YouSaid · the spoken record

Andy Redleaf

lines on the record

70

first

2018-04-02

most recent

2018-04-02

sittings or episodes

1

sources

podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

1. “Sort of the standard option which had always been a very retail oriented product. And they had the idea that they saw sort of institutional option products, as it were, coming down the pike and that we had a skill set that could be the basis for a more institutional money management business involving more than just our own money. And we started what became Deep Haven fairly quickly convertible bonds dominated the portfolio. But again, sort of in that vein, a product with some option characteristics that had institutional ownership.”

   2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

2. “It was really Kessler and Dan Asher's idea who were friends, acquaintances of mine in Chicago, and they traded in a somewhat similar way. Late eighties, early nineties, a couple of the stocks that they were the designated primary market maker for issued what were called perks or DECs, a perk was a single security covered right mathematically it was long stock short of call. Like a lot of these things it came into being because of the regulatory framework. There were lots of sort of institutions that could own a single security that was a covered call, but they couldn't own the stock and write a call. So it was an option product to be marketed to institutional investors.”

   2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

3. “Consistent, coherent with the notion of decentralization markets, et cetera. It was an era of empowered. People would give, you know, it was never easy. That's a misnomer that like anybody could put up a shingle and raise money. It was never like that, was never easy, but it was possible. I think that's probably true. You think about tech and Silicon Valley and so forth. There's always been the romantic notion of the guy in his garage or the lone wolf, whatever. It's always been, you know, sort of there, but its place in the cultural Zeitgeist does ebb and flow, and people were in fact willing, looking to give money outside of the box.”

   2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

4. “idea you know they wouldn't recommend that to anybody but the notion that you know sort of the more people trading the better you know kind of a wisdom of crowds sort of feeling the enabling of the more liquid the better again you know pushing transaction costs to zero very much animated that You know it also Because it was sort of still hard to trade 500 stocks at once it kind of focused people's attention on how else could you hedge could you do index arbitrage you know principal component kind of analysis factor analysis you know I think was actually which grew up concomitantly with that product but certainly gave it some force and some momentum Critical to kind of my career. And again, with that.”

   2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

5. “Of a pure bat. And really, the thing that they enabled was for retail people to trade the stock market on an intraday on a very short-term basis. Everything else, there were index funds, an institutional investor could buy the S&P 500 or short it if he wanted to, from an investment, from an investor point of view, there was absolutely no use for the product. It enabled pajama boys, people to trade at home, the market on a 10-minute, 10-minute hourly basis, which is something pretty much everybody at the micro level thinks that's a bad idea.”

   2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

6. “That markets are better than individuals. Markets are better than institutions, you know, sort of decentralization, generically speaking, is better than centralization. Nixon said we're all Keynesians now, I think, 60s, and I guess Keynes had the quote that about everybody really being run by some dead economist in finance and he was still alive. But, you know, Milton Friedman's fingerprints are all over that kind of whole regime. And he was, you know, like the patron saint of the Chicago exchanges. I think the listing of stock index futures in 82 is actually somewhat remarkable in that they settled for cash, so they're in the form”

   2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

7. “Right. I wasn't really in any way seen around corners or predicting the future. I was kind of in the middle as stuff was happening. One of the things that's sort of remarkable is for all of my career, I've been able to borrow more money than was prudent. I do think we're in a different era that, you know, sort of my era, actually most people would trace the start to the collapse of Brenton Woods, which was 1971, listed currency futures 1972, the CBOE 1973 deregulation of commissions 1975, stock index futures 1982. But, you know, sort of all of these things kind of animated by the idea”

   2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

8. “Or 150,000 people employed. You have a business model, sales, commission-driven business that's disappearing. In fact, the established firms moved from commission business to trading businesses trading against their customers, really, the propdesks became established. And then subsequently as volume exploded, as in fact commissioned business could work, the prop traders moved to the hedge fund industries and the investment banks became sort of full shadow banks servicing the sort of new businesses that.”

   2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

9. “The value of public stocks twenty, twenty five, thirty fall, trading volume one hundred to two hundred fold. Okay, after the fact you don't go, well, that doesn't make any sense. It sort of makes a lot of sense. But if you think about some of the ramifications, among other things, you need a circulating medium to settle and accomplish all of these transactions. So either you needed a great increase in the money supply or in fact securities had to become money. And that increase in volume demanded that the shadow bank, what's called the shadow banking system arose. So you have”

   2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

10. “For volume to explode, but at five or six cents, the Wall Street firms could not make money. Five or six cents and $20 million of volume a day, which is what the New York Stock Exchange did, the firms could not make money on a commission basis. And that was, you know, there were whatever there were, 100,000 people employed primarily in that commission business. With the benefit of hindsight, and retrospectively, it's not sort of a huge shock if you go back to the 70s, so volume kind of 15 million shares a day on average in New York and the other exchanges maybe 5 million from then till now or really pre-crash round numbers GDP sort of 10.”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

