Transcript: David Kotok

 

 

The transcript from this week’s, MiB: David Kotok on Pandemics & Markets, is below.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

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BARRY RITHOLTZ; HOST; MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. Somebody who I consider to be one of my mentors and someone I’ve looked up to for long time David Kotok, Chairman and Chief Investment Officer of Cumberland Advisors. David is just one of those people who his name comes up all the time in all sorts of funny and unexpected ways and what I mean by funny is ha-ha funny but just unusual funny.

He is the nexus of a network of people, very influential folks within the world of finance, asset management, economics, public policy, Federal Reserve and monetary policy, international relations and global interdependence. He has really created one of these careers where he is a very consequential individual far over what you might expect just from a quick read of his bio.

I’ve been going to his events. I don’t know how I managed to wrangle an invitation all the way back in ’08 or ’09. Maybe it was when I was writing about the financial crisis before the financial crisis that got me somehow an invite. But it really became one of my favorite things I do each year is we go up to Maine every August and go fishing.

And I have met people who have become lifelong friends from this event. I have engaged in deals and transactions and media events and all manner of things that came out of this sort of miniature Davos that takes place in private on the lakes and streams and in the woods of Maine. It’s really an amazing legacy that he’s created for himself from this experience, and I find him to just be one of those rare and unique individuals who just makes everybody around him that much better.

So, rather than me just babbling on and on, let me just say with no further ado, my conversation with Cumberland’s David Kotok.

ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My extra special guest this week is one of my favorite people in the world of finance, David Kotok is co-Founder, Chairman and Chief Investment Officer of Cumberland Advisors, which runs about $4 billion in client assets. He is the author of numerous books, including “Adventures in Muniland” “From Bull to Bear with ETFs.” His most recent publications include “Lessons from Thucydides” and “Zika lessons from a pandemic.” He comes to us with three degrees from the Wharton School at the University of Pennsylvania. David Kotok, welcome back to Bloomberg.

DAVID KOTOK; CHAIRMAN AND CHIEF INVESTMENT OFFICER; CUMBERLAND ADVISORS: Barry, it’s a pleasure indeed. We made it this far through the pandemic and we’ve made it on a number of fishing trips and experiences for many years. And so, I’m delighted to be here, one, and to be on conversation — in the conversation with you and that you are here as well.

RITHOLTZ: So, we’re going to circle back to some of the writings you’ve done but let’s just start out talking about what you are referencing these past two years, market and economy working its way through a global pandemic. As an investor, what do you make of this whole period?

KOTOK: Well, it’s an interesting — it’s an interesting way to start the discussion. I studied pandemics as you and I spoke about. Folks want some normalcy. They want business cycles. They want the traditional metrics. Pandemics don’t work that way. They never have throughout history and this one is no different.

And therefore, market agents and people who do this type of analysis and examination of this COVID pandemic who haven’t studied history missed the degree of the shock of a pandemic. And so, what I make of this is how few people have really studied the history. There are some, of course, who have. You and I spoke about that. But not lot. They don’t read history. I guess if it doesn’t fit within Twitter limits, it’s too much to read or to understand.

RITHOLTZ: Right. Who could possibly ask for more than 280 characters on any subject? That seems excessive. So, you and I have been chatting about this big research piece you’ve been working on on the history of market shocks especially pandemics and health crises through history. Tell us about what’s some of your preliminary research has found.

KOTOK: Well, we really divided the market tracks, Barry, into sort of three segments. So, antiquity; post-medieval period, think of that as the Black Death plague of 700 years ago up through maybe a century or two centuries ago; and then the modern period and particularly, the modern period during the Spanish flu, misnamed Spanish flu but John Barry has made the name famous with this book in 1918, which was really a pandemic of 1917, ’18, ’19, ’20 and ’21.

RITHOLTZ: Wow.

KOTOK: And the Asian flu period, which was the end of the Eisenhower administration. That’s 1957 and ’58. And we looked at the Federal Reserve Bank of San Francisco’s study of pandemics for 700 years. They derived some macroeconomic data. It also provided us with a little bit of bibliography.

We also went looking for more and that’s how we are assembling this piece that I have to write in three sections of about pandemic shocks. Not the disease part. We know a lot about the disease part. About interest rates, inflation rates, wages, economic changes, growth curves, reallocation of labor to capital, and what was kind of find is a very single pandemic shock delivers a similar sequence and this one is no different.

RITHOLTZ: All right. So, hold on, I have to interrupt you. So, when I think about that list that you gave us, the black plague, the pandemic of 1918, the 1950s, these are all very different environments and I want you to walk me through them. First, the black plague in middle of the last millennia, how do we even have any sort of data from the 1500s and 1600s? Tell us a little bit about the economic impact of the bubonic plague.

KOTOK: OK. So, what we did is this, how do you find economic data? That was a real challenge, and you can’t go to Wikipedia or some other source. You got to open a book. It’s an old-fashioned kind of research.

So, I have 25 books sitting around now in my office. They are references, historical references, and they help me, and they help me in this search for information and they also help me by saying what isn’t in them.

So, a good example is Sidney Homer’s treatise on the history of interest rate because I can look at interest rate data that he accumulated in his research and find information that corresponds with the time periods of plagues and pandemics.

At the same time, I went into Allan Meltzer’s history of the Federal Reserve which covered the period or the creation of the Fed from 1913 to 1951. It was the first of the two volumes. Unfortunately, Allan Meltzer died and never completed the second volume.

And I looked at Milton Friedman’s treatise about monetary policy with Anna Schwartz. Two marvelous books that cover in the case of Meltzer the Spanish flu pandemic period and in the case of Friedman, both the Spanish flu pandemic period and the 1957-’58 Asian flu period. Neither one mentions disease. Neither one mentions pandemic shock.

The minutes of the Federal Reserve, the history, don’t talk about it. They talk about the war loans and the interest rates, and the slowdown and they attribute to war or geopolitical risk characteristics that also exists in pandemics. And what’s very interesting is when you look at history, you see pandemics and shocks. You also see wars. They go together. And that becomes a fascinating linkage.

In modern time, we couldn’t find the references but we did find the data. For example, in the ’57-’58 Asian flu period, interest rates and Federal Reserve activity then was a very narrowly defined operation of the central bank and what we found was by 1959, inflation had rolled over and was backed down towards zero and interest rates were falling.

And there was a shock, sure. Was it attributed by the central bank to a disease shock? No. Was the disease shock a cause? Maybe. I remember the ’57-’58 Asian flu, I was a teenager.

