Addicted to Yield: Wall Street’s Dirty Little Secret

Published on
January 14th, 2020
51 minutes

Addicted to Yield: Wall Street’s Dirty Little Secret

The Interview ·
Featuring William D. Cohan

Published on: January 14th, 2020 • Duration: 51 minutes

New York Times' bestselling author, former M&A investment banker, and long-time financial journalist, William Cohan, joins Ed Harrison to discuss the perilous state of U.S. credit markets, quantitative easing, junk bonds, and the ever-expanding pool of global debt. Predicated on the idea that persistently low interest rates have fueled distortions in the pricing of risk, Cohan argues that Wall Street has been developing a dangerous dependency that won't end profitably for the majority of investors. Filmed on January 7, 2020, in New York.



  • OC
    Otto C.
    5 April 2020 @ 18:43
    Great interview Ed!!! It's always good to look at all angles
  • OC
    Otto C.
    5 April 2020 @ 18:41
    Defending wallstreet and the Fed, can you say brown nosing?
  • SS
    Sam S.
    12 March 2020 @ 20:36
    Powell Pivot----maybe pandering to Japan and Europe?
  • GG
    Gary G.
    21 February 2020 @ 05:00
    He got stopped out on his bond shorts imo! 😉
  • CC
    Chris C.
    10 February 2020 @ 02:19
    Love the clarity of this man's thinking. Reminds me of David Simon, the great journalist turned screen writer producer of the Wire.
  • VP
    Vincent P.
    4 February 2020 @ 17:02
    I would extremely doubt that if the bond market implodes, that stocks wouldn't take an even more extraordinary thrashing, imho.
  • VP
    Vincent P.
    4 February 2020 @ 16:31
    Did he say "Bigfoot" has been seen again? Good interview and appreciate the candor along with inherent frustration many of us have, I think.
  • KB
    Kris B.
    31 January 2020 @ 13:36
    The problem is the Fed can't allow the markets to collapse without causing the value of their balance sheet to collapse. If the value of their assets collapse, so will the US dollar, and raising interest rates will only make matters worse. The only way to prevent this kind of hyperinflation from kicking in is, ironically, to print money in order to prop up the value of their balance sheet. The problem began with QE, when they put all of that bad debt on their balance sheets, in effect backing the US dollar with crap that only had value because they were buying it. Once this happened, the entire system became distorted. QE initiated a paradigm in which inflation is avoided by propping up the markets in order to keep the Fed's balance sheet from losing value. This is why printing money has been paradoxically deflationary. In other words, QE exposed the Fed to market risk. This is what Mr. Cohen seems to have missed. From the Fed's perspective, the concern isn't with the economy or with the political calculus, it's with their own survival. They can't just "do the right thing" and force a little pain today to avoid even greater pain tomorrow. As soon as they fail to maintain the value of the capital markets a hyperinflation spiral will ensue that they won't have any way out of. Aggressively raising interest rates, the traditional way out of inflation, will only serve to hasten the demise of their balance sheet and accelerate the hyperinflation. They need to reduce their balance sheet, but they can't because expanding their balance sheet seems to be the only thing maintaining its value. in short, they can't get out of QE. That's the crisis we face. It has nothing to do with a failure to do the right thing, they simply have boxed themselves into a corner.
  • AA
    Aaron A.
    17 January 2020 @ 13:36
    Trump’s fault.....oh wait, when did QE start? When were zero rates in the US actually in place? Not under Trump, fact.
    • JK
      Jay K.
      27 January 2020 @ 23:34
      2008 under Bush.
  • JB
    John B.
    14 January 2020 @ 21:04
    Ed: Let me play devils advocate Cohan: Let me contradict what I just said Ed: Allow me to push back for a second "some would say ____" Cohan: Blah blah Orange Man Bad
    • BM
      Beth M.
      15 January 2020 @ 18:13
      When you have to bleed politics into an interview you discredit's just the truth...don't have this guy back...he's an absolute thumbs down.
    • DS
      David S.
      16 January 2020 @ 01:42
      Politics moves the markets everyday. DLS
    • SC
      Sam C.