11. “That much light in history was the deregulation of commissions in May of 75. I haven't done exhaustive research on what people said and thought about that, but kind of generically the view was you'd be a modest benefit to investors, both individuals and institutions, and something of a modest decrement to the business. Nobody really asks, what are the implications if you take transaction costs to zero? And nobody really saw that, I don't think that, you know, in fact, transaction costs couldn't go to zero because there were technological stuff that was happening and had to happen to do that. But commissions immediately went to Six cents from fifty or sixty cents, it took a little bit of”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Right, right. But Granto was $8 million. Not everybody had an option prop test at the time. Goldman did, Morgan Stanley did. And they were kind of our size too. I think at the time Goldman's capital would have been in the hundreds of millions. I don't think it would have been a billion, but maybe it was. What was happening, an event that doesn't get”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

13. “Left Gruntal after a year and a half and joined the CBOE as an individual market maker. Again, in terms of sort of the time, the Prop Desk at Grunto was three people. My boss, Ron Aiser, a kid six months older than I am, who you may have heard of Steve Cohn and me. Gruntel at the time had capital of $8 million. We used a little more than two. And really, the rest of the capital was marginally, you know, they didn't really use. Nobody else traded for the firm. And we were probably a little more than half their profits.”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

14. “I actually wrote a, you know, I'm a little bitter, I didn't get a Nobel Prize. I did write a Black Scholls option prizing model while I was in college. It is kind of the first thing that sort of occurs to you. But 60, 70% of our business was doing conversions and reversals. That's turning a put into a caller, calling to a put and arbitraging with the stack and that so the fundamental equation is long call, short put equals long stock. You didn't need to solve any differential equations to do that. And that relationship and other simple kind of relationships and sort of low risk spreading is what I did anyway to see how things should be priced.”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

15. “Allen and so forth. As I said, the job was a fluke and I stumbled upon it and certainly nobody else I knew was remotely sort of similarly employed when you told people you were a prop trader they didn't know what you were talking about”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

16. “One of those things had I made the alternate decision, my life would have been a whole lot different. And I have no idea whether I would have been happier or less happy. It's very possible that I might have migrated to Wall Street, you know, kind of five, ten years later. Again, by then, since the career path was sort of established, I wouldn't have had the opportunities to the same degree. My first job was with Gruntall Regional New York City brokerage house, and it was trading options for their account. Just in terms of how different the world was, I mean, one, it was really hard to get a job, even as someone who'd gotten an MA in math in three years and had a graduated from”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

17. “It was actually Wall Street and not a metaphor or clich ⁇ or something. We're completely unsuccessful and was only kind of a fluke that I stumbled on a job in 78. At the time I was planning on going to graduate school in the fall of 79 to get the job I had to commit to staying for a year and a half, which I did in the summer of 78. I wrote to defer attending graduate school. And they came back and said, you know, they would give me a little more money. I said, I want to turn some money, which they said they would give me a little more support, but I had to show up in the fall, or it was gone. So in kind of July, August of 78, I had to make a decision.”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

18. “Career per se, and I, you know, in college, I ended up majoring in math. And I was going to be a mathematician. I was interested in sort of the math of finance and so forth. But at the time, the buy side really didn't exist. And my early efforts at getting a job. Primarily summers on Wall Street, which was still Wall Street.”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

19. “I think my career really does parallel a lot of the evolution in the financial markets over the 40-some odd years that I've been involved. My father was a physician but interested in trading and investing and so forth and pre CBOE, which is CBOE was 1973, so probably 71-72. He had a broker who got him interested in over-the-counter options. And then late 73 listed options. My father was interested in that and he had a broker who had him selling calls on stocks he owned and selling puts on things he wouldn't mind owning. I started trading as a fifteen or sixteen year old kid in high school. In point of fact, I didn't think of it as a”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source

20. “My guest on today's show is Andy Redleaf, the founding partner of White Box Advisors, a five and a half billion dollar multi-strategy hedge fund launched in 1999 with offices in the Metropolitan Hubs of Minneapolis, Minnesota, Austin, Texas, and Sydney, Australia, as well as less interesting locations like New York and London. Before founding Whitebox, he spent 20 years trading options. For two years at Gruntel& Company, alongside Stevie Cohen, fourteen on the CBOE, and five as a founding partner at Deep Haven Capital Management. And alongside his partners, writes one of my favorite manager letters. Our conversation covers his nuanced view of the evolution of trading markets and financial instruments over his forty-year career, including arbitrage trading in the 1970s and 80s, unintended consequences.”

    2018-04-02 · Capital Allocators · Andy Redleaf - Evolution of Markets (Capital Allocators, EP.46) · IDENTIFIED FROM THE TRANSCRIPT · source