During the NFL season, Peyton Manning takes the field each week and consistently delivers high quality action. Similarly, during the year-round seasons of the markets and economy, Michael Santoli quietly puts together some of the best articles on Wall Street.
Like Manning, Santoli is a classy veteran who sets a great example for the younger generation of journalists. Santoli has been in the Dow Jones family for over 15 years — first as a beat reporter for the wires and later as a columnist and editor at Barron’s. In that time, Santoli has striven to offer his audience something different. Specifically, Santoli has loyally followed the Barron’s mission to share a contrarian perspective with investors and financial professionals.
Michael is fortunate to see an incredible amount of proprietary information from all over Wall Street. He has also built a circle of trust with some of the brightest financial minds. I had the chance to talk with Michael about his career reporting the heart beat of Wall Street, how he analyzes markets, his thoughts on our current economy, and where he sees media headed in the future. So, sit back, relax, grab your front row seat and let the quarterback drive us down the field …
Damien Hoffman: Mike, did you fall in love with writing first, or the markets?
Michael: Writing. I definitely came at it from the writing and journalism side. I happened into the financial end of journalism, which I actually think is more common than the reverse. But as an early teenager, I became a newspaper addict — mostly a sports section addict. But I killed time with the rest of it too.
I always worked on the school paper in high school. I edited the school paper. I remember a teacher or a journalism advisor in high school who thought I was nuts when I said I wanted to be Editor again my senior year after having edited the paper my junior year. The standard course was to graduate to [working on] the yearbook, which was considered more prestigious. I said I didn’t want any part of that [laughing]. The same path continued on through college. I was always interested in journalism, and right out of school it just so happened my first job was in the financial journalism area.
Damien: Tell me about you early career and your path to become an Editor at the legendary Barron’s.
Michael: When I got out of high school I went to Wesleyan University, a small liberal arts school. I didn’t get a journalism degree, but definitely thought I wanted to be in journalism. I wanted to stay in New York because I’m from outside New York City. My first job was literally from a New York Times Help Wanted Ad. The job was at a trade publisher called Investment Dealer’s Digest (IDD).
IDD had been around since the 20’s. They had a weekly magazine about Wall Street deals and gossip, as well as a bunch of weekly newsletters covering small slices of corporate finance. I covered the syndicated bank loan market as my first beat. I knew almost nothing about serious finance. I didn’t know what was a basis point and immediately I was thrown into reporting about them. That was the operating model of these trade publishers: get young people, don’t pay them very well, make them adapt to a rapid learning curve on the job, and charge a lot for the newsletters. But they understand young reporters are using them as a training ground — and that is exactly what it was for me.
I worked for a couple of those newsletters including one that covered IPOs from 1992-’93. At that time, the IPO markets was coming to life again. I also wrote a little bit about M&A. So, I received a good education about Wall Street during that post ‘87 stock market crash, post ‘89 junk bond crash convalescence period. The markets were just coming back to life as the early ’90s bull market came around. That was in the previous “jobless recovery.”
I was only at that job for about 14 months. A friend of mine had gone to work at Dow Jones newswires and there was an opening to cover the securities industry as a beat reporter. I managed to get that job in late 1993. That was excellent training — both to learn how to write efficiently on deadline, and learn all the players on Wall Street. I also learned in more detail about how the public markets work.
I was there for three and a half years. I wrote about Morgan Stanley Dean Witter mergers, a lot of who’s-getting-what-kind-of jobs-over-there stories, and generally covering these firms as businesses. I came to Barron’s in February 1997. The newswires have served as a feeder for Barron’s over the years. A lot of us here started at the wires because the wires are close to the markets. Barron’s has that same sensibility.
So, the first column I wrote was on commodities. I didn’t know anything about commodities [laughing]. Again, I had to rush to figure out what matters, who was good to talk with, and how those markets operated. I did that for a year or so. I wrote the Options column.
