[Week 45 of 2025] Memos, Margin, and Mirrors

Welcome back to Price and Prejudice with a few musings from Week 45 of 2025.

The Cult of the Memo

Oaktree Capital just released the complete collection of Howard Marks’s memos — nearly three decades of market commentary bound into one giant PDF. It’s a remarkable corporate artifact: not because Marks is the best writer in finance (though he might be), but because writing isn’t even his job. His actual business is lending money to stressed companies, and the memos are technically an extracurricular. Yet he’s done it for more than thirty years, through bubbles, crashes, pandemics, and Fed pivots, with the kind of steady cadence most journalists can’t sustain. The archive reads like a financial time capsule and a rare instance where an asset manager’s marketing material became part of the intellectual canon it was meant to advertise.

So what role do these memos actually serve? Primarily, they manufacture trust. The letters teach clients how Oaktree thinks — about risk, cycles, psychology — and by extension, how they should think. They are marketing a worldview where each memo reinforces the idea that prudence and patience are not just virtues but investment strategies, and that Oaktree embodies both. Deliberately, this repetition is not redundant; it’s conditioning. By the time you’ve read five memos, you’ve absorbed the doctrine; by the tenth, you start quoting it back. In that sense, the memos are not investor communication but customer training, a cost-effective way to transform financial philosophy into pricing power.

The Loan Hiding Inside an Options Trade

Here's one trick that might be useful: use stock options to borrow money. You can do this with a "box spread," a four-legged options trade that creates a riskless cash flow. For example, take S&P 500 index options: you buy a call and sell a put at one strike (say $4,900), and sell a call and buy a put at a higher strike (say $5,100), all with the same expiration. The first pair acts like you're buying the index at $4,900, the second pair like you're selling it at $5,100. The result is a synthetic position that always pays the difference between the two strikes—in this case, $5,100 minus $4,900, or $200—when the options expire. The key is the price you pay for this package today. Suppose this trade costs $198. Then if you sell this "box," which means you collect $198 today and owe $200 later, you've just borrowed money at an implied annualized rate.

This Bloomberg piece follows the curious afterlife of that idea. What started as a niche trick for Wall Street traders has been repackaged by a San Francisco startup called SyntheticFi as a consumer product. Instead of applying for a mortgage, you can now sell a box spread and borrow against your portfolio at rates that make your bank look like a payday lender. Of course, the bigger story is that these trades quietly rewrite who controls credit. Banks used to have the chokehold: if you wanted liquidity, you went through their underwriting, their balance sheet, their fees. But SyntheticFi and its copycats let you borrow straight from the capital markets, effectively skipping the banker and renting money from the option exchange instead.

The catch is that, unlike a normal loan, your collateral here is marked-to-market every second. A traditional mortgage gives you time, paperwork, and maybe a few phone calls before foreclosure. A box-spread loan just sells your portfolio the instant your margin cushion disappears. The rate looks cheap for a reason, since you’re the one absorbing the volatility. In that sense, it’s not so much borrowing against your assets as borrowing on the condition that they never fall drastically.

Clone Wars in Asset Management

Active ETFs were supposed to be the industry’s lifeboat: a sleek, transparent vessel that could carry old-school mutual fund managers into the future. But as Morningstar notes, it’s not clear whether these funds are saving the ship or drilling new holes in the hull. Firms like T. Rowe Price and Jensen have launched “clones” — ETFs that mirror their flagship mutual funds almost line for line — hoping to stop investors from fleeing to cheaper, passive competitors.

The more interesting twist mentioned in the article is the “cousin” ETF — not an exact copy, but similar enough to confuse even diligent investors. These cousins solve a very specific fiduciary problem: if a firm launches a clone with the same holdings but lower fees, financial advisers bound by fiduciary duty would be legally obligated to move clients into the cheaper version. That would accelerate the death of the mutual fund and create potential liability for anyone who didn’t switch. By making the ETF slightly different — say, 80% overlap, a few extra screens, a new ticker — fund families can plausibly claim it’s a distinct product. Advisers can keep clients in the old fund without violating their duty, and the firm can defend its margins while looking innovative.