by Dimitri C. Michalakis/NEOmagazine.com
It all started for the convertible bond king at Pete’s Food Market on the West Side of Chicago. Between stocking shelves and sweeping up and making deliveries for his father (“I used to think: when can I go out to play?”) John P. Calamos rummaged around the basement one day and found some stock certificates dating from the ‘20s and ‘30s.
“I asked my dad about them and he said, ‘Oh, they were dropped off by an uncle of mine who was passing through,’” says Calamos of what became his first stock transaction when he was only a teen. Not that the stocks in the stockroom were any great shakes (Muntz TV, anyone?) But it spurred the nascent investor in him. “I talked my mother, who was very supportive of anything I wanted to do, into taking $5,000 of their savings and buying five stocks I had researched and which had spurred my interest.”
Fortunately, Texas Instruments was among them and the rest is history. From the basement to the boardroom, Calamos founded Calamos Asset Management in 1977, a mutual-fund company that oversees tens of billions in assets and is still family-run (he ran it with his older brother Angelo and now runs it with his son John Jr. and his nephew Nick), and it made its 71-year-old CEO and chairman a billionaire when it went public a few years ago.
And he’s still in the game, still the pioneer in convertible bonds, and still hungry.
“I feel good, I work hard, and I continue to work full-time,” says the affable market maven from the company’s headquarters in Naperville. A former Air Force fighter pilot (he still pilots his own jet) he routinely flies around the world on business, has written a definitive book on his specialty (Convertible Securities: The Latest Instruments, Portfolio Strategies, and Valuation Analysis) and is still bullish on the global and domestic economy despite the erupting crises.
“We’ve had crises this year–we’ve had earthquakes, we had the Gulf oil spill, we had Katrina not long ago, but some of the near-term reaction might be overdone,” he maintains. “Japan is a very smart country; they’re very smart people; they know how to handle these types of things, so we’re a bit more constructive about them. There’s some fear out there and it might have chased out some investors, but it’s also provided an opportunity.”
And the unrest in the Middle East might also have a silver lining. “One of the big trends that people seem to be ignoring is that around the world what we see is a very strong trend in the growth of the global middle class. We have to remember that what made both the United States and Europe as great as they are is the growth of their middle class. And we see the middle class growing in China and India and other parts of the world and that’s a very positive sign, because the middle class are the consumers of the world. Egypt, for example, has 80 million people and 40 million people of those are living at $2 a day; we hope that the 40 million become a middle class and that’s what they want, too: that’s why they’re marching in the street. The growth of the global middle class is a very positive longer term trend.”
Domestically, he says the recession has spurred a greater surge in savings in the middle class and that’s a good thing, too.
“In the United States there’s always been this sort of wealth effect: people feel wealthier when the price of their house and property is going up. And obviously that’s not happened. But they’ve done the smart thing: they’ve increased savings. Everybody would like them to decrease savings and spend more to get the economy going. But when you look at a family, they’re saying, it’s in my interest to increase savings, instead, and I think the middle class will continue to do well here.”
Won’t the new frugality affect the growth of the economy?
“It might, but people are doing the smart thing for them,” he says. “What happened here three or four years ago is that many people, the middle class and others, used their houses as a sort of cash register to get second mortgages, to refinance and get money, and I think now they’ve learned their lesson. They also bought houses they couldn’t afford and the government encouraged them and the builders kept building. Now things are stabilizing. We’ve bottomed out and both the consumer and job growth is coming back and that will help the middle class. We’re also seeing corporate earnings recovering very nicely. That’s a positive. And we saw a downtick in the unemployment rate. That’s a positive. It might be a slow recovery, but it seems to us to be on the right track.”
Unfortunately, he’s a bit more guarded about the outlook in Greece.
“When you read about it, it’s a bit discouraging,” he admits. “I had the honor of meeting Prime Minister Papandreou when he came to Washington a few months ago, me along with about a dozen or so other Greek American businessmen, and he was very attentive; he’s really trying to do the right thing. And the right thing to me is a very dramatic change in how that country is run.”
That dramatic change would include, he says, “much more of a market economy. They have to grow the private sector there. And they need to do things that will help grow the private sector. Just going out and borrowing money and more money and more money doesn’t work. It’s like when a company gets in trouble it renegotiates its debt, and that’s what they’re doing there, but the company also renegotiates its business plan. How do I grow my business? In the case of Greece, how do you grow the government’s revenue stream? How do you create incentives for people to have businesses in Greece and create jobs in the private sector?”
