both fishermen. I ended up in reducing Jack to to David ko Talk because they're just same age, same you know, same sort of background, same era. They hit it off swimmingly. Jack is now a regular fixture at the Ko Talk Shadow Fed event, which is every August up in Maine where a bunch of fund managers and economists go fishing. Um Jack really

fit in very well. But he's a fascinating guy because he then leaves, then leaves Lehman Brothers and ends up at New Burger and Berman, where he's c I O and does a phenomenal job there, to the point where Lehman Brothers ultimately ends up buying New Burger and Berman. And here's Jack, a guy who was fired um after doing a great job, ends up working for the same guys who fired him, and gently egresses himself out of

Lehman a second time. This this version is voluntary, and it turns out to be quite fortuitous timing because he le eaves just before Lehman collapses. I want to say two years before everything hit the fan, and so uh, he ended up really being one of those situations where it was a fantastic firing and and did really well for him. But Jack is one of these guys who's just really savvy and down to earth again, another no nonsense sort of guy who just tells it like it is.

And Amen, she's a delight to speak with. He's really a charming fellow. I love the fact that he's seventy or seventy one and has zero interest in retiring. He loves what he does. When he was a partner at Ideal l Abs, he's still a partner at Ideal Labs. Really fascinated by finance, technology and software as well as biotech, and we briefly talked about you know, printable organs and

principal bones and and things along those lines. It's it's the areas that interest him I find quite fast and and so I thought this conversation was really really interesting. It's not as much inside baseball as I've threatened. For a guy that the average investor may not know who he is, he's been all over the street. He's got just a phenomenal career, a great track record, and just a deep, deep well of knowledge. So it was a pleasure to sit with him and have him share some

of that. So I think I've babbled more than enough. Uh, probably a minute longer than my usual babbling. Without further ado, here's my conversation with Jack Rivkin. This is Masters in Business with Barry Ridholts on Bloomberg Radio today. On the show, I'm thrilled to have my friend Jack Rivkin, a person you may not know who he is, again, another inside baseball sort of person who people on the street certainly

know who he is. His his Let me just give you a little flavor of his resume, because it's quite outstanding. You began your career as research as a research analyst back in ninety eight at a small firm called Mitchell Hushins. Eventually become head of research there they get bought by pain Webber and you work your way up the ladder of Pain Weber, where you become research director, CFO, CEO of the equity trading side, and eventually president of Pain

Webber Capital. Then you move over to Lehman Brothers in seven. There are some other things in the middle, but I'm just doing the highlights At Lehman Brothers. You famously took them from first from worst to first famous right, and eventually your tenure there was the subject of a Harvard Business School case study describing exactly what goes in taking a last place research firm turning it to a first

place firm. You were c I O, Chief Investment Officer at New Burger Berman, and before that you were Director of Global Research at Smith Barney. And currently you're a director at Dale Carnegie Associates and on the Economic Club of New York. Did did I miss any of the big The only thing you missed were I have My most fun is I'm a director of Ideal Lab. You do very early stage investment pre venture capital. We start with an idea and turn it into a company. There

you go. That's that's about as early stage as it gets. So you've obviously had a very storied career on Wall Street. You've worked in a lot of major firms. Um, what were your early influences, what actually affected your early approach to investing. Well, I had some very good mentors at Mitchell Hutchens. There were three people that I worked with for a long time and they made a difference in my life. Don Mirren, who became CEO at Paint Webber and then when they sold to UBS, he took over

a private equity operation there. Dave Williams, who, when he left Mitchell Hutchins went to Alliance Capital and built Alliance Capital up was not owner the Alliance Bernstein acquisition. And Mike Johnston, who went to Capital Research and had a long career there as well. They were very strong influences on my care I left out earlier. You're from originally from Oklahoma. That's right. How does a guy like you? You went to college at Colorado, Colorado School of Mines

engineering degree. I went there to actually become a petroleum engineer, but I really didn't like identifying rocks, so I switched to metallurgy and got my engineering degree. Realized that I didn't really want to be an engineer. I actually went to work for Procter and Gamble out of out of engineering school and then went back to business school. So you end up at Harvard Business School. I ended up at Harvard and from there, well, I went to Harvard

to become the world's expert in manufacturing. I was going to go back and make better soap, and I realized that there were other things going on in the world, and one of them was Wall stre Did we really need better soap? Soap has been pretty good for a while. Well, but you could always make it better, at least that's what they told. You can always sell more units of all, right, So you end up. I end up on Wall Street.

And I gotta tell you, you know, growing up in Tulsa, if anyone had told me I had go to New York, I would have told them they were crazy anyone go to that kind of a city. And then if they said, and you're going to work on Wall Street, I would have had to ask what that was. I had no interest in finance, never, I had no clue. And Tulsa was at that point the oil capital of the world.

Suddenly moved to Houston, so everyone was kind of focused on that industry and taking those weird tests that you do in high school, it said, well, maybe you ought to think about being an engineer. So that's what I did. But when I didn't like finding rocks and identifying them, and when I found that there was more to life than it was a great educational background, but there was more going on out there, I moved on that's quite quite fascinating. So you work your way through a number

of um a number of big firms. You've you've certainly seen changes since. So you started in the late sixties, which was pretty much the end of the post war rally. Yes, so you had a twenty year run from forty six to sixty six. The Dow I think started at someone in the two hundreds, just about kissed a thousand in nineteen six air under it and then for the next sixteen years that's whoever got back over that level. No, it never did. It was an interesting period of time.

It was a time we're actually doing analytical work and coming up with specific investment decisions. Actually made a difference because the market wasn't helping you at that time. No, whin did you're back. You've had five major rallies, five major selloffs, and by the time you were done back in two you were essentially where you started. That's right. So high inflation rates, so you could get ten year treasury yielding twelve fourteen and and and free Fed funds rate.

The high the peak was twenty two point three percent and twenty two point three percent as the Fed funds rate, and we had one, and we had a whole lot of inflation over that same pioge we did we did that was that was a period where you paid a lot of attention to the to the classic deep cyclicals who were involved in commodities, and some of them made

a lot of money. Coming up, we continue our conversation with Jack Rifkin and we discussed how he took the last place research department of Lehman Brothers and made it the best on Wall Street. You're listening to Masters in Business with Barry rid Holts on Bloomberg Radio. I'm Barry rid Holts. You're listening to Masters in Business on Bloomberg Radio. My guest today is Jack Rivkin. He's chief investment officer at Altegri's Associates and has a very storied career on

Wall Street. Worked at UH in very senior positions, head of research, CFO, et cetera, at and a number of large firms. But what you're really is it fair to say what you're best known for is the work you did at Lehman Brothers in its heyday? Is that a fair statement? I I think that's close to a fair statement, and it was definitely something unusual that happened there, and we touched a lot of people and it made a difference.

So so let's stay back and talk about this. U. By the way, you and I first met some years ago and after I we had met, and you're just a very ordinary guy, very humble. Like when one meets Jack Rifken, one is not does not come away with wow, that guy has an unbelievable resume. So so what a nice guy. And I just happened to mention it to somebody. By the way, I met a guy named Jack Rifken, Jack Rivken. Do you know who Jack Rifken is? Yeah, he's this guy. No, no, no, you should go google

Jack Rifken. So I google you, and upcomes the Harvard Business School case study on what you did at Lehman Brothers from I want to say seven to the early that's right. So so essentially at the time, Lehman Brothers was a fifth or sixth um largest investment bank, maybe even a little smaller than that, with the research department that someone called the laughing stock of Wall Street. Not well, it was not highly regarded, essentially last place in every ranking.

