I just read Venmo has added a Crypto Wallet to their services. This would allow for very easy access for people to start to dabble in crypto. Minimum investment is as low as $1. My understanding is the product commences tomorrow. Venmo is a Paypal product and has 77 million users. I use Coinbase (COIN) which just IPO’d last week and has 54 million wallets in its network. 100 bucks a week x 52 = $5200 if it 10x that’s a nice chunk of change. You could buy your electric vehicle for $5200.
The RobinHood phenomena is a fascinating study in behavioral economics. The participants are practitioners, a few versed in trading but mostly versed in gaming and sports betting. They started by beating the dead horse called HERTZ skimming profits off dead cat bounces. Some gotta win, some gotta loose. They moved onto other vehicles and finally landed on GameStop a $4 stock currently trading for $155. The latest is DOGECOIN which is a crypto currency that has no purpose. BTC you can argue is pristine collateral. You can own it, lend it, and mortgage it. ETH is a unit of commerce. You can build a contract upon it, and once executed a precisely defined transfer of value occurs instantly, transparently and permanently. NFT’s allow you to tokenize things so you can own a stake. Let’s say India tokenizes the Taj Mahal. I could buy a token which would give me ownership in the Taj. I could trade and sell my stake or even leverage it using it as collateral. I could create a portfolio of tokens, correlated, non correlated etc. There are stable coins which are crypto’s that are pegged to something else often the dollar. Stable coins allow banking functions. They typically pay interest and can be used as payment. Stable coins offer portfolios of rate harvesting, like the old coots who used to switch their money between banks which offer the highest interest rate. That was back in the days when banks paid interest on deposits.
What does DOGECOIN do? People say it doesn’t do anything but I’ve been thinking about this and DOGE is a way to invest in pure volatility that is unregulated by the SEC. You can’t short DOGE. You can buy it and sell it, so there is nothing complicated about the transaction. You can’t hedge with options for example. It allows exponential growth. In FEB DOGE was worth 0.7 cents at it’s recent peak on April 19 it was worth 39.5 cents. The act of short term buying and selling and profit and loss is very much like playing a video game. There is major biochemistry involved. The reward and risk aversion circuits become the controlling variables, cortical processes need not apply. DOGE is an cross between a casino, sports betting and a video game played with real money.
I’m glad it exists. Personally I think it moves this kind of speculator out of BTC and ETH with some resultant loss in volatility in those assets.
I’m interested in Macro economics. I’ve moved away from thinking about markets in determinate terms and more toward thinking of markets in behavioral terms. Deterministic markets are the ones upon which FIRE meme’s are built. Save 25x, leverage to greater than 4% return live off that for 30 years… Burma Shave. Save 25 x, leverage to 8% live 45 years… Burma Shave. The meme absolutely relies on a robust growing GDP over decades. In my research I stumbled across a S&P 500 return calculator. The Calculator calculates S&P returns bot nominal (without inflation factored) and real (with inflation factored) for a selectable time period.
S&P 500 return inflation adjusted since Dec 1999 (peak of the .com bubble aka beginning of tech wreck)
So the S&P over the last 21 years has returned 4.789% real. Slightly greater than the 4% leverage on a 30 year retirement, Winner Winner Chicken Dinner right? What if you’re leveraged for 45 years?
I next calculated from Oct 2007 (peak of the housing bubble) to Apr 2021 in real terms:
So in the last 14 years the S%P has returned 7.806% real. Oh Baby Oh Baby what’s the problem? We be reelin’ in the dough, stowin’ away the thyme!
The government controls money in 3 ways.
Most of the period between 2007 and today was under a relaxed Tax regimen. Inflation is important to a government because a non inflating economy is one that is contracting. Inflating economies encourage money spending, which boost GDP BUT money spending does not mean value expansion. A $5 loaf of bread is the same “value” as a 50 cent loaf. It provides your family equivalent # of calories. Inflation makes you want to buy that bread today before it goes to $6, and another unit of bread sold is + for GDP (which is in the toilet). Inflation taxes saving. Deflation OTOH causes saving. The 50 cent loaf may go to 40 cents so you wait till the last second to buy it hoping to save a dime. Deflation encourages saving and taxes spending.
