The Exchanges

Q So let's break down the pieces of that. To start with, how did it get determined which areas are these economic opportunity zones?

A So the areas were decided by the 2010 census. It had to be areas that were underserved, had lower income, and that then was the starting .25% below the, the median income. Then once you had all these different areas, each governor of each state could then pick The places it wanted, because it turned out there were too many areas, and it covered too much of every single state. So in fact, it's 10% of the entire United States is an opportunity zone. That's in every city, every state, every rural area, all of Puerto Rico. So it's everywhere. That's the first thing, and it covers 12% of the population. So there is no trouble finding an opportunity zone anywhere in In any place you want to locate a business, or in any city in the United States.

AI assessment note: “So the areas were decided by the 2010 census.”

Q why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. So much strife in Washington and the government. We've just had government shutdown, and we're talking about something that requires regulations to set the standards of how this is going to work. How has this made its way through?

A This is a bipartisan effort that started on the progressive side of the Democratic Party, and it's been going on, trying to get through Congress for six, eight years, and the leaders are probably Tim Scott and Cory Booker on the Senate side. One's Republican, one's a progressive Democrat, and they worked on it, worked on it, worked on it. Many, many other people have joined them, And they slipped it in to the tax legislation, the bill that was passed in 17, which no one even barely realized it. So it is law, it's just no more than a page, page and a half. But now the regulations have to be written around it, but that doesn't need Congress, that just needs the Internal Revenue and the Treasury Department to get together And put meat onto the law. That's what they're doing. There will be another set of regulations that will allow people to really be aggressively doing things, and then there'll be abuse regulations, because whenever you create a program of a trillion dollars or more, it's only natural that there'll be abuses, and so that will be the third set of regulations. But again, this is just beginning, and It's mind-boggling to me that people don't understand the gigantic impact. Some of the impact is negative. It's going to have a negative impact on a lot of real estate that's in more traditional areas. The same thing, the demographics had a negative impact on, on some pla…

AI assessment note: “This is a bipartisan effort... they slipped it in to the tax legislation”

Q There aren't that many people who have a background starting off as a history teacher, into a day trader, building financial services business. Where did it all start?

A It all started when I was 15, and my father said I could use a little bit of savings I had, which was 500 dollars, to buy a stock. I went down with him in Wilmington, North Carolina, To buy, he said I could buy AT&T. In those days, newspapers had fillers at the end of columns, and I read the filler in the Wilmington Star News, and it talked about this new cigarette, Pilar, which had just started Kent Cigarette, and that it was a new invention, and it could have an impact. And I got down To the brokerage firm, and I said, I'm not buying AT&T. I want to buy Pilar. And I bought 10 shares at 52 and five-eighths. At that time, I went away to school in a private school, yeshiva, in Baltimore, Maryland. So I got on the bus the next day to go to Baltimore, and I got off at two o'clock at night in Norfolk, and I got the Norfolk newspaper. The Wilmington Star News didn't have every quote, and I was very excited because the Norfolk paper at two o'clock at night had every single stock on the New York Stock Exchange, and I can remember it as if it was yesterday. I opened up the paper, and there was P. Lallard, and it was up two and five-eighths, and I just made 26 dollars, and I could feel my heart beating Inside my chest, and I knew at that second the only thing I ever wanted to do in life was to be in the stock market one way or another.

AI assessment note: “It all started when I was 15, and my father said I could use”

Q And what was retail brokerage like when you started?

A It was brutal. You know, I hated to sell, and basically you were given lists, and you were supposed to call the people up and try to get them to buy different stocks. I was very, very lucky. I worked for Legg Mason, and they had, one, they had very strong values, and number two, in those days they were very flexible. So the first thing they did, they let me write, Write up stocks and do my own research, and I got lucky because I started right at the end of 71. Young Kipper War started in 72. I had begun to look at oil and gas stocks, and one of my big recommendations was Houston Oil and Gas, which went from 10 to a 110 in a period of maybe Four months because it was at a big, gigantic gas discovery in what we called then the state waters. State waters were not regulated, and federal waters were, so the gas was unregulated, so a big gas discovery had a massive impact on the company. And that was my big break, because all of a sudden I had a little bit of a reputation, got a following, so forth and so on.

AI assessment note: “It was brutal. You know, I hated to sell, and basically you were given lists”

Q And what's the mechanism for making that happen?

