The Daily Alpha: Alternative Thinking on Donald Trump, Warren Buffett, and the SALT Conference

The Daily Alpha: Alternative Thinking on Donald Trump, Warren Buffett, and the SALT Conference

Garrett Baldwin

May 9, 2016

"I don't know how people make it on $7.25 an hour. I would like to see an increase of some magnitude. But I'd rather leave it to the states. Let the states decide."

The drink of the day is a vodka martini, straight-up, no Vermouth, shaken, with a wedge of lime.

I know that it’s just cold vodka in a glass, but you can’t drink vodka out of a Red Solo Cup…

You need the martini glass to offer the illusion of class.

The reason straight vodka is in order is because Donald Trump has proven to be to the left of Hillary Clinton on almost every economic issue so far this year – and he continues to promote policy concepts that don’t stand up to academic rigor or economic reality.

Trump has said he wants to raise taxes on the wealthiest Americans – arguing that he is willing to pay more – therefore, in his head, everyone else is willing to pay more.

Trump now advocates an increase in the minimum wage.

Here are a few reasons why this is not the best idea in the world:

Example One.

Example Two.

Example Three.

Example Four.

The last one is priceless. Seattle is having a jobs recession because its government mandated that baristas at Starbucks make $15 an hour to ironically pour you coffee.


Because we still pretend that 20th century policy solutions can solve a 21st century problem where technology can displace millions of people.

It stinks that we can’t all make $100 per hour. But if you mandate wage hikes where wages trump value to the company, there are consequences… grownup consequences that force anyone with a dose of reality in economics look like Bond villains when they explain how alchemic solutions to our financial problems end up hurting the very people that politicians claim they are “defending” or “fighting for” or whatever other actionable verb in the lexicon.

Want some actionable trading advice about this?

Buy ABB, everyone. Buy Google. Buy any company that is making a robot or an algorithm that can replace you or your employees. This isn’t moral panic… it’s your hedge against smarter people creating smarter solutions than the idea of hiring human beings.

Or by McDonald’s stock.

It’s a matter of time before franchises cut costs and eliminate half of their staff in favor of robots.

“SEC staff also questioned Platinum’s compliance policy, auditing and record-keeping practices, two people said.”

Interesting piece in the Wall Street Journal on the SEC’s crackdown on hedge funds and the clear message they are sending to managers: Treat your investors better.

Several investigations are exploring how firms valuate certain assets and what happens when investors ask for their money back. Given the massive outflows in the first quarter, this is a must read.

Rob Copeland reports.

“This year there will be plenty of stress to relieve after the $55 BILLION New York City Employees’ Retirement System announced last month that it would liquidate its alternative investment allocations over concerns about fees and returns.”

Institutional Investor explains that the annual SALT Conference kicks off on Tuesday, an annual tradition where hedge fund managers meet in Las Vegas to attend SkyBridge Capital’s event. Attendees include Kyle Bass, Kobe Bryant, and… Modern Trader.

Tomorrow, we’re heading out to Las Vegas to cover the event, and we’ll be providing live updates from the event. Be sure to visit The Alpha Pages and Finalternatives all week.

“The hedge fund industry did lose $15 billion, but that’s only half of one percent. If they lost that every quarter for the next two years they would only lose 4%. It’s not very noticeable.”

Here’s an interesting argument from Yahoo’s Julia La Roche.

La Roche cuts past the recent criticisms of hedge funds about performance, fees, a lack of talent, and so on, and argues that the real problem with hedge funds these days.

There are too many of them… or at least too many bad ones weighing down the performance of the broader industry.

I disagree.

There aren’t too many hedge funds.

There aren’t too many companies providing coconut water.

There aren’t too many reality shows about pretentious housewives or house fixer-uppers.

There aren’t too many advertisements of bears wiping themselves with toilet paper in the forest.

There aren’t too many types of deodorant, an actual complaint of Bernie Sanders.

If there is a market or the potential for a market – let them succeed or fail. It’s someone taking a risk and we need more people willing to take risks whether it’s financially, socially, or politically.

“It is eight years since Mr. Buffett wagered $1m for charity that a simple Vanguard S&P index fund would beat any portfolio of five hedge funds anyone cared to construct over the next decade.”

The Financial Times writes that Warren Buffett and Jack Bogle have been giving the same anti-hedge fund speech over the last week.

I love the writer’s praise for Buffett… calling him the “Ultimate Stock Picker” and how everyone is acting like Buffett represents some remarkable force of conscious about income inequality.

Buffett is great, he’d be on the Mt. Rushmore of investing… but let’s keep in mind a few things when people bash the hedge fund industry and praise one of the market’s ultimate insiders.

Not a lot of hedge fund managers get calls in the middle of the night from the Treasury Secretary hinting they might be getting the deal of a lifetime by investing in preferred shares of banks that are about to receive the largest financial bailouts in the history of mankind.

Or… the best example of Buffett’s self-interest as he pushes for higher taxes, from Tim Carney:

“Buffett regularly lobbies for higher estate taxes. He also has repeatedly bought up family businesses forced to sell because the heirs’ death-tax bill exceeded the business’s liquid assets. He owns life insurance companies that rely on the death tax in order to sell their estate-planning businesses.”

Yeah. That’s a thing. He plays the game just like everyone else… 

We're off to Las Vegas for the 2016 Salt Conference.


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