      22 January 2020 @ 14:26
      @David S. It does and so far it's UP! yesterday with the impeachment the martket was down only 0.27 something. FLAT.
  • SC
    Sam C.
    22 January 2020 @ 14:25
    Obviously this guy ain't voting for Trump. lol
  • WG
    Wade G.
    22 January 2020 @ 14:16
    I guess you could say that Cohan's interview here represents the kind of nonsensical, non-sequitur claptrap common in mainstream media today--some truths, half-truths, & falsehoods framed with bald partisan assertions. Such material doesn't increase understanding of markets, policy, or recent history; it only illustrates (as single sample) the intentionally partisan hackery common today in mainstream media. Remove all partisan framing and assertions and you're left with a grossly incomplete and misleading set of remarks about markets & policy. So I presume Cohan's niche is to feed partisans. Weird that RV bothered, but that's not a complaint; RV typically constitutes the opposite of this house-of-mirrors nonsense, I could have just skipped it. Since I wish I had, I'll refrain from wasting more time commenting.
  • jm
    jim m.
    21 January 2020 @ 23:32
    Read the comments. Seems like people reacted to his anti Trump position and not to the overarching theme that short interest rates were held at 25bps for years (along with QE) producing very high and in his view and mine, unsustainable levels of indebtedness. That view is accurate. As is his unspoken view that Trump is completely unfit to be a dog catcher, much less a president.
  • wj
    wiktor j.
    21 January 2020 @ 10:07
    This person seems to forget trump took over after the DEBT king Obama. This is trumps problem. The debt is too great raise interest rates.
  • AC
    Andrew C.
    21 January 2020 @ 02:45
    Worse interview on RVTV. Why is he using examples to prove his point, without complete knowledge? "He knows what he's doing. He knows how to price risk. This is a senior loan. I'm not sure exactly whether it was secured, but I assume it was secured." First of many stupid comments where it becomes apparent he hasn't got the details to back-up his thesis properly.
  • JL
    Jack L.
    20 January 2020 @ 23:37
    Interesting and understandable that this interviewee has garnered one of the most disputed viewer-ratings in RV history. Definitely heated, emotional at times, sometimes confused, but zooming out to the big picture I found the exposure of the emotion and passion itself to be illuminating. And a good reminder how hot it is out in "the real world," and how much hotter the times and the people in them may become. Use this level of intensity carefully, RV, like salt on a steak it's easy to overdo it.
  • RS
    Ruben S.
    20 January 2020 @ 09:10
    why people still talk about "artificially" low interest rates?? there is nothing artificial in the low interests rates! the economy cant handle higher rates and we saw it when fed hinted at 3%+ rates.
    • mw
      michael w.
      20 January 2020 @ 19:15
      The economy needs to correct.
  • BB
    Benjamin B.
    20 January 2020 @ 18:06
    Outfits are almost identical.
  • CE
    Ch E.
    19 January 2020 @ 01:54
    Lol!! Unfortunately for Mr.Cohan, he come across as dogmatic, simplistic and unable to provide an depth in thinking. When posted in the same week as a David Rosenberg interview, one gets a chance to contrast with truly great thinking. I was very happy to so many RV folks having similar assessment- this is a strong community! Well done to Ed as interviewer.
  • PP
    Patrick P.
    19 January 2020 @ 01:15
    I think this guy got more thumbs down than any presenter I've seen since the inception of RV... I'm not surprised .... He's a NYT bestselling author REALLY????
  • PP
    Patrick P.
    19 January 2020 @ 01:02
    Real Visions ask the subscribers not to bash the presenters... Now ask the presenters not to spew their political opinions... no one cares what this guy thinks politically. First off he needs to realize that Greenspan started this %hit show not Trump or any other politician.
  • AB
    AJ B.
