The Derivative - General George Cashington had a Dream of a Grand Financial System (a humorous prelude to Season 5)

Episode Date: January 17, 2025

For our first episode of 2025 we wanted to take a different approach...  Enjoy our full-blown parody of Nate Bargatze's 'Washington's Dream' –  complete with satire of several key issues in private equity and private market valuations. Warning: May contain traces of reality and excessive financial humor.  

Hello there. Happy New Year, everybody. I hope you've enjoyed your time away from me as much as I've enjoyed my time away from you. Wait, what? Anyway, we're ready to launch the new season of The Derivative, complete with some new intros, rethought segments, and a slew of new guests covering everything from AI to ETFs, cocoa to cockroaches, and tailr risk to trend following. But we want to do something a little fun before getting into all of our great guests this year on what this following little bit lacks in skill it makes up for in shortness. So without further ado, we bring you a blatant ripoff of comedian Nate Bargatze and his SNL skit, Washington's Dream, where we came up with the following little investment-themed crossing of the Delaware. Send it!

What do you think of this market volatility? It is concerning. I do not. Fear not, young investors. General Cashington, sir. Yes, yes. Young Warren Buffing Jr., hello. Miss Penny Stockwell, greetings. Greetings, sir. As I recently shared with., hello. Miss Penny Stockwell, greetings. Greetings, sir. As I recently shared with you crossing the Delaware, young patriots,

I have been blessed with a vision. A dream of grand financial system for our new nation. Backed by its own currency, the mighty U.S. dollar. The paper notes with the pyramid and the floating ice, sir? How shall common folk trust such a simple piece of paper? Because it shall be backed by gold. And forever tied to the value of gold, very smart, sir? No, not so smart, for we shall decide one day to back it with nothing but faith.

And aircraft carrier. But surely the people won't accept money backed by mere promises, sir. We'll force them to. Make them pay taxes with our sacred dollars. And these tax revenues shall fund our great republic? Ah, if it were only that simple. We'll spend more dollars than we collect. More, sir? But how shall we pay for everything without sufficient dollars? When we need more money, we shall simply borrow it from foreign lands and the world's largest investors.

But won't these mounting debts demand repayment someday, sir? You would think so. We will devise a scheme where a sovereign nation such as ours can never truly go broke in its own currency. We'll just print more. This sounds too wondrous to be true, sir. Surely the U.S. dollar will weaken over the ages. Never mind that, young investor, because we shall create a grand marketplace of stocks,

where any soul, humble or mighty, can build lasting fortune. That sounds magnificent, sir. How shall this wonder work? Ah, we shall have thousands of public companies to invest in. And they'll all make money for investors? No. Only seven companies will make most of the money. Only seven, sir? Only seven. The ones whose names start with A, N, and M mostly.

But keep faith, young investor. In this great financial system, we shall have the freedom to have stocks that split their price in two. So they become twice as valuable? No, it shall be like cutting a pizza slice in half and saying you have twice as much pizza. But that's the same amount of pizza, sir. No one will care. This all sounds risky, sir.

Will there be anything less risky? Yes. The U.S. dollars we don't have and need to borrow, we shall call those treasury bonds. And they will be the safest investment in the world. So they'll pay the most. They shall pay the least. And when interest rates go up, they'll go down. Down in price or yield, sir? Yes. And will successful companies in price or yield, sir? Yes. And will successful companies also issue treasury bonds, sir?

If only it were that simple. These companies' debt will be called corporate bonds. And they shall pay the most. No, the ones that pay the most will be the smaller companies. So we can call them small yield. We'll call them high yield. Or junk bonds, because that sounds bad. Junk bonds don't sound like they'll last long.

What is their duration? We won't use that word in that way. Duration in bonds shall be like time, but not really time. Something to do with volatility, but not really volatility. How do you calculate it? Nobody knows. And lo, when we tire of simple stocks and bonds, I dream that we will devise new and ever more complex investments, like hedge funds. Surely they must help investors hedge their risks? Nay, they shall mostly buy

the same stocks and bonds as everyone else, but with borrowed money or complex derivatives or computer algorithms. And for that privilege, they shall charge two and twenty. Two and twenty what, sir? Two percent of everything you have and twenty percent of everything you make.

That seems expensive, sir. Which is why I dream that we'll also create index funds that charge almost nothing. And everyone will use those instead? No, they'll give most of their money to private equity. Private equity, sir? Yes, they shall buy companies with borrowed money. And then make them profitable?

No, then borrow more money against them. Then sell them to other private equity firms. Who will do the same thing? Will it be hard to truly value the underlying investments? Impossible. And I dream, young patriots, that one day, when we tire of hedge funds and private equity managers making all of the money, one day we shall create digital money that uses more electricity than Argentina.

And what shall back this money, sir? Mathematics. And memes. Memes, sir? Yes, we shall create a world-connecting network to share videos of cats playing piano and dogs on skateboards so young profits named crypto lord 420 dwelling in their mother's basement can amass followers and these meme coins will have great value sir yes for many seconds sometimes days I must admit this all seems very complicated, sir. How will regular people invest? Through something called a 401, which shall be like an investment prison where your money's held until you're too old to spend it on anything fun. What will people invest in within these 401? Target date funds, which match the risk and reward of the investment with the risk tolerance of the investor,

based on a complex mathematical complication, their age. And these funds, based on how old you are, these will be good investments, sir? No, but they will be the best choice for most people, which is why I will give them 27 other options. Sir, how can anyone manage all of these investments? Have no fear, young investors, for I have a dream that economists will win Nobel Prizes extolling the virtue of diversification and teach all investors how to build a portfolio which can survive any market panic. And everyone will do this diversification well, sir? Ah, if only it were that simple.

They will just buy different stocks and sectors and call it diversification. Like ordering a double scoop of ice cream, one scoop of vanilla, and one of French vanilla. Aren't those the same thing, sir? Only in a market crash when correlations go to one. Correlations, sir? How is it calculated? Nobody knows. Sir, with all these mystifying investments, how shall future generations learn to navigate such complexity?

Fear not, for I have dreamed that one day, every soul with a microphone and a meme stock account shall create an investment podcast. And these podcasts shall enlighten the masses with financial wisdom, sir? Indeed. They shall interview experts, dissect market trends, and share profound insights like you're hearing right now. And with all this knowledge freely available, investors shall finally make wise choices? They'll finally know how. Sir? Sir?

All right. Well, that was something. Thanks for enduring that. Hope we made you smile once or twice. Big thanks to RCM team members Colson hauser as warren buffing jr claire brixey as penny stockwell and last but not least jeff berger for doing all his audio visual work and wizardry making us all sound professional as noted we'll be back to the normal podcast next week we've got peter madsen the the CIO of the Utah School and Institutional Trust

Funds Office. Talk in, would you believe it, how the money he manages goes all the way back to the time of Thomas Jefferson. Rather fitting after our little skit here today. So thanks for entertaining us. Go subscribe wherever you hear your podcasts, and we'll see you next week. You've been listening to The Derivative. Links from this episode will be in the episode description of this channel. Follow us on Twitter at RCM Alts and visit our website to read our blog or subscribe to our newsletter at rcmalts.com. If you liked our show, introduce a friend and show them how to subscribe. And be sure to leave comments.

We'd love to hear from you. This podcast is provided for informational purposes only and should not be relied upon as legal, business, investment, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.