YouSaid · the spoken record

David Schawel

lines on the record: 50
first: 2021-09-19
most recent: 2021-09-19
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

“Long time. And at that point in time, these companies might be a lot larger than they are now, and potentially the pieces might be sold for more than the sum of the parts. So that's another thing to think about. But certainly at least the headline that could be a headwind.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“You know, quite a few engines underneath their core business that are going to grow. And I think as you look out a couple years, not that many years, look out a couple years with Google's growth. I mean, they've certainly rerated in the last year, but it's very reasonable compared to a lot of companies in S&P that are trading in the low 20s TE right now with revenue growth that inflation are just a little bit higher than inflation. I think you can take Google for similar multiple, a little bit higher multiple, but on a forward basis, significantly cheaper. So I think that there is some safety in the growth as far as mega cap tech goes. So, you know, what happens with the regulatory environment? I don't know, will something happen to some of these? Probably will it be punitive to the stock? I guess probably not in that it's probably going to take a”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“The amount of pre cash flow that they're generating, the last 12 months as of 6.30, it looks like close to 60 billion of free cash flow. And so not only does that give them flexibility for acquisitions, which I think they've been pretty conservative on, but also buyback. They've started to really hold a buyback lever. And I think that they've been a lot more conservative on that than at least next to somebody like Apple, which is utilized for a lot more. And I think that that's going to become a bigger and bigger thing, but it's hard to believe that a company like Google still, they do $210 billion of revenue for 2021, but they're still growing in the mid teens. I mean, it's really remarkable. So I think that it's a reasonable evaluation going forward. And you've got to...”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“More viewers and more ads. So that business, I think, is just such an amazing company. And I think up until probably the last year or so, it's really been underappreciated because it's been kind of hiding under the Google umbrella, but that's become big. And I think after that through a similar degree, Google Cloud is growing pretty substantially. And it's certainly no question at the distant third to AWS and Azure, but there's limited pairs be a cloud provider in the world right now. I think you have to have substantial capital to do that. And I think that they are going to, you know, even if they're not a big, even if they don't displace AWS or Azure, I think it can be, there'll be a great business over time, even as the number three player in the US. But not only that,”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Of your core business with their ad revenue, which is still growing. But I think one of the booming things has become YouTube. And just YouTube, think about an amazing story, YouTube being purchased for, I think it was a billion dollars, and don't quote me. I'm close. I'm probably within 500 million, but I mean, it was a heavily scrutinized acquisition at the time. And interesting thing is people didn't even know how they were going to make money. So a lot of people thought it was going to be on the TV aspect. And if you think about how amazing of the business YouTube is, you have people creating YouTube's own content, right? So they're the content creators of this. And the flywheel effect of more content drawing.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Regional base there, but as far as their growth has been growing all over the world. But I think their technology, because of their technology, they have less fraud, less loss of and things like that. And I think that their ability to adapt to the environment compared to a lot of these legacy players. And I think that's one of the big things. The legacy players are so unable to innovate that not only with the e-commerce growth going forward, but the existing share that I think they can take from these legacy guys that I think is really underappreciated. I think the second one I'll say, and it'll be more boring, but I don't think it's any less important as Google. I think I could highlight Google or Amazon because I like them both. But if you think about Google, obviously,”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“That they are going to find new sources of revenue. So I believe in the top line growth of their core business, but I think that there's other things that are going to come about, whether the issuance of cards or whatever that are going to drive this company into the future. So I think that's certainly one that I like a lot for the future. And obviously caveat being that we have own this company for some time.