Richard Bernstein on the State of Markets Today

Summary

Podcast Summary: Masters in Business - Richard Bernstein on the State of Markets Today

Introduction

In this episode of Masters in Business hosted by Barry Ritholtz on Bloomberg Radio, Barry engages in an insightful conversation with Richard Bernstein, a renowned figure in asset management and former Chief Strategist at Merrill Lynch. Released on July 11, 2025, the episode delves into Bernstein's extensive career, his investment philosophies, and his perspectives on the current state of global markets.

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1. Career Journey and Transition to Wall Street

Richard Bernstein begins by recounting his unexpected transition from aspiring labor economist to a prominent Wall Street strategist.

• Education and Early Career (02:40):

  • Bernstein: "When I graduated from Hamilton with a bachelor's in economics and an MBA from NYU, I envisioned a career as a labor economist."

• Shift to Wall Street (04:08):

  • Bernstein explains how the Reagan administration's policies led to a decline in his initial consulting role. A friend's recommendation to Chase Econometrics offered him a lucrative opportunity, doubling his salary and setting him on the path to Merrill Lynch.

• Joining Merrill Lynch (09:07):

  • Bernstein: "Merrill was the first choice that ultimately saw my potential. Their description of me as a 'value stock' resonated, allowing me to secure a role despite stiff competition."

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2. Merrill Lynch Era and the Financial Crisis

Spanning nearly two decades, Bernstein's tenure at Merrill Lynch was marked by growth, strategic shifts, and the eventual impact of the 2008 financial crisis.

• Cultural Shift and Risk Management (10:05):

  • Bernstein: "Merrill's corporate culture began to drift from its private client-oriented roots, leading to increased risk-taking without adequate experience, which proved hazardous during the financial crisis."

• Launching Rich Bernstein Advisors (15:07):

  • Burnout and the desire for a more fulfilling career led Bernstein to establish his own firm in 2009 amidst the financial turmoil.

• Entrepreneurial Challenges (20:01):

  • Bernstein: "Transitioning from sell-side to buy-side was daunting. Hiring the right talent was initially challenging due to my limited buy-side experience."

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3. Investment Philosophy: Pactive Investing

Bernstein introduces his proprietary investment strategy, "Pactive Investing," blending passive investment vehicles with active decision-making.

• Definition and Rationale (30:29):

  • Bernstein: "Pactive stands for the active use of passive investor investments. It involves selecting the right indices and adjusting holdings based on macroeconomic indicators rather than individual stock picking."

• Profit Cycles Over Economic Cycles (34:08):

  • Bernstein: "Equity investors often focus excessively on economic cycles. We prioritize corporate profit cycles—the growth rate of corporate profits—as a more accurate predictor of market movements."

• Sell-Side Indicator (25:23):

  • Bernstein: "Our sell-side indicator measures Wall Street's consensus asset allocation. Extreme bullishness on the sell-side often signals a bearish market shift, and vice versa."

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4. Navigating Market Sentiment and Valuation

Bernstein emphasizes the importance of distinguishing between genuine undervaluation and value traps, alongside maintaining a consistent investment process amidst market noise.

• Distinguishing Cheap Stocks (44:48):

  • Bernstein: "We avoid 'value traps'—assets that appear cheap for valid reasons. Instead, we seek cheapness coupled with accelerating corporate profits."

• Consumer Sentiment Concerns (45:21):

  • Bernstein: "Current consumer sentiment reflects immense uncertainty, a signal we interpret as potential market volatility."

• Decision-Making Amid Media Noise (35:43):

  • Bernstein: "In an age overwhelmed by algorithmic social media and extreme headlines, maintaining a disciplined, process-driven investment approach is crucial."

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5. International Market Opportunities

Highlighting the underappreciated potential in international quality non-US stocks, Bernstein encourages diversification beyond dominant US sectors.

• International Quality Stocks (59:03):

  • Bernstein: "International quality non-US stocks offer comparable earnings growth to the Magnificent Seven while trading at a fraction of their valuation."

• Sector and Regional Selection (61:47):

  • Bernstein: "Our focus includes high-growth, high-quality companies across Europe, Asia, and other regions, providing substantial diversification and potential returns."

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6. Behavioral Finance and Human Biases

Acknowledging the persistent impact of human behavior on investment decisions, Bernstein underscores the necessity of overcoming cognitive biases.

• Human Nature in Investing (56:35):
  • Bernstein: "Despite the advancement in investment vehicles and information accessibility, human behavioral biases remain the primary factor leading to underperformance."

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7. Advice for Aspiring Investors and Professionals

Concluding the discussion, Bernstein offers valuable guidance for recent graduates and professionals aspiring to excel in investing and asset management.

• Flexibility and Continuous Learning (76:39):

  • Bernstein: "Do not pigeonhole yourself early in your career. Embrace flexibility and a perpetual learning mindset to navigate the ever-evolving financial landscape."

• Embracing Humility and Growth (78:35):

  • Bernstein: "Recognize that no matter how much you know, there's always more to learn. Embrace a humble approach to personal and professional growth."

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8. Personal Insights and Media Consumption

Beyond his professional life, Bernstein shares his interests in espionage literature and selective podcast consumption, highlighting his preference for unbiased and factual information sources.

• Preferred Media (48:45):

  • Bernstein: "I prioritize unbiased sources like Bloomberg Law and select NPR podcasts such as 'Left, Right and Center' and 'Open to Debate' to stay informed without succumbing to media bias."

• Entertainment Choices (69:40):

  • Bernstein: "I enjoy espionage series like 'Department Q' and 'Black Bag,' which cater to my fascination with puzzles and strategic problem-solving."

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Conclusion

Richard Bernstein's extensive experience and disciplined investment approach offer profound insights into navigating today's complex financial markets. His emphasis on profit cycles, disciplined process, and international diversification provides a robust framework for investors seeking sustainable growth amidst market uncertainties.

Notable Quotes:

• Career Transition:

  • [04:08] Bernstein: "I taught myself Fortran and was a pretty good computer programmer."

• Investment Philosophy:

  • [34:08] Bernstein: "The stock market doesn't really care about GDP. The stock market cares about corporate profits."

• Sell-Side Indicator:

  • [25:23] Bernstein: "When Wall Street gets really bullish, that's a bearish sign. When Wall Street gets really bearish, that's a bullish sign."

• Pactive Investing:

  • [30:32] Bernstein: "Pactive investing is the active decision making around these passive investments."

• Learning and Growth:

  • [78:35] Bernstein: "There's a lot more to learn. I think of myself as a perpetual moron."

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Final Thoughts

For those interested in deepening their understanding of market dynamics and strategic investing, Richard Bernstein's insights present a compelling case for disciplined, informed, and flexible investment strategies tailored to evolving global landscapes.

Transcript

[Barry Ritholtz]

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[Rich Bernstein]

This.

[Barry Ritholtz]

Is Masters in Business with Barry Ritholtz on Bloomberg Radio.

[Rich Bernstein]

This week on the podcast, what can I say? Rich Bernstein, Rock star, former Chief strategist at Merrill Lynch, Just an incredibly storied career who has managed to put together such a straightforward and intelligent way to approach asset management. Rather than me babble, I'm just gonna say this is a fascinating conversation. With no further ado, my discussion with Rich Bernstein Advisors. Rich Bernstein Thanks Barry.

Great to be here. Thanks for the invitation.

Oh well, I'm thrilled to have you. I thought you would be the perfect person to talk about what's been going on these days. But before we get to that, let's start with Bachelor's in economics from Hamilton. MBA from nyu. What was the career plan?

So the career plan was, was kind of foiled, I would say six months after graduation. So oddly enough, when I graduated Hamilton, I wanted to be a labor economist. And people say, like today they go labor economist. Like, what's that all about?

That was a big thing at one point.

It was a big deal. And so it was. You got to remember labor unions were very powerful in the late 70s, early 80s. There was rampant inflation and every company had a labor relations department. It was a growth industry. And so I decided I wanted to be a labor economist and got myself a job with a prestigious economic consulting fir in their labor economics department doing all kinds of government related work, private sector, but government related work. And we were consultants, which is very critical because consultants bill by the hour and literally the day after. So Election day is Tuesday in 1980, November 1980, Wednesday. 50% of our business basically went away because Ronald Reagan, everybody called up and said, stop billing. We want to see what's going to happen under the Reagan administration.

Wow.

