Waiting For Perot
Bid and Tonic 3
In my 2023 end-of-year post, I made a couple predictions:
Donald Trump becomes president unless he is physically restrained from doing so (jail, assassination.)
SBF gets over 25 years, but some major scandal breaks about the decision to not charge him with campaign donation violations (which furthers Trump’s campaign)
Bitcoin won’t drop below 28k again due to being absorbed into the passive flow complex, but there’s a 10% chance we find out the US government was behind it the whole time.
It will continue to become cheaper to travel to Japan: the poor Yen!
which turned out to be pretty damn accurate — see This is Flow (BTC explainer), my threads on how I am literally the top/bottom indicator for USD/JPY, and the fact that I nailed SBF’s sentence. Alas, it is time to talk about politics openly for the first time in this newsletter.
I consider This Ticker is the Endgame, about DJT, to be the most actionable piece of writing of mine:
There is an idea of an asset, some kind of abstraction, but it’s some sort of entity, something illusory, and though you can trade it, “own” it, “hold” it, profit from it, post about it, read about it on the news, discuss it, and maybe even build your lifestyle around it, it’s simply not there.
There’s still nothing to this stock other than hype:
when dollars are untethered from productivity, we get a different form of thinking, where Paris Hilton is more of a pioneer than Benjamin Graham. No longer is future cash flows the driver of valuation, but rather how much attention paid converts to bid?
and indeed, how much hype it is! I noted how the “DJT memecoin” thesis applied during the New York trial, and how it rocketed up, and figured the same thing would happen as it’s a faster proxy than “prediction markets” (unfalsifiable, no short vol, BS liquidity suck movements) and doesn’t require interacting with the size. See what I wrote here:
DJT is a unique stock bc it's not option-driven at all while being a popular retail name, so the volume cascades very neatly. This is what a pure squeeze looks like, and there's no passive/create-redeem nonsense going on. You don't want to be short anything that has a positive skew — so you time the long around sentiment. If you can be objective about how society perceives trump, this is the easiest thing on the planet to trade as a result; for example, buy into trump trial, sell the news, buy when he gains momentum, sell when obviously people get overhyped, and trade into the liquidations from people who are shorting it on "fundamentals" or cause he's a "bad guy" and you will literally not lose on this stock. This is how BTC used to trade pre-spot ETF as well…
An option-driven stock — TSLA, for example — has the problem where you don't really know who's trading in what direction and what their exposure is, bc a) a strike price is guaranteed book depth at that price b) they are, by nature, nonlinear, so it's not as simple as someone slamming the spread like a caveman on DJT with their 37 shares.
But, of course, understanding how society perceives Trump requires understanding, well, society.
Especially from EO2022 onwards, I have been having a ton of the same conversation over, and over, and over in my non-finance circles, which culminated in this post breaking containment:
Part of the reason I have chosen to not take a salary or work a traditional corporate job for over half a decade is that I simply wouldn’t be able to speak so openly to people if I did. There’s a “mutually assured cancellation” effect that persists only if people trust you, and you have to be the one to indicate that you’re “cool”. (Being openly contrarian, especially in a monetized fashion, is pretty much just joining the kayfabe, which is why I don’t monetize my content directly.)
I don’t trade to make the number go up — in fact, I literally cannot incentivize myself to take a trade unless I frame it in a different context — but do so to fund the ability to keep my schedule open enough such that I can drop everything and be at the right place at the right time (which, this past weekend, was World Series game 1. I can’t even be mad, as a Yankees fan, how that played out, it was simply a magical day.)
Honestly, I really don’t like trading. It’s watching television static but at the end of the day, you might come away with profit. And, being under the age of 30, I’m a little too young to spend all my time investing in other people’s ideas, hence my forays into tech and microVC, etc. It’s not like I don’t understand how the “actual” economy works, because, of course, it’s all liquidity at the end of the day. Perhaps the biggest piece of economic propaganda is the connotation attached to “trickle down economics” — the entirety of fiat revolves around the trick that wealth created > work performed, so how could aimless paper-shuffling show “actual growth”? As it so happens, I know a lot of lawyers nowadays, and wrote this thread after seeing how hard it was for so many of them to find entry level jobs:
Everything in the corporate world depends on deal flow. Everything you do in sell-side is to collect fees on deals. When there’s no deals to pitch, the money that funds the people that do the deals balks, because nobody wants to pay bankers and lawyers when there’s nothing to be done. You don’t pay them for “clearing up the air”, there’s absolutely nothing a sell-side banker or a transactional lawyer can do for you. This all boils down to a) overregulation of deal flow and b) inability to borrow to do deals do to rates. Add on the fact that 2021 was a mass flood of cash and low rates creating a massive hiring cycle, and the blunt reality is that there is no work to do for entry level txn employees…
Ask your local law students who just passed the bar or the local finance students doing recruiting cycles — whether it’s New York or Spokane or Charlotte, it’s the same story everywhere. DoorDash jobs and AI engineers don’t compensate for this. This is also why Silicon Valley has either full sent for Trump or is buying out Harris to revamp the FTC and DOJ — winning court cases takes years, far more than anyone who is volatility laundering in private markets can sustain, even at this borrow cost.