Yea Yea Econ 101 right? What about debasement? Debasement is not inflation. It’s something separate. Ever wonder how the market could go back up so quickly while the economy was in the tank? The answer is debasement. The answer is in our reported numbers we missed a variable. Debasement is a divisor. I’m a Real Vision subscriber and was watching a video by Raul Pal and saw these charts:
This is a chart of the “dollar”. It’s essentially flat with a mean about .96 cents. The “dollar” is a ratio against other fiat currencies What that means everybody is debasing so relatively speaking against the world the dollar is stable and range bound. Bonds are similar. If interest goes too high say 2% the FED will force curve controls because the debt is so massive it can’t be refinanced at 3%, If rates go lower the government will simply print more money and turn it into debt so bonds are range bound and real rates are between basically zero and negative. IMHO bonds are dead as an investment. If you hold 40% bonds, your 40% is loosing money on a real basis. The government wants you to spend money. If you won’t buy bread, they will make it so your savings yield negative on a real basis. This means you loan them $100 and they send you $95 instead of $105 back in return. You effective get your pocket picked, which in some sense is spending money on a P&L sheet. Cash is the same or even worse.
So what about stocks?
This is a chart of the S&P 500 divided by the size of the FED balance sheet (FBS). The value of the FED balance sheet is the missing denominator. Since 2008 the FED has expanded the balance sheet and the ratio has essentially remained constant. You “think” the S&P is growing at 7.806% but in fact your 7.806% is being equally debased by the debt expansion (programs like QE and free money). If you aren’t making any money (flat curve) and you’re yanking 4%/yr out you’re going down. Gold/FBS is flat. Real Estate/FBS is flat. Commodities/FBS is flat. 2 asset classes have + growth crypto and QQQ.
Debasement represents a risk not counted in the FIRE meme. Inflation is barely counted as is SOR. The market is not roaring if the right hand giveth and the left taketh away. I own Q’s and I own crypto and I own cash. Using Q’s and crypto and cash you can balance the risk to give you net + growth. I also own creative destruction. I’m 69 and have at most 15 years left so my desire to “invest” is limited. I need enough money to deliver me into the grave and then leave my wife enough to carry her through. I’ve paid all my taxes on my fortune and hold my risk assets in Roth accounts except for a single IRA of about 400K which I treat as an annuity. I do owe taxes on crypto but I’m deep enough that it’s mostly LTCG. so as best I can I’ve minimized my tax relationship with ol’ Sammy. So that covers taxes. I own Q’s and crypto which covers debasement. I can’t see a case for inflation with 16M unemployed, technology, globalization and the fact the FBS is debasing at the rate of growth and geezers like me are retiring, in fact everybody is retiring. The baby boomer motor is broken. I read an article the help wanted signs are out but no one is responding. When rent is free and checks come in the mail not much incentive to show up to push the pencil or load the truck.
My analysis may be completely wrong, but you gotta ask yourself why are Gates and Buffet selling stock? Both subscribe to buy low, sell high. If they are selling….
Addendum: I was asked a Q how BTC covers debasement, a picture is worth a thousand words:
Compare this curve to the one above which compares the S&P to the FBS. Remember the chart graphs a ratio (actually the first derivative) of X/FBS where X is the asset class in question. The denominators are the same. This graph therefore gives you a relative way to judge rate of change of various assets. When X/FBS = 0 there is no growth. When X/FBS is – there is loss. When X/FBS is + there is growth and BTC/FBS shows not just growth but exponential growth. This is why a tiny bit of BTC covers a lot of debasement.
You own a 5M IRA. Who owns your money? You and Uncle Sam. If you RMD 5M at age 72, the RMD is $232,260. At 82 the RMD is $397,000. Let’s say SS at 72 is 57,700 of which 85% is taxable your net taxable income is $281,305 and your tax bill present day code is $49,708. So at 72 Uncle Sam owns 17.6% of your money. At 82 SS would be an inflation adjusted $67,603 so your net taxable is $454,463 and your tax bill is $104,631. Uncle Sam owns 23% of your money.
