Turning

There is a 1997 book by William Strauss and Neil Howe called the Fourth Turning in which they describe a multi-generational theory. A WIKI describes a synopsis It is from Strauss and Howe where we get the terms Boomer and Millennial. The notion is there is a 20 year cycle that is generational and each generation follows an archetype sociological code in relationship to their cohort generations. Eventually the cycle completes after 4 generations (80 or so years) and there is a kind of societal destruction and rebirth and that which is reborn is not simply a return around the block cycle but an actual destruction of the last cycle, so instead of a circle across time we see a spiral of generations through time.

Ray Dalio has a similar economic theory. He looks at the business cycle and then looks at a business super cycle. The business cycles is about 8 years but the super cycle is 80 – 90 years. The end of the super cycle marks a destruction. Two entirely different pictures (social science vs economic) reach the same exact conclusion in the same exact time frame. The last super cycle ended in 1929. 1929 happened in 2 stages first a 66% crash, followed sometime later by another 66% crash. 1 x (1-.66) x (1-,66) = 0.1089. So a dollar invested after 2 66% crashes was worth slightly less than 11 cents.

From the Washington Examiner quoting the Prez:

The rising death toll and total number of confirmed cases, which now exceeds 4,600 nationally, has led to a number of states issuing restrictions on public gatherings and venues, including gyms, bars, and restaurants. Additionally, President Trump provided new guidelines on Monday, which included avoiding gatherings of more than 10 people for at least the next two weeks.

“It seems to me that if we do a really good job, we will not only hold the death down to a level that is much lower than the other way … and we have done a good job … but people are talking about July, August something like that,” the president said, indicating that the crisis could last through the summer.” They got guns man. They can force that shit to happen.

That’s 5 months. How many businesses can survive a 5 month closure? Let’s take Donna’s as an example. Donna’s is a sit down with take out with stores in every city. It’s the store I used to go to after a night of bar hopping in every college town I lived in. HEY let’s get steak and eggs and coffee at DONNA’S! If the sit down closes only the take out remains, about 20% of the business. Donna’s is levered such that 80% cash flow is needed to service the debt. Restaurant stocks are off 50%, but you have to ask yourself can Donna survive?. If Donna doesn’t survive that’s thousand of permanent jobs lost.

Let’s take schools. If schools are closed for 5 months why pay teachers? Just end the school year tomorrow and let the teachers enjoy a nice long summer break and save the district some money because there is a ton of disruption that will need some money. Teachers are levered as well. Mortgages come due every month.

What about pensions? Pensions are underfunded by 50% in many places. Many OLD laid off workers if they are old enough will simply retire and claim their pensionssssss. which are ahhhhh 50% underfundeddddddd.

Here is a video I ran across this morning that puts it about as succinctly as it can be put.

If you value your savings consider what this guy is saying. It’s the reason I sold out. I sold my long bonds today. I had an excellent gain in EDV and it’s buy low sell high, and I could sell them in IRA’s and generate no taxes so adios, I’ll book the profit. I have no idea if I’m doing the right thing, but one thing is for sure, I’m NOT going to 0.1089 on the dollar. I got out at 95 cents on the dollar.

The market is up today. That I don’t really get. What part of the closure of the hospitality and school industry and the job loss that happens following don’t they get? Even the whore houses are closed! Is it just thick denial? Is it a failure to understand? Is it the narrative the market always goes up? Buying the dip increases your risk. Is this time to risk on or risk off? Is it time to sell the rally? If I had anything left to sell damn strait I’d sell the rally. If I had any damn sense I’d sell my house while it still has value. There is a part two to this but it’s political and I’m not sure I want any politics on my blog. Best of luck out there!

8 Replies to “Turning”

    1. BTC is hard to short, but I’m long BTC. I bought BTC at $275 in 2015 and when it went to around 15K I sold my stake, put that money in BRK.B and kept the profit in BTC so it’s like owning a free permanent call option on the future. I think it’s worth owning some and just hold on to it.