And so who recruited you to run their research upon actually a guy named Jeff Laine who had an influence on several things later in my life. He was CEO at New Burger when I went there as CEO at his request, and this was kind of an offer that was hard to refuse. First, it was sort of a blank slate. I could I could do. I could apply everything that I had learned to a something that really needed to be reformed, and it truly needed to be reformed, and there were incentives put in place to take it

up to somewhere in the top five. And that was our that was really our goal. And really that five year plan took you about three years to put into a That was the surprise. I was surprised at that as well, that we managed to do that in three years. And so let's talk a little bit about the how did you end up? What did you do to change the staffing, the culture, and the quality of the work there. Well, it was it was fairly easy in the sense that

I could make changes to everything. There was nothing that was sacred. And in fact, in the case they talked about the possibility that we could have actually brought in a Wigia board and fired everybody, and nobody would have known. Sometimes people wonder if that's actually what goes on in research departments anyway. Well, the very famous monkey throwing darts at a stop pages on the wall. That's absolutely right, not that far off. So so what what changes aside

from the wholesale changes from what wasn't working? What did you actually do? It was two things. Primarily, one was measuring. We measured everything, and we measured it very openly. Whether it was a number of calls and analysts made, what their track records were on their stocks, the quality of their written work, all of the contact they had with the salesforce, the contact with the clients, all of anything we could measure, we did, and we posted it. We

posted it so everybody could see it. Now, analysts aren't tend to be competitive, so you're posting who makes the most calls, who writes the best report, who writes the most reports, who has the most feedback coming from the salesforce, how are they getting rated by the clients? All of those things people saw. No one wanted to be at the bottom of the list. So you created a somewhat

competitive environment. But against the background of it was spelled out and we tried to make it as collegial as possible. I instituted a rule that's at any time you were out with a client and you talked about what you were doing, and even in your reports, you had to mention two other analysts in the department. Now, that started out with people saying, well why do I do this? I said, Number one, someone's going to mention you. You're

gonna get better known. Number two. Ultimately, you're going to have to find out a reason why you're mentioning an analyst. So it's gonna make you a better analyst as well. So so all of these quantitative metrics and this transparency, this is pretty common stuff these days. It wasn't then. So so that was you guys were really operating a little outside of the box and shaking things up well. And we operated even more outside the box. We used

to have off sites that were bizarre. We did strange things, face painting, uh. We We had people coming in talking about left brain, right brain. We had people coming in providing sports analogies to how you run a successful organization. We did a lot with these folks. We put them

through a lot of training as well. Even the older analysts, we would we would put them in a group and have someone who was let's say we had an analyst who was making the most calls that analysts would talk about, Here's what I do, Here's how I do it, Here's how I get off the phone to make the next call, here is what I concentrate on, etcetera. We had one of our analysts, who was a very good balance sheet person,

go through with all the other analysts. First, that meant they were recognized internally, and secondly they were conveying information and other people said, Hey, I'm surrounded by some good folks here. And this did not really happen at other Wall Street Research. It was not happening as much. There was another element that worked for us that was different.

We had a fair amount of gender arbitrage. I guess that's the way I'd put it, meaning that you brought in a lot of women, brought in a lot of women, well they were mail and and the women. In terms of market share of ranked analysts, we had the highest market share by a lot. Now why did they come there to work? Because we created an environment where one they felt that they were recognized to that it was

totally based on merit. There was no nothing in the way of compensation difference, and we supported, We created an environment was supported if they had kids, let's deal with that, if if they need to take a break, time off, office, at home, whatever you wanted to do. And because we're measuring everything, we knew people were working or they weren't. It also became a very collegial environment. And that work. Now the reason Harvard wrote a case on it is

because it applied outside of just a research effort. It was taught in the Management of Service Organizations course as they kind of standard for right. And I still go up there, you know here it is. You know, it's twenty years later and they're still teaching the course. That that's quite fascinating. When we continue our conversation, we'll discuss how Jack actually got fired from Lehman Brothers despite taking them to the top of the institutional rankings. I'm Barry Rihults.

You're listening to Masters in Business on Bloomberg Radio. You're listening to Masters in Business with Barry rid Holts on Bloomberg Radio. This is Masters in Business on Bloomberg Radio. I'm Barry rid Holtz. Today we're speaking with Jack Rivkin, who is currently Chief Investment officer of Altegri's associates. But he has a very storied background and career. He worked as the head of research at Lehman Brothers, the chief

investment officer for new Burger and Berman. You were at Smith Barney, you are at a number of places, a very storied um background and incredibly knowledgeable about how things work in the world of finance. Earlier, we were talking about how you had taken Lehman Brothers back in the nineteen eighties from the worst research department, a laughing stock on Wall Street, to the number one ranked institutional research department, and for your troubles you were rewarded. How you listed

every place I had worked. Some people could say, well, he couldn't hold a job, Well, this was an instance where I clearly couldn't hold it. All those other jobs you had been recruited away and hired away this one, it was not quite the case there. Three years into it, we were number one in research. I then moved from being head of research to running the whole equity division, and we were actually doing extremely well. But it happened to be a time when the fixed income markets weren't

doing well. If you go back that was a period of crisis SNLS. There were all these kinds of problems and fixed income, which was the core of Lehman, was not doing quite as well. And we were really kicking it. We were doing extremely well, and I don't think that went over well. And I had a different management style.

Lehman was a pretty buttoned up management style, and I had casual fridays and all these offside, very loosey goosey with But by the way, a lot of the stuff you talked about, it's pretty standard operating procedure today today in in a number of management courses and a number of service oriented industries. But back then it was not. People looked at you a little, hey, what is this crazy? It was this crazy guy and what is he doing here? Well, what what we were doing was producing results, but it

was not being done. And what I'd call the button down, this is the way we're going to operate. And the guy running the fixed income operation at that time was a West Point grad. He had a certain way of doing business. He was totally opposed to casual fridays and he said, you know, I, I I just don't believe in wearing doctors into work. And I said, well, what's important are the results, not the numbers. That's it. And the numbers were pretty good, but I didn't fit. So who

ultimately fired you? Was it Dick Fold or was it Dick was in the office, Dick was in in the meeting. It was Dick and Chris Pettitt, who was the guy running the fixed income operation at that Hey, you're making too much money on the equity side, and we don't like what you're doing. You gotta go. Well you could see how that ultimately were strange because I I you know, they said, well, we're going to have to make a change here and I I said, well, let's talk a

little bit about why. And they said, well, we just feel it's necessary. It just as important. They wouldn't go into it. There was no argument on that, and and okay, so it was going to happen. That's fine. So it then became let me negotiate the best exit I possibly could, and I get maybe because they felt guilty or whatever. It was a pretty good exit. It gave me a lot of flexibility of things to do, and uh, I still have lots of friends at Lehman, And of course

I came back involved with Lehman because new Burger. So you ended up as chief investment officer at new berglan Berman. So this is you leave Lean Well, No. Nine two is when I Yes, ninety two is when I left Lehman. And I was trying to actually with a guy named Jim Freeman. We were going to actually raise a merchant banking front. And I went to Sandy Wild to raise some money and he said, why don't you come over here and help us on the research. And then at

that point they had Smith Barney. Yes, they had Smith Barney. And I said, no, I'm raising this fun And I asked him, I said, well, when are you going to buy Lehman? And he said, oh, they hate me, I hate them. It's not gonna happen. I said, well, if you ever do give me a call, there are a couple of people there. I'm prepared to shoot for you.

