Archive for March, 2020

Orthodox Investor

I wrote this prior to the current COVID-19 scare. I have some related orthodox ideas (@OrthodoxIdeas) that I haven’t yet put into words that I may decide to publish as well in the coming months.

I have a strong suspicion that it’s not worth the effort and it’s not worth the risk to work for a living in order to save for retirement. I believe that the economy as a whole is a massive con game and if you try to invest in any part of it, even in precious metals, the risk that you will lose most of it is too great, so if you have no savings, you’re probably better off being as lazy as possible, collecting food stamps and any other freebies such as the Obama phone., and just wait until there is no choice, but to give everyone a universal basic income (UBI).

But if you’re like me and you already have savings because at some point in your past you were indoctrinated to believe that you needed to work and save money in order to have a good life, then you have no choice today, but to play in the casino that is our financial system.

There is so much fraud and corruption in the world now that the disaster scenario or the apocalypse scenario occurs if everything remains the same, stock prices keep on rising, and people keep on going to work without producing anything useful. That’s the worst case scenario. So to insure yourself against financial armageddon, you should just follow the financial advice of the mainstream, which is based on some kind of asset allocation model like 60% stocks, 25% bonds, 10% gold, and 5% bitcoin.

What I want to talk about is not the worst-case scenario, but what if things get better? What if the healthcare monopoly gets broken up, what if education is reformed to teach relevant skills, what if we stop imprisoning people for non-crimes such as drugs and prostitution, what if salespeople become less effective in manipulating people into making bad buying decisions, what if the trend towards bigger and more bureaucratic government reverses, or what if people improve their quality of life by living without smartphones? Any significant positive change is going to increase our collective wealth and well-being almost by definition because a larger proportion of the work we do will go towards useful things.

Of course, the current financial system can’t function unless everything keeps on growing, which by definition means that the number of scams in the world needs to multiply because technology is deflationary, so to inflate the system you need more people doing useless things, like give people more speeding tickets. I think at least on a subconscious level many people recognize the issue and understand that eventually we’ll just have to give people UBI.

A lot of people believe that if you put your money in stocks in the long term you’ll be fine because it tends to beat inflation over long periods of times and has done so for hundreds of years. What more convincing argument can there be that something has worked for a very long period of time?

There are some pessimistic analysts such as John Hussman who are projecting negative stock market returns over the next 10 years based on overvaluation, but even this viewpoint is completely delusional because it fails to ask a crucial question? Where exactly is all this wealth supposed to come from? You invest money and it’s supposed to magically multiply and become more. In fact, this scheme of making money “grow” is supposed to work in aggregate., so everyone can be a winner!

The notion that you can make more money by putting money to work for you is the basis of much of the financial industry. Pyramid schemes and Ponzi games are supposed to be illegal and Bernie Madoff was sent to prison for it not too long ago, but if you think about it for a few minutes, you’ll see that the entire economy is nothing but lies, scams, and fraud, and therefore money gained through investment must be somebody else’s loss.

The first thing to understand in order to invest correctly is that on average, investors are going to lose. So therefore, the goal should not be to make money, but to lose as little money as possible. In aggregate, investors will lose because there is overhead involved in all forms of investment. When you buy, you have to pay more than when you sell because there are middlemen who will collect a fee.

Economists love talking about abstract concepts such as productivity gains, but it’s all a scam. A personal computer in in the 90’s might have had 4MB of RAM and people used to type e-mails and prepare Excel spreadsheets on them. Today, many computers have 1000 times more RAM (4GB), and people still type e-mails and prepare Excel spreadsheets, the difference being that the computer will often grind to a halt and take 10 minutes to reboot because computers have become more wasteful and inefficient. In theory, today’s processor is faster, but in practice, there has been no productivity gain. Do you really think that taking a dirt cheap commodity such as the ink for an ink jet printer, and encouraging people to buy cartridges for $25 a cartridge makes us richer as a society? As cars and appliances become harder to fix and more prone to failure, does this make us richer as a society? But if it doesn’t, how can you earn more than inflation by investing in stocks? Technologically and sociologically we’re going backwards. All gains at this stage are just Ponzi game that’s waiting for a trigger to cause a collapse.

What is the solution to this? All we have to do is stop valuing work. We have to stop believing that work is inherently virtuous. Once we incentivize people to work less, we can transform society to where we work 90% less while our standard of living goes up.

So why does everyone including Peter Schiff, Karl Denninger, Jeffrey Gundlach, Charles Hugh Smith, as well as Donald Trump himself have their head buried in the sand? Because they all religiously believe that working is so virtuous. They want to believe that giving away money is worse than having people work. It just seems so sensible that you should have to work for what you get. Everyone should contribute to society. The insanity of their viewpoints is that if you make people work, you force them to be dishonest because the useful jobs are already taken, so by encouraging work, you are encouraging all the lies, scams, and frauds these people are railing against. The exception is Donald Trump because he doesn’t rail against scams. He’s okay with it. But even Donald Trump criticized the Fed for keeping interest rates too low and creating a stock market bubble not long ago, and now he is cheering on the all-time-highs on the S&P 500, so who knows what he really thinks, right?

So how many people in world refuse to believe that working is virtuous? Well there could be many, but no two people who share this view can ever be allowed to meet each other. The reason we know this is that no two people who believe in this most obvious idea of all time have met each other in the past and there are billions of people with internet access.. If it were possible it would have happened a long time ago and the world we live in would be very different today.