He realizes these might be seismic changes in the Greek way of doing business. “It’s got to be an awakening on the people of Greece to say, we can be a market economy, we can be a leader in that. We all honor the philosophy of Greece as the leader of Western civilization and how it showed us the way back then and modern Greece can do that now. How do you have the debts you have and still have a retirement age of 55 for men and 50 for women just because they do ‘arduous’ jobs? We all know that if we eat the Mediterranean diet we’re going to live to be a hundred. Well, who’s going to pay for those between 50 and 100 who are retired? That’s a lot of money. You eat the Greek diet and you live to be one hundred but you retire at 50? I should have been in Greece. I could have retired 20 years ago.”
He says he was shocked when visiting Greece last summer by the strikes in the middle of the tourist season, the economic lifeblood of the country. “Tourism is a major part of their economy, but they go out on strike! And I’m thinking, how can people do that when this is their income and yet they’re chasing people away? I would have advised Papandreou to fire them all, just like President Reagan did when the air traffic controllers went on strike here in the early ‘80s. He said, you go on strike, you’re fired. No public employee should ever have the right to strike, because who are you arguing with?”
He admits he’s not familiar with the day-to-day political challenges of Greece, but he’s crunched the numbers and the numbers don’t lie.
“If you look at the 10-year government bond spreads—Greece has the highest,” he says. “The yield on their government bonds is over 12%, the spread is 9% against the Euro and 9% against T-bonds, so it’s the highest. And then when you see some of the forecasts out there by some of the major economic forecasters, they got Ireland recovering nicely, and Spain recovering, and they have Greece going the opposite. That does not bode well.”
But he knows enough about Greek philosophy and culture to hope in the midst of despair (he took Greek philosophy in college and “got immersed in it”) and like every Greek he believes that a work ethnic can cure many ills.
He admits working long hours as a kid at his father’s grocery store was no picnic, “but it really hones your work ethic. My father used to say, we may not make any money, but we eat good.”
His parents hailed from Tripoli, though his mother Maria was born here, and Calamos was the first in the family (he also has a younger sister, Lorraine) to attend college—and he’s never looked back.
He graduated the Illinois Institute of Technology and got his MBA, but then admits he got bored “with the kind of job I might get working for a bank or something– so I joined the Air Force and became a pilot.”
That was 1965 and he had never been in an airplane before, but he went through one year of intensive training (“I am so proud of earning my wings—because you start with never having been in an airplane, let alone pilot one, and one year later you’re flying supersonic jets in formation at night”), and then served five years at the height of the Vietnam War and earned a Distinguished Flying Cross. “It’s the kind of thing you never want to do again,” he admits, “but you wouldn’t trade the experience for anything.”
He loved flying so much that when he got out in 1970 he went looking for a job as an airline pilot (he did serve 12 years in the reserve) while he hung time working as a stockbroker. But the recession got worse, and in the meantime he discovered the miracle of convertible bonds and got into the business of spreading the gospel.
“Back then there were very few people doing them and I got to specialize in them,” he says. “In fact, in 1985 I set up in the United States one of the first mutual funds doing convertible bonds. The other thing we did early on that was different is we (literally wrote the book) on how to use option price theory. We were a leader in that and today we’re probably one of the largest convertible bond managers in the world. We manage not only U.S. convertible bonds, but global convertible strategies, so it’s still a very exciting place to be and a lot of people do it now. But back then nobody understood them at all and what we’ve been able to do is navigate the different market crises very well going back to the ‘70s and ‘80s: we have very long term experience in this area.”
Though his father Peter thought he’d have done better in the grocery business.
“After I had some success,” Calamos told Chicago Magazine, “he once said to me: ‘If you had stayed in the grocery business, we’d be bigger than Dominick’s.’”
His son got bigger than Dominick’s, but he still honors the legacy of his father and mother and the pioneers to this country and he’s a major benefactor and booster of the National Hellenic Museum in Chicago’s Greektown.
“My mother and her family grew up three or four blocks from Greektown,” he says. “And I think it’s so important that my grandchildren and the next generation and the next generation after that remember the great immigrant experience here. We’re the last generation to really make sure that it’s not forgotten forever.”
He remembers his father telling about how he came over on a ship during World War I that hugged the shore to avoid German U-boats and how he earned his living in his early days peddling produce from a wagon.
“If you remember in the old days in Chicago you’d go to Randolph Street with your cart, buy some fruits and vegetables, then walk down the alley and sell them,” his son remembers his father’s tale. And he remembers his father’s pride when he finally opened his own store. “How big a deal was that? I have my own store? he thought. I don’t have to walk down the alley anymore. And when I think about that today, and the success they had, and how they worked so hard to make sure I was educated, I just don’t want that to be forgotten. It’s very important to me, and at the National Hellenic Museum part of what we’re doing is document the history of the immigrants coming through to America. To me that’s extremely important.”
Does that mean he sometimes misses sweeping up the old store?
“No,” he laughs, “I don’t miss Thursdays with all the deliveries I had to make.”
*This is the cover story of NEO, to read the latest issue online please visit NEOmagazine.com