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Higher multiple for this growth, but I think the bet is that with a lot of great companies over time, I think investors can focus too much on the stated valuation and not as much on the optionality that those companies have. So great ass-growing companies historically have had other sources of revenue and profits that emerge. So for instance, if you went back, I'm not comparing Addie into Amazon, but the way that a lot of people look at popular growth companies that really have durable growth profiles is they kind of underpriced that optionality. And so I think my belief is that a company that's growing like this and has such great loyalty and basically less than 1% furn, so much revenue growth coming from existing clients is”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Can really grow revenue by probably 30% per year for the next decade really. And not only that, but their EBITDA margins are in the mid 60s. So they're insanely profitable. Optically, the company's expensive, but I think these trends of kind of unified and omnicommerce, meaning maybe order online, and then you can return it to a store. Maybe you go into a shoe store and they don't have it in store, but then you can buy it in store and ship it home. This omnicommerce is becoming more and more part of the way that the world is working, especially post-COVID and an e-commerce boom. And I think Addie and has really positioned at a lot of super, super important secular growth trends. And I think the bet, because obviously, you know, you're paying a little bit of a higher.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Up in 2006. And the reason that the founders did this is because the way that things were set up before, it was kind of a hodgepodge of different systems that were built on old infrastructure. And so a lot of these old payment companies kept acquiring, bolted on, cut costs, and really the underlying technology wasn't really that good. And so I think adding the one platform anywhere, whether you're in the US or Brazil, whether you're online or in person, this is really been a great business. And a lot of their growth has been in large enterprises. So if you think eBay, Spotify, Uber, Etsy, last quarter, I think they won Louis Vuitton. And this is a business that I think”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Give a couple ideas. The first caveat being that we do own positions in these securities are far from and myself personally. But I think one company that I like a lot, and I'll talk business-wise, which businesses do I think are going to do well, whether or not they'll hedge a little bit, whether or not the stock actually do well kind of early to tell. One of them is a payments company called Adium. So Adium's a Netherlands-based payment company. And so basically what they do is they offer a single payments platform to accept payments anywhere on any device, whether that's e-commerce or in person. And the interesting thing about Adian and most people haven't heard of them, maybe more so in the last year. But really, they were built from the ground.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Certainly, those are things that we think about whether or not they're going to impact today or the near term or the medium term is more the issue.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Thank We're certainly going to be looking at all the inflation and demographic situations and fiscal environments. And I think all those things are very important when making investment decisions. But I think it's also important not to let my personal opinions on what's happening with the Fed or the Congress or whatever you might think in terms of because think about we can't control. I was just talking about talking about this with somebody on Twitter, no matter what we think, whether we think policy is the best or the worst or in between, we can't control that to a large degree. We can vote. We should, but we can't control things after that. So, you know, from an investor perspective, an allocator, active manager, it's our responsibility to invest in the environment that we have. So back to your original question.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Numbers, but all about from a relative perspective, what's going to happen relative to what the market's expecting. So we might still have a recovery and things might still be going good from a earnings perspective or whatever, but maybe relative to what everybody's thinking comes in short due to X, Y, or Z. It might be kind of a cop-out answer, but most likely it's going to be something that we're not thinking about at the moment.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Biggest risk, probably something that we're not thinking about or looking at right now. I mean, traditionally, typically there's things that come up every year, oftentimes multiple times a year. So are we going to get another drive on? Sure. Is it going to be now or is it going to be 10% higher from here? Nobody knows, but I think a lot of the kind of obvious ones would be would corporate tax rates go up, you know, that's certainly something that could happen and become a headwind. Could there be some other strain of COVID? I think that the markets kind of brushed that off to a large degree with the Delta variant, but obviously things could happen. But typically it's probably an unknown factor that's driving things. And markets are never about absolute.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Individual might be able to metaphorically speaking keep cash under their mattress, but larger institutions have to have, might be required to have certain positions in certain quantities. So whether that's commercial banks or others, they're kind of forced into holding that. And I think that is clearly, you know, we're not in a position where I think we've had a entertain really going, they call it neg num, you know, negative nominal rates could that happen in the future. I don't think it will, but clearly we've seen it in the developed world and other G6 countries and certainly a fascinating thing to look at.