A $28M Scheduling Conflict

Way back in 2017, Amazon splashily announced plans for a second headquarters setting off a crazy wooing contests from cities around the U.S. Last month Bezos again splashily announced he'd would be launching into space via his Blue Origin company on July 20 in the first manned commercial trip to space AND would be auctioning a seat on his, umm...interestingly shaped rocket for the historic trip. Naturally, someone very rich (if only to underscore the fact space tourism is only for the uber wealthy) paid $28 million for the privilege of being a part of history and getting to pal around with the world richest man. Great! Everyone's happy and feeling good! To add to the party Bezos also picked 82-year old aerospace pioneer Wally Funk to join them. Funk trained for but never made to space 60 years ago, because, you know, it was the Mad Men era at NASA. 

Then of course on July11 another billionaire Richard Branson beat Bezos to the punch by successfully completing the first fully-crewed commercial flight to the edge of space and briefly holding the entire world's attention (before it shifted to the Euro 2020 final later that day). Something, funnily enough, predicted by the Simpsons, among other things. In the process Branson firmly took the shine off Bezos' upcoming "historic" trip. You can tell team Bezos was pissed...even contesting whether the Virgin Galactic flight even made it to space at all, by getting into technical arguments over the boundaries of space. 

So, now the holder of that Blue Origin ticket just remembered he had an important meeting that day and just can't make it. Yeah, sorry, priorities. He will take advantage of Blue Origin's no-fee change policy and reschedule. The super busy person will be replaced by Oliver Daemen, an 18-year old gap year student and son of one of the losing bidders. “At 18 years old and 82 years young, Oliver Daemen and Wally Funk represent the youngest and oldest astronauts to travel to space,” according to a Blue Origin statement. Hmm...I dunno know. Seems very convenient. By pulling in Daemen, of just barely legal age, at least Blue Origin can say they hold the age category records on both ends in the first-to-space race. 

So, I think this was less a scheduling conflict and more of a Blue Origin PR ploy. Which everyone was okay with. Because let's face it is likely that many of the people willing to pay tens of millions of dollars to fly, sorry...rocket, to space with Bezos for 10 minutes were doing so not just for the experience, but also for the opportunity to network with the world's richest man. It's an investment, perhaps even a business expense. And working with Bezos to make it better for Blue Origin was probably an easy choice.

Volatility and Your Portfolio

When investment managers talk about portfolios they always try to accentuate the value-add or "alpha" they are purportedly generating. Yet, in efficient markets the vast majority of a given portfolio's returns will be derived from a set factor exposures or "betas". There are many such exposures: market beta, value, growth, momentum/trend, quality, size, duration, credit, etc. But at the end of the day, as Chris Cole from Artemis Capital, points out everyone is fundamentally making a bet on one thing: volatility...mostly by shorting volatility. Even in a highly diversified portfolio, most asset classes and strategies are short volatility, i.e., on average, they perform worse or lose value during periods when volatility rises. Only a few strategies are actually long volatility, including short bias, arbitrage (M&A, convertible, statistical arbitrage, etc.), and systematic macro (technically long gamma or volatility of volatility). This below chart (click to enlarge) highlights what we mean: 

It's Coming Home...to Italy

Ah, the agony and the ecstasy! In a tense, dramatic final Italy edged out England 3-2 on penalties (1-1 a.e.t.) to win their second European championship, and the first since 1968. Poor England, who came so close after a dream start but were once more undone by the curse of penalty kicks. To be fair, Italy was the better side, controlling the game for long stretches and producing the best chances. Highlights below: 

Still, the English team under Gareth Southgate had much to be proud of and gave the country hope and joy after an awful year of Covid-19. Many, including politicians, took to singing the long-suffering English fan's anthem: Football's Coming Home. The 1996 Three Lions song, which both celebrates and pokes fun at England reached #4 on the British charts. (But technically, has the Euro ever been home?). 

Alas, the drought continues, 55-years and counting...but perhaps that's the charm of the English team...the lovable losers whose time never seems to come, where decades of angst work to unite generations of English fans who all share heartbreaking memories of one sort or another. There is a purity of emotions and empathy among them that will inevitably be lost when England does finally achieve success again. Till, then keep on singing...

Also, if the research is right, buy the FTSEMIB and short the FTSE 100 next week.

Asset Class Halftime Report: Crypto and Commodities Lead

We're half way through 2021 and it's a good time to take stock of how different asset classes are doing YTD (Click to enlarge):

Commodity indices (WTI and CRB), banks and copper were the biggest winners in the first half of the year. Oil is up 50% YTD, with strong performances in both Q1 and Q2. The CRB Index which consists of 19 commodities and is 40% Energy, has returned approximately 25%. Banks had a great Q1, and while their rally did fade in Q2, are still up more 20% YTD. The same for copper. 

