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The Guy Factors

May 2019

By Jacalyn Askin

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Financial services expert and NACUBO 2019 Annual Meeting main stage speaker Guy Adami discusses multiple forces influencing the U.S. and global economies and the world of higher education.

Guy Adami

For Guy Adami, the ramifications of education are personal and global. Growing up in the village of Croton-on-Hudson, N.Y., the world was a very small place. When he began studying at Georgetown University, Washington, D.C., in the early 1980s, all of a sudden Adami was meeting people not only from different states, but also from different countries. His fellow students’ backgrounds and experiences ran the gamut, from the son of the prince of Jordan to a kid from the Midwest with blue-collar roots—and everything in between. 

Higher education opened up Adami’s mind, challenging him to realize that the way he grew up might have been great, but other people grew up in different ways, and one has to be respectful of that. “That was when the bell sort of went off for me that there’s a whole other world out there that I’ve really never seen before,” says Adami.

Attending a college or university isn’t just about learning a profession, says Adami. It is also about preparing the full fabric of a person for citizenship—learning how to live in the current environment, being part of a community, and giving back. “It’s got to be sort of a 360 thing.” Adami thinks it is incumbent upon institutions not only to train or position young people—including two of his own children who are currently in college—for whatever career they want to pursue, but also to “position them properly to be part of both the U.S. and global communities, and I don’t think those two things are mutually exclusive.” 

Described by The New York Times as the quintessential “Wall Street warrior,” Adami himself has spent his career considering U.S. and global financial communities. He has held high-level leadership positions with some of the top financial companies in the world, including CIBC World Markets Inc., AIG International Inc., Drexel Burnham Lambert, and Goldman Sachs, which he joined in 1996 as one of the many proprietary traders within the fixed income currency and commodity division. One of the original “Fast Money Five” on CNBC’s Fast Money, and a media analyst and financial services veteran who now serves as chief market strategist and director of adviser advocacy for Private Advisor Group, a nationwide network of leading financial advisers, Adami is an independent trader and champion for independent financial advice.

In an interview with Business Officer in March 2019, Adami—the NACUBO 2019 Annual Meeting closing main stage speaker on Tuesday, July 16, in Austin—provided an overview of the current state of the U.S. and global economies and offered his opinions on market implications and potential returns for endowments in higher education and beyond.

How would you describe the current state of the U.S. economy?

What are we really talking about when we talk about the U.S. economy? Well, 73 percent of the U.S. economy is driven by consumers. People going to conferences, people going out to dinner, movies, you name it—that’s what the economy is. So, consumer optimism is crucial. People will spend as long as they feel good about the economy.

Consumer optimism is in many ways an overlay of the stock market. Even though only about half of Americans own stocks, most people can tell you how well the stock market is doing. So, if the market is grinding higher each day—whether people own a share of the stock or not—they feel wealthier. If people feel wealthier, they’re inclined to spend. That good feeling stops when the market declines, as seen in 2008 and 2009, and, to a much smaller degree, in October to December 2018. Then everybody says, “Wait a second. What’s going on?” 

There’s a vested interest in the U.S. economy for markets to go higher because it fuels consumer optimism, which, in turn, fuels spending. I will never underestimate the U.S. consumer’s desire to spend. But, I think we’re at a point now in the cycle where I’m not certain that consumers should be spending. Right now, U.S. consumer debt is about 54 percent or so of the U.S. gross domestic product, and, in my opinion, that is unsustainable. I hope I’m wrong, but I think we’re at the precipice of something. 

What do you think are the implications of the growing U.S. national debt? 

The debt right now is at about $21 trillion and is growing every day, and U.S. GDP, within a couple of a hundred million dollars or so, is also $21 trillion. Depending on the metrics you use, we’re at either 85 percent to 105 percent of debt to GDP. A lot of people will say that it really doesn’t matter because the Federal Reserve can continue to print money. But, at a certain point, the market does care. The global debt to GDP is closing in on 250 percent and the China debt to GDP is 300 percent. 