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“2020. So when things are kind of bad, for instance, investment grade credit, investment grade munis might get a bid, but then if they get really, really bad, well, then investors want to dump those too. So it's kind of this funny thing where if the markets get bad enough, things that are perceived as safe, munit, investment grade corporates, those asset classes which are originally a flight to safety end up becoming dumped. So that leads the depths of last March treasuries with positive convexity are one of the few things that can really provide diversification and performance when times are really bad. So I think from that perspective you can't completely throw away the space as an asset class because there's certainly benefits to those in adverse markets. Environment”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“How risk free trade impacts other things and clearly central banks have become buyers, which has added a different dynamic. So it's one of those things I think used to be the source of income for clients and institutions. And really, I think on those days, I think a lot of retirees used to look forward to the ability to buy munis at 4% tax-free yields and that's not a factor anymore. I don't think that means that bonds are completely useless. And I think if you think about treasuries, particularly the long end of the curve, long treasuries traditionally have been one of the few places that have provided really risk off exposure. So when things get really bad, so it's interesting, you go back to March.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Take a lot of investors and maybe casual observers kind of ooh and ah over that. I think that there's a couple things at play. One is that there's a lot of forced buyers of these assets, whether it's sovereign wealth funds or central banks or banks or there's a lot of forced buyers of these type of paper. The other thing is obviously demographically there's a lot of studies that point to demographics being a major driver lower not only nominal but real yield in developed markets. So that's certainly, and that's not a new trend. I mean, that's a 30 plus year trend, but obviously the implications for where risk-free assets trade impact everything else. There's no question that.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Time to time, we'll look at that. I think that there's a lot of idiosyncratic risk to those segments and obviously driven a lot by FX and how those currencies do against the dollar depending on which type of emerging assets. So from time to time, potentially for tactical positions, but I wouldn't say that we're investing substantially in emerging markets. That doesn't mean our position is that's just my personal preference, but doesn't mean that can't change. Maybe in our eyes, you know, they become very attractive in six months or vice versa.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Where you might be buying a nine and a half year treasury and selling a 10 year treasury. So basically trying to find little inefficiencies and arbitrages in the market in which you can exploit in theoretically those would not be tied to, for instance, the direction of the S&P 500 or the direction of the Barclays Ag, but would have a different profile towards that.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“I won't talk specific funds, but I'll give highlight some examples. For instance, in the fixed income arbitrage, this would be an example of a non-directional fund, meaning that if they're investing in credit and interest rates, in the case of interest rates, they're not betting on whether interest rates are going to go down or up. And in the case of credit, they're not necessarily betting on credit spread's going to contract or widen or vice versa. One example of a trade might be taking betting on the mortgage basis. So for instance, you might be betting for investing such that mortgage spreads would tighten. You might be long the mortgage basis. And that you would be long agency mortgages and short the risk-free treasuries against it. Or there might be treasury.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“For destination, but you can't really do both. So I would say a lot of the alternatives that we're including into portfolios are really to smooth out the path, to limit downside and to provide a better risk adjusted return for the overall portfolio. Now, whether or not these alternatives end up providing that, obviously one can debate, but really the goal is to add some return streams which are less correlated to traditional stocks and bonds.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“I think alternatives just for our particular firm, we do utilize alternative assets. Primarily what we use alternatives for is to add non-correlated or less correlated return streams to traditional assets. So for instance, if we added, and I won't name names, but if we added certain, for example, multi-strategy funds that was historically been non-correlated with stocks and bonds, it might produce more steady stream that a risk adjusted stream going out into the future. So pretty much the vast majority of our alternatives are not to shoot for market beating returns, but really I kind of refer to it as moving the path out. You can try to optimize for path of assets or portfolios and try to optimize.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Starting from a very full price of sales or price out multiple five years out, that it's not saying that you can't win, but the bar to having whatever IRR you're wanting you're underwriting for is a lot higher than before. So I think that's where the margin for error is significantly less than it was five years ago in these spaces.