At this point, it’s fairly obvious that the money is coming in on Trump to win — just look at the price movement on TSLA and DJT. (TSLA, of course, will likely become the most valuable company in the world by 2028, as everything revolves around agency disputes. Chevron being overturned and the general distaste with the FTC, SEC, ETC. is going to unlock the Elonplex to an absurd degree.) But, this comes with some problems, which is why I expect higher rates and inflation going forward:
The only way out of a debt-recursion cycle is turbogrowth that scales past everything and inflates the debt even more. The “dollar denomination” might have to become a “ten-dollar denomination” in effect to get out of this, but no less than PTJ and Druck arrived at the same conclusion:
It is likely that, in Trump2, I’ll see the biggest M&A boom of my lifetime. And really think about it — no matter what the numbers say, has anything reflected actual growth? Thus, the positioning forward becomes clear — buy the companies selling the shovels (M&A advisory, etc.), and trade the M&A targets. Remember Moth Liquidity?
The vast majority of money that moves in and around the market is based on the philosophy that whatever is invested in will create future cash flow rewarding current shareholders, who hold a right to their share of the output. When this money sloshes around, it creates market impact, which in turn creates trading opportunity. Note that these investors generally operate with a philosophy that they don’t want to react to day-to-day market movements. They are in it for the cash flow created over time and the movement in share price that will reflect that. So we want to focus on what will motivate them to decide that they want to demand liquidity and increase or downsize their positions.
Well, when the money sloshing around is estimating the probability of a takeover, there’s definitely a lot of trading opportunity created!
If the FTC and SEC are successfully kneecapped, then all of a sudden, money parked in yield has to come flooding in. Nobody makes money just holding yield. Given inflation and mandatory distributions, the biggest investors have to seek an outsized return, and it’s clear that single stock volume is sorely lacking. If I had to guess, this leads to the end of the regime pigeonholing investment in AI wrappers and foundational models. The biggest players — GOOGL, MSFT, META in particular — will continue the experiment, but inherently this is a tough sell to me as it’s a product that gets more expensive as you scale it, which is precisely the opposite of how sustainable margins work. I expect fundamental size to finally flood out of NVDA as well, as everyone will no longer be trapped in the AI trade. Hopefully, single stock dispersion comes back as a result.
The other thing I have been keeping an eye on is sports betting volume. Shares are easier to trade for retail than sports bets are — they’re delta one, while a sports bet is in effect a 3-hour-to-expiry option. Already, it seems like the betting “hook” has gone too far, particularly in the NBA (from Don’t Ask, Don’t Tell and The Worst Gambler Ever):
In the latest sign that all of sports is a race-to-the-bottom to suck the blood out of any enthusiasm one could have left by mechanizing addiction, it’s not enough to require that odds, lines, and parlays saturate every bit of coverage. Every single pass and attempt and action must be processed through the same financialization of the attention and emotional volatility complex that everything else depends on…
The binary option structure is particularly odd because binary/digital option trading has historically been heavily restricted from retail in the US due to the all-or-nothing nature and the complexities of pricing these options. (Consequently, they’re very useful for modeling singular event probabilities over time — delta sensitivity to the expiry date, like, say, an election in November 2024, would be really low right now in a binary option — why would a floating probability be useful in any way?) But an over/under sports bet, or a money-line, or a prediction market on a certain event, are all essentially binary option trading patterns as they fluctuate over time. For all intents and purposes, this is just the meta now.
I’ve concluded that Robinhood is probably the most important company of the post-2008 financial world. Their “democratization” of finance pushed the “don’t ask don’t tell” nature of trading as skilled gambling from pre-2008 investment bank trading desks to the general population in 2017…
The advent of Robinhood combined with pandemic markets truly warped trading forever, which has extended into what I call “shitcoin nihilism”: of course it’s pointless how things trade, but there’s a 10x to be made, so why dwell on it? (Dwelling on it naturally leads to oversocialization and a fatalistic outlook on life.)
Any bettor or trader who wants to make money will obviously have some concept of Kelly criterion, a way to mathematically optimize your bet sizing that balances out a bad string of variance that would otherwise bankrupt you with optimizing your future expected winnings. But if we expand this to a societal scale and note that crypto, prediction markets, options, sports betting, and casinos are all competing against eachother, there’s a real worry from me that people are going to lose money too quickly and everything dries up creating unsavory consequences…
It’s like roaches: when you see a public case, you know there’s thousands more lurking around somewhere. If this addiction can happen to the proxy of the best baseball player ever, to NFL and NBA players, how quickly are the losers losing, and given inflation and other headways, are people even making enough supplemental income to keep making the payments? I talked about the concentration in the AI trade, but this is the other extreme concentration — the attention economy is so critically dependent on gambling sustaining itself. I doubt Kelly is taken into account by the vast majority of bettors. Something has to give, and I suspect it’s along the same timeline I had for the AI trade:
AI actually does create a cross-industry, revolutionary application (<3 years is my timeline) or if it doesn’t (more likely imo), the entire tech sector’s air lets out.
The acceleration of gambling scandals makes this timeline seem conservative to me with regards to the attention economy.
The thing about “time in the market beats timing the market” is, sometimes it’s useful to take some off the table when things are going haywire. And if you look at the treasury curve, things are going haywire! At times of high uncertainty — not reflected by the VIX, but the fact that the size usually waits for confirmation of the event (election results) before reallocating — there’s nothing wrong with taking a step back, tossing some money in a MMF (no, not some Eyes Wide Shut reference, just a money market fund) and seeing how things shake out. I’m quite wary of how much big tech has invested in AI, and there’s a lot of value (shocking to hear myself say that, really) floating around out there. One thing is almost certainly for sure — inflation isn’t coming back down any time soon to 2%. There’s too much to be done.
And if I’m wrong and Harris wins, well, there’s no dollars needed as to where we’re going then anyway. I’ll probably go find my own Walden at that point and realize the gains in real life.
Best of luck, folks, and see you on the other side of the globe for the rest of the year!
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