Each week, I receive feedback from readers and sources about Wall Street’s biggest characters and concerns. I’ll be engaging with some of those questions here—in addition to a few observations of my own.
David McCormick, the highly respected C.E.O. of Bridgewater, appears to be adopting the Trump-era “populist” playbook for his Senate run in Pennsylvania, with help from Hope Hicks, Cliff Sims and, incredibly, Stephen Miller. What is he thinking, and what does Wall Street make of it?
I know and like David. I also know and like (and have written about) his wife, Dina Powell, a partner at Goldman Sachs and a member of the management committee who served for nearly a year as Deputy National Security Advisor under Donald Trump. They are both smart, charming, and fun company. And David has long been interested in politics. He worked in the Commerce Department and as an economic adviser in the White House before becoming undersecretary of the Treasury for international affairs under George W. Bush. Perhaps just as important, he’s probably had enough of the Ray Dalio show at this point—he’s been the sole C.E.O. of Bridgewater Associates, Dalio’s hedge fund, since April 2020 and was co-C.E.O. for three years before that.
Running for Senate from Pennsylvania strikes me as the kind of challenge that a Gulf War veteran, such as McCormick, would enjoy. He’s got a killer resume to boot. In addition to his 12 years at Bridgewater, he was a consultant at McKinsey for three years, has a PhD from Princeton, and was the C.E.O. of Freemarkets, Inc., a software manufacturer, before it was acquired for some $500 million by Ariba, in 2004. He then served as Ariba’s president for a year. There is no question in my mind that he’d make a great senator and, in any event, a better politician than celebrity surgeon Mehmet Oz.
I have always thought that David had superb judgment. So if he is willing to dive into electoral politics at a high level, I figure he must know what he’s getting himself into. He certainly can afford the best strategists. That’s why I am really scratching my head with his decision to employ the former Trump advisors Hope Hicks and Stephen Miller. These two are seriously damaged goods, especially Miller, a feral nativist with the personality of an orphaned rabid dog, who I have also written about extensively and who distinguished himself in the Trump administration as perhaps the most vicious, callous and Darwinian of them all—and that’s saying something in that crowd!
Why David would tap Miller is beyond me, unless his involvement is mere window dressing to make sure he’s locked down the Trump vote in Pennsylvania—a group he would probably have anyway. For this, he received a fawning endorsement from Breitbart.
But my assumption is that Hicks, Miller, and Sims are just tertiary figures in the mix. Perhaps Powell, who worked with them in the White House, was trying to throw them a bone out of holiday charity. After all, David is also working with consultants Kristin Davidson and Jeff Roe, who helped architect Glenn Youngkin’s decidedly post-Trump, or at least Trump-adjacent, gubernatorial playbook in Virginia. With support from the likes of Mike Pompeo and Tom Cotton, McCormick hardly needs the B-team.
In any event, I wish him luck in this venture. It takes guts to leave a high-powered, high-paying job to run for elective office, especially as a first-timer. And he’d be a damn good senator, too, in my opinion, even though I am a Democrat and am unlikely to agree with many of his political views. But Stephen Miller and Hope Hicks? C’mon man!
Bill, the Wall Street Journal recently published a piece about where SPACs will be in 5 years. Without triggering you during the holidays, what’s your view?
There’s no question that SPACs are here to stay. They have, after all, been around for decades, even if nobody paid them much attention until their sudden ubiquity these past two years. So they will still be another arrow in the corporate finance quiver. But I doubt they will ever be as popular going forward as they were in 2020 and the first quarter of 2021—in 2021 alone, there were 612 SPAC I.P.O.s, raising $162 billion—in large part because investors are becoming increasingly disenchanted with their performance. There are now close to 500 SPACs looking for merger partners and the two-year clock is ticking. It seems highly unlikely that all of these 500 SPACs will be able to “deSPACify” before time runs out, and that will further blemish the product.