So, at every stage you have these new specialties — but all the while you are also broadening out and writing stories on, for example, the golf equipment industry. I started writing the Mutual Funds column in 2000 at the top of the tech bubble. I did that for a couple years. That position also entailed writing the quarterly section on mutual funds. Then, I took over the Trader column, which is the oldest column at Barron’s. The column is a general take on stocks, what’s happening in the markets, trying to be forward-looking about the markets, and say where there might be risks and opportunities. Then, we created the column I write now called Streetwise. It’s a short, opinionated quick read on some angle of what’s happening in the markets or the economy. It’s very wide ranging. That’s what I’ve been doing for a year and a half while also filtering in Features along the way. Everyone here is a generalist on some level. That’s how I got here. I’m an editor mostly, but also a columnist and Feature writer.
Damien: What is it like having gone from a beat reporter to basically batting cleanup behind Alan Abelson and having that great Feature space?
Michael: It’s great. We actually enjoy an amazingly committed readership at Barron’s. It’s a good thing because I obviously want people who are loyal and look forward to getting Barron’s first thing Saturday morning. On the other hand, it’s a challenge because obviously they are demanding. The readers want to see something they haven’t encountered during the week. It’s not that you have to say something differently, you have to say it more persuasively or have a point of view somewhat at variance with what most people have been reading and watching most of the week.
It was an adjustment to do commentary after being a beat writer where it’s play-it-straight, get the news fast, and get it out there. Now I have all week to percolate whatever topics interest me, look at all the research, and talk to a lot of people. By the end of week I figure out if I have anything interesting to say. The challenge during the adjustment was to learn how to have an opinionated voice, and to go out on a limb and say, “This is where I think we might be headed and here is a particular investment idea that has merit or not.” The adjustment is on-going. The challenge is to quiz myself every minute of the day: “What do I really think? Where is the crowd sentiment? Where can I make a distinction between what I think is the likely view and what the crowd currently thinks?”
Damien: Relatedly, what framework do you primarily rely on a week-to-week basis to come to your conclusions?
Michael: I find myself trending toward being tactical. In other words, I don’t think there is a lot of value to add in just stating the valuation of the market. It’s important to remind people of the broad framework, but because I write every week I assume my audience is interested in the next 100 feet of pavement ahead of us in addition to the broader framework. So, I like to look at where the markets might have overshot on a short-term basis — whether it’s by sector or the overall market. There is so much work being done on a bottom-up and top-down fundamental basis that I don’t want to simply synthesize all that: valuations, earnings trends, etc. I take a closer look at measures of sentiment, real money measures, and where are hedge funds seemingly positioned. I don’t spend much time looking at technicals per se. Meaning, I’m aware of the technical condition of things, but I don’t have that discipline.
So, my framework seems very trading desk, minutia oriented, but it’s not. It’s more like saying, “Yeah we’re up 48% and by the way people are not as bullish as you would expect in a market that has risen 48%. What does that mean? Is there still money waiting to get in?” That’s the sort of stuff I want to know.
I do occasionally step back and say, “Let me try to handicap where the crowd could be wrong about inflation.” For example, in the middle of ‘08 it was very common to say, “Inflation is getting out of hand. The Fed is too easy blah blah blah …” So, I would’ve been pushing back against that and saying, “We’ll be lucky if inflation is a problem. It’s not going to be the problem. People are overestimating what this commodity-based move is going to mean for overall price inflation.” So, I will check when I really have conviction about an economic trend and try to push back. That’s Barron’s self-image and stated mission to be contrarian. Contrarian doesn’t mean negative — it means trying to add value by saying something different because at turns the crowd isn’t typically correct.
Damien: During the week, how do you decide who you will chat with — who you will allow to influence the way you are going to perceive the markets for the week and, ultimately, influence your readers?
