The Zeitgeist – 3.19.2019

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


Major Equity Averages Recovered Last Week, But Challenges Remain [Forbes]

It’s Forbes contributor technical gobbledygook, so click at your own peril. But I admit, I was fascinated by the handy tool to choose-your-adventure on how to Tweet a link to the story. Little nudges everywhere. 


Profits Per Partner Hit $5 Million at Paul Weiss, Redefining Richest Tier [Law.com]

In case you don’t have a baseline for this kind of thing, $5M/Partner is…really good. But as headline-friendly as representing Tesla’s board would be, there’s gotta be more to the story to get to that kind of number for a firm with meaningful reliance on its fund formation practice…


CalPERS Moves Forward on Private Equity Revamp [Institutional Investor]


Ah. Well there you go.

Leave aside the windfalls for the Paul Weisses of the world for a moment. Yes, I rolled my eyes a bit at this whole PE episode, too. We (and many others) have been predicting this was the inevitable direction for many public pension plans for years. It’s frustrating that we’ve now reached this point – but nowhere near as irritating as the armchair CIOs on social media and traditional financial media ripping into the statement.

The right response for the staff of these funds isn’t derision, but empathy. It’s an almost intractable situation. They can’t force the state to take an axe to benefits. They can’t force the state to fund the plan with taxes. Most of them can’t even change their target rate, or the cost of living adjustment mechanics, without board and sometimes even legislative oversight. The consultants – risk transfer instruments for the board – are coming in hot and painting the staff into a corner with capital market projections that show both the magnitude of expected returns shortfalls and a light at the end of a tunnel that only passes through levered private markets investments and wishy-washy emerging markets overweights.

Like me, are you uncomfortable putting all the eggs of an increased risk-taking strategy in levered illiquid US small caps? Good. OK, let’s run through our alternatives:

Do you want to argue for layering on futures-based leverage in California? Cool. Yeah, we’re not going to let you take that kind of headline risk for us. You’re fired.

Do you want to argue for a public-only passive solution, trusting that returns will be enough? Cool. Yeah, our consultant’s telling us that would be imprudent. You’re fired.

Do you want to argue for a reduction in benefits? Whoa, stay in your lane. Also, you’re fired.

The railroading of public pensions into private equity is lamentable. It’s worth talking about. But let’s talk more about the things that are causing it – agency structures and a political unwillingness to talk about the inescapable interplay between return outcomes, benefits and tax outlays – and maybe a bit less about the staff forced into impossible situations.


Hemp, Inc. Subsidiary, The Hemp University, Announces its First West Coast, All Day Seminar in Ashland, Oregon [Business Insider]

LPT: Stick to sativa strains or else the afternoon is going to be a real drag.


Will 2019 Be the Year We All Start Renting Out Our Own Closets? [Vogue]

$250/Night, y’all, cash in advance.


Deutsche Bank and Commerzbank are finally merging – but critics worry about job cuts and patchy past deals [Business Insider]

“I really didn’t like his form on that Hail Mary pass, Tom. It’s almost like he just threw the ball up in the air and prayed that someone would catch it.”

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J
Member
J

Did you get that sweater with your purchase of Super Tecmo Bowl? Run and gun, baby!

Also, sorry.

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Curt
Member

Do you have the Oilers sweater in an XL? Asking for a friend.

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Wraith
Member
Wraith

Rusty, what an excellent set of comments regarding pension PE/funding status dilemma. Having worked in pensionstan, the suggestion toward empathy is well received particularly given the nature and sheer volume of Meetings…once to schedule meetings, and once to schedule Meetings. The agency structures inherent in most public pensions, exist to a large extend because of the structures (political/bureaucratic) directly above and another level above direct agency structures.

And we all know this. But it really can’t be overstated – your mission in pensionstan is to not get fired. That’s it. The incentive system because of the structures mentioned (which in turn are influenced by other more narrative-y things) are to keep your head down. PE is perfect for this – “we’re investing in REAL companies!”, no realistic mark to markets, appeal to authority “KKR is great!” etc.

On a related topic, Unicorns, Jawad Mian, author of Stray Reflections blog, has an interesting take that you can find on a recent Twitter feed. It’s long winded, but basically his contention that the Lyft and more importantly Uber IPOs have massive importance in steering the narratives on the private markets right now.

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Demonetized
Member
Demonetized

I wasn’t able to “Like” this comment with the button. But I did like it! Valuable takes both here and in Rusty’s post.

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This is what it means for a narrative to go bad. This is what it means for a story to break.

And when a story breaks, so does the stock. Not just for a little while, but for a loooong time.

Just ask GE.

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If Trump is reelected in 2020, I think he pushes forward a $2 TRILLION bond issuance that is fully or partially monetized by the Fed. They’ll be called Infrastructure Bonds.

If a Democrat is elected in 2020, I think she or he pushes forward a $2 TRILLION bond issuance that is fully or partially monetized by the Fed. They’ll be called Green Bonds.

We’re all MMT’ers now.

Read more

I’m Not a Raccoon! I’m the Lone Ranger!

By Ben Hunt | July 22, 2019 | 11 Comments

Price drives the transaction volumes of non-cash-flowing, non-productive things. Not the other way around.

There are prominent people at the intersection of Wall Street and crypto who know this to be true – who know that the “Yay, network effects!” narrative is BS when it comes to Bitcoin – but who promote the narrative anyway.

Why? Because they know that it’s narrative – even false narrative – that DOES drive the price.

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