    15 January 2020 @ 17:43
    ORANGE MAN BAD. Poor guy has a serious case of TDS. He wakes up thinking about Trump and goes to bed thinking about Trump. Mr. Cohan is one of the most dangerous men in finance, because he understands the problem of debt, but does not understand the root. He believes Bernanke needed to act in 2008. That QE1 was a must do, however QE1 the is the cause for the future crisis, not Trump. Moreover, the decades of Fed manipulation has created this problem, not one man. I don't agree with Trump's stance on interest rates, but I understand that he wants the same playing field as this predecessor. Until we allow the bad debt to burn (which will be painful), and discontinue Fed liquidity rescues we will never have the reset needed to spur new economic growth. Mr. Cohan's fixation on the corporate tax cuts is laughable. There is more tax revenue flowing into the Treasury than ever before. Mr. Cohan seems to be a parrot with talking points, not really thinking, but just another charlatan the Ivy League seems to breed.
    • AS
      Alan S.
      15 January 2020 @ 20:33
      You "There is more tax revenue flowing into the Treasury than ever before". That is simply not true. I suggest you look at tax receipts for the federal government, and you will find the receipts are considerably lower than what they were.
    • DS
      David S.
      16 January 2020 @ 01:38
      Less tax revenue and larger Feferal deficits. DLS
    • PW
      Paul W.
      18 January 2020 @ 23:29
      Just checked, tax revenue has increased every year since 2016, albeit by small amounts. Maybe would have increased by more without the tax cuts, but still increased every year in absolute amounts.
  • DH
    Dale H.
    18 January 2020 @ 06:37
    M3 has increased fifty-fold in sixty years, even though US population only increased 85%.
  • JD
    Jeremy D.
    16 January 2020 @ 19:16
    Ditto.. Ed, good job trying to get something useful out of this interview. Again and again.. William, I agree with a lot that was said, but I already have my tinfoil hat snugly affixed to my head. Tell me something useful.
  • NS
    Nicolas S.
    15 January 2020 @ 04:01
    i dont get what this has to do with trump. Is trump such a great puppet master that he can maneuver powell right to where he wants him? Or did powell realize that the time to fix things passed long ago and now the fed is just providing life support? Yes the markets were only down 20% when the fed was on a raising cycle but if powell had continued 20% would have been 50% and powell would have taken the fall for his predecessors. So he did the only logical thing. More cow bell.
    • GH
      Garrett H.
      16 January 2020 @ 16:24
      Exactly Powell is reacting to the leveraged loan and repo markets freezing up and bringing down the banking system, not Trump jawboning him on Twitter. However, I do suspect the meetings between him and Trump and the GSIBs and Mnuchin are about how do we finance exploding US debts as foreign creditors step away.
  • SW
    Simon W.
    16 January 2020 @ 07:27
    Liked it. Ed - Great job - at ease and at your best. William - the hate here mirrors the demographic profile and comes from folk who think the last ten or more years are normal....
  • JW
    James W.
    16 January 2020 @ 03:46
    More than 30 minutes in and nothing but an endless rant with ZERO info.
  • FB
    Floyd B.
    15 January 2020 @ 23:47
    Sad and very little added value
  • SU
    Shakeel U.
    15 January 2020 @ 21:34
    Great video 😀, please bring William Cohen back in the near future!
  • DG
    Dave G.
    15 January 2020 @ 21:30
    I think he is more angry at the manipulated system then blaming it on a single person. He makes a good accurate presentation of where we stand today and rightfully so is frustrated. Don't be hypersensitive to some of the people he quotes. I think he speaks a lot of truth.
  • JE
    J E.
    15 January 2020 @ 20:45
    I like the fire, but the defensiveness of the guest really detracts from the conversation.
  • TK
    Tyler K.
    15 January 2020 @ 20:45
    I felt like we were just listening to Peter Schiff, in which case why not just bring Peter in?
  • SG
    Steve G.
    15 January 2020 @ 14:53
    Stopped halfway through. Very painful to watch. This guy has been hanging out in the Vanity Fair offices way to long.
    • TS
      Tom S.
      15 January 2020 @ 20:11
      Didn't read the reviews first - would have saved time. My fortitude is less than yours, though. I bailed about 5 minutes in...
  • BM
    Beth M.
    15 January 2020 @ 18:19
    Thank God I didn't waste to much time on this character...thank you to those in the comment section. Once again you've saved me precious time!
  • dm
    dennis m.
    14 January 2020 @ 17:02
    He needs to look in the mirror as his disdain for Trump is distorting his perspective. Waste of my time.
    • BM
      Beth M.