So that two months later I get a call saying, well, we're not buying Lehman, but we're buying the retail division and we're buying the asset management business Smith Martin of Jerson Lehman. They and they were adding it to the Smith Barney. So they loved the Lehman research. Why don't you come in and get a Susan, I said, I'm raising this fun and to Sandy's credit, he said, okay, you come over here and help us, and I'll give

you the money. The money he he gave was first Travelers Investment Group money and then the City Group Investments and I I was there during the dot com era. I spent two years on the research side and then moved into the investment group and ran a group of folks doing venture capital and portfolio myself. And it was during the dot com era. It was a great time to be there. And I retired from that in two thousand one. I tried to retire in the said no,

you gotta stick around. But I sold everything that I thought I could sell, so there wasn't much left to do. But I stuck around, retired with the intention of spending a lot of time in the venture world. And then I get a call from my friend from the Lehman days, Jeff Lane, who was running Newberger Berman, and said, why don't you I'm here at ce IO coming up. We continue our conversation with Jack Rivkin discussing the world of

venture capital, investing, managed futures and Hedge Funds. You're listening to Masters in Business with Barry Ridholts on Bloomberg Radio. This is Masters in Business on Bloomberg Radio. I'm Barry rid Holts. Today I'm speaking with Jack Rivkin, who is currently head of Research and and principal at Altegri's Associates. Is that correct? Or chief in pretty close chief Investment ce IO, and earlier we were discussing um your career.

You had run the research department at Smith Barney and before that at Lehman Brothers, and then eventually became chief investment officer at new Berger and Berman. Along the way, you were pretty active in the venture capital markets as well. You were head of um VC cap it at Pain Webber Is that right? Yes, I started up their merchant banking capital operation. And you also are a principal City Group at City Group and your principal at Ideal Apps

that does very early stage investing. Talk a little bit about what the world of venture capital is like. Well, the world of venture capital has changed fairly dramatically, but it's primarily driven by Moore's law. If we're doubling processing speeds every eighteen months, just think about that. That means in ten years, whatever you're doing is sixty or four times faster than it was ten years previously. And I don't think we can imagine all the things you can

do with that. But there are folks out there, primarily on the West coast and maybe up a little north of here and that's right, who are figuring out things to do and it's exciting. What what about the biotech side, I think, particularly with what we see going on with healthcare costs and whether it's sim cell re search or brain research or any of this effort, the opportunities are phenomenal, just just fascinating. You know, it's changing the world. It's

really tough to make a bet against human ingenuity. There's so many fascinating new technologies coming out all the time. It's hard to keep up with the pace of of innovation. And what you have to do is find some smart people who are driven and have a little bit of something that relates to management and what they're doing, and you can do wonderful things in the world. And the great thing is we've got another country out there called China, billion million people. My guess is the i Q spread

is the same as it is here. So you're talking about an equivalent at the high end of the i Q equal to the whole US population. They're going to get there as well. And so what about all the problems of it's a communist country and they're building these ghost cities and you know all the problems that people have been talking about China for the past cup of years. Is that just something they work through or well, I don't think you can work through it. I think there

will be some elements of disruption there. But the fact is you have a group of very smart people there at one end of that spectrum, and those folks have always had to be entrepreneurs in a communist system. If you're going to survive in that system and maybe to

some extent, thrive, you have to become an entrepreneur. May not be the entrepreneur that we think about, but you're having to think about what can I do, what can I make use of that gets me beyond what's happening in a bureaucratic controlled system, and a big segment of the population does that. So let's talk a little bit about other stuff you've done. In addition to venture capital, there's been a lot of other alternative investments, hedge funds, futures.

Let's that's sort of my that's a bit of my new life. Although I go back to having called on A. W. Jones in the early days of one of the first hedge funds that existed. But that's Alfred Jones, the essentially the first He was at the first hedge fund. Are you going to tell me that you knew Mr Jones is no. No. The person I dealt with there was a guy named Tony Healy who was also a legend as well. And uh, they were true hedge funds. They

were actually actually they actually did hedges. They weren't leveraged funds. They were actually making decisions on buying and selling securities and thinking about risk, even in those early days. This is back in the sixties as well, but coming out of of New New Burger, where I actually stayed on the mutual fund board for a long time after having been c i O there, I actually got involved with a couple of private equity firms as what's called an

executive advisor. What that meant is if they found something that we're looking at where they thought I might have expertise, I would get involved. And I did get involved very rigorously going back to two thousand twelve in the possible acquisition of Altegrists out of an insurance company, and I was intrigued had been intrigued to some extent by alternative investments and how liquid alternatives were becoming a part of

the program there. And I like the people, I like the process, and I thought it would help build some brain cells as well. And I after the deal was closed, I went in as chairman of the company. We were looking for a C I O. Really couldn't find someone who could deal as broadly as I would have liked. So I pulled a Dick Jeney, I said I can do this, and and actually they took a vote. I don't know how close it was, but I ended up as c I O. And it's been a great experience.

I think it is an area that is doing some under really interesting thing. You have to be careful, and you have to be careful about what strategies at what time, which gets to the concept of managed futures versus lawn short equity or a lawn short fixed income. There's a lot of varieties, so we're going way off into the weeds in terms of a little more complex financial product. Let's talk about how the world has evolved over the course of your career, because you started out the world

was a whole lot simpler. You were an equity analyst in the late sixties, you were looking at balance sheets. This is really Graham and Dodd fundamental research, and now it's the polar opposite into the schedule spectrum of complex hedged products, etcetera. Is it the world has changed so much that that's what drew you there, or Hey, this looks like something I haven't played in before. Let's have a little fun with this. This is intriguing stuff. Well,

it's a combination. It was something that had not been at the core of what doing. But it was absolutely the case that if you look at the right kind of hedge funds, they're doing the fundamental research. They're just they've just got so much information coming at them that they can do things that we couldn't do back in the the early days here as well. And that intrigued me. That intrigued me, and it also intrigued me that we're moving toward risk is what you ought to be managing

as opposed to what are my returns? It's what level of risk. Am I willing to take here to satisfy whatever goals I have? And those strategies look like they can fit into modifying or accepting an element of risk in a portfolio. Risk risk has always been with us. The traditional response is a sixty fortyfolio, so you have an anchor of bonds, and when stocks are gonna shell act like we've seen earlier this year, the bond uh typically go the other way, so it takes a little

bit of the sting out of the drop um. For the average person, is this the sort of thing that makes sense? Or they are they better off with a traditional asset allocation model? Or who's the intended client for a sophisticated I think the client the client can't be it's ultimately the end investor. But it is complex and one has to really think about how you want to allocate among all the asset classes that you've got available here.

And I think it takes an intermediary. It takes someone who's operating as an advisor of some sort, who is actually paying attention to risk and what their client is saying they want to achieve over the next twenty years, and it's prepared to spend some time on that and actually incorporate hedged product or to modify the amount of risk that their client is going to be set GEK two.

But for an individual investor to make these decisions around the particularly the liquid product that is out there, I think you need help. It's complicated. It is complex stuff. And and before we run out of time, let's just talk a little bit about what sort of stuff you're seeing on the venture sides, because I know you're still active in early stage investing. What's out there that's kind

of fascinating. Well, this may seem actually old now because it's in the news, but I think three D printing bringing three D printing down to the individual, where you get to a device that costs you a two hundred bucks and you can print out a lot of different things based on what someone is coming to you. Three D printing. We we've also I'm still involved in some elements around climate change, not climate change specifically, but some

of the different ways to create or store energy. Moving a little bit into the healthcare area, which I think is such a need. You know you mentioned three D printing and healthcare. I saw too fascinating stories on that.

