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KENNY POLCARI

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Veteran equities trader and CNBC contributor Kenny Polcari talks with Opportunist’s Managing Editor Leslie Stone about the energy of the trading floor, his straightforward approach to the market and the yin and yang of food and finance.

Two of Kenny Polcari’s passions are the capital markets and home-style cooking. Every morning before the opening bell he writes a popular commentary from the New York Stock Exchange that actually gives him an opportunity to revel in both. “It’s my morning note called ‘Morning Thoughts’ and it details what the international markets did overnight and tells people what I think about the trading day’s action, and then I tie a recipe in to the mood of the market,” he explains. Recently, when the market had a bad day and investors were angry, he included his recipe for “Spaghetti with Arrabiata Sauce.” “Arrabiata is the Italian word for angry,” he wrote, “and this sauce … gets its anger from the red chili pepper.”  Polcari’s unusual approach—his “boots-on-the-ground” market analysis, as he calls it—and his clever pairing of finance with food is frequently featured in the media. He regularly appears on CNBC’s “Power Lunch” with Sue Herera and Tyler Mathisen and “Closing Bell” with Bill Griffeth and Kelly Evans.

Opportunist: Where did you get the idea to include a recipe with your market analysis?

Kenny Polcari: One December morning a friend in Texas and I were chatting about our weekends and I was telling him it was so lousy here that I’d stayed in, kept the fire going and cooked. People who know me know how much I love to cook and entertain—food is nurturing and nourishing and I enjoy having people to my home and cooking and feeding them—so, of course, he asked what I made. When I told him arugula pesto he wanted to know how I made it. I was writing my ‘Morning Thoughts’ at the time, so I added the recipe at the bottom for him. After I hit the send button I realized it accidentally went to 20 people on my list, and I thought Oh no! I’m going to get my shoes broken today. [Laughs] The funny thing is that didn’t happen. People starting calling and asking: ‘What’s up with the recipe?’ I spent all day retelling the story of how I meant to send it to one person. Everyone said it sounded delicious, so I started including recipes all the time and it just grew. When I started writing my morning marketing commentary it initially went out to customers only. Then I started to do a lot of TV market commentary on Bloomberg and CNN and Fox, and one day in August 2010 when the French banks were getting hammered I thought OK, why not feature French toast because the word toast has this connotation. So I did it and it went like wildfire. Bloomberg asked me to come on TV and do my market commentary and introduce myself and my recipe to the audience. I asked if they were sure they wanted me to get on TV and talk about French toast, and they said ‘Absolutely!’ So the anchor introduced me as this floor trader and I did my market commentary and introduced my French toast recipe. Things really exploded after that because people saw it on TV, and then about a year and a half ago CNBC invited me to be an exclusive contributor. I continue to write my ‘Morning Thoughts’ every day and I only do market commentary for CNBC right now. Today my ‘Morning Thoughts’ goes out to 3,000 people—free of charge—as well as on my Twitter and LinkedIn account.

Opportunist: What is your role with CNBC?

Kenny Polcari: I do market commentary across a range of their programming, including ‘Power Lunch,’ ‘Squawk on the Street’ and ‘Closing Bell.’ Those are all business programs but they allow me to be me and that makes it lots of fun. Sometimes it will be ‘Kenny, what’s on the menu for today?’ [Laughs] It connects with people because finance can be unnerving and yet food can be nurturing. There’s a certain yin and yang between food and finance. I speak to the crowd versus at the crowd about the market right from the thick of it and that makes for an easy and enjoyable conversation. I love to talk about the market, what moves the market and to engage with other professionals such as portfolio managers and CEOs on the show.

Opportunist: Can you give us a little insight into your ‘boots on the ground’ market analysis?

Kenny Polcari: It started after the financial crisis, when the global financial system came to the brink as a direct result of very complex derivative products that in the end proved not only confusing to a lot of people but the potential undoing of the global financial system. I was 45 when I witnessed this devastation. You don’t have an opportunity to make up your life savings when it goes poof at the age of 65, but I still had time. My analysis is sort of your Basic Investing 101, like buying stocks that are good performers and not all these complex products nobody understood. I have a broad working knowledge of how the markets work and what’s right and what’s wrong with them. I tell people, ‘Look, here’s the view and here’s what it feels like right here in the trenches.’ My job forces me to think short term, so the value ad is helping customers efficiently execute their orders into the marketplace.

Opportunist: Who or what inspired you to become an equities trader?

