The first inkling I got that something might be worse about COVID than the market was expecting in January 2020 was over a women’s UFC spat, of all things:
UFC Women’s Strawweight Champion Weili Zhang didn’t take kindly to an insensitive joke about the coronavirus from her UFC 248 opponent, Joanna Jedrzejczyk.
In a image that has been removed from Jedrzejczyk’s story, the 32-year-old posted a fake fight poster wearing a gas mask [whereupon Weili responded]
At the time, I remember thinking that it was a little odd to be taking a photoshop so seriously, especially when that is pretty much how fight promotion beef works nowadays. Indeed, if you look at some internet comments from January 29, 2020 (man, it feels like 5 lifetimes ago for me), it’s pretty surreal that this incident was the one that led to information trickling out about what exactly was going on in Wuhan:
Of course, as a believer in early-20s invincibility, this quickly went out of my mind as the S&P continued its churn upwards. Ever the contrarian, I started looking at flights to Asia — I wasn’t planning on going to China, of course, but certainly the rest of Asia would be unaffected, and the prices were all weirdly low. Indeed, for a mere $600, I found a round trip flight to Singapore, and convinced my friend to buy the dip with me after I looked up 5-star resort prices and saw that they were at a mind-boggling $130-a-night with a palatial breakfast buffet included. How could I resist?
Currently, that is the price for one night pre taxes and fees
Initially, my friend and I were supposed to be on the flight from SF to SIN together, but hilariously, his connecting flight from Vegas to SF got grounded because Donald Trump decided to go to Vegas to hold a campaign event that evening, so I took off alone.
Back then, I was trading pretty much anything that moved intraday, especially because ES futures hadn’t had their margin limits changed just yet. (That would happen after a week of VIX 60+ 24/7, which would happen shortly after I landed.) Idiotically, I decided that I could spend the entire flight trading on the way to Singapore off the plane wifi. Needless to say, the connection over the deep Pacific is not particularly stable, and I found myself using an IRC ticker bot to get prices to place orders through my ThinkorSwim phone app, because the quotes wouldn’t load on the app itself. Somehow, I made it through the flight in the green.
When I got to the hotel in the late evening and grabbed some McDonald’s (there’s nothing I adore quite like Asian McDonald’s, it’s such a vindication of the American diaspora that these places are literally packed in every country I go to at mealtimes), I turned on the TV and aimlessly flicked through channels until I saw a station playing the music video for “Good News” by Mac Miller, as Circles had just come out.
I proceeded to see this video cycle through probably ~7 times over the course of the evening while I was trading, and it kind of got permanently stuck in my head the way songs do when you lock in.
People tend to misconstrue contrarianism with cynicism. “Why do you have to point out how everything is wrong” is a not-so-infrequent statement I’ve heard when I am really not letting anything go in a conversation. But cynicism is a function of bitterness — “everything is shitty and bad” — while I believe proper contrarianism to be an earnest belief that things could be better, where the degree of contrarianism you possess is reflective of how much you’re seeing that’s flawed. I very much do rant about how silly a lot of things are — yesterday’s post on prediction markets is very much complaining — but it’s just my conversational style rather than a conveyance of actual emotional responses. My quality of life is pretty damn high, actually.
There’s a line that kicks off the chorus,
Good news, good news, good news That's all they wanna hear
which kind of sums up how I control my own tendencies to bet against the grain. People don’t want to deeply analyze the bear scenario, or the MOASS conspiracy, or the fraud allegations, or the revenue washing, or the inherentless pointlessness of the currency, they just want the number to go up and to go about their day. It’s why there needs to be way, way more Scary Jerry’s than there are Malt Liquidities, because can you imagine how awful it would be trying to sell blocks if everyone is playing 6D chess? The market, and society, requires that we just kind of pinch our nose and get long. Indeed, after nearly a decade of thinking about all this, that’s exactly what I concluded in Postmodern Society and its Future and the Malt Liquidity series:
What I realized is that the “trick” that kickstarts liquidity in a belief-based system (fiat) is the fact that you have to get people to believe in it. If I endlessly point out how everything is constructed around an assumption, and continuously harangue the point that “it’s not real”, it becomes a self-fulfilling reality if my ideas hit critical mass.