Mike: It’s interesting. I don’t have a rigid process. The baseline procedure is to read my sell-side research packs everyday. They tell me what the strategists think and the company-by-company stuff. I don’t absorb every word, but I like to keep an eye on them because I must start with what is the conversation. I start here, then try to sprinkle in a lot more independent sources. Every single day I read Larry McMillan who covers the options market. He has a very good tactical day-to-day view of market positioning and unusual stock activity. I have a regular group of money manager type clients and sell-side trading desk type folks who just ping one another all week long.
My process is not something I have down to a real weekly itinerary. I’m constantly filtering in stuff. Naturally, I keep an eye on the main news, but I feel like it’s of limited value. I’m much more interested in how the market absorbs and reacts to the information. So, I do a lot of tape watching and talking to people who have a good edge in watching the tape. But, I do get a lot of things from other sources: money managers saying, “Here’s a great short idea. I’m short this stock and here’s my thesis.” I’ll take this information, do my own leg work on it, and if I think it’s persuasive enough then I’ll run with it.
So, I wish I could say that by 4 o’clock on Thursday I’ve boiled everything down into the secret syrup and out comes a column. But that’s not the case. Usually, when I’m writing the column I actually don’t start writing until Friday afternoon. It’s a short column between 700 or 800 words. I almost want to allow as much as possible to happen, and to read and talk to as many people as possible by the time I sit down and formulate. I often have an idea of where I’m gonna go, but I often don’t start to hit the keyboard until Friday afternoon.
Damien: Since the quality of sell-side research varies drastically, are there any other guys besides Larry that you specifically recommend following?
Mike: I keep an eye on Ned Davis Research. I often quote Robin Carpenter who does his own work on hedge fund positioning. I’m friendly with and frequently quote the technical strategist John Roque who takes an integrated approach to technical analysis. He’s not all about key levels and things like that. He also filters in sentiment measures. He’s someone I can call and say, “Okay, you’ve talked to 50 money managers in the last week. Where do you think people’s heads are?” Recently he’s been saying people have not been as bullish as you would expect given the move up. People have missed the rally, been under-invested, or been skeptical all along.
Damien: Speaking of the current market, what is your opinion about how this recession is unfolding? Do you have any thoughts about how you think this unique experience will unfold for us in the near future?
Mike: I’m very struck by two things. I think most people would be surprised if we got more than just a fleeting pop in economic growth. People are very much on board with the idea that it’s going to be a slow, torturous stabilization and recovery process. The consumer is dead and business is going to be wary for a very long period of time.
I think the consensus is always very plausible. I always joke that investment strategists practice the art of the plausible. They always say politicians join in the possible. The way to not be laughed out of a client’s office is to occupy that mid 60% of the probability spectrum. Then, analysts say, “I think we go up 10% or down 10%.” But, they basically give the most plausible extrapolation of what has already happened.
So, I’m not saying we’re going to roar ahead and have a genuine growth boom into 2010. However, I do think that is the interesting non-consensus result. I’m still not very much an inflation alarmist despite all the money sloshing around. The money is not being used. Instead, the banks are riding the yield curve and sitting on their reserves. I think the market has gone ahead and said, “Maybe we have upside risk to growth,” whereas people are not saying that yet.
So, I wonder if we could basically just have an emerging markets-led, free money period where we get a little upside tilt to growth. Is that what the market is telling us? Aside from that, I do think we’ve already made a big adjustment in terms of consumer savings rates spiking. We’re going to get new numbers on that soon. We could challenge the consensus that the savings rate is going straight to 10% and will stay there for a long period of time. If we simply pause with the increased savings rate, debt reduction, and muted spending, then again we’re going to have a decent risk that 3rd and 4th quarter GDP numbers look okay. It’s what the credit markets seem to be suggesting. Industrial commodity prices are surging. So, these are the kinds of things I’m looking at to get hints. It doesn’t mean I think in all situations it’s happy times.