Now, I wasn't the smartest guy in the room, but it was pretty clear to me that this was no longer a growth industry. I had taught myself Fortran, dating myself here quite a bit. I taught myself Fortran and was a pretty good computer programmer. And a friend of mine who had gotten fired from this economic consulting firm got a job at Chase, Econometrics, idc and said, you have to come over here. You're a great programmer. You're going to love this stuff. They had the largest set of economic and financial databases in the world at the time, because you have to come here. I said, what do I want to go to Wall street for? I mean, I have no interest in Wall Street. Why would I go to Wall Street? And he said, well, let's be honest here. The salary is twice what you're making. I said, well, I'll go for the interview. I'll see what happens. Well, I went for the interview. I got the job. My biggest client turned out to be the Merrill Lynch Investment Strategy Group. And that's how I got involved in Wall Street. And I found through time that I really liked it, went back and got my mba, and after a while, without sounding stupid about this, realized I knew more about this stuff than many of my clients did. And so I just worked my way through Wall street. And eventually. But if you had said to me when I graduated Hamilton that I was going to end up being the chief investment strategist at Merrill Lynch, I would have Said you're crazy.

You would have laughed. So I have to ask about Fortran. You're undergraduate, your focus is economics. You get an MBA in finance. Where did the computer programming skills come from?

I am the poster child for the liberal arts education, so I almost double majored in philosophy. I didn't. I was too lazy to be perfectly frank and didn't want to take one of the intro courses. But I took like, I don't know, five, six, seven philosophy courses, something like that. And for all the philosophy majors out there, I'm sure they know that a good part of philosophy is symbolic logic. And symbolic logic, what is computer programming? What's computer languages? It's just symbolic logic. So when I got introduced to Fortran the first day, I realized I could actually read a lot of the code because it was just symbolic logic.

So it's so funny you say that philosophy is symbolic logic. Study of law is a lot of symbolic logic.

Absolutely.

Obviously math. There's a ton of symbolic logic wherever you look. That classic syllogism right here is the fact pattern. Here's the applicable set of rules, programs, parameters. Like this seems to be a very constant threat in a lot of areas. How surprising was it to you that, hey, philosophy has been really helpful on Wall Street.

It's, it's been amazing. In fact, in one of the books I wrote many, many moons ago, I specifically thanked one of my philosophy professors for, you know, I took symbolic logic with him. I think I took a course in relativism with him. You know, all these different things which have definitely been influential in my career, without a doubt.

All right, so you end up at what could be my favorite advertisement, which was the E.F. hutton ads back in the. Was that the 1980s, when E.F. hutton.

Talks 70s into the 80s, when E.F.

Hutton talks, people listen like these. You can find these ads all over YouTube. They're seminal. How did you make your way to EF Hutton from Chase Econometrics?

So what happened was that at the time, a lot of people at, at Chase IDC were very. In very high demand. We were the beginning of the quant movement on Wall street, right? And so there were a lot of people were getting hired away. One of my friends, who was more an economist as opposed to a quant guy, got hired by the Chief Economist at E.F. hutton at the time. And there was an opening in the investment strategy group. And he said similar, like, why don't.

You come and interview, Come double your salary again?

Well, I didn't do that, but it Was. It was an opportunity. So I grabbed the opportunity. I worked at the time with a wonderful guy named Jeff Applegate, who unfortunately passed away recently. But Jeff was a great role model in terms of how to make Wall street understandable to non Wall street people.

Really, really interesting. And then we get the 87 crash, and then the following year, you join Mother Merrill.

Right.

Tell us how you found your way to Merrill Lynch.

So Merrill, you know, Hutton went out of business on basically end of 87. I think it was December of 87.

Was that. Did they go out a bit? Wasn't it Shearson Lehman, Hutton, American Express or something?

It was like it was. Became Shearson Lehman, Hutton, the irony of which I once worked at Shearson when they merged with Lehman Brothers. And I lost my job there. And now Shearson Lehman was merging with Hutton, and I lost my job again. So I was on the losing end of many, many mergers in the 1980s. But it was getting to mer. You know, I was out of work for a while. After Hudden went out of business. I had met with a headhunter, and the headhunter had set me up with a. An interview with Merrill, and Merrill kind of passed on me, but then called me back about four months later.

So their first choice turned them down, Is that what you're saying?

What actually happened? What actually happened? I found my personnel file. Years later, I found my personnel file. And this is actually kind of funny. And in it was the headhunter letter to the hiring manager. And it described me as being the cheapest of the lot with the most potential. That was the way the guy described me.

You're a value stock.

I was a value stock. And so I think what happened was the everybody else they were talking to wanted too much money, and they worked their way down, and they found. They got me.

That's. That's unbelievable. How did you get access to your personnel?

It was by accident. It was. I was. I was. It was like switching managers type thing. And somehow it got. It got put into the wrong file, wrong set of files, and there was mine. So, of course, I read it.

So you were at Merrill for 20 years?

Yeah, almost 20 plus, yeah.

Wow. That's amazing. You were there right up into the financial crisis.

I was.

What was Merrill lynch like right in the middle of that storm?

So it was, you know, I think it was. It was an interesting time. And, you know, I should say, first of all, the Merrill was a fantastic place to work.

Totally.

It was. You know, anybody out there who has worked at Merrill, you know, knows the feeling that I have for the firm and because they feel it too. And, and it was a great place to work. The corporate culture began to change in the few years before the financial crisis. And we got a little bit aways from, from our roots. You know, our roots were very much as a. A private client oriented firm that also had great trading and investment banking, everything else. But the heart of the firm was still on the private client side. For any number of strategic reasons, the firm decided that we wanted to change that emphasis. And I think, you know, it's kind of dangerous to take a lot of risk when you don't really have the experience doing it.

Sure.

And so I think that's kind of what happened to Merrill.

You know, I mentioned the EF Hutton ads, but for the people who are listening, who are younger, I want to say in the 1970s, maybe even in the 1960s, Merrill lynch ran a series of television ads. Merrill lynch is bullish on America. Absolutely. With the Thundering Herd and the Big Bull. And it was pretty amazing. When we talk about the democratization of investing, Merrill is arguably one of the first companies that dove into that head first.

Yeah. If I'm not mistaken, Charlie Merrill was. His whole philosophy was bringing Wall street to Main Street. I think he actually coined that phrase.

I think that's right. Later on, we had. A number of the discount brokers had come out in places like Schwab and Muriel Siebert. But I always felt they had followed Merrill's lead to, we're gonna push into Main Street. So you start out essentially as an analyst. How do you, how do you work your way up to market strategist and then chief investment strategist for the Thundering Herd?

It's, you know, it's funny. One of the things I always tell recent graduates of colleges is don't try to plan out your future because when you're 21 or 22, you have no idea what you're going to do when you're 25 or 27 or 30, you know, you really don't know. And my example of, you know, the changes after the Reagan Carter election are pretty clear on that one. But the same thing was at Merrill. You know, I kind of. I came in as a quant analyst. I was there not for any other reason, to be perfectly frank. And I think the people involved at the time would agree with this that in Institutional Investor there was a quantitative analysis slot. Merrill had nobody who was there. They thought, well, let's, let's get somebody who can maybe run for this slot. We'll get another II vote and we'll see what happens. And I was their choice to just kind of become this quant guy. I don't think they knew what to do with me. I don't think they were thinking anything else other than, like, you know, go do your thing and, you know, hopefully this will all work out.

Here's an empty desk, Rich. See what you can do.

Exactly. And it was. It was actually kind of funny. I. Truth be told, now I can tell this. I lied about my age to get the job.

Saying you were younger or saying you were older.

Older. Because I was 29 when I was interviewing for this position.

Yeah.

And I knew that and everybody. And back then you could ask people how old you were.

Right. And they couldn't Google you and find out.

Right. And they couldn't find out. So there was all kinds of. All kinds of stuff that they could do back then that you can't do now or can do now.

Did you really get an MBA from nyu? Did you just pad your resume?

No, I'm. That's legit. That's 100% legit. But. So what was happening was I knew that if I went to these interviews and I told people I was 29, they would think I was a kid.

But 30 sounds older.

It's like 29.99. Right. Like, you just round up.

It was a six month fib.

That's all it was. Well, by the time I actually got the job and showed up at Merrill, I was 30. So I didn't feel. I've never felt bad about it because I was asked in every single. Like, why would they ask? They wouldn't ask unless they thought maybe I was too young. That would be the impetus for asking the question. Nobody's gonna ask the question.

Well, how much. How much experience in seasoning?