One was a group of doctors in Europe that had an inoperable tumor on a relatively young kid, and they were able to take the m R I and CAT scans of this tumor printed in three D so they could see how the tumor was interfering with what veins and what arteries, and and repeated practice surgeries in order to get to it, and eventually they operate on this

inoperable tumor and save this boy's life. The other thing which is astonishing that I was just reading about the other day is using three D printing to print biological output, so they could print part of a kidney or print part of a That's astonishing, astonishing happening. And I've I've actually been up to New York stem Cell Foundation and they're they're printing bones, but they're printing bone that actually have you know, veins running through them. You're actually it's

not a dead piece of calcium. It's an actual bone, a growing, living, living, a living bone. Thank you Jack for spending so much time with us. We've been speaking with Jack Rivkin, managing director at Altegris. Be sure and check out our podcast extras where we continue the conversation you could see that at Bloomberg dot com or at iTunes. Check out all of our past conversations are archived at both those locations, or follow me on Twitter at Ridholts.

I'm Barry Rihults. You're listening to Masters in Business on Bloomberg Radio. This is Barry Ridholts, and this is our Masters in Business weekly series where I find some very smart, influential person who's work and ideas have really dramatically influenced the market, uh or society or business over the past few years. And today I'm thrilled to have my friend

and fishing buddy Jack Rivkin, who's now with Altegris. And if you listen to the early part of the show, pretty much couldn't hold the job and just kicked around Wall Street, from Lehman to City to pain Webber to new Berger and Burnman. Eventually somebody was nice and took him in. And you know, it's really funny that that the story I told early on. You know, I just

realized exactly John Maulden introduced us. That's that's what That's how we met at a dinner that John was in town for and I remember having a conversation you and I briefly talked about fishing. I had a conversation. It might have been David Kotok said, I met a guy very interested, Jack Rifken, fisherman. Oh you met Jack Rivkin, And uh yeah, I just told you. She goes you know who Jack Rivkin is, right, some guy. I just no, No, you don't understand. You go he's the one. Go Google.

So I google you, and holy cow, look at this. Wow, this guy has worked everywhere. The Harvard Business case study comes up, which is, oh, that's the first time that's ever happened. And Ko Talk is another one who's a huge fisherman. I put you two guys in touch and we ended up we're fishing as much as we can. Not as much as I would like, but as much as we can. It isn't so every year Ko Talk host the it's called the Shadow Federal Reserve UM fishing Trip.

We're informally known as Camp ko Talk. And this is up in the wilds of Maine and it's just God's country. It's as gorgeous an area. Every time I'm sitting in a canoe on a lake there and you just look around, geez, this is there's nobody around from miles You're in the middle of this pristine like people don't even think that sort of stuff is left anymore. That's it's just incredible.

And a lot of the guys who go there actually work with some of the nature conservancy to keep that land absolutely wild and pristine, and there's just they ain't making any more of it, and there's less and less of it all the time. It's really quite amazing. So so that's how we met um. And you do a lot of fly fishing, don't you. I do what my My father put a fly rod in my hand when I was five years old, and now it had a hook with a worm on the hook, but it was

still a fly rod. It was still a fly rod, and at five that's what you needed if you're actually going to catch a fish. But from then on that's what I've done. That's my sport. So it's funny because I was never a fly fisherman, but as a kid, we used to spend our summer's upstate New York and back in the day when there wasn't air conditioning everywhere.

I'm old enough to growing up where there was in central air in everybody's house, so he would work during the week and come up Thursday night and spend the whole weekend with us and then go back down. So it's three day weekends over the sun and same thing. I recall getting up at four thirty five o'clock in the morning, driving to the Liberty Diner for breakfast, and then we're on the lake at six six thirty and it was either Swan Lake or one of his other

lakes upstate. And as a kid, that's what you did. Well, that's that's what I did, except it was Lake Spavanaugh and Spring Creek right outside of Tulsa, and we get up early, we'd find someplace to add breakfast, and then we were on the water. There's nothing like that. And you know, it's funny because there are always these life lessons to be learned, and if you're fishing, the lesson you learn is patients patients, which certainly doesn't hurt as

an investor to have. And I'm not a naturally patient person, so that was a little bit of struggle learning to have that. But what what sort of life lessons did you take from Tulsa, Oklahoma. Well, one was that, um, you don't learn much when your mouth is open. So I did a lot of listening. And my father and

actually my grandfather encouraged that they were both photographers. They made their livings as photographers, so they were and they were photographing nature, but they were photographing human nature as well,

weddings and you name it. And uh. I used to love going into my father's when he was in the dark room and the smell of hypo and sitting there quietly while he was creating these phenomenal things that there were blank sheets and then suddenly there was a picture there that was that was what I saw, And there was a lot of patients and silence associated that, and then when you said something it tended to be a little bit more profound. Yeah. I I learned the patients

side of things over time. It took a while to learn that the keeping a mouth shut. I still don't have that. I'm working on it. Um. So let's talk a little bit about some of the things we didn't get to during the broadcast segment. So Dick Fault pretty much fired you. Yes he was in the room you you politely said, but he was known for sitting in the corner and having his henchmen do his bidding. That wasn't well. I guess if you need me there, I'll

be there. But essentially it was between you and the head of fixed income, and Dick said, we're a fixed incomes to the shop. This guy Jack has to go. If it's between the two of you, I'll choose you. And he's gone, right, And and this was a guy that he'd worked with at the old Lehman for lots of years and had they had done a very good

job on the fixed income side. They had built quite an operation there and there one of the biggest fixed income shops they were and and commercial paper that was that was where all of this group that was now running fixed income and Lehman came from. And that was sort of the end of it. But I I continued

to actually get along with Dick. And the next time I ran into him, I had joined the Economic Club of New York and I was on the membership committee and he applied for membership, and so I called him. I was so sorry. It was great, but that's not what happened. I called him up and and he returned the call. He called back and I said, Dick, I see you've applied for the Economic Club of New York and I'm on the membership committee, and I said, my job is to make sure that you can spell economics.

And he laughed and said, he said, I'll never I'll never forget how you handled yourself when we made that mistake. That's what he said. Really, that's a very nice I mean, it was it was pretty clear. Look, you know, not everybody figures that out. It took me till I was, I want to say, mid forties to learn, hey, when you leave, and if you were leaving on your own terms, how you exit and exit gracefully really leaves a taste in people's mouths. And you know, the past few places

I've left, I've actually learned that lesson that. I think a lot of people learned much younger than me. But it's it's always nice when someone says something like that and said, it was very nice. You were a gentleman, and we appreciate it was very nice. And then subsequently I was at New Burger and who comes knocking on the door but Lehman, and it was he was there, and and again I talked to Joe Gregory and all those guys, and they said, you know, I hope you've

got no hard feelings. You know, let's let's make a go of this. And obviously you gave the thumbs up to you know, if you were a vindictive character, you would have submarined his Economics Club of New York membership, and they had to know that you were not harboring any will at that point. No, it was just one

of those sayings that that happened. It is a small street, and it pays, it pays to actually makes realize that it's a small street and there's no place to hide, and there's always something that is good about of person. Now maybe that comes from my Dale Carnegie sort of experience. Your job as a manager to find the good and bring it out and bring it out even the worst. That's right. That's right. And Dick Fold was and is he's still a real gentleman. He was a tough guy. Yeah,

but that's right. This is family radio, so I can't use some of those phrases. But he had a reputation of really, you know, bare knuckle no bs sort of you don't want to be on the wrong side of him. No, you did not want to be on the wrong side of him. But frankly, I think with a lot of CEOs that's the case. It makes it very difficult to actually have large organization and move forward because there is this fear. There is this fear, and there's also an

attitude I'm CEO, I'm in charge here. I have to make decisions and I'm going to make them. But that's a bottleneck. They lose something, to lose something because the people instead of thinking about what they're doing is the inverted pyramid where there at the bottom and they're supposed to be supporting everybody working for them, as opposed to at the top telling everybody what to do. I think that's part of the problem with what's going on with

a lot of companies in the country now. And I would tell you that that sort of you know, when you rule by fear a little bit, and I don't want to say Lehman was ruled by fear, but when you have that reputation of being a tough s O B and no one wants to bring you bad news, you end up surrounded by yes men. So I suspect Lehman could have been saved a year or two before it collapsed and people saw problems, but nobody wanted to either. It wasn't in anybody's interest if I go and tell Dick,

this is going to collapse. And in fact, I think the story was some mortgage backed analysts and Lehman said, hey, we're sitting on all this paper. It's a disaster. We have to deal with this, and ultimately he was fired. I wouldn't. I don't know that that could be apocryphal, but it could also be very true as well. And you you come to believe your own stuff pr spines, and again you're surrounding yourself by people who are people

are reinforcing that. Then you think we're going to get through this, and historically Lehman got through some very tough periods previously. You could make its right, that's right. So you make a case that they actually went bankrupt a few times before, but because of the way they pulled together and somebody bailing him out, whether it was American Express or actually in the ninety eight crisis, the FED bailed everybody out, I mean long term capital management. But

I think they were one of the smaller exposed. Um they were. I don't think it was potentially fatal in them, but it was, but they were, they were leveraged, they were as leveraged then as a as a broker dealer as they were when the end finally came as well.

I think by the time we rolled around to oh six oh seven, because of that last five years, the leverage just ran out of control from across the board six and they were, you know, it was across the board, but they were so heavily in the commercial paper and the mortgage back area that they were at ground zero. You know, it wasn't just people misunderstand People seemed to think that Lehman Brothers fell and then all the dominoes

went after it. I'm fond of saying, you know, Lehman was the first trailer in the trailer park that the tornado came through. But it was gonna take everybody else. It was gonna take everybody, wasn't It wasn't But for if we only save Lehman, everything would have been fine. They were all going down. They were all heavily exposed, they were all heavily leveraged. They all had a huge derivative bet on housing, which when sour, Lehman just it

was such a big focus of their business. In fact, when Bear Sterns wobbles, when Bear Sterns had its problem in March of oh eight. Lehman Brothers immediately got hit afterwards because it didn't take a lot of traders a whole lot of brain power to say, hey, who looks the most like bad, who's got a lot of fixed income, who's got a lot of mortgage exposure, and who doesn't have a lot of other bigger departments that could subsidize

that if if need be. And they were the obvious they were, There were the obvious ones, and I I don't think that it was realized by Treasury and the Fed of their importance in the short term in the commercial paper market as well in the short term paper. That's right, And and once Bear and Lehman were no longer you lost a huge amount of liquidity that was used to fund Corporate America. There's an argument to be made, Hey, why are you rolling over six month paper to fund

five and ten year obligations. That's a different conversation, and that's that's that gets to the FED. That gets to Okay, do I have a put here or not? Is the is the FED going to allow this to happen? And that introduces moral hazarded, introduces all kinds of things. There's an argument that the FED really didn't and let's talk about the FED, but there's an argument that the FED really didn't have a lot of jurisdiction over Baron Lehman

and wall Street. There we're really supervising City and Bank America and Wells Fargoing and all the other depository banks that would go to the discount window to borrow from the Fed. But the bear Stearns and Merrill Lynches really weren't banks, then, No, they weren't banks, but they were. They were. There was the shadow making at that time as well, and they were They were doing everything and more that the banks were doing, and they were not

being watched. So they were doing what the banks were doing, but they were doing with more leverage and less regulation and less supervision. Well, how could that possibly go wrong? Yeah, that's right. I'm sure that self regulation works. Great, I'm sure that'll be fine. You could make a case though, that if Lehman hadn't gone, would the Fed and would Treasury have had the degrees of freedom that they had to bail people out to rack actually put money to work.

Did it have to get to to get dead enough for them to so yeah, so let's let's talk a little bit about the bailouts and about what the FEDS reaction has been. The most of the bailouts we can place at the footstep of Treasury, but you know, the FED facilitated the bail out of long term Capital Management, which Roger Lowenstein very famously said, if only banks had been reintroduced to the concept of bad loans biting them instead of oh, look we managed to trade away out

of this. That was. And then we look at um, the bailout of essentially facilitating JP Morgan's purchase of bear Sterns. Without the twenty nine billion dollar guarantee the FED, that theoretically wouldn't have happened. Although my pet thesis is the biggest counterparty exposure to bear Sterns derivative book was JP Morgan. And if Ben Bernanci was a better poker player, he could have gone to Jamie Diamond and said, hey, listen, I know you want thirty billion dollars, but here's what

we're gonna do. We're not going to give you a dime, and if you're smart, you'll do this because if they blow up, they're going to take you down. And the next time you have this conversation, both of us will be in front of Congress with a right hand raise. Then I'll be recounting this conversation and when we're done, they'll take you off in shackles. Well, but I think the reason he didn't do that because he was he was afraid. This is a supposition that his job was

at risk as well. If burn Aki said we're not doing this, We're gonna let something bad happen here. Hey, you guys made a bad loan, It's on you. Yeah, but who are they going to look to? Who is Congress going to look to? And the FED is is always and continues to be concerned about who actually has oversight of what they're doing, and they don't want more oversight. So some of what they do and some of what

they've done here is job preservation in my view. So the FED doesn't want to be bailing people out because they don't want responsibility for why are we involved with an insurance company. We're supposed to be regulating banks. Why is the Federal Reserve participating in the Baila you're saying they don't want to do that. They want to stick to their knitting worry about banks and and everybody else

can worry about their own thing. Well, the problem is they can't do that because no matter people look to the FED, whatever goes wrong financially, it ultimately comes back to the Fed, and certainly out of Congress and out of the administration as well. It's not our fault. It's because the Fed didn't do the thing that they were supposed to do. The FED didn't pack our parachute correctly,

and that's why. That's it. So people have been pretty critical of Ben Bernanke and the Federal Reserve in general, but you've been pretty supportive of saying, hey, you guys may not love what was done, but think about the alternative. That's it. It is think about the alternative, and it's think about an unwillingness to take the risk of the alternative. So what they did, some people don't like, and they wonder if it's actually done any good at all. So

so let's get let's get really specific. So October oh eight, Congress doesn't pass the TARP program, and the markets have their worst week ever on a on a point basis and a percentage basis, one of the worst weeks ever, and ultimately the Treasury passes TARP and then the FED begins a number of liquidity programs to thaw out the

frozen credit markets. You know, when you have the head of McDonald's and ge and Ford calling the White House and say, hey, I'm not gonna make payroll next month, not because we don't have the cash, but the cash flow is gone. There's there's everything is frozen solid. The normal flow of capital is completely disrupted. You gotta do something and who who was going to do it? So the White House calls the Paulson calls Bernanke and said, hey, we have real trouble. What can we do to fix this?

And and they have to respond. They have the response they have no choice, and and they've made the argument and it may be valid that they've had no choice all the way along here that QUI was not enough, they had to go to QUE two was not enough, they had to go to que three. And now we're they do believe now, I think at least they have until we've had all these problems in Europe, and we can talk about that a little bit. Let's let's talk

about that. So so before before we leave the FED, you know, the complaint is so now we have QUI four and every time the market is a is he fit and drops were not even down ten percent. Now we're gonna have QUE five and QUE six and kwe and finley, are we on a permanent state of QI? Now? I don't leave that. I think eventually the Fed just lets these you know, the average duration of seven years.

