The Eve of Destruction

This picture has become my favorite meme to describe reality. The progress of a molecule in the column stays linear until the little eye forms half way up. At that point progress becomes rotational. A little farther up the road the progress becomes chaotic.

This is my second favorite meme. It describes how a normal Gaussian distribution is generated. The question you can ask of either meme is: If I were a molecule in the smoke, or a single ball in the distribution what can I do to wind up in a good place.

In the case of the smoke IMHO get out when rotation starts and before chaos ensues. Getting out would be like heading for the storm cellar when you see the rotating wind, tornado approaching. If you look at the laminar smoke the distribution is uniform and predictable. A bit of smoke in the middle of the column isn’t much different than the bit of smoke at the edge so the volatility is low. Staying for the chaos would be like staying for a hurricane. A small weak hurricane is survivable. I’ve survived many. A Cat 5 is not. The infrastructure was not built to stand the energy contained in a 200 mph wind for several hours. Recall energy is a power function of velocity E = 1/2 MV^2. You may have some narrative but the math will simply kick your ass in short order.

The same is true of the balls. As a ball enters the matrix, the probability of ending up in the middle is high and ending up in a tail is low. When the smoke starts to rotate the probability of ending up directly above the laminar column goes way down. You can almost draw an inverted normal curve on the smoke with the center in the center of the laminar column and the horizontal axis encompassing the width of the expanding turbulence. The balls represent the same thing. A single point expands into a broad distribution.

Lets say on the Galton board, you win if you wind up in the right half of the distribution and you loose if you tend left. If there anything you can do to wind up in the right? It depends on your point of view and your timing.

At any decision point as you descend through the matrix you either go left or you go right. To end up right you absolutely need more right choices than left, and you need those right choices sooner as opposed to later. If your half way down the matrix and you’ve been bumping left your likelihood of finishing right diminishes with every decision because making all rightward decisions in the bottom half of the matrix becomes vanishing small.

The point of all of that is you have to front run the choices early. You have to place yourself in a position whereby the probability of getting bumped right early is THE PARTICULAR THING you need to focus on.

In the Galton board every decision is 50/50 but in life every decision is not 50/50 and every prior decision effects the probability of the success of a subsequent decision. In a 10 row matrix if you make 5 initial right decisions your chance of ending left is virtually zero regardless the subsequent 5 decisions.

There is a practical example of outrunning the Gaussian curve. In poker the randomized odds of the house winning strait up is about 60% and the player loosing is 40%. If you pay attention to what cards have been played, that tells you something about what is left to play. By knowing what is left to play, your odds become different more like 49% while the house retains 51%. But you don’t win at poker just by playing the cards. You win at poker by getting paid, and the thing about the house is it has to cover your bet if you win. So if you understand how to count and how to bet your chances of winning more MONEY (not necessarily more games) than the house goes up over 50%. But to be a money winner you need to size your bets correctly. If the house discovers you are a card counter they will invite you to leave. They also counter card counting by dealing from multiple shuffled decks making the odds calculation beyond human ability. It’s just to point out the power of Bayesian stochastics, when running a game.

SUCCESSFUL LIFE IS SIMPLY A MATTER OF COUNTING CARDS.

Life, if it’s honest, will have to pay off its bets. If dishonest, as in the case of Communism or Socialism life will always eat your lunch.

I’ve been watching the development of the Virus. In my view the forces keeping the smoke laminar are about to be extinguished. In my state 5 days ago there were 2 cities on the west coast of the state with infection, 3 cases total and no deaths. 5 days later there are 8 cities state wide with infection, 9 cases and 2 deaths. The virus is a machine. It does not feel. It does not care. It does not think. It simply satisfies the math. As a system we have moved from laminar flow to rotational flow and now chaotic turbulent flow is on the horizon. THIS IS THE ENGINEERING PHYSICS OF THE REALITY. In my opinion you have less than 5 days to make a move to improve your eventual outcome and wind up in the rightward part of the distribution.

TO BE CLEAR YOU ARE ON YOUR OWN.