I don't think that was the root of the question because they had my resume. They knew. Exactly. And so it was really like, how old is this guy? You know, can he really do this? And so I lied. So I told Everybody I was 30. And so. And. But.

But that's hilarious.

Yeah, it is. It is kind of funny.

And nobody ever figured out. Don't. Don't they? When you're filling out your paperwork and.

Nobody took the time.

Nobody cared. Nobody. If you're a W2 employee, they get your date of birth and your Social Security number. It's. It's not like the data isn't there.

But by the time I got to Merrill, I was 30.

So nobody thought twice.

Nobody thought twice about it.

That's, that's really funny. So you're at Merrill for 20 plus years, we have the financial crisis, and you decide to launch Rich Bernstein Advisors in 2009. So in hindsight, it turns out to be perfect timing, right? What sort of pushback did you get when you're like, I think I'm gonna stand up my own shop into this mess?

Yeah. You know, I left Merrill because I'd gotten burned out. I mean, one of the things that people don't realize is as a sell side analyst, the better you get at your job, the demands on your time grow exponentially. And so I was traveling all over the world. I was, I was non stop writing. I mean, it was, I had burned out. And I tried to leave Merrill several years before, and they had, they convinced me to stay. They said, you know, like, no, it's okay, you know, we'll, you know, we'll, we'll take care of you. Everything will be fine. Don't worry about it. But in 2008, in the financial crisis, I turned 50. And so, not lying about my age, I actually did turn 50 and I was pretty burned out. And then the financial crisis hit and I thought, you know, it's the wrong time to leave. It'd be irresponsible for the chief strategist of Merrill lynch to leave in the midst of a crisis. That's, that's just very unfair to our clients, very unfair to the firm. You know, I rose to this level. I have a certain amount of responsibility. I can't be selfish on this. So I stuck it out for a while. And then bank of America bought, bought Merrill. And, and they were great. And, you know, everything was good. But it was clear to me I wasn't going to have more fun. Right, that the burned out nature was going to continue.

It was only going to get worse.

It was going to get worse. So I just figured, like, why do this? So I decided was leaving again. Merrill was fantastic. They encouraged me to stay. I just said, no, no, no, thanks, but I'm done. You know, stick a fork in me, I'm done.

Hey, 20 years is a long time. Being a road warrior.

Yeah, exactly. And so then the question was, what was I going to do? I had toyed with the idea of opening an independent research shop and that sort of thing, but that was going to be equal amount of travel all around the world. And I had just done that for 20 years. Didn't sound like a lot of fun. But then the idea came to me, well, maybe we should Put some of these things that we've developed through the year, put it into practice and see if we can manage money doing it. And we were kind of forming the firm and we were like really in its infancy. And then all of a sudden I remember exactly where I was. I was in our den weekly. Initial jobless claims had just come out. This is like in July of 2009. And the number came out and it was a blowout. Good number.

Right.

And I said to myself, this, this is a rogue number. And then I said to myself, well, wait a minute, why is it a rogue number? Maybe things are just getting better. Because I was listening to all the talking heads who were all still and they were all negative as all get out. And I said, let me stop you.

Right there because my next question is, I very Vividly remember March 09 and saying, hey, US equities down 50%. Usually pretty good entry point. I think we finished down 56, down 57%. But the bearishness, the negativity persisted and it felt like people were really suffering from a little post traumatic stress disorder.

100%.

I'm curious exactly how as you were starting to tell us how you were thinking around that because everybody was so negative and yet the data was clearly improving.

It was definitely improving. And so, you know, the way I described to people, I said, like, you know, markets don't move on the absolutes of good or bad. Markets move on better or worse. And things were horrible in an absolute sense, but they were getting better and.

Certainly better than consensus felt like.

Absolutely. And so, you know, I just, I remember exactly where I was and I said, well, gee, you know, this could be like a big bull market. And you know, I actually at one point said to potential investors, I thought that we were entering the biggest bull market of our careers and we're only.

Off by a tiny little bit. It was. Oh, of our careers.

Of our careers. Yeah. So if you look at rolling, look at rolling to today, rolling.

15 year periods from 09 to 04 was 16% a year. From the 15 year period ending in 99 was 17% a year. And you go to the 15 years after World War II was 18. So we're here, but one of the best periods in modern history for sure.

Absolutely.

So you're, you're like, hey, this is going to be good.

If you're going to start, get on. If you're going to start a firm, this is the time to start for sure. So that, that's kind of how it began. And you know, I Don't want to say that everything went swimmingly at the beginning. No. You're starting a firm, you have, you know, like any, any startup you have, you have pluses and minuses and you, you hem and haw and you do different things. But through time it's worked out pretty well.

So what was, you know, we stood up a firm in 2013. I'm curious. And that experience was kind of surprising. I'm curious what was the most surprising things about launching your own firm? What was like I didn't expect to be doing this.

So two things. One was that I was getting into an area that I didn't know. And I knew I didn't know the buy side the way I knew the sell side. I knew that. And what I didn't know was how much I didn't know. And so the early fits and starts were trying to hire the right people. I didn't even know enough to hire the right people. Eventually that did happen and we hired a guy named John McComb who's still the president of the firm. But it was kind of, you know, off and on. We were not doing all that well at the beginning because largely because I didn't even know who to hire or who not to hire because I was so inexperienced on the buy side. So that was surprise number one. Surprise number two was that people would not invest with us at the time because we were too bullish. And that was fascinating. That was really.

That just makes you more bullish.

Oh, it did, without a doubt. I mean, but if it was, it was incredible. We were, you know, at the time people were very cautious on the United States. If they wanted growth, whatever they determined that was, it had to be in the emerging markets. It could not be in the United States. And we were bullish and we wanted to invest in the United States and people just couldn't deal with that.

I'm going to put a little flash on what you're describing. I vividly recall writing a market commentary. I want to say September, but maybe it was 10-09-2019 and the title was the most hated bull rally in market history. Same experience?

Absolutely. It was very frustrating. If you look at our early marketing materials, you will find comments about what we called fire extinguishers. And fire extinguishers were positions we would take in the portfolio that we could pull off the wall and put out the fire in the portfolio. Right. Like having cash or gold or all these different things that we would include in our multi asset portfolios so that people would feel more confident what was going on now, it worked, but it.

Didn'T really work because it worked psychologically. But it didn't work performance wise.

No, it worked for us fine, but it didn't get people across the goal line. They would not. They were too scared.

How long did it take before people started to say, oh, maybe this Bernstein guy is onto something?

Yeah, well, you know, everybody talks about it being like a hockey stick. You know, the raising assets is sort of like a hockey stick, where you think of as a turbocharger, where you're, you're kind of going along and all of a sudden the turbocharger kicks in, you start really accelerating. That was the experience that we had in the firm. We had, we had people who knew us as a group were reasonably willing to invest with us, but to the broader audience, it was, it was much more difficult. And then as they got more confident. Yeah, of course, the, the turbocharger started. Started revving up.

So it was that six months, 12 months, 18. How long?

I would measure two years. I would say I would measure it in years.

Really?

Yeah, I think, I don't remember the date of when we hit 5 billion, but I'm gonna say it probably took us five or six years at least to get to 5 billion.

And now you're over. Well over 15 billion.

Yeah, we're about almost 16.

Wow. So that, that's amazing. And, and this is now 15 years later, correct? Right. So it took you 15 years to get to $15 billion. So a billion a year, not. Not too cheap, right? No, not, not. Not bad at all.

[Barry Ritholtz]

This episode is brought to you by Charles Schwab. When is the right time to sell a stock? How do you protect against inflation? Are you taking the right risks with your portfolio? Financial decisions can be tricky, and often your own cognitive and emotional biases can lead you astray. Financial Decoder, an original podcast from Charles Schwab can help join host Marc Reap as he offers practical solutions to help overcome the cognitive and emotional biases that may affect your investing decisions. [e-mail] FinancialDecoder Bloomberg Daybreak is your best.

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[Rich Bernstein]

About launching the firm in 09 and there's a quote of yours that has always stayed with me, which is quote, when the sell side indicator turns positive, leaving the firm is preferable to going on the call and telling everybody about it. Explain that because we were talking earlier about the sort of bearish PTSD pushback to anything remotely positive. Your indicator, this sell side indicator has a pretty long and storied track record at Merrill.

It does.

Hey, this turned positive. You guys have to change your views. That carries no weight.