RITHOLTZ: How did that compare to either the current pandemic we’re going through with COVID or, and I know this is before your time, the pandemic of 1918 and the years before and after?

KOTOK: OK. So, if you look — if you look at the World War I period and you look at the Spanish flu pandemic, which was a worldwide event, and you say I’m going to really combine them because actually the war, in part, was part of the reason the spread was so severe.

RITHOLTZ: Yes.

KOTOK: What happened after the shock? Was it only the recovery from a post-war environment? What triggered inflation to go down to zero in 1920? What triggered a period of no inflation even as credit was expanding in the roaring ’20s? What was the change?

And the change was when you have a demographic shock and you have fewer people, you get two things. You get a rise in wages because the remaining people get paid more. They have …

RITHOLTZ: Meaning literally, the death rate affects the labor pool that much. Fewer bodies, same demand equals higher wages.

KOTOK: Exactly. And people begin to compete to pay more to get minimal or scarce labor. At the same time, something else happens. Entrepreneurial folks, governments too, reallocate capital away from labor to capital investment because they don’t have a choice. They change what they do because they don’t have the people to do that we now have that going on in this pandemic whether it’s telemedicine or a robot that carries a patient or a pronating bed in the hospital.

RITHOLTZ: Right.

KOTOK: And we’re going to soon have it with self-driving trucks because we dont have people to drive the trucks, who knows where this goes. So, what do you do when you — when you get capital investment instead of labor? You get productivity gains, which means you can get growth without the inflation shock. You get the inflation shock at the front, and we’ve got it, we’ve had it, every single pandemic have it.

Interesting data, in the European post-medieval shocks, you can see some of this in historical references. You can see a government in your act to try to maintain wage controls because the price of labor was rising and, obviously, the power that be was then trying to influence to suppress the ability of people to get paid more.

If you look at interest rates on some loans, you can find they rolled over and declined post-shock. And if you look at prices, you can see the price shocks coming from foods or from agriculture changes, which are observable. In the antiquity period, you can’t find any history. Why? Labor was slave labor.

So, during – during the plague in Athens, it was interesting, I tried to find a wage change. First of all, it’s hard to find what the wages were in Athens. Secondly, I looked everywhere, I looked in the — Professor Ed Cohen, who studied Greek history, actually wrote a marvelous book on prostitution in Athens. Can you imagine writing such a book?

And you can’t find the prices in Athens. You can’t find changes in prices. For example, I was able to find that the mercenary who was hired to fight a war, in those days, you had mercenaries and you hire them to fight wars and I think they were paid one drachma a day but when they were in battle, they were paid two. And that was the rate at which you went to hire people to fight wars for you.

RITHOLTZ: One drachma normally. Combat pay was two drachmas.

KOTOK: Two drachmas.

RITHOLTZ: What’s the conversion rate from the drachma to dollars? Do we — do we know what …

KOTOK: Well, this is ancient Greece.

RITHOLTZ: Right. So, no BLS, no monthly data. We’re really trying to reconstruct this from broken fragments and papyrus reads from 2,000 years ago.

KOTOK: Papyrus reeds and Thucydides translated with a good English translation. It’s not so easy to do but it’s fascinating because there are references. So, I’ve broken the references into three pieces, antiquity, which is really a history lesson’ medieval period, think of it it’s 400, 500 years starting with the great plague; and the most recent period, which is Spanish flu period and the Asian flu period, and the message is always the same, the anecdotes are different, but they all tell the same story.

You get a shock, you get wages up, you’re getting reallocation to capital because you have fewer people, you have to replace the functions, you get a productivity gain, inflation is transitory. Transitory needs definition of time because it’s an intertemporal relationship but it does happen.

RITHOLTZ: Yes. I find that whenever people talk about transitory, the audience says, all right, you get three days and then if I don’t see my results in three days then it’s not transitory. When you use the phrase transitory, and you and I have discussed this before, I’m in the same camp as you, you’re talking about anywhere from two, four, six quarters or more.

KOTOK: Well, I would agree, and I would like to add. The share back (ph) isn’t even over yet. Only, we got a bunch of people walking around the United States saying, I wanted to be over. OK. You can want it to be over. The virus doesn’t care what you want.

RITHOLTZ: So, let me — let me follow up with one other period I have to ask you about. So, the Greeks 2000 years ago, medieval 500 years ago. What you’ve described as modernity in terms of the early ’19 teens and under Eisenhower in the late 1950s. Between Eisenhower and today though was Zika and you also did a study of the impact of Zika. Tell us what you learned from that. Was that consistent with these other health-related pandemic shocks? What was your takeaway?

KOTOK: The takeaway from Zika, and I wrote a nine-chapter, I think it was, pamphlet about it, did some research about Zika and in fact, it was fascinating. I actually took a trip to Cuba, which had preventive medicine, only it’s a poor country and I was able, with gratuity or two, to actually walk — you noticed I’m being polite when I say gratuity or two.

RITHOLTZ: Yes.

KOTOK: I was able to actually walk with mosquito spraying units in the morning and see how they managed this mosquito-borne because it’s a mosquito vector.

RITHOLTZ: Yes.

KOTOK: And what Zika did was have the early-stage pandemic disease fear risk component but it never evolved into a pandemic or a large spread. So, you saw signs of it in South American countries and it was a mosquito vector and you saw cases of it but it never got big enough to be pandemic risk. The early-stage had the fear component.

Ebola, by the way, did the same. It was so fatal and therein lies what’s an alarming lesson or trajectory that history teaches. History says these things mutate and mutate and mutate.

RITHOLTZ: Yes.

KOTOK: And some of those mutations, 99 percent of them, I don’t know the exact number but huge number, have no material change and therefore, they don’t get a Greek letter called Delta, Omicron or Alpha.

RITHOLTZ: Right.

KOTOK: Or other names. But every once in a while, the mutations become extraordinarily different. Omicron is very transmissible but not as dangerous in terms of death, although if you’re not vaccinated, it will get you. It’s simple as that.

What we don’t know is it’s a mutation in front of us which has the killer cytokine storm trigger that made the Spanish flu what it really was and we don’t know. That’s the unknown and it was the unknown with SARS in 2003, it was the unknown with MERS, it was the unknown with Zika, it was the unknown with Ebola, and it is the unknown with COVID.

And it seems that throughout history, there is period in a pandemic where some mutation or alteration makes it very deadly that changes behaviors because a lot of people who in the history said, it’s — it’s — it’s religiously based or God is punishing us or God is punishing the ones who got sick or whatever the reasons were in history, suddenly say, wait a minute, this is really serious and can affect me.

And we’ve reached maybe some of that in the U.S. We’ve got approximately a million excess death in the United States but we had a whole population that still doesn’t get it. I don’t know where this came from.

RITHOLTZ: We’ll talk a little bit more about the antivaxxer movement later. I want to stick with the impact of the shocks on the economy in the market because essentially, where finance show if nothing else. So, you mentioned that wages go up. Inflation — am I interpreting this right? You’re saying inflation spikes but then eventually rolls over as do rates. What is the impact on equities? We get the impact on bonds there but what is the impact in the world of equities?

KOTOK: Well, that’s not easy to do because we don’t have a lot of history. But we have some history, we have a century in the United States, two pandemics and now this one, and we have some references in Europe but not very much.

But the impact is that when you reallocate from labor to capital, that means you go to entrepreneurial businesses. Entrepreneurial businesses get productivity gains. That’s how the growth takes place in the new demographically adjusted population and it becomes more profitable.

And we see that in the U.S. equity response so far and we, I believe once we get post-pandemic shock in other places in the world, will see it there as well. So far, the U.S. has had a leadership role. Look at how well we did in trying to roll out vaccines and by the way, we’re now lagging, no longer leading, that’s a shame, but that’s the case. Our companies are leading. Our population isn’t.

So, equities do well. Owning survivors, the winners, there are winners and losers in every shock and the winners really do well.

RITHOLTZ: Quite fascinating. Let’s talk a little bit about Cumberland because you guys were little bit ahead of the curve. The company is founded in ’73. So, you’re just about, gee, almost — almost 50 years old. But about a decade ago, you relocated Cumberland from the tri-state area to Florida. Tell us a little bit about what the motivation of that relocation was. It turned out that you are on the leading edge of a lot of financial firms looking to relocate to places where the cost structure is cheaper and taxes are lower.

KOTOK: We were looking at the move in late 2006, ’07 and ’08 and the financial crisis was unfolding at that time. What we found is my colleagues and I were on airplanes to Florida all the time. So, that became a trigger. At that point, it was my company. Now, I have 17 shareholders and the majority of them are employees but I was the driver in 2008, 2009 and I was the caregiver for my mother who died in 2008.

So, it was a restraining situation for me before I moved. The move commenced seriously to Florida in 2009. We had examined it for a number of years and we started to transition the entire company and — we still have a little office in New Jersey, we still have a person and sometimes two people in the New Jersey office but everything is in Florida.

It took us four years to move people. It was literally during the financial crisis and aftermaths. So, it was very difficult. There’s a long story as to how we got to Sarasota instead of the East Coast and that’s another story. But the bottom line is we’re now here. We’re about 46 people and we do most of the activities in Florida.

The motivation was not just taxes. Everybody says, yes, you went there to cut your taxes. Well, it — that was part of it and certainly, in New Jersey, after Jon Corzine hiked taxes, he encouraged us to leave. I jokingly say Jon Corzine bought my condo for me.

RITHOLTZ: That’s what I was laughing about because I remember that exact line coming from you eight years ago. Well, we moved into a very nice place that Corzine paid for, meaning what you’re not paying in state taxes basically covers your — the cost of your very nice housing on the intercoastal.

KOTOK: Yes. Well, here’s the thing though. We had our accounts at that time and I said, look at the company and give me the picture. If these weren’t earning, so, that’s easy, we just change the income tax and business tax. He said, no, no, no, no, take all these people, have them live in the same value house, have them ensure their cars in Florida. Give me a full picture. The full picture was really compelling because the cost structure totally besides just the direct taxes was an enormous amount.

So, I said, so, if I move people and I can give them real incentives and those incentives give them an opportunity to really examine the full picture and that’s what we created. We had a very strong incentive package of moving expenses. We reimbursed bonuses if you make the move. If you choose not to make the move, you stay at your desk in New Jersey.

And all but two eventually made the move and we had a deal with a whole lot of issues. People had to sell houses and they had to buy houses. They had to deal with families. And I had — the biggest crisis I had was somebody’s daughter had a date for the prom and couldn’t come. By the way, she broke up and went to the prom with somebody else. But, I mean, we went through it all but we got everybody here.

RITHOLTZ: So, that was way before the pandemic. The question I’m leading you towards is so now, with the pandemic in the past two years, you and I have talked about hiring people having never met them in person and having never had them step into your office but having them work remote raises the question how has the pandemic and the work-from-home era changed the entire calculus of where a firm like yours can elect to locate itself.

KOTOK: Well, it’s massive. You’ve written about it and described it in your own experience (inaudible). Work from home, I have to. Work from home can be in Idaho or in Florida. It has — it can be for many people, where you want it to be and what you do. And I would add, it’s made us much more productive. Our capacity to do things and accomplish units of work, if you will, is so much improved depending on what you do.

So, work from home, why Florida, if it’s so attractive, is not growing as fast as Idaho? Why is this change taking place? So, you have to ask yourself, are people rethinking location and lifestyle? And I think that you look at places like Idaho and Montana, you look at sections of the country and you say, something is going on here because they want to get out of the center of the big city.

You and I have friends who had moved out of Center City in downtown New York. Why? And are they going to come back? I mean, we — this is all part of what I call pandemic shock disruption.

RITHOLTZ: So, let’s go into — let’s delve into that a little more deeply and I want to talk about wages, and I want to talk about real estate. The first question is if — and let’s not count the dozen partners and/or people whose names are on the door at a firm like yours or mine. We’re talking about either new hires or administrative staff. If you can locate them anywhere in the country, do you pay the same wages in Idaho that you do in San Francisco or New York or is it a cost savings having a person remote in an area where the cost of living is so much lower?

KOTOK: Well, that’s a good question but is it just savings or can you obtain a higher, better skillset …

RITHOLTZ: And more productivity.

KOTOK: Yes. And more productivity. And so, paying more really obtains you a better partner and both of those things are happening. And this whole notion, there was a book — I have a book in my library from 1935 or in that area by a German economist by the name of Lercher (ph), unknown mostly, and he wrote about the economics of location and did it in those days in the form of concentric circles to a center point and distance.

The concept in that book, not the location itself because in those days, you had to think about a horse or a cart or maybe a railroad.

RITHOLTZ: Right.

KOTOK: But the concept of location was discussed in valuing distance. Work from home in the modern environment eliminates the distance but it identifies the values which were just articulated a century ago in that book and they work today. You use them. I use them. A lot of us who can use them. And so, what we now have is this divide, another disruption between those of us who can gain these advantages and do so and those who are unable to and they are the ones who have a problem and they suffer until we get this divided community in which we live and we find our neighbors cannot take advantage of the positives but has to confront in daily life, the risks and the negatives.

That’s a political discussion in the United States as well as a societal risk that comes out of pandemic. Barry, every pandemic shock also had disruption in governance.

RITHOLTZ: Really interesting.

KOTOK: They go together.

RITHOLTZ: But before we move to politics, I want to stick with real estate because what you were just discussing, the concentric circles around urban areas, I literally had this conversation over the weekend with Jonathan Miller who is the famed real estate appraiser and data wonk at Miller Samuel and we were talking about rings around cities and my frame of reference is New York City but it’s true in Chicago, although it’s a partial ring because it’s up against the Great Lakes, or San Francisco or LA or really any city you want to think about.

You have this ring immediately around the city, the bedroom communities that are less than a 30-minute commute, those are some of the most expensive real estate today. And then the next ring, 30 to 45 minutes, a little less expensive but still not cheap, pretty expensive. And as you get out past 60 minutes or longer, real estate prices start to drop appreciably.

What is that dynamic that Lercher observed and that Jonathan and I observed as the pandemic wears on and as people find the ability to locate themselves anywhere? I can imagine that inner ring is going to be the partners and the people who were at the top of the income scale and they want a fast, easy commute to the city for the two or three days they’re probably going into the city to work or maybe every day if they’re on a trading desk or at a hedge fund or a private equity or VC type of shop. But what about the next rings, the 45 minutes away, the 90 minutes away, are those areas going to be at a disadvantage to places like Idaho and Wyoming?

KOTOK: Well, we don’t know. But history, history says that what we had up until January, February or March of 2020 is changed and the change is structural, not temporary, and it will unfold over the next few years. And history would say those who long to go back to what was before the pandemic are going to be disappointed because it didn’t go to be there. The world has changed.

Every pandemic in the history introduced change and the change, which was geographical when transportation was on a horse or a cart, is now electronic for whatever portion of economic activity takes place in the virtual space and that’s a lot. And it’s also more and more, not just finance. We think of it in finance because we’re in the finance area.

But if I get some spot and I needed dermatologist, what do I do today? I take a picture of it. I send it to the dermatologist. He looks at it. He texts or emails or calls in the phone and we talk about it. I don’t have to go to his office. I can be a thousand miles away.

So, this is massive disruption of what we had, huge introduction of productivity gain in every single sphere, every single thing we think about, and we’ve only begun to see it. And I keep saying — I had a conversation John Farrow last month in an interview on surveillance and he said, what’s your takeaway from this, and I said, the takeaway is there’s a huge shock. It’s not business as usual and we — and it’s still going on, it’s not over yet, so monstrous.

RITHOLTZ: So, I want to get to politics but before I do, I have to stick with the technology question that you’re dancing around a little bit. The pushback to the shock thesis is not so much that this changes everything and we’re going to start with a clean sheet of paper, but we actually had all these trends in place pre-pandemic, and this accelerated them and brought them all forward by a decade.

So, think about what we’re doing currently, Zoom calls or Google Hang calls. We’ve been doing that in my office for a decade. Now, everybody is very comfortable with it. Screen shares, FaceTime on your iPhone, delivery of food, delivery of supermarkets, just everything gravitating so rapidly towards online and Amazon. What do you take of the claim that, hey, none of this is new, you’ve just moved us to 2031 instead of 2021 in terms of where we are technology wise dealing with the pandemic?

KOTOK: I would say that history would show that every pandemic accelerated procedures and directions and trajectories, which were underway. That’s what a shock would do. It also had another impact if the trajectory was in the direction of something that was going to fail. It accelerated the failure. Both happened

So, it speeds things up in addition to introducing a new disruption, simultaneity of both, speed and form of disruption. So, what you’ve described I totally agree with but you were in a place and in a business. I’m in a place and in a business where we were in a very adaptive phase. The rest the world didn’t have to adapt. The shock forced them to. That was the accelerator.

RITHOLTZ: Yes. We are fortunate that when we launched back in 2013, we were built for virtual from day one. So, this transition was really very easy for us and I very much empathize with people. My neighbor is an orthopedic surgeon. He says I — we’re not at the point where I can log into my computer and manipulate a robot remotely. I have to go to the hospital to do surgeries. And there was a period in 2020 where any elective surgery was canceled.

So, he was setting bones and fixing other things but that’s a third of his practice. He said for about six months, he was afraid he was going to have to lay off all of his people, I’m very empathetic for people especially frontline workers who were putting their own health and safety at risk dealing with the public, which brings us to the politics of this. What do you make of some of the pushback?

I know we’re all exhausted and tired of the pandemic, but this started from day one. What do you make of the pushback to government interventions, mandates, masks, vaccine requirements? How do you interpret this stuff?

KOTOK: Well, history of pandemics would suggest that finger pointing, political distraction, government was a victim in every pandemic, behaviors are being repeated now in various ways, and part of the pandemic history is the pandemic, the disease doesn’t have a political party.
RITHOLTZ: Right.

KOTOK: And it eventually gets those who are more likely not to be wary of it or whose behaviors expose them more. That’s what disease does.

RITHOLTZ: Right.

KOTOK: And this is no different.

RITHOLTZ: It’s apolitical. It’s just opportunistic.

KOTOK: Look in Milan in 1632, I don’t remember exactly, the governor heard about — this is during the plagues that went through the Italian states in the 17th century and the governor of Milan heard about what was going on. He sent two emissaries. He said, you guys go over to Sienna. In those days, you had a rider and a horse.

RITHOLTZ: Right.

KOTOK: And look around, see what you see and come back and tell me. So, they do.

RITHOLTZ: See if you could bring the disease back with you.

KOTOK: Yes. Well, they come back, and they said, governor, people are dying and lying in the streets. They can’t pick up the bodies fast enough. He says, we cannot tell the people. Listen, now, we have documentation because at this point, we have some written documentations. What does he do? He says, number one, get the governing council and let’s report. Number two, let’s not tell the people. We don’t want to scare then. Number three, we have a new princess. We will have a celebration and a joyful celebration. So, he convenes it and he hold the super spreader and three months later, he’s got dead people all over his town.

RITHOLTZ: Amazing.

KOTOK: That was 1630, Barry.

RITHOLTZ: Well, you would hope we have learned over the ensuing 500 years how to behave in a pandemic although arguably, many of us have not.

KOTOK: Well, it’s the nature of the human being.

RITHOLTZ: Well, let me ask you this question. As someone who’s vaxed and boosted and as soon as they give me the green light to cross boost, I’m Pfizer up to now, I will happily go get the Moderna as number four. I’m not worried about — I’m trying to avoid getting — catching it but I’m not worried about a terrible outcome of hospitalization, ventilator, and death.

However, this long COVID is quite a scary proposition. What do you think about this and how has this — to bring it back from the human element to the economy, how has this impacted the labor force and the overall impact of how we’re dealing with the pandemic?

KOTOK: Well, I believe long COVID is really a monster issue in front of us. Little disclosure, I sponsored — I am sponsoring for the Global Interdependence Center a webinar series on long COVID and the health issues. I’m part of a group which is Long COVID Initiative and here’s what we know. In the U.K., we’ve now identified over a million, by their definition, long COVID patients. They have a population of 67 million.

If we use that reference for the United States, we’re due for five or six million cases. The numbers grow every single reporting period. In the United States, we now have about 150 long COVID clinics.

RITHOLTZ: Wow.

KOTOK: In America, we had zero a year ago. We have about 50 pediatric long COVID clinics. We had zero a year ago. What are we finding? People think of COVID as a respiratory disease. That’s how you get it. But there’s more and more evidence that it’s a blood disease, gets into you and then you get micro crossed and it gets to all your organs.

So, long COVID, I think, is a big issue. The estimates for the United States are somewhere between 10 and 20 million cases before this is over. And, again, back to the political question, the vaccines can, so far, to reduce enormously the risk of long COVID if you get sick. The unvaccinated are going to be the victims if they didn’t die. They are the most likely to get long COVID symptoms.

It’s a terrible circumstance but long COVID is here, it’s big and it’s going to be bigger and bigger. Think of it as people who are temporarily, partially or permanently disabled.

RITHOLTZ: Wow.

KOTOK: And that’s a cohort of millions and many of them are labor force age.

RITHOLTZ: So, let me ask you about that exact question because following the financial crisis in ’08, ’09, I think people were somewhat surprised at the big surge, the big uptick in disability applications that took place. A shocking large slice of the labor force moved to disability. Are you suggesting we’re going to see the same sort of thing post-COVID?

KOTOK: Yes. I think we’re going to see it. I think it’s going to be bigger than people think. I think there’s going to be all the fights with the insurance company and who’s going to pay and what are the definitions.

Right now, the World Health Organization, the UK and the U.S. HHS have three different — they’re similar but they’re not identical. And we have to remember, this is a worldwide disease, which means disabled here is also disabled in all the countries in the world.

RITHOLTZ: Wow. Amazing. There seems to be a ton of focus on the Federal Reserve and inflation and rising interest rates. But before we dive deep into the Fed, let’s start with its chairman, what do you make of Jay Powell, what sort of job has he been doing navigating over the past six years?

KOTOK: Well, my opinion is that Jay Powell has been a terrific central bank chairman in the midst of this pandemic. Number one, he’s a student of history; number two, he knows the degrees through — and he has a lens which is deeper than just monetary economics. So, he sees it in the full sense of financial markets, look at all the different programs that were implemented along the way, and he also sees it in terms of community impact and people impact on 335 million Americans.

And so, I applaud Powell and those who criticize him after the fact (inaudible) to quarterback a game on a Monday, if I could use the cliché, missed what it’s like to have to make real-time decisions in the midst of such a shock. Powell has done that, and he has done it really well under the circumstances.

There’s an entire committee in the Fed which is reaching to community elements that are outside the banking system, philanthropy, community activities, support systems, and it’s inviting the Fed on impacts. It’s not well known. The minutes are published. People don’t know about it.

What has Powell done? He said the Federal Reserve’s position must be much broader than this. The narrowly-defined banking system, financial stability, those are important, that’s our bread-and-butter business. But if we don’t get to the full impact in the country, we’re missing this shock and its effects.

And that’s something that Powell has done very quietly. No fanfare. I’ve had occasion to speak to people who are on that committee and some of the programs from the Federal Reserve, which narrowed to very small balances to be able to give financial support and assist them, to smaller businesses, conduit structures, came out of that sensitivity.

RITHOLTZ: Let me pick up on that because the consistent criticism we’ve heard about the Fed and we have at some of the events we go to, you know the exact people, I won’t mention by name, but you know the people who bring up, look at how giant the Federal Reserve balance sheet has become, look at the rate of change over the past 10, 20, 30 years, this is unprecedented and ends badly. How do you respond to the folks who say the accumulation of assets on the Federal Reserve balance sheet is problematic and will result in subsequent crises?

KOTOK: Well, I would answer two ways with two elements because in our dialogue in the business that we’re both in, we get those kinds of conversations all the time. And I say to somebody, show me, number one, a study which is curated that determines the optimal size of the Fed’s balance sheet. Produce the study not to criticize its size, produce the study to say, this is how large it should be and this is why.

Now, we do know there’s some elements in the Fed’s balance sheet, for example, the currency in circulation, it’s a liability. The treasury balances, it’s a liability. Necessary bank reserves, it’s a liability. To do that, you need assets on the other side.

RITHOLTZ: Right.

KOTOK: You have to support the international balances, so that’s global central bank repo redeposits at the Fed. So, that’s a liability. So, you can add up some elements and say, gee, I can get to four or five or six trillion immediately and I haven’t gone beyond that.

Now, the question becomes, how much caution should you have and how big should it be? And Ben Bernanke himself said, if you wait long enough, the balance sheet will absorb any size over time as long as you have nominal growth. He’s right.

So, this finger-pointing about the size of the Fed’s balance sheet and hand-wringing about it to me is a great way to introduce hyperbole without curated facts. Why if it’s so bad and so inflationary and so destructive is the Japanese central bank balance sheet larger than the GDP of the country and there’s no inflation.

RITHOLTZ: And to be fair — to be fair about the U.S. central bank and the current bout of inflation, hey, it’s been 12 years with very, very low inflation to blame the post-pandemic period on the Fed balance sheet, to blame that inflation really seems to be an unfair accusation.

KOTOK: I completely agree. I think it’s taking advantage of a shock to throw up political barb. Now, central banks are always fair game because they cannot defend themselves in political environment. So, they’re an easy target for a politician or a critic.

It’s a whole different story when you have to sit in a room in real time and make a decision and you don’t have a full plate of facts because you’re in a moving environment. So, I’m a defender of Powell. I think the Fed has done as good a job as you could ever expect under these extraordinary circumstances.

