Thread by @vpalsmith33

/THREAD/ Inspired by @shortl2021 viral thread, I decided to write up a journal entry to begin #MadNovember. I argue we have reached a point that demands a philosophical view, acknowledging value is metaphysical

https://twitter.com/shortl2021/status/1454412132804698114

vincentpalumbosmith.substack.com/p/the-investin…

2. The fact @shortl2021 went viral is a revealing sign. His views haven't changed but didn't resonate until now. Why? He has the evidence from folks like @InvariantPersp1. @mollyesque has similar claim about why 21st century populists succeeded where 20th century pioneers failed

3. The hook is an eloquent quote I regard as the trouble with financial markets. They are nearly reasonable, but not quite. Grantham and @hussmanjp would say market is good indicator of fair value at times, but deviates in both directions just as often

https://twitter.com/TiVertigo/status/1415981841295761409

4. This has implications for forecasting. Pure analysts are unlikely to perform because they only see "exactitude", while philosophers will overstate the "inexactitude". They need a way of speaking with each other. Better yet, combine them in same person. afr.com/chanticleer/ch…

5. Grantham is another. His NYT profile reveals his philosophical streak, even if he hasn't yet taken the life of a Buddhist ascetic. He wrote a letter in January which alerted me to the possibility of a superbubble.
nytimes.com/2011/08/14/mag…
gmo.com/americas/resea…

6. But Grantham has been screaming bear forever, his detractors argue. This old guy doesn't understand the fuel is central bank money, not profits. Value investing has been dead since August 2020 when financial markets were decoupled from the real economy project-syndicate.org/commentary/tec…

7. I will return here as it raises key question, but to answer Q in satisfactory way have to make a philosophical detour. My authority is Bertrand Russell who left wonderful message in the bottle for future generations through YouTube on confidence myopia

8. IMO, Russell captures the psychology of "new era" proclamations. 1) They refuse to understand what their salaries depend them not understanding 2) We don't have to wait for post-scarcity future to arrive; we can bring into present thru financial market hussmanfunds.com/comment/mc2110…

9. The first motivation is cynical one we're generally more inclined to accept, but the second is arguably dominant today. Imagine all the good we could do if old rules don't apply to assets like crypto which really do increase w/o limit? Great ex. thread:

https://twitter.com/RaoulGMI/status/1454612829248630790?s=20

10. I'm not a Luddite. I think their predictions will prove to be right—eventually. Something @azeem recent book highlights is that people who are aware of exponential potential have the opposite problem of others. They are too enthusiastic reddit.com/r/teslainvesto…

11. I remember from my high school Theory of Knowledge class that knowledge consists of true, justified, belief. Russell was the inspiration for that curriculum. I wish I paid closer attention, and wasn't half asleep in that morning course marxists.org/reference/subj…

12. Not so fast, what if Russell didn't quite cover all his bases? Sometimes, a true belief can be inferred from a justified false belief, but it would be silly to call this knowledge. In philosophy, they call this a Gettier problem. plato.stanford.edu/entries/knowle…

13. So are financial markets today just one big mirage, the go-to metaphor philosophers use to illustrate? I cannot be certain, but I do see certain shadows which suggest that it may be the case.

14. Returning to where I left off in (6), I narrate the last part of this excellent PBS Frontline special on monetary policy, and in particular how QE "works" by fueling yield-seeking behavior, @hussmanjp claim linked in (8) pbs.org/wgbh/frontline…

15. There is moral hazard here which hurts the little guy. The FT reported that gambling hotlines are receiving a new type of caller—day traders. ft.com/content/8f9bbc…

16. These Robinhood traders picked up the signal that floor had been set on asset prices. In August 2020, by coincidence same moment as (6), an old friend who works in finance told me something I filed away, "General Powell prevents that from happening." npr.org/2021/03/25/981…

17. War's pain is in proportion to the stubborn, unreasoning commitment without adjusting for changing circumstances on the ground, Peter Fisher reminds us through another analogy— medicine. Sudden 50% jumps in valuation usually followed by consequences.

https://twitter.com/PBS/status/1414967952793874435?s=20

18. In the frontline special, they tap Grantham to give the kicker on the Everything Bubble. He goes into more detail dispelling the myths in an @rbrtrmstrng interview, hitting on many of the same points as @hussmanjp indispensable piece

19. I don't endorse their politics, but the Austrians on this site (search 92ers) have been warning of an Everything Bubble for even longer than Grantham, arguing we are still in the same post-LTCM moment. Bezzle started then. See also this lecture 19:45

20. I'm nonetheless captivated by their 92ers explanation of central bank hubris. In spite or perhaps because of their PhD's, they appear unable to see things regular folks can. I digress to Greek history lesson, Hubris Laws as antidote? economics.mit.edu/files/19640

21. The Everything Bubble has been delayed, leading "right but early" pattern. On a podcast w/ @TreyLockerbie , Grantham emphasizes, tech bubble was another time there was significant lag. Complexity makes picking the "cage rattler" fool's errand theinvestorspodcast.com/episodes/top-o…

22. Plenty of warning signs (note: not signals!) however. I referred to them as "shadows". @AvidCommentator summed up what it feels like to observe these shadows. Can make chart after chart showing spikes in 2000, 2008, 2021, followed by declines

https://twitter.com/AvidCommentator/status/1455011974819971080?s=20

23. Here are a few more: ludicrous ventures without any business plans, leading to generational clash at VC firms vice.com/en/article/jgm…, GMO's note on % Russel 3000 stocks w/ negative earnings, gmo.com/americas/resea… and impending fall from grace of SPAC "confidence termites"

24. @jessefelder reminds us that if history is any guide , when confidence termites officially do their work, the craziest segments will hemorrhage 90+% thefelderreport.com/2021/10/13/whe…

25. These signs are so stark the risks are a grey rhino. Many saw the 2008 grey rhino coming lrb.co.uk/the-paper/v25/… economist.com/leaders/2005/0… The question is always simply when will debtonation day come? opendemocracy.net/en/debtonation/

26. Research suggests can only defy the laws of macroeconomic gravity for at most 4 years. policytensor.com/2017/08/16/how…

27. But I can't emphasize this enough. Predicting the future is really hard. It becomes harder when you are "hedgehog" burrowing for reasons why things must stay the same and we've reached a new era, or you have a professional rep that depends on it theatlantic.com/magazine/archi…

28. Some would argue that Grantham is the hedgehog. After GMO being wrong in successive forecasts, shouldn't they adjust to the new terrain of monetary fueled bailout capitalism?

https://twitter.com/goodalexander/status/1454642377327616001?t=Qn51jEZ22Bcz-P_dV8NSpA&s=19

29. I believe that accepting that terrain as a given is wrong for reasons that relate to the fallacy of engineerability, stated more eloquently by Grantham on the aforementioned investor's podcast

https://twitter.com/shortl2021/status/1433554120359624713?s=20

30. Or, if you can prefer, we can refer to case where it already went wrong, the Chinese property market. @RobinWigg had quite the kicker in article examining China bears short-sell position based on debt burdens, posing the question were they just early?

https://twitter.com/RobinWigg/status/1438475598209376259?s=20

Was my interpretation of permabear market reading wrong? Could it be that Grantham, Hussman, and others were hedgehogging all along? Insight from Menand review of Tetlock: hedgehogs are so spectacularly right when it matters, they take it straight to bank newyorker.com/magazine/2005/…