Every Investment Company Has a 'Recession Rick'
Every investment company that has regular research meetings has one - the office gadfly that constantly challenges the house view on everything ranging from its earnings forecasts to the funds available in the 401k plan to the appropriate color to paint the women's bathroom. He (and it's almost always a he) is the proverbial pain in the ass, the fly in the ointment, the monkey in the wrench. Without being overly prejudicial about it, my experience has led me to observe that the majority of these types are bond guys, glass half-empty people in a glass half-full industry. Bond investors have long had the reputation of being ghouls, delighting in bad economic news and occasionally, just like about everybody else I guess, the financial misfortunes of others we feel are undeservedly rich. (And in the lower 48, that is a very long list indeed.)
Rick was a fast-talking, nattily dressed bond salesman from an era when the spreads were wide. A history major in college, he read the paper cover to cover on his commute, and like many Irishmen liked a healthy debate. He was difficult to argue with because he was always prepared and expressed his views with a messianic zeal that would make a Baptist minister weep. Rick could play it a little fast and loose with the facts but, when challenged, would speak faster and throw out more arcana, relevant or not, to support his view. To make him somewhat more colorful was his ability to tempt the uninitiated into sucker bets they had no chance of winning. He once goaded one unsuspecting and exasperated equity salesman into betting Rick on his own height. Within thirty seconds, the poor schlub, realizing that he had been had, just handed Rick a McGarret (that's a 5-0) and walked away, utterly defeated. When the people in the office got tired of arguing with him (which was about 8:15am), he hit the phones like no one you ever saw, regaling his clients with the same colorful stories and arguments. After nine hours a day of listening to the same rap, you might wonder how he got away with it for so long without being left with a mouth full of loose teeth. And here the answer was simple - the man was genuinely funny.
His warnings about the "house of cards" that constituted the global financial system became so frequent that the other salesmen, younger and less experienced, came to deem him "Recession Rick." His litany of financial anxieties were so frequently expressed to anyone within earshot that one enterprising chap constructed a Recession Rick Bingo card to be used in our morning meeting, that included phrases like "war criminal of financial crisis," "policy mistake," and, more recently "Zika virus."
In recent months, his favorite bête-noirs were China's alleged growth rate and its policymakers, who he affectionately called "schmorons." Any suggestion that China wasn't already in a deep recession would lead him into paroxysms of stream-of-consciousness utterances that made him look like one of those crazy guys you sometimes see in Manhattan trying to direct traffic in their underwear. After laughing derisively at your stupidity and naïveté, he'd launch into a familiar tirade.
"Do you really believe that? Oil prices are at twelve year lows. Dr. Copper is crashing. Corporate credit spreads are widening. German 10-years yields are 31 basis points. The curve is flattening. The Shenzhen is down 40% from the peak. They're trying to devalue and institute capital controls at the same time. THAT'S IMPOSSIBLE!!! Look at the way they handled the crash in their stock prices. Does that inspire confidence in their ability to centrally plan an economy? Plus they don't have enough women. You know what happens when there's too few women around? That's right - guys get frustrated and antsy and angry. They're building blue water navy at the same time their debt as a percentage of GDP is 232%. Does that sound like a good development to you? Forget about a soft landing, they're in a hard-landing, buddy. Yessirree, no doubt about it. Mr. Market is telling us, so. We're just too blind to see it."
"Rick," I might offer, "as you know, we have a series of single factor regression models that tell us that growth in China should be between 5 and 7 percent this year."
"I reject the data."
"Whaddya mean you reject the data? All data? You have to use something."
"They got to you too didn't they?"
"What? Who?"
"They're commies and liars. I'll bet on my own judgment thank you very much," Rick said self-satisfied. "I'm going to write it up in my daily note to clients. They appreciate someone who celebrates the TRUTH!"
You always learned something talking to Rick but it was exhausting. And so after a long day trying to make heads or tails of an economy and a market that, like Donald Trump, appeared to be breaking all the rules, I was happy to ensconce myself at Nanni's on 46th with my wife, "share" a bottle of Barolo, and have a few laughs.
About halfway through the meal, Alessandro the maître-d walked quickly over to my table and said "Giasone, c'e' una telefonata per te."
"Dai, stai scherzando, vero? Ma come mai..."
"E' molto urgente, lui dice."
"Mannaggia...Bev I've gotta take this I'll be right back."
I quickly walked past small round tables and the frescos of Procida and the Tyrhennian seascapes to the house phone near the coat check room.
"Hello?"
"Mr. Trennert?"