RITHOLTZ: So, what do you make of the current move? We’re actually recording this early January. Powell’s is literally testifying to Congress as we speak so we don’t get to hear what he is currently saying. What do you make of the current move towards a taper and the idea that quantitative easements and purchases of bonds have run their course? We won’t even get to zero interest rate policy just yet. What do you think of QE in the idea of the taper?

KOTOK: Well, to taper from some level to some lower level and then eventually to zero is something that eventually had to happen and the forces that require the Fed to do that, which are both political and economic in the face of evidence of this shorter term, you’re quite right, inflation shock. It would require them to do that.

My biggest fear is the Fed will try to do two things at once. It will try to reset an interest rate to a higher level than zero. I never like zero because it’s such a distortion. I don’t mind if it was a quarter of a point or a half of a point floor. But zero distorted things and we were in a long time.

To do that and also alter the composition and size of the balance sheet the same time is to try to do two very difficult things simultaneously. It’s hard enough for the central bank to do one of them. And so, my view is they should tackle one before they tackle the other.

And if I were sitting in that room, I would tackle the interest rate first. I take a hike in March or April or May, get the rate above zero. Clear markets, clear repo, clear SOFR, get an operating system above zero. So, anybody who’s got any cash anywhere in the world can put it to work and get more than a single basis point at someplace.

And now, you have a market clearing mechanism. And then when you get interest rates right, then you can tackle the size of the balance sheet. I’m afraid though the pressure is such they’re going to do both at once and to me, that’s a recipe for trouble.

RITHOLTZ: That’s really — that’s really interesting. So, what does this mean for your business? You are essentially known — Cumberland is known as a bond shop. At one point, muni bonds were super attractive on an after-tax basis as a source of yield versus treasuries or even high-grade corporates.

Given everything that’s taking place first with the financial crisis and then subsequently with the pandemic, how should bond investors be operating in this environment?

KOTOK: Well, I don’t know what others should do but I can say what we do do. We’ve been running a barbell. Barbell means you got a slug of a portfolio depending on the type of portfolio in the short — earlier shorter duration maturities and you get very low yield there and then you have a piece in the longer maturities, which is how you get some yield by blending them.

Our duration in the morning meeting yesterday was approximately four. That is relatively short. So, we’ve been rolling duration around for, waiting for the opportunity for markets to deliver a higher yield. Now, today, you could — as we’re speaking, you can look at the market and say, well, I could get about three percent in the high-grade tax-free bond depending on state and jurisdiction.

But my guess is as rates rise and it looks like they’re going to, we make it close to three and a half or four in the municipal yield. At a four, this becomes very attractive, Barry.

RITHOLTZ: Really interesting. So, we’re recording this early in January, the 10-year yield has just ticked up about 1.8 percent or so. Do you think the bond markets are seeing inflation as a structural elements of the economy looking forward or did they see this as transitory?

KOTOK: Bond markets are adjusting upward, a view away from much lower inflation expectations to something higher. The shock inflation measures we see at six and seven percent are inconsistent with the yields in the bond market of 1.8 or two or two and a half or even three.

So, what the bond market is saying is we’re going to have an adjustment. So, not going to be anywhere near this high single digit perpetual rate of inflation. This is a temporary shock. You know where it comes out? Two, two and a half, three percent maybe but not a lot more. That’s what the bond market is saying. And history would say if we have a transition and we get beyond the shock, that’s the more likely outcome.

RITHOLTZ: Really, really interesting. So, if we think the shock eventually passes, what’s the best definition of transitory? Are you implying it’s 12 to 24 months before we’re back to a more normal footing albeit at higher federal funds rate and higher yield on the 10-year?

KOTOK: I think so. It’s an opinion. We’ll find out in a couple of years. But my worry is central banks, in their hurry to re-normalize policy, make the transitory rollover worse.

RITHOLTZ: Interesting.

KOTOK: They are under pressures to do so everywhere in the world. And so, my worry is they go too far and too fast.

RITHOLTZ: So, you want a more gradual shift towards away from the emergency footing and towards a more normal footing from central banks around the world, which raises an interesting question what do you think about what’s been going on from a macro perspective in China as well as the rest of the non-Chinese emerging market world?

KOTOK: Well, China is a story. We have an emerging dictatorship. We have a model, the Mao Tse-tung model modernized, and we see behaviors in China in the second largest economy in the world and they are alarming.

Where this leads, I don’t know. My hope is that behaviors don’t get to war, which I don’t think anybody wants. It doesn’t serve the purpose. But the relationship between United States and China is permanently changed, permanently meaning for at least a generation and it’s evolving.

In the United States, politics drive a hard China line, both parties. In China, politics drive more isolationism, a different internal structure, no dissent permitted, a suppression of whatever forces of dissent or outspokenness were existing and the forced initiatives of Beijing on a population of 1.4 billion people and that’s underway. So, that’s what we — that’s the world that we live in and are probably going to live in for the rest of our life.

RITHOLTZ: Wow. And what about …

KOTOK: You and I are only — you and I are only 39 years old like Jack Benny. So, we have the time.

RITHOLTZ: That’s right. What about the rest of the emerging markets outside of China, how do you look at those parts of the world when China has become such an outsized contributor to global GDP? What’s your perspective there?

KOTOK: Well, I think there’s some places that are of real interest. So, I think Vietnam is a frontier market that has entrepreneurial characteristics independent of China. South Korea is an example of a developed market. There are plenty of places that are not China. Taiwan, of course, emerges as a mature market although it’s got geopolitical risk with the China so close.

But what we see is many places which have the ability to modernize highly productive contribute to world economic activity and do so with modern skills and they will supplant China. They will be go-to places for capital investment and China is less and less a safe place.

I’ve been to China several times, I wouldn’t travel to China now not because of COVID, because I would feel at risk being there. Others say the same thing. You and I have a lot of colleagues who have business relationships and analytical relationships with China, and they are afraid. They physically wouldn’t go now.

RITHOLTZ: Really?

KOTOK: Yes. We speak when we’re together in Maine. We meet and talk about these things as you’re an old timer, you’re a tenured professor.

RITHOLTZ: I am. I am. But I’m kind of surprised that people would you mean feel physically for their safety as an American in China?

KOTOK: Yes. I would. I wouldn’t go today.

RITHOLTZ: From the public or from the government?

KOTOK: Well, I would be afraid of the government and I’m not sure how welcome I would be now as an American from the public. When I was in China, it was a very welcoming experience. When I was in China with a group of economists and we traveled around, it was a welcoming experience. Hong Kong, a welcoming experience. Beijing, a welcoming experience. Today, not the same.