You just let it roll off. You eventually get money back for the bonds, and they turn it over to Treasury and everybody is is happy and goes on their way. So it's not like, how are we going to get out of this? Well, you let seven years go by, and that's that's right, and you get out of a lot of it here. And in the meantime some evidence that the economy is doing okay, not doing great, but maybe it's in a period where there's a little more

opportunity for self sustaining. But the Fed is also sitting there truly believing that they're it. It's certainly not Congress, right, Well, that's not administration. That's the other thing is when you have a Congress that refuses to do what Congress normally does, which is, look if if if this current administration had the same sort of fiscal not monetary, but fiscal stimulus

as the previous administration. This would be a much healthier economy use higher employment, higher wages, lower unemployment, and GDP would probably be a full percent higher than where it was. It would be In the meantime, the FED is having to deal looking at the employment numbers, and the employment numbers to extend people say they're not good are driven by the sixteen to twenty four year olds. That's where

the unemployment is high. You know, sixteen and the nineteen it's it's pretty high for the twenty to twenty four year olds as well. And and is it really the Fed's responsibility to have a policy that actually allows you to employ teenagers and the under educated or is that somebody else's responsibility. I don't think it's the FED. Most people would say it's Congress's responsibility. So the next question is, so, here's the fascinating counter argument. If the FED did less,

then the economy would be worse. We'd slip into a recession and all the people who are refusing to participate in the normal economic state stimulus get tossed out of office and a new crop comes in. But instead the FED is essentially enabling and do nothing Congress because the repercussions for their do nothingness, and that's happened. That that's absolutely right, that monetary stimulus leads to no fiscal activity,

and that's the period that we're in now. I think in Europe, maybe there's a different experiment going on here. One could make the case that in spite of Droggy saying will do everything we can do, I think he's saying that he certainly hasn't done it, and he hasn't got the tools to do it. And he's calling for both reform and stimulus coming out of the European countries and he's trying to make that work. So we've got this other experiment that we were watching to say, Okay,

well this is what the FED could have done. Now Dragging maybe feels more secure in his current job than the FED members did, but that's that's a different experiment that's happening in Europe. I look at that the statement, and I think what he really wants to say is, hey, we need some fiscal stimulus. Yes, but I can't say that. So I'm gonna call for fiscal stimulus and reform and let people argue about a little of both can hurt. But in the meantime, you know, Europe, it continues to

be weak. Um, you look at the euro. They've the one thing that they've managed to do over in Europe is actually get the euro to fall. So we have the dollarate multi year highs, which is good for us as consumers of oil, which is now at multi year lows. Um. And if you travel abroad, hey, burger in London is no longer forty seven dollars. That's and that's not a made up number. That's the last time I was there, I had a burger somewhere it was forty seven dollars.

Was the exchange rate was so awful. So now that's changed a bit. It's changed a bit. And there are some people. I was at a all day meeting with one of our managers and it was Chatham House, So I can't really talk about who said this. Adam House rules means you can describe what was said, but you cannot identify the person by name. Identify You could say a manager who specialized in fixed income, but that's I

can say. I can say a manager who actually pays a lot of attention to foreign exchange, believes that ultimately will see the euro at one parity with the dollar dollar for dollar, and if he had to bet over under one or eight. So keep in mind, the euro not too long ago was about a buck forty seven?

Is that right? And I had a friend who in the early two thousand's, the last time the dollar was crazy strong, was going to Europe and buying Porsches and Ferraris and high end bmw and Mercedes, bring them to the United States, making them US d OT legal and selling them for a fat profit and still undercutting the dealers by twenty dollars because the exchange rate had gotten that crazy. To this day, I regret not making the pulling the trigger on a BMW Z eight, which at

the time I couldn't have afforded. This is fifteen years ago or twelve years, twelve years ago, and it was about seventy grand and now that car is going for about two. This goes a little in the other direction, but the same thing. I was in Japan on a business trip, took my wife. The end was at to right, and today today where are we? One oh six? Right? How I was gonna say half? But and what were you looking at back then? Uh? Well, my wife was

just going shopping every possible place she could. At that point in time, everything just so cheap. It was we had to buy two extra trunks, not just suitcases, trunks to haul back what she bought. And the truth is we should have bought more. So it's funny because when people should be aware of how CONNI affects everything. From two thousand and one, when the FED started cutting rates after nine eleven UM to two thousand and seven, the

dollar lost of its value. If you want to know why oil skyrocket in the two thousands, food and gold and everything else. Hey, the measuring stick got much smaller. And we were here in Manhattan. My old office was on Fifth and forty four and around the corner from us was a two ME shop and T M I the logest really high end, very expensive stuff. The city was just filled with Europeans and this was the highest

producing shop in the country. So I speaking, I pop in there and it was impossible, just looking for a computer case and for a laptop. And I started talking to the manager and I'm like, the house business these days, and his answer was it's insane. He goes, we don't have a big enough warehouse. To keep ourselves filled. The Europeans come in, they're buying the big wheeled suitcase. He goes, we sell these a piece. We can't keep them in stock. People are coming in and buying them two and three

at a time. The dollar was so cheap to them. It was like si off to these folks. And then they would take these big suitcases and wheellum over to Bloomingdale's and Phil Madison and they would basically take all the stuff and take it back. That's that's exactly That's exactly what happened. And that's clearly what my wife did

in Japan, and she's electronics or clothes or well. She was buying actually a lot of antiques, a lot of baskets that they had, you know, very artistic basket She was buying a lot of this stuff that today again it costs two and a half times right then, and even a little more because some of these were collector's items. The thing that I used to hear about people coming back from Japan with all the time was the nikon. I want to say, D seven's is that yes, yea.

And my wife actually lost one in the back of a cab, left it in the trunk of a cab. But we knew people would come back and it's a three thousand all camera. They were paying like six just the numbers were so crazy. I'll take to bring it back with And it was also we went to Hong Kong after that it was the same thing. What year was this this gosh before unification? Obviously it was it

was very much So. So you do a lot of traveling for for business or for pleasure of both, a little bit of both, and I try to combine it. So where have you been and what parts of the world are really interesting to you as an investor these days? Well, what's interesting? Well, I'll start with some of the places I've been. I'm watching what's going on in India with Modi and I'm watching also what's going on between India and Pakistan, because there's a little history with a little Yeah.