A The mechanism is quite simple, where basically the government's going to say, look, if you have any kind of capital gains today, or potential capital gains, what we'll do is we'll defer those capital gains if you invest in these areas, and Just as important on your investment if it's successful, whether it be a real estate, whether it be a business, whether it be Uber, whether it be Facebook, whether it be the newest AI company, we're not going to tax you on that investment if you hold it for 10 years, and we won't tax you on it until 47 when you will then get the basis of 2047. Uh, So that is the mechanism. It's a simple mechanism that we're going to defer capital gains. You put up a hundred dollars, you defer a hundred dollars of capital gains. In some states, that's a lot. It's, in DC, it's 53%. In New York, it's 53% on short-term capital gains. It's 32 on long-term capital gains, and we're going to defer that gain, but even more important, your investment is going to be non-taxable if you make a long-term commitment. It's going to encourage every single business that's going to start up United States. It's going to force it for tax reasons, for economic reasons, to be in an opportunity zone. Not only that, The Operating Zone also acts as a phenomenal recruiting tool, because when I go to hire you, and I tell you, look, you're starting the new Amazon, and if we're successful…

AI assessment note: “The mechanism is quite simple, where basically the government's going to say”

Q You did a lot in the nineties at your old shop. What was the differences, if you look today, in a lot of the businesses you oversaw, a hedge fund business, a private equity business, a venture capital business, how do you think about it then? How do you think about it today?

A I don't view it as dramatically different, at least for me. It's the same thing. You come in every single day literally knowing nothing and realizing you've got to go out and learn these new things and reinvent yourself. One major, gigantic difference is the massive amount of money. That's one difference. Another massive difference is the world. When I started in Really the eighties and then the nineties. You didn't have to think about what's happening in Germany and what's happening in China. There wasn't this extreme correlation that is today between every different piece that links up within the world. And that is massively different. The other massive difference is how much of the market is passive, meaning that it's either done by index or machines. Which for me is a tremendous plus, and that is a massive, massive change.

AI assessment note: “One major, gigantic difference is the massive amount of money.”

Q When you have such broad and strong views about the economy, about the markets, How do you work with your team?

A So we have 75 people on our team, and so I believe very, very strongly in trying to avoid groupthink. We've seen it over and over again, where, where a dominating idea can be a disaster, because as strong as my ideas are sometimes, remember, they're often wrong. Period. Or they lead you down the wrong path. And so the key To working any investment, any idea, is to be able to change your mind every single second, to get new information and say, look, what I thought was right was wrong. I mean, anybody who followed the last election, if they were flexible, would have known how close it is. Everyone, it's the fact you dig yourself into the ground, that's what creates the being wrong. So, when I work with our team, we try to have as much As a open forum as possible. You try to get ideas from everybody. I don't care whether they're a new person, old person, been in the market one year, 10 years, 50 years, and you try to keep an open system, because the main thing in investments is how quickly things change, how often you're wrong, and that's what's often great about it, is you actually can see that you're wrong, In the market all the time.

AI assessment note: “when I work with our team, we try to have as much As a open forum as possible.”

Q And what are the other big tailwinds that you're excited about?

A Well, I'm, I'm excited about the Tailwinds of the, of what's happening in the small bank area, which is a massive consolidation. I'm excited about the tailwinds that I believe are taking place in the economy in terms of, I view our economy is going to be very, very strong. Other people don't believe that. They think we're at the end of a cycle, but please keep in mind what just happened Has happened in the last six months. We have an 18 trillion dollar economy. We just have a two trillion dollar tax cut. We just had a three trillion dollars, which is taking place as we speak, of repatriation. That is money that the major tech companies, and mainly pharmaceutical companies, it was very, very concentrated, put away overseas and didn't pay tax on. They were able to bring it back to United States, And pay a 10% tax. So that repatriated money is gigantic, because some of those companies are going to build factories. They don't build factories overnight. They're going to be super sophisticated factories. There is another two trillion that they just decided when they wanted to have a budget agreement, and this is maybe a little bit of lack of discipline. What do the Democrats want? Democrats wanted eight, 900 Billion dollars of new spending. What did the Republicans want? They want eight, nine hundred billion of additional tax cuts. Well, add those together, that's another two trillio…

AI assessment note: “I'm excited about the Tailwinds of the, of what's happening in the small bank area”

Q When you think about these larger non-taxable pools, how are they incented to invest in the opportunity zones?