I’ve seen articles that claim overpaying taxes are a free loan to Uncle Sam, and somehow underpaying is a free loan from Uncle Sam to you, BUT who owns your money? Your money is jointly owned, PERIOD. Nobody “loans” anything to anyone. Your obligations are your obligations. Pretending your money is all yours is silly. If you underpay you will get fined. If you overpay you will get fined if you don’t pay on time and quarterly. I get fined every year because I pay as I go. I overpay slightly my initial major portions of my Roth conversions in the first week of Jan and pay the taxes by Apr 15, and then I overpay my final portion to push me to the top of the bracket in Dec once I know what my interest and distributions look like. Since I don’t pay quarterly I get a small fine every year which is fine by me since I like the ability to NOT do a Roth conversion if I choose like I did last year. Last year I sold some stocks before the crash and wanted to control my cap gains and bracket creep. I decided 2020 and probably 2021 (depending on the election outcome) would be the lowest cap gains I would ever see in my lifetime and since my money is owned by Uncle Sam AND me I wanted to give him as small a share as I could. Right now except for my BTC gains me and Sam are pretty square. I have less “money” but Sam doesn’t own much and going forward once Roth conversions are completed he will own even less.
My bet is in the future, as the body politic shamelessly and increasingly soaks the rich to redistribute wealth, I will emerge as already done been soaked, having paid my fair share at basement rates and moderately vaccinated from further soaking. My yearly taxable income stream will be dead center 2nd bracket middle class, which is a relatively protected class. Bracket 2 has a LOT of voters. Bracket 3 is when the soaking commences. It has far fewer voters.
Debt is majorly deflationary. The demographics are majorly deflationary. The long term GDP is deflationary. Unemployment is deflationary. If you count work force dropouts unemployment is at depression levels. Technology is deflationary. Yes I know bread and gas are up but the basket of goods and services is not, and the basket is the yardstick not a single item. In my opinion the government can’t tolerate inflation, even though they jawbone “running hot” because the debt needs to be refinanced every year, and inflation will force bond yields higher and the entire tax base will go to paying the interest on the debt. Paul Volker died in 2019 and as far as I know is still dead. BTC right now is anti-inflationary and anti-deflationary because it’s rising and tends to be uncorrelated or poorly correlated with anything. Interesting times.
The Bogglehead FIRE world is built around a narrative: Just DCA into “safe” “low cost” index funds every month and soon enough you’ll be rich, rich I tell ya!
WallStreetBets has a narrative: The little guy can form a formidable network and through network effects beat the Hedge funds and AI at their own game.
The real estate moguls have a narrative: Buy some property, rent it out, use the proceeds to buy more and build a perpetual money machine.
Each has it nuisance in risk, profitability, and likelihood of success. Each has its ship wrecked on the rocks scenario. If you’re invested in these you should be able to quote chapter and verse the pro’s and con’s. Crypto OTOH has one narrative: “It’s funny money! It’s going to zero!” I believe this to be a false narrative. The likelihood of crypto being funny money is silly. I can sell a single BTC today and walk away with $57,525.83 dollars in cash. If BTC is funny money $100 bills are funny money. The idea it’s going to zero is also about zero. I bought some in 2015 and that BTC has ALWAYS been 400% profitable (5x my money) even after the 2018 crash. I saw a +_ 45% volatility in 2018 BUT NOT a goose egg. BTC remains volatile but not nearly as volatile as 2018. The solution to eating a ghost pepper is to eat at most a tiny bit. The solution to owning Crypto is to buy a tiny bit. The videos below, average 3 models so I’ll use the model averages To retire to the Caymans in 2030 on the average inflation adjusted income of $7322/mo, using the average model requires you own 2.14 BTC today or a 123K investment. If you go all ETH using the same average modeling process, 54 ETH or 104K investment is required. I would buy 92.25K of BTC (.75*123K) and 26K (.25*104K) of ETH (118.25K total investment) for a tangent portfolio yielding the greatest return for the least risk. The models take into account a 3% inflation rate.