What what's amazing is why have hasn't India become China? Why hasn't India to take all this intellectual capital they have and amongst the highest educated workforce when it comes to stem um science, technology, engineering, math, and and you look at medicine, look at and yet they half the country doesn't have indoor plumbing, they're using half the half the country six million people don't have they're not tied into the grid, they have no electricity. How is that

Is that a societal failure? Is that? Well, it's political. Part of political. It's a it's a democracy and and it's the biggest democracy in the world, and it's a democracy down to a provincial level. The politics are are severe. I think you can blame a lot of it on the British. They set up a great bureaucratic system, which the Indians have perfected bureaucracy, so the efficiency of the system is way down, and frankly, the corruption is very high,

very very high. Wed to ideal lab companies over there, we ultimately sold them both to Indians because as outsiders, we couldn't we couldn't deal. We could deal with everybody's hand out to actually get business done. There are some laws that say, as Americans were not supposed to do that, even if it's in another country and you just you just couldn't do it. But you couldn't. You then could not create a business unless you knew how to work. So what's it going to take to get India out

from out of their own way. It's it could take someone like Modi, because if I went to Gujarat a lot and we actually set up our manufacturing facility there, and Gujarat ran like a real it ran almost like its own country. There was efficiency, there was less corruption. I wouldn't say there was no corruption, but there was less corruption, and there was a you know, a firm, a firm leader who was actually making decisions around what

was going on there. The country could move in that direction, but it's it's going to take a long time to get from where they are to where they could be. But you know, that stock market is actually been a pretty good stock market. Pretty well. Mody was here during the last U N session and he was a rock star. He gave there was a presentation at Madison Square Garden. It was insane. We saw eclipse of it. It was like you two was in town. It was an absolutely

a madhouse, you know, Rolling Stones type of show. How does a politician find themselves? And that we don't see that in the US. You don't see that. But this was a major change. It was a move away from the whole Gandhi and and the other party, the Congress Party, into something totally different where there's a lot of hope, while we recall the president being elected here where there was a lot of hope as well, there was a

lot of hope. I think we have a very experienced both politician and manager, and it could make a difference there. But I'm watching that. What I'm interested in, I call it sort of close to home. I think you can find investments from Canada to Tierra del Fuego that will take care of your emerging market needs, your energy needs, your actual businesses. If you want rule of law, you can sort of stay with Canada and UH in the US if you want to take some risk. Great things

going on in Mexico. We'll see how this election comes out Brazil, and I think I think what's happening in Argentina ultimately does get resolved, and it may get resolved in a way where we're not going to see the opportunity to do what happened there on sovereign debt. So so are you talking about the social unrest or the hedge fund situation? The hedge fund situation that's ultimately got

to get squared away. I think it will, and I think we'll get squared away in terms of a change in the rules around sovereign debt, having a lot of the rules already been changed going forward, there have there have been some, but you haven't totally gotten to the point where a rogue investor and sovereign debt can actually cause the kind of grief that we've seen, so for

people who may not be tracking this closely. So, Argentina has a lot of UM sovereign debt, not not corporate debt, and they went through restructuring, and when you go through restructuring, the creditor committee gets to weigh in on how much of a haircut, how much less they're willing to take, and there's a secondary market where people can go and buy this debt. Hey, listen, this is gonna get cut in half. Um, you could wait seven years to get your fifty cents on the dollar, I'll give you thirty

cents on the dollar today. And a number of hedge funds did this, some of whom then became members of that creditor committee and I'm grossly oversimplifying this and basically said we're not going to participate in this. We want a full hundred cents on the dollar. And they even managed to attach a warship, one of one of the Argentinean warships made ports somewhere and they show up and serve papers on the captain and said, until we get paid, this isn't your ship anymore, which I don't think is

a way to run a process around sovereign debt. And it just is not the way that it may make sovereign debt more expensive. It's not very clean, it's not very efficient. Yes, and you you actually paralyze a country, and um, we need to get past that. And I I think Argentina's got energy just running sure everywhere. And it's a beautiful country. It's got great people. It's always had or for a long time here has had a bad government. Well that that you could described so many countries.

Let you mentioned. So there's two things you you touched on that I want to You mentioned that I definitely want to touch upon in our last ten or so minutes. You mentioned Japan, and that's a country that has all sorts of interesting problems, and then you mentioned energy, And I want to talk about both of those because I know you have a lot of experience in each area. Japan debt ridden society, aging society, terribly low birth rate,

almost no immigration, but a phenomenal corporate export economy. How does that work and how what's the endgame there? With what happens? The real question is what is the end game? And the end game may be driven by demographics as much as anything else. So the average age keeps going up, very few new kids coming in. You know, you think about the baby boom and what that in the United States. This is the opposite of that. This is the opposite. Now, what what Japan has not done is it hasn't taken

full advantage of their female population. So they've got workers, They've got workers that they could actually have something happen with. But I don't know culturally, yes that there. You know, you have women are talented and they're the society is just not taking advantage of that, and they may have to. At the same time, you do have technology continuing to move here. So how many people do you actually need? Less and less? That's the that's the secular argument for

why the labor pool continually shrinks. Yeah, there's a baby boom generation that's sixty thousand a day or whatever the number is retires. But on the other hand, globalization of people else we're willing to work much cheaper. That's whether it's Vietnam or Turkey or Mexico. And you have look

in my office, we're less than ten people. The stuff that we do, we talk about technology, it would have taken it would have taken a hundred people, it would not have or it would have been so expensive to do you couldn't so so we put out a number of different commentaries every month, We put out a quarterly conference call for clients. We do a whole series of analytics on all our portfolios, and we do a regularly balancing and every one of those things is essentially you

push your button. And it used to take four guys with green eye shades working for two weeks in the basement of some building, you know, a month to get that out. And now it's eight seconds pushing and it happens, and that that would that's the only thing that I think could save Japan Front from what looks like I don't know how long it's going to take, but it's not going to end well, I don't think. And yet and yet people are willing to lend them money for

ten years at fifty basis. How is that their their debt to GDP is approaching two. It's twice as bad as ours, almost three times as bad as ours, and yet their their treasury is much muscle. So so if people are still willing, the marketplace is still willing to lend them money, when when is that going to stop? When is that going to change? I don't know, but at some point it has to or or you're going

to see the end back at and maybe that'll change. Well, that'll hurt their economy dramatically if everything becomes more expensive out of them. So let's talk a little bit about energy. Where we're in a at the time we're recording this, oil briefly dipped under eighty dollars, and some of this has to do with let's talk about three things. So

we have the strong dollar obviously a factor. We also have seen supply I'm sorry, we've seen demand drop some of its weakness in Europe and weakness in Japan and Asia. But we've also seen the US become more efficient as a consumer as the world's largest consumer of energy is a factor. And then at the same time, massive discoveries of supply everywhere, whether it's tar sands or shell gas. It's around the world. It's not it's not not just

the technology, but it's it's around the world. So I think the supply picture, the combination of what they call it conventional hydrocarbon energy combined with the alternative energies, we're creating a lot of energy and I think it's going to keep pressure on prices here. And we've got certainly at this point in time, we have a lot of countries that need those revenues and they're not getting them.

So that's Russia, which is Russia is I think we see a finance chill crisis coming out of all this. I don't know, it could be three years or whatever. You have to look at at Russia and what's going on there, and and the revenue requirement that they've got. They can't afford to actually get overly involved in the Ukraine. They need the revenues. Energy prices are just seeing a global a global shift here and and and actually I

think it affects geopolitics dramatically. What is what is the real importance of the Middle East if in fact we develop all these other sources of who cares about Iran a foil that's right, that they have much lower ability to do mischief. That's that's right, and this is this is good thing. It means that maybe they have to compropise more about nuclear or anything else that that allows them to get back away from the sanctions and be

involved in the in the real world. Here, it's a major shift in where the power, if you'll pardon the pun, where the power resides. And it will change our relationships with the Middle East. It may change our relationships with Israel. It certainly changes our relationships with a lot of the other energy suppliers as we find other sources. So you mentioned traditional crude oil, traditional energy. We have the Tarsands up north, we have hydro fracking in for natural gas.

Here we have liquid using cold to make liquefied natural gas. And what am I forgetting in the um hydrocarbon space and in the hydrocarbon space, I think, I think that's it, But but the impact there is not just on energy. Hydrocarbons are a feedstock for a lot of what gets produced around the world, as plastics and the plastics I mean the job. Iran once said that that oil is too precious to be used to power cars, and you

can make anything you want with it. And if you're if you're lowering the cost of that feedstock in terms of what you can produce and where you can produce it. This also can lead to a renaissance of where you actually established your manufacturing, particularly if it's not labor related and more what I would call technology related in the

way you set up your manufacturing. And if your feedstock sort of guaranteed feedstock is lower, let's say in the US or lower in Argentina, it makes a difference on where you're putting your plants. You can build manufacturing facilities right there. That's right, and that's good for the local economy and it's good for the local account. It's it's a major shift that's taking place here and and always as it has. Energy actually produces major shifts and powers structures.

