Many of you know I have two young children. And with having two elementary school-aged kids, I have been re-reading some of the classics including Shel Silverstein’s poems and the timeless Beverly Cleary novels. Cleary’s series about the adventures of a young (and dramatic) Ramona Quimby captured my love decades ago when I first read them and have now captured my kids’ attention too. Every day was a crazy day for Ramona. Every adventure day could be the best day in the world or the worst day. But every day is another adventure or catastrophe. The beauty of Cleary’s novels is things didn’t always have a nice tidy, happy ending.
Last week’s must-follow catastrophe was clearly this massive container ship stuck in the Suez Canal. It is hard to comprehend how large the ship is until you see it next to an enormous bulldozer or excavator. I can’t imagine what I would do if I were stuck on one of those massive ships for the past week. Fortunately, it looks like the week’s long effort to free the ship has worked, and the canal should be reopened later today. It seems like a worldwide catastrophe has been avoided.
With all eyes on the Suez Canal, some unusual activity was brewing back here at home. This time it wasn’t Robinhood and their friends at Reddit. It looks like another New York hedge fund has blown itself up again. Initially, markets were rattled with some unusual trading activity in popular names like ViacomCBS (VIAC), Bidu (BIDU), Tencent (TCEHY), & Discovery Networks (DISCA) late in the week. Viacom, the home of CBS and Showtime, in particular, saw its shares drop by 50%. Especially odd given there was little news coming from the company. Did Wall Street’s “smart money” know something the rest of us don’t?
Well, it turns out it was just another hedge fund that got into trouble by overleveraging themselves. The investor, Bill Hwang, wasn’t your typical investor. He’s what is described as a “whale” given the amount of money he was managing and the fat commissions banks were earning off of him. Mr. Hwang seems to have lost a fair amount of money through a series of complex derivative transactions and a handful of companies. The losses are estimated to be north of $30 billion but seem manageable for America’s capital markets and shouldn’t pose a more significant systemic threat to markets. Thankfully, collateral damage from Archegos appears to be limited to Archegos and the handful of banks that lent money to them.
Markets, much like Ramona, veer from one crazy event to the next. In the heat of the moment, these events seem like absolute disasters. Catastrophes large enough to take down the markets, maybe even the world as we know it. But most of the time, these “catastrophes” are not the end of the world. Given the scale and breadth of the global economy, it can withstand a lot. These crazy, Ramona-like stories about a massive ship getting stuck or a huge whale losing billions of dollars often have little consequence for portfolios, but they are entertaining.
As always, please don’t hesitate to reach out to your wealth manager or myself with any questions you may have.