      15 January 2020 @ 18:14
      Totally agree!
  • RM
    Ron M.
    15 January 2020 @ 15:59
    Not sure why all the hate. If Cohan loves anyone, it seems to Leon Black ha. In crazy markets like this, we need to step back and look at things from a high level. I enjoyed this and the recent Fleckenstein interview. Keeps things in perspective. Thank you, Ed and William.
  • HR
    Humberto R.
    14 January 2020 @ 22:58
    Let me remind people that Obama met with Janet Yellen 45 times in the course of 8 years. Trump has had 2-3 meetings in 3 years. Who has done the jaw boning? Both if we are being honest. The speaker's anti Trump bias comes on way too strong and his message is already obvious to many of us RV viewers, so his praising Bernanke while criticizing Greenspan and Powell is disingenuous.
    • FG
      Fred G.
      15 January 2020 @ 12:49
      obama met with Yellen 45 times privately. trump has met with him publicly over twitter hundreds of times. bigger impact like it or not
  • DN
    Dave N.
    15 January 2020 @ 00:03
    Cohan’s premise is of course correct, and there is no doubt that debt loads that cannot a. handle higher rates and b. recession/deflation are clearly too high. How/when the Minsky moment comes about and through what avenue is still unclear. In any event, the interviewer in these videos often tries to boil it all down to “how to play it all....” when the interviewee is clearly not close to enough to market nuance to provide meaningful insight. My expectation is that cans get kicked, policy stays easy until it is crystal clear to key cohorts/politicians the inefficacy of the policies. Like if Japan and Europe and US have low / negative rates and it does nothing to inflation, then may they should consider why velocity is so low and whether or not it impacts aggregate supply more than demand.
    • DS
      David S.
      15 January 2020 @ 03:58
      When there are more buybackds
    • DS
      David S.
      15 January 2020 @ 04:04
      Sorry. I hit the wrong button. When there are more buybacks than CapEx how can the velocity of money come back. When politics drive the market how can the velocity of money come back. When there is no price discovery and investing is just buying ETFs how can the velocity of money come back. DLS
  • KS
    Ken S.
    15 January 2020 @ 01:25
    I love how pissed off this guy is. I particularly love Ed's occasional look of being slightly amused. I don't feel particularly educated after this interview but I do feel entertained. 10/10
  • WM
    Will M.
    15 January 2020 @ 00:25
    I agree with most of what Mr Cohan said but he cheapened the argument with the political attacks. Additional some better clearer recommendations would have helped.
  • TZ
    Tibor Z.
    14 January 2020 @ 18:16
    OK, I don't feel remotely confident regarding my money in the bank. What if I buy stocks. Let's say gold stocks. Are stocks in general more secure than just a bank account with numbers on it? I mean if a specific stock is on my account. Let's say a 1000 shares. Are the bank or the Brokerage firm allow to liquidate it in case of insolvency issues? Where can I figure it out? I am an EU citizen. Thanks for any comments! I think Real Vision should make videos about these issues as well! A week with layers, rules, regulations, insurance!
    • DS
      David S.
      14 January 2020 @ 20:27
      Like the rest of us, you are in a real dilemma. I do not believe there can be a soft landing. If the Fed tries to normalize rates, stocks and bonds will tank. They know it and we know it. I do believe CBs will continue to print tons of money to keep the "wolf away from the door." Since debt is the major problem in the world, I paid off my debt. For me the preservation of capital is primary. That means enough cash flow to last through the crisis and hard assets that will hopefully go up with all the money printing. Liquidity is always the name of the game in any crisis. After that I cannot help much as each possibility leads to a different strategy. Even hedging has a major counter-party risk in crisis. It does not help to hedged correctly if you are not paid. If I were young, I might have a different approach. Although Mr. Cohan pounds the table the "sky is falling", he has no answers in the end. I wish you the best of luck. DLS
    • WM
      Will M.
      15 January 2020 @ 00:22
      I am in a similar position to DLS. I have opted to get 7.5% so far in gold /silver plus 7.5% in gold stocks. 40% in cash instruments. Remainder in pension related 2 year treasuries.
  • JS
    Jim S.