A There's no specific economic incentive. It's just they're going to get a higher return on their money. Do you want to be downtown New York, which where jobs are going to be moving out from, or do you want to be in Brooklyn or the tip of New York? Do you want to be in Bethesda, or do you want to be in Silver Spring? So once you create the enormous momentum, the non-taxable investor looking for Making good investments is simply going to follow the people who are creating these jobs, who are creating the momentum here, so it's like water. It seeks the lowest ground. Returns simply seek the highest return based on the risk, and that's what's going to happen here. The same way anyone who bought downtown buildings 25 years ago in San Francisco, New York, Washington, Has made a brilliant investment, because you picked up on a trend that took place over the last 25 years. That is the movement back to the major cities, the major intellectual capital. Now there is a doing good portion here. There is a ESG portion here. So we are seeing some state pension funds, some specific non-taxpayers that are Saying, well, look, you know, we can get a good return and do good at the same time. So we're seeing this in a lot of places, and some of the large philanthropic foundations are making a major push in this area. Keep in mind this also has one other twist to it, and that is the Community Reinves…

AI assessment note: “There's no specific economic incentive. It's just they're going to get a higher return”

Q What do you do with that? Is that an economic opportunity zone?

A It's, uh, creating a tax advantage way to invest in, in these areas, which I believe over time will have a big impact, and certainly one of the biggest impact over time is on the economy, because I believe it'll be One, two, three trillion dollars. Remember, this is a 18 trillion dollar economy, and because of the way they did it, it has to be done quickly. Sometimes what has an impact is because you have to put the money to work and build factories and build new apartments rather quickly. That has the biggest impact. I mean, people say, well, the tax bill, I haven't seen the impact. Yes, it's true, because It takes months. It takes a year. Repatriation was three trillion dollars. You haven't seen the first factory built. It takes a year for Apple to build their glass factory, or it takes three years or five years. You gotta plant it. You gotta find a site. You gotta engineer it. So once on, or whether it's pharmaceutical companies. This is an example where things are going to happen unbelievably quickly. It's gonna create enormous loan demand for small banks, regional banks, All over the country, and I believe, we'll see, I've been wrong a lot of times before, but I believe this will be one of the major, major events in the country, similar to how big the oh eight, oh nine crisis was.

AI assessment note: “creating a tax advantage way to invest in, in these areas”

Q So are there existing incentives for businesses to invest in these opportunity zones as well?

A There are some existing benefits to businesses in almost every opportunity zone area, but this doesn't take away from those extra incentives. Having said that, these incentives are so complex. These incentives have so much paperwork. It's a failure. That's why we have the massive income disparity in the United States. Because they are a failure, and so it doesn't take it away, doesn't take away your low-income tax credits, doesn't take away New Market, doesn't take away any of the job credits, but let's be realistic. These programs are so tiny and so artificial, they're a joke. They're a pinhead in terms of the net effect, and so you need something big. A trillion dollars is Five percent of the GDP in the United States. It'll be more than a trillion dollars, and it'll have a multiplier impact, because, because it's not just every single U.S. taxpayer, every single individual, every single corporation, every single foreign taxpayer, every single trust, and so it covers such a huge amount, but remember, these things have their own multiplier impact. So we're already seeing non-taxpayers, state pension funds, begin to look at this as a way to change areas that are in need by joining with the people doing opportunity zones.

AI assessment note: “There are some existing benefits to businesses in almost every opportunity zone area”

Q You mentioned the potential for abuse. If we're in the top of the first, or we're in the warm-up pitches, and we've got a nine-inning game, and hopefully extra innings, we've got a long way to go with a lot of potential. What could go wrong?

A Well, what could go wrong is I could be dead wrong in terms of how, how many people are going to use this, but unless it's used in massive size, then this becomes another government program. If this is going to be a fifty billion dollar small program, then forget abuse, it's just nothing but another failure. I believe it'll be more than a trillion dollars. This is going to go on until 26, They're already talking about extending it, because they see this as a win-win situation. The government is going to make money in this program, not lose money, because you're taking dead assets, you'll never get the tax on, you're creating jobs. We estimate it'll increase GDP by four-tenths of percent. In terms of abuse, there's lots of people who will jump into anything new, whether it be Bitcoin, whether it be marijuana, whether it be any new industry. Or new concept, and you know, you're going to get people who don't understand it, who aren't used to, of doing things a certain way, doing it the correct way, and so it will be abused by people who are maybe sham artists, I don't know, or it'll be abused because it doesn't create Quite the change everyone hoped for, and that, in some cases, that'll be true, but I believe that we have abuse everywhere. We have abuse in income tax. Income tax has been around for, you know, almost 80, 90 years now. Do we have abuses there? Absolutely, every sing…

AI assessment note: “Well, what could go wrong is I could be dead wrong in terms of”

Q flowing. You're going to see some great investment returns. You're tackling this from two perspectives. One is your business is investing in there. And then the other, I know with your own family foundation, you're making investments, you're allocating capital to the zones. Let's start with your family investments from the bottom up. How do you start? Say, okay, I want to invest in opportunity zones. What do you do?

