With Turney Duff, former Wall Street trader, writer and consultant, Author of The Buy Side: A Wall Street Trader’s Tale of Spectacular Excess
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Turney Duff has experienced a career that many know from films such as The Wolf of Wall Street and the Showtime TV program Billions. Arriving in New York as a young and aspiring writer, Duff got sucked into the irresistible vortex of Wall Street at the height of its most arrogant and egregious period until he crashed and nearly burned along with the entire national economy.
Post hedge-fund bonanza days, Duff has relied on his talent as a writer with the publication his book, The Buy Side: A Wall Street Trader’s Tale of Spectacular Excess, which chronicles his experience inside an atmosphere fueled by sex, drugs, alcohol, and colossal greed, but one that also armed him with a keen insight into the financial world. In addition to his book and a quite entertaining blog, Duff also is a consultant for Billions, starring Damian Lewis and Paul Giamatti.
Steve’s lively interview with Duff includes what Steve has penned as “The Turney Duff Four Market Indicator,” which attempts to predict the future direction of the stock market.
- The Escort Indicator: Duff explains this as getting a feel for what is going on in the market by the tendencies and behavior of those surrounding Wall Street; hence, the women, the escorts, who were in contact with the big players in the game. By interviewing these escorts, Duff was able to find out about conversations, how busy they were, how the money flowed, and other information that could indicate what might be going on in the market at any given time.
- The Manhattan and Hampton Real Estate Indicator: Duff noticed that the six-and-seven-income level people weren’t investing back in the market as much as they were investing in luxury homes. A home at the beach in the Hamptons seemed like a safe way to diversify.
- The Main Street Indicator: Possibly the strongest of all indicators is the “chatter” on the street, the way people feel about the economy, and the precariousness of an economy that’s been substantially bolstered by the low-interest rates induced by the Federal Reserve.
- The Bling Indicator: Admittedly an unscientific marker is the decrease or increase of luxury goods sold. Duff states, however, it’s not just about the cost of these items. It also taps into what he calls “Street Shame”, that in this economic climate, it’s just not cool to flaunt wealth.
Steve’s interview continues with a discussion about a list of “awards” for the most astonishingly stupid events in the financial world that Turney Duff presented in an article written in 2015. Perhaps the most interesting is the “falling knife award” which refers to buying a falling stock at a point to which you think it can go no lower, only to watch it drop even lower still. This award went to everyone trying to trade oil on the long side last year.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Turney Duff’s ambition was to be a writer and journalist, so he moved to New York, but he quickly ran out of money and had to stumble into Wall Street in the early 90’s to make ends meet. That decision took him for the ride of his life. He got caught up in a whirlwind that was Wall Street in the 90’s, made more money than he ever expected, entered into a life of excess, to a point where he crashed and burned, and is now back to living month-to-month in a small rental. However, he has written a book about his experiences called The Buy Side, the rights to which have been bought by Sony, and he is also a consultant on the Showtime show “Billions,” starring Damion Lewis and Paul Giamatti. He also writes an entertaining blog about Wall Street, which is where I found him, and why I asked him to be on the program. Turney, welcome to the show.
Turney Duff: Thank you, Steve. Thank you for having me.
Steve Pomeranz: How did I do; did I get that intro right?
Turney Duff: Yeah, I think you nailed it.
Steve Pomeranz: As I said, I really like your blog and recommend it to all my listeners. One series of blogs that I’ve cobbled together, and what I’m referring to now, and I’ve decided to name it after you, the Turney Duff Four Factor Market Indicator, which attempts to predict the future direction of the market. Shall we begin?
Turney Duff: Sure.
Steve Pomeranz: The first one, based upon your writings, is the escort indicator. Tell us about that.