"Yes. This is he."
"This is Mr. Li of the People's Republic. We have in our possession someone you might know, your Managing Director Mr. Rick," said a man in perfectly accented American English.
"Knock it off willya, Rick. I'm having dinner with Bev. Isn't it enough that I have to hear your bullsh..."
"I can assure you that this is not one of your American pranks. Mr. Trennert. You see the man in the pinstriped grey flannel suit at the first table on the left."
"Yes."
"He will scratch his nose now to assure you that this is not a joke." And just like that an elegant Chinese man eating alone looked at me, scratched his nose, and winked before taking another bite of his angel hair pasta.
"Geez Louise, what did Rick do now? Is he in trouble?"
"Quite. We don't appreciate his skepticism of our official economic numbers. In fact, in our country, such questions are considered crimes."
"Rick is harmless. To be honest our firm isn't that influential. He questions everything, especially when there's money to be made."
"You might find it amusing but we do not. As the Supreme Leader of Strategas you have a responsibility to stop him."
"Skepticism is not a crime in America, sir. Suppose I just call the F.B.I. and have them help me figure this out."
"That would be most imprudent, Jase. We know everything about you and Rick, your families, and everything you care about. For instance, your decision to buy a boat last year did little for your FICO score."
That's another thing Dad was right about.
"Is that a threat?" I asked sternly.
"Let us just say that we are starting the re-education process. Tell no one about this conversation in the next 12 hours and you might be able to see Mr. Rick again."
"But how..." In the split second before I heard the phone go dead, I could swear I heard Rick leading his would-be captors in laughter.
Ashen, I hurried back to my table, tried not to alarm my wife, finished dinner, and went home.
After a fitful night's sleep, I awoke early the next day, took my usual route to the office in a cab down Fifth until I arrived at the coffee cart on 46th and Vanderbilt. Without asking, Ahmed placed a large coffee and a hard-boiled egg in a brown paper bag. I gave him two bucks and started my short walk to the office. After five steps, I let out an incontinent yawp as I felt the cold steel of Mohaska between my third and fourth left ribs.
"We're going to take a walk Mr. Trennert. Don't turn around and don't try to run."
"Ok...Is Rick safe?"
"Quite. We had a long night."
"Well, he's one in a million, I'll tell you that," I said trying to lighten the mood.
"Perhaps in your country. In China, when you're one in a million there are fourteen hundred people just like you. And we've never seen anything like him. Our interrogators worked during the Cultural Revolution with some pretty rough characters. After 12 hours of re-education, they came back and told me that they wanted to open up an artisanal cronut shop on the Upper East Side with Mr. Rick. They had doubts about the revolution. In all my years fighting for the people...," his voice trailing. "We mapped his genome. It must be genetic."
"What do we have to do to get him back? What is it you want - money? A retraction?"
"Actually, Mr. Trennert, we would be most appreciative if you just took him back and forgot about the whole incident."
"Uhhhhh, sure. But why didn't you guys just..."
"Make him disappear? We've started to rethink our approach since we joined the SDR. When you have $3.5 trillion in currency reserves you never really have to say you're sorry. Plus, we're superstitious people and we wonder whether this man just might be able to speak from the grave...If you forget about this, no further harm will be done to you or your people."
"Ok. That's a deal."
Three steps later I felt the gun removed from my rib cage. Five steps after that I turned around and saw an empty Vanderbilt Avenue. Relieved, I walked to the office. It was 6:45 am. I turned on the lights and peered into the board room. Rick was sitting there, clear shaven and neat as a pin sipping coffee and reading the FT.
"Rick! How are you? Are you ok?"
"Sure, why?"
"Well I thought you were...ummm, kidnapped over your comments about China."
"Oh those fellas? They didn't scare me. I reasoned with them. Unlike the people around here, they actually listened to me. We had a blast. We may open-up a Soulcycle franchise in Williamsburg together after we get back from Vegas."
"Wow." I said stunned. "Well, an expert's anyone from out of town, I guess."
"That's not the quote."
"What? Sure it is."
‘Wanna bet?"
"Not really. I'm tired," I said sighing.
"Most people attribute that to Truman or Twain but really that came from the Bible. Luke 14:11, I think. Or Deuteronomy 10. I'm not sure. Give me 3-1 odds and we'll call it a bet. It doesn't matter, I know I'm right. ‘No one can be a prophet in their own home town.' I can't believe you didn't know that."
"Rick?"
‘Yeah?"
"How do you feel about making your note this morning about Putin and Russia's oligarchs?"