RITHOLTZ: Really?

KOTOK: People who go there, they describe it, and they say it’s different. You go and the way you’re treated, greeted and viewed is different. Things have changed.

RITHOLTZ: Wow. That’s shocking.

KOTOK: A lot of things in China have changed because people are afraid of the government and understandable reasons. So, for me, I think — I watch a lot of our colleagues and a lot of investment firms and they’re placing money at risk in China and they’re developing things in China and, OK, that’s their decision. My view is China is a growing risk for capital investment, entrepreneurial investment and physically dangerous for some people.

RITHOLTZ: So, you’re preaching to the choir about capital risk. I asked the question a year ago, is China becoming uninvestable when you see what they did to Ali Baba and the rest of the tech space, and some people try to draw a parallel to what Donald Trump did.

Trump was mostly noise and tweets about companies. This is actually government action in China affecting how companies operate and behave not just noise but rules. So, I understand where you’re coming from saying you would be reluctant to put capital at risk there.

But you brought something else up that I’m eager to talk about. You mentioned the fishing and what we’ve done in Maine. So, let’s talk a little bit about what’s become known as Camp Kotok where you gather four or five-dozen economists, fund managers, commentators, analysts et cetera, for what some people have described as a more productive miniature version of Davos. Tell us a little bit about Camp Kotok.

KOTOK: Well, it’s interesting, you’ve been a regular there for a lot of years.

RITHOLTZ: Going back to I think ’08 was my first year.

KOTOK: Yes. So, you’re a tenured professor at Camp Kotok. You think about — you think about the history, 20 years since the towers and the attack in New York and it was the year after the World Trade Center Event that ratcheted up the discussion and the number of people who would say, all right, I’ll come with you we’ll go out in the woods and will spend a weekend.

And I don’t care about fishing, I remember Harvey Rosenblum from the Dallas Fed, the first time he held a fishing rod in his hand, and I said, Harvey, you’re not supposed to hit the fish over the head. You actually have to use the hook and the line.

RITHOLTZ: And Harvey was Head of Research at the Dallas Fed, not an inconsequential economist.

KOTOK: No. Well, he was director of research of the Dallas Fed for a long time setting a lot of federal open market committees of the Fed and everything else. But he came and before that, he never would have, never would have come. What? Me go at the Maine fishing? What are you talking about?

So, it’s changed. We’ve created an environment, I think, where there are periods of conversation under Chatham House Rule where people are comfortable, and they can speak privately and they can talk about their views of the world, and they can exchange views and take a takeaway. Those conversations are rare anymore.

RITHOLTZ: So, let’s — let’s ….

KOTOK: This is a place that we can hold them.

RITHOLTZ: So, let’s stay with that because I was discussing Maine with another friend of ours, we’re going to be name dropping everywhere, David Nadig who his takeaway was being outside with people in nature, engaging in holistic thinking, being able to have these important meaningful discussions in private not in the public square, he says, that’s a completely different experience than something like Davos or anywhere else where everything is televised and it’s just completely a public spectacle. Was that the intention from the beginning or did it just evolve into this wonderful outdoor experience?

KOTOK: Well, evolution I think is the right word. Dave told me he’s already in communication with you to figure out how to ride together something like that.

RITHOLTZ: He did that last year also.

KOTOK: Yes. So, I mean, we’ve — we’ve created something, it’s evolved over time. We’ve changed lodges and we’ve modified the program. Some people said, gee, why do you have 30 minutes of a panel before dinner and why not do it in the afternoon. People don’t want to do it in the afternoon.

The fact is if you do 30 minutes before dinner, Barry, you’ve been a moderator, you’ve been a speaker as part of those — the sessions, we talk about a topic for 30 minutes in a structured environment, 30 minutes is enough, and then the dinner conversation more scenes to all kinds of things for the next two hours.

RITHOLTZ: That’s right. And the secret is you close the bar during the panel discussion, so you have everybody’s attention and as soon as it’s over, the bar reopens and the conversation really starts.

KOTOK: And we do it before dinner.

RITHOLTZ: Right.

KOTOK: Remember, they’re hungry, they’ve been out in the woods all day. So, yes, get them wet then you close the bar then you keep them hungry for 30 minutes and everybody — and you — as you know, you were — you were — you ran a panel and you said, and the rules were seven minutes. I remember, you’re standing in the front of the dining hall and said, seven minutes, I’m going to shut you down and go the next when you are — that’s what you have …

RITHOLTZ: People threw roles at me. They wanted to keep going. It was — it’s very unruly group to enforce discipline especially by the time you roll around to the second or third night and the second or third glass of wine. It’s amazing how people you think of as button-down stiff economist turned out to be a little more free flowing when the time is right.

KOTOK: No question, for sure.

RITHOLTZ: So, I — when I think of you, when I described David Kotok, there’s a lot of different ways I think of you but I think the legacy of Camp Kotok has probably had the greatest impact on the greatest number of people even those people three and four and five steps removed from the events to the point where people have asked me, hey, what do I have to do to get on the Camp Kotok list.

And my answer is always, you’re sucking up to the wrong guy, you got to go suck up to David, not me. It’s called Camp Kotok not Camp Ritholtz. He’s the guy to talk to.

KOTOK: Well, thank you very much. There are a lot of folks who raised that question, interesting mix of folks because we always try to mix it up and we’re also involved with the Global Interdependence Center now and that helps with what we try to organize and do the programming for it.

It’s interesting if I can just say, the name Camp Kotok was not coined by me. Steve Liesman was up there, and he was interviewing me on the deck. I don’t know if I can do a Macy’s Gimbel’s thing here but whatever.

RITHOLTZ: No. Absolutely. He’s been — not only was he there for CNBC and CNBC and Bloomberg have both been up there with cameras but he’s a pretty well-known deadhead and singer musician and he would bring a guitar and entertain people.

KOTOK: Yes. And if he comes back this year and I’ve invited him, he can bring it again. I would tell you, it’s also an excellent fly fisherman. We fish together. But when Liesman was interviewing me on the deck and they broke to a commercial break, it was Becky Quick who coined the name Camp Kotok and put it to the banner.

RITHOLTZ: That’s so funny.

KOTOK: That’s where the name came from. I didn’t create the name.

RITHOLTZ: When I first heard the name, I heard the shadow Federal Reserve committee was how it initially was approached to me and I had enough people asked me about it that eventually I wrote this long 2,000-word missive for BusinessWeek about it that I still get emails about, it’s like a couple of years ago already.

