Re: clearinghouses, this reminded of the point you made in your last webinar. Problems invariably arise when things people treated as "basically cash" end up being outed as "not cash" during crises (e.g. settlement delays, counterparty risk, AAA bonds, money market funds, etc.).
I suspect the most interesting inflation story might be regional. High earners relocating from high cost areas to low cost areas. Deflation in NYC and inflation in Miami. Fiscal measures are obvious but may not be possible and monetary measures don't apply.
Very much a thought bubble but in extremis what if the US started to look more like the EU?
Well, consumption patterns have been changing for a while, and I like the point that just because you don't see broad inflation does not mean there is no inflation in other consumption classes. See this chart: https://www.aei.org/wp-content/uploads/2019/01/cpichart2019.png?x91208
Assuming that chart is right, we have seen high inflation in things like school and healthcare costs (above the growth in wages) and almost no inflation or negative inflation (and below wages growth) in things like cars, clothing and TVs, over the long term.
One of the things that I said to colleagues, early in 2020, was that I thought you could actually imagine a world where we would see deflationary pressures from decreased income / permanent loss of jobs following COVID / demand shifting away from certain traditional areas of spend (on-campus education, cars -> housing, electronics) resulting in somewhat benign inflation over the long term, even in the face of trillions being "printed". Imagine a world where the Upworks and the like make it possible to offshore fairly educated talent outside of the US that will work for significantly lower wages - you have both Americans losing some non-tech jobs, others losing tech-related jobs, and now the cost to produce the tech-related goods/services/software goes down. I think that combination should be deflationary in different areas.
On the other hand, if we get US-centric, building supply chains for resilience as opposed to just-in-time and onshoring to the US might put upward pressure generally on the prices of physical goods, generally.
So I have no idea if that was interesting, but I think its going to be hard to tell if we are seeing inflation by just looking at 2021. Lots of things are going to be a mess as well. Our supply chain professionals seem to be working around the clock putting out fires while news ones spark elsewhere. Going to potential have tax changes and government-driven demand increases for US-produced goods and jobs. Think there is a lot of noise now and in the near-term.
> what price changes can we reasonably use to measure inflation?
Going off on a tangent, I've heard the "stealth inflation" meme from some sectors of the dissident right for a few years now and have entirely dismissed it as false. But, over the past 4 months or so, I've been working on draft 2 of my homesteading book series "Escape the City" ( https://escapefromthecity.backerkit.com/hosted_preorders ) and I've been double checking URLs and prices of various homestead related equipment (tractor mounted rototillers, gates, fencing, butchering knives, grease guns, MIG welding machines, etc. etc. ad nauseum), and I've noted that around 50% of these items have had price increases of 20+% over the last 24 months.
Obviously homesteaders buy more tractors and hog butchering equipment than the US BoL puts into the CPI basket of goods, so I'm not alleging "op", "coverup", or anything else ... but I do find it quite interesting that I'm seeing a lot of inflation that doesn't seem to be showing up other places.
Hey Byrne, in your recent webinar you had also suggested that the "price discovery" mechanism does not occur simply over a point estimate of a stock price, but also its distribution (e.g. skewness, kurtosis).
I understood this as: "price" is a random variable with some underlying distribution (e.g. normal, exponential, lognormal) and the market, through active trading, is sketching out this distribution. The market price reflects the current balance of supply & demand, materializing as some measure of central tendency (e.g. mean, mode), on that underlying distribution. As the underlying distribution changes, or the supply/demand changes (for where we are along the distribution), then the traded market price will swing to accommodate that.
It still feels a bit amorphous in my head. Is that how you had meant it?
With respect to Jerry Neumann's excellent post on the differences between risk and uncertainty, I am surprised he didn't invoke real option value. While risks can be manged (accepted, avoided, mitigated and transferred), uncertainty requires a specific kind of flexibility only hinted at in this post.
Neumann states, "Startup strategies like lean, customer development, design thinking, and many others were all created to manage uncertainty." These strategies, when executed correctly, are hypothesis testing. As the replication crisis in the scientific community has shown, the most difficult part of uncertainty is getting people to admit non-results.
The value created by real options, therefore, is not capitalizing on uncertainty-aversion, but the ability to see a sunk cost and walk away. Big companies make uncertain bets quite often (although I agree that their process is hamstrung by CYA and unknowable assumptions), but office politics prevents people from walking away. Startups are allowed, even expected to fail.
Still, as Peter Thiel points out, failure should not be idolized. Failure is unequivocally bad. The only thing worse than failing is lying about failing. The value created by startups can be found by turning uncertainty into honesty; acting upon truths that others aren't willing to acknowledge. This creates second order effects where you may identify a truth but don't have the right approach to get it accepted in the mainstream. In that case, you should run, not walk to the nearest exit.
Re: clearinghouses, this reminded of the point you made in your last webinar. Problems invariably arise when things people treated as "basically cash" end up being outed as "not cash" during crises (e.g. settlement delays, counterparty risk, AAA bonds, money market funds, etc.).
