"The Pulse" -- #134 / 2025 Wins & Losses

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Market Update:

2025 Wins & Losses

This is a slightly different format from our traditional write-up, but this week we are going to review The Pulse’s biggest wins and losses of 2025.

We don’t do much predicting, but the forecasts we make tend to come to light…we probably are not making bold enough predictions.

-Wins-

This is now our second year in a row of accurately predicting the year-end federal funds rate. Easily our best win of 2025, there are PHDs that get paid millions to bet on this shit and many of them get it wrong.

Back in September of 2024, we predicted that the year-end 2025 federal funds rate would be ~300-350bps. At the time, we underestimated the duration of the tariff shock so we ended up bottom-ticking the year-end range of 350-375bps. We stuck with our principles that the current FED is a transparent FED. Back in September of 2024, the house view from the “smart money” was 275bps and the dots pointed to ~300bps. We felt that these predictions were aggressive and that ultimately a) inflation would be stickier than expected and b) macro turmoil in 2025 would disrupt the cutting cycle for a period of time.

Still, a huge win especially amidst the political uncertainty of 2025. I just wish that I threw money where my mouth was. Stay tuned for a 2026 prediction—will put that write-up together after we see which Kevin is nominated as the new FED chair.

In this write-up, we predicted that M&A volume, LBO volume, IPOs, and credit issuance would all pick up in 2025. We barely skated by here but imma give myself credit primarily because we were on the money for our IPO prediction.

We predicted ~300 IPOs in 2025 and there have been 302. BANG. Our 2024 prediction was a total miss, so we figured that we were due for a rebound in 2025.

I will admit that LBO volume was basically unchanged from 2025 and credit issuance was actually a bit lower—if we netted out the effect from tariff uncertainty in 2Q 2025, than annualized volumes would have almost certainly surpassed 2024 levels.

We dropped some restructuring knowledge and nonchalantly said to expect more LME volume in 2025. We were right.

LME volume continues to tick up because EVERYONE tries to avoid public bankruptcy. Public BK is really expensive and leaves a bad mark on the company. Private LME is a way to fix some immediate problems and kick the can down the road.

Some new data is being released that LMEs are only recovering ~47% of value for creditors vs. non-LME transactions, but it’s really hard to see the forest from the trees in these situations. Everyone generally feels that a BK is more unique than it really is.

At the end of the day, is it a bad company, a bad capital structure, or a bad company with a bad capital structure? Bad capital structures tend to be the easier fixes.

All I’m going to do is attach two graphs and say that we were right. Also, FICOs got re-rated post recognition of student loan delinquency—this was a huge component of the write-up.

This is probs one of the wildest posts I’ve ever written. Essentially, I said that Trump’s entire tariff plan was not to onshore manufacturing or pay down debt. Instead, the tariff plan is just a negotiation lever to get countries back to the table to discuss an economic plan that makes sense. No better way to do that than to impair the demand for their goods.

Why would we ever pay tariffs to the UK when we are their largest importer? Would you ever intentionally fuck over your best customer?

I’ll say it again, but I’m not political. I don’t vote; that’s a personal decision. The tariff plan is primarily designed for bargaining power to present a better deal for Americans. By this point, the intent is pretty obvious given the number of times he has changed the severity of tariffs over the past year. What are tariffs today? No one even cares anymore.

-Losses-

Two losses come to mind.

I got a little over-zealous in this write-up and stated that: ‘through the rest of the year we don’t expect to see a reversal to the damages made to the stock market from these sweeping tariffs.’

Recency bias got the best of me. All time lows were in early April and I figured that things would stay rocky through 2025. I was wrong. There is an old saying that the stock market has a bad memory, that could not be more true than 2025. In one year, we saw the S&P drop as low as 4,982 and it has now bounced up ~2,000 points. Ridiculous.

I can’t say I didn’t make money on this trade. I actually bottom-ticked the April 7th lows, never thought I would ever see the S&P dip into the 4s in my life again, so I needed to get in there. Also, I don’t plan on selling until I retire so fuck it. S&P might be six figures by then.

Not a prediction loss per se, but a big personal L. I made a dumbass bet using only ~5 minutes of diligence and nearly lost my entire Schwab account within 15 minutes. Chinese stock, short-squeeze.

Read the linked edition for more info, but this was a great risk management lesson for me. If it wasn’t for my covered call than I would have gotten murdered.

Excited for more wins and losses in 2026!

Disclosure: Nothing written here is financial advice or should be used for investment decisions.

Private Equity Value Creation

Private equity firms have a bunch of different tools in their shed to enhance value on the companies they buy. Below, I walk through a few of them--some are more financial engineering and others are more organic in nature.

Nevertheless, they create value

-Multiple Expansion: Sell a company for a greater multiple than what you bought it for

-Dividend Recap: Borrow more debt to pay yourself a dividend

-Operational Synergies: Cut costs or expand revenue to enhance value

-Debt Repayment: Rapidly repay debt to grow the equity value by the time of exit

-Convert Cash Interest to PIK: Retain intermittent FCF by converting interest to PIK

-Tuck-in Acquisitions: Buy similar businesses to corner a market and control pricing

-Divestiture: Sell unprofitable, unrelated business units to grow the core business (not really a PE play tbh) 

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“The Pulse” #134