Super Mario: Wall Street wizard Gabelli on today’s economy
In April, Mario J. Gabelli received a Horatio Alger Award ”“ presented by the Horatio Alger Association of Distinguished Americans Inc., an educational nonprofit, to salute leaders who have overcome adversity in achieving professional and personal success.
As the chairman and CEO of Rye-headquartered GAMCO Investors Inc. (formerly Gabelli Asset Management Co.), Gabelli is one of the most prominent analysts and investors in today”™s financial services industry. And in a life story worthy of Horatio Alger”™s celebrated tales, he rose to prominence from humble origins as the child of Italian immigrants living in the working-class Bathgate Avenue section of the Bronx.
Starting at the age of 12, Gabelli would travel from the Bronx to work as a caddy at exclusive country clubs in Westchester County ”” sometimes going by bus, at other times hitchhiking. But rather than return home after the golfers completed their game, he would hang around and listen to the adults discuss the stock market.
“These guys came up from Wall Street and were specialists,” he recalls, noting that he recognized the value of investing from the country club conversations. “I got into the stock market at the age of 13.”
Gabelli attended Fordham University, graduating summa cum laude in 1965, and then went on to receive his Master of Business Administration degree from Columbia Business School in Manhattan. When he was out of school, he took a security analyst”™s jobs at Loeb, Rhoades & Co. After nearly 10 years, he felt he was ready to start his own brokerage, which he dubbed Gabelli & Co.
“I had 10 years of really intense focus and knowledge of all the money managers in the country,” he says. “And I thought I could raise some money to start the firm. But nobody would join me, because they wanted salary.”
Gabelli made $5,000 in his first year of business, noting this was by selling “research on industry specifics to institutional clients for commissions. The environment at that time had significantly higher interest rates and President (Gerald R.) Ford brought in the notion of ”˜Whip Inflation Now,”™ and we had significant surges in labor costs while interest rates were rising dramatically.”
In today”™s economy, inflation is running at a level not seen in decades, and Gabelli views the situation as a case of economic déjà vu.
“The degree that the Federal Reserve miscalculated the impact on the super amount of money that was put into the system reminds me of the late ”™40s when we had individuals working their a ”” off during the Second World War but couldn’t buy anything,” he says. “And then what happened is when the war ended, the conversion to consumer goods was taking place and prices surged for goods, housing and so on. After two or three years, that cooled off and inflation was OK ”” not great but was contained.”
He then noted that the 1970s were complicated by the energy crisis that further exacerbated a stagnant economy.
“I had to wait in line to get gas and prices surged,” he says. “But the real concern at the time was price cost driven by wage price inflation.”
In today”™s economy, Gabelli is worried that wage growth is trailing increased prices on consumer goods, fuel and utilities and that lower-income households will be particularly affected if the economy frays further. In his view, the possibility of a recession is less important than a lack of resolution for the underlying socioeconomic problems that quietly metastasized during the boom years.
“From my point of view, if it’s a recession, it is what it is,” he says. “It’s not what I worry about from the point of view of investing. I worry about it from the social impacts. And the question then is, how bad is bad? How long will it be? And then when it recovers, how good it will be and which sectors of the stock market will benefit? My comments take in some social considerations, but they’re really driven by the economic impact on public markets.”
Looking across today”™s economy, Gabelli is gung-ho on the defense and aerospace industries, and he warns that the Pentagon needs to be more cognizant of the existential threats surrounding the nation.
“When you have the Chinese and the North Koreans and the Russians pointing hypersonic missiles, the Minuteman defense system that we have set up about X number of years ago reminds me of the Maginot Line, which the French set up before the Second World War,” he says. “We are so far behind on hypersonics” ”” missiles traveling more than five times the speed of sound, or Mach 5 and above.
Gabelli is also intrigued by the potential of blockchain technology but is less enthusiastic about the cryptocurrencies supported by this digital system.
“I like blockchain,” he says. “When I sell a stock today, a client doesn”™t get the money for two days. So the notion of being able to do real-time settlements is accelerating. And as far as cryptocurrency is concerned, we always monitor it. We bought some at $500 and sold it at $525, just to have it. I think people basically don’t understand the tax implications. I don’t think anybody explained it to them.”
Gabelli adds that he is troubled by the online trading that many neophyte investors in their 20s embraced too eagerly over the past few years.
“If I”™m 22 years old or 24 years old, that means I started on Pac-Man,” he says. “They are so knowledgeable about electronic games. But Robinhood came along and offered free trading to those who were sitting at home. They never trained them, and they allowed individuals to buy and sell securities without education.”
Financial literacy, he says, “should be taught in grammar school and in high school.” While he is encouraged that an increasing level of young people “understand a little bit more about an allocation of capital in the free market system,” he acknowledges “the bad news is they need more training.”
For more, visit gabelli.com.