The biggest thing I struggle with is when the overall framework changes. Meaning, from ‘06-07 there were tools I could look at — whether it was sentiment stuff, or equity valuations versus bonds — and I could really trade the range fairly well. Obviously, we had essentially a couple consecutive crashes and you have to move the bars in terms of where you define panic and excessive bullishness. I mean, in ‘06 and ‘07, any time the VIX got above 15 it was a good buy signal. Now it’s been two years since the VIX was even as low as 15, and when it broke below 40 this spring it was a buy signal. This is why you need to adapt to the kind of market regime we’re in at any given time.
Right now I don’t expect retail money to come rushing in or people to get mega bullish. There is going to remain a reserve of skepticism for a long time. So, you have to redefine the boundaries of bullishness and bearishness.
Damien: Do you think the ‘bubble-crash’ cycle is the new state of affairs or things will slowly settle down a bit?
Mike: I don’t know if the markets will settle down, but I think there is a “bubble-in-bubble” calling right now. In other words, the standard conversation around any Wall Street group is, “Where’s the next bubble?” We have a couple plausible ones. Some people will tell you it’s emerging markets for sure, or maybe China maybe. Others will tell you Gold is a bubble in the making. I think there is a chance we’ve gotten too hooked on this idea that we’ll have this type of cycle and we’re going to blow up another one. However, I don’t know if there is another one left that’s pervasive enough to actually qualify as a bubble domestically.
Let me give credit to my friend John Roque again. He says the bubble has been in government spending and government influence on the economy. Of course, that’s not an asset bubble — so it’s kind of a facetious point. But it means if the government is a conspicuous, overgrown piece of the economy, we probably get a longer period of private sector caution.
For example, I know people who work at Bank of America (BAC) and Citigroup (C) who are excessively focused on exactly what Washington DC wants, thinks, and will scare them about. So, I don’t necessarily think it’s going to be bubble after bubble after bubble — although it seems like it the past several years. Given the fact we have zero percent interest rates, it seems we’re almost trying to blow up another one.
I wouldn’t be surprised if the emerging markets got real bubbly. There is a guy named Ajay Kapur who used to be the global strategist at Citi and now works at a firm in Asia. He is saying to play low quality, risky emerging market stuff because it’s only on the way up and not about to peak. I guess that’s plausible, but I think we’re now so alert to the idea of bubbles that it’s not going to come by surprise.
I went to a Hedge Fund idea dinner run by a research firm in 2003. By then a lot of people were talking about a housing bubble. I don’t think people are going to remember this, but the reason the bubble got so big was we had been talking about a housing bubble for so long and people said, “Well, it would have already gone up if it was.” On one hand I’m saying, “I don’t think we have to be in a world where we constantly blow bubbles,” but on the other hand I’m conscious of the fact that it’s common to talk about the emerging markets bubble in the making. But talking about anything doesn’t mean it won’t happen.
Damien: To change tracks from markets to media, a few weeks ago you wrote about the future of media. What’s your take on where you think media is headed in the next inning of the information age?
Mike: That article was an effort to push back against the idea that advertising-supported media and paying for content is obsolete in the digital age. I argued that it simply doesn’t make any sense. There is obviously an adjustment going on and we will discover different ways of getting paid. But if you look at something like cable programming, it is the single largest pool of profits in all of media. That’s proof people are willing to pay if the product continues to get more varied and better. I think that’s what you can argue digital cable has given us.
Obviously there’s massive deflation in online advertising rates, newspapers are busted, and the music publishing industry got busted. Why did that happen? I think for unique reasons, not just because the internet kills all media industries. Newspapers were supported to a ridiculous degree by classified advertising which has become free on Craigslist. That was the support for local newspaper journalism. The music industry actually has people buying more music than ever, but they pay Apple (AAPL) for it!