Kenny Polcari: A broker named William Latham offered me a full-time job at the NYSE upon my graduation from Boston University in 1983. He started here as a 17-year-old kid right out of high school from Rosedale, Queens, and didn’t have the wherewithal to go to college so his first job was as a janitor. Somebody took a liking to him and taught him the business and he ended up having the most incredible career at the NYSE and became a member in the early 1970s. He’s still alive today and lives out on Long Island, and he’s one of the greatest men I have ever met in my life. He gave me that opportunity and taught me and encouraged me to succeed, which is everything you would expect a mentor to do. I am forever grateful to him for the opportunity to have made a career at the New York Stock Exchange.

Opportunist: What made you want to keep coming back?

Kenny Polcari: I’m very much a Type A personality and the stock exchange just threw me right into the thick of it. When I originally came down here as an intern in the early 1980s the exchange was filled with 5,000 Type A personalities who spoke a language of symbols and fractions. It was an auction market that seemed chaotic at first but I soon realized it was the most incredible thing I’d ever seen. Representing customers at the point of sale and carrying out the business of the nation was so incredibly exciting and it drove every single person who worked here. If you couldn’t survive in that setting this was not the place for you. As you can imagine, people like that have very animated personalities. This building used to shake with energy every day, whether they were up days or down days. That pressure never let up and that is what drew a certain person here. It has truly been an amazing career path for me.

Opportunist: How has the trading experience changed through the years?

Kenny Polcari: The floor is a vastly different space today. The open outcry is gone. That was eliminated in the early part of this century. The NYSE is still the heart and soul of capitalism but it’s no longer the place it was. If you walk down here today you hear this quiet hum. Much of the transformation is due to the onset of automation, electronic trading, and access and rule changes that took place within the industry along the way. There was pressure in the 1990s to automate trading, and to do so meant breaking the fraction and trading in decimals. Back in the day there were only seven price points to trade, but there was a real art and science to it. You had to think on your feet and assess the crowd and determine how aggressive they were. You didn’t have just one stock to trade; you could’ve been trading eight, nine, 10 or even 15 different names. That’s something you can’t learn in college. You felt it in your belly and your gut and you understood supply and demand and how to read the crowd. Your whole day was centered on your ability to act in a crowd and fight for that customer and get the best price. People who were down here could do it so well.

Before trading could be automated they obviously had to break the fraction and trade in decimals. Once decimalized, the industry realized they could get engineers and computer technicians to write algorithms to try and mimic what the broker did. As an American I fully understood it, but as a businessperson I have seen so much devastation and loss of jobs. It’s sad in a way but it’s also progress. Today I access the market electronically via a handheld computer much like an iPad, no longer bidding out loud. I represent myself in the system so the computer knows I am bidding or offering a price. Although it’s very efficient, it ripped the guts out of what was the central marketplace.

Opportunist: When you look back on your career, what are the most pivotal moments?

Kenny Polcari: The 9/11 attacks changed the face of the world we knew and the U.S. capital markets. Investors from around the world came here to list their stock and raise capital. This is where it all happened. The World Trade Center was only three blocks from the stock exchange. When the twin towers collapsed in a pancake fashion, the wiring, the cables and communication lines that ran through the belly of the complex were destroyed. The stock exchange essentially became neutered and the U.S. capital markets did not trade for several days. For a solid week, repairmen from Verizon and AT&T rewired the NYSE to get it back up and running as the world awaited the return of the heartbeat of the U.S. capital markets. The market reopened the following Monday, Sept. 17, 2001.

Opportunist: Can you describe the atmosphere for us?

Kenny Polcari: It was very difficult on a number of levels, but I have never been more proud to be an American than I was that day. When the opening bell rang at 9:30 a.m., the 5,000 people working at the exchange did what they had to do for their country. Phones started to ring and we took orders all day long. Then, at 4 o’clock the closing bell rang and there was a collective sigh of relief.  The men and women at the heartbeat of it all proved, after seven fearful days when people couldn’t access their cash or move their money, that there was nothing fundamentally wrong with the economy. The system did not fail, and we as a nation did not fail. We looked at each other and understood that in the end the terrorists did not succeed.

Opportunist: Where were you when the planes hit the twin towers?