I was cruising YOUTUBE and came across a couple FIRE Crypto projection narratives. Very well done and good for a Sunday evening speculation. It takes surprisingly little money to enter the projected Crypto exponential growth narrative.
I own both BTC and ETH such that for every $100 of total crypto I own, $75 is BTC and $25 is ETH. I read a study that the efficient frontier tangent portfolio of BTC:ETH is this ratio. In the past year this ratio has proven to be roughly correct oscillating between 70:30 and 80:20 but then revising back to a mean of 75:25. Here is a list of correlations:
BTC SPX VIX $USD GOLD 10Y TIP ETH XRP LiteCoin BTC Cash
1 0.10 -0.2 0.03 -0.09 -0.09 .55 .07 .75 .53
ETH BTC SPX VIX $USD GOLD 10Y TIP ETH XRP Litecoin BTC Cash
1 .55 0.18 -0.33 0.11 -0.26 -0.03 1 0.10 0.70 0.33
You can see how both BTC and ETH serve to provide added diversity to a portfolio, and to each other. (Above data taken from Hedgeye Crypto Quant newsletter 2/18/2021).
Have fun day dreaming!
It got cold, except where I live. The power grid almost failed to completely failed in many places. It takes between 50kw and 100kw to charge a Tesla. If you have 2 cars that’s between 100kw and 200kw. What makes anyone think our power grid cam handle electric vehicles PLUS the power needed to supply a home? If the country is going green, buy copper, buy Lithium, buy Rare Earth metals, buy Uranium.
I’ve been thinking about the GameStop Robinhood thing. The narrative is a bunch of kids got together and jammed the GameStop shorts which were short 140% of the stock float. Every short by definition is a levered bet since you are basically borrowing a share at some future price that is lower than today’s price. You are selling something you don’t own. Someone has to own a share that you can borrow as collateral. You pay to borrow that share and that’s called margin.
The average console gamer is a 40 year old professional male with 3 kids. He is not a pimply faced 17 year old. Think about that. The average game is an algorithm. Gamers spend their time whacking on the algorithm trying to figure out its idiosyncrasies and vulnerabilities. Another name for algorithms is artificial intelligence, so gamers go up against AI every day. Yesterday I was watching a youtube vid of someone in a combat flight simulator going up against 7 Mig 29’s against a single F 15C Eagle. This is a perfect example of taking on an AI
WallStreetBets is a kind of wet ware AI made up pf 3 million nodes (traders) The network complexity and power exists according to Metcalf’s law which states essentially as the number of nodes increases linearly the number of connections increases exponentially and hence the network has much more power from an information point of view than the linear increase. Think of a square with side A. The area is A^2 and hence a small change in A works to be a big change in area.
I was reading about max entropy (also known as heat death). It was in relation to a new piece of evidence against dark matter, which means when the universe reaches max entropy it won’t contract and start anew it will suffer heat death. Entropy has one property. In a system it either stays constant or grows, it never shrinks. Entropy is the reason Covid doesn’t die. It is the driver of the infection and the infection will continue until entropy stops increasing.
It occurs to me the WallStreetBets coup is merely the addition of Metcalf’s law and max entropy. A bunch of gamers using individual computers started betting against an anomaly aka 140% of leverage, using call option leverage. 3M decentralized nodes randomly started hammering on a poorly thought out (from a risk management perspective because of the overleverage, and through the random increase in entropy caused the Bayesain probabilities to explode in the favor of the 3M for a time and then the collapse resulted in a further increase in entropy to the accounts of the 3M (or whatever % continued to hold the trade). It’s an interesting speculation and I think closer than the notion a bunch of 15 year olds brought down Citadel. The reason the F15 won was it’s design AND pilot gave it a high probability of success.
