The Black Swan right under our noses… Saying farewell to New York City… California rock slides… Introducing the Florida Republic… and my strategy for the road ahead
The Black Swan Wasn’t the Virus. The Black Swan Was The Response.
My last decade of my academic research and professional studies have centered on the political economy, trade economics, monetary theory and the financial crisis.
So, when I sit and read The Madness of Crowds or Manias, Panics, and Crashes – I am doing all I can to think about probability and the comparisons to history.
There’s just one problem – nothing comes up in virtually any of the textbooks that I can compare this pandemic to these days.
You’ll hear a lot about Black Swan events and historical comparisons. People will say that the Pandemic is something that no one saw coming and that it was a statistical anomaly.
For the better part of a decade, I’d been reading about pandemics, financial crises, and bubble economics. The United States spends about $100 billion a year in anti-terrorism efforts and about $1 billion in pandemic preparation. And the foolishness about this was that a pandemic, and pretty much only a pandemic, could destroy the United States’ financial and political systems, according to Rand Corporation in 2012.
A lot of people saw this coming. It was the only thing we can look at history and say we know it would happen again. If the 1918 Flu wasn’t enough, we had a bad outbreak in the 1950s. I caught H1N1 and I still can feel my pores working overtime to sweat out the poison. Ebola and Zika happened within the last decade, and everyone lost their minds. I wasn’t able to attend one of my best friend’s weddings because the news had convinced my wife that we would never have a child if I was bit by a mosquito. President George W. Bush was obsessed with pandemic prevention dating back to his first term.
So, no one can say we didn’t see this coming or that this was a Black Swan.
The real Black Swan was the politicization of the pandemic by both parties.
Simply put: The fact that our political system has descended into such a cesspool that there is absolutely NO Unifying force by Congress to get to work and find a solution. The fact that Democratic and Republican leaders are so hyper-partisan that we’re completely incapable of coming together to provide support to taxpayers.
Right now, they’ve gone on recess without an agreement to supply Americans – through no fault of their own – capital for rent, food, and other expenses. This is a failure of government and it is starting to feel like the natural end of our political experiment.
Where are the proposals for work programs, Democrats? Where are the ideas to jam out more Modern Monetary Theory? (which has become the defining economic school to afford everything under the sun without a sniff of inflation)
And Republicans, what exactly do you not understand about the need for a Lender of Last Resort after the implosion of market bubbles and other economic crises? How are you suddenly worried about costing young people their future when you’ve done nothing for two decades but crank up the national debt? Why aren’t they out there wiping out all taxes for anyone who makes under $250,000?
The Trump administration and Congressional Democrats are so incapable of talking to one another, that it sets a new low in Washington partisanship.
The August recess is like two parents getting divorced – taking a break for four weeks before coming back to negotiation.
However, the entire time the parents left their kids outside to forage for food.
How does this end well?
And is the solution to just wait until January to find a solution?
We might not have much of a country left by then.
When Andrew Ross Sorkin writes “Too Big to Fail Two: The Most Biggest to Fail” – the much-needed sequel to Too Big to Fail – perhaps he can leave 20 pages blank in the middle of it to represent the 20 days in August so far that Congress has done jack shit for Americans.
New York, New York
Watching New York City through the eyes of James Altucher this weekend felt like I was reading a story about the collapse of Ephesus. I traveled there a few years ago, and I never would have believed that I’d see something potentially comparable. Altucher writes that bandwidth was a key part of people’s ability to leave New York and work remotely anywhere.
At the heart of it, everything comes down to real estate. In New York City, you can make $250,000 as a family of four and still feel poor. The reason?Real estate.
Everyone is paying rent and they go higher and higher on restaurants and clothes and everything that comes through that port. Now, you’ve got a deflationary death spiral. If you drive through Baltimore, you can see what a real ghost town looks like when taxpayer flight happens over 40 years. I don’t know what New York is going to look like in two years, but my bet is unrecognizable.
Some people are willing to bet on the rebound in New York commercial real estate. I’m not going anywhere near that heap. Someone will make a lot of money wagering other people’s money on it, and everyone will call them a genius. It must be nice to invest someone else’s money into a wildly speculative hunch.
Don’t Tell Anyone, Okay?
There are zero reasons to pay rent. Absolutely none. I wonder if people will eventually notice this and start demanding a bailout. There’s something about work ethic in this country that makes people feel the pride to pay their bills. It will be fascinating to see if the vaccine is able to predate a breaking point. Does anyone realize that this is coming right at us, and our solution is to vote by mail and then wait six months?
I haven’t drunk any alcohol now in about three weeks, which has to be approaching a record dating back to my early high school years. I’m not drinking. I swear. No way. Not now. I know that the first half of this pandemic was just an opportunity to form our homes into speakeasies for a few months just so we could feel like the 20s were roaring. Don’t be surprised in this decade if, instead of outlawing alcohol like in the 1920s, you actually have to do a shot every time the Fed buys more bonds.
