Morning Coffee: Boomer banker's viral hit with advice to juniors on rising rates. Bridgewater's new culture: "The hunger is different, the energy is different"
A piece of advice written six months ago for younger salespeople and traders on how to navigate a world of rising rates has become suddenly very popular.
"A “Boomer’s Guide" to Dealing with an Increasing Interest Rate Environment," was written by Rich Handler and Brian Friedman, CEO and president respectively of Jefferies.
Handler, who aged 61 is a self-proclaimed boomer with a mini-trampoline and Instagram habit, said on Instagram that the guide has gone viral in the past few days. It's being described as the "greatest note" of the year.
Its wisdom includes the observation that it's easy to feel smart in a low rate environment. When rates are low, everyone's a risk-taker. The price of risky assets is driven higher and higher, but there will "likely be a major day of reckoning when interest rates rise and the cost of risk rises with it." Those reckoning days may be several and previous norms may never be reached again. Handler and Friedman note the best investors can distinguish between the risky assets driven by genuine brilliance and excellent technology, and the wannabes clinging to the "readily available capital" that vanishes as rates climb. Transitions are hard, but "what looks like expensive money today may look like a deal of a lifetime tomorrow." Fighting inflation is necessary, but worth it. Fixed income investing will make a comeback. And in situations like these, good advice is at a premium.
Handler knows bonds. Long before he was a boomer CEO with a trampoline, he was a junk bond trader for Michael Milken at Drexel Burnham Lambert. Jefferies started its bond business in the 1990s (but has been hiring feverishly in investment banking as it diversifies). While "every cycle is truly different," bankers who've been through increasing rate environments before know the game. "It isn’t a coincidence that we refinanced our long-term debt needs last year (and paid and fully expensed significant make-whole premiums to our bondholder-partners)," say Handler and Friedman. But given that the last big rate hikes were in the early 2000s and that the current rate hikes are the most aggressive since the mid-1990s, bankers who've played this game before are the boomers. Today's younger salespeople and traders need to absorb their wisdom as "fear, greed, logic" exact their price. They might also read last year's prescient note from BlackRock, likely written by a secret boomer; it too is doing the rounds.
Separately, now that another arch boomer (Ray Dalio) has retired from Bridgewater, it seems the notoriously idiosyncratic hedge fund is making a few changes as it adapts to the next generation of employees.
Business Insider reports that Bridgewater is amending its "dot system" app that allows its employees to offer real time feedback on how well they think other employees are doing, and will be encouraging its people to 'engage with their thoughts' a little more. "This is going to sound like a subtle difference, but when I'm saying something to you, am I saying something to you because I need to convince you that I'm right or am I saying that to you as a question because I want to understand what's right?," said co-CEO, Nir Bar Dea.
Reading around the subtlety of this statement, it sounds a lot like Dalio's "transparent" dot system at Bridgewater had become a vehicle for employees to flex their egos. This might be why around 30% of new joiners had been leaving within 18 months. The new Bridgewater is a new place, says Dea. Some people don't like extreme directness, even though they might be the smartest in the room. "The hunger is different, the energy is different," he added.
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