Today is the last day I will be a licensed physician. Tomorrow I will be a civilian. Today is the first day of my 69th year as well. I’ve been “retired” since 2017 so my ability to obtain malpractice has already expired (except by locums route) so today is a formality anyway. None the less I do about 50 CME a year because, just because, and I will continue in that. It’s so damn easy to obtain CME these days and I can focus on my interest instead of my specialty. Medicine is at once incredibly full of shit and incredibly interesting.
I came to Medicine in an unlikely fashion. My training had been in Neuroscience, Chemistry, Engineering, and Biophysics. After grad school I settled on Engineering, working as a communications engineering consultant and as a educator at a community college. I had zero interest in Medicine and considered the pre-meds assholes, Part of the way I put myself through school was tutoring inorganic and organic, math and physics to pretentious pre-meds who couldn’t be bothered to learn the subjects, “just tell me what’s going to be on the test man”, so I did. I was poor, had 2 other jobs and it helped pay the rent plus I learned the subject matter REALLY well. See one, do one, teach 100.
My Biophysics interest was on stroke evolution. We discovered a previously undiscovered wave form in the injured brain that was ipsilateral hemisphere specific but also had a contralateral component. This allowed us to map the progression if a stroke. It turns out the injury is not all at once but stepwise additive, so stroke outcomes are the integral of a bunch of discrete mini-injuries that typically occur over 24 to 48 hours. My hope was to develop a tool where pharmacologic intervention could arrest stroke evolution, but to do that kind of research requires access to a rat colony and access costs money and no one is breaking the iron grip grant reviewers have on each others money. You pay the guy this year who will be reviewing your research funding next year. The CT scan was just being developed in those days and you could charge a lot for a 5 minute CT, so though promising my research would never breach the energy barrier necessary to be born into clinical use. One feature was I leaned neuro-anatomy cold.
I hooked up with a woman who needed more money that an engineer, college teacher could make, so I sat down 5 years out of University and spent 9 months studying for the MCAT. I scored in the top 1% nationally. All of that tutoring I did virtually guaranteed me a seat. I got accepted and the woman split for Cali anyway, so I was single, debt free, had enough money in the bank to pay for my medical education (until the inflation of the early 80’s hit) so I moved to Chicago and acquired the distinctive odor of the anatomy lab. I was older than my “fellows” and very aggressive in learning Medicine and being properly aggressive in a seasoned way gets you opportunities. I had a good time in Medical school. Such opportunity. The information was voluminous but so what? I had plenty of time to master stuff. I let the faculty mold me as they would without resistance. It was their goal to make me a physician. It was my goal to become a physician.
In 1986 after my internship year, I became a licensed physician. I was a real Denison of the ICU, any ICU. Burns, medical, surgical, neuro, CCU, pediatrics, neonatal. Our hospital did 16 open hearts a day and I spent a lot of time in post-op hearts. It was my first rotation internship year, and running the post op vents in all of the surgical sub-specialty ICU’s with 30 hours on, 18 off every 2 days was my first 3 months of residency. It was intense but the guys who ran that aspect of the Anesthesia service liked my work and they were critical to the Anesthesia “machine” that served the hospital, so I was able to do stuff pretty quickly. The chief of ICU team was boarded in Medicine Cardiology Anesthesiology and Critical Care. so access to him was very useful. Together we tried to develop a new kind of balloon pump that worked on the principals of a machine gun trying to develop resonance in the aorta. What I wound up proving was the circuit could not be resonated, and I proved why it can’t be resonated and I learned a ton about the biophysics of cardiovascular physiology in the process.
The great inflation of 1980’s hit me in Med school, so my 4 years expected savings were wiped out in 2 years. I’ve actually experienced inflation and it’s consequence. I decided I wouldn’t go 400K in debt in 1983 dollars on 21% interest loans, so I joined the Navy and got the sweetest of deals. They paid for my final 2 years and I owed them 2 years. I made about $700/mo as an Ensign beside tuition books and all that. Since Anesthesia was a prized specialty I was allowed to float till I competed residency and then it was anchors aweigh for 2 years as a Lt in USN MC. My duty station choices were Guantanamo, Memphis or Orlando so I wound up in FL, got a FL license and did some moonlighting. Somehow the Navy decided I knew something about pain medicine and ORL is a world class airport so I started getting pain consults from all 5 branches sending patients TDY to me from all over the SE US. YIKES! Pain medicine in the service is tricky because there are certain things that absolutely can’t be prescribed or the service member looses their rating and therefore their career. Pain was a fledgling sub-specialty in those days. Implantable devices were still a few years away. I am so grateful I was able to boot strap myself into pain, it became a large part of my subsequent career.
