Mario J. Gabelli, Chairman and CEO of GAMCO Investors Inc., headquartered in Rye, sees a potential recession as less of a concern than unresolved socioeconomic issues that will hurt those struggling to survive and, in turn, the broader market. Photo courtesy of Mario J. Gabelli.
In April, Mario J. Gabelli received a Horatio Alger Award — presented by the Horatio Alger Association of Distinguished Americans Inc., an educational nonprofit organization, to recognize leaders who have overcome adversity to achieve professional and personal success.
As Chairman and CEO of GAMCO Investors Inc., headquartered in Rye (formerly Gabelli Asset Management Co.), Gabelli is one of the most prominent analysts and investors in the financial services industry today. And in a life story worthy of the famous tales of Horatio Alger, he rose from humble origins as the child of Italian immigrants living in the working-class Bathgate Avenue neighborhood of the Bronx.
From the age of 12, Gabelli travel from the Bronx to work as a caddy in exclusive country clubs in Westchester County – sometimes by bus, sometimes by hitchhiking. But instead of returning home after the golfers finished their game, he stayed around and listened to the adults discuss the stock market.
“These guys came off Wall Street and were specialists,” he recalls, noting that he saw the value of investing from the country club talks. “I went public when I was 13.”
Gabelli attended Fordham University, graduating summa cum laude in 1965, and then received his Masters of Business Administration degree from Columbia Business School in Manhattan. When he finished school, he took jobs at Loeb, Rhoades & Co. as a security analyst. After almost 10 years, he felt ready to start his own brokerage company, which he called Gabelli & Co.
“I had 10 years of really intense focus and knowledge of every asset manager in the country,” he says. “And I thought I could find some money to start the company. But nobody wanted to join me because they wanted a salary.”
Gabelli made $5,000 in his first year of business and found that he did so by selling “industry specifics research to institutional clients for commissions.” The environment at the time was markedly higher interest rates and President (Gerald R.) Ford brought in the phrase “whiplash inflation now” and we had a significant increase in labor costs while interest rates rose dramatically.”
In today’s economy, inflation is at levels not seen in decades, and Gabelli sees the situation as a case of economic déjà vu.
“The extent to which the Federal Reserve miscalculated the impact on the super amount of money put into the system reminds me of the late 1940’s when we had individuals handing in their money during World War II, but couldn’t buy anything. ” he says. “And then what happened when the war was over, the shift to consumer goods took place and the prices of goods, housing and so on shot up. After two or three years that cooled down and inflation was in Order – not great, but contained.”
He then noted that the 1970s were complicated by the energy crisis, which further aggravated a stagnant economy.
“I had to queue to get gas and prices went up,” he says. “But the real concern at the time was price costs, driven by wage price inflation.”
In today’s economic climate, Gabelli is concerned that wage growth will lag behind higher prices for consumer goods, fuel and utilities, and that lower-income households will be particularly hard hit if the economy continues to weaken. In his view, the possibility of a recession is less important than the absence of a recession Solving the underlying socio-economic problems that were silently metastasizing during the boom years.
“From my perspective, it’s a recession,” he says. “That’s not what I worry about when investing. I’m concerned about the social impact. And the question then is, how bad is bad? How long it will take? And when it does bounce back, how good will it be and which sectors of the stock market will benefit? My comments take into account some social considerations but are really driven by the economic impact on public markets.”
Looking ahead to today’s economy, Gabelli is passionate about the defense and aerospace industries and warns the Pentagon needs to be more aware of the existential threats surrounding the nation.
“When you have the Chinese and the North Koreans and the Russians aiming hypersonic missiles, the Minuteman defense system that we built about X years ago reminds me of the Maginot Line that the French built before WWII.” he says, “We’re so far behind on hypersonics” — missiles that travel more than five times the speed of sound, or Mach 5 and beyond.
Gabelli is also intrigued by the potential of blockchain technology, but is less enthusiastic about the cryptocurrencies powered by this digital system.
“I like blockchain,” he says. “If I sell a share today, a customer only gets the money for two days. So the idea of being able to do real-time billing is accelerating. And as for cryptocurrency, we always monitor it. We bought some for $500 and sold them for $525 just to have them. I think people really don’t understand the tax implications. I don’t think anyone explained it to them.”
Gabelli adds that he worries about online trading, which many newcomers in their 20s have embraced too eagerly in recent years.
“If I’m 22 or 24, that means I started Pac-Man,” he says. “You are so knowledgeable about electronic games. But Robinhood came along and offered free trade to those sitting at home. They never trained them and allowed individuals to buy and sell securities without training.”
Financial literacy, he says, “should be taught in high school and high school.” While he is encouraged that more and more young people are “understanding a little bit more about the allocation of capital in the free-market system,” he acknowledges, “ that the bad news is that they need more education”.
Visit gabelli.com for more information.
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