So let me explain what it is. The sell side indicator is a sentiment indicator that's based on Wall Street's consensus recommended asset allocation. So stocks, bonds, cash, how much did you put in stocks at any point in time? I started that all the way back at E.F. hutton. You mentioned Hutton before and we continued it through Merrill, and Merrill still runs it today. It really just looks at the equity allocation and puts basically standard deviation bands around that. And as you might expect, when Wall street gets really bullish, that's a bearish sign. Wall street gets really bearish. That's a bullish sign.

So when you said this turned positive, it was because the street was.

The street got incredibly negative. Incredibly negative. And so from my point of view and what you're referring to was that do I stay at Merrill and try to convince everybody to be more bullish or do I go off and start my own firm? I just thought it'd be better. Given all the other things we've discussed, it was better to start my own firm.

Preferable to Going on the call and telling, I could just imagine the sort of pushback. Bernstein, he's now a permeable. He's crazy. We just are in the middle of this crisis. How on earth can we recommend clients buying equity?

Yeah, right.

That's the sort of stuff.

And it was the kind of thing where, you know, certainly on the private client side, for those of you to remember, you know, in, in 2008, 9, 10, 11, 12, the story was all about bonds, bonds, bonds, bonds, bonds. And nobody wanted the risk of equities. And if you twisted their arm, maybe they would invest in large cap, high quality dividend paying stocks. But there was no way that they were going to take any kind of beta risk.

So no technology, no growth firms, nothing with any amount of potential volatility.

No volatility was terrible. Risk taking was terrible. They were under their desk in the fetal position.

And in hindsight, was there a better time ever to put money into those sort of stocks?

I'm not sure. In our careers there has been maybe 82. Right. If you think back to 80.

Right.

In the beginning, maybe 82 was a time and I do remember that I'm old enough where I do remember, you know, what, what the sentiment was like. And certainly I was, I had very little experience on Wall Street. I know what my sentiment was like in 82. I couldn't believe that the market would be going up and.

But, well, you just had a 16 year bear market.

Yeah.

You finally got over a thousand on the Dow, which I want to say we first kissed in 66, something like that. Right. So it's 16 years later.

Yeah.

Again, everybody seems to always be looking backwards, not forward.

And so the lesson, the lesson from that, you know, when I was a young pup, was, you know, gee, I really didn't know what I was talking about. And you know, I learned that from, from various people working on Wall street. And you know, so when it came to.09, I was kind of determined not to make the same mistake again.

So it's funny because another quote of yours kind of cracked me up that I always found this intriguing. You suggest always have a 10% annual target for the S&P 500 despite being bearish. I love that optimism. But how can you maintain that bullishness when you're bearish?

Yes. So what Barry, is, as I'm sure you know, the sell side strategists are always pestered for their target. What's your target on the S and P? And I used to think that was the most watched, least important thing I ever did, right? And so I would never put a number out, I would never give people a firm number, but I would always answer the question by saying, well, we don't really have an official target, but we have a 10% expected return. And nobody ever noticed that 10% is roughly the long term average return of.

The S and P with dividend reinvested. 10%. 10%.

10%. So I used to always say 10% and that would make everybody happy. And so regardless whether I was bullish or bearish, I always answer the question saying, I don't know, we have a 10% expected return and that kept people satisfied. But I really don't think that the notion of what is your target is an appropriate thing to discuss as an investor. Look, if you want to be a trader and you want to do a lot of short term trading, I get that and I understand it for a true investor, I think it's kind of a silly discussion.

Really, really amusing. On your website and elsewhere, I've seen the phrase from you pactive investing.

Yes.

Define what? Pactive investing.

Right. So pactive, which is a trademark term.

So that literally. My next question, I saw the registered trademark.

It is a trademark term of rba.

You literally did that. That's.

We did that. And so pactive stands for the active use of passive investor investments. And what we're really referring to here, a lot of ETFs, and you know, we're a macro firm, we claim to know nothing about Coke versus Pepsi, but rather, you know, we look at size, style, geography and you know, asset allocation, things like that. And ETFs are right in our wheelhouse. It's been a great invention and we're very big users of ETFs. Jack Bogle I met many times when he was alive and I always thought he was one of the smartest guys I ever met in my career. But one of the things that, and Jack would always say, don't, don't talk to an active manager, just go buy an index. Okay, fine. But with Jack would now, and that's an interesting discussion, we can have the discussion all day long as to why that happens or doesn't happen, whether he's right or wrong. But the one thing that Jack would never tell anybody is what index to buy and when. And you know, one may say, well, that sounds silly, but there's been many times in the past where if you had bought the wrong index at the wrong time, your portfolio suffered dramatically for an extended period of time. For instance, if you had bought Nasdaq or even the s&P ETF in March of 2000 for sure. Right. You then entered the lost decade in equities and your return for a decade was slightly negative. If you had been in other things like emerging markets or energy or all kinds of small caps, all these different things, you would have done fabulously well. If you bought small caps at the peak of the small cap bull market in 1983, it took you 17 years to catch up to the S and P. So you would have been neutral. So, you know, everybody says, oh, I'm a long term investor, I'm just going to buy an index. If you buy the wrong index at the wrong time, it can have a real detrimental effect. And that's what pactive investing is supposed to be all about, is the active decision making around these passive investments.

So let's delve into that decision making. How do you decide which index is the one that you want to own? What data are you looking at? How are you crunching numbers for this?

Right. So Barry, I mentioned that we are macro investors. You know, we're not looking at individual stocks. So everything we do is going to fall under some macro umbrella of one form or another. And the way to think about it is it's going to fall into three categories. Everything we look at is going to fall into three categories. Number one would be corporate problems. One of the things that I wrote about extensively, even when I was in Maryland, through my entire career is I've argued that equity investors spend too much time worrying about the economy and not enough time worrying about corporate profits. The stock market doesn't really care about gdp. The stock market cares about corporate profits.

Because GDP is reflected in profits. If it's trending the right way, GDP.

Is going to be a contributor. But a lot of other things contribute right, to corporate profits. We're looking at corporate profits and profit cycles, not economic cycles. Number two category is going to be what we call liquidity. And liquidity is going to be anything from central banks, central bank actions, to lending standards from banks, anything that's going to allow more leverage and greater liquidity and investable assets in the, in a stock market. And then number three is going to be sentiment and valuation. Now sometimes people say sentiment and valuation. Why are they together? And my answer to that is the other, right? Yeah. My answer is that valuation is a reflection of sentiment.

Has to be.

Yeah. You can't have an overvalued asset that people hate or an undervalued asset that people love. That doesn't make Any sense. So valuation is going to reflect sentiment. And so what we're basically looking for, if you think about those three categories I just mentioned, we're looking for situations where fundamentals are improving, liquidity is adequate or getting better and everybody hates it, or vice versa. Where fundamentals are deteriorating, liquidity is drying up and everybody loves it. It. We're going to try and stay away from that. That's. That's a. Maybe a gross simplification of what we do, but. But that's kind of what we do.

But, but that's packtive. That's how you're selecting from broad indexes. Just the right index at the right time and avoiding the wrong index at the wrong time.

Correct. That's exactly what we're trying to do.

Really interesting. One of the things that comes up when we're talking about various style investing comes right from one of your books and it's about media noise. How do you focus on the right index when there's so much noise and so much stuff going on? And it's, especially with algorithmic social media, it's just a fire hose nonsense. How do you separate the signal from the noise?

Yeah. So I wrote a book in 2000. So 25 years ago I wrote a book that was called Navigate the Noise.

I remember that.

Investing in the New Age of media and hype. 25 years ago I wrote about the new age of media and you were ahead of the curve. You think it's gotten a bit worse since 25 years? So.

So just as a reminder, this is pre Twitter, Pre Facebook, pre LinkedIn, forget Instagram, TikTok. Like this was just like message boards and websites.

Yeah. I mean you're just beginning to get websites in depth, but we're really still talking about a period of hard copy, research reports and television.

Wow.

That's really what the mainstay of what people were looking at the point of the book was to say that building wealth for an individual investor is actually not that difficult. Why don't people do it? Why don't people do this? It's kind of silly.

Well, wait, when you say it's not that difficult, we intellectually understand. My friend Dave Notig loves to say investing is a problem that's been solved, but the problem that hasn't been solved is the human behavior around it.

