You’ve probably seen this slide circulating around on social media over the last week. It’s from Apollo’s chief economist / philosopher / content marketer Torsten Sløk. I think it does a pretty good job of summing up what the known macro and market risks are going into Q1 2025…

If you’re unfamiliar with some of the terminology on here (here’s a link to r-star, anticipating that you’d want it) or you’re not sure why something like M&A / IPO activity would be seen as a risk rather than a positive (could cause a stock market blow-off top), you can spend some time with these ideas over the weekend and get up to speed.

But I want you to understand that the 12 issues here, assigned a probability from the author, are fairly well understood by professional investors at this point. That’s not to say they don’t have the ability to create jarringly negative reactions if and when the headlines related to them hit the homepages of WSJ or CNBC. It’s just me saying that no one’s going to be completely shocked. Maybe just a little shocked. Not completely.

The good news is that a lot of these things - tariffs, too harsh immigration policies being put into action, fiscal debates in Congress - are a choice. If the President sees his precious stock market crashing as a result of them, he could dial them back or do a complete about-face and convince his followers that actually, this is a good thing.

Case in point: He’s just asked the Supreme Court to take a pause on their decision to ban TikTok from the United States in the waning hours of the Biden administration. He wants to have a chance to shape the decision here. Maybe he wants to use this issue as a gambit to wrest something else from his coming negotiations with China. Maybe he wants to “save TikTok” to score some sort of win with les jeunes americains. Maybe his campaign people and pollsters believe it would be the smarter move to use TikTok’s hypnotic algorithms to the President’s advantage in the 2026 midterms rather than erase it entirely. Maybe he wants to hand control over the US version of TikTok to Elon Musk and Rupert Murdoch. Who knows. The point is, it’s another example of the capriciousness of modern politics and the Age of Trumpism. Blink your eyes and up becomes down, black is white, good is bad, left is right.

I’m just pointing this out because no matter what Trump says on tariffs and deportations today, he could be singing a different tune tomorrow if the Dow Jones (his thermostat) tells him to. We learned during the first Trump term that he sees the stock market as his scoreboard. He tweeted about it almost every day. If the market was up, it was a sign that his policies were working. If it was down, it was a sign that Chuck Schumer and Nancy Pelosi were ruining the country. Either way, it’s hard to envision a scenario where he stays married to a policy choice that throws the stock market into disarray for an extended period of time.

The stuff that’s not a deliberate policy choice - like a re-acceleration of inflation - is probably going to be the real risk going forward, until we’ve created enough robots and AI software to send everyone to Homestead. Something tells me that’s a late 2020’s thing, not a mid 2020’s thing. Til then, you can put this theme on the list permanently, every year. But here’s the thing. To me, inflation isn’t a risk to equities. It’s a reason to own even more of them in one’s portfolio. We’ve been preaching the gospel of equities as the world’s greatest inflation hedge since 2010, before we even launched the firm. I won’t be changing my mind.

One man’s risk is another man’s reason to buy.

Equities hedge inflation because American companies are scary-good at passing along higher costs to consumers while simultaneously wringing these costs out of their collective system via technology and efficiency. Neither gold nor real estate even come close to what stocks can do about this particular risk. Professor Jeremy Siegel taught me this a million years ago and I never forgot it.

The bigger risks one should be concerned about are the ones that don’t appear in any of the year-end literature coming from Wall Street. These are the unknown unknowns. The exogenous shocks that no one in finance is thinking about because they transcend finance. Putin decides he wants Poland. Two submarines accidentally bump into each other in the Strait of Taiwan. A new strain of bird flu starts infecting humans. MPox jumps into the Northern Hemisphere. Something alien steps off a drone on a soccer field in New Jersey. You could lie awake at night driving yourself crazy over this sort of risk and still never see the thing coming when it does. There were no Wall Street strategists talking about pandemics in late 2019 and it became the singular defining economic and societal force of the 2020’s decade (so far). Don’t play this game, you can’t win. It’s un-investable anyway - even if you could guess at it, you still couldn’t know how governments and investors would react when it happens.

A completely unknown risk is out there along with many completely known potential landmines, like debt blow-ups, rate hikes, bad inflation readings, etc. Get comfortable with that. Because for as long as you live, and long after, it’s always going to be this way.

You’re being paid to take these risks in the form of average annual returns far exceeding the returns on cash.

The Bob Dylan Movie

I love movies about music. James Mangold’s A Complete Unknown came out on Christmas weekend and did not disappoint. Sprinkles and I tried and could not get tickets at any of the dozen or so theaters near us for Christmas day, which is how I knew it was going to be a monster at the box office. We went the day after Christmas and all of the theaters were sold out, day and night. But I finally managed to find two seats that morning on Fandango, probably because someone had just canceled.

The last tracking I saw was for a $22 million opening over the first five days. Not bad for a movie without any pre-existing Disney IP (Mufasa) or video game characters (Sonic 3) in it. The soundtrack in the trailer is doing the hard selling here, of course. If you want to learn more about why securing the rights to these songs was so critical in getting the film made, please listen to Matt Belloni interview producer Peter Jaysen for The Town:

What the movie does have working for it is Tim Chalomet doing a spot-on Bob Dylan mumble and absolutely nailing the vocals for the performance scenes (yes, the cast also sings). Ed Norton grounds the film with his portrayal of folkie Pete Seeger, a sort of mentor / antagonist for the evolving Dylan. And Monica Barbaro, who plays Joan Baez, is going to become a huge star now - in a packed theater people audibly gasped during her first scene as she sang. Talk about a complete unknown! Not anymore.