The government has already failed:

The Governments of Singapore and Hong Kong have succeeded. They have managed to keep the Virus from going exponential. They are also small island nations of very civically well ordered people. In those countries the services and supplies will not be overwhelmed, at least for a while. People will die but disruption will be minimized and once the Virus become endemic and not pandemic rebuilding will ensue. That’s like owning a well diversified portfolio. In the time of disruption, the damage is minimized but damage occurs. Island nations however are not self sufficient and require external infrastructure and supply chains to survive. The rest of the world is hosed. If India hordes the drugs the US will have no drugs. If everybody buys up all the food and 30% of the population is sick and quarantined where is the food going to come from? If the virus kills the older, and men 5/3 compared to women, that means the managers and people with the most expertise are going to die. A 30 year old jr engineer can not do the job of a senior project manager with 25 years of experience with sufficient productivity to make the venture profitable

So what’s a mother to do? Simple flip your Galton board and start anew. Do not be paralyzed by the past. You will have a new chance to make the first 5 choices in a rightward direction over the next 2 years. Your first choice would be to stay alive and make provision your family will stay alive. The second will be to place yourself in a position to prosper when the game is reset.

When I was an engineer I studied and took some government certifications that granted me licenses to construct install and maintain high power radio and TV transmitters. I already knew how to design them. There is big money in keeping that infrastructure alive. I went on a local job interview on a Monday and there were no jobs at this place. On Wednesday one of the senior engineers met the widow maker and on Thursday I had a job. The guys death was unfortunate and I didn’t plan to fill his slot, but I did acquire the necessary credentials and I had the necessary experience when the odds changed. We may very well see this exact scenario play out as the older die, so consider who is above you that you may be able to replace once the smoke clears. As an oldster you may want to consider who you would want to replace you.

The history of pandemics is they last about 2 or 2.5 years. If seasonal they swirl from north to south back north to back south and maybe north again. It’s like taking a round bottom flask filling it with solvent dropping in some solute and swirling. First there are streaks as solute mixes with solvent then uniformity. Uniformity is called herd immunity. Till uniformity, chaos will ensue. Achieving herd immunity is like starting at the top of the smoke heading back down through rotation and back down toward the flame. There will be life, there will be death. What is assured is disruption. So learn how to trade disruption. 60/40 buy and hold ain’t going to cut it. That is how this virus is going to proceed. So place yourself in the spot where maximum benefit is likely to occur.

The way you win at hokey is to place yourself where the puck is going to be, not where the puck used to be. You have to front run the developing reality on a probabilistic (Monte Carlo like) basis.

If you want to be above the yellow line you have to actively choose to be above the yellow line. There are levers to pull like asset allocation and withdrawal rate that assure floating to the top.

Do not cling to the past. If 150M people world wide are dead, half the available expertise is dead and the efficient means of production is severely crippled the future will look nothing like the past.

I bought a freezer and filled it with enough meat for my family to survive for at least 6 months. Meat is the ideal food. You can survive for decades eating only meat. Next I bought some shelf stable protein in case the disruption is worse than I expect. It has a shelf life of 15 years I have a shelf life closer to 10. Once the money is spent the worse that can happen is I enjoy my stores as I place my bets. My life is hedged. Near as I can see the only solution is going to be some measure of self quarantine, while the winds rage overhead. I’ve lived that threat of wind as well.

One hurricane that lasted 24 hours in passing, the power went out exactly at 6pm. What I had was a fashlight, a battery radio that could get local TV on the FM band, a low power ham radio set from which I could talk to people using morse code all over the world, at least till the antenna blew down. I spent the night in the dark, as the storm raged talking to people, mostly in Europe with occasional update from the FM radio. I had sent my family safely out of town. When “morning” arrived I went outside and took a shower in the rain as we had no running water. The storm still raged but it was waning. You gotta pick your points. That particular storm I was without power for 14 days but not without resources. I was annoyed but not dead in the water.

If you own a business, set your people up for telecommuting and let them self quarantine with their families. That business has a chance of survival IMHO. Businesses that require presence at a location are pretty well hosed.

I think think by May, the die will be cast. The resources will be gone and triage will have commenced and positioning will be over. In the movie The Matrix the die was cast 3 times. Each time started a new set of relations and outcomes.

Enjoy the sunshine. God’s sun shines on good and bad alike. Today, is the day before life goes on.

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