David Rosenberg and Rich Bernstein on What Ends the AI Trade — And What They Own Instead

**Matt Zeigler** (0:02)
You're watching Excess Returns, a channel that makes complex investing ideas simple enough to actually use where better questions lead to better decisions. This is an extra special show, partly because these guys used to talk together all the time, and now it so rarely happens in public. I've got firsthand reasons why I know how much fun this is gonna be. Honestly, it feels kind of like a Blues Brothers reunion. I'm gonna let them debate who's Jake and who's Elwood, but I have hunches on where that could go. So let's get into it. Richard Bernstein. Welcome back to Excess Returns. Say hello, Rich.

**Richard Bernstein** (0:36)
Thanks, Matt. Great to be here. Thank you for the invitation.

**Matt Zeigler** (0:39)
And I mean, the best Rosie since the Riveter, David Rosenberg. Welcome back to Excess Returns. How are you doing today, David?

**David Rosenberg** (0:45)
Thanks for inviting me on. I was gonna say there's no accounting for taste, but I appreciate it. And plus on with my buddy and former colleague, we did go through a lot together.

**Matt Zeigler** (1:00)
Well, here's to the travel bonding. Here's to the travel bonding. I'm ready to unpack some of this. Because I feel like, and this was part of the inception for this, I was new in my career at Merrill Lynch coming into the financial crisis period. And between, Dave, between you talking about the economic consequences of a slowdown in housing and just how ugly that could get, which few were talking about, and Rich between you saying, I get it, you still have to be long, so just get out of financials, get out of the way. Letting me understand how sector rotation worked, these were both pivotal to my education as an investor and an allocator.
I want to just start there for just a second. Rich, does that period, how much space in your head does that still occupy? Or have you just blocked out the Merrill years altogether?
Nothing against Merrill in that. I just meet in the detail.

**Richard Bernstein** (1:52)
No, it's not like PTSD. I mean, no, no, no.
Well, Matt, again, thanks for having us on. Look, I think in my career and in Dave's career, I think it's been the era of the last 20, 25, 30 years. It's been the era of bubbles. We've seen very, very loose monetary policy again and again and then it's created excess or misallocations capital within the economy. And so I think, whereas it seems sort of unique in the 90s, I think probably, I can't speak for Dave, but I would say probably for both of us, it's part of life now and maybe we're replaying it again someday. But, you know, so I wouldn't describe it as PTSD, I would describe it as a learning experience that I thought, I sort of hoped was going to be a one-off, but it really hasn't been.

**Matt Zeigler** (2:56)
It's remarkable to think about it that way because of how big it was, but these lessons that informed us forward. Dave, I mean, same question. You've talked to me before on recordings about this too, just what that process did, how it reshaped, what do you think about the world? How much PTSD do you have from that?

**David Rosenberg** (3:13)
Oh, I mean, zero. It was actually a great training ground to walk on hot charcoal for a number of those years. And it helps to build resolve. And I think that's the biggest part of it. It's not as if, by the way, that I didn't have doubts. You know, one of our clients at Merrill, who I got to know very well, was John Paulson, who we know were shorting those mortgage-backed securities. And he was going to be out of business in a matter of weeks before the bad stuff hit the fan and then he became an instant billionaire. So Rich and I weren't running money, but we had our reputations on the line.
And there were moments actually when I had doubts.
And you have to always balance, you know, your resolve. You have to make sure your resolve doesn't turn into stubbornness. So you're always walking that fine line as an analyst or a strategist or an economist between having backbone but not sticking with the bad call for too long. So that was really the learning lesson is, you know, walking that fine line, that balancing act. So for me, it was actually a great learning lesson. And it's helped me out in terms of shaping my convictions to this day.

**Matt Zeigler** (5:07)
So one of the convictions that shows up, and I want to zero in on that word you just used, resolve, is something that watching you both operate in that crisis environment, and then following your career arcs after, is the labels that get thrust upon you.