The story is about a young musician whose singular passion for writing and playing folk songs brings him - penniless and with a make-believe backstory - into the Ground Zero that was the West Village in those days. The painstaking recreation of this neighborhood on screen is almost ironic when you consider how much of it is still basically there. On MacDougal Street you can still find Cafe Wha? on the corner opposite Minetta Tavern sixty years after Dylan got his start there.

Anyway, Dylan goes from complete unknown to international megastar over the course of a few short years as his songs become the soundtrack of a generation. He grows to despise the fame and the expectations that fame comes along with and starts deliberately disappointing the fans who want him to be their living juke box every time he appears in public. He loses interest in the conventions of folk music and the genre’s constrictions, trading in the solo acoustic guitar and harmonica arrangements for a full-blown, electric, five-man band. Rather than just remain the early sixties Bob Dylan who’d already won the approval of the world, he tries this new version of himself out at the Newport Folk Festival - as purist and doctrinaire an institution as any in the world of music. I’ll let you see the movie to find out how that goes.

Reinvention is something that stays on my mind as both an investor and an entrepreneur. It’s not easy to balance the tried-and-true methodologies you’d love to stick with against the world’s demand on all of us to keep adapting. When do you go too far and lose the moorings that have supported you all this time? When do you not go far enough and watch as the world flies by and leaves you in the dust?

I think about this all the time in terms of how I research investment opportunities. I also wrestle with the need for evolution in the building of our firm. And in the ways we create content to share the knowledge and insight we’ve become known for. It’s a never-ending fight to find this balance. I don’t think you can ever secure a permanent victory and just rest on the laurels of whatever successes you’ve had. You wake up each day and the balance is already in the process of re-upsetting itself.

It’s relentless and you can’t ever truly win.

I’m going to fight anyway.

In case you were wondering - or you’re too young to know much about the Bob Dylan discography - my favorite albums of his, in order:

1. Blood on the Tracks (no skips)

2. Blonde on Blonde (masterpiece double LP)

3. Nashville Skyline (Country Dylan)

4. Highway 61 Revisited (Blues Dylan)

5. Modern Times (late-career gem)

Anyway, go see the film if for no other reason than signaling to Hollywood that we want more of this product and will come out to the theaters to pay for it. You can wait until it’s on Hulu or whatever, but that’s not going to help the cause. And please, give Mangold and Chalomet all the Oscars this March, this is the best thing I’ve seen in 2024.

Harvey Schwartz on The Compound and Friends

The episode we closed the year out with on The Compound and Friends is also one of our best, in my opinion. We went to the Carlyle Group’s headquarters to talk with Harvey Schwartz, who is one of my idols on Wall Street and someone I have much to learn from as a business leader.

Harvey was cold-calling the same Dun & Bradstreet index cards as I did but a generation before me. Harvey was handed a phone and a stack of leads and was told to dial up his fellow New Jersey residents with an offer of high-yielding municipal bonds in the late 1980’s. I learned to do the exact same thing, but with stocks, in the late 1990’s. Both Harvey and I had begun our careers as complete unknowns, working at firms most people hadn’t ever heard of. He’s gotten a lot further than I have, but I’m still young, let me cook!

Harvey’s career takes him from the black plastic telephones to the training program at Citi. Then he gets into Goldman Sachs and eventually works his way up to Chief Financial Officer, President and Co-Chief Operating Officer over the course of his tenure there. It’s a ridiculous rags to riches story if it ends right there…but it doesn’t.

During his time off after leaving Goldman, the phone rings and it’s one of the largest, most storied private equity firms in the world. Carlyle is in search of the very qualities Harvey possesses and he takes the CEO gig. What happens next is a huge turnaround that’s only just begun. (I own the stock and have for the last few years, full disclaimer).

It’s a bull market for both private equity and private credit and Carlyle wants to maintain their lead within the industry and push just as aggressively into the wealth management channel as all of its peers currently are. It’s a multi-trillion dollar opportunity as financial advisors begin to embrace alternative strategies to help clients and differentiate themselves.

Of course, like any gold rush (and yes, this certainly qualifies as a gold rush), there are plenty of reasons to be skeptical. Jason Zweig’s new piece at the Wall Street Journal lays them out here:

Suffice it to say that many “private” investments will be made that are sure to disappoint in the fullness of time. But that doesn’t mean all of them will.

Michael Batnick and I wanted to hear directly from Harvey about why the marriage of long-term retirement investing and private asset management seems so inevitable at this moment in time. And we wanted you to hear this conversation too.

Therefore, with no further fanfare, I present to you the final The Compound and Friends edition of 2024…

Listen here…

…or watch it below:

Thanks for reading today and all throughout the year. I hope my stuff has been helpful to you. See you in 2025, my friends. Talk soon! - Josh