The Wolf Den #1028 - Differentiate Yourself
For Outsized Returns...
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In This Issue:
Differentiate Yourself
Bitcoin Thoughts And Analysis
Legacy Markets
An Update On EURC
cbBTC Has Arrived
MetaMask Debuts A Mastercard Debit Card
The U.S. Government Is Moving BTC
Differentiate Yourself
Bitcoin continues to range, leaving us with very little news significant enough to unpack at the top of this newsletter. Don’t worry—I could write another thousand of these, even if the market doesn’t deliver the sauce we're seeking.
Throughout my thousand-plus newsletters, I have featured the ideas and philosophy of one of my favorite investors. Howard Marks. He has been a major influence and inspiration on my investment journey.
For those that don’t know, Howard Marks has an Investor Series, where he interviews high-profile investors on Wharton’s campus to, “share real, practical perspectives…often with a special focus on value investing.”
One of the most legendary interviews in this series took place in 2016 with Stephen A. Schwarzman. You may recognize this name - he is the co-founder and chairman of Blackstone Group, the world’s largest alternative asset manager, with more than $1 trillion in AUM.
That’s not hyperbole; Blackstone truly is the largest private equity firm in the world and has mastered the art of leveraged buyouts. Blackstone has inspired many emerging and leading private equity firms today, including Howard Marks and Oaktree Capital.
Without further ado, I’m excited to share some highlights from this incredible conversation—there’s so much to learn from it.
As you read through the highlights of this interview, I want to call your attention to the fact that this isn’t the typical conversation you would hear from either of these men. This isn't a masterclass on interest rates, cycle theory, or market trends. Instead, it's an exploration of Stephen Schwarzman’s personal philosophies, including his unique approaches to business, management, and life.
I challenge you to think about how this knowledge could impact your life, even if you’re just getting started.
Howard Marks: So, when you started at Blackstone after 13 years at Lehman, in 1985, the path of least resistance would have been to start another great investment bank. Yet you didn't do that; you went into investment management. What was the reasoning?
Stephen Schwarzman: Well, what we did is we tried to figure out what we could do that nobody else in the world was doing. And that's an important way to think—not just trying to be better at what everyone else is doing. So we actually spent, and this might be an interesting lesson for you, three months—just the two of us—meeting for breakfast every day. And this breakfast lasted three hours, trying to figure out why we were going into business and what we were offering.
A random add in from Howard Marks.
Howard Marks: I think one of the things that everybody in the audience should take note of when Steve describes Blackstone's origins is the importance of what Malcolm Gladwell calls demographic luck, which most of us would simply call right time, right place. If you look at the private equity industry, when Blackstone started, and compare it to the leading competitors today—Blackstone, KKR, Carlyle, TPG, etc.—you’ll see that everybody is about the same age. The leaders are all around the same age.
We were talking on the way down here today that we were lucky to start at a time when this was a new field and yet uncrowded, which was a great advantage. I think nobody should overlook the importance of getting lucky.
Howard Marks: So, you started off in the investment management business, which you hadn't been in previously. One of the things you need is an investment philosophy. I’d like to ask where you got yours, with particular emphasis on distressed debt.
Stephen Schwarzman: There are a lot of different ways to express this, but I hate losing. The idea of losing money really goes to the core of who I am as a person. I just can’t stand it. If you start out delivering newspapers, cutting lawns, shoveling snow, and doing all the things you did in suburban Philadelphia to make money—like I did working at my dad's store where they paid me a dime an hour and said I was overpaid—you don’t want to go backwards.
What we do is put everyone around the table. One of the key things I figured out—I was a psychology major, not business—is that if one person criticizes the deal, the person who brought the deal and is leading the team might not like that person and might retaliate in some way. This can stop everyone from being objective about the investment if it’s not a good one.
So, I insisted that everyone around the table speak, but they could only discuss analytic weaknesses and risks in the deal. This approach was all geared toward not losing money. What this does is depersonalize decision-making. If everyone is going through the deal and discussing, for example, "You actually have five risks, not three," and "Here’s the range of outcomes," then if everyone is attacking the deal, no one is attacking any individual.
We would repeat this multiple times so that we all got it right or wrong as a group.
Howard Marks: But that sounds like something everyone would do.
Stephen Schwarzman: They don't organize things this way. They believe that just delegating to someone and setting it up as a profit center works. They actually don’t understand how people behave. It’s not really a distributed risk assessment, and they trade off because it’s easier to be lazy and not criticize what someone else is doing. It’s not about criticizing the person—it’s about the substance. I don’t know why people don’t do it that way.