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“You're absolutely right. And I think if you look across a lot of the high flyers today, and I'm not going to include MegaCap when I say this just because I think Megac is really not valued nearly as high as some of the smaller mid-cap high flyers. But they really do have a high hurdle to reach when not only meeting these thresholds but exceeding them. And I think an important thing for listeners to remember is you take a company like ServiceNow, which is a prototypical SaaS company. They've just had extraordinary growth, but they started from such a lower multiple that they not only got the benefit of far exceeding sales estimates, revenue estimates, but they also got the benefit of multiple expansion, whereas now in some of these, you know, you're”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Certainly, an environment like that, but I really feel like in this environment, a lot of investors are gravitating towards growth covering up a multitude of fins is what I would describe it as”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Growth rate. So looking out in the future, I think investors have become enamored with growth companies. Now, there's obviously a downside to this because the other side of Coin would say, well, a lot of these companies are being priced to perfection and they're being priced that they're going to grow not only 15% per year, but a lot of these higher flying companies to grow substantially more than that into the far future. And I think the other thing people bring up interest rates a lot, but when majority, the bulk of your cash flows are in the future, and that's the case in growth companies, right? Because they're longer duration assets, more earnings and sales are going to become the future. There's going to be a higher value place than that when the time value of money has low interest rates like right now.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“To a certain degree, the market is enamored with growth. And I think there's some reasons why that is reasonable, because I think sometimes growth can cover up a multitude of sins, right? Take something like Google. Google is still growing. Google is still growing top line probably over at or near iTeen top line growth. And that's even four trillion dollar plus company. And I think people say to themselves, okay, well, if you look out five years at this horizon point, if we feel confident in the durability of their moat and their competitive position, then we can really stand to believe that at this point in time they're going to be this big. And that leaves a lot of room for evaluations to compress given a certain”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Been good. So there's certainly a psychological component to not only when asset prices are high, but also when they're low and falling.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Set up portfolios to be resilient for a lot of different outcomes because the smartest minds in the market, and I'm certainly not one of them, don't know what's going to happen, right? And so it's really, I try to think about it being more of a scenario analysis. How do we structure portfolios if the market ends up running two years longer than people think versus we really do see mean reversion and different things and broad asset prices fall down? So it's really a balance between that. And then also handling the psychological profile of each client because a lot of investing is really not really not making bad decisions at the wrong time. You can really, you just need to not make poor decisions a couple times a year and if you can avoid doing that, then historically you've”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think to take a step back, I think obviously every client situation is different and we have to account for that. I think the other thing to think about is we try to set up client portfolios to be resilient during a multitude of scenarios. So for instance, we're not going to try to set up an allocation to win under one or two outcomes and lose heavily under others. So I think I always like to say we try to be approximately right. We'd rather be approximately right than precisely wrong. That being said, I think your question is clients certainly are surprised that the markets continue to run and where we are and to think back where we've been a year and a half ago. It's pretty amazing to see. But I think our goal is to try not to predict the near term.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“That phrase was kind of controversial, and I guess there's a lot of semantics with the whole cache on the sidelines things. So not go down that rabbit hole. But I think to answer that question a different way, I think a lot of market participants really feel like equities are the only game in town, especially with interest rates so low and on a real basis after accounting for inflation. yields are negative treasury yields are negative on a real basis. So I feel like a lot of participants feel like the equities really are one of the only games in town in that sure they've got a lot of indebted gains, but really where else are they going to realistically clip this money if they sell. So I think from that perspective, I think that a lot of participants and investors might feel like things are expensive, but they're”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“If you look at the free cash flow margins and all sorts of profitability metrics on Mega Cap tech, just head and shoulders above the rest of the market from a profitability perspective. And going back decades, kind of the rest of the market is creating at very similar profit margins. And it's really been, as you're alluding to S&P being a market cap-driven index, it's really been a lot of those mega cap technology companies that have driven a lot of the growth and profitability and earnings.