Exactly, exactly. And so what the book tries to argue is that there's some very sound principles that everybody should be following to build wealth, but yet there's a siren song, if you will. If you're into Greek Mythology, there's a siren song of things telling you of noise, telling you that there's something newer, better get rich quick, all these kind of things that are going on. And to continue with that, your portfolio follows that sound and crashes on the rocks, if you want the mythology example. And so what the book says is the way to solve this problem of this incessant noise is to hardcore follow a process. And come hell or high water, you're going to stick to that process.

That's the mask, you tie yourself to that.

Exactly right. And put the wax in your ears, the whole routine. Right. And, and that's, that's what we do as a firm. We have a very hardcore process. It's macro driven. But we're going to follow that process come hell or high water. You know, it's, it's funny, people understand that and they understand what we do, we understand why they do, they understand the notion of the book, but yet they get very angry when we're not following the siren song of what's the.

Newest, baddest, you know, shiniest object that's out there. So walk us through the process. I know you have a couple of core beliefs in your process. Tell us about it.

So I mentioned profit cycles. I think for us that is the most important part of our process. And as I said before, people spend too much time worrying about economic cycles and not enough time worrying about profit cycles.

Define profit cycle because we are all familiar with the business cycle and the economic cycle. What is a profit cycle?

So whereas people look at GDP growth or industrial production growth, and they say this is the economic cycle, what we're looking at is corporate profits growth. Now let's just as an example, we look at profit cycles all around the world. But let's take for example the S&P 500, the US profit cycle. What happens is the difference between an economic cycle and a profit cycle. Number one is that profit cycles tend to boom and bust. Fortunately, the overall economy does not do that on a regular basis. And secondly, profit cycles have a shorter periodicity. So you can get multiple profit cycles in one economic cycle periodicity, meaning the amount of time.

Right, got it.

Right. So whereas an economic cycle, maybe it's going to take four or eight years, you could have multiple profit cycles in that four or eight year period.

So how do you define the peak and the trough of a profit cycle?

So what happens is if you look at the growth rate of corporate profits, you will see it follows a pretty normal cycle through time. And our challenge as investors is to find Indicators that will allow us to effectively forecast that profit cycle. Now, we don't really care whether the profit cycle, whether earnings growth is going to be 7% or 8% or 10%, which is very common question people get asked. Or minus 5 or minus 6 or minus 7. We kind of want to know is it getting better or is it getting.

Worse, trending up or down.

Exactly. So if profits grow this 5%, what's the probability of it going to 10% as opposed to going to zero? So we spend an awful lot of time with a lot of indicators that look at that. What do the indicators look at? Well, look, profitability is a pretty simple formula. It's how many, how much stuff are you selling and what's your margin per item? I mean, that's really all profitability is.

Well, but there's a couple of factors that go in. What is the cost of capital and credit?

Exactly.

Inflation rates.

But that would be in your margin. Right. I mean, and so which affects profit? Which affects profits. So all our indicators are either going to try to figure out how much stuff is. Let's take the S&P 500, our S&P 500 companies going to sell and what's going to be their margin per product? So margin, as you point out, could be interest rates, it could be labor costs, it could be pricing power because of inflation. People forget inflation isn't bad for a lot of corporate profits, for equities, for sure. Right.

Because certainly learned that during the pandemic.

Exactly. So. So those are the type of things that we're looking at in terms of profit cycle. And as I said, we look at profit cycles all around the world. We look at them by region, by country, we look at by sectors. We look at profit cycles for, say, the tech sector, for the consumer staples sector or something like that as well.

So profit cycle is one of the triad.

It's the key.

All right, what are the other elements that you're considering in addition to the profit cycle?

So next would be liquidity. Okay. And liquidity is a function of several different things. It's obviously a function of monetary policy. We follow monetary policy in 43 countries around the world. I know that sounds silly and obviously the G7 or G10, you get a lot more information than you would in some weird emerging market country. But we do follow central bank policy. We follow yield curves. The slope of the yield curves. Right. Whether you've got a bullish steepening of the curve, in other words, are interest rates coming down, but the curve is steepening interest rates Going up. But the curve is steepening or is the curve inverting? I mean, we look at all these different things, they have different implications for sector rotation and things like that as well. And then we follow things like bank lending standards. Now that's obviously you can only get that in the most developed countries, but that's an important consideration as well. Are banks tightening credit or easing credit? People say, well, doesn't the central bank control that? Well, not really. You can kind of lead a horse to water, but you can't make it lend. And so you want to look at both central bank policies and the willingness of banks to lend.

How does the role of fiscal stimulus and spending play into liquidity issues?

Yeah, so to some extent it does. And it's going to affect more, it's going to feed into ARDs more to the corporate profit side in terms of, of how much stuff are you going to sell? Right. Because fiscal stimulus is trying to stimulate consumption or aggregate demand. If you prefer to be a real economist here, it's going to try and stimulate aggregate demand and that'll show up in our stuff type. Type.

All right, so we have the profit cycle, we have liquidity and what's the third?

The third is sentiment and valuation.

Right.

Okay. So obviously we want, we prefer to look at more undervalued situations. Sentiment, we're trying to look for basically assets that people hate. Valuation will reflect that. You know, if something's really undervalued, something's really cheap, it reflects that people don't like it, you know, and, and it's just like any other good in any other market, if something's really expensive, it means people like it.

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[Rich Bernstein]

So two questions from that. The first is how do you distinguish, and I already know the answer to this, but how do you distinguish between a stock that is disliked and cheap and a stock that's cheap because it's in trouble?

Yeah. So what you're referring to, we wouldn't do this for individual stocks, but we would do it for regions or sectors or whatever. You know, commonly called the value trap.

Yes.

The value trap is something that's cheap for good reason. And so what we do, we have models that try to look at various industries, sectors, countries, whatever, that are trying to look for not only cheapness, but some acceleration in corporate profits. Right. And we won't invest in anything just because it's cheap. That doesn't mean anything to us.

It's cheap plus some other indicator.

Correct.

And then the other question is consumer sentiment seems to have gone off the rails post pandemic. If you look at where and I suspect this is a measurement problem, but I want to get your sense. So if you look at the University of Michigan consumer sentiment data for the better part of the past five years, it's worse than the worst part of the pandemic. Worse than the financial crisis, the 87 crash, like on and on. It's shocking. Worse than 911 and the dot com implosion, like, wait, things aren't that bad.

No, they're not that bad at all.

What's going on with that sort of sentiment? And what how do you use sentiment when you're trying to manage around this?

You're asking, I think, a more complicated question, maybe even you think you're asking. But you know, everybody knows that we're in a very uncertain environment. And I think that those consumer sentiment readings right now reflect that immense uncertainty. If you were to ask normal people, they might not use the word uncertainty. They might use the word chaos. They might use there's all kinds of different words that people would use. I think that's what's being reflected in those consumer Sentiment numbers right now is, is the uncertainty and the impact that's having. You know, there's other surveys out there that are showing similar type levels of uncertainty or concern that aren't related to the consumer. But, but I think it's a reflection of this. It's become a hackneyed word. Uncertainty.

Right.

I think that's what you're saying.

I prefer the lack of clarity to uncertainty. But let me bring this back to your book, Navigate the Noise. How much of this is a function of algorithmic social media, which there was recently a study, I want to say it was Oxford, Reuters, that said Americans now get more of their news from social media than anywhere else.

Yeah, yeah, yeah.

Big, big issue. And then secondly, it seems like in the world of clickbait crazy headlines, the media itself, if not the news stories or columns, but the headlines certainly seem to be more and more extreme.

Unbelievable. So, you know, I don't know how to answer that from a societal point of view, but I can answer it from my point of view as sort of a fiduciary and an investor of other people's money. I think it is my obligation, two things. It is my obligation, number one, to be as dispassionate about my politics as I possibly can. I mean, if you want to go have a beer, we can talk politics, that's fine. But I'm saying when I'm investing, you have to be as dispassionate as you can possibly be. And number two, I think it's incumbent of all of us who manage money to search for truly unbiased sources. Not who's going to give us the most frequent news, but who's going to give us news that is unbiased. And I think it's incumbent on all of us to do that. And I have found that in the last year or so that my choices of news media and what I read and what I pay attention to has changed because of that.

Flesh that out a little bit.

Give.

Feel free to name names.

You know, a lot of people. I think one of the questions you would plan to ask me was, what are you reading these days? And my answer is, I don't read an awful lot, really, these days because there's so much going on. But what I have begun to do is listen to podcasts.

Okay, go on, tell me about this podcast.

No, but I'm buttering you up here.

All right, but go on. More soaking up. Sure.