HOWARD MARKS SUMS THIS UP PERFECTLY…
Howard Marks: A lot of what we're discussing isn't really about investment matters; it’s about interpersonal dynamics, culture, teamwork, and so forth… What’s the secret to assembling and maintaining such a high-level group?
Stephen Schwarzman: Well, part of it is dealing with everyone in the same way, as I mentioned. It’s a level organization. I have all the votes, but we don’t share that widely. Everyone at the firm is gifted, and we’re all trying to be the best in the world at what we do. There’s great synergy intellectually and knowledge-wise between what we all do.
We run the firm in a horizontal way. We, the heads of all the different businesses, along with our general counsel and the head of strategic planning, meet every Wednesday. There’s a feeling of excitement. Our businesses have grown, I don’t know, 15-20% every year. It’s like magic, and we’re all involved in it.
When we started Blackstone, I wanted to make sure we only had nice people working at the firm. I had no appetite for dealing with nasty pieces of work. So, we have a culture that's very supportive and all meritocracy.
The key to growing, keeping a great culture, and providing an exciting place for everybody is to keep expanding the business. This way, you never have the glass ceiling issue where you have to push someone else aside to advance. It’s so much better to just keep making the pie bigger.
By starting new businesses, which are great for investors because they generate terrific returns, you can also bring in younger people and put them in positions of authority where they can grow. The whole thing is a virtuous circle, and it’s exciting.
Howard Marks: But again, interestingly, it comes down to, “So why not everybody?” But the answer is not everybody.
Stephen Schwarzman: Yeah, well, you know, geez, some people don’t understand what business they’re in. We’re in the intellectual property generation business, and that’s our business. Other people think they’re in finance or they’re doing something else.
Howard Marks: So, you’ve been doing this, as I have, for 45-odd years. They were odd years. And, you know, you’ve put some money aside. How do you feel about continuing to work?
Stephen Schwarzman: I love work. You’re past retirement age, by the way. It’s so exciting. I don’t know what you would do just sitting around. Golf is not that interesting, and with tennis, the problem is your parts start wearing out. It’s not helpful for your knees, back, or shoulders.
My grandfather worked till he was 89, so I have role models of people who keep doing this. I don’t think it’s work. If it were work, I wouldn’t do it, but it’s so exciting.
END OF INTERVIEW
chose this interview because the insights Stephen shares are timeless and valuable in any market environment to every investor. While 99.9% of us, me included, aren’t managing a firm and never will, we are all CEOs of our own portfolios and the key decision-makers of what and who we invest in.
As investors, it's our responsibility to take an objective approach, evaluating opportunities with our biases set aside as far as we humanly can. It may sound simple, but we stumble the moment we become too attached to our holdings and blind ourselves to everything else. Crypto investors are very guilty of this.
Find a way to love what you do, value your peers' opinions as equals, set aside your biases, and think in ways no one else in the world is thinking. Combine all of this with a bit of luck, and you might just find yourself thinking like the greatest private equity manager in the world.
Best of luck on your investment journey.
Bitcoin Thoughts And Analysis
Bitcoin failed to close back within its original blue range, being rejected at the range lows for the fifth consecutive day. For now, there’s nothing to get excited or too worried about. A drop back to the recent lows around $50,000 should not surprise anyone, although I am not really expecting it. Price could form a new range, essentially from $50,000 to $60,000. We will see. For now, we are chopping sideways, showing some weakness.
Legacy Markets
US equity futures and European stocks rose modestly as traders anticipated upcoming economic data that could reinforce the case for Federal Reserve interest-rate cuts. Walmart Inc. saw a 7.8% jump in premarket trading after raising its full-year sales and profit forecasts, expecting to attract bargain hunters. Cisco Systems Inc. also rose following better-than-expected quarterly results, while Nike Inc. rallied after Pershing Square Capital Management disclosed a new stake in the company.
Economic data remains a focal point, with initial jobless claims and retail sales figures expected on Thursday. This follows a benign consumer price index (CPI) report that contributed to a 0.2% rise in S&P 500 contracts and extended the benchmark's winning streak to a fifth day. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, noted that the latest US inflation data supports the view of a gradual cooling of the US economy, suggesting the Fed might ease policy at its September meeting, providing a positive backdrop for risk assets while potentially eroding returns on cash.
Internationally, Bavarian Nordic A/S soared 17% after the World Health Organization declared a fast-spreading mpox outbreak a global public health emergency. In the UK, GDP rose 0.6% in the second quarter, maintaining a steady recovery pace from last year’s recession. However, this is unlikely to change the Bank of England's policy expectations. Norway’s central bank held borrowing costs steady for the eighth month, with the krone gaining post-announcement.
In Asia, Japan’s Topix index and China’s CSI 300 benchmark rose following positive economic data. Japan’s economy grew faster than analysts forecast in the second quarter, and China showed signs of stabilization, including slowing declines in home prices and better-than-expected retail sales.