The media companies saw what happened to newspapers and music companies. Now they are saying, “Okay, you can’t fight the idea people want portability. They want to watch or listen to things when they want. We have to participate in that somehow.” That’s why we see things like Hulu — a project where Disney (DIS), News Corp. (NWS), and NBC have decided to put their stuff online themselves as opposed to a lot of people pirating or selling it for pennies. Theses companies are going to figure it out.
The other thing about advertising is it simply hasn’t worked very well as pursued online so far. We have too many people saying, “Run your standard 30 second TV spot online and you’ll be fine.” Banner ads don’t work. We have to find other ways of doing it. I don’t know exactly what those are going to be, but I am confident Proctor & Gamble (PG), Johnson & Johnson (JNJ), Ford (F) and everybody else are going to drive the push to figure out exactly how to do it. These are big companies that need to advertise, and they have multi-billion dollar ad budgets.
If you look at the media conglomerates, they are not a growth business anymore. They are companies run by people actively pursuing ways to figure out Digital. Cable still works with their bundles. They may not have as much pricing power as they once had, but it’s a less obnoxious bundle than a $16 compact disc if you only want one song. They are basically giving you programming for $60, $80, or $100 a month, limited by only your sleep schedule. Nielsen said America watched an average of 153 hours a month of television last month. It’s obviously a growth business in terms of the consumption of media. So no one can tell me the media businesses aren’t going to find a way to get paid. I think the stocks of big media companies — especially at their recent lows — had excessively embedded that the business was going away. You had this horrible ad recession and people were mistaking this bad cyclical downturn as the beginning of the whole industry falling off a cliff.
Damien: Forgive me for my ignorance, but I don’t know the Barron’s policy on employees investing. Do you invest or are you placing some small bets on some of those companies?
Mike: I actually don’t invest. In fact, to avoid any conflict, at Barron’s we’re not allowed to invest in anything we might write about or regularly cover. So, to make it easier I just don’t do it at all. But I did recommend a handful of big media stocks a couple weeks ago, such as Disney, which reported tough guidance today and it’s pulling back a little bit. Even the higher quality companies like Comcast (CMCSA) seem like they are pretty decent bets. If we get a little bounce in ad activity, people should be encouraged.
Damien: Michael, before you go, do you have any advice for other journalists or journalism students who aspire to follow in your footsteps?
Mike: I got into the business in 1992 before anything like genuine online journalism or blogs. So, in some respects, it’s a completely different path than what I followed. People should focus on the actual tools: the ability to write clearly, analyze complicated subjects, and synthesize information for people. Young journalists should focus less on generating a very narrow expertise in a particular area. Now, that a niche can always help if you want to strike off on your own and become a blogger. It could mean a head start. But, just be curious, range widely in your reading, and refine an ability to write clearly. On the hard news side, you need the ability to pursue a story and track down good sources. Those skills are not going out of style.
I never really did the whole detailed job search or went to journalism school. However, journalism schools have a really good pipeline to the best internships. We have to keep in mind that journalism is not in decline. Rather, a particular type of print journalism and broadcast news journalism is in decline. If anything, we have a complete fragmentation of information online that we must knit back together. I’ve talked to some people who think this will be the future of publishing in general — these ways to pull and make relevant all this fragmented commentary while being authoritative about what matters and what doesn’t.
That’s what newspapers always did. They said, “Here’s what we think is important and you should trust us because we know what we’re talking about.” It’s an analogy of equity trading: the floor of the stock exchange used to tell you what the price was and there was one place that owned that. Then all these systems, competition, and different rules arose. They splintered trading into tiny little pieces to different venues. There was a huge opportunity for these order management systems to come in and say, “We’re going to pull it all back together for you on your desktop, so you don’t have to worry about the fragmentation. We’re going to bring it to you in one picture of what really matters and what is the real price.” The same thing will happen in journalism.
Damien: Sounds like great advice! Michael, I’ve enjoyed getting to know you better. Thank you for your time and all the best with your next articles.
Mike: Thank you, Damien. Same to you and take care.