Is why you can you can go back to the to the Dutch and and whale oil, or you can go to coal and the United Kingdom. I mean, you know, it's caused major shifts. We we started seeing this a few years ago, and people were not big believers of, you know, the manufacturing renaissance in the United States. The complaint in China is, well, we don't we can't reliably get electricity, and the electricity that comes in fluctuates wildly

and ampage and voltage. So there's a cost of building a set of electronics to create a steady output as opposed to these wild swings. You go anywhere in the mid Midwest, United States and run a natural gas pipeline or just a natural gas line there, set up electrical co generation plant, you have inexhaustible, almost free electricity. Right.

And so if you're running a heavy consumer of actricity, whether it's a semiconductor fab or a heavier industrial manufacturer, it be is now once you back at the cost of shipping from from Asia, the United States has become really cost competitive. It's called it's cost competitive. And and we still have the rule of law here, which makes a big, big difference, as anybody who was trying to do business in Russia can tell you. You know, someone described the United States as a um a huge insurance

health insurance company with a standing army attached. Russia, on the other hand, is a huge cuiminal enterprise with a standing army attached. That's why would you want to go there and do business? Last subject before we let you go, so I know you're big into alternative energies and associated technologies. What's interesting in that space these days, Well, we're driving town the cost curve significantly in the classic uh, classic

alternative energies. I know that solar, solar wind, all of that. I think what's coming to the fore and I believe

this for quite some time. Fuel cell technology is now getting down to cost levels where I think it will be a major impact, particularly like hydrogen fuel cell, Like hydrogen fuel cell, and and if we've got alternative energies and we're we're starting with water and we're using using solar energy, let's say, to create hydrogen which then is used to turn back into the water to power product.

That's ultimately I think the direction. I think electric cars as we're defining them today is our interim and it's a stop measure between gasoline and hydrogen and hydrogen dred years away from full hydrogen cars or is it sooner than that. I think it's sooner. I think you're in Japan. That's one thing they're doing. The Japanese auto companies, which are internally very competitive, are moving down the fuel cell track, and they put in place the infrastructure for fueling on

that is hydrogen refueling. Yes, And we mentioned earlier the falling price of oil. Isn't that a threat to traditional things like solar and winds? It is a threat. It is a threat. But you're again, technology is working for you there. You're driving absolutely does so. The other question is, I don't think there's enough alternative energies that are competitive enough that that's making the price of oil drop. But at a certain point, on the margin, it's an element

of supply. On the margin, it's an element of supply. And if you add you know, fracking to the picture here, which is major technological breakthrough as well, the supply picture is just going to overwhelm. I don't care what the

growth rates are. The marcels um uh It's people have literally said, there's five hundred years three hundred years of natural gas consumption and they're still making fine To find that they are now the technology needs to develop that that five hundred years is not using today's fracking technology.

But again, you're moving down a path there, and and the and the oil companies spent a lot on R and D. It's it's not recognized as much, but they're they're as technologically savvy and users of technology, even even as much as you can see out a silicon valley around the Internet. So how low can oil go before it puts a crimp in all these alternative energy I think I think if you saw, if you saw as a marker, oil down around seventy dollars a barrel not

that far away. Yeah, that and what would that do seventy dollar oil? What does that do to solar? What does that do to win? Well, I think it slows down the adoption, but I'm not so sure it slows down. It actually may speed up the technological development in alternative energy. You know, we haven't had a huge breakthrough in battery technology. These have all been incremental improvements. And I was just reading that too long ago. Some sort of a gel.

I can't remember the metal that underlines it, but it's a metallic gel used for these new batteries and the storage is the first order of magnitude breakthrough. Now I don't know what the safety dangers and if it could be commercialized, yeah, and how how big it can get. There's actually a lot of technological work going on with lead acid batteries, old lead acid batteries where you're using nanotechnology for the cathodes and anodes and some mixture thereof.

You can increase the efficiency to the point where they actually may be as competitive as they as you can get with lithium as well. The the amazing thing is that you can really improve technology and with all these incremental changes, all these iterations, but when you get that big breakthrough and you know there's one out there, it's going to be such a game change. You imagine. You know when when I used to have this drill, this electric drill, with this big heavy battery, and for years

it was it was perfectly fine. Yeah, it was a little heavy, and when you're done using it, you plugged it and you had to charge it. When the new litho lithium batteries came out, you just, oh my god. These other things are just ancient technology. So you charge this up. I have this. I have this leaf blower that I got at home deep. I'm trying to remember the name of it, but it's the home depot in house brand. I charge this thing up, you forget about

it for a year. It's still it hasn't lost the charge. It weighs half as much as the old one. So I'm waiting for that next breakthrough. That's four times as as powerful half to wait. And that's how it will happen. And it's happening across the board. Is happening in the medical area, is happening in data just in general, it's happening in manufacturing. It's it's just across the board. It makes me just very optimistic in spite of what happens

to the market on any given day. This this is uh, this is an interesting time to be involved in watching it and and maybe with what's going on in medical, I'll get to watch it a lot longer than I might have otherwised. You know. The last the last thing I want to mention, and it's right on that point. So we go to this conference um every other year. It's out in California, and it's just a bunch of young college kids showing off each their new technology ideas

and looking for venture investing. And you go through to spend two days looking at these nineteen year old kids and what comes out of there. And I'm in my fifties now, so I'm I look at nineteen year olds as kids, and it's impossible to have a negative outlook when you just see this parade of brilliance and the

ingenuity and the new technologies. It looks as if every problem, at least from a technology standpoint, can be solved, whether India can get the politics in order in order to fix their system or the United States can can get their healthcare budget in order. It's not the technology that's the problems, and it's not it's society that's around the society that's around it. But see, I I get what

you get every two years. I get it every three months when I go to the Ideal LAMB board meeting and walk around that big warehouse with all of these companies. You know, three people or maybe there's ten people. You've got to sign up above them. This is what they're doing. And you're watching these and they are kids, Well, everybody's

a kid to me. Now you're watching these kids with such enthusiasm and such energy tackling a problem and it's not they're not saying no, they're saying, we're going to figure this out. Why not work the first time around, but we'll figure it out. We'll figure I couldn't do that every three months because it would just make me too bullish. I have to have some objectivity and that sort of stuff. I would just long and forget about

everything else. So I can only go every other year, and that that's that carries me through, brings you back into anyway, Jack, thank you so much for spending so much time with us today. Um, you're just a font of information and as always, it's a pleasure chatting with you. Well, it's a pleasure chatting with you Berry. I always enjoyed that you've been listening to Masters in Business on Bloomberg Radio. Um, I'm gonna say that again. I'm Barry rid Halts. You've

been listening to Masters in Business on Bloomberg Radio. If you're listening to this, you're obviously hearing the podcast. Be sure and check out our other podcasts, which are archived on Bloomberg dot com. In theory, we should be up on Apple iTunes any day now. They've been dawdling. I guess they're waiting for for Samsung to put us up first, and then they'll they'll match that. That's my digit Apple. Despite me owning little Apple products, I can't get our

damn podcast up there. Um. Follow me on Twitter at rid Halts, or check out my daily column on Bloomberg View dot com. You're listening to Masters in Business with Barry rid Holts on Bloomberg Radio