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This note was originally published at 8am on August 04, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“By 1918 everyone under the age of forty was in a bad temper with his elder…there was among the young, a curious hatred of “old men”.  The dominance of “old men” was held to be responsible for every evil known to humanity”

-George Orwell

The easiest path for an individual to take when faced with a suboptimal set of circumstances is to shift the blame, or burden, to another party.  For anyone that has been part of a team, be it a sports team or any group of people striving towards an individual goal, what sets a good team apart from a bad team is that the individuals therein do not shirk from responsibility or duty – they seek it and thrive as a result. 

Lately Keith has been constantly highlighting the (wit and) wisdom one of the great American winners of recent times – Vince Lombardi.  During a time of political and economic turmoil, the philosophies of leaders like Lombardi are far more likely to lead us out of the situation we face than those currently holding court in Washington D.C. 

“Old men” being hated in 1918 sounds quite similar to “old men” being hated in 2011.  The hatred of 2011, in my imagination, is not aimed solely at men of a certain age – I hope to become an old man one day – rather, it is aimed at men, typically old, that are stuck in old methodologies that have failed time and again. 

Rather than stopping, rethinking, reworking, and evolving, “old men” in 2011 simply press replay all the while expecting a new outcome.  Political and economic dogma is what is drawing ire among voters and market participants. 

Yesterday rumors that the most recent of the “old men” to head up the Federal Reserve in this country, Ben Bernanke, will start a fresh round of stimulus may have prevented the longest slump in performance of the Dow average since 1978; the Dow had fallen for eight consecutive days on the back of growing concern that the U.S. economy may slow further and that the $1.07 trillion in lost market value from American equities over the eight-day slump could begin to negatively impact consumer spending. 

History shows that “Old Men” in the financial industry have generally been put out to pasture by fresher, more original and adaptive players.   It is Hedgeye’s view that dogma and opacity will be exposed, real-time, in the finance world of tomorrow.  Whether it is via Twitter or another medium, the hatred of “Old Men”, and the conventions of their era, is driving the debate into the open.  In the research world, that is where Hedgeye is positioning itself.

The hedge fund industry is also changing.  It always has.  The book “More Money Than God”, by Sebastian Mallaby chronicles the history of a small group of people that shaped the hedge fund industry.  From the creator of “hedged” funds, Alfred Winslow Jones, to George Soros, the professional longevity of each character was largely defined by his ability to stop and rethink.  Jones did not adapt and so his protégés abandoned his firm upon realizing that the fund’s successes were down to them and not Jones. 

Soros, having studied the philosophy of Karl Popper at LSE in the middle of the twentieth century, held firm the belief that humans simply cannot know the truth.  He then developed this own idea of how markets work, building off the thoughts of Popper, called the Theory of Reflexivity.  The development of this theory enabled Soros to retire as a hedge fund manager with his abilities as an investor almost never questioned, nor deemed out of date, by his peers.  In terms of managing money, specifically, Soros may now be a man of a certain age but he never allowed himself to be one of the “Old Men”.

What’s clear at this point is that the bad team of “Old Men” in Washington is spending the majority of its time apportioning blame and jostling for media limelight.  The signs of Americans’ hatred for these “Old Men” are everywhere to see: consumer confidence, the stock market, 45.75 million people on food stamps (no double-dip for these folks, just one long downturn).  The number of people receiving food stamps increased 12%, year-over-year, in May 2011.  Alabama is the state that saw the largest increase at 120%.

Our troubles are causing the “Old Men” abroad to respond because it is starting to hurt other economies too.  Japan is following Switzerland in intervening in the currency markets as the currencies’ “safe haven” status could hurt their respective economies.   Europe is constantly on edge, fearful of contagion, and ready at a moment’s notice to extend further bailouts to periphery nations.

Blaming “Old Men” won’t fix any problems in the financial system, nor will it fix any problems in Washington D.C.  Leaders stepping forward to enact change for the better have to have the courage to do so. 

That is what Hedgeye is attempting to do in our small part of the world and our clients, critics, and supporters help us sustain our efforts.  Globally, governments are being overrun by dogmatic “Old Men” eager to get, and stay, in office. 

Irrespective of the performance of the S&P 500, the fortunes of Main Street America have not been improved over the past two years; some new ideas are needed.

Function in disaster; finish in style

Howard Penney

Managing Director

Old Men - foodstamps may 2011

Old Men - Virtual Portfolio