In commodities, oil rebounded after falling for two sessions, while gold edged higher to trade above $2,450 per ounce. Overall, the market's attention remains on economic data releases and their implications for future Federal Reserve policy decisions.
Key events this week:
US initial jobless claims, retail sales, industrial production, Thursday
Fed’s Alberto Musalem and Patrick Harker speak, Thursday
US housing starts, University of Michigan consumer sentiment, Friday
Fed’s Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.2% as of 7:29 a.m. New York time
Nasdaq 100 futures rose 0.3%
Futures on the Dow Jones Industrial Average rose 0.3%
The Stoxx Europe 600 rose 0.2%
The MSCI World Index was little changed
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.1011
The British pound rose 0.2% to $1.2860
The Japanese yen was little changed at 147.32 per dollar
Cryptocurrencies
Bitcoin fell 0.7% to $58,747.52
Ether fell 1.4% to $2,638.95
Bonds
The yield on 10-year Treasuries was little changed at 3.84%
Germany’s 10-year yield advanced one basis point to 2.19%
Britain’s 10-year yield advanced three basis points to 3.86%
Commodities
West Texas Intermediate crude rose 1% to $77.72 a barrel
Spot gold rose 0.5% to $2,459.57 an ounce
An Update On EURC
It’s been 15 days since stablecoin issuer Circle launched its euro-backed stablecoin EURC on the Base network, extending its reach beyond Avalanche, Ethereum, Solana, and Stellar. This marked the first time EURC is available on an Ethereum layer 2, and the move is already paying dividends. €7.5 million EURC has already been issued on Base, which represents about 17% of the market cap. Notably, the Base versions of EURC and USDC Coin are the first stablecoins on Base to comply with the new Markets in Crypto-Assets (MiCA) regulation.
cbBTC Has Arrived!
We have yet to receive any official documentation from Coinbase on cbBTC beyond a tweet and a reply stating, “coming soon,” but we can make some assumptions including that this announcement is massive!
What we can assume is that Coinbase is hinting at the upcoming launch of a tokenized Bitcoin product, named ‘cbBTC,’ similar to their Ethereum staking product ‘cbETH.’ The product, expected to launch soon, will be backed 1:1 by actual Bitcoin and should enable holding Bitcoin on Ethereum and Layer 2 chains, providing liquidity for DeFi users and within Base, Coinbase's blockchain. Base's lead, Jesse Pollak, expressed enthusiasm for building a significant Bitcoin economy on Base following the announcement. For reference, cbETH has a fully diluted market cap of $4.14b.
When cbBTC goes live, it will compete with BitGo’s Wrapped Bitcoin (WBTC), currently the largest tokenized BTC product with a market cap exceeding $9 billion. This development coincides with BitGo's partnership with BiT Global, linked to Tron founder Justin Sun, to manage WBTC custody. BitGo also announced a joint venture with BiT Global, aiming to offer “multi-jurisdictional and multi-institutional custody” for WBTC. cbBTC vs WBTC will go down as one of the most epic unforeseen wars starting at the launch of cbBTC.
I checked Arkham to see how much Bitcoin is on Coinbase—859,000 BTC, valued at $51 billion as of yesterday, which is just shy of 5% of Bitcoin’s market cap. This is significant when you consider the size potential this product could capture.
MetaMask Debuts A Mastercard Debit Card
MetaMask has announced the pilot launch of its blockchain-based debit card, developed in collaboration with Mastercard and crypto payments specialist Baanx. This card allows users to spend USDC, USDT, and wETH cryptocurrencies held on the Linea blockchain, developed by Consensys, the company behind MetaMask. Initially available as a “limited pilot” for a few thousand users in the EU and UK, the MetaMask Card will be rolled out more broadly later this year, with plans for full distribution in these regions and additional pilots in other areas.
“We saw a significant opportunity to make purchases for self-custody wallet users easier, more secure, and interoperable,” — Raj Dhamodharan, executive VP of blockchain and digital assets at Mastercard.
“Anybody who has access to a mobile phone should be able to access a basic range of financial services by default. This would have huge implications in countries with large numbers of unbanked or underbanked individuals,” — Simon Jones, chief commercial officer at Baanx.
The U.S. Government Is Moving BTC
How ironic would it be if Trump gets elected and ends up buying back Bitcoin for the strategic reserve that the current administration sells before he takes office? What a world. Arkham Intelligence just discovered that 10,000 BTC, valued at about $600 million, has been transferred to a Coinbase wallet, where $2 billion was sent back in July. We don't know if the U.S. plans to sell this Bitcoin or is moving it for safe storage—hopefully the former.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.