I suspect the most interesting inflation story might be regional. High earners relocating from high cost areas to low cost areas. Deflation in NYC and inflation in Miami. Fiscal measures are obvious but may not be possible and monetary measures don't apply.
Very much a thought bubble but in extremis what if the US started to look more like the EU?
Well, consumption patterns have been changing for a while, and I like the point that just because you don't see broad inflation does not mean there is no inflation in other consumption classes. See this chart: https://www.aei.org/wp-content/uploads/2019/01/cpichart2019.png?x91208
Assuming that chart is right, we have seen high inflation in things like school and healthcare costs (above the growth in wages) and almost no inflation or negative inflation (and below wages growth) in things like cars, clothing and TVs, over the long term.
One of the things that I said to colleagues, early in 2020, was that I thought you could actually imagine a world where we would see deflationary pressures from decreased income / permanent loss of jobs following COVID / demand shifting away from certain traditional areas of spend (on-campus education, cars -> housing, electronics) resulting in somewhat benign inflation over the long term, even in the face of trillions being "printed". Imagine a world where the Upworks and the like make it possible to offshore fairly educated talent outside of the US that will work for significantly lower wages - you have both Americans losing some non-tech jobs, others losing tech-related jobs, and now the cost to produce the tech-related goods/services/software goes down. I think that combination should be deflationary in different areas.
On the other hand, if we get US-centric, building supply chains for resilience as opposed to just-in-time and onshoring to the US might put upward pressure generally on the prices of physical goods, generally.
So I have no idea if that was interesting, but I think its going to be hard to tell if we are seeing inflation by just looking at 2021. Lots of things are going to be a mess as well. Our supply chain professionals seem to be working around the clock putting out fires while news ones spark elsewhere. Going to potential have tax changes and government-driven demand increases for US-produced goods and jobs. Think there is a lot of noise now and in the near-term.
> what price changes can we reasonably use to measure inflation?
Going off on a tangent, I've heard the "stealth inflation" meme from some sectors of the dissident right for a few years now and have entirely dismissed it as false. But, over the past 4 months or so, I've been working on draft 2 of my homesteading book series "Escape the City" ( https://escapefromthecity.backerkit.com/hosted_preorders ) and I've been double checking URLs and prices of various homestead related equipment (tractor mounted rototillers, gates, fencing, butchering knives, grease guns, MIG welding machines, etc. etc. ad nauseum), and I've noted that around 50% of these items have had price increases of 20+% over the last 24 months.
Obviously homesteaders buy more tractors and hog butchering equipment than the US BoL puts into the CPI basket of goods, so I'm not alleging "op", "coverup", or anything else ... but I do find it quite interesting that I'm seeing a lot of inflation that doesn't seem to be showing up other places.
Curious re your thoughts on this.
https://gurusundaram.substack.com/p/2020-year-in-review-aus-edition
Hey Byrne, in your recent webinar you had also suggested that the "price discovery" mechanism does not occur simply over a point estimate of a stock price, but also its distribution (e.g. skewness, kurtosis).
I understood this as: "price" is a random variable with some underlying distribution (e.g. normal, exponential, lognormal) and the market, through active trading, is sketching out this distribution. The market price reflects the current balance of supply & demand, materializing as some measure of central tendency (e.g. mean, mode), on that underlying distribution. As the underlying distribution changes, or the supply/demand changes (for where we are along the distribution), then the traded market price will swing to accommodate that.
It still feels a bit amorphous in my head. Is that how you had meant it?
With respect to Jerry Neumann's excellent post on the differences between risk and uncertainty, I am surprised he didn't invoke real option value. While risks can be manged (accepted, avoided, mitigated and transferred), uncertainty requires a specific kind of flexibility only hinted at in this post.
Neumann states, "Startup strategies like lean, customer development, design thinking, and many others were all created to manage uncertainty." These strategies, when executed correctly, are hypothesis testing. As the replication crisis in the scientific community has shown, the most difficult part of uncertainty is getting people to admit non-results.
The value created by real options, therefore, is not capitalizing on uncertainty-aversion, but the ability to see a sunk cost and walk away. Big companies make uncertain bets quite often (although I agree that their process is hamstrung by CYA and unknowable assumptions), but office politics prevents people from walking away. Startups are allowed, even expected to fail.
Still, as Peter Thiel points out, failure should not be idolized. Failure is unequivocally bad. The only thing worse than failing is lying about failing. The value created by startups can be found by turning uncertainty into honesty; acting upon truths that others aren't willing to acknowledge. This creates second order effects where you may identify a truth but don't have the right approach to get it accepted in the mainstream. In that case, you should run, not walk to the nearest exit.
As Kenny Rogers says:
"You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run"
Re: protecting your capital during crises. I must admit I think I have now found the first genuine use case of cryptocurrencies ever.