    15 January 2020 @ 00:14
    Awesome, you can’t say that he doesn’t have conviction! I am now watching every video where the votes are split close to 50/50. It’s like professional wrestling where the champ is the wrestler who get the most mail ( fan or hate). Just bought some bitcoin after this.
  • TD
    Thomas D.
    15 January 2020 @ 00:11
    He has some good points but his politics are bleeding through too much.
  • MC
    Michael C.
    14 January 2020 @ 23:47
    Cohan: Trump bad. Bad. Trump.
  • DP
    Duane P.
    14 January 2020 @ 20:52
    Few investors rode the Dow from 6500 to 28K. If you were in at 6500 more than likely you were in at 14K shortly before that. So you've doubled your investment in about 14 years. That's not an amazing feat.
  • CL
    Claudio L.
    14 January 2020 @ 12:28
    FED and Central Banks must get the blame for their incursions in closing up the system and the distortions to price discovery.
    • DS
      David S.
      14 January 2020 @ 20:40
      Or at least their share of the blame. The genesis is still Wall Street's blowup in 2008 where most of the blame shouldered. DLS
  • NB
    Nick B.
    14 January 2020 @ 20:38
    I applaud Mr. Cohan for pounding the table on the ridiculousness of where we stand today. He breaks it down to the most fundamental truth. RISK IS MISPRICED IN A MAJOR WAY. Be careful children
  • DS
    David S.
    14 January 2020 @ 16:08
    What a waste of time. Not one original thought/interesting angle...nothing. It’s gonna end badly blablabla. What’s next here, a weekly horoscope??
    • DS
      David S.
      14 January 2020 @ 20:36
      I am retired so not a big time problem. Mr. Cohan writes histories so the interview was as expected. The really fun part of the interview was watching Mr. Harrison try to pin Mr. Cohan down without success several times. Mr. Harrison's interview style does not allow him to interject his ideas like Mr. Grant. The other David S. DLS
  • ad
    aashay d.
    14 January 2020 @ 20:24
    Atleast he is honest about it, even he may got the timing wrong about November 2020.
  • PU
    Peter U.
    14 January 2020 @ 18:26
    I believe any interviewee who introduces too strong a political view in his/her message weakens the intellectual integrity of the message(s) conveyed in the interview. Ed, I love your chuckle at the end, priceless.
    • DS
      David S.
      14 January 2020 @ 19:39
      It is better to have a political position stated so we can better understand the interviewer’s position. It should be kept to a minimum, but it does help me understand the whole of the argument. We should just check the box and move on. DLS
  • DM
    Dom M.
    14 January 2020 @ 19:05
    This is not a political forum.
  • LA
    Linda A.
    14 January 2020 @ 18:37
    I cannot wait for the cental banks and President's scams to blow up in their faces. They think working class people are stupid to buy their BS.
  • AM
    Alonso M.
    14 January 2020 @ 18:19
    It would help to differentiate between a bond ETF and individual bonds. An individual bond rolls down the yield curve. As it tick tocks is way to maturity, the duration of the bond decreases. This is different from a bond ETF which maintains the same duration. Different instruments with different purposes is the way I see it. Also helpful to differentiate between a corporate bond and a Government bond. The last debt crisis saw Government bond yields go to the floor whereas corporate credit spreads blew out. So capital gains on paper for risk-free bonds and capital losses on paper for corporate bonds. Junk got slaughtered. One more an environment where corporate credit spreads widen out materially, an index like the Russell 2000 will surely get squashed.
  • FW
    Frank W.
    14 January 2020 @ 16:22
    This guy should take the transcript of this talk to a capable, commonsense English teacher to walk him through all the contradictory verbiage on its face, let alone conjured through a blatant anti-Trump political bias. Then, some basic reality of real world macro and microeconomics might help him out, not to blame the Columbia Business School. Hedgeye pointed out Q3/18 that inflation was set to decline Q4/18 so no Fed mandate justification for interest rate hikes, hence bad things since including a diminished '19 GDP. Fantasy financial journalism, not to blame the financial institution he, evidently, hung out in for some years. He has no idea where we are in financial history and why so many markets are at their high end in valuations with no arbitrary opinion to be applied. It is there to be dealt with and not complained about. Blow the whole thing up by next summer to repent and start out to 'get it right this time' purity. Sounds like adopting a Warren/Bernie prescription template for healthcare Marxist/Leninist heaven.