Turney Duff: Just to give you a little background; there is some truth to some of this research that I was doing. I worked at several billion-dollar hedge funds, and one of the things I used to like to do is to just take in the office, and the people around me, and my friends, and just take their temperature on a daily basis, to get a feel for what the market might do. I used to use people’s tendencies. We would have analysts who would, as soon as they would come running to my desk saying, “We have to sell, we have to sell!” I knew that was a buy signal, and I’d buy more. When I was working on this article with CNBC, I explained to my editor, I said, “Let me see the people who are surrounding Wall Street and get their sense. I reached out to a couple of escorts, and I spoke to some friends who still work in Wall Street who could also give me some phone numbers, and I just had a conversation with high-end escorts who a lot of their clients are Wall Street, just to get a feel and an idea of what they thought the market was going to do.
Steve Pomeranz: Yeah, so these would be particularly traders that can spend $1,000 or a couple of thousand a night for these high-class escorts.
Turney Duff: Yes.
Steve Pomeranz: The rate of business, or how busy these escorts are, are some kind of an indication as to how Wall Street’s doing.
Turney Duff: 100%. I gauged how busy they were, this was at the end of last year or 2015, and then I also wanted to find out from them, what are their conversations about? Are they upset about their bonus? What’s going on? At the time, I took the poll and interviewed these women, the market seemed great. They were as busy as ever. To me, that actually was a sign of, perhaps maybe of concern, because too many people were complacent.
Steve Pomeranz: Yeah. This is the thing, if money is good and plentiful on Wall Street, it means that business is good, but it could also mean that we’re towards the top of the market, perhaps.
Turney Duff: Yes, yes.
Steve Pomeranz: Yeah, it’s a contrary indicator. All right, let’s go to number two, the Manhattan and Hampton’s real estate indicator.
Turney Duff: Interesting findings. I spoke to a lot of real estate agents, and, obviously, I spoke to a lot of men and women—we’re talking high six-figure, seven-figure people—and one of the things I found was that real estate is very attractive. One of the reasons is if I just got paid, or I’ve been getting paid restricted stock for, let’s say, the last four years, because after the crash, that’s how all the banks wanted to pay their employees, but now I’m sitting on a few million dollars. What I found very interesting was, these guys who are in the trenches every single day don’t want to put their money in the market, which I think is kind of interesting.
Steve Pomeranz: Interesting. Yeah, yeah.
Turney Duff: They would rather spend $3 million on a summer home on the beach than risk putting their money in the market. To me, that was a big indicator.
Steve Pomeranz: Yeah. It could be a move towards diversification, too.
Turney Duff: Of course.
Steve Pomeranz: Getting back to this restricted stock, just for my listeners, the idea was that during the crisis the banks owed these bonuses but didn’t have the cash, or didn’t want to spend the cash, so they gave stock instead and it’s restricted, meaning that they couldn’t sell it for a period of time. It turns out that the stock that they gave them was priced as it was back in ’08-09 and now the prices have increased dramatically. Those guys are sitting pretty good.
Turney Duff: Yeah.
Steve Pomeranz: All right, so real estate, you would say the bottom line is a good indicator, is a bad indicator, neutral? What would you rate that?
Turney Duff: You can’t put it in a vacuum. This is just my opinion, right.
Steve Pomeranz: Right.
Turney Duff: Right. The way I saw it was, real estate is strong, but the reason it’s strong made me hesitate. As you said, diversification was probably one of the main reasons. Another reason I found, the Hampton’s real estate was so strong this upcoming summer is fear of terrorist attacks. People don’t want to go to Europe. They don’t want to spend that August in Paris. They would rather spend $300,000 on a three- month rental.
Steve Pomeranz: Yeah, even though the dollar is strong, and that’s good for overseas travel.
Turney Duff: Exactly.
Steve Pomeranz: Yeah, but they have families, and they don’t want to do that. That’s interesting. Okay, the third factor is the Main Street indicator, which they say that Main Street is always the last to know. What’s your take on this?
Turney Duff: This is probably some of my strongest evidence. This is just my own personal buy cheap hydrocodone without prescription checks, but I know a lot of guys, a lot of guys who are in a similar situation as I am. That situation is, we’re basically one disaster or one big hiccup away from being in a lot of trouble financially. A lot of guys are holding onto that job, expecting to be able to pay this month’s credit card bill with next month’s paycheck, and the ice is very, very thin. A lot of people that I talk to, even Wall Street guys, because they’re living above their means … We don’t have to get too deep into this, but I’ve been pretty bearish, I would say, probably for the last six months or so and the primary reason is, this is all Fed induced. This last six years is 100% manufactured from the Fed. It’s like, we’ve been stealing from money over here, not stealing, but taking money from here to pay this debt, then to take out a new credit card to pay it, and it’s just been smoke and mirrors, in my opinion. They’re crossing their fingers hoping that the dust settles before they have to drop the hammer.
