Sherman argues that flattening is a normal feature of a Federal Reserve tightening cycle and must be judged against long-term history. The more consequential warning is inversion, while growth and inflation can still push longer yields higher and steepen the curve.

Recent chart starting points can exaggerate flattening
The two-year versus ten-year spread was only modestly below its historical average
Fed tightening normally pressures the front end and flattens the curve
Inversion is more concerning than flattening alone

“But that's not a recession indicator.”
Jeffrey Sherman · 28:32

“this is an endemic of a FED tightening cycle, and so when the FED tightens, the yield curve tends to flatten.”
Jeffrey Sherman · 28:38

#yield-curve#recession#federal-reserve#bonds

Myth Buster48:43

Why Traditional Bond Indexes Give More Weight to Bigger Borrowers

Traditional bond indexes weight issuers by the market value of their outstanding debt. Sherman argues that this imports equity-market-capitalization logic into fixed income and mechanically gives larger allocations to entities that borrow more, even though greater indebtedness does not make them more creditworthy.

Bond index weight rises with outstanding debt
More borrowing does not imply better credit quality
Passive vehicles can become predictable price takers
Active bond managers can exploit construction and liquidity inefficiencies

“So the more you borrow, the larger position you are in the index.”
Jeffrey Sherman · 49:25

“No, you're absolutely less credit worthy.”
Jeffrey Sherman · 49:47

#bond-indexes#passive-investing#credit#fixed-income

Hot Take· 1

Hot Take38:51

Japan Offers a Preview of Developed-World Demographic Pressure

Sherman views Japan's extraordinary monetary policy and low yields as more than a creditworthiness story. Domestic investors seek returns abroad and repatriate capital during crises, while aging demographics and restricted labor-force growth may foreshadow challenges later faced by Europe and eventually the United States.

Japan remains the traditional home of the carry trade
Repatriation during crises can strengthen the yen
Europe may encounter Japan-like demographic pressure next
Immigration can serve as a faster labor-force stopgap than higher birth rates

“what we should learn from it it's a precursor of things to come in developed world and Europe is on that track.”
Jeffrey Sherman · 41:01

“Immigration is another thing that you need workers.”
Jeffrey Sherman · 41:32

#japan#demographics#monetary-policy#immigration

Explainer· 3

Explainer23:11

What Gundlach's “Sell Everything” Warning Actually Meant

The dramatic phrase was intended to make investors reassess excessive risk during a complacent market, not liquidate every holding permanently. Sherman emphasizes partial de-risking, patience, and setting a predefined condition for re-entering positions.

A frightening warning can reveal that a portfolio holds too much risk
Investors can monetize part of a position rather than exit completely
Every sale should include a re-entry condition
Central-bank policy and fear of missing out should not dictate unsuitable risk

“if you feel that you have too much risk on and you're nervous by the phrase sell everything, Barry, what that means is you probably…”
Jeffrey Sherman · 24:00

“anytime you sell something, you have to have a line in the sands to get back in.”
Jeffrey Sherman · 24:42

#risk#portfolio-management#fomo#gundlach

Explainer25:51

What Bonds, Stocks, and Commodities Say About Time

Sherman assigns a different temporal role to each major asset class. Bonds digest current macroeconomic information, equities discount future prospects, and commodities largely reflect supply and demand that has already occurred.

Bonds are comparatively contemporaneous
Equities are forward-looking discounting mechanisms
Commodities tend to confirm what has happened
Conflicting signals can arise because each market looks at a different horizon

“I think of the bond market as being more contemporaneous.”
Jeffrey Sherman · 26:05

“And then we call commodities the more of the laggard. They actually tell you what has happened,”
Jeffrey Sherman · 26:32

#asset-classes#bonds#equities#commodities

Explainer31:49

How the Fed Shrinks Its Balance Sheet Without Selling Bonds

When securities mature, the Fed can stop reinvesting the proceeds rather than actively sell holdings. Bonds that would have been absorbed by a price-insensitive central bank must then be financed by investors who care about price and yield, increasing market supply at the margin.

Maturing securities were previously replaced with new Treasury and agency-mortgage purchases
Stopping reinvestment reduces the balance sheet passively
Private investors must absorb supply the Fed would otherwise purchase
The scheduled runoff cap rises progressively over time

“those bonds need to be digested by price discrimination or people who are priced discriminatory when it comes to the price and yield those securities,…”
Jeffrey Sherman · 32:40

“This is simply them not renewing, not rolling over bonds that mature in order to strength their balance sheet.”
Barry Ritholtz · 34:02

#federal-reserve#quantitative-tightening#bonds#liquidity

Story· 3

Story02:26

How Statistics Pulled Sherman From Academia Into Finance

Sherman did not plan an asset-management career. His interest shifted from abstract mathematics toward probability, statistics, simulation, and financially oriented applications, eventually leading him from Florida State to a financial-engineering program in California.