The problem I have with applied quantitative methods like probability and statistics is that it’s an approximate framing of systems that are inherently not going to be rigorously solvable due to the belief element. The “trick” that kickstarts the legal system, for example, is the invention of the concept of private property, because society can’t possibly scale if everyone is consistently in a state of defending what they’ve captured:
Law primarily exists to settle property disputes so that people with resources do not mobilize them to war over said property. Criminal law, on the other hand, exists as a sort of societal insurance — for egregious misconduct, alright, one loses their privilege to participate in society (as long as these laws are enforced).
One of my favorite posts that I’ve written is The Data Valuation Paradox, where I highlight the difference between how humans think about data versus how computers think about data:
Certainly, without training or talent, humans are innately not very good with large numbers, understanding probabilities, and knowing when statistics can be applied. In the current environment, numbers are thrown at us nonstop, such as political polls, tip percentages, studies telling us stuff, stock prices, and more. We are surrounded by them, and it’s easy to get overwhelmed.
However, humans have uniquely strong skills rooted in our intuition that are definitely mathematical. It’s not an exaggeration to label the human brain as the greatest pattern recognition machine to ever exist. We can contextualize relative quantities at a glance without ever consciously processing them — it’s the difference between choosing a larger pizza slice and guessing how many jellybeans are in a jar to win a prize. This scales to complex three-dimensional physics as well, as anyone who has hit a nice approach shot onto a green or made contact on a curveball would know. The overarching point is that humans have a ridiculous intuitive ability to approximate and extrapolate — isn’t that exactly what probability and statistics attempt to do?
The divergence between math and humans arises due to intent, methodology, and scalability. Applied probabilistic and statistical methods are just processes that can be optimally applied to certain problems. Which method you apply depends on factors such as the level of precision desired, availability, amount, and cleanliness of data, and how fast you want the result. Humans apply this type of thinking contextually. Beyond specialized activities, this usually means that these capabilities are only used when relevant to the individual. Humans are also creatures of evolution — these capacities were developed many millennia before the advent of computing. Here lies the crux of the confusion: human thinking was never meant to scale with the amount of data available. Rather, human intuition was honed on balancing accuracy relative to the available information and the speed with which the estimate needed to be made. Human ability is unparalleled when an approximation needs to be made on very little data, which is why casino games trap so many people. Humans simply cannot process the “long run” without putting it in the context of themselves without training the instinct out, which is why you can find endless amounts of people convinced that they’ve “solved” roulette that hawk “their strategies”.
This is why nobody can just pick a side as to who they think will win in an election and look to snake oil salesmen for indications that a complex outcome isn’t so complex after all, and why they never have any actual answers. Humans don’t like uncertainty — that is basically the reason why founding myths exist, and why it doesn’t particularly matter if Jesus, Mary, and Joseph (Smith) actually did anything that was written. Good news, that’s all they wanna hear. But so much of algorithmic reality is hell-bent on overfitting complex reality to quantified systems and maximizing the attention you pay to it and it’s clearly making too many people miserable. They’re overexposed and oversocialized and concerned about stuff that they don’t have the capacity to contextualize coherently in their own purview, so they attach to random things and create a dogma around it. Does anyone who doesn’t relish in antagonistic confrontation enjoy talking politics? Even if you’re among similar thinkers, isn’t it just complaining about how shitty things are all the time? There’s no contrarianism present — it’s straight cynicism to the bottom. Nothing works, everything is bad, the other side has lost their mind. This is 99% of the conversations I have had with normal people in the past 10 years, a lot of whom are quite intelligent and successful. Everyone hates this shit.
