“Where are the bees?”
I saw this question asked on a local social media group recently. Several replies expressed the same sentiment. It seems like the neighborhood has a bee shortage, likely due to the overwhelming collapse of the world’s insect population. Surely the only insects left standing in a few years will be murder hornets. Or maybe my neighbors have never noticed their insects until after reading a scary article. To rebut anecdote with anecdote, I’ve got more bees than usual this year. Then again, I planted my garden with intention. The bees are there, you just need to give them what they want. Coneflowers and bee balm see high traffic. If you plant the same generic garden as everyone else on the block, don’t be surprised if you don’t get colorful visitors.
It’s like the old investment sales quote, “If the ducks are quacking, feed them.” This is a pretty nasty sentiment, but it has worked forever and will continue to work forever. Basically, your investment product sales guy doesn’t give a shit what’s right for you, he only cares about what you will buy. For the last decade that’s been alternatives of all flavors, shapes, and sizes. Investors have also been programmed to believe they need income so they love anything with yield. The problem is that yield has dropped across the board. At the same time, equity returns have shot up. Cutting back on equities to load up on yield has been a bad trade. Most investors don’t care, though. It’s more acceptable to fail conventionally than to succeed unconventionally. Instead of reaching for yield, an investor taking a total return approach would have done well. It fails several rules of thumb, but you would have made money.
The Birds and the Bees
Back to the quacking ducks. Today’s big investment product push is interval funds. The pitch is that they invest in illiquid securities just like hedge funds and private equity. Unlike private investments, interval funds are liquid. Well, liquid on a quarterly basis. And only as long as less than 5% of the fund’s assets are being liquidated. Savvy investors like you don’t rush in and out of investments, though so it shouldn’t be a problem, right? In theory, yes. In practice, not so much. People tend to want their money back at the same time (big market drops, poor performance, etc). In that case, investors have to wait in line to get their money back, often paying high fees while they wait. Yes, that’s right, you pay a premium, of course. But the ducks want exotic assets and if the ducks aren’t accredited investors, you can be sure financial institutions will find a way to structure a product to get around that.
Special Purpose Acquisition Companies (SPACs) are getting press today, too. While not necessarily a product sold to retail investors, it can be tempting to buy-in after reading a news story. Take Diamond Peak Holding Company. Right now, they don’t do anything. However, their plan is to perform a reverse merger with Lordstown Motors, effectively taking Lordstown Motors public and riding the electric vehicle hype train. As an Ohioan, I desperately want this to succeed. The hit rate on these blank check companies is pretty low, unfortunately. There was a decent uptick in SPAC activity during the financial crisis when a bunch were created to buy up insolvent fracking operations. They never seem to pan out for investors, though. Maybe it’s more of a compensation scheme for management. They get nice salaries and an option on the equity in case the business takes off. Now hedge fund managers are launching their own SPACs. It’s really tough to see these as good deals for investors. However, just like interval funds, the demand is there whether it makes sense or not. The ducks are quacking.
There’s not much to say about the pandemic other than it is ongoing and uncertainty abounds. The uncertainty is stoked by numbers games played by both sides. The fact that there are two sides to this is actually a good thing. For one, it means that the virus is now a much lower priority to government and media. Neither end of the political spectrum wants the virus to kill us all so we can conclude that they both see a positive outcome as achievable (not just achievable, but extremely likely) and are now merely jockeying for political points.
If you have a diversified portfolio and haven’t checked it since March, you may want to take a look. You may actually have a gain year-to-date.
Howard Marks of Oaktree has a good letter on his current thoughts. He’s been pessimistic, but he’s a distressed asset guy so hey. I like his take on where we are in the current market cycle: that the pandemic is a non- or extra- cyclical event. So where are we? We’re outside of the cycle for now. That’s a great perspective.
Personally, I feel like this will CHANGE EVERYTHING FOREVER in a similar way to 9/11. Post 9/11 it seemed like airlines were finished and no one would ever travel again. Then we slowly re-opened with TSA lines. Journalists gleefully reported sneaking boxcutters or multiple quarts of liquid through security without being caught. Kind of like that friend who would sneak Milk Duds into the theater. Those rascals. There were temporary fees added to plane tickets: fuel surcharges and baggage fees. Yes, THINGS CHANGED FOREVER. We still have the TSA. It may be 50% security theater (which has largely worked), but also what politician in their right mind would run on eliminating all those jobs now? Instead of disappearing, most of the ‘temporary’ airline fees have dug in like a tick. In fact, baggage fees have become a perverse incentive in many ways. There is a rush to board first to grab that precious overhead cargo space. We all know that one guy who packs a week’s vacation into his carry on because he doesn’t want to pay the extra $25 bucks each way. I can see the same happening with the pandemic. Maybe that means more flexible work situations, more Zoom meetings, expectations that sick people wear a mask in public. There’s also got to be some extra government regulation or handout there. There will be ‘temporary’ pandemic fees that will never die, but Western civilization is not coming to an end.
My take may seem optimistic, but it’s a fact that things aren’t nearly as bad as predicted. In fact, they aren’t hitting some of the best case scenarios from March. If you told me the entire country would agree to shut down for months, especially under this President, I would have said you are crazy. However, we went from struggling to flatten the curve to people now refusing to go outside until the entire population is vaccinated. How awesome is that? There’s a huge gap between muddling through versus eradicating a virus. Now we know who gets hit hardest, we don’t need a zillion ventilators, and there are multiple vaccines being fast-tracked (which may lead the way to discarding some red tape for medical researchers in general). I’m optimistic because things turned out better than expected and now we have the upper hand. It’s ok to feel that way.
It’s not all peachy. I don’t expect many people to get the vaccine when it comes out. It’s rushed which may make people wary that steps were skipped. There are conspiracy theories. The main thing for me, though, is that only 50% of Americans get the flu shot every year anyway. America also has an obesity problem. Both things that are within 90% of the population’s control, but we just don’t do it. Why would this be any different? Call it complacency or laziness, many humans just don’t like change even if it’s directly beneficial to them.
Back to Bees
I didn’t set out to write about the birds and the bees for this post. I just wanted to support my local pollinators. The bees were buzzing so I gave them what they wanted. I have enjoyed watching them work from my home office window so the other day I took some pictures. Then I remembered what a pain it is to find (and attribute) photos for the blog and decided to take a bunch of pictures and just use them for a while. The next few posts will likely have a photo or two of coneflowers, bee balm, or maybe a toddler with a fistful of ice cream sandwich. They probably won’t have anything to do with the post, but it solves a problem for me and hopefully you find it enjoyable, too.