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Pandemic that companies would have to cut their cost structure. And I think what's happened is revenues exploded and the cost structures have gone up, but not nearly as much as revenues have. And therefore, we're really at record operating margins. So profit margins are now at record highs despite all of the stuff happening. And so I think most market participants, unless you're looking at these type of things day by day, are not realizing that this has really been earnings-driven year. I think most people would probably think earnings, you know, maybe they're up a little bit, but maybe the multiple on the market has skyrocketed, but it's not really been the case. Earnings have really driven, I think, the bulk of this year's game.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Particularly with all the headlines about rising costs, input costs are going up and whether that's transitory or permanent is yet to be seen. Labor costs are going up. So how in the world have S&P earnings gone up this much? And I think the answer is twofold. One, top line growth has really exploded. Revenue growth has really gone up far higher than people thought. And then the second thing is I think on a cost structure going into COVID last year, I think a lot of firms really right-sized their business, maybe cut back on different types of expenses that they didn't feel like were necessary and maybe probably prepared for an environment where times were probably going to be rough. And I think that seemed pretty reasonable to think in a”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“No, it's a fair question. I think the thing that's been most amazing this year has been the revision in earnings for the market. So if you think about coming into the year, I think the consensus for the S&P earnings for 2021 was probably around 160 per share. And typically economists and sell side is pretty optimistic on that. But in this case, the market has dramatically underestimated just how much the S&P would earn this year. And now fast forward to, as you said, we're in early September, you know, the market is assuming that the S&P can earn north of $200 per share. So really, you know, there's been a significant push upward in earnings estimates, and I think it's worth looking into why that happens. Your next question is probably going to be, well, why have earnings come in so much higher than expectations?”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Something we really haven't seen before. So I think the combination of all that and the additional spending really gave a lot of fuel to the market. And for a while led to a pretty big rotation in interest rates going up, cyclicals rallying and kind of a change in market leadership, which probably lasted until May and early June when I think the Delta variant fears came back and interest rates have kind of given back some of their gains and yields since then.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Last year, 10 year at 65 basis points. Two, they peaked at just about 175 at the end of March last year, or this year rather. So it was over 100 basis point rise in really rotation into cyclicals. So I think the speed at which that happened was probably a little bit surprising for a lot of market participants, but we had also been the market and not been accustomed to a scenario where you had not only monetary policy being easy, but also fiscal spending. Obviously during the COVID pandemic, there was emergency spending and PPP and different types of stimulus. But obviously since then, they've also enacted other programs. So the type of fiscal spending to plug the demand gap that happened as the economy went to a standstill.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“If you went back to the end of last year, the 10-year treasury was at 92 basis points, we had not had the Georgia runoffs yet. And I think there was a lot of uncertainty just as far as who was going to control Congress. And at that point, what type of fiscal spending would come to be? So coming into there, interest rates were pretty low. I think the general consensus on the street was that we'd probably have a split congress. The Republicans would probably keep control of the Senate and the Democrats would have the House and maybe President Biden could get through some things, but probably not aggressively. And I think that that playbook kind of changed once the DEM swept the runoff in January. And you start to see a lot of the cyclicals rally. Interest rates started to pop. So they went from, I think, the end of September.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“And I think the asset quality is pretty good. And I think a lot of the risk in lending has kind of moved out of the regulated banking sector and kind of more to the non-bank shadow banking segment.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“The financial sector as a whole, there's kind of a good and bad to it. So you mentioned the fact that the Fed has embarked in kind of unprecedented monetary policy Fed funds being very low, and there's a lot of facilities out there that banks can borrow from, whether it's the discount window overnight, the Fed or a lot of other programs that they've come out with since. So I think from a funding perspective, from a borrowing perspective, it's a lot easier. But, you know, obviously the problem right now is that to find earning assets at any type of yield is a lot more challenging. So I honestly think that the banking sector is fairly low risk right now in that capital ratios are pretty high. Banks have a lot of sources of liquidity and funding. The regulators are a lot stricter on what types of loans can be originating.