But, the thing about “nothing ever happens” is that someone has to make sure nothing will ever happen. You can’t just kick the can down the road and expect everything to be alright, and this seems to be what a large chunk of society wants. And who can blame them? An individual, or even a state full of them, is powerless by design to implement change at the federal level.
I consider myself a single issue type, but that issue is the sustenance and furtherance of the dollar, so it’s basically everything encompassed into one single goal. (Kind of like how the entire fiat economy revolves around a single interest rate, wouldn’t you think?)
I like the dollar, the dollar is good. I happen to have a few of them as well. I’m oft reminded of a quote from Nicholas Cage, one of my dark horse nominees for top-5 actor of all time:
The single biggest split in politics I’ve seen amongst intelligent people revolves around 2008. The point of no return is having experienced how cartoonish the Bush administration was (though it’s quite vexing that the band that made “American Idiot” and the industry that lauded “VICE” is somehow aligned with the Cheney’s, truly, reality is post-satire), or honing in on how belief in the dollar broke during the recession. My “founding ideology” essentially revolves around the fact that you cannot ever imply zero risk in lending — zero interest rate policy — because it untethers humans from the idea that their work is being properly rewarded, which I liken to fiscal heroin:
How does the financial system predicated on future cash flows paying off debt-based growth spending continue to churn? For 250+ years, the answer has been brushed off with the statement “Don’t bet against America.” In the next year, where we are likely to see low (if any) growth, this answer seems more and more like an intellectual cop-out, and we’ll further explore it as the financial landscape continues to adapt to rates becoming somewhat normalized. While the economy might wean itself off of financial heroin, the track marks remain.
Since the meme market of 2021, I’ve been wrestling with this question that money itself seems irretrievably broken. It makes sense in the worst way possible — the “attention economy” doesn’t create anything, it just sucks up mental resources and redistributes wealth in random ways that don’t reflect a net increase in productivity.
The solution isn’t more cryptocurrencies, defi products, or other ways of transferring risk in and of itself — people have to hear some good news and feel like they’re being rewarded for the work they do. In the absence of this, the only way to keep the mirage going is to keep printing money, and we are at the critical mass of not being able to do that anymore without deep, deep issues, some of which are already actively present. AI engineers and DoorDash drivers and unnecessary government jobs does not a healthy economy make.
There’s a palpable sense of desperation everywhere I look, and it’s reflected by the fact that nobody really trusts any institution to properly do anything, whether it’s a court of law or even counting votes. (Look, India counts a billion votes in a day, there is literally no reason a state should supposedly “take a week” to count ballots, though I suspect this won’t actually be an issue.) It is downright embarrassing how much litigation there is around basic, simple, logical things, and it’s a perversion of the legal system that common sense isn’t taken accounted for. The entire purpose of law is that it’s supposed to be subservient to the straightforward meaning when it comes to people! You shouldn’t have to be legally trained to understand most topical issues at the non-federal level. (Of course, this is outright a failure of literacy education and the media, but more at 11.) This desperation is most reflected by the fact that apparently, our answer now is to throw our hands up in the air, toss every single ounce of data that we can legally (and illegally) get access to into a GPU cluster, and pray that the human brain gets solved. It’s so patently ridiculous from my view that every major player is all-in on what I describe as the most expensive, farthest OTM option ever conceived. FFS, the tech gets more expensive as you try and scale it and it isn’t even coherently applicable as a product!
You can read this as “oh man, we have to think about how the finances work”
Something has to change immediately, because we are at the point of a debt recursion loop. Look, you can cite whatever numbers you want, I am convinced we are not getting “true” 2% inflation again. Don’t just take it from me, Paul Tudor Jones arrived at pretty much the exact same conclusion.
Inflation, by nature, polarizes wealth. (This is precisely why the fascination with deflationary currencies like Bitcoin came into vogue post-08 — deflation preserves people’s assets.) Here’s a handy way of thinking about inflation.
