With Mosler at the helm, the firm went on an incredible winning streak. It didn’t book a single losing trade from its inception through 1997, when Mosler ceded control to his partners. Mosler is relatively obscure because he didn’t have eye-popping returns. He lacked the 20% or 30% annualized returns that have made some hedge-fund managers – like George Soros or David Tepper – famous. Still, Mosler’s track record is impressive... III Capital Management specialized in fixed-income arbitrage. Under Mosler’s leadership, the firm produced annualized outperformance (or “alpha”) of around 6.5%. And since the trades were well hedged, there Imagine running a hedge fund and never booking a loss... That’s exactly what Warren Mosler did for 15 years. In 1982, Mosler co-founded the investment firm Illinois Income Investors. (Later, the company changed its name to III Capital Management.) With Mosler at the helm, the firm went on an incredible winning streak. It didn’t book a single losing trade from its inception through 1997, when Mosler ceded control to his partners. Despite his remarkable run, I bet you’ve never heard of Mosler.
was little volatility. Managed Account Reports – a publication focusing on the hedge-fund industry – ranked III’s risk-adjusted returns No. 1 in the world for the 10-year period ending in 1997. Clearly, Mosler is a bond-market expert who understands how the monetary system works. And he went on to help develop a theory, called Modern Monetary Theory (“MMT”), based on the principles that guided his no- loss trading. Yet, Mosler’s theory is often ridiculed in the financial world. Some skeptics pejoratively refer to it as the “Magic Money Tree.” Many believe it implies that the government can spend unlimited amounts with impunity. Government spending does seem to have become boundless. There’s been unprecedented fiscal stimulus in response to the coronavirus pandemic. And as a result, the Treasury has said it will borrow a record $3 trillion this quarter. Whether we like it or not, the government is embracing the principles of MMT. Therefore, as investors – and voters – we better understand this new paradigm. THE GENESIS OF MMT In 1976, at age 27, Mosler joined Bankers Trust... At the New York-based merchant bank, Mosler was an assistant vice president responsible for the sales and trading of Government National Mortgage Association (Ginnie Mae) securities.
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June 2020
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