There's three that I would recommend to everybody. One is actually right here at Bloomberg Bloomberg Law. And you'd say, like, why June Grasso? Yeah, yeah, yeah. Why would you really go, why would you listen to Bloomberg Law?

It's fascinating.

And my answer is because everything these days is ending up in the courts, right? Have we ever had more issues with government in the courts than ever before?

Certainly.

I'm not a lawyer. I don't know squat about, you know, constitutional theory and everything else, and I'm sure most people don't either. But they're gonna listen to some wackadoodle guy talk about this. I'd rather listen to people who have our well grounded opinions and understand the history of law in terms of doing that.

I'm so glad you brought that up because we went through a run starting in 2020 where every talking pundit, Yahoo, first they were an epidemiologist.

Yeah, exactly.

Then they were a virologist, then they were a constitutional scholar. Then there were a military strategist. You know when someone asks you was Covid from the wet lab or wet market or escape from the lab?

Yeah.

It's okay to say, how the hell do I have no expertise in that?

Why are you asking me? Right.

But everybody had an opinion, so it seemed right.

Exactly, exactly. And so, yeah, the other thing along with that that I love is that well known epidemiologists are idiots. But the guy down at GNC who sells me protein powder, he's a genius and he knows my health better than anybody. I mean, it's just like, come on.

There was a New Yorker cartoon that I vividly remember right in the middle of Pandemic. It's the body of an airplane and there's a guy standing up in row 17B, right. Saying, we're tired of these pilots telling us what to do. Who's with me? And it was like that. Just sort of let the pilots fly the plane. Sit down.

So Bloomberg Law is one that I listen to. I'm not going to say regularly because I don't have the time to listen to every single one all the time.

Yeah.

But if I get a chance, I listen to it.

That's a fascinating show. Like you're surprising me because I do the same as you. I listen to a lot of them. Tell us the other two.

Yeah. So the other two are actually on npr, which I realize people have now suddenly decided on a white eyed liberal.

Can I tell you, my wife, every time I get into the car and she's been driving my car, it's on NPR on satellite radio. And I had the same thought. Until you listen to a few of them and they're fascinating.

They are. And there's two shows in particular that I would recommend. Two podcasts in particular I would recommend from npr. One is called Left, Right and Center, which is the name implies. You have three people talking about issues. One from the left, one from the right, one from the center.

Wait, they're gonna give us all views? Who could have imagined.

Who could have imagined that? Exactly. And they pick a topic. And sometimes I'm really interested in topics, sometimes I'm not. But whatever. The fact that you've got Left, Right and Center in the same podcast is extraordinarily rare. You don't get that a lot. So that's number one. And the other one is another NPR podcast called Open to Debate, which is very similar. They pick a topic, and this is more like a traditional debate where they have debating rules and all kinds of things, but it's a. It's a debate and. And you're going to hear two sides of an issue. Now, look, sometimes the issues you don't care about, sometimes they're very important. Sometimes they're really cool, sometimes they're not. I get that. But I think it's incumbent on. On us as a class of money managers and fiduciaries to search out those kind of shows. I would argue if you are a fiduciary and you are constantly listening to MSNBC or Fox or Newsmax or whatever. Right. You're doing a disservice to your clients for sure.

So. So there are two things I have to share with you because you're. You're right. Right. In my favorite space. One is Planet Money on NPR is something that they take this obscure, fascinating little topic and we'll do a whole, like, way down the rabbit hole, deep dive. I don't know if you recall during the Clinton administration, hey, we're having problems with wealth inequality, and so we're gonna cap how much we can pay CEOs in cash. If you wanna give them risky stock options, you can. And the unintended consequences Is it 10x'd the wealth gap? And just stories like that that are fascinating. The other thing is you raise a point. I know you're not a lawyer, but I'm a recovering attorney. And the most applicable thing to investing you learn in law school is you have to be able to not just argue your case. You need to know the other side's case better than they do. And that translates into equities, as you can't be bullish unless you can really state the bearish case. And vice versa. You want to be bearish, you better know what, what are the best arguments for being bullish here? And I can't tell you how many people fail that test. And I bet you see it Back to post 09 if you're super bearish. The only question I have for those people, give me what the bull case is. And if they can't even imagine it, well, now I'm going leverage long because that failure of imagination means everybody's too bearish.

Yep, yep. And it's interesting you said that there are times we don't do this regularly, but there are times that we do point counterpoint in our investment committee meetings. Exactly. For that reason.

Just so you're making both sides.

So we're being, we're being seen.

It's. It's one of these things that until you go through the exercise, it like if you have an extreme position and you come out the other side of that discussion and you still have that extreme position, either someone wasn't making the argument well, or hey, maybe the world really is coming to an end.

Yeah.

But most so far that's been the losing. The losing bet. So given what's going on with technology and AI and automation and all the latest, greatest newfangled things, is anybody today a better investor than they were 10, 20, 30 years ago, 50 years ago? Has the bar since Charles Dow launched Barron's in 1890, has anything improved for the average investor?

I think, I think the amount, the amount of information that an investor can get obviously has gotten greater. Right. I mean, even if you think.

But it's all public, it's reg. Fd. So does it help them?

No, I don't think it does. And I think, I think that, you know, the notion that somehow we have evolved and we are smarter, better investors than ever before, I think that's hogwash. I think that's complete hogwash. People are still underperforming like they always did.

So it's not the strategies, it's not the vehicles. Although we get great tax and cost benefits with ETFs. How much of this is just simply comes down to human behavior and human nature. And people are still people and we're still making the same mistakes over and.

Over and over again. Yeah, I mean, there is something to be said for behavioral finance and the biases that we bring to the table. It's pretty hard to not be human.

It very much is. So let's bring this back to where we are in the market today and what's going on. We just made new all time highs in the S and P and in the nasdaq, I always learned that all time highs are the most bullish thing you can see, perhaps not the very last one, but the hundred before it are super bullish. How do you look at the market and say everybody seems to dislike this market and yet we made fresh all time highs.

Yeah. So I think, Barry, I think that we've said a number of times that we think it is a mistake right now to think of the market sort of in quotes, that that's what people are very, very focused on right now. We think that's a mistake. Why is it a mistake? Because the market is dominated by seven or 10 or 15 companies. And, and we really have an extraordinarily bifurcated market in that respect. And I'm not saying anything that people don't know. Of course, everybody, everybody knows about the Magnificent Seven. Who doesn't?

Although they, they've. The Mag seven have been the lag seven for most of this year.

Correct, Correct. Now that's, that's, that's where I was going exactly right. The, the, but the enthusiasm surrounding those seven stocks is not changing. And our view has been that, okay, you want to go play those seven stocks, go play the seven stocks. You don't need us. We're looking at everything else in the world. And I've said to our investors many times, are there really only seven growth stories in the entire global equity market? Of course not. There's tons of them. And we've shown people how many companies are actually growing earnings 25% or more and how the MAG7 doesn't really even fit into that group, that there are companies that are growing, you know, much faster for, and with, with, you know, similar consistency. And so I think if you're invested in an S and P index fund or you are invested solely in the Max 7 or solely in NASDAQ, I think the next three, five, ten years might be very disappointing. Huh? I think if you're in everything else and we could define, you know, that's, I'll leave it to everybody else to define how they define everything else. But, but I think if you're in everything else, I think you're going to do just fine. I think you're going to have a great time.

So, so let's talk about not everything else, but one of the else things which has been international stocks. When we look at either developed ex, US or emerging markets, these are areas that have underperformed the US for 10, 15 years and over the past year We've started to see signs that, hey, maybe this underperformance isn't going to persist. Ex U. S stocks have been doing much better than U S certainly year to date in 2025, and we're recording this late June, maybe it's been about a year or more of outperformance. How do you look at the world of international stocks? What parts of the world look interesting to you?

So I will, I will twist your question a little bit and I will say that one of the thing, one of the aspects, one of the segments of the global equity markets that we are very bullish on is what I will call international quality non US Quality stocks.

That's not a twist.

Well, I'm just saying as opposed to a country. People like to talk about countries. But I think the reason I say this is that the median projected growth rate among high quality non US Stocks is actually equal, maybe even a touch higher than the median growth rate among the Magnificent Seven.

Wow.