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“The private, you know, the non agency market is a pretty small sliver of the overall market. But at that point in time, pre-crisis, there was a lot of creative programs that were put into practice to get that affordability down, to get those teaser rates. And there was a number of different programs that would get. So the underwriting and the fact that more than half the originations were outside of the GSEs really led to a lot of creativity and unfortunately poor underwriting that led to a lot of the problems.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“There was certainly some of that, there was a lot of different programs, and I think just for the listeners to highlight kind of what was happening, if you go back to the pre-financial crisis, over half of the mortgages being originated were what you'd call non-agency mortgages. And basically what that means is that those mortgages did not have the backing of the GSCs, meaning Fanny, Freddie, and Jimmy May. They were not government-backed. And if you go to today, it's kind of all the way at the other end of the spectrum being almost probably 95%.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Point to assume a lower tranche in the structure of these bonds. And so they got paid in hindsight what was a very meager additional interest stream just to take on incremental credit risk. But the bank ended up raising additional capital. We made it through and I continued to manage the portfolio for square one, which was kind of the kitchen sink of credit, whether it was mortgages, investment grade corporate bonds, municipal bonds, preferred stock, some high yields bonds, and kind of everything in between. So it was kind of interesting foray into the credit markets.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“And I think that there was hope that things would turn around, but I felt like the more you peeled back the onion and the more you saw, the more you realized that these were going to be very problematic. And the way that a lot of these mortgage-backed securities are structured is there's different tranches and subordination. So a lot of the bonds were if you sat in the senior part of the capital structure, they might have been okay even if many of the underlying loans were bad. If you sat in more mezzanine and junior positions, you could be wiped out, let's say, if 20 or 30 percent of the loans went bad and started to take losses. So it wasn't just underlying credit, but where you sat in the capital structure. And basically going back to that environment is you would get paid, let's say, another 10 or 15 or 20 bases.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it was interesting because nobody really knew what was going on at the time and everything was unraveling and I think people didn't know at the time how bad it was going to be. And so I really had to dig in. You know, I started reading prospectuses and modeling cash flows and having to meet with the regulators that came in, the Fed and FDIC and so forth. And they surely didn't know what was going on. So it was really quite an interesting environment of having to learn in the biggest financial crisis the country had seen since the Great Depression. So it was quite the introduction to credit and fixed income in general.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“Short. I remember looking at one bond and the bond was only about six months old and it was already 30% of the borrowers in that pool had not made one single payment on their mortgage. So kind of pulling back the covers and looking under the hood of these bonds and looking at a loan by loan analysis. It was kind of remarkable and frightening to see just how poor a lot of underlying credits were at this time. So I really had a self-teach myself.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“We're having some problems with our investment portfolio and we'd like some help. And so long story short, and this is the bank's own investment. So basically the deposits that are not lent out, we would invest into the bond market. But the bank had been saddled with a lot of subprime and alt A mortgage-backed securities that were bought by their outsourced manager. And so I told the CEO, his name is Richard. I said, Richard, you know, I'm happy to help you out, but I don't know anything about fixed income or credit, let alone mortgage-backed securities. And he said, well, that's okay. We need your help. So basically the bank had about half a billion of bonds that were going bad. And kind of every day they were falling in value. And to think about what was in them, it was very similar to what you saw in the movie, the big.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT
“It was early 2008, and I had spent a few years working on Wall Street in sell side research, and my wife and I decided to come back to North Carolina. Obviously, we didn't know the financial crisis was upon us. And I joined a de novo bank called Square One Financial. And the easiest way to think about it is we were very similar to Silicon Valley Bank in that we were a bank that lent to venture-backed companies and the VCs themselves. And so I started in what they called the analyst training program, which was to be a credit analyst. So I would underwrite new credits so that they a company gets $20 million equity round from a VC, and then we might provide them with a $3 or $4 million line of credit or term loan. So I thought that's what I was going to do. And one day the CEO came to my desk and said, you know, hey, David, I heard you work done Wall Street.”
2021-09-19 · We Study Billionaires · TIP380: A Holistic Approach w/ David Schawel · IDENTIFIED FROM THE TRANSCRIPT