Kenny Polcari: I arrived at my office on the 55th floor of the second tower at quarter to seven. My colleagues and I would typically head over to the floor of the exchange around 9 o’clock to do business, and I remember a couple of guys stuck their heads into my office about 8:05 and invited me to breakfast. It was a spectacular day outside but I declined because I had work to catch up on, so they left without me. To get to the lobby from the 55th floor you’d have to take the elevator to 46th, get off and walk around to the other side of the building and take another elevator. So it took about 10 minutes to ride all the way down. By the time my colleagues got outside one of them said, ‘Look, you guys go and get a table. I’m going back up to get Kenny.’ I don’t know what made him decide to come back but I was startled to see him pop his head back into my office at 8:20. I asked what he was doing and he said, ‘Hey Kenny, it’s a gorgeous day. We will come back at the end of the day and help you do all this work.’ I remember looking out the window and down at the stack of papers on my desk and thinking I am kind of hungry. So I picked up my coat and left with him. Had he not come back to get me, the truth is I am not sure if I’d be here talking to you. When the first tower was hit the alarms went off in both buildings, forcing people to evacuate. Workers from the 55th floor had only reached the 25th floor stairwell when our building was hit. Some made it out with three minutes to spare before the building collapsed. I know who I am. Would I have been in the stairwell helping people? Would I have made it out within those three minutes? I will never know the answer.

Opportunist: What is your greatest fear in the markets right now?

Kenny Polcari: I’m afraid market prices are deceptively ahead of where the fundamentals say we are. They have to reprice the risk based on current fundamentals. If they don’t do this correctly, we could see another correction.  We went through this extremely difficult crisis, and then the central banks around the world—U.S. Federal Reserve, European Central Bank, Bank of Japan, Bank of China—came together to stabilize global financial markets. I’ve been thinking for quite a while that we are in over our heads and now, as the Fed starts talking about withdrawal of QE, the market is starting to come under pressure. During the days of free money and low interest rates, the Fed forced the risk trade as asset managers searched for yield. Retail investors lost confidence in the system during the crisis five years ago. We want a vibrant and strong U.S. capital market. We want people who want to invest and who understand the system and the risk. As the Fed withdraws, investors should expect the market to correct. That is not a reason for fear or panic. A strong and vibrant capital market will go a long way in restoring investor confidence.

Opportunist: So you believe the Fed should continue to taper QE?

Kenny Polcari: I do believe they should continue to taper QE, as long as the economy continues to strengthen.

Opportunist: Which market sectors are you bullish on and why?

Kenny Polcari: I like big infrastructure and big industrial type names and companies that will come in and change the world. These could be tech companies or basic construction equipment and infrastructure stocks. If you believe in the bigger global rebound, then you have to believe that the industrial sector will do well. I do believe the global turnaround is going to take place, albeit slowly. Additionally, as the economy improves, financials are another sector that will excel.

Opportunist: Are you encouraged that the economy is recovering?

Kenny Polcari: I think the economy is still weak. There’s a definite disconnect between what the market tells you and what the country is really feeling. On one hand the stock market looks great, but when you walk around and see four or five empty storefronts in the city where you live or your neighbors are still out of a job you realize there is something seriously wrong. My frustration is that our leadership doesn’t seem to recognize this—and that goes for members of Congress, Senators and the President. There is a huge disconnect between what the market is telling you and what average Americans are feeling, and I think that will continue to be a big concern until the economy starts firing on all cylinders. I doubt we are there yet no matter what they tell us.

Opportunist: We just have to ask … who taught you how to cook?

Kenny Polcari: My two Italian grandmothers and my mother. Life revolves around the kitchen and food in an Italian household, and they were incredible cooks. My maternal grandmother is 101 years old and continues to cook, and she is a shining light in my life. Both of my parents like to cook but my dad didn’t cook so much when we were little because he was working. There were four boys and one girl in my family—and the brothers love getting into the kitchen and cooking while the sister doesn’t. [Laughs] My wife and I love to entertain at our home and food is how we do it. If you come to our house we share food with you and it’s kind of an intimate experience. I find it relaxing and peaceful. It helps calm me down because it’s creative, so whether I’m serving my own two girls or having a dinner party it gives me an opportunity to be nurturing and creative.

Opportunist: What’s next for you? Have you considered writing a book about your experiences in the market or a cookbook perhaps?

Kenny Polcari:  I just started putting my book idea together and I hope to have it published by the end of this year. It will be very much about what you and I have just discussed: part history and story and memory and, yes, it will also have recipes in it [Laughs] because that is part of what defines me.

I’m still very active. As the world changes, I continue to change with it. In addition to my business and market commentary, I speak at colleges about the history of the financial industry and the stock exchange. I feel it’s a story that needs to be told because, whenever I speak about it, people tell me they didn’t know that was how it worked. People don’t understand the impact of 9/11 and technology and the dot com era, so I explain all of that. I also enjoy speaking at industry events and investor events, and I do it very passionately. Whenever I’m asked, I return to my Boston University alma mater and do a lecture or a graduate class about market structure and what’s right and what’s wrong with it.

Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in Florida. Follow her on Twitter at @lescstone.

This market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates.

Follow Kenny Polcari on Twitter @Kenny Polcari

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