What asset classes lagged? Gold! Despite concerns for inflation. Bunds, Gilt and BTPs were all down in the first half of 2021 as high growth expectations in Q1 pushed yields up. The same for EM bonds and U.S. Treasuries. All of those asset classes did rally a little bit in Q2, however.

What about Crypto? Bitcoin had a volatile (normal?) 6 months, rising from $28,987 at the end of 2020 to $63,398 on April 13th before falling to $34,577 on June 30th for a YTD gain of 19.3%. Ethereum, the lesser known, but more useful crypto currency gained over 300% over the same period. And what about Dogecoin, Elon Musk's favorite crypto currency? Doge began the year at $0.005 and rocketed to a high of $0.69 on May 7th prior to Musk hosting SNL on the 8th, before dropping to $0.25 on June 30th, for a YTD gain of 5000%. So, yeah, say it with us "who let the Doge out? Who? Who? Who?"

Marvel Saves the Action for the Big Screen

Now that Disney is making original Marvel content for its streaming service, Disney+, the journalists over at the WSJ did an interesting analyses comparing the amount of action scenes in Marvel's blockbuster release Black Widow and their recent series for Disney+, such as WandaVision, TFATWS, and Loki. I'm sure it was hard work sitting through superhero spectacles, but someone had to do it. And the results:

Yup (at least based on this small sample), Disney seems to offer more bang for your buck on the big screen. Disney+ does allow you to view new releases at the same time as they play in theaters for an extra $30 fee, but that seems a bit pricey (especially as HBO Max offers subscribers new WB releases for free). 

 

The Rich are All Right

That's the summary of Capgemini's 2021 World Wealth Report, the Victoria's Secret catalogue for private bankers and wealth managers. To reiterate what we already know, "despite the pandemic, investor bullishness boosted global [millionaire] population wealth growth." According to the report, the number of High Net Worth Individuals ("HNWI") grew by 6.3% in 2020, faster than the 6.1% CAGR between 2013-2019. The number of millionaires grew fastest in North America (not surprisingly), followed by the Middle East (somewhat surprising, given how oil performed, but I guess the region is much more diversified than I knew). Click charts to enlarge.

Overall, there are now over 20.5 million HNWIs (millionaires) in the world--seems like a lot, but that's just 0.26% of the world's population. 

So, where are the rich investing their money? The usual places: equities (30%), cash (24%, higher than I would have expected with the risk-free rate at ~0%, but we were just in a pandemic), fixed income (18%), real estate (15%) and alternatives (14%). Looking back about twenty years, you see a big shift away from low-yielding fixed income (30% to 18%) and increasing embrace of higher returning alternatives (broadly speaking, private equity and hedge funds).

What's interesting, but in no way surprising, is the changes to the sources of wealth, particularly in the U.S., over the past quarter century. In 1993, inherited wealth was the biggest source of affluence among the 400 richest individuals in the U.S. Today, it's almost all self-made and mostly from Technology and Finance. So, that's good...even if inequality is much higher now than 25 years ago. 

The Agony & the Ecstasy: Argentina and Messi Win the Copa America

Argentina won its first major title in 28 years and Messi's first (!) at the national level when they defeated Brazil in Rio. A superb Di Maria goal in the 22nd minute was enough to lift the Copa. Argentina now has 15 Copa America titles, tying Uruguay, to Brazil's 9. It was also the first Copa America final loss for Brazil...lot's of records.

We wrote about the how agony of loss (in football matches) is twice as great as the ecstasy of wins. Brazil has 5x the population of Argentina (211 million vs 44 million), so will South American markets have a bad Monday and week? Opportunity to short? Maybe not...some Brazilians voiced support for Messi, in a sentimental turn, before the final which (understandably) ticked off Neymar!

So, yes...Messi finally, deservedly, got a major title with the national team and he did play well throughout the tournament. Does that make him better than Maradona...umm, no! Look we love Messi, he's our favorite player! Messi may even be better technically, but Maradona had a presence and leadership on the field that Messi can't match. Whether at the club level or national level Maradona was able to inspire and elevate his team's general performance in otherwise middling teams. And the Copa America is not the World Cup...not even close. Maradona almost single-handedly won football's biggest prize for his nation in 1986 in still one of the most exciting World Cups (add to that the drama of Argentina's victory over England just a few years after the Falklands War).