Friday, June 2, 2017

Hell Is Empty And All the Hedge Fund Managers Are At The Bellagio

Blue blazers. Blue checked shirts. Collar open. No tie. Brown shoes. Black shoes. Or Nike shoes. New, new, all new. Soft leather satchels with bold brass zippers. Good cufflinks. Good watches. Better than you know. Hundred dollar haircuts. Straight razored shaves. Shaped cuticles. Manicured nails. Clean, soft, tailored. New. Talking boisterously in the check-in line at the Bellagio. “I have to be in Palm Beach. Everyone is in Palm Beach.” Pencil skirts. High heels. Rolling out of bed at five a.m. for spin class before the markets open, day after day after day. “I can get a lot of business done in Palm Beach. Where am I supposed to be—in exile?”

Rich people go to Vegas to spend money. Really rich people go to Vegas to learn how to make money. Each spring, as fat tourists sweat out on Las Vegas Boulevard, taking pictures of dancing fountains and wandering aimlessly into undifferentiated warehouses of slot machines and gaping at Chanel stores they cannot afford and being physically and financially sucked dry by this hot, abominable desert Babylon, the people who Know How Things Work gather in the other Vegas: the airy, cool, marble-floored conference rooms of The Bellagio, where silver coffee urns and platters of croissants sit on the patio next to the pool, and maroon-jacketed security guards keep out the general public. This is the SALT Conference, where the hedge fund industry gathers to talk about money and politics, all while voraciously sucking its own dick. If you have ever wondered whether there really is a cabal of elites plotting in private to rule the world, wonder no more. Here they are.

SALT is short for “Skybridge Alternatives,” but that could be replaced by any number of combinations of pseudo-profound finance jargon: Strategic Alternative Liquid Tranches; Superior Alpha Limited Trading; Standard Accelerated LIBOR Taxation. It all fits. (...)

You cannot afford to invest in any of these hedge funds. But these people were happy to sit on stage for three days and expound on their biggest bets and convictions about business and economic trends to an audience of their competitors. Do you want to know what the world’s most high-priced investment talent is betting on now? Here, I can tell you: The end of the retail industry as we know it. The decline of shopping malls. Machine learning in every industry. Neural networks. A headlong rush into the roboticization of everything. Artificial intelligence. Self-driving cars. Commercial real estate is overpriced. Moderate macroeconomic growth continuing for the foreseeable future. Selling portions of the broadcast spectrum. Short Tesla. Long Sarepta Therapeutics. And buy the HMMJ ETF to capture a good portion of the marijuana market in Canada, though recreational weed in America is considered too risky of an investment for this crowd. At least one thing is still left for the little guy. For the moment.

In practice, three days of “Alternative Alchemy: An Investor’s Guide to Shifting Global Paradigms” and “Investment Insights From the Titans of Finance” lacks the poetry associated with the softer liberal arts. The price of investment glory is grinding boredom. “Closed end funds ... leverage ... dividend yields ... ETFs ... cap ex ... M&A deals ... beta ... tranches ... residential mortgage credit ... legacy markets ... embedded options ... defensive in the CLO space ... compensated for risk ... cohorts of capital ... capital ... capital .... CAPITAL.” These phrases echoed everywhere, from the stage to the vast meeting room where younger hedge fund worker ants were assigned to sit at coffee tables and pitch their ideas to potential investors, like an awful version of speed dating in which the only thing you could discuss is “structured credit.” All of the younger men looked like Jared Kushner, and all the younger women looked like Ivanka Trump might look if she had to work 14-hour days. Their lives stretched out in front of them, down the Bellagio’s gaudy, carpeted halls. They could fall in love over credit strategies, have a marriage announcement in the New York Times at 26 and a scandalous divorce announcement in the New York Post at 44. Until then, they could manically shake hands with each other in the SALT Conference reception area, where a brand new silver Mclaren supercar was on display, its batwing door swept up so everyone in a tailored blue suit could sit in the molded leather driver’s seat and snap a selfie. (...)

Here they are—The establishment! The elites! They’re all here! The specter of Donald Trump hung over the SALT Conference like a heavy cloud that threatened to burst open at any moment. This was simultaneously the crowd that Trump had campaigned against, and the crowd that held fundraisers for him, and the crowd that he was making it his business to help, and the crowd that his ineptitude and idiotic mistakes threatened to severely harm. Average people often think that this sort of high finance crowd is engaged in nuanced alchemy that surpasseth all understanding. But anyone can understand these people if you can grasp one thing: When the money gets big enough, finance and economics and politics are all the same thing. They are ways to measure risk. When you run five or ten or a hundred billion dollars, your overriding concern in life is that pile of money—growing it, yes, but, more fundamentally, preserving it. Geopolitics therefore become just another business risk to be measured alongside interest rates and consumer trends, and judged based on the threat it poses to your money. Climate change? A risk. War in North Korea? A risk. Donald Trump’s insanity? A risk. What normal people think of in moral or ideological terms, those who control all the world’s wealth think of simply in terms of risk. Almost anything can be tolerated, if it allows them to make more money with less risk. This is the logic of capitalism.

If you scrape a few inches below the surface of many very rich and successful people who imagine themselves to be worthy of praise and emulation, you find a governing philosophy that cares nothing for humanity. We all grasp this, on some level, but it considered impolite to bring up in friendly settings. Investors imagine that their “business” and “personal” behaviors can be separated, but of course what they do in business ends up having vastly more impact than whatever small, nice things they do in their personal lives. This erasure of the borders between politics and finance is actually an erasure of the power of anything so quaint as morality. The SALT Conference, where these financial titans gather in comfort, is the place to witness this up close. For example: at one point David Rubenstein, the co-founder of the Carlyle Group, gave a talk about his expectations for what would be happening in Washington in the near term. Rubenstein is one of the most powerful men in private equity, an unassuming billionaire and D.C. wise man who has provided many powerful political figures a nice place to work after they leave government. He knows what is happening. First, he spent several minutes explaining why the Republican tax reform package was unlikely to pass this year. “No one here should assume you’re gonna get a big tax cut soon,” he told the disappointed crowd. “For those who are looking for relief from Congress, you should look elsewhere.”

Later, he wrapped up his talk with an earnest plea for everyone there “if you can afford to come to this conference you are in the top one-tenth of one percent, and you should feel blessed,” he said—to think about what they can do to “give back.” In our age of great inequality, Rubenstein said, he has found much greater satisfaction in giving away money than in making it. He encouraged everyone else there to do the same.

The cognitive dissonance between the business portion of his speech and the personal part perfectly encapsulates the problem. First, he delivered valuable inside knowledge to a crowd of the extremely rich that was all premised on the unspoken assumption that everyone in the room wanted and expected to get a substantial tax cut; then, he bemoaned inequality. There is a 100% likelihood that any substantial Republican tax reform bill of the sort that attendees of the SALT Conference want will exacerbate the inequality problem. One hundred percent. It is certain. And yet it is taken as a given that this crowd will throw its ample political muscle behind achieving that goal. Then, they will talk about how to give back—perhaps, like David Rubenstein, they could pay to repair the Washington Monument. Nice and patriotic. As they do that, they will be accruing millions of dollars of gains thanks to tax cuts, as social programs for the poor accrue equivalent losses. Perhaps they will donate a basketball court to the inner city later to make up for it. This is the logic of capitalism at work. The fact that we feel no collective sense of surprise at all of this goes to show just how well capitalism covers its own tracks.

by Hamilton Nolan, The Concourse | Read more:
Image: uncredited