I’ve put in my 10 years of becoming an expert – and now I have to deal with a financial crisis that is 10 times as bad as 2008, not to mention there’s 100 times more people out there lying about it. It’s time to keep our senses limber. It’s time to do some math.
Points for Effort
Alexandria “AOC” Ocasio Cortez at least had an idea this week. In order to save the post office (which has been collapsing since America Online brought us dial-up chat rooms and email accounts), she proposed on Twitter that everyone should get together and start a “Progressive Pen Pal Program” so that liberals across America could send each other letters to help fund the failing government agency.
But now that we’re all going to vote by mail, we must save Cliff Clavin’s job. The solution was to abandon the bake sale and move this idea to the front of the line. People writing long letters about their political feelings and sending them to strangers?
Wishful thinking aside, I still don’t know if it makes sense to make the Postal Service deliver more mail if you’re trying to make it easier for them to deliver and collect ballots by November.
But at least she’s doing something. I’ve come around, and I’m a fan.
Because even if it’s the worst idea ever proposed, it still beats the tarp off of the absolute ignorance that Washington has shown in the last three months.
Of course, she left out how people are going to pay for the stamps. If only there were someone who could write and amend bills and then engage in compromise.
The Mountain and the Highway
Last week, Rob Lowe appeared on Joe Rogan’s podcast, and it was fantastic. How often do you think you’re going to find the most profound thing about risk in your week coming from the Bad Guy in Wayne’s World (I just always find that role and his dialogue in that film so underrated – “You know that all Champagne is French, it’s just named after the region.”) I met so many Wall Street people under 40 who said things like that back in my 20s. It never left me.
Anyway, Lowe was talking about generational wildfires and 1,000-year storms in Santa Barbara in 2019. The combination created a viscous substance that detaches rock from the crust. Local officials wanted everyone to relocate because it wasn’t safe. When Lowe pulled aside the rescue team and asked what “they were really worried about” – they said the whole mountain collapsing and going to the highway. And that happened in many places. It’s all about the idea that we simply ignore low-probability, high-risk events because we are too lazy to wrap our minds around the possibility.
This leads me to my greatest fear when I look at the state of the U.S. economy…
I’m afraid that the United States – its economy, its financial system, and its politics is so frayed that the only solution in the future is to divide this nation into four to eight different countries, enable a radical amount of flight across the country, and then a full reset of our economy and our political system. People who cannot talk to one another about something as simple as the Postal Service should not be neighbors. So, let them travel across the country, trade homes, and establish their homestead on the basis of economic, social, and political views.
I humbly request that we produce the Florida Republic – a magical warm place with farms and adequate sunlight to persist as a libertarian refuge. I have no desire to wake up in the morning and have to deal with anything that resembles the political wasteland of Chicago or the fracking decay of New York. And if anyone is coming to join our joyful little Republic, please understand what you escaped from in the first place. Don’t bring your politics and vote for the same things that caused your previous states to collapse into bureaucratic waste.
Building a Nation
I don’t know what the future holds, but someone has to think about the Florida Republic. The objective isn’t to secede from the union. It’s to react if and when we have to take care of ourselves. Let’s start with a few basics.
- The Florida Republic would not include Jacksonville. I say we round up everyone in America with the last name Jackson, put them all in Jacksonville, and set some sort of rules for this. There can only be One Jackson. The Rock can host the show. Whether it’s a Hunger Games sort of show or some sort of Ellen’s Games of Games – that will be decided by a vote of all the people who would have to leave Jacksonville under this aggressive stimulus plan. (Hey, this is better than the Pen Pal Program being pitched by AOC).
- The Florida Republic would take the square root of total Broward county votes to get a better representation of actual vote totals.
- The Florida Republic doesn’t include from Pensacola to Tallahassee on the Panhandle. We gave that to Alabama in exchange for a ton of Buffalo Wild Wings gift cards that are half used and have all different amounts of credit available ranging from $0.31 to $11.52. The bartender has to check every single one of them to get our tab paid.
My Strategy for the Road Ahead
Finally, I simply wanted to put a few things down on paper on what I believe.
I am prepared to leave the U.S. at any moment with my family. I am prepared to walk away from the property and simply vanish into the ether until things die down. I have prepared for this mentally, physically, financially, and socially for the better part of 10 years. And now, with the very ugly news starting to emerge, I’m forever vigilant.
I will continue to focus on two strategies:
First, to focus on the things that remain statistical anomalies. This is my Black Swan strategy that can capture significant upside from the events that the market has overlooked, and probabilities don’t truly match the possibilities.
Second is to center my attention on the technology that I perceive to be the only things that can drag us out of this situation. If we do survive this, it will be the result of technology and the wave of capital that helps move physical goods, information, and capital faster and more efficiently. Those elements are largely deflationary in nature, and perhaps can stave off a lot of potential inflation that awaits on the horizon. 5G is a deflationary event, and the Pandemic appears very inflationary.
How is this going to play out? That’s why I have this front-row seat.