“I was particularly focusing on changes in the rules of the game, not in playing by one particular set of rules but understanding when new rules came into being—and learning that before others did.” – George Soros

If you doubted for a moment that we are in a downturn of unprecedented speed and ferocity, then simply observe the tragic initial unemployment claims here in the United States, where 22 million American souls have been thrust out of the workforce in just the last four weeks.  This is a tremendous human tragedy.  What does it mean for markets?  It means to us, at a minimum, that you had better have a strong risk management discipline and intelligent asset allocation if you hope to safely arrive at the other side of this.  While those may be necessary for success, we don’t think that they are sufficient.  Rather, we think, these markets may demand more.

We have long studied George Soros’ investment career for good reason – his was one of the most successful ever in the history of investing.  But more germane to today, is the way in which he produced his returns.  He focused not on “normal” markets but rather on understanding those rare situations where new rules came into being.  Are we in such a period now?  We believe the answer is yes.  We say this because we are watching the fastest changes in property rights in our lifetime unfold before us.  This has many investment implications, as we explain below.

“In times of war, the laws fall silent.” – Cicero

Cicero knew a few things about navigating uncertain times.  A famous lawyer and Senator in the last days of the Roman Republic, Cicero lived to see the collapse of Roman institutions that he had defended and had stood for centuries.  Ultimately, Cicero misplayed his hand in this epic drama, got on the wrong side of history, and paid for the error with his life.  His vengeful opponents, early in what would become the second Roman Civil War, nailed Cicero’s head and hands to the honored Rostra from which Rome’s leaders had addressed its people for centuries.

Despite his failure to navigate his own times well, Cicero’s quote above still underscores the value of one key principle we wanted to highlight: that in times of crisis, “the laws” can be suspended.  We think exactly that is happening now.  We see this the most clearly in the rapid and wide policy response to the economic and social stresses of the ongoing coronavirus pandemic.

Many state and local governments nationwide are mandating that evictions cease, presumably temporarily, for renters who are unable to pay their landlords.  Other governments are going further and mandating that landlords too may (or may not) forbear on mortgages for which these landlords are liable.  These are indeed desperate times that call for extreme measures, so there is logic to these emergency measures.  But, nonetheless, this is a remarkably swift and potent change in the rules of the game.  One month ago, a major change like this – involving trillions of dollars’ worth of assets, liabilities, and cash flows – would have been unthinkable.  Today, it seems to pass almost unremarked upon.  Such are the times in which we live.  But our research team noticed.  We believe that there are two investment implications, that we outline below.


The first investment implication is the useful assets you can own to attempt to hedge the damage of a downcycle, as we  previously wrote about in 2017, which is best described as a flight to safety down John Exter’s “inverted pyramid,” the image of which is shown below.