      1. I’d assume BTC would be pretty easy to short via the futures if you ever wanted to, but I’ve never actually traded BTC. Of course one futures contract is for 5 bitcoins, so kind of hard to get too granular with it… I have used the futures to short the S&P500 pretty extensively previously (sadly not currently – I got tired of being wrong, and my covered puts weren’t enough to do more than keep me even as the market ground higher). You can also do it in an IRA depending on your broker’s rules.

        1. Hi John Yes you can short BTC But BTC is a fairly small market only 114B or so and it has a monster volatility which means your likelihood of being right approaches 50/50 aka one is merely playing a slot machine. You get a similar effect shorting S&P except S&P vol is 5 times less so you can imagine the risk of shorting BTC. You can decrease the vol by playing a spread but BTC tends to be uncorrelated to any other asset so which asset will work in a spread? One has to go up while the other goes down. You would wind up with a trade one goes directional while the other just flops around. In addition BTC is loaded with BOT trading which use technical analysis to make bets. I own it because I see the financial system as melting down. The fed injects moral hazard at will and that injection does and will continue to hose humanity. BTC has a technically immutable decentralized ledger and as such is not available for moral hazard in the same way the $ is. If you have Iron balls you can day trade the ETF SH in a Roth for a short. I’ve done that but it’s too much work You’re basically bolted to the chair. So yes you can short BTC and the futures are what stabilized it but it’s a market you better understand.

  1. I think the climax of the 4th Turning “crisis” has begun. The path forward seems uncertain but I believe we will find one. Questions on my mind: how to stay safe as events unfold and position one’s self and family for a better future?

    From conversations with “normal” people, those who have not spent half a lifetime online, I sense an unawareness of the serious nature and potential sequela of current happenings. Even some physicians I interact with fall into this group.

    For the sake of my silent/boomer parents and relatives, I hope pension systems are bailed out and not allowed to fail.

    Other than that, in my area, hospitals are keeping non-essential outpatient clinics going which seems misguided.

    I look forward to reading Part II.

    1. In the end there is no bailout. In the end it’s a binary system. Someone wins and someone looses, like blackjack. In the end its BUY LOW, SELL HIGH. To sell high you have to sell while you still have profits. This is why I sold. I still had profits and now I’m flat except for some bonds and some BTC. I even got rid of he gold because the volatility is too high. Part of the reason I’m flat is the cycle does what it does. Governments don’t control the cycle, the cycle controls governments. Consider the Virus. The virus has a cycle. You can look at my article on the Wuhan Fractal and see the Virus’s cycle. That cycle is how COVID-19 penetrates humanity and it’s going to be as reliable as gravity because MATH. Pension funds can’t be “bailed out” without destroying some other thing. If you squeeze on a balloon the squeeze end gets small and the other end gets big. Pretending to only look at the big end and ignoring the small end as if things look better is just a self delusion. Pretending squashing the curve for the virus is going to save us is just self delusion. The bottom line is in order to achieve herd immunity the virus has to penetrate 80% of humanity. The only thing squashing the curve does is lengthen out the amount of time it takes the virus to penetrate, so you save a few on the margin. There is something like 300 trillion in debt in the world aka unfunded liability and that’s either going to reset in which case the universe changes (4th turning) or we continue to accelerate into the mud. When we hit the mud the universe will change anyway and all of the previous referents (ie you can retire on 4 x 25) will be out the window. It’s already out the window. As of yesterday the annualized inflation adjusted dividend reinvested return on the S&P From Dec 1999 to yesterday is 2.275%. This means if you retired on Dec 31, 1999 your annual return for 21 years is 2.275%, SO FOR YOUR NEST EGG TO BE SAFE your WR is 2.275, NOT 4.

