🍋 Hedge Funds are Back Baby

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Good Morning! Peloton’s stock might be lower than your motivation to work out after the holidays, but don’t worry. The company announced it will sell refurbished bikes at a steep discount - just in time for your New Year resolutions. Hopefully, you weren’t planning on flying Southwest Airlines this holiday season. The airline accounted for a whopping 2,600 of total 3,100 canceled American flights yesterday after its crew scheduling system broke down.

There’s a silver lining for those laid-off tech workers - many are quickly finding new jobs. Even despite recession fears, job openings continue to exceed the number of unemployed Americans. And the Economic Policy Institute predicts that a record 8.4 million Americans will be ringing in the New Year with a raise.

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1. Story of the Day: Hedge Funds are Back Baby

Hedge funds have had a rough go of it over the past decade, with mediocre returns and ridiculous fees that have left investors feeling ripped off. But after 10 years of getting beaten by the stock market, hedge funds may finally get to flex their muscles and show us what they’re really made of. 2022 could be the year the industry finally turned it all around, thanks to a few top performers who have made smart bets in a rapidly changing market. 

After the 2008-2009 Global Financial Crisis, central banks were basically handing out free money, which made it tough for hedge funds to shine. But this year, things changed. The end of fiscal stimulus and tighter financial conditions have increased the potential for performance dispersion. Rate increases mean we're likely to see a wider range of outcomes in the equity market, which should give active strategies more opportunities to find inefficiencies and make a killing.

Citadel, for example, is on track for its most profitable year ever, with its flagship Wellington fund raking in a 32% return YTD through November (while the S&P 500 was down a whopping 14% over the same period). CEO Ken Griffin was so pleased with the performance, he paid out of pocket for 10,000 employees and their families to go on a three-day Disney World vacation to celebrate.

Even Bill Ackman's Pershing Square, which had a rough start to the year, is seeing a comeback thanks to its winning bets on rising interest rates through a series of clever hedges. Those hedges have earned Pershing about $2 billion this year and a whopping $5.2 billion since the start of COVID in 2020.

Takeaway: Hedge funds got clowned as overpriced middlemen when it seemed like stonks only went up and Warren Buffet bet that an unmanaged, low-cost stock index would outperform a group of hedge funds. But in a time of economic uncertainty, it seems like the "hedge" in "hedge fund" is starting to live up to its name.

2. Markets Rundown

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Stocks closed lower on Tuesday as the bond yield popped.

Movers & Shakers

• (–) Southwest Airlines ($LUV) -6% after the company canceled thousands of flights.

• (–) Peloton ($PTON) -8% because the company will offer refurbished bikes at a steep discount.

• (–) Tesla ($TSLA) -11% after news the company will slow production in China.

Private Dealmaking

• Nerdio, a platform for companies using Microsoft Azure, raised $117 million 

• Synchron, a brain-computer interface startup, raised $75 million

• CyberCube, a cyber risk analytics company, raised $50 million

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*The Price of Wine. Journal of Financial Economics.See vint.co for full investment disclaimer. Past performance is not indicative of future performance.

Top Reads

• The billionaire vibe shift (Vox)

• The top 25 good news stories of 2022 (PN)

• How Bank of America achieved a massive comeback from the brink of collapse (CNBC)

• Crypto will be fine (Axios)

• Retailers really don’t want your holiday returns this year (Forbes)

• Healthcare dealmaking set to surge in 2023 (WSJ)

• Tesla stock plunges as investors punish Elon Musk (Axios)

• Apple shares hit lowest since June 2021 over iPhone supply chain woes (YF)

• Pandemic learning losses could cost students up to $70,000 in lifetime earnings (Fox)

• How IBM outperformed the technology sector this year (CNBC)

4. Book of the Day: For Profit

Americans have long been skeptical of corporations, and that skepticism has only grown more intense in recent years. Meanwhile, corporations continue to amass wealth and power at a dizzying rate, recklessly pursuing profit while leaving society to sort out the costs. 

In For Profit, law professor William Magnuson argues that the story of the corporation didn’t have to come to this.

Throughout history, he finds, corporations have been purpose-built to benefit the societies that surrounded them. Corporations enabled everything from the construction of ancient Rome’s roads and aqueducts to the artistic flourishing of the Renaissance to the rise of the middle class in the twentieth century.

By recapturing this original spirit of civic virtue, Magnuson argues, corporations can help craft a society in which all of us—not just shareholders—benefit from the profits of enterprise.

“A history of how corporate innovation has shaped society, from ancient Rome to Silicon Valley.”

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5. Short Squeez Picks

• 9 breakthroughs in 2022 to give you hope for the future

• The power of leverage in leading the life you want

• Why you should never forget 2022

• Invest in yourself the way you’d invest in the stock market

• Some of the best articles of 2022

• Why procrastination is about emotions - not time

• 7 simple strategies to become a world-class negotiator

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Holiday Sweaters

FTX Bankruptcy

6. Daily Visual: World Cup with Year's Biggest Spike in Google Search

Source: Axios

7. Daily Acumen

Kindness Can Have Unexpectedly Positive Consequences:

"Findings suggest that what might seem small when we are deciding whether or not to do something nice for someone else, could matter a great deal to the person we do it for.

Given that these warm gestures can enhance our own mood and brighten the day of another person, why not choose kindness when we can?"

Source: Scientific American

8. Memes of the Day

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