Thread by @KrisAbdelmessih

I was going to write a post similar to this but from a different angle. I'm not going to get around to doing that but I'll share the gist...

https://twitter.com/AlbertBridgeCap/status/1366425201039319045

Labor wages are less volatile than asset returns are only applied to a flow variable...income.

Asset volatility is applied to a stock variable...wealth.

Ok let's consider utility of wealth for a moment...

Whether you want to attribute it to behavioral loss aversion or non-ergodicity (ie we intuitively maximize geometric returns) the outcome is the same:

We have concave wealth functions.

What does that mean? It's just diminishing marginal utility of wealth. $100k does not make you 10x happier. Maybe 25% happier (ln10k/ln1k). Every additional 0 changes your life by less. You only need so many Lambos.

The exact slope doesn't matter. The function is concave.

Now consider our prospects for increasing happiness.

We could work longer to reach higher wealth levels but since wage variance is small our prospects for increased happiness is linear with respect to hours worked.

Boooooring

However as asset volatility increases, the distance to a higher level of happiness shortens.

It's the same phenomenon as OTM call strikes becoming higher delta as you raise the vol.

And this shortening occurs on the asset plane not the hours worked plane.

People can feel this.

I know several people who earn solid pay (low 6 figures say) that have seen massive increases in their net worths in the past year as a multiple of what they could normally save in a year.

It is leading to people questioning the value of their time.

Why fill cavities when I can "study" markets and make 5x in my underwear.

People are noticing the volatility and seeing it as an elevator. Fck the stairs.

My unscientific feeling is that this feeds on itself and leads to more speculative behavior and more inflow.

But if the elevator is obviously so fast other people are gonna jump the stairs and get in line for the express too.

So you now need to figure out how close you are to the front of the line and how big that elevator is.

The promoters have figured out how to skip lines and get multiple trips before the stores close.

Financialization is just their latest tool. Would have been chemical elixirs if it was a prior time. The method is the same, the medium is different.

Every mistaken ticker or NFT is a potentially faster elevator. The promotors see the volatility as speed.

But if everyone takes elevators before the stores above can restock, before they can deliver, word will eventually make it's way downstairs.

People will get off the elevator lines since there will be nothing to rush to. The shelves have been emptied up above.

Might as well take the stairs and let the stores replenish.

Give your legs a workout. Don't let this frenzy hollow out your muscles.

Promotors want you to love financialization. They want desperately for you to believe this is the real world.

And some, maybe much of it will be. But as prosthetics to humans that actually live in communities. Sustaining and trading skills with each other.

I can't tell where the trend following ends and the believing your own BS begins.

And the best promotors believe their own BS bc that's how they became the best promotors in the first place.

Financialization and its ripples are fun. Just unsure how big the warning labels should be.

Volatility is a siren's call. It'll be easier to tie yourself to the mast if you don't look around. And if you choose to look anyway, know that the elevators eventually lead to nowhere.