Succinct Summation of Week’s Events 4.2.21 (plus Purposeless Capital)

Happy Easter and here's the weekly summation for this shortened week.  The main positive is 154 million doses in the U.S. (though still not one for me yet); the main negative is the fall of Archegos Capital, which is also the bonus article for this week as it illustrates the flaws in mismanaged capitalism. The bonus also provides a rare philosophical perspective on the whole purpose (and yes, also purposelessness as the title suggests) of money.  Hope everyone enjoyed the holiday.  

Succinct Summation of Week’s Events 4.2.21

April 2, 2021 7:15pm by Barry Ritholtz

Succinct Summations for the week ending April 2nd, 2021

Positives:

1. More than 608 million doses have been administered across 150 countries, including more than 154 million doses in the United States.
2. Non-farm payrolls rose 916k m/o/m, above expectations.
3. Unemployment rate came in at 6.0% for March, below previous 6.2%.
4. ISM Mfg index came in at 64.7 for March, above expectations.
5. Consumer confidence came in at 109.7 for March, above expectations

Negatives:

1. The spectacular rise and fall Archegos Capital Management reveals large pools of unregulated, highly leveraged capital presents a potential systemic risk.
2. Jobless claims rose 61k w/o/w from 658k to 719k.
3. Home mortgage apps fell 2.2% w/o/w, below the previous increase of 3.0%.
4. Pending home sales index fell for 2nd straight month, -10.6% in February.
5. Construction spending fell 0.8% m/o/m, below the previous increase of 1.2%

Fri 4-2-21 Purposeless Capital - The Big Picture

Purposeless Capital

April 2, 2021 10:00am by Barry Ritholtz

To hear an audio spoken word version of this post, click here.

 “This has to be one of the single greatest losses of personal wealth in history.”   –Mike Novogratz

 Today is Good Friday. The spectacular rise and fall Bill Hwang and Archegos Capital Management make it a good day to reflect upon the philosophical purposes of money.

Described as one of world’s “Greatest Hidden Fortunes,” Archegos’ “epic meltdown” led Sonali Basak to observe, “Wall Street’s habit of lending to lucrative clients with few questions asked is getting unwanted attention.”

For the world’s largest banks, KYC + AML = LOL.

Let’s skip those issues to focus on something more intriguing: What is the purpose of money? To those fortunate enough to have accumulated a great fortune, towards what purpose is that capital aimed?

Once capital has defined ambitions, the next question is how one should then manage that fortune towards those goals. Failing to consider these issues can result in dissatisfaction, unhappiness and losses. This is true whether you are a family with a hundred thousand dollars or a family office with hundreds of millions or billions of dollars.

Without a purpose, money is merely an entry in an accounting ledger. But capital tied to a useful purpose has magical powers.

Reading about Archegos leads me to conclude that this was purposeless capital. I appreciate quietly accumulating a small fortune, a stealthiness suggesting status / social approval was not the prime motivation. Or, all that leverage made discretion a requisite.

Regardless, the elements of recklessness and mismanagement of risk makes me wonder what rationales were being expressed via these investments. All portfolios express a viewpoint, and if you learn to read between the holdings, you can identify purpose, goals, personality, and meaning. Towards what purpose was this extremely leveraged, wildly concentrated, incredibly risky portfolio constructed? Greater and faster returns. I can fathom no other explanation for why someone would build portfolios this way, other than “I want more NOW!”

What other motivation might there be for this deeply risky, borderline insane portfolio? Portfolios so hyper-concentrated they make Ark’s Cathy Woods blush, so leveraged they would raise the eyebrows of Lehman Brothers’ Dick Fuld.

Across the entirety of my career, I have repeatedly witnessed talented people get destroyed by their own refusal to get rich slowly. People kicked out of the industry for some stupid infraction, a manifestation of a lack of patience. Time and again, I see the insistence on right now! cause deep and irreversible problems. There are too many ways for investors to submarine their own prospects, but a lack of patience is perhaps the most consistent destroyer of wealth broadly seen.

The SEC should explore replacing the Series 7 Exam with the Marshmallow test.

Perhaps I am reading too much into this. Maybe Hwang was merely misguided, trying to repent for his prior (insider trading¹) sins; maybe his thinking was, this is for the greater good. We don’t know. We can never truly understand what is in someone’s heart. We can only look at their actions as a way to glean some insight into what they were trying to accomplish. (Note to self: Your actions matter more than written thoughts and unexpressed ideas).

This is the reason we deeply integrate planning into wealth management. Money without a goal is mere lucre. Capital without a purpose is simply currency awaiting mischief.