A We're doing it from a philanthropy. We're seeing three or four different ways, not just us, but other people. So we have Kresge Foundation. You have foundations saying, look, if you're putting together a op zone fund that meets our criteria, and that would be biased towards affordable housing, be biased towards Detroit, we will give you a first loss piece. We'll put in 10 dollars on your hundred dollars, and we'll take the first loss. It makes it a 50 times better investment. So we ourselves are looking at investing in op zone In different ways, mainly tied to the things that we care about, so one area which we're just starting is in the anti-factory farming area, so we're looking at a little more of the rural areas of what we can do for vertical farming, what we can do for more traditional farming, because keep in mind that we have the farming system we have today, because there's this massive Subsidy for every large company, so we're looking at that in terms of a pure investment, but we're also looking to tie in to OpZone projects to tie in to what we want to do. Our company is building a hotel in Oakland, a low-end Marriott Hotel for Millennials, a Moxie Hotel, and 20 blocks away, 15 blocks away is one of the most amazing Philanthropic efforts I've ever seen called Creative Arts, which basically has a 102 103 hundred adults who would have trouble getting jobs in industry, bu…

AI assessment note: “So we ourselves are looking at investing in op zone In different ways, mainly tied”

Q And what's the most important thing you're doing to change things today?

A It's hard. It's impossible to, to make much of a difference, and it's, you know, when you really think about it, it gets very discouraging, but we're doing things a lot of different ways. I had terrible asthma as a kid. I still, as a child, I still have asthma, so I have a big asthma project with Children's Hospital, And Anacostia in D.C. to get five, six, seven-year-olds to take their medicine every day, because asthma is something you can control. Uh, education. There's nothing more important than education, so we have lots of education programs, so we have a lot of conservation programs, because what's going on in the world is, is what we're doing to the animals, the plants, It's just mind-boggling. We're like one great big vacuum cleaner just taking everything out. Eventually it has an impact. So, you know, the movie we're doing, Eating Animals, which is something we're doing on the philanthropy side to try to make people realize what's going on in factory farms all over the world is really quite Frightening. Devastating. There's a massive cost to it. It's insane. Um, we have a very big program for Jewish outreach to make the temp as big as we can in terms of making sure we try to reach out to everybody. So we have really three or four different goals and probably have a hundred programs now.

AI assessment note: “we have really three or four different goals and probably have a hundred programs”

Q So if you're an individual or a professional, and you are either looking at investments, or looking to start a business, How would you encourage someone to pay attention to what's happening in opportunity zones?

A Every single person who's going to start a business in the United States is going to look at opportunity zones. The reason is they're across the street from where they are now in many cases, and they need to look at the rules, find out about the rules, because what are those advantages of the rules? The first advantage of the rules, if you're going to start a business or expand your business, You're probably going to have lots of people, lots of funds who want to give you money, and raising money, raising capital is the honey that starts all of it, is the catalyst that makes it work, and if Uber can't raise money, if Amazon can't raise money, if Google can't raise their initial round, there are no companies, and so that is one important key, and that's what's so important about Opportunity Zone. Provides you access much, much easier to a hundred dollars, a thousand dollars, a million dollars, a hundred million dollars, a billion dollars, so all of a sudden the ability to start a business in the United States is going to become 20 times easier because the hardest part of starting any business in this country is money, having the initial capital, and staying power. Because you can have the most brilliant idea, but you need staying power, and the money coming into Opportunity Zones is going to provide you that, and provide you with a community environment, an environment that help…

AI assessment note: “Every single person who's going to start a business in the United States is going to look”

Q thing people were going to pay attention to called Economic Opportunity Zones, and it was the first I had heard of it, but working with family, I've Paid a lot of attention to it since, and I thought it'd be fun to sit down and just talk about it. So why don't we start with your describing what is this thing that people are talking about, these economic opportunity zones?

A Sure. So a group of people came together and have worked on it for six or seven years, and these are people who really want to try to Change America more from a philanthropy point of view, and they're very, very active in that area, and they said, look, we're going to create a change in America that's going to move the needle not a foot, not an inch, but we're going to move it 10 miles, and we're going to do this by having this massive reallocation of capital from one area of the country to To another area of the country. And that is really the goal of the op zone, to try to equalize the massive disparity that's grown in the country for the last 20 years, 15 years, 10 years, five years. And so it's certainly a large, gigantic attempt. It's the biggest thing I've ever seen in my lifetime. To reallocate capital and let it flow and let it change the different parts of the country and let it equalize the, the economic areas of the country.

AI assessment note: “having this massive reallocation of capital from one area of the country to another”

Q You saw what the problem was, but as you said, that's different from acting. How did you then figure out when to turn and buy?

A That's a very important lesson in life, because you have to pick yourself up and figure out, okay, what's going to happen next, and how do you go forward? That decision was a lot Easier because once the government began to intervene and the brilliance of the government, this was at the time a 16 trillion dollar economy. They said, look, we're putting up five trillion dollars of potential guarantees. We're putting up 10 trillion. No, we're putting up 20 trillion. No, we're putting up 50 trillion. Well, it's like anything else in life. If there is a safety net that's there, you're then not worried. And all of a sudden, The government never had to put up 50 trillion, or 40 trillion, or 20 trillion. But once they said, we're going to put up safety net, not for everybody, but for the larger players, and they explained to me, look, Manny, this is a hurricane, and we have passenger ships sinking, we have freighters sinking, we have little ships sinking, we have little frigates sinking, we've got to focus on the passenger ships. And the bigger ships. There's nothing else we can do. And that is the way life is sometimes. And that's what they did. And they did a brilliant, remarkable job. I can't believe that people still complain about TARP and what the government did. It's really because they literally lack an understanding of how the system works. How interconnected all the system is.

AI assessment note: “That decision was a lot Easier because once the government began to intervene”

Q How do you go about finding these opportunities? You're talking about rural farming and warehouses in South Carolina, And if someone's interested in looking at these spaces, how do they do it?

A This is a growing area. Remember, if this is a nine-inning game, they're throwing out the warm-up pitches. We don't even have the regs out, and so it's so early, and there's so much skepticism. I talked to a thousand people, 900 of those thousand people think It's all make-believe, and when you get any type of dramatic change, no one wants to believe it in history, and you can go back in history and look at any gigantic change, political, economic, it's hard to believe that there will be a dramatic change, and it doesn't happen that often. There's access to websites, there's, there's articles. We're overwhelmed with a number of people. Once the word gets out, That you're investing, you're overwhelmed with individuals, with corporations all over the United States who are looking for capital. Capital is the key to making change, and, you know, one of the most powerful websites is the Economic Innovation Group. Sean Parker from Napster came up with this idea seven, eight years ago, and is really the Key driver. This is one of his think tanks, and they have a wonderful website with interactive maps, with news, and it's EIG, and it's very easy to get on it and get all the material. That's certainly a basic part, but this is so far gone under the radar screen, but at some point you'll see an explosion out there.

AI assessment note: “one of the most powerful websites is the Economic Innovation Group”

Q So being wrong, what's been your biggest mistake?

A In the market, you're going to make mistakes, and you're going to be dead wrong at times, and often, certainly in the early days, there's a tendency always to think things are linear, so something's going up, therefore it's going to go up for a long period of time, and that's not the case. There's a constant equilibrium, there's a constant Regression to the mean, really, and so that is always happening in the market. You know, I've been wrong a hundred times, a thousand times. That doesn't mean, the whole goal is not to be wrong or right, is the idea is to be right a little bit more than you're wrong, or when you are right, to really, if you are right and you see the reinforcements, is to push resources into that breakthrough. And that really makes up for all the times you're going to be wrong.

AI assessment note: “I've been wrong a hundred times, a thousand times. That doesn't mean”

Q compliance, and more. In the AI era, asset and wealth management firms moving to Ridgeline gain a decided advantage. That's why customers call it miraculous, game-changing, and an awakening. If that's not how you would describe your investment management tech, request a demo at ridgeline.ai. And now, back to the show. In your investment universe, do you play that by looking at, say, regional community banks in those opportunity zones?

A Well, I think that is certainly one way to invest in it. It's very, very early. Please keep that in mind. We don't even have the regulations from the internal revenue at this stage. All we have is a box, a framework from the tax bill, and this was something different people worked on for six years. Actually, the progressive wing of the Democratic Party, along with Republicans, Cory Booker. Senator Warner. This is a great example of what the country sometimes can accomplish when it does come together instead of just ripping the shreds out of each other every single day, and it will have an impact. It'll have a impact over time in terms of creating hundreds of thousands of jobs And opportunities.

AI assessment note: “Well, I think that is certainly one way to invest in it. It's very, very early.”