So we'll talk basically similar type growth. They offer dividend yields of 3, 4, maybe a little percent, maybe even 4.5%, depending on how you look at this. But let's say 3 to 4% dividend yield and they sell for a third to a half of the valuation of the Magnificent Seven. So the way I describe it to people is if somebody came to you and offered you a Maserati for the price of a Chevy, or to be fair here, if somebody offered you Manolo Blahniks for the price of hush Puppies, I think we would all say, yes, I will do that. By the way, can I have two? But when we get to the stock market, this is like unimportant to people. They don't understand that there's a value assessment made in everything we do all the time. But for some reason it stocks, it doesn't appear so the way I describe it is the Blahniks and the Maseratis are on sale. We think that's a great thing to do. We'll take two. Thank you.

So you're naming two Italian companies, Paris.

I just chose them because everybody knows.

But the reason I bring that up is you're not stock pickers. You're geography sector style selectors. So if someone says, hey, that Rich Bernstein is onto something. I want exposure to fast growing, high quality, inexpensive companies. What sectors are they looking at?

So for us, I will, I will name the ETF that we hold, with all due legal disclaimers here, that we hold this etf. We have held it, we still hold it. Blah, blah, blah. You know, however I can alert people that we, I'm talking my book a little bit here. Here. The, it's, it's the IQLT is the ticker symbol, the International Quality etf and it's a great way. It's actually, I believe, IFA based. So you're getting multiple countries.

So that's Europe and the far Far east and Asia.

Correct. It's probably going to be Australia. It's probably going to be about 60 to 70% Europe. I don't have the stats in front of me, but something like that. So I think, you know, that's, that's an area that people aren't thinking about at all.

So here's the macro pushback and I'm not saying this is, let me just play devil's advocate. Europe has structural problems. Brexit is an issue now with the Trump administration. Europe's going to have to step up and fund more of their own military and defense. Europe is, has problems and they're not going to be clear these for decades.

And that could be true or that might not be true.

Okay, but is it relevant?

But notice, notice what I said was that they offer earnings growth that is comparable to that of the Mag 7. And I think that's the point that I'm trying to make, that despite all these problems that everybody is well familiar with, somehow these companies are putting, you know, are, have earnings growth, projected earnings growth that's roughly similar, a little bit more than the Magnificent Seven.

And these are quality companies and they're ex US and so if you have a huge home country bias and you want a little diversification, you can look overseas to reasonably price quality companies.

And if you think the dollar is going to weaken, it's right, all the better.

What are we down eight, eight and a half percent year to date? Something like that.

Yeah.

So I know you're not a currency analyst and you don't make those sort of calls. How do you look at what happens post April 2nd liberation day and the ongoing weakness in the dollar? Does this come into your calculus or is this just more noise that nobody is?

It does not in terms of the short niche media turn the way most people would think. But we think there are structural issues in the United States that transcend the current politics. Transcend the current politics and have been around for longer than people think and are detrimental to the U.S. economy. And we find that very interesting that you hear all the time about debt and deficits and there's some day of reckoning coming.

My entire adult Life I've been hearing.

Yeah, and I love that because the speaker usually is saying I have some insight and for some reason the markets don't appreciate my insight. And I love that we're all so smart and the market's stupid. No, it's actually the other way around. The markets have figured this out over the past 10 to 15 years. And what I'm talking about is if you look at the spread between Treasuries and AAA rated sovereign debt through time, what you will find is when the United States was rated aaa, our yields were roughly in line with other AAA rated sovereign debt. Since the initial downgrade in 2011 and since then, nonstop, we have sold at a risk premium yield. In other words, we're trading more like a lower quality bond relative to AAA rated sovereigns.

Meaning all this negativity is in the price.

It's there. The markets have been well aware of it. There's no day of reckoning. It's like a slow bleed. And so what's been. If you think about how everything in the United States is priced off the 10 year, mortgages, munis, corporate bonds, everything's priced off the 10 year. The fact that we're paying it at, you know, right now, it's just under 200 basis points of extra yield because of our lack of fiscal discipline, that's translating through to higher interest costs throughout the entire economy. It's not just the government, it's through the entire economy. Why aren't people aware of this? Well, because over the past five to 10 years we've had low absolute rates of interest. The point I'm trying to make is we've still been penalized relative to other countries despite that absolute low rate of interest. And people haven't realized that. So we're already being penalized. And I think there's a real, I think everybody should be concerned about that. It's clear that neither party has a real interest in fiscal discipline right now. So we should assume that that penalty against the United States is going to continue to exist, if not expand.

So let me push back and play a little devil's advocate about that. Hey, Uncle Sam was borrowing at next to nothing. We've been running up deficits for 100 years.

Covid.

Happens. Everybody's stuck at home. CARES Act 1 is the biggest fiscal stimulus, at least as a percentage of GDP, since World War II. Then you add the second CARES act under Trump, the third CARES act under Biden, to say nothing of the other 10 year fiscal stimulus plans passed under Biden. And that pig working its way through the Python caused a giant spike in inflation, plus supply chains, blah, blah, blah. And now that that's come out, the other and so the Fed had to respond. Whether, whether, whether the Fed brought inflation down or it was simply unwinding, naturally, is another debate. But once the Fed brings rates back down, this penalty will go away. If and when the Fed finally does.

That, well, that's important because remember, in the period I'm talking about, which is almost 15 years now, you've got periods, you've got multiple, multiple presidents, you've got multiple Fed regimes, and the penalty doesn't go away. And I think that's so no matter.

Even at zero, we were paying a penalty because other countries had negative, had negatives. So there was still the penalty there.

We were still being penalized. It's crazy. And that, I think, is something that's lurking in the background that people are not paying attention to. Especially people say that a day of reckoning is coming.

You're saying it came and it's still here.

It's ongoing, it's ongoing. It's just not big enough for anybody to notice.

As I said, it's like water torture, the slow bleed. That's really fascinating.

[Karen Moscow]

Bloomberg Daybreak is your best way to get informed first thing in the morning, right in your podcast feed. Hi, I'm Karen Moscow.

[Nathan Hager]

And I'm Nathan Hager. Each morning we're up early putting together the latest episode of Bloomberg Daybreak US Edition. It's your daily 15 minute podcast on the latest in global news, politics and international relations.

[Karen Moscow]

What's special about Bloomberg Daybreak is the immediacy of the news we bring you each day in your podcast feed by 6am Eastern Time.

[Nathan Hager]

This isn't a deep dive on yesterday's news. Instead, you get the latest stories with context.

[Karen Moscow]

And that's something you don't get from other news podcasts. So join us. Join us for the best from Bloomberg's 3,000 journalists and analysts around the world with reporting backed by data and journalists at the center of the stories we cover.

[Nathan Hager]

Listen to the Bloomberg Daybreak US Edition podcast each morning for the stories that matter with the context you need.

[Karen Moscow]

Find us on Apple, Spotify or anywhere you listen.

[Unknown]

Join us in Seattle July 14th and 15th for Bloomberg Green, two days of powerful conversations and meaningful connections. We'll explore what's next in the climate, economy, clean tech policy and greener living. Featured speakers include Jane Fonda, Brian Gellert and Vinod Khosla. The title sponsor is Amazon. Official airlines are Alaska and Hawaiian Airlines. Learn more at BloombergLive.com GreenSeattle that's BloombergLive.com.

[Rich Bernstein]

GreenSeattle let's jump to our favorite questions, starting with you mentioned some of the podcasts you're listening to. What else are you streaming? What's keeping you entertained these days?

So streaming. I'm, I'm, I'm in a little bit of a rut in.

Oh, really?

Right now? Yeah, I'm having trouble. Everybody, you know, like, everybody's got their favorite, you know, streaming show that they like. And if you ask anybody, people come up with like four of them. Oh, you got to watch this, you got to watch this. And all of a sudden it's like it all blends together and you can't keep it together. So I'm a touch lost right now in terms of streaming. I won't say, give me suggestions because I won't remember it as soon as I leave.

I'm just going to give you one because it's quirky and interesting.

Okay.

It's called Department Q.

Department Q, Right.

So this is a limited nine episode series on Netflix. Detective is shot, his partner is injured, the third person is killed at the site, and he basically is appointed head of the Cold Case division. They're just standing up.

That's kind of stuff I love.

And it's in Scottish and I normally don't love police procedurals.

Yeah, yeah, yeah.

This is kind of fascinating. It's, it's, it sort of builds slowly over time. Like, I could give you a hundred others that you wouldn't care about, but I kind of know the sort of stuff.

Good. That's a good.

You like. But it's quirky and weird, but really interesting.

Good.

