Stifel CEO: Returning to the office is in the best interest of everyone

Ron Kruszewski, Stifel CEO and chairman, joins Yahoo Finance to discuss post-pandemic outlook, social trends in investing, and Stifel’s letter to shareholders.

Video transcript

BRIAN SOZZI: Bank earnings season is still raging on and so far so good. Deal volume has been solid, same goes for trading activity. Outlooks not so bad either. Amidst this backdrop, Stifel stock has hit a record high. Let's talk all about it with Stifel's chairman and CEO Ron Kruszewski. Ron, always good to see you. You know, I was thinking briefly, we haven't talked much about the infrastructure package this week. How big an economic driver do you think that will be if it does, in fact, get passed this year?

RON KRUSZEWSKI: Well, when you-- your previous guest talked about all the things that are happening in the economy and the stimulus. And we have over $2 trillion of excess savings. We have almost a trillion dollars of excess business investment opportunity. You've seen all the numbers come in. And it points to a very strong 10% GDP in the second quarter. Yet on top of that, we're talking about $2 trillion in additional infrastructure spending.

And that is going to have a real impact on the unemployment rate. I think it could push to some 3%. And then the real question is, while all of this is going on, you have real interest rates that are negative. And while the Fed is, on one hand, trying to get inflation back over 2%, I personally believe that these set of financial conditions are creating some asset bubbles. I hate to use that word, because no one ever knows when they're in a bubble.

But there are some-- we're really pushing some asset values when you look across the board with what I think is a suppression of interest rates and done so really by the Fed on purpose.

BRIAN SOZZI: Ron, to that point, do you think we're now at the point where investors would be wise to reassess valuations and maybe stocks do pull back from here?

RON KRUSZEWSKI: Well, I'm not-- I think that this-- we're in one of those periods. And no one ever rings a bell to either tell you to buy stocks or to sell stocks. And I'm not trying to do that. What I understand and I think investors need to understand is what happens to very, very high PE stocks when real interest rates, if real interest rates start to rise. There's convexity to that curve.

And you can see some of these PEs get halved, I mean, and halved easily. And I'm just-- I'm just not sure that investors are really focusing on the correlation between the low-low rates and these high-high growth stocks. And I think you sort of ignore that at your investing peril.

MYLES UDLAND: Ron, it's Myles here. And this gets to something you were writing about in your annual letter, about the role that Reddit and some of these social trends have played within the market. And you guys have seen that play out a certain way in your business. It seems like some of that steam has come out of the market just in the last few weeks. But what do those trends signal to you about this phase of the cycle, in the context, certainly, of everything we've just chatted about?

RON KRUSZEWSKI: I was more talking about the, you know, the almost convergence of social media and investing. And it's-- and I see a lot of good things about that, certainly investor education, getting people on the market. There's some good things. But there was a time there when these certain stocks were really just trading with no basis in underlying fundamentals.

And, you know, my comment was that our investors should be careful, to not have a fear of missing out on like the GameStop just frenzy. So it's here to stay. I do think it's calmed down a little bit. But there'll be another one, make no mistake.

BRIAN SOZZI: And Ron, you also write an annual letter. And your peers in the financial services industry have weighed in this as well. You're bullish on the return to the office. You view it as important. Why is that?

RON KRUSZEWSKI: We, first of all, we have successfully been able to work remotely. There's just no question that the technology and what we were able to do. We had a record year last year, record revenue, record profitability. I do feel fortunate about that but with, at times, 90% of people not coming to work. But I noticed rather early on the cost of that in the reduced level of collaboration, esprit de corps, training. In our business, we're an on the job training shop. That's how you learn the business.

And we have lost a lot by not being together. So I said in our letter that we will come back safely. But make no mistake about it, other than a few situations where we might be able to accommodate someone, one-off situations working at home, we're coming back to work. I think that that is in the best interest of really of everyone. And I look forward to that. We're not doing it today. But we're close.

MYLES UDLAND: And Ron, in that vein, we've seen some competitors of yours in the investment banking industry have, let's call it, upheaval among their junior staff and thinking through what people want to do with their careers. And I'm just curious how you've communicated with your staff and from where you guys are at today with, again, what's been a challenging period but one that is hopefully normalizing soon.

RON KRUSZEWSKI: Yeah, well, I think that is certainly the-- I've read some of the stories about the 100-plus week hour weeks. And I'm certainly hoping that we're not driving our staff to those levels. That said, most of the people on our investment bank aren't working 4o-hour weeks right now. We are very busy. And my partners are frankly pretty thrilled to be-- to have a lot to do.

There was a few years ago when we wanted to work 40-hour weeks, we just didn't have anything to do. So there is a balance. And I don't want to overly-- we've not had that issue really at Stifel about people complaining that we have too much to do.

BRIAN SOZZI: Ron, you mentioned also in your letter, before we let you go, 25 years as Stifel CEO. You're the only CEO of Stifel I've ever known. What have you learned as a leader the past year of the company?

RON KRUSZEWSKI: The past year, I think that, as much as things appear to change, they remain the same. The issues in the industry, whether it be the GameStop, that's occurred before. Whether the recent hedge or family office up in [INAUDIBLE], that's happened before. Markets are very volatile. People, fear and greed will take turns running the market.

And when you really want to understand what might happen in the future, often all you have to do is look back at the past. And you will see that. And I think-- and I think that's instructive today. Because I do believe we're running into a period that we will look back and understand that investors bid up some assets and, you know, non-fungible tokens, the digital art, some of these things.

We're going to look back and recognize that this might feel a little bit like '99. And we'll say, how did this ever happen? Well, it's happened before. So I just learned that, as much as I worry about the future, I get my answers by sometimes just seeing what's happened in the past.

BRIAN SOZZI: Yeah, I'm still trying to figure out what an NFT is. Ron, let's leave it there. Stifel chairman and CEO Ron Kruszewski, always good to see you. Stay safe. We'll talk to you soon.

RON KRUSZEWSKI: Thank you. All right. Bye.