The Sunday Drive - 04/27/2025 Edition [#160]
Musings and Meanderings of a Financial Provocateur
👋🏼 Hello friends! Let's enjoy a leisurely Sunday Drive around the internet.
🎶 Vibin'
This weekend, our daughter was a bridesmaid for the first time — in her college roommate’s wedding.
The cycle of life…
Friends graduate from college, begin careers, start getting married (and attending or being in the bridal party of each others weddings), then go on to start families of their own…
…and so it goes.
Poor Molly’s wedding day was marred by rain. But as the saying goes, it’s good luck to have rain on your wedding day.
As I look back on the bit of rain on our wedding day nearly 33 years ago, I’m grateful for it and for the gift of finding my Everlasting Love. RIP Natalie Cole, and thank you for the gift of this beautiful song which has blessed so many couples and their wedding celebrations.
💭 Quote of the Week
“The idea that the future is unpredictable is undermined every day by the ease with which the past is explained.“
— Daniel Kahneman
📈 Chart of the Week
Tariff-mageddon
As my kids would ask when they were younger—and what eventually became a family meme, “Is that even a word?” My answer to which was always, “It is now.”
In my 35 year career as a professional investment manager, I’ve had the honor and privilege of being entrusted to look after other people’s money during three of the four post-WWII periods of—what felt at the time—to be existential threats to the global financial system.
In the Great Financial Crisis of 2008-9, it actually was a threat to the system as the global economy worked through what some might call the Mother of All Deleveraging Events.
The COVID period of market calamity in 2020, while unprecedented in its cause—a worldwide economic shutdown, wasn’t ultimately a threat to the global financial system as it was met with never before seen levels of fiscal and monetary stimulus. The ramifications of that stimulus are still being worked through to this day.
I was in college on Black Monday in 1987 when the S&P 500 fell 22% in one day. That dark day was more or less mechanical in nature, driven and exacerbated by an innovation referred to at the time as portfolio insurance. The options and futures markets were still fairly inefficient and not as developed as they are today. Portfolio insurance was implemented by large institutional investors e.g. banks, insurance companies, and pension funds and entailed shorting the equity market as it fell to offset portfolio losses. This was done by shorting futures or buying put options. This was all well and good when a handful of institutions were doing it, but when everyone was doing it at the same time… Well, we have all heard about what happens when someone yells “Fire!” in a crowded theater.
One item of lore I remember hearing about sometime after October 19th, which may or may not be true, is that late in the day Warren Buffett is said to have sold a $3 billion five-year at-the-money S&P 500 put option for a $1bn premium—a 33% yield. This bet meant that the market could be down another 33% over the course of five years before he would lose money on the trade. Buffett essentially bet on the global financial system surviving and that capital markets would recover over time, which they did—starting the next day.
Which brings me to the recent tariff-driven turmoil.
I don’t wish to comment on the pros or cons of tariffs. But I will say this. I do think that some progress could be made in terms reducing the disparity of tariffs imposed by other countries on the U.S. versus tariffs imposed by the U.S. on other countries. Perhaps this has been the policy goal all along. I don’t know.
However, one thing I do strongly believe is that it is simply not possible to do away with the economic concept of comparative advantage and that in the end, pragmatism will prevail.
This period feels more like 1987 to me than the other periods of extreme volatility. The role of “portfolio insurance” is now played by Managed Futures, Risk Parity Funds, and other mechanical strategies that systematically sell the market as it falls, exacerbating and extending overall losses in the market…and creating buying opportunities for those investors willing to bet that the wheels are not going to come off the global economic system.
🚙 Interesting Drive-By's
💡 Globalism Isn’t Dead. It’s Changing.
💯 Why Solopreneurs Thrive While Companies Cut Staff
🤔 What Happens When Everything Becomes a Meme?
💸 The Longevity Paradox: How Longer Lives Create New Financial Complexities
🤓 Your CEO Just Said, “Use AI or Else.” Here’s What to Do Next.
👋🏼 Parting Thought
If you have any cool articles or ideas that might be interesting for future Sunday Drive-by's, please send them along or tweet 'em (X ‘em?) at me.
Please note that the content in The Sunday Drive is intended for informational purposes only, and is in no way intended to be financial, legal, tax, marital, or even cooking advice. Consult your own professionals as needed. The views expressed in The Sunday Drive are mine alone, and are not necessarily the views of Investment Research Partners.
I hope you have a relaxing weekend and a great week ahead. See you next Sunday...
Your faithful financial provocateur,
-Mike
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