“We used to play for silver, now we play for life; ones for sport and one’s for blood at the point of a knife.
Iconic billionaire George Soros has decided to return money to outside investors in his $25 billion hedge fund after more than four decades at the helm. While most of the assets under management are his and will remain active -- and we can’t blame the man for downshifting at the spry age of 81 -- his decision is yet another building block in the new world investing order.
I’ve been writing about financial markets for more than a decade and trading them for twice as long. While that was once a noble endeavor in a proud profession, the last few years have shifted everything from the mainstream perception of Wall Street to the DNA of the global machination itself. Our civil liberties, the foundation of free market capitalism, and the quality of life for future generations have dynamically shifted as we traverse our current course. (See: The Short-Sale of American Icons
I once offered that Shock & Awe was a tipping point through a historical lens; as Baghdad blew-up on CNN, I somberly sensed that the United States of America would never be the same. That’s not a political statement -- the last thing we need is another one of those, and we don’t know what might have been if we didn’t invade -- it’s simply an observation. Almost overnight, world empathy morphed into global condemnation, and every region of the world has since been on a path of self-preservation.
If we’ve learned anything through these years, it’s that unintended consequences tend to come full circle. Whether it’s the moral hazard of bailing out banks, the gargantuan profits of a chosen few -- Goldman Sachs
(GS), JP Morgan
(JPM), Bank America
(BAC), Morgan Stanley
(MS), Wells Fargo
(WFC) -- the caveats of percolating protectionism, or the growing chasm of social and geopolitical discord, times are changing at a breakneck pace.
As speculators are vilified and hedge funds are perceived as acceptable casualties of war, the financial fatigue will evolve in kind. We’ve already seen the burnout manifest in trading volume -- upwards of 70% of the flow are the robots -- and we’ve witnessed it in the financial media, with the reported ratings of some of financial television’s marquee shows down as much as 25% year-over-year. (See: The War on Capitalism
Sun-tzu once said, “If your enemy is superior, evade him. If angry, irritate him. If equally matched, fight, and if not, split and reevaluate.” As we navigate this socioeconomic maelstrom, an increasing number of people are weighing their options -- and some of the smarter folks are either going dark, as Stan Druckenmiller did last year. Or they're painting themselves a darker shade of gray, as per Mr. Soros. Going Dark: What that Means
The younger, more nimble professionals are selling businesses, unwinding trading operations, or otherwise distancing themselves from the capital markets. The thematic reasoning is straight out of an Ayn Rand novel: “I can’t compete and when I do, the rules of engagement change in the middle of the game. I’ll let the powers that be vanquish themselves and return in three to five years to sift through the remains.” (See: The Last Gasp Bubble
The first time I heard this, I took notice. The second time, it piqued my interest. Now, with four or five savvy seers having pulled the plug, I felt compelled to communicate these observations. I’m often early and sometimes wrong but I’ll always put it out there; while few are talking about this, it’s on many people’s mind. I’ll also share that the most lucid thought I’ve had since offering in 2003 that we should "sell tech and financials, buy energy and metals, and open a taco stand in Costa Rica" is to edge away from NYC. I’m not the panicky type -- heck, some would say I thrive under pressure -- but I would be remiss if I didn’t offer the respect of that honesty. I’m unsure if the genesis of this particular vibe is perceived quality of life or a safer domain for my family, but the intuition is palpable and ever-present.
As it stands, I'm not in a position to do that -- this is where we are and this is what we do -- but my personal choice doesn’t alleviate the overarching societal shift or the collective tension that seems to be percolating. I speak with a slew of people in an array of industries throughout the world and the "business is great" feedback is a rarity.
More often than not with increased frequency, the sentiment skews in the other direction, as do anecdotal data points such as thinning crowds at concerts and excess capacity at high-end restaurants and sporting events. There are of course exceptions -- $10 million plus homes in the Hamptons are well-bid, due in large part to again-fat Wall Street bonuses -- but they’re outliers in the broader array of our societal fray.
Now, I’m not suggesting we cower in a corner or sell everything to buy guns and butter. Further, I understand that most folks aren’t in a position to seize the day and walk away. I’ve written in the past that if we’re not part of the solution, we’re part of the problem. That remains true now more than ever; society, at the end of the day, is simply a sum of the parts.
George Soros, speaking last summer at a conference in Vienna, offered, “The collapse of the financial system as we know it is real and the crisis is far from over. Indeed, we have just entered Act II of the drama.”
As we wrestle with that reality and attempt to operate in the best interests of ourselves and those we love, some have chosen to extricate themselves from an increasingly tenuous struggle to focus on the little things in life. I suppose they’re lucky to have that option, and their actions are consistent with a widespread reprioritization following the Great Recession. I’ve written about them before; net worth vs. self-worth, having fun vs. being happy, and the caveats of looking for validation at the bottom of a bank account. (See: The Other Side of Wall Street
For those motivated to power through to better days and easier trades, the actions of a few affect the lives of many. We, the people, need motivated, innovative, proactive problem-solvers to remain engaged as the second side of the storm approaches. While our financial equation is multi-linear, my sense is that we’ve got four to five years of perseverance and preservation as a precursor to the profound, generational opportunities that will emerge thereafter. (See: The Eye of the Financial Storm
Looking at this emerging trend of “distancing” another way, we know that the opposite of love isn’t hate, it's apathy. Through that lens, folks backing away from the capital market construct may indeed be another step in the steady migration from what was to what will be. We often say the leaders who emerge from the crisis are rarely the same as those who entered it. At the very least, it should be noted that several former leaders have removed themselves from the running.