He began as a pure mathematics student
Statistics and probability felt more compelling than physics applications
Awareness of Wall Street quant roles changed his direction
He transferred to Claremont for financial engineering

“Not at all, not whatsoever, really,”
Jeffrey Sherman · 02:26

“I was always kind of curious by statistics, and for some reason, I like the probabilition statistics course is a little more”
Jeffrey Sherman · 03:20

#career#mathematics#quant-finance#education

Story06:35

Why Joining DoubleLine Was an Easy Career Risk

When Gundlach's team moved to launch DoubleLine, Sherman viewed his early thirties as the right time to accept uncertainty. The chance to build a new venture with a highly respected investor outweighed the turmoil surrounding the move.

Sherman had already worked with the team for several years
His age made the downside of taking a risk manageable
The quality of the team made the decision feel obvious
The move illustrates matching career risk to life stage

“if there's a risk to take, this is the time to do it.”
Jeffrey Sherman · 07:06

“Why wouldn't you take a risk to join this person on a new venture?”
Jeffrey Sherman · 07:11

#career-risk#entrepreneurship#doubleline

Story19:29

The 5,000-Mile Internship Detour That Launched Sherman's Career

Sherman drove from California to Florida for an internship, only to receive a delayed message about an opportunity at TCW. He interviewed remotely, secured the position, and drove back across the country in three days, beginning the internship that became his finance career.

He initially accepted an internship at Florida Power and Light
A roommate relayed a TCW voicemail from an answering machine
He offered to return if TCW made an immediate offer
The round trip covered roughly 5,000 miles in about a week

“if you guys can offer me the internship, I'll come back.”
Jeffrey Sherman · 21:18

“essentially like five thousand miles over the course of a week, week and a half.”
Jeffrey Sherman · 21:40

#career#internship#persistence#tcw

Takeaway· 4

Takeaway22:12

Gundlach's Leadership Mix: Autonomy, Listening, and Direct Feedback

Sherman describes a low-turnover investment culture in which specialists receive substantial autonomy and room to grow. Gundlach listens to competing ideas but gives direct feedback when he believes an argument is wrong.

Specialist teams span the fixed-income universe
Portfolio professionals receive meaningful autonomy
Constructive criticism accompanies independence
Leaders can listen openly without avoiding disagreement

“he provides folks with a lot of autonomy you know, UM foster growth, UM constructive criticism when necessary.”
Jeffrey Sherman · 22:45

“he is very a very good listener.”
Jeffrey Sherman · 22:52

#leadership#autonomy#feedback#culture

Takeaway46:46

New Funds Need a Distinct Edge, Not Just Another Wrapper

DoubleLine evaluates proposed strategies by asking who they serve, what differentiates them, and whether they fit the firm's macro philosophy. Sherman favors offering distinct risk profiles and broader distribution over saturating the market with redundant products.

Define the target market before building
Identify an edge relative to existing products
Keep strategies consistent with the firm's investment philosophy
Design around client objectives and acceptable drawdowns
Distribution can expand without creating more products

“what's the tar going to market? What's our edge? How do we what what's what differentiates this from other things?”
Jeffrey Sherman · 46:54

“we don't want to saturate the market with products that we don't think has some different edge than something that currently exists.”
Jeffrey Sherman · 47:47

#product-development#funds#differentiation#risk-profile

Takeaway58:33

Teaching Calculus Made Sherman a Better Investment Narrator

Working as a teaching assistant forced Sherman to explain the same concept for visual and auditory learners. He connects that experience to portfolio management, where investors must communicate not only their conclusions but the reasoning and evidence behind them.

Teaching exposes differences in how people learn
Clear explanation requires multiple perspectives
Portfolio managers act as narrators of their decisions
A portfolio should follow from analysis rather than provide a post-hoc sales story

“I think that really helped to try and explain to people not just you know, do they have to be visual or the a oral?”
Jeffrey Sherman · 58:55

“we are narrators at times, right, we're giving out ideas, we're trying to explain why we're thinking what we're thinking.”
Jeffrey Sherman · 59:11

#communication#teaching#investing#evidence

Takeaway1:09:15

Sherman's Finance Career Advice: Study History and Follow Footnotes

Sherman advises aspiring finance professionals to become well read in political and financial history, listen to experienced colleagues, and persist through difficult scholarly material. When an article proves valuable, its citations provide a map for deeper education.

The finance industry is highly competitive and consolidating
Political and financial history provide essential context
Young professionals should absorb knowledge from people around them
Scholarly articles remain valuable even when initially difficult
Footnotes reveal the research lineage behind a useful idea

“Be the sponge, you know, make sure you you you kind of absorb that and you know, read scholarly articles.”
Jeffrey Sherman · 1:09:45

“The best thing to do when you find something you like, you find article like look at the footnotes.”
Jeffrey Sherman · 1:09:58

#finance-career#education#financial-history#research

Frameworks in this episode

CAPE Relative-Value Momentum Filter

True Exposure Decomposition

Wrong-First Robustness Test

Insights & moments

⚡Myth Buster· 2

A Flattening Yield Curve Is Not Automatically a Recession Signal