The BuzzFeed SPAC, alas, is a good example of where more and more SPACs are heading. Just prior to the merger between 890 Fifth Avenue Partners and BuzzFeed earlier this month, some 94 percent of the original SPAC investors opted to get their money back, plus interest, rather than invest it in the merger with BuzzFeed. That was a powerful indicator of investor sentiment—at least in relation to BuzzFeed. And it turned out to be a smart decision, at least so far, since BuzzFeed has lost 45 percent of its value in less than a month. That’s what I mean when I refer to investors losing interest in the SPAC product. If you lose more than 45 percent of your money in less than a month, at the same time that the broader financial markets are hitting new highs, then there will be some serious rethinking about the wisdom of the product as an attractive investment.
Remember when Chamath Palihapitiya, the founder of Social Capital, had his 15 minutes of fame and was a regular on all the business cable channels? He was dubbed the King of SPACs. Well, no more. The four SPAC mergers he pulled off have fallen an average of 32 percent in 2021 and he has six more SPACs looking for a merger partner. For instance, the stock of SoFi, the student loan refinancing company, is down 21 percent in the last six months; Virgin Galactic is down 38 percent year-to-date, despite the stunt a few months back that put Sir Richard Branson himself into sub-orbit for a few minutes. It’s true that public offerings—including direct listings and auction I.P.O.s—are meant to be a branding and marketing exercise as much as an opportunity to raise capital. But SPACs have proven to be terrible for pretty much everyone, except for the so-called “sponsors,” the men and women who put the original SPAC I.P.O. together and who often manage to make a fortune despite the later implosions.
Your colleague Matt Belloni recently wrote about how AMC C.E.O. Adam Aron is riding the meme stock phenomenon at AMC by pandering to his “Ape” shareholders. It’s been a year since GameStop. What have the big hedge funds learned about managing this phenomenon?
What they’ve probably learned the hard way is the old Keynesian economic proverb that “the markets can stay irrational longer than you can stay solvent.” It’s always a hard lesson to learn, especially when the hedge fund managers were right about the actual business prospects of AMC—a national movie theater chain—or GameStop, the forlorn video-game retailer, in the face of a devastating global pandemic. The hedge funds, of course, were betting that the pandemic would force the indefinite closure of movie theaters and that AMC would have very little way to make money for months and months and months. Same with GameStop. That was the right bet. But, alas, right church, wrong pew.
What the hedge funds didn’t count on—or probably couldn’t even imagine, to be honest—is that groups of irrational investors, lashed together by their social media alliances, would latch onto stocks such as AMC, GameStop, or Hertz, and buy them regardless of their underlying financial prospects. Essentially, these investors were willing to join together to try to thwart the hedge funds’ bets, “sticking it to the Man” without caring too much one way or the other whether they made money. They were willing to lose their entire investment betting that they could foil a big hedge fund and make the AMC stock or GameStop stock prices rise despite their dismal financial prospects. And I get it. That seems kind of fun, especially when we were all sitting at home during the Covid lockdown. What made it even more fun was that they actually succeeded in driving up the prices of these stocks and burning the hedge funds.
I also get that that can seem empowering and profitable. After all, the price of a particular stock is simply a function of supply and demand. If more people want to buy a stock than want to sell it, the price of the stock will go up. How long the charade can keep going is what is so interesting about these meme stocks. At some point, according to the conventional wisdom, the price of a stock should reflect, and be correlated with, its underlying financials. That hasn’t happened yet with AMC, for instance. The stock is up more than 1,300 percent this year, despite its ongoing dismal prospects, and is now worth close to $15 billion. There’s no question that this is a very bizarre time for the financial markets, between the explosion of the Federal Reserve’s easy money policies and the mind-blowing risks that investors seem willing to take on a daily basis. Tesla, anyone? Cathie Wood, anyone? AMC and GameStop are just two of the ways that investors who have lost their minds are willing to make crazy bets.
Finally, Bill, you spent a lot of time with Jimmy Cayne, who passed this week. Can you offer some of your observations about his life and career and where he sits in the annals of Wall Street?
They don’t make them like Jimmy Cayne anymore. He was cunning, canny, garrulous, gruff, feisty, sneaky and often generous. He won’t be remembered as a great Wall Street C.E.O., that’s for sure, even though he was the one that insisted that Bear Stearns go public in 1986 and steered the firm—as either its co-president or its C.E.O.—from then until January 2008, when he nearly went down with the ship. He resigned some two months before Bear’s collapse in March 2008, turning the leadership of the firm over to Alan Schwartz—a leading M&A banker who is now the C.E.O. of Guggenheim Securities—but by then it was just a matter of time before Bear would collapse.
