It's been another rough week in the markets.
How rough was it, you ask? Good question. It's been so rough that even the 0.01 Percenters were playing Powerball this week. We learned all about it from Amanda Gordon's Scene Last Night column, which may very well be the best thing on the Internet. Even the hedge fund world's favorite prodigal son, Steve Cohen, was apparently holding tickets and boasting "I'm in it to win it."
Gordon's tireless research on the 2-and-20 set's cocktail party circuit yielded some valuable investment advice for anyone who does manage to hit the numbers. By far, the best tip came from Mario Gabelli, founder of Gamco Investors, who said “take 5 percent and just go crazy." That's way better advice than KKR's George Roberts, who counseled buying index funds, which these days is a guaranteed way to go 100 percent crazy.
Sadly, when it comes to lotto-number picking, the Masters of the Universe are just like the rest of us: a bunch of total losers.
Since putting money to work in the stock and lottery markets looked like equally dodgy ideas this week, we had to journey deep, deep, deep into the alternative-investing space as part of the due diligence required to identify the Gadfly Trade of the Week.
And that led us to Joaquin Archivaldo Guzman Loera, a Mexican commodities trader who is better known by his nickname "El Chapo" (which is Spanish for "The Chapo.") El Chapo is a textbook example of the importance of diversifying one's portfolio: He started with marijuana and heroin before diversifying into other commodities such as cocaine and methamphetamines.
Now don't go clutching your pearls. Yes, of course there is a great deal of "moral hazard," so to speak, in making markets in these particular commodities, not to mention the "frictional costs" that come with the territory. Getting involved in this asset class is obviously not a wise idea, though many on Wall Street have long been active and enthusiastic counterparties to trades involving these commodities.
Anyway, regardless of the downright moral repugnance involved, when the reclusive boss of a trading empire speaks, it's natural that the rest of us will want to give an audience. This week we got to hear El Chapo speak in Rolling Stone in an interview with Jeff Spicoli of "Fast Times at Ridgemont High."
(Side note: If Gadfly were to give out a Shirt of the Week award, the winner in a landside also would be El Chapo for the two silky hallucinations he's seen wearing in Rolling Stone. Side note to the side note: We don't want to start any conspiracy theories here, but one of El Chapo's shirts bears an uncanny resemblance to the necktie that Steve Cohen wore during his "victory lap" at the Rainbow Room on Wednesday. See here and here if you're skeptical.)
Anyway, Spicoli (motto: "Danger Is My Business") traveled deep into the Mexican mountains to one of El Chapo's branch offices to learn more about his strategies. In doing so, Spicoli almost won the Trade of the Week award for Rolling Stone boss Jann Wenner when he revealed that "when I do journalism, I take no payment." The approximate number of editors in chief who subsequently contacted him with story ideas is, according to our educated guess, all of them.
Spicoli's piece is very long. And the rambling, Hunter S. Thompson-esque style of prose makes one wonder if the writer brought home a doggy bag of leftovers from his meeting with El Chapo. Luckily, we read the whole piece so you don't have to. The key point is a fascinating market call made as El Chapo considers even further diversification outside the narcotics industry:
He is interested in the movie business and how it works. He's unimpressed with its financial yield. The P&L high side doesn't add up to the downside risk for him. He suggests to us that we consider switching our career paths to the oil business. He says he would aspire to the energy sector, but that his funds, being illicit, restrict his investment opportunities.
You read that right, folks. El Chapo just called the top of the Hollywood bubble and the bottom in the oil market. Frankly, that's welcome news since we here in the financial press started running out of people willing to call the bottom in oil at about $50 a barrel, so we'll take what we can get. And as Baron Rothschild once said, the time to buy is when there's blood in the streets.
So clutch your pearls, roll your eyes, do whatever you need to do. But if there's one thing El Chapo knows about, it's the commodities markets. If there's a second thing he knows about, it's blood in the streets.
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Michael P. Regan in New York at firstname.lastname@example.org
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