The U.S. has a huge debt problem, but there is also a global debt problem that the markets haven’t cared about. At a certain point I think they will care, and we’re getting precariously close to that point. It will take political will and a temerity that most people don’t have to combat this. In my opinion, we’re headed down this rabbit hole, globally, that—unless we figure it out quickly—there’s really no way out. 

What is your prognosis for interest rates and the influence of the Federal Reserve?

The way I see it, the Fed thinks it can control the entire yield curve. And, the reality is it controls the front end of the curve, but it can’t control the rest of it. That’s how it is playing out now. 

Back-end 10-year rates have been stubbornly low. If five years ago I had described to an economist the current state of the S&P 500, the unemployment rate, and the GDP, and then asked where the 10-year yield was going to be, I think most economists would have said it’s going to be at least 3.5 percent, if not closer to 4 percent. In actuality, it is currently 2.6 percent.

So, why aren’t we seeing an increase in rates that’s going to steepen the yield curve? The back-end rates are so stubbornly low, in part, because of tremendous deflationary forces such as technology and global upheaval. I think we will continue to see downward pressure on rates because of the downward pressure on rates globally. Consequently, bonds continue to be a pretty interesting investment in this environment, as counterintuitive as that might sound. 

Results from the 2018 NACUBO-TIAA Study of Endowments showed that returns from the alternatives asset class were higher than other classes. What do you think are the consequences of the lackluster return rate in recent years, both overall and for higher education in particular?

It is becoming more and more difficult for people and institutions to get the returns they need. In addition, the central banks have flooded the system with so much liquidity that there’s this huge chase for returns. These pressures are forcing investors further and further along the risk curve, compelling them to take risks that they probably shouldn’t be taking or they’re not equipped to take. Imagine you are a fisherman, and you’re forced to explore more dangerous waters that you’re not accustomed to. You may still catch fish, but there are also potential negative repercussions. 

I hope what I see and what is going to happen are two different things. Potentially what could happen is that there will be some endowments that get into risk profiles that they shouldn’t be exploring. Alternative investments is a very broad term, and not all alternative investments are created equal. 

It is precisely because investors are looking for alternatives to their poor returns that we’ve seen this growth in investment alternatives—and it’s one of the big reasons we’ve seen a move towards cryptocurrencies and the like. But, there can be huge risk associated with alternatives. You might get outsized returns, but at what risk? Are you getting paid enough to take that risk? 

My suggestion is to stay the course. Unfortunately, I think there will be some that deviate from the course. And, while this might work in the short term and even the medium term, over an extended period of time I think it potentially could be catastrophic. We may have to muddle through a few years of less-than-desirable growth, but I think eventually we will get back on track. 

One of the topics that’s been paramount for colleges and universities is student debt. How do you think student debt might impact the U.S. economy, and do you think it is the next bubble? 

Right now, student debt is about $1.5 trillion, and that number will continue to ratchet higher. Even if I’m not willing to pay $60,000 per year for college, there’s somebody else out there who will, which means that the need for loans will continue to grow.

At what point in the cycle does the amount of U.S. student debt become a problem? Certainly, there are a lot of people talking about student loan debt being the next bubble, and I happen to believe that’s the case. Clearly, something needs to be done to slow down this exponential growth. The stock market hasn’t cared about it, and I don’t know when it will. But, at a certain point, these numbers will become unsustainable. 

If you think about it logically, as these students become businesspeople and workers, their ability to spend is going to be curtailed because they’re using so much of their income to pay back their loans. Eventually, this is absolutely going to have a deleterious effect on the U.S. economy. 

Increasing student debt is also a factor contributing to the decline of public confidence in higher education. What advice do you have for leaders for addressing this? 

I think the political climate is so polarized right now that one of the villains has become the college and university system. The criticism of higher education is that it’s indoctrinating our kids with a left-of-center view of the world that’s somehow not part and parcel with what this country was built on. I really don’t know how you combat that, but I think an important first step is accepting that this perspective is out there. That’s where I would start.