Bear Stearns became increasingly profitable under Jimmy’s watch and he would become increasingly wealthy, as Bear’s stock kept going up and up and up. He refused to sell any of his shares, and he disdained those among his fellow executives who ignored him and did sell. At one point, in January 2007, Jimmy Cayne became the first Wall Street C.E.O. to be worth more than $1 billion from owning the shares of his Wall Street firm. But not selling stock came back to bite Jimmy. When the firm collapsed into the arms of JPMorganChase, first for $2 a share and then for $10 a share, he sold his stock—once worth more than $1 billion—for a mere $61 million.
Jimmy once told me that he didn’t care. He had more than enough money for himself and his heirs. He said he was worth at least $400 million, thanks to wise investments and the money Bear Stearns had paid him in cash along the way. “I’m saying to myself, [I’ve got] six million shares, I just got my ass kicked,” he told me, recalling the evaporating Bear Stearns stock price. “But I was almost dispassionate because, to me, $8 and $12 were the same. It was not $170, and it wasn’t $100. And it wasn’t $40. The only people [who] are going to suffer are my heirs, not me. Because when you have a billion six and you lose a billion, you’re not exactly like crippled, right?”
I will be writing more about my many interactions with Jimmy Cayne next week. I spent dozens of hours interviewing him for my 2009 bestselling book, House of Cards, about the collapse of Bear Stearns, in his stately apartment at 510 Park Avenue and at his home in Elberon, New Jersey. In both places, he had his small, black-wallpapered smoking room, where he served up Cuban cigars and lox and cream cheese while CNBC played on the big-screen TV. He was sui generis, that’s for sure.
As an amuse bouche, here’s the story of how Jimmy Cayne got to Bear Stearns from the suburbs of Chicago. It helps prove my point that he was one of a kind.
Jimmy was the only son of a patent attorney and a housewife, growing up in tony Evanston, Illinois. He went to Purdue, where he started off in the mechanical engineering program. His father hoped he’d also become a patent attorney. But he was an indifferent student—he liked partying much more than studying—and left Purdue short of the credits he needed to graduate because he couldn’t pass a required French course after he had transferred into the university’s Liberal Arts program. He simply refused to take his last French course, and so he never got his college degree. His parents were incredulous and kicked him out of the house. “I don’t want to read and absorb,” he once told me. “I hear and I absorb.”
He wanted to become a bookie but thought that job would bring further shame onto his family. He was an amazing salesman, of almost anything he could get his hands on, including photocopiers, adding machines, scrap metal—his in-laws from his first marriage owned a scrap metal company—and when he got to Bear Stearns, of municipal bonds. In between, he had jobs driving a cab in Chicago and as a court reporter at Camp Zuma, the U.S. military outpost near Tokyo, as the Korean War was winding down.
But his real gift was playing bridge, the card game with an ardent but de minimis following these days but that once upon a time was all the rage on Wall Street. Bridge was how a young kid could get ahead on Wall Street, if he had the goods. And Jimmy had the goods. He hadn’t taken much notice of the game when his parents played. But at Purdue, when he should have been studying, he played bridge with a passion. His first marriage—to the daughter of the family that owned the scrap metal business in Chicago—fell apart because of his bridge playing, or so he told me, as opposed to because of his catting around. He once dated a Playboy model. “I was like Action Jackson,” he told me. In 1961, he and a partner won the Midwest Regional Bridge tournament. He was 27 years old.
In 1964, after the bridge habit cost him his salesman job at the scrap metal company, he decided to move to New York City and take his chances at becoming a professional bridge player. He was hoping to make $500 a week playing bridge. In 1966, he won his first professional tournament.