      Wall Street makes their money by selling you narratives. The narrative is what you pay for. In an environment of normal volatility the narratives have a given rate of return in a static environment. So 4 x 25 index funds works in an environment where index funds are a small % of total market activity, where the overall trend of economic productivity is up, where most of the participants are accumulating and not selling, when the debt is under reasonable control, and when the volatility is low. Those are the preconditions for 4 x 25 to work. We now live in a regimen where passive index funds are 50% of the market, the trend of economic productivity is down, most of the participants are selling, the world wide debt is at monster all time highs and the volatility across all dimensions of asset classes is at all time highs. In that environment all risk is poison. In that environment the only safe asset is the risk free asset aka the world reserve currency IMHO. You can buy hamburgers with dollars you can’t buy hamburgers with narrative.

      Buffet says you can’t tell who’s swimming naked till the tide goes out. The Virus forced the tide to go out and now we see who is naked. Thank you Boggleheads, thank you St John Bogel, thank you WCI and MMM and every other swing dick blogger who got rich peddling a seductive narrative which undressed millions of investors with a false sense of safety. We will see what we will see. I placed a bet and sold. It remains to be seen whether I sold high or sold low. What is for sure is I limited my risk to nearly nothing and I have enough money to carry my wife through to her death in a fine style. If it’s the forth turning and I think it is, I will live to invest another day under that regime whatever it is. If it’s merely another turn of the same old business cycle I’ll live to invest in that when the cycle turns up. If I could I’d short the hell out of this market but my money is structured such that I can’t and presently I don’t want to with volatilizes at these levels. To trade shorts you have to be bolted to the chair and I’m not interested in becoming bolted to the chair, so I’ll sip my latte and watch the future evolve and try my damnedest to not get virus till a vaccine happens. Now that becomes upside market can you outlive the infectious penetration till you can acquire immunity without going through the gauntlet of getting sick.

      It’s a stark analysis for sure. It makes me very uncomfortable to own it. It’s so against conventional wisdom, but I don’t see an error in the risk management, and in the end it’s the risk that will take you down.

  2. I read this, and I appreciate the perspective, but it’s frankly hard to concentrate when there is so much to preoccupy: proper donning, doffing, dad in and out of the hospital, caring for the wife and kids on a day to day basis. My IPS factored in the potential for bad and very bad times, and I’ll trust that going forward. As a two emergency physician doc household, there is the very basic need to stay as safe as possible. It’s hard to step back to the macro when the micro causes such apprehension.

    1. CD I understand your plight and take it to heart. I got a 90 yo Mom toddling around with a 30% mortality if she gets tagged by a virion. I filled her fridge with so much food she has zero reason to leave her house. My daughter moved in with her BF so as not to be encumbered and I have no idea of her state of danger. Fortunately my other daughter is behaving.

      One thing we were trained to do was to stand at the head of the bed, bark out the right orders in the right sequence and lend proper direction and resolution to time dependent pure chaos. When everyone else looses their minds we don’t loose ours. WE ARE FRIGGIN AWESOME AT THAT SKILL SET. It takes it’s toll, because our brains are wired to revert to subcortical structures in times of stress like this and the shear will required to keep the cortex in control is massive and that’s why you feel overwhelmed. Most loose that battle and is why everyone else looses their minds. For me it was a great relief to know this about myself as I was going through the storm. Much of what I was feeling was a struggle between my intellect and whatever creature lurks below, to take control. It gave me process to use to write off my anxiety. Wielding that kind of executive power is ass kicking but in the end we are the ass kickers. You know how to do this. You were trained to do this. Your wife was trained to do this, so just go kick some ass. Most times the chaos looses but sometimes it does draw blood on its way into the pit. In the storm I had a hierarchy of diagnosis. 1. What’s going to kill you NOW 2. What’s going to kill you in 5 minutes. 3 Everything else. When 1 and 2 were taken care of I thought about 3. If you need some help or want to talk let me know. I’m actually pretty good at this physician shit 🙂

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