I was called up for Desert Storm but never made it to the transport because the war lasted 100 hours. It was nearly time for me to go anyway. After I got out I became a locums doc, and my wife and I traveled around to various beach communities for a couple years so I could learn the business ropes of Anesthesia. Nothing like going to a distressed group to learn the cracks, failures and egomania. I moved to my present town as a fee for service solo practitioner on a tip from a locums job. We were forced to become a group by the hospital so I became a group owner. I also started a pain practice on the side, became director of the same day center, and after 18 years left the hospital for a free standing SDSC 2 miles down the road and ran that practice and did pain. I quit at age 65 to get my long term tax picture in order, plus it was no longer fun. It’s time to go when you’ve had your fill. Gruber, Emmanuel, Obamacare and the bean counters broke Medicine. Grueling comes from the word Gruel, a thin porridge often fed to slaves. Medicine is now a “grueling”. When I was doing 30/18 in residency it was intense, but you could see the progress of your work. Some people died, most lived to tell the tale. Today the medicine is the same but the work is double which means the relative rate of return is less than half. Still it’s bittersweet to let it all go. I get 10 locum offers a week, but it’s not worth it.
Lemme see just put a little bit every week in a 60/40 cheap index mutual funds for 30 years and you’ll be rich, rich I tell ya. Rich in what currency, what reserve status and what inflation regimen?
Benoit Mandelbrot is one of the Fathers of fractal geometry and the geometry of nature. Geometry is a systematic means to meter the Geo aka measure the world especially using scalable relationships and integrals.
I especially like the last comment that the relationship between triangles changes as the sun roars across the heaven because shadow accuracy is dependent on the position of the sun. The point being the triangle of the tree and it’s shadow contains a fixed ratio of information which can be unpacked to provide specific answers to specific problems. That’s what a fractal is. It a way to formally describe similarity, or disprove similarity. If you used a 2 yard stick at the 5ft point the triangles would be completely dissimilar but move the 2 yard stick to the 10 ft point on the shadow and similarity has returned.
Here is a fractal view of volatility. It looks like smoke from a candle. It’s subdivided into 3 parts
The first part
describes flow in a laminar way. The profile is Gaussian:
Laminar flow is controlled by a boundary that exists around the column, the outside vectors experience more friction than the inside and so a Gaussian profile develops.
Here you see the boundary envelope begin to decay. The column becomes wavy and irregular and finally circular around an axis perpendicular to the column. The column now instead of being described by Gaussian math is described by angular math.
The flow is now at the very base around 2 axis and starts to become very complex, disorganized and translated.
Financially for me this picture represents volatility regimens in the market. The first is low volatility. Here things have low volatility and excellent predictability. A volatility measure between 5 and 15 might represent assets in low highly predictable vol. Since things are predictable bets tend to pay off. You might compare this vol to the weather between dead calm and mild summer storm. Shelters are all made to provide safety in this regimen. The second is higher vol between 15 and 30. Here vol is much less predictable and much more energetic. The circular flow is like the eye of a hurricane and the damage it can cause can test the stability of a roof. Recall the equation for kinetic energy is ke=1/2mv^2 so the energy is second order exponential. The third regimen is like a tornado. It simply destroys what it touches. If your butt is hanging in the breeze soon enough you have no butt.
You make money in region 1 You can easily loose in 2 and you are playing with fire in 3
This is a fractal similar sets describing quite well variant phenomena The kinetic energy concept (which is the integral of velocity and the second integral of acceleration) pretty well describes the controlling math. It goes from point to line to plane to volume in terms of complexity.