If you're gonna have any complaint over it, and I don't think is a complaint, but the complaints I can imagine are, well, this builds slowly. I'm like, yeah, it's not just, you know, if you want to open with a Chasing James Bond and Mission Impossible, you know where to go find. This is a little, A little more. Okay, so. Well, I'm curious to see Department Q such a, such an odd. Let's talk about mentors. You referenced one of them. Who are the folks who helped shape your career.

So I would say there were, there were several. One that had an immense impact on me was the person who hired me at Merrill, Chuck Clow. Chuck Clow at the time was Merrill's chief strategist. He's.

I know that name from way back when.

Yeah, yeah, yeah. He was the chief strategist at Merrill from 87 to 2000, something like that.

Wow.

And Chuck gave me two pieces of advice which, which he, he claims he doesn't remember that he gave me, but I'm sure he does. The first was my first day when I walked in at Merrill and I kind of said, like, what do you think I should be focusing on? And he said to me, I don't really care. Just don't make a fool of yourself.

By the way, that's good advice for anybody, anywhere, anytime.

It was. And at first I was very put off. Like, this guy doesn't care about me. Like, what is this all about? You know? But what he was saying was, you're a grown up.

Right?

Right.

Act like it.

Yeah, exactly. You don't need me to tell you what you should do. But be aware. Don't make a fool of yourself. Don't do stupid things. Second thing he told me, which I live by to this day, and I tell this to people all the time, he said, make sure you're a star and not a Roman candle. Which I thought, I still think to this day is fantastic advice.

So persistency, not. Don't just flame out.

Don't flame out. Don't be the 10 minute thing. Be the star. To be a star is harder than you think. And. But be a star. Don't be a Roman candle. That I still, to my day, live my professional career that way.

I think, I think that's great. You said you don't read a lot, but you've written several books. I know there are books that have influenced you. What are some of your favorites? Do you read anything on vacation?

So I do. What I tend to read. I don't have any, one book that I would give you, but I will tell you, I tend to read a lot, a lot of espionage, Spy and espionage type stuff.

Okay.

And the reason why is that as these things progress and as the stories progress, not, not like, as you said, not like James Bond type stuff, but it's, it, it's almost like solving a puzzle or, or completing, you know, completing a puzzle in some way. And, and I find that fascinating. I find, you know, I was always in high school, my favorite math was, was geometry because everything was a puzzle to me. There was like, we had different tools. How do you solve the problem? And that's kind of the way I view spies and espionage is that there's different tools. But how do you solve the problem and how do you get where you want to go?

I got, I have another recommendation for you.

This is Why I came today.

It was a charming. It was one of these films that like, oh, this looks interesting. Netflix recommend. Let's try this Black Bag, also set in the UK. MI6. Husband and wife work together and there's a mole somewhere in MI6. And people, somehow, each of them are led. I want to say it's. Is it Kate Winslet? It's one of the Kates. And I forget who's the lead husband, the man, the husband. But each of them begin to suspect the other.

Oh, interesting.

And shockingly interesting. Like normally you go into a movie you have no idea about. Yeah, let's see how this is. And we both were like, wow, this was surprisingly good. So again, I know your wheelhouse.

Yeah.

Black Bag and Department Q. You have now a film, a series, and a book. I've taken care of your summers entertainment. So anything else you want to mention that you're reading?

No, there's not. You know, I. No, I haven't. I haven't been reading a lot recently for fun, I have to admit. But what I do read, you know, pretty religiously is, is getting back to the whole issue of, of being dispassionate. I. I do read the Financial Times. I do read the Economist. To me, that's, That's a must read for people.

I have found the British papers, yeah, generally, like what we think of as left of center is sort of dead middle to them. And they look, their right is kind of our middle. Like, it's not like our spectrum feels wider. Our political range and they. Everybody seems to be clustered somewhere around. It's either center right or center left, not extreme right or stream left.

And I actually don't. I don't care whether people are right or left as long as I can figure that out. What I care for is factual content.

Right?

Right. Fact fact checking has to be. Has to be good these days.

So our final two questions. What sort of advice would you give to a recent college grad interested in a career in either investing or asset management or quantitative strategy?

Yeah, so I mentioned this briefly before. The advice I do give recently, college graduates or seniors or whatever, is not to pigeonhole yourself early in your career. Don't say, this is what I have to do and this is what I'm going to do. You know, if you're a doctor, if you want to be a doctor, if you want to be a lawyer, you have that. Some of that you have to do. I get that. Right. But if you want to go into the financial services industry in any format, you have to enter that with an immense amount of flexibility. Our industry changes so dramatically and so quickly that what seems super interesting to you as a college graduate could be obsolete in two or three years. And you don't want to paint yourself into a corner where that's all you know and that's all you're willing to do and you're unwilling to do other things or unwilling to learn other things. I think if you're coming into financial services, you should be one who likes to learn and likes to morph through time.

Really, really interesting. And our final question. What do you know about the world of investing today that might have been helpful to know 40 years or so ago when you were getting started?

Oh, man. I mean, I will tell you, I have gone back and read reports that I wrote 20 years ago or 25 years ago, and I read them today and I say, like, what a moron. I'm amazed at my own stupidity. And so let me.

I'm going to interrupt you right here to say so. Professor David Dunning of University of Michigan.

Yeah.

He. Of the famous Dunning Kruger effect, said if you look at work that's five years old and you don't think it's awful, you're not progressing. I said in it, right, right. Sitting where you were sitting and said, if you, if you're not, if you don't hate what you did 10 years ago, you haven't grown at all.

I.

How fantastic is that?

I mean, some of the, some of the ideas I wrote about, we still use, and they're, they're still the crux of what I. But I'm just saying, I look at my writing, I look at how I express myself, I looked at how I thought something was so important, that type of thing. And I cringe today. I absolutely cringe. And the moral of the story there is I've come to grips with the fact that no matter how smart I think I am, I'm really not very smart and there's a lot more to learn. And so I think as I've gotten older, I've wanted to learn more through time. I kind of immerse myself. And it's funny because my friends react to me now. They say, like, how did you know that? And it's only because I'm reading all kinds of different things and doing all kinds of different things and paying attention to everything, because I kind of think of myself as a perpetual moron. I don't know how else to describe it, but that's really how I view myself.

All I know is that I know nothing. I will go back to philosophy. Philosophy. What is that? Aristotle? So. So we will. We'll end where we began. Rich, thank you for being so generous with your time. We have been speaking with Rich Bernstein, Founder, Chief Investment Officer of Rich Bernstein Associates. If you enjoy this conversation, well, be sure and check out any of the 550 we've done over the past 11 years. You can find those at Bloomberg, iTunes, Spotify, YouTube. Wherever you feed your podcast fix. Be sure and check out my new book, how not to Invest. The ideas, numbers and behaviors that destroy wealth and how to avoid them. How not to Invest. Wherever you find your favorite books. I would be remiss if I did not thank our crack team that helps put these conversations together each week. Anna Luke is my producer. Sage Bauman is the head of Podcasts at Bloomberg. Sean Russo is my researcher. Peter Nicolino is my engineer. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

[Karen Moscow]

Bloomberg Daybreak is your best way to get informed first thing in the morning, right in your podcast feed. Hi, I'm Karen Moscow.

[Nathan Hager]

And I'm Nathan Hager. Each morning we're up early putting together the latest episode of Bloomberg Daybreak US Edition. It's your daily 15 minute podcast on the latest in global news, politics and international relations.

[Karen Moscow]

What's special about Bloomberg Day Daybreak is the immediacy of the news we bring you each day in your podcast feed by 6am Eastern Time.

[Nathan Hager]

This isn't a deep dive on yesterday's news. Instead, you get the latest stories with.

[Karen Moscow]

Context and that's something you don't get from other news podcasts. So join us for the best from Bloomberg's 3,000 journalists and analysts around the world, with reporting backed by data and journalists at the center of the stories we cover.

[Nathan Hager]

Listen to the Bloomberg Daybreak US Edition podcast each morning for the stories that matter with the context you need.

[Karen Moscow]

Find us on Apple, Spotify or anywhere you listen.

[Unknown]

Join us in Seattle July 14th and 15th for Bloomberg Green, two days of powerful conversations and meaningful connections. We'll explore what's next in the climate, economy, clean tech policy and greener living. Featured speakers include Jane Fonda, Brian Gellert, and Vinod Khodi. The title sponsor is Amazon. Official airlines are Alaska and Hawaiian Airlines. Learn [e-mail] GreenSeattle that's BloombergLive.com GreenSeattle.