Irreverent pundit takes on finance establishment

Donald Luskin’s premise for his analyses begins with the concept that everyone is wrong

Investor Donald Luskin has won foes and friends by butting heads with the Wall Street establishment for 25 years with a no-holds-barred approach to economics and finance.

Luskin’s take on the stock markets appears regularly in The Wall Street Journal and on business cable channels CNNfn and CNBC. A passion for technology and innovation made Luskin start his own company after a career that included stints as vice chairman and co-chief investment officer at Barclay’s Global Investors, and founder of the investment technology group at Jefferies & Co. But he was burned by the dot-com flare-out when his OpenFund mutual fund, which was started with $35 million in September 1999, closed two years later with $10 million worth of investments.

Reporter David Speakman talked with Luskin about his venture, Trend Macrolytics LLC of Menlo Park, and life in the valley.

How is Trend Macrolytics different from similar services?

The starting point for our macroeconomic analysis is that everybody else is wrong. That everything you read in the media, hear from politicians and are taught by Ivy League economics professors is bullshit.

Our analysis is based not on academic theories, political ambitions or media clichés, but on a hard-headed analysis of what moves economic actors. We track and measure the ever-shifting incentives and disincentives to various types of economic behavior and extrapolate their results.

What led you to strike out on your own rather than work under the
umbrella of a large corporation?

Been there, done that. This is the kind of work where a couple of smart guys can take on the world and win, so why not?

When you retire, what do you want to be remembered for professionally?

I’ve already retired from several careers. In each one I produced something of lasting value for the world. The common thread has been the application of technology to the challenge of investing. Whether it’s pioneering real-time options valuation and hedging techniques; creating the world’s first institutional crossing network POSIT [and electronic stock trading platform] and founding the investment technology group; helping to make index funds into a trillion-dollar industry; or founding the world’s first, full-disclosure mutual fund — it’s always been about technology and investing.

How do you quell your itch to tackle those big issues now?

Now I’m working along entirely different lines. In my work at Trend Macro, and in terms of the book I’m writing, “The Conspiracy to Keep You Poor and Stupid,” I’m trying to do something much broader. I’m on a crusade to immunize people against the terrible anti-capitalism, anti-freedom, anti-wealth economic ideas that are threatening to destroy the world. We are now in an age of backlash against capitalism. We had seven fat years. Now we’re in the seven lean years.

You refer to your company as small, but you get some big media attention. Why?

I developed a lot of media contacts from my days as a dot-com CEO, and I’ve kept them alive. I do a lot of pundit work myself. So, I guess you could say I am actually part of the media myself. In my media work, I try to be very honest, which is surprisingly unique and surprisingly difficult in the media. The reality is that reporters are constantly trying to use their sources, and interviewers are always trying to use their interviewees, to say stuff that the reporter or interviewer himself wants to say. So if you want to get quoted, you have to guess what they want to hear and give it to them; mostly that involves lying. I won’t do that. There’s a core group of media people who respect that and seek me out for it.

Why does humor have such a strong emphasis on your Web site?

I don’t see why economics has to be “the dismal science.” So much of the ponderous solemnity that pervades most economic discourse is just to disguise the fact that there’s nothing there. One acts seriously in order to be taken seriously. But as I said earlier, most of what most people say about economics is bullsh*t. Humor is one very potent way to keep on your toes and not get sucked into the false seriousness of the people who are trying to lie to you.

You’ve lived through the highs and lows of the valley economy. What lessons have you learned?

The most striking lesson is the asymmetry of those highs and lows. There is a boundary on the lows. The worst thing that can happen is that you go out of business, get fired, whatever. But the best thing that can happen is entirely unbounded. You could be a billionaire. The people who have won big here are the ones who were willing to take risks É and then, even more courageously, were willing to build their successes to a scale that no one ever thought was possible. It takes much more courage to succeed than to fail — much more imagination.

What lessons should venture capital firms or corporate execs take away from this recession?

This recession is surely the aftermath of a boom that took on ludicrously speculative dimensions. But more fundamentally, this recession was “caused.” It is the direct result of a set of regulatory interventions by the federal government that knocked the underpinnings out from under the technology revolution of the 1990s.

The combination of Alan Greenspan’s jihad against irrational exuberance, the FCC and Congress’s inept handling of telecommunication deregulation, and the anti-trust crusade of the Clinton justice department all conspired together to destroy what could have been a sustainable boom.

The lesson is that Silicon Valley is no longer a free port. We are now important enough to be the target of all the pirates and lice that have afflicted other large businesses throughout history.

Sadly, no, sickeningly, some executives here have taken the wrong lessons from this. They have joined the pirates and the lice and used them to try to damage their competitors. There is nothing more reprehensible to me than the anti-trust persecution of Microsoft at the behest of its competitors like Sun, Netscape and Oracle. The result has been that the pirates and the lice have literally been invited into Silicon Valley by the very people who should have sought to keep them out.