You also have to show people real evidence of the value of education—what it’s meant historically and what it could mean for an individual today and in the future. I happen to believe that the impact of higher education on a person’s life and community is very positive. But, the university system in this country has to better educate people about these positive outcomes. You have to start playing offense, instead of sitting back and allowing all of this rhetoric to get thrown your way. 

What might be the overall impact of student debt and the current public perception of higher education?

For starters, I think you’re going to have more and more people questioning the value of higher education. What is the value of an education at a secondary or tertiary institution that leaves you $40,000 to $100,000 in debt and doesn’t prepare you for a job that’s going to be able to get you out of that hole in the foreseeable future? As people come to grips with this dynamic, I think there’s a real chance that some of the secondary and tertiary schools will start to feel the squeeze. And it’s already happening. Think of the universities that have actually closed over the past decade. 

I also think that the chasm between the higher education haves and have-nots is only going to continue to grow. You’re going to have maybe a few dozen schools at the elite level that will continue to thrive, not unlike what we’re seeing in the U.S. as a whole. The chasm between the higher end and the lower end will continue to widen, and everybody in the middle will get squeezed. I think you’re going to absolutely see that in higher education, if you’re not seeing it already. The business model has to be evaluated. We’re not in the ’60s or ’70s anymore. 

What are some factors that will influence the economy in the longer term, say 10 to 15 years out? 

Right now, we’re experiencing the growing pains of a technology boom like we haven’t seen in quite some time. That will flatten out a bit, and I think the workforce and wage growth will catch up. Unfortunately, I think it will take a while to get there, and the process may be painful.

The populism that is currently gripping the planet is an absolute concern. Globalization is here and you can’t put that genie back in the bottle. If you look at the recent and ongoing upheavals in Great Britain, France, and Venezuela, for example, these are situations that we might not talk about on a day-to-day basis, but that are bubbling right under the surface and could have far-reaching effects economically.  

Speaking globally, where do you think investors can find value in an uncertain world?

Over the next five years, I think you’re going to find growth outside of the U.S. in two places, specifically. I think there’s tremendous opportunity in India, where a lot of companies are focusing on their growth potential. And, the African continent is going to be huge for people who can figure it out. If you look closely, the Chinese have made tremendous investments in Africa because I think they realize that the Africa-U.S. relationship is tenuous, at best, and they need to find the next growth area. Again, I would be really concerned with what’s going on in Europe. 

Where do you think investors should be focusing in the American landscape?

Because of the aging population, I think the health-care sector is going to experience continued growth, despite the fact that this administration and, quite frankly, both sides of the aisle have put a bulls-eye on big cap pharma and that industry. 

I also think cannabis is going to be one of the most disruptive industries that we’ve seen in quite some time, impacting not only the wine and spirits industry, but also the pharmaceutical industry, and even the cosmetics industry. Cannabis is this generation’s Prohibition, and those who figure it out will make fortunes. 

I also happen to believe that the best investment you can make for your family is in an education. And, I’m not just saying that because I’m talking to Business Officer magazine. The value of education was instilled in me and my wife, and we are working to instill the same value in our kids. 

What are your thoughts on the recent admissions scandal?

I am as outraged as anyone else, but maybe the silver lining is that this scandal will afford colleges and universities the opportunity to look critically at their institutions and get a better understanding of whether the playing field is really level for everyone.

What do you personally feel is the value of higher education? 

To me, the value of education is that it expands the mind. We’re so dogmatic in our views, and everybody is so siloed. Half the population is going to go home tonight and put on Fox News, while the other half is going to put on MSNBC because each station will reinforce their respective belief systems. We are increasingly living in echo chambers that are difficult to escape.

Education takes us out of the echo chambers. It exposes us to people with different points of view, from different cultures, different states, different geopolitical backgrounds, different economic backgrounds, and different sexual orientations, for example. For me, the value of education is that it opens your mind up to think, “Hey, I have opinions, but other people have different opinions and lifestyles. I don’t have to agree with them, but I can be respectful of them.”  

JACALYN ASKIN is senior fellow, finance and campus management, NACUBO. 


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It is becoming more and more difficult for people and institutions to get the returns they need.

—Guy Adami