KOTOK: That came from John Hilton Ruffe (ph) when he was writing a column — he was up there, and he wrote a column for — in the journal and he called it the shadow Kansas City fit.

RITHOLTZ: That’s hilarious. Well, I know I only have you for a limited amount of time and I want to get to my favorite questions as much as I would love to wax nostalgic about all things Camp Kotok, I do have to share one funny story and I’m not going to mention names. But we’re playing poker one night, me and a buddy who’s a hedge fund manager. On his right is an equity manager at a boldface name brand shop. On my left is a bond manager, also a name face — a boldface name brand shop and they both get up to go get more drinks and they each asked us, hey, would you like another glass, well, sure, bring — each of us say yes.

And I turned to my hedge fund buddy, and I say, I just want to point out that my waiter manages $1 trillion, your waiter only manages $500 billion. And that’s like a typical Camp Kotok type of a story and I have — we all have endless, endless versions of that.

With that said, let’s jump to some of our favorite questions we ask all of our guests starting with given the pandemic and the lockdown, tell us what you’re streaming these days, what’s entertaining you on either Netflix or Amazon Prime.

KOTOK: OK. So, you gave me warning about the five questions that I have time to think about them and I know we’re up against the clock with only a few minutes. So, I thought about that, and I said, OK, I’ll pick one and that’s, “Don’t Look Up” and I believe the Meryl Streep movie “Don’t Look Up” which is a parody on the politics of the country in so many ways is a wonderful, wonderful modern parody.

I enjoyed it, thought about it. I’d particularly liked some of the characters who depicted those which were part of our political scene. So, I would say “Don’t Look Up” makes the movie list.

RITHOLTZ: Really good. Let’s talk about mentors. What — who were some of your mentors who helped to shape your career?

KOTOK: Well, I thought about two. An economist probably not widely known, a Hungarian economist Gabriel Karakesh (ph), not many, many years ago, and he was a mentor for me in many ways and with him, I actually joined in publishing the first editorial piece in a publication, that was 1973 maybe, something like that, Gabriel Karakesh.

And I had great political mentorship from Governor Tom Kane. I was able to be part of his administration and worked with him and get to know him. He affirms for me to this day, I spoke with him just a few weeks ago, that there is a hope for this great experiment called democracy in the United States. It’s a glass half full. It’s under a lot of stress these days.

But Kane is a person who doesn’t give up and he was able to teach me something. He said, when people get the right information, and these days that’s a tough one, and they get the facts presented so that they’re clear, the electorate makes valid decisions. Sometimes, it’s tough to get to him but he has confidence in the American system and that’s something that has stayed with me. Tom Kane was a great mentor, is and was.

RITHOLTZ: Really interesting.

KOTOK: He’s 86 and he’s still going.

RITHOLTZ: So, let’s talk books. You mentioned you’re surrounded by books. I’m going to ask you this in two parts, what are some of your all-time favorite books and what are you reading currently?

KOTOK: Well, I read the Peloponnesian War again with Thucydides. So, I have to dig into that. All-time favorite books, I’ve got a lot. But reading now, two books, one you know the author, “Written on Water” it’s his third book, Randy Spencer and his fishing guide in Grand Lake Stream, Maine. He’s written several books and he’s got one that’s got a bunch of stories about the region.

And the other book I’m reading now, and I think you would know the author, it’s Vito Racanelli.

RITHOLTZ: Sure.

KOTOK: Vito is at Barron’s for two decades.

RITHOLTZ: Forever. Right.

KOTOK: His first novel, it’s a murder mystery, “The Man in Milan.” So good for Vito. He’s ventured away from financial writing. And Randy has a good third book.

RITHOLTZ: Which is what’s the name of the third book?

KOTOK: “Written on Water.”

RITHOLTZ: “Written on Water” that makes a lot of sense. What sort of advice would you give to a recent college graduate who was interested in a career in either investment management or finance?

KOTOK: One that Winston Churchill gave to students when asked about this similar question and he said, study history, study history, study history and when you’re done, study more history. And I think that sounded wise. It’s a guide. We learn from history. I’m saddened that the fact that our education system doesn’t teach enough history.

RITHOLTZ: And our final question that we ask all of our guests, tell us what you know about the world of investing today that you wish you knew 50 years or so ago when you were first starting out.

KOTOK: Well, there’s the statistical basis, Bayesian theory.

RITHOLTZ: Sure.

KOTOK: And Bayesian theory was something we were taught in abstract. It’s applicable. We use it in our qualitative work. In our shop, we use it a lot. I didn’t give it in the earlier time the respect that Tom bayes deserves and I think if there’s one single thing to articulate in a mathematical that requires you to be adaptive, it’s Bayesian theory applied in finance and economics and probably a whole bunch of other things, too.

RITHOLTZ: So, let me — let me drill down into this a little bit because when I think of Bayes theorem, I — I — we typically think of the traditional bell curve. Are you focusing more on that right tail and black swan events or are you focusing more on the traditional fat part of the most likely outcomes?

KOTOK: Well, I would start with the bell curve which was a Gaussian depiction data point named for Gauss who created it and the notion we have is the shape of the curve entails. But as a practical manner, no curve looks like a bell.

RITHOLTZ: Right.

KOTOK: It’s scatterplot. And so, what I think they suggests in modern times is the data point to know scatterplots are moving and you have to examine those shifts and the rates of change in them. So, whether it’s right tail or left tail or how flat the curve is if you try to depict it, the fact is it’s not constant. It’s vibrating if you will. It has — it has features which are adjusting constantly to new metrics and new events. So, it’s a living thing, not a static thing. And what base math does when you incorporate it in the math is attempt to measure or estimate the rates of those changes.

RITHOLTZ: Quite fascinating. David, thank you so much for being so generous with your time. We have been speaking with David Kotok, Chairman and Chief Investment Officer at Cumberland Investors.

If you enjoy this conversation, well, be sure and check out any of the previous 400 or so such interviews we’ve done over the past eight years. You can find that at Spotify, iTunes, bloomberg.com, wherever you get your favorite podcast.

We love your comments, feedback and suggestions. Write to us at mibpodcast@bloomberg.net. You can sign up for my daily reading list each morning, @ritholtz.com. Follow me on Twitter, @Ritholtz.

I would be remiss if I did not thank the crack team that helps put these conversations together each week, Mohamad Rimawi is my audio engineer; Paris Wald is my producer; Michael Batnick is my head of research; Atika Valbrun is our project manager. I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.

 

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