For about a year, Cayne had been playing bridge regularly at the now-defunct Cavendish Club, on East 73rd Street. One day, George Rapee, the legendary bridge champion, invited Cayne to play as a professional in twice-weekly rubbers with wealthy businessmen. “I don’t know you very well,” Rapee told Cayne, “but you seem to have an extremely good talent for playing with bad players.” Through these games, Cayne met the likes of Percy Uris, the Manhattan real estate magnate, and Larry Tisch, the self-made billionaire and investor. He would play with these wealthy businessmen in their homes on Fifth Avenue or Park Avenue. Rapee told Cayne the rules for these games were simple: keep your cool, no frowning, no berating your partners for dumb moves, and no soliciting the players for business.
Like Cayne, the world’s best bridge players started learning and playing the game at a young age and have continued playing through adulthood, often while being high achievers in another profession. “It’s extremely hard to come into the game in, let’s say, your fifties after you’ve made your multi-millions and expect to become that good,” Phillip Alder, who has played against Cayne and for many years wrote the bridge column in The New York Times, told me. “It’s just not possible. You had to learn when you were young. … People like Jimmy Cayne kept playing through careers as well. If you really want to play at the top level, you have to keep playing.”
Playing bridge had long appealed to Wall Streeters. “It’s primarily a mathematical game—and it’s logic, deduction, and flair,” Alder explained. “In bridge you have to be able to read your opponents, to know what your opponents can and can’t do, and get a sense of what they are doing and not doing at the table.” Alder said that Cayne had the ability to read his opponents’ body language, and that is one of the reasons he was easily among the best hundred bridge players in the world.
But Cayne couldn’t make enough money playing bridge for his liking. He decided to go to Wall Street, where the real money was. By serendipity, at a cocktail party one night in New York, he overheard chatter that Lebenthal & Co., a small municipal bond brokerage, was looking for “a nice Jewish salesman” to sell municipal bonds. He interviewed for the job with the firm’s matriarch and she hired him on the spot. He became a top salesman of municipal bonds at Lebenthal but eventually, after five years, ran afoul of the Lebenthal family because he wanted to bring a client into the firm that the Lebenthals didn’t trust. He realized his days were numbered at Lebenthal.
At a bridge tournament in 1968, Cayne met Patricia Denner, a gorgeous speech therapist. “It was love at first sight,” he told me. “I was smitten.” She was newly divorced. He asked her out for dinner at Trader Vic’s, in the Plaza Hotel (where they would later buy a condo after it was converted). She asked him back to her apartment. He never left. “Ever,” he said. But she wanted him to get a real job, preferably as a lawyer. She urged him to go to law school. But, he told her, he couldn’t get accepted at a law school because he had not graduated from college. Instead, they agreed, he should apply for jobs at one of the bigger Jewish Wall Street firms. So he tried for jobs at Goldman Sachs, Lehman Brothers, and Bear Stearns.
At Bear Stearns, Harold C. Mayer Jr., the son of one of the three founders of the firm, interviewed Jimmy. But there appeared to be no chemistry between them. As Cayne got up to leave, Mayer suggested he say hello to Ace Greenberg, “the man who is going to run this place” and who, in fact, ran the firm before Jimmy elbowed him aside in the run up to the Bear Stearns I.P.O. Again, there seemed to be no connection between the two men, but in an effort to make a little small talk, Greenberg asked Cayne if he had any hobbies. When Cayne told Greenberg he played bridge, “you could see the electric light bulb,” Cayne told me. Greenberg was a bridge player, too, but not nearly one of Cayne’s caliber. “He says, ‘How well do you play?’” Jimmy continued. “I said, ‘I play well.’ He said, ‘Like how well?’ I said, ‘I play quite well.’ He says, ‘You don’t understand.’ I said, ‘Yeah, I do. I understand. Mr. Greenberg, if you study bridge the rest of your life, if you play with the best partners and you achieve your potential, you will never play bridge like I play bridge.’” Enough said. On the spot, Greenberg guaranteed Cayne $70,000 a year if he joined Bear Stearns.
Jimmy had one rule about our regular, no-holds-barred interview sessions as they went on for weeks and weeks throughout the spring and summer of 2008. They began around 9 a.m. but had to wrap up at 2 p.m., and not a moment later. That’s because every day at that time, Jimmy would log onto his desktop computer so that he could play bridge, through the Internet, with a group of Italian bridge experts. It was, along with golf, his favorite retirement pastime.
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