10 Years
I’m the first to contest that no biography is needed for the likes of me. But perhaps I can be useful as a kind of example.
For almost ten years I plastered my face to the charts. Most of my 30’s and before. I didn’t get married.
‘How do I restore integrity?’ was the question I yearned to answer through the ephemeral wicks and Fibonaccis and all the hidden market geometry that felt so captivating. Where to focus where a nation who’d inherited the earth then descended into pathological decadence of financial, military, moral, and sociological recklessness? “Convexity,” a kind of magical substance, was what I hunted for all day an in through the nights. The clubs near the office thumped on Saturdays at 3am while I looked out over the cityscape from behind the monitor array.
“…And there were no kings in Israel, and each man did that which was right in own eyes.” The passage from Judges was a libertarian creed for trading against a mindless status quo at just the moment to add outperformance. A sort of triumph of individualist sovereignty over coercive bandwagoning. An ancient testament that liberty, not force, is the source of our might, and convexity its fundamental mineral.
Convexity, a major change in a derivative price based on a small change in the underlying asset, is the central component to any worthy investment practice, the only true source of Apha. Our framework for convexity fell into three main buckets: breakout trades in FX and futures, a repeating program of tail hedges in equities, and illiquid investments in frontier markets and new technologies, while supporting exit through sound money and offshore jurisdictions. These rapid convex changes are the product of consensus followers getting it wrong all at the same time. Because the consensus is the product of rent seeking, attractive because it avoids the challenges of truth-telling and insight, it is natural for it to be propped up by state-run counterfeiting at the expense of creators.
For myself, I started trading against rent seeking incorrectness, at least so I thought, when I was five years old. I sat in the bleachers at day care watching the other kids run laughing together without knowing what, if any, the joke actually was. A strange mimicry I didn’t understand, and the enjoyment of being part of a happy group. I knew it had to be a calling when my family succumbed to the MBS bubble and hedge funds and advisors were just as guilty and just as free of answers.
For better or worse trading against rent seeking seemed to come easier to me than many normal things. Getting it correct became a counting coup against my consensus-loving enemies. If enough of us acted like I did, we could haul integrity in capital markets back to the creators once again. If enough did, mimicry would not be so rewarded. It wouldn’t be “ashes we all fall down” every time a credit bubble predictably failed and the market was shown to be all derivatives and no underlying.
Included within this was a deeper animosity toward those who subsidize folly at the expense of virtue, who prop up derivative prices while consuming the underlying value in secret. Those are the truly malfeasant actors. How do we dismantle them? How do we champion liberty and justice? If I could leave behind something, I wanted it to be the wealth gained from this activity. Those I love and the inheritance of a mighty country deserved no less.
And… I was wrong.
The Government Guarantee
The United States has made only one guarantee on which has not reneged. The guarantee to vaporize your savings and the value of your labor or cash flow of your small business.
If you want to live a good life, accumulate assets. And those assets have to be strong assets. The price of a good life goes up as the price of those assets goes up. Skills alone, which are provisional, opportunistic and contemporaneous are not fast enough for the Guarantee. They lack programmatic compounding. The road to serfdom consists of working exponentially harder for a dollar that’s growing exponentially weaker. Those suffering from the fiat pathology are the serfs, even though the United States supposedly outlawed serfdom.
The financial apparatus of the United States has not been geared to targeting and allotting new capital to virtuous enterprise for more than 20 years. Instead, it is a malevolant catcher in the rye, arresting and consuming to re-collateralize old unpaid IOUs on malconceived projects. An infantilizer who regresses the psyches of those captive to it on a merry-go-round plantation of economic illiteracy and struggle. It is geared towards front-running the inevitable destruction and volatility that it itself creates. 42% of US corporate profits come from this kind of business activity. The majority of the American enterprise is directed at dealing with the capital depredation of the Government Guarantee.
For my part, what had I been doing other than sliding into first base in the same game, grappling with capital depredation and volatility, the same as anyone? Doug Casey calls speculation “capitalizing on the errors in the market caused by government interference.” It’s not ignoble. It just deeply misses the point.