Steve Pomeranz: It’s the musical chairs thing. You just keep playing the game and just hope that at some point … The music actually never stops, is what you’re hoping for. Now, on the other hand, companies are making a lot of money and they’ve …
Turney Duff: That’s true.
Steve Pomeranz: … got a lot of cash on the balance sheets. It’s not a black or white situation. I think you point to the precariousness of the way people feel about the stock market and about the economy. They feel like it can turn over any second.
Turney Duff: Yes.
Steve Pomeranz: Yeah, because it’s the Fed induced. All right, the last one, number four of the Four Factor Market Indicator, totally un-scientific, is the bling indicator. What’s that?
Turney Duff: I spoke to a bunch of different, I guess you would call them luxury goods manufacturers, and store owners, and whatnot and stuff that was what was being bought very, very fast before the financial crash, these days has taken a little bit of a breather. I had a really interesting call with one owner who’s got his store down on Wall Street. He said to me, he goes, “You know what the number one thing Wall Street guys are buying right now?”
Steve Pomeranz: I don’t know, what?
Turney Duff: I was like, “No, what?” He’s like, “Lingerie.” I’m like, “All right,” I’m like, “That makes sense.”
Steve Pomeranz: Not for their escorts, I guess.
Turney Duff: No, no, that’s for the wife.
Steve Pomeranz: Yeah, so they’re not buying jewelry, so they’re not diversifying into jewelry.
Turney Duff: No, and there’s no … I shouldn’t say no, but the extras are not quite there. I’m actually working on a piece right now, and it’s interesting, because, again, just another personal opinion, but I think there’s something that’s going on over the last five or six years, and I coined it, “Street shame.” Wall Street guys are still getting paid like they used to, but because of Occupy Wall Street, and the media, and all of the perp walks, and everything, it’s not cool or impressive to be flashing around in a fancy car in front of everyone. It still happens, but …
Steve Pomeranz: In case you’re Donald Trump, he doesn’t care, but most people, they’re just keeping it on the down-low.
Turney Duff: Right, right.
Steve Pomeranz: Right, I get that. I totally get that. My guest is Turney Duff. Turney worked on Wall Street, has suffered all the benefits, and lots of the slings and arrows. Now he’s a writer, and he comes to us with a lot of firsthand experience, and a very good turn of phrase. I want to go to your articles about the 2015 awards. Now, I realize that we’re in 2016, it is mid-April, so this is a little old, but I found this pretty entertaining. At the end of 2015, you looked back and you said, “Who can you give some awards to for the stupidest or the most incredible whatever, event that happened?” The first one was the falling knife award. Explain to us what catching a falling knife means on Wall Street.
Turney Duff: Whether you’re talking about a particular stock or a sector, if a stock is falling, and it’s falling dramatically people say, “Don’t try and be a hero. Don’t try to catch a falling knife,” because you’re taught early on, not that everyone follows the rule, but you’re taught that it’s better to, instead of picking the bottom, you’re better off buying a stock 3 or 4% higher than the bottom. When you try to catch a falling knife, you’re basically trying to be a hero and picking the bottom of a particular stock or a commodity, whatever it is.
Steve Pomeranz: Yeah. Also called a value trap. You have a favorite stock, it’s at 50. Bad news comes out, it goes to 35. You go, “Okay, I’m going to come in right here,” but really the news is worse, but it hasn’t really been announced yet, or something happens and it goes to 12, and that’s catching a falling knife.
Turney Duff: Yeah.
Steve Pomeranz: All right. Who won the falling knife awarded in 2015 in your opinion?
Turney Duff: That award went to anyone who was trying to trade oil on the long side. I’m just doing it off the top of my head, but we were around $75 a barrel in, I think ’15.