Let’s say we are to play a game where the loser dies. Would you rather play chess with me, a National Master, for your life, or flip a coin?
The inflation target pretty much does this for businesses. If inflation is too high, only the best-positioned, highest skilled operators can thrive, and the highest-skilled (or luckiest) allocators get rewarded. If inflation is too low, the velocity of money trickles, as why would I flip a coin with you when I could wait for a better game to improve my odds of surviving? Thus, the 2% target is like the variance in a game of Texas Hold’em — just enough to let the skilled players win over time, but not so harsh such that a normal person can’t win sometimes as well.
No matter what, I think the middle class is done for until the paradigm shifts — either (somehow) AGI is achieved within 10 years, there’s a great leap forward in resource collection possibilities (space, energy, rare metals, etc.), or what’s left is a dollar environment that compensates the people without net worths by inflating the denomination of their debt away as infrastructure and purchasing power continues to worsen.
But, here’s the good news — for the first time since 2020, I get the feeling that people are willing to try again. The entirety of 2020 felt like one collective psychotic break that I wasn’t a part of, and the chaos that ensued in 21-22 meant that a lot of people just kept their heads down, and some still are. But for my sect of peers — talented people who didn’t quite get a shot to build anything in the free money era, then immediately got plunged into the pandemic — there’s a palpable urgency that the next few years might be the last shot any of us has to innovate in prime working years, because the environment has been so oppressive to novel thought post-2016.
Part of the reason I took that Singapore trip was that I was seriously considering relocating there, pretty much for the same reason I find myself here now — I simply didn’t want to deal with the sheer emotional turbulence that comes with US election years nowadays. It was never this bad prior to 2020, I’m confident of this. But the thing about Singapore is, it’s not a particularly interesting place. It’s probably the best run, most orderly place in Asia, but it’s pretty much workaholic Disneyland. You come here to make money, or with money, and you can eat great food, buy all the luxury goods you want, and go through the motions of “entertainment”, but it just lacks that sense of spontaneity and boundless creativity that I got used to experiencing in the 2010s during peak ZIRP in places like San Francisco and New York. Nothing seemed to change out here four years later — the hotels remain identical, the excursions have different window dressing, the buffets have the same food, the shops the same luxuries, and I’m still listening to Good News on repeat. This is what you get when the number continues to go up ideally — a very comfortable, idyllic, zero-variance lifestyle. Of course, this is not possible at the scale of the US, but it is an option available. And, I dunno, I guess I’m just not ready for that. Algorithmic reality is too predictable, and it sucks.
I have been pretty certain for a while now that an administration shift needs to happen simply so that some organic change can occur. I don’t expect the “economy” or “GDP” or “inflation” numbers to reflect why I think this is good — in fact, I very much expect numbers to go down (index, single stocks, etc.) organically in a way probably nobody under the age of 50 has actually experienced. But I truly believe that the greatest human innovation of my lifetime — instant information transmission anywhere in the world — allows mass coordination and focus of talent irrespective of location on novel problems, and we have never actually tried to take full advantage of this as a society. As soon as we stop building things solely on the internet and instead lever off the internet to build in conjunction with reality, I think all the hand-wringing about debt, de-dollarization, attention spans, social contagion, and so much more will look really silly from the rearview mirror a few years from now. The thing about news is, there’s no bite-size amount of information that can accurately describe anything. By and large, you choose whether you hear good news, and you’re fed the bad news under the guise of “staying informed”. Change is just change, nobody knows whether it’s good or bad in real time — if you choose to try and fix things, or at least believe they can be fixed, things have a way of working out. Inflation and bank runs are both self-fulfilling prophecies, after all. For a post that could be coded as “dollar doom”, I think that’s the most positive way I can spin it. See y’all on the other side of November 5th, folks.
If you’d rather do anything than watch election returns, feel free to share this post with a friend
