I know that it has been about a month since I last published “My Gut Feeling” and plenty has taken place in the financial markets over that course of time. Behind the scenes at LakeView Asset Management, plenty is also going on, some of which I will mention now and some of which you will have to stay tuned for. What I can discuss now is that I have been extremely busy managing client accounts and adding new clients and assets at a rapid pace; so much so that LVAM’s assets under management (AUM) now exceeds $50 million. Also behind the scenes I have been busy with the preparation of annual regulatory filings (a necessary evil in the business) and closing out the first quarter. I anticipate making some other announcements in the next few weeks but for now just stay tuned.
In the financial markets, it appears the Circus is Back in Town. By that I mean that there is a three-ring show of financial attractions that are catching our eyes and distracting our collective attention seemingly all at once.
In the left ring is Bill Hwang’s Archegos Capital Management. You likely never heard of Archegos Capital Management ( let’s call it ACM) prior to now and to be honest neither did I. Had this been twenty-five years ago, I would have been at the center of what was going on. ACM was a hedge fund; of the variety we refer to as a Tiger Cub. Tiger Cubs are hedge funds managed by former executives at Tiger Management, Julian Robertson’s famed investment vehicle. Tiger closed in 2000 after missing out on the 1990s tech boom. Shed no tears for Mr. Robertson as he is worth several billion dollars. Anyway, Mr Hwang managed to lose about $20 billion in a matter of days. How did he do that? Excessive leverage, the magnitude of which you cannot fathom. I can fathom it because ACM did it utilizing Total Return Swaps. Total Return Swaps are over-the-counter derivative contracts which allow one party to gain exposure to a large amount of economic value with little of no money down (collateral). How do I know this? I pretty much was one of the pioneers in the Equity Total Return Swap business in the 1990s. I ran billions of dollars in such derivative contracts for Merrill Lynch in the 1990s. My clients included some of the largest and most sophisticated hedge funds at the time, including Long Term Capital Management (LTCM), Harlan B. Korenvaes’ HBK Investments, and The Bass Brothers, to name a few. ACM was Long Term Capital Management (LTCM) on steroids. If you want to buy me dinner and drinks, I will be happy to tell you all about what happened with LTCM, especially when (and why) they blew up in 1998, the type of ‘inside baseball” stories that you will never hear. Hey Joe Russo – are you reading this and getting the same déjà vu feeling?
In the right ring at our circus are SPACs – Special Purpose Acquisition Companies – or “Blank Check Companies.” SPACs have accumulated hundreds of billions of dollars in assets in the last decade, with nearly $100 billion in just this short year so far. SPACs have huge buying power. As such, they are able to circumvent and short circuit the tradition IPO ( initial public offering process) process by coming to market in an expedited (and less costly) manner; then in the future merging with pre-public companies within the SPAC shell. This process was outlined in an article by Zachary Crockett. Eventually, the large swaths of cash in these SPACs will become capital to acquire other public companies.
Then in the center ring are crypto currencies. Of course, the most notorious crypto is Bitcoin. Last week, Coinbase (COIN), the largest crypto exchange went public. Then there is Dogecoin, a crypto that was supposedly created as a joke and then surged from about 3 cents at the beginning of this year to 43 cents last week. Bitcoin topped out last week at $63,000 to have fallen over the weekend to $54,000. I have thought from Day 1 that cryptocurrency speculation was madness. Every person who I know that made money in cryptos has no idea how they made money. By the way people, the IRS is hot on the trail of crypto trading and expect central banks to get involved in the act soon. The crypto craze makes the 1990s tech boom and bust seem like child’s play.
All the while, you might have missed the equity markets rising to new all-time highs. The Standard & Poor’s 500 (SPX) shot over the 4,000 level for the first time ever this month, topping out last week at 4,191.08. Recall that my prediction for 2021 was that the SPX would trade at a high of 4,500 and close the year at 4.032. It appears that the interest rate fears that rattled markets in the first quarter have abated. Simply put, with huge amounts of fiscal and monetary stimulus, stocks are being and will continue to be fueled by liquidity, the magnitude of which we have never experienced before. Of course, it will all come to an end, but not for a few years.
OK, you have waited this long and read about the financial circus. You deserve a little taste of what I have been buying, so here it goes. MercadoLibre (MELI). MELI is the premier online commerce platform in Latin America. The stock topped out over $2,000 last year and I began to accumulate it at $1,460 in late March.
Finally, stay tuned for those upcoming announcements.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long MELI, SPY, SSO & SPXL – although positions can change at any time.
Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, a registered investment advisor specializing in high net worth private wealth management. For more information on investing with LakeView Asset Management, LLC call us at 888-9LAKEVIEW or request more information by clicking on the contact button on the top right-hand corner of the website. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ
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