This week I did a day and a night up in Boston, Mass – specifically in Cambridge. The Harvard campus itself is pretty awesome, its kind of its very own nation-state of enlightenment and really serious Asian girls and 400-year-old buildings that probably once served as venues for witch-burning.
Just kidding, the kids in the audience were wicked-smaht (that’s Bostonese, right?) and really know their stuff.
My friend Eli Radke (Trader Habits) came in from Chicago and some local peeps popped over as well, like Adam Feuerstein (TheStreet.com) aka the Biotech Stock King, Kevin from the Pundit Review radio show, Chris Selland (a contributor in the Mixtape), Rob Holmes (ex-TheStreet now with Eaton Vance), Zach Musso (ZMoose) from Young Guns Trading, my pal Economic Disconnect who writes the ‘Things Apple is Bigger Than’ tumblr with me and the mysterious and brilliant Kid Dynamite.
The other presentations were amazing. ValuePlays’ Todd Sullivan did a deep dive into his thesis on AIG, GGP and American Capital Strategies and flicked a know-it-all heckler off like a tiny fly. JC Parets brought some killer charts and then Phil Pearlman did his behavioral finance thing which I think should be a TED Talk someday.
We had quite a time.
So I thought I’d throw my presentation notes up here for those who couldn’t make it. I am in the process of putting together some slides, I don’t do a lot of public speaking or presentations so this is a work in progress. Here’s a framework for where I took the discussion, it’s part State of the World and part Here’s Where You Fit In for a young crowd of would-be bankers, traders, advisors, analysts etc.
Harvard Presentation May 2012
My name is Josh Brown and I come from New York City.
I’ve been working in some capacity on Wall Street since my freshman year of college in 1996. I’ve come here today to talk to you about the new realities of the markets and where I think things are going.
You can break down the activities on The Street into a dozen or so categories:
Equity Trading and Market Making, Investment Banking, Mergers & Acquisitions, Analysis and Research, Institutional Sales, Wealth Management and Brokerage, Public Finance, Asset Management, Hedge Funds, Prime Brokerage, Insurance, Foreign Exchange, Commercial Banking, Consumer Lending, Fixed Income Issuance, etc.
Now I represent the asset management and wealth management side of The Street. We invest and trade on behalf of high net worth individuals using a fusion of technical analysis, fundamental analysis, quantitative data and global macroeconomic analysis.
But the bottom line is, whether you’re managing money or a trader or a banker, all of these activities are centered around a central premise:
There is wealth in this country and the American people simply don’t know what to do with it until we tell them.
And to some extent this is true. The average American is both innumerate and prone to psychological foibles that they themselves can’t understand. They are also highly emotional about money, more so than they are emotional about almost anything else in their lives. And this is completely natural, money is not just money – it represents hours worked, time spent, flexibility, options for the future, status, sex appeal and safety.
The good news is, there’s a ton of money in the United States in the hands of the American people, regardless of what you read or hear in the news. We are not broke and we are not poor. Boys and girls, we are fucking loaded.
How about this:
As of April of this year, US households are sitting on $58.4 trillion in total household assets, net of any household debts or liabilities.
This includes $28.6 trillion of investable assets and then another $13.2 trillion in retirement assets.
We are within spitting distance of the all time highs for these totals achieved during the housing bubble years of 2006 and 2007.
As of the end of 2011, there were $8.6 million US households with financial assets of a million dollars or more. 412 of these households are billionaire households.
Some other positives include the fact that home prices have stopped going down in much of the country and inventories – the amount of homes for sale sitting on the market – have been cut in half from 11 months worth of supply down to only 6 months. We are buying the foreclosures from the banks, fixing them, turning them into rental properties and finding tenants who cannot buy but can certainly pay rent. This is a process and it’s happening.
On top of that, for all the talk about 8% plus unemployment, the truth is that according to the BLS, the unemployment rate for Americans with college degrees is only 4% as of April.
This is the good news.
But here’s the bad news…
It has never cost more just to wake up and try to live our lives. Gasoline prices, food prices, healthcare costs – forgetaboutit. In addition, the supposed “wealth transfer” that was supposed to occur where the WWII generation was going to leave their wealth to their baby boomer children has not materialized – only 2% of boomers receiving their inheritance got anything over a hundred grand.
Speaking of boomers, there are 10,000 people turning 65 every day, by 2020 there will be 80 million boomer retirees drawing social security and gobbling up medicare funds. And they’re living longer than ever before thanks to all the medications and the pill-assisted old people sex they’re having. But the thing most people don’t understand about life expectancy – which is 78 in the US – is that the people who actually make it to retirement age are living on average 10 to 20 years past that 78th year.
And now we know for a fact that no matter which party wins the election in November, taxes are going higher on the middle class and the upper class. This is not an opinion, it’s a fact.
The Bush-era tax cuts are going away and the central battle of this fall’s Presidential race will be fought over the Fiscal Cliff. And get used to that term Fiscal Cliff, because like the term Debt Ceiling in the summer of 2011, it is literally the only term you’re going to hear come August. I even registered the Twitter handle.
If Fiscal Cliff sounds scary, that’s because it should – it is the sudden expiry of a host of financial and social programs all at once combined with the simultaneous need to raise the debt ceiling once again. And if these assholes politicize it once again – which you know they will – risk assets like stocks and commodities along with consumer confidence, consumption, investment and business spending – are going to go right off the cliff altogether.
So the point is this – between high costs of living, of retiring and the threat of a fiscal cliff, things are going to get harder for those who don’t have their shit together with their own investments.
Retirement investing used to be easy – you could subtract your age from the number 100 and that would be your stock-to-bond breakdown. You’d rebalance into more bonds, less stocks each year until your Jamaican nurse finally suffocated you with a pillow, and whatever was left over would go to your kids.
Not so easy anymore. The ten-year treasury bond, once considered the benchmark for risk-free retirement investing, is now yielding under 2%, barely a rate that would let your purchasing power keep up with inflation.
And we know that the Fed isn’t going to let rates rise anytime soon. First, they can’t do it politically with national unemployment high and home prices depressed. Second, the fact that an service the existing government debt at such low rates is literally the only thing keeping us from becoming like Europe. If the Fed were to let long-term interest rates rise by even 1%, it would mean an additional $150 billion a year in new debt service costs to the country. The Fed will not commit suicide by raising rates anytime soon.
And so we’re in a low-return environment for most forms of risk free assets which means that the vast majority of Americans will need to use stocks to make it the 20 or 30 years through their retirement. Unless some miracle happens where aliens come from outer space to congratulate Obama and wave a magic wand at the national debt.
And the irony is that while aging Americans are going to need the equity market’s returns more than ever before, they have never despised stocks as much as they do now. The cover of USA Today this morning has a massive article about how Americans hate the stock market. It’s going nowhere and has gone nowhere my entire career so far, 12 years! The inflows from stocks and stock mutual funds are unbelievable, tens of billions every quarter for years now. The DARTS reports at the online brokerage firms like Schwab and Fidelity paint a picture of just total and complete disgust and apathy.
And so who is the beneficiary of this all?
The answer is you are.
If you can demonstrate skill in the stock markets and can perform, you will be the recipient of the fact that America is both scared of stocks and needs stocks to make it through retirement. if you can manage assets and take less risk while producing superior returns, you are going to make millions of dollars and then millions more.
Your services are required, ladies and gentlemen. The opportunity is indescribable, once again we’re talking about $40 trillion in liquid assets that require a professional to steward and oversee.
So get good and make your mistakes early and a nice chunk of that money will become yours.
UPDATED: One of the students who was there captured some audio and notes that you may be interested, check it out here: