The Vindication of Cliff Asness

Cliff Asness is widely understood to be one of the greatest quant investors of all time. After a few years of sluggish performance, in 2022 he minted the best year ever for his AQR Capital Management, posting records at a dozen of its funds, including the firm’s longest-running strategy.

But is he vindicated? Not just yet.

“I personally don’t know what feeling vindicated really feels like,” he told me and my colleague Guy Johnson in an exclusive television interview . “I feel, I guess, partially vindicated. You know, it’s very nice that you talk about what a great year it was last year, but ’18 through ’20 was terrible for us. We’ve made all that back and more.”

As always, you can find this newsletter here on Bloomberg.com and can sign up for the Bw Daily newsletter here .?Asness drills down on how AI can play a role in investing -- and where it can't. He also speaks to the lessons he's picked up: “One major thing we learned is exactly how wrong I can be,” he told us. “Markets can be crazier than you think.”

The Largest American Borrower

Yields for 2-year US Treasury notes have surpassed levels not seen since 2007—scraping past 4.8% at the time of this writing. “The Fed’s really stuck between a rock and a hard place. They’ve got to get inflation down,” Jim Millstein, the co-chairman of Guggenheim Securities, told us on Bloomberg Television . “If you’ve got to hammer everything that looks like a nail, the best tool right now is higher interest rates.”

But that poses a conundrum. As Millstein puts it:

“The problem for the largest borrower in the world, that is, the US government, is that the average interest rate for US government debt is 2% on that $31 trillion. The weighted average maturity of the federal debt is five years. So that entire debt is being repriced in a much higher interest rate environment. Right? The 10-year is now almost at 4%, the two at almost 5%. So that average interest rate is going up.”

Millstein, who was the restructuring chief at the US Treasury Department in the wake of the 2008 financial crisis during the Obama administration, said the net interest bill for the federal government has risen from about $350 billion in 2021, and $475 billion last year.

He thinks it could surpass $600 billion this year. “That $250 billion increase, that’s bigger than the size of the army’s budget, so the Congress has now got a real problem in front of it—which is interest costs are squeezing out the potential funding of other important programs,” he told us. “We really do have to put the debt of the US and the deficits of the US back on a sustainable path.”

Who’s News

As Lael Brainard takes the spot as the president’s top economic adviser, a search for the next vice chair of the central bank continues. Vivek Ramaswamy, Strive Asset Management co-founder and author of Woke, Inc., said he’s running for the 2024 Republican presidential nomination . Rajiv Jain is everything Cathie Wood isn’t—the South Florida investor is building a stock behemoth . Read our profile of him here. McKinsey plans to cut about 2,000 jobs in the early years of the reign of its latest leader, Bob Sternfels. Goldman Sachs CEO David Solomon faces his next big test on Feb. 28 at the bank’s investor day, only the second it’s held in its history. I'll be down at Goldman's headquarters to cover the event in person -- tune into Bloomberg Television starting 7:30 a.m. and will be on throughout the day!The Vindication of Cliff AsnessThe Vindication of Cliff Asness

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