  • MN
    Michael N.
    14 January 2020 @ 13:21
    I'd rather listen to Ed discuss the topic and this guy. Ed is much more thoughtful and insightful on this anyways. You can tell he's not used to getting questions and people letting him bloviate. Very much the IB type. He makes valid points about the debt markets, but doesn't add anything whatsoever to the conversation.
    • JC
      John C.
      14 January 2020 @ 15:59
      Agree. Ed countered with a lot of good pushback. This despite him also not exactly being a lover of Orange man and thus being able to put politics aside
  • RM
    Richard M.
    14 January 2020 @ 15:06
    Great interview Ed! Unfortunately your guest was so clearly biased and prejudiced (with a super inflated ego to boot) that I really couldn't take much away from this video. Loved your "push back" questions which the guest failed to answer properly. Cohan clearly views the markets through his political bias lens and would definitely be a loser if he was investing based on those views.
  • JC
    John C.
    14 January 2020 @ 08:21
    Also Junk at 11-12% back in the day was more indicative of dicey CCC paper - not the overall market itself. Single B paper was more like 6-10% even back in the early 2000-2007 go-go years. Over 11-12% more mezzanine like returns. But his point is still valid (that 5% junk bond yields are nuts and not represent the real risk). Anyway, this stuff doesn't happen in a vacuum. The M&A and PE world where he came from have been huge supporters of low rates and cutting credit protections so they could do their high-priced, overleveraged deals and get their fees. Over the past few decades hey pushed the underwriting banks to loosen credit protections to almost nothing ('covenant light') and flooded the market with overleveraged (and underpriced) deals. So it's not just the Fed doing these things all on their own. Market may be addicted to low interest rates, but sure seems like its way too late now to make the hard choices - not many politicans want to touch this issue and instead everyone wants to just let the Fed keep printing away so they don't have to cut spending or raise taxes. Once they institute MMT it will only get worse, and that's not going to the the Fed. Finally, we had massive deficits under Obama even in the latter years of his 2nd term where the deficit approached $1 trillion, and under his watch the national debt almost doubled from $10 trillion to $20 trillion. So this spending bonanza all started well before Orange Man.
    • JA
      John A.
      14 January 2020 @ 13:57
      You are right about Obama, but when he was in office he was providing micromanaging oversight along with artificially low rates. It seemed that they were going to keep lending in a box thru regulation instead of thru fiscal policy. Trump shows up and basically neuters regulation thru appointments and cuts to budgets. Then threw a match onto the tinderbox of this economy. 4 years of no fiscal or regulatory head winds may have a part to play here.
  • AR
    Alexander R.
    14 January 2020 @ 13:54
    And where exactly the second level thinking ? Who else does not know that junk bonds and BBB are misspriced ?
  • DH
    David H.
    14 January 2020 @ 10:49
    We trade what is the market is doing and not trade how we want the market to behave. For instance, I disagree with the repo and QE but financial assets are going to inflate. Why would you short the market when clearly financial asset prices are increasing.
  • JF
    J F.
    14 January 2020 @ 09:57
    Terribly superficial interview. Yes, I understand the earth is spherical — what’s the insight exactly?
  • RW
    Richard W.
    14 January 2020 @ 09:49
    Wow!! Well done Ed - a great interview
  • JC
    John C.
    14 January 2020 @ 08:06
    Green cords FTW! I think Powell caved due to the markets tanking big time last December plus the housing market showing signs of real pressure when mortgage rates spiked. Clearly the Fed overtightened and tried to reduce the BS too much together at the same time. The idea that this is 'all Donald Trump's fault' after QE 1-3 plus years of zero interest rates all through the Obama administration is highly misleading, to say the least. That said, ZIRP or NIRP are highly destructive policies and central banks should be held accountable for what they have wrought.
    • EL
      Erik L.
      14 January 2020 @ 09:15
      Exactly. This guy is clueless imo.
  • DF
    Diamantino F.
    14 January 2020 @ 09:15
    This guy is Grant on steroids...