Oh boy. Lots going on this week. Here are three things I think I am thinking about.
1) LIV Golf is…done?
We’re now learning that LIV was a massive money loser and the Saudi Investment Fund is pulling out. If LIV can’t find new backers then it’s likely to fail or turn into a smaller tour. We still don’t know what will happen with the players, but it’s likely to be a mixed result depending on the player.
I spilled a fair amount of ink in the last few years talking about the bad economics behind LIV Golf. Here’s what I wrote back in 2022 when it first burst onto the scene:
“The creation of a government funded golf league makes me very uncomfortable because the economic incentives are not in the interest of domestic taxpayers AND it could erode the quality of the entertainment by creating an anti-competitive playing field. I am all for competition and none of this is to say that the PGA is a perfect altruistic entity, but it appears to me that this is not a good situation for the long-term well-being of the game or taxpayers.“
Golf is unique because the players are independent contractors. When you give the independent contractor a guaranteed life changing sum of money you essentially destroy any incentive to work. This is very different from team sports where, even if you give a MLB pitcher a guaranteed life changing sum of money, he is still accountable for his performance because he has teammates who pressure him to perform well. An independent contractor with a lifetime guarantee doesn’t have to care about his performance because they’re accountable to no one.
In that piece I wrote about Dustin Johnson specifically. In July of 2022 he was the 13th ranked player in the world and one of the most exciting players on tour. In the last 8 PGA events he’s played in he’s missed the cut in 4 with a top finish of 23rd at the British Open in 2025. He took the money and stopped practicing as much because he didn’t need to. And look, I do not blame Johnson for moving to LIV at all. If someone wants to pay me $100 million so I can mail it in 40 days a year and spend the other 325 days with my daughters then shoot me an email. You have to be silly not to do what he did. But it was bad for the game of golf because it took a truly amazing player and gave him absolutely no reason to keep being good. It was a bad incentive structure operated by a government entity that thought they could just print money and make things work by throwing more money at that thing.
This whole thing is a big lesson in economics and incentive structures and how a profit motive with bad incentives can result in very bad outcomes. There’s a reason why Capitalism has resulted in superior outcomes to Socialism over the last 100 years – it’s (generally) a better incentive structure.
In the end I don’t think we can say this whole saga was all bad. The PGA substantially increased their profit sharing program and I can’t personally say that the game has become more or less exciting considering I mostly pay attention to the 4 Majors anyhow….I think the one demonstrable negative is that there are a lot of great players who tarnished their reputations and might never play on the PGA Tour again. That’s just a shame from a legacy perspective, but again, I can’t blame them. I would have done the exact same thing most of them did (except for the handful who aggressively attacked the PGA while defending Saudi Arabia, that was just weird).
2) We Bid you Adieu Jerome Powell.
Jerome Powell gave his last press conference this week. His tenure officially ends on May 15th. I liked Powell. I thought he was a great communicator, well intentioned and incredibly smart. You might be surprised then, that I’d give him an overall grade of C+. Before you go writing me any mean emails let me explain.
First, I think Powell deserves an A+ for remaining independent in the face of some pretty severe political pressure. But Fed chairs are judged primarily by how they handle crises. And I don’t think there’s any doubt that the Powell Fed was very slow to respond to the Covid inflation surge. They bungled the “transitory” narrative, relied too heavily on the supply side narrative and remained accommodative even when fiscal policy was running at the highest levels in US government history. And yes, I know it’s easy to be critical in hindsight, but I don’t think we can all look back Covid and say any of the policies were especially great. At the same time, the craziness that was going on was pretty obvious. In May 2021, nine months before the Fed started hiking rates I wrote:
“Personally, if I ran the Fed I’d be changing the language and starting to talk about tapering the balance sheet. I think there’s a lot of weird stuff that kind of worries me. It’s not just consumer prices. The real estate market around the country is whackadoodle. People are buying meme crypto coins just for fun. The Gamestop stuff and the endless surge in stocks. There is speculative fervor all over the place. And while asset prices aren’t a major concern for the Fed I do think the total amount of weirdness in prices is alarming. Maybe it’s just the risk manager in me speaking, but I’d be hinting at rate hikes by now….”
And that’s where the Powell Fed does deserve criticism. They were clearly late raising rates. And then we experienced the largest inflation shock in 50 years. And in some ways, we’re still dealing with it. Anyhow, I always told my parents that a C+ was a great grade. And I think Powell was a good Chairman who navigated us through a once-in-a-lifetime shock with a little more turbulence than we should have experienced. But hey, the plane didn’t crash. Maybe I am being a little harsh? Maybe I am not being harsh enough. Either way, he’s still going to be on the Board of Governors so it’s not like this is the last we’ve heard of Jerome Powell and I hope he continues to be an influential member of the Fed for a long time.
3) Strategies for Accumulators vs Decumulators.
A reader named Jeremy emailed me an interesting question about how best to use the Defined Duration strategy:
“Cullen, I am relatively young and have a moderately high income. I find the Defined Duration Investing appealing, but I am not sure if it’s appropriate for a younger person. What do you think?”
The investment industry is obsessed with beating the market. Total return strategies measure success against a benchmark like a 60/40 blend, the S&P 500, whatever. The problem is the benchmark doesn’t know who you are, when you need money, or what your life actually costs. Liability driven investing flips that around. Instead of asking “how do I beat the market?”, it asks “what do I actually owe my future self, and how do I build a portfolio that funds it?” Your spending needs are the benchmark. The portfolio exists to serve your life, not win a performance competition.
The practical difference is time. Total return treats all your dollars the same – 60/40 stocks/bonds isn’t viewed as having a different time horizon than the S&P 500 – it’s judged on whether it performs better on a risk adjusted basis over all time horizons. LDI recognizes that different assets have fundamentally different time horizons and that expenses you need in two years and expenses you won’t touch for twenty years are fundamentally different liabilities that should be matched differently. Match short-term needs with stable, short-duration assets. Let long-term money take risk and compound. A portfolio that beats the market but fails to fund your retirement at the wrong moment isn’t a success. That’s the whole point.
The thing about most young people is they have incomes that operate as a synthetic bond allocation. That bond allocation is funding their expenses and savings. They can afford not to be time aware in their asset allocation because their job is doing that for them. So they can afford to lean into a total return approach much more so than a retiree can.
So, to answer the question – it depends on specifics, but in general I would argue that a Defined Duration strategy is better suited for people who are decumulating and spending down their portfolio in a time of retirement and uncertainty while a young person with a big synthetic bond allocation can lean into a total return approach much more aggressively.
Well, that’s all I’ve got for you this week. I hope you make it an amazing weekend. And as always, stay disciplined out there.