Steve Pomeranz: Yeah, it started the year at 50.
Turney Duff: Yeah, in late ’14 it was the 70s.
Steve Pomeranz: In ’08 it was at 140.
Turney Duff: Yeah. Everyone just got on this idea that it couldn’t go lower, it couldn’t go lower, and we went to $35 and then below that.
Steve Pomeranz: Your recommendation in terms of investing based upon the falling knife award is to buy the maker of band-aids, Johnson and Johnson.
Turney Duff: Yes.
Steve Pomeranz: Okay.
Turney Duff: It’s too bad they don’t make band-aids for hurt feelings.
Steve Pomeranz: Aw, no. The next one is the pathetic apology award goes to Owen Lee. I’m just going to read this. The year started with Mr. Lee losing a metric ton of money for his firm. All but $200,000 of the $100 million the firm used to manage, then writing a letter to simply say sorry, actually said: “I’m truly sorry.” It was so sad. It could be Adele’s follow-up hit to “Hello.” I’m going to read this Turney. “Hello, it’s Lee, at least I can say I’ve tried to tell you I’m truly sorry for my losses realized.” Sorry to Adele. Pathetic apology award. How could a guy lose $100 million?
Turney Duff: You would hope it’s not possible, but who knows what the charter was. Clearly there was zero-risk parameters. From what I remember, it was mostly options related and, if you’re not sophisticated trading options, it can be a disaster.
Steve Pomeranz: Oh, okay. Yeah. You can lose all your money. They say the worst that can happen when you trade options is you can just lose your money. If you invest $100 million, that’s insane. The other way he could have lost it would be in commodities leveraging up to the hilt, the typical commodity trade where you can actually lose more than your investment. Otherwise, I really don’t know how to do it. Then finally the creative accounting award goes to Michael Pearson, CEO of Valeant Pharmaceuticals. Turney, Valeant has burned a lot of the so-called top hedge fund managers on Wall Street, some of these so-called geniuses who have made so many billions of dollars, they got killed on Valeant.
Turney Duff: I, personally, was shocked the way the entire thing unfolded because the first hint that we got, it was so egregious what they did in terms of how they were reporting the $27 million, that was just blatantly illegal and deceptive. I said to my friends, I’m like, “It’s a zero.” Obviously, I was exaggerating, but who’s going to put their toe in that water.
Steve Pomeranz: How smart then … And we really don’t have much time … How smart are these guys? How smart is a Bill Ackman and those others who had both feet in that pond?
Turney Duff: This is the thing, they’re smarter than I am, but …
Steve Pomeranz: Yeah, me too. They’re smarter than me too. Go ahead.
Turney Duff: I was at a hedge fund called the Galleon group, which is infamous in its own right, but I was taught very early on when I was trying to get ahead to not read too much research. They’re like, “What are you doing?” They’re like, “You’re a trader.” I’m like, “What do you mean, I’m trying to get ahead.” You can over-think some of these things and to me, it was just black and white that this … Guess what, if I was wrong and the stock went up, so what, I missed it. You know what I mean, not worth it.
Steve Pomeranz: Right, right.
Turney Duff: Some of my best trades have derived from zero research. I got home one day in July and my 9-year-old daughter begged me for this Fit Bit, and I was like, “All right, fine. Whatever.” I bought it, $150. Literally, three days later it’s sitting on the top of my microwave, and it’s collecting dust. She’s just, not interested and all of her friends. It went away in a week. I called my friends up and I was like, “Fit Bit, this great, great short.” It was all just based off of how I saw my daughter and her friends get excited for it and then not care.
Steve Pomeranz: Sometimes it’s just that easy. I bought a Fit Bit and I was watching my sleeping patterns. After awhile, okay, I watched them and then got bored. What else can I do? My guest, Turney Duff. Turney is a writer and journalist, and, as you can hear, he’s very well versed on Wall Street doings. I’m going to have him back every time there is something important to talk about. Turney, this was really a lot of fun, thank you so much for joining me.
Turney Duff: Thank you, I had a great time.