Yale’s “Biggest Donor” Passes Away, America’s Unpayable Liabilities, You Don’t Need Diamond Hands for Dogecoin, Expensive Coffee

Happy Friday!  Just a few more hours until you can rest thy weary head.  You’ve earned it.

Let’s wrap up the week with a few golden nuggets:

Yale Loses Its “Biggest Donor”

David Swenson was a legend in the investment world.  Inventor of the “Yale (or Endowment) Model,” Swenson, along with his trusted deputy Dean Takahashi, grew Yale’s endowment fund from $1 billion in 1985 to $31.2 billion in 2020.  Swenson died on May 5, 2021, after years of undergoing cancer treatment.  He was only 67 years old.

Along with Jack Meyer of the Harvard Management Company, the close friends and rivals defined the early era of endowment management.  “David was really about the first to recognize that aggressive diversification, really deep research into managers and patience can pay off,” Meyer said.

Yale’s endowment fund is responsible for 33.2% of Yale University’s operating budget.  That’s why Former Yale President Richard Levin described Mr. Swensen as the biggest donor to Yale in its history.

Kalos Financial published this chart showing the returns from Yale, Harvard, and Stanford compared to a 60/40 portfolio.  (That’s 60% equity, 40% bonds.)

What was so revolutionary about Swenson’s approach was he immediately recognized the advantages of investing using a vehicle such as an endowment fund.

The big three advantages of university endowments:

  1. Presumption of perpetuity – your time horizon is unlimited.
  2. Tax-exempt status – how nice!  You don’t pay taxes if the endowment pays out to the university every year.
  3. Distinguished and devoted alumni in the financial world – a veritable who’s who on Wall Street will help you out.

Understanding this allowed Swenson to alter the asset allocation of Yale’s endowment portfolio radically.  As you can see from the chart below, Swenson moved Yale from a predominantly domestic equity-driven portfolio to a portfolio that’s nearly 80% alternative investments (commodities, hedge funds, private equity, and real estate).  Of course, many Yale alumni manage those funds.

You can also see he has very little cash in the portfolio to reduce cash drag.  That’s the dragging down of a portfolio’s return because the cash earns very little return.

Although Yale is second in endowment size to Harvard, Swenson’s legacy is assured.  But what may be a more exemplary accomplishment for this academic-cum-fund manager is his impact on his employees.

Have a look at David Swenson’s “Coaching Tree” in the nonprofit world (university endowment heads in bold):

  1. Seth D. Alexander, President, MIT Investment Management Company
  2. Peter Ammon, Chief Investment Officer, University of Pennsylvania
  3. Donna Dean, Former Chief Investment Officer, The Rockefeller Foundation
  4. Andrew K. Golden, President, Princeton University Investment Company
  5. Randy Kim, Chief Investment Officer, Rainwater Charitable Foundation
  6. Anne Martin, Chief Investment Officer, Wesleyan University
  7. Mary McLean, Former Chief Investment Officer, Ewing Marion Kauffman Foundation
  8. Lauren Meserve, Senior Vice President and Chief Investment Officer, The Metropolitan Museum of Art
  9. Kimberly Sargent, Chief Investment Officer, David & Lucile Packard Foundation
  10. D. Ellen Shuman, Co-Founder, Edgehill Endowment Partners
  11. Paula Volent, Chief Investment Officer and Senior Vice President, Bowdoin College
  12. Robert F. Wallace, Chief Executive Officer, Stanford Management Company
  13. Casey D. Whalen, Chief Executive Officer and Chief Investment Officer, Truvvo Partners
  14. Ana Yankova, Chief Investment Officer, Mount Holyoke College

It’s damn impressive.  Rest in peace, Mr. Swenson.  The investing world lost a good man this week.

Raise the Ceiling!

No matter how stupid The State can get, always remember it can get more stupid.  In July 2019, Congress suspended the debt ceiling until July 31st this year.  Cue hair-on-fire negotiations to raise the debt ceiling – for the 99th time in its history! – to a level where all the pork can fit in the barrel.

If the ceiling isn’t raised, the Treasury said it would take extraordinary measures – such as redeeming investments and suspending new investments – to keep paying the government’s bills in full and on time.

I suppose Congress cutting spending ain’t gonna happen, is it?

And why would they, as…

America’s Unfunded Liabilities are Unpayable Liabilities

What’s $34 trillion between friends?

Depending on where you look, you can get many different numbers for how indebted America really is.  Oh, I’m not talking about that silly $28 trillion national debt.  That’s just the federal level debt.  I’m talking about stuff that doesn’t even enter the budget—things like Social Security and Medicare.  

That’s right. The two most significant entitlements don’t get into the budget because they’re technically not debt though they’re liabilities.  That is, the government is not legally responsible for paying them out.  The government essentially has a handshake agreement with the populace to do so.

And you wonder why Social Security and Medicare are accused of being Ponzi schemes?

Usdebtclock.org has unfunded liabilities at $147 trillion.

Truthinaccounting.org puts the bill at $129 trillion.

Jeff Gundlach – long live the Junk Bond King! – puts the total debt number at $163 trillion.  That includes everything like the outstanding paper and the unfunded liabilities.

According to Zerohedge:

If we wanted to pay that off, Gundlach observed, it would have to put 10% of our economy and have negative economic growth for 77 and a half years. In other words, there’s no feasible way the US will be able to pay off its debt. Instead, the US has no choice but to continuously refinance.

This wasteful spending has unintended consequences, such as…

Dogecoin and the Greater Fools

In this context, can you blame the millennials?  They’re in a debt trap that will take their and their children’s lifetimes to clear off.  So why not gamble?

Kahneman and Tversky noted in their seminal paper “Prospect Theory” that we take more risk when we’re losing and remove risk when we’re winning.  In investors’ speak, we ride losers too long and cut winners too short.

And since these kids are losing the societal lottery big, they’re taking enormous risks.  Diamond hands – hanging on to positions so hard you can crush them into diamonds – for Dogecoin returned 12,000% year-to-date.

Dogecoin, a genuine shitcoin with no value at all, was admittedly started as a joke.  This “joke” now has a higher market capitalization than Ford Motor Company and Kraft Foods.


From the WSJ today:

What’s needed now is not diamond hands but a greater fool to sell it to.

In the interim, I wish them good luck.

Your Morning Cup of Joe is Getting More Expensive…

I’m thrilled to inform you the Rude will remain free of charge.  The morning cup of joe you enjoy it with, however,  is getting more expensive.

Here are a few reasons:

  • These asinine COVID lockdowns have screwed up the supply chain.
  • Shipping ports are clogged up.
  • Money printing around the world is driving up commodity prices.
  • Brazil, one of the major coffee-producing countries, had a drought.
  • Inventories in the US are at their lowest levels in 6 years.

Boy, I’d love to end a Friday Rude on good news.

Well, it’s Friday!  Yay!

Have a fabulous day and a fantastic weekend!

All the best,

— Sean


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