Zeus and Metis
I suppose it’s understandable. There is an allure to investment analysis and macro trading in fashioning a sort of reusable model to apprehend the interwoven dynamics of businesses, economies, history and psychology. As someone motivated by beauty in synthesis of further and further-out sets of abstractions, a single, coherent “unifying theory” is a sort of holy grail.
I believed the Austrian School offered this. Human Action an ancestral legend to constitute integrity once again. Forming a new kind of hedge fund practice, fashioned exclusively from principles of the Austrians from philosophy to strategy to tactics, appeared to be the only way.
This included missing something which a constant search for convexity should have exposed from the beginning. The Austrians edify the entrepreneur precisely because he does not play into an unifying framework. And while I always took great umbrage at the aloofness of Wall Street in its pretense of knowledge and petty heuristics, its natural, know-it-all desire to financialize everything, I had just as easily fallen into the trap that model repeatability means truth and no more need be understood.
Repeatability in a model conceals the lies which allow disintegration to metastasize. And it is the cunning titan Metis, the angel of local contextual knowledge, who sees the truth through the veil of absolutism. Despite the desire to make Metis a mainstay of this framework, with “boots on the ground” in far-flung ports where unfettered entrepreneurs might yet live in the age after America, in truth, she bucks all frameworks. Frameworks occult the Promethean truth entrepreneurs unmask. This is why Zeus must swallow her whole.
I was as materialist as the next guy. And the mythos that motivated the triumphs of the past was just as foreign to me as in my own trivial denigrations of others.
What returns us to a kind of integrity only Metis can help reveal? What elevates subjective value above the absolutism of the Government Guarantee and its pharisee followers? What skirts the desire to financialize everything, to syphon value from the future and pour it on the today?
The existence of a strong asset skirts it. Our society has not had one of these in more than two generations. We’ve become highly perverted for it. An asset so valuable that when spent, creates pain at its loss, creates pain at forgoing tremendous opportunity. The pain of being left behind in Europe when the discovery of America was at hand. An asset that reminds us we are not better served erecting hectares of self-storage units or logistics hub housing. An asset which reminds us of our precious time, an instinct deadened by the infinite waves of credit offered by the Guarantee. An asset which by its very nature increases our wealth at rates faster than the Guarantee’s transfer from our labor into their asset prices.
We restore integrity by unleashing Metis in ways unpredictable to a “framework,” and bypass the gaps deliberately created by infinite, centralized financialization. No longer do handful of darling entrepreneurs need to inexorably alter the way the planet lives. In a land liberated by Metis, the creator is nearly quotidian. Meanwhile the groom of the monetary stool is relegated to the back room where he belongs. Grand abstract mental models and financial superstructure are subsumed under cold, hard, local, domain-specific knowledge. Such an asset would be a great cause for localism, not just in economic and social spheres, but more importantly, in spirit.
Undefeatable Assets
Undefeatable Assets in cyberspace are more powerful than analytical edge, superior tactics, or philosophical virtue in locking in the value of your labor for posterity in face of the Government Guarantee. They are more powerful than your mental models in a world whose changes surpass the expansion of the imagination. They are more valuable to those who come after you than the notion that you fought for them in the ordeal of the Guarantee. We are not in the 2nd inning, or the 6th or whatever. We are at the beginning of a horizon of human prosperity which has never been attempted before, which not even the Austrians have been able to wrest from the sallow mimicry of bourgeois framework builders: separation of money and state.
To participate in these assets is not capitalization on market errors caused by government — thereby indexing to government and not to creators. Cryptoassets index to the Promethean. They are convex in the right tail, not the left. Buy them to not sell them for all your days remaining.
And put your mind to deeply arbitrage resources in their creation. Arbitrage artificially low-cost debt, arbitrage electricity in stranded and remote locations, arbitrage vaporizing Guaranteed currency, arbitrage institutional need for exposure with no ability to hold the underlying, arbitrage the heat of the earth and brilliance of the sun into Promethean human potentiality. It is not really so romantic either — the assets’ purpose is that you die alongside your peculiar ideology. That you yourself become part of a Schumpeterian shift and are creatively destroyed. Be a yana, a device for a possibility of liberty of which you can’t conceive, enjoyed by those you will never meet. Produce Undefeatable Assets and perhaps your search for integrity could be worthy.
-RC