Book was first published in 1997, all text in quotes (“”) are excerpts from the book.
Paddle Out | Investment Themes That Could Thrive
Surfing is a great metaphor for investing, trading and markets on a legit swell day. A little warm-up will go a long way in those conditions. I argue this three-part essay is kind of like a warm-up.
The investment or trade “set-up” is like the approaching wave and one’s relative positioning in the ocean. That clean beautiful wave you’ve been waiting for 20 minutes is precious, just like a great investment opportunity that will pop up from time to time. It doesn’t come along that often. If you charge, glory could follow, or you could toss yourself over the falls and take a digger face first, or you could get a nice drop and then the wave dies quickly, or just maybe, it’s the glory wave of the year; investing and trading are no different.
You don’t want to forget your wax either, preparations are important. It’s the worst when you drop a sweet wave just to have that front foot slide off like a kook. No different from catching a great trade with a market order only to learn you made a limit order that wasn’t filled and missed the move.
You want to make sure your leash isn’t old and about to break either, it’s often a traumatic experience to snap your leash in big surf. Similarly, preventing an account from being wiped out when the markets turn against you with obsessive risk management is critical.
You want to make sure you pick the right surfboard for the conditions. If the goal is to preserve wealth, trading equities on the 15 min time frame is like grabbing a potato chip board with no volume on a head-high day of fat waves; it will be frustrating. Instead, a bigger board is the way to go just like buying hard assets to ride a trend for the next 3–5 years.
There’s always going to be a punishing “clean-up” set too. It doesn’t mean you sit safely far outside, nervously watching all the waves pass you by. It also doesn’t mean you sit inside the break carelessly daydreaming, where you will be caught inside, taking a beating wave after wave. Then as a result, one would be sauced-out mentally and physically, so much so, one wouldn’t be able to charge that beaut of a wave when it does show up later.
It’s about paddling between the two zones of safety and opportunity, hunting for waves to increase the chances of being in paddle distance to charge the wave of the day when it does come your way; investments and trading are exactly the same.
So let us paddle out and charge waves with this all in mind.
Education
I pay significant money for objective, trusted professional insights and information from non-institutional sources; one daily, the other weekly, and the other quarterly.
DO NOT TRUST mainstream financial advice, however by paying attention to it, it can be a good sentiment indicator or inverse indicator of the ebb and flow of the markets. If MSNBC, Cramer, or Forbes is recommending anything, it’s not for your sake.
Watching the free daily briefing video at realvision.com will be enough to keep one informed of what’s happening in the markets and to spot potential opportunities or avoid disaster. If you believe crypto will play a big role in the future,sign-up for that free subscription and consume all the content.
Fix the Money, Fix the World | The $ Devaluations of American History
History reveals that financial responsibility and fiscal responsibility are enemies of the state’s agenda. It was the beginning of the end for the Roman Empire when they started filing off the edges of their coins (devaluation), and making IOU promises to fund their wars (printing money). We all know what happened; it’s what governments do.
Preparing for the good or bad outcomes of the 4th turning requires some defensive positioning and I believe the focus should be heavily centered on the devaluation of currencies unfolding now just as the book predicted. There are very real risks, sovereign countries defaulting on their debt, and the US dollar as the global reserve currency.
The first 8 minutes of this video cover the basics of what’s unfolding concerning the US dollar; the US Dollar Milkshake Theory. A beautifully articulated summary with an excellent follow-up discussion. Below is a history lesson on the devaluation of the dollar and outcomes depending on positioning.
- The Gold Standard Act of 1900 repealed the U.S. dollar’s historic link to silver and defined it solely as 23.22 grains (1.505 g) of fine gold (or $20.67 per troy ounce of 480 grains). At this time, the devaluation was not happening yet, $1 was roughly the same as in 1834.
- 1933 President Roosevelt confiscated all the gold coins from Americans.
- ***On January 30, 1934, the dollar was officially devalued. America defaulted. The price of gold went from $20.67 an ounce — a price in effect since 1834 — to $35 an ounce.
- Instantly the cost of everything went up by 1.7x. $10k of your hard-earned savings, now worth $5.8k.
Key takeaway — if all you owned was gold at the time, you would have effectively lost nothing.
If you had all your cash under the mattress, you lost almost half of your net worth.
It was also a key event of the last 4th Turning crisis leading up to World War II.
- After the United States emerged as an even stronger global superpower during the Second World War, the Bretton Woods Agreement of 1944 established the U.S. dollar as the world’s primary reserve currency and the only post-war currency linked to gold.
- That didn’t last long, the collapse of Bretton Woods happened in 1971 with Nixon concerned that the US gold supply was no longer adequate to cover the number of dollars in circulation, President Richard M. Nixon devalued the US dollar relative to gold again.
The result of being the global reserve currency, which is explained in the Milkshake Theory above.
- 1 oz of gold no longer was needed to back the $1 and from this point forward, it hasn’t been backed by anything other than oil and energy agreements ensuring that the world buys/sells oil and energy in dollars.
In 2021, the dollar has lost 85% of its value since 1971.
- Risks of $ Collapse, probably not.
Global Currency Wars — too much to dive into in this essay, but you can read the book, “Currency Wars” published in 2011.
- In 2022, the US levied financial warfare on Russia after the Ukraine invasion, seized 643 billion in forex reserves, and for the first time in American history, sovereign states around the globe realized that their “dollars” are not safe from the whims of America.
The last time we used financial sanctions against another country like that, it was Japan in 1941.
- On July 26th, 1941, President Roosevelt seized all Japanese assets and imposed a strict oil embargo on Japan. Japan lost 3/4 of its trade and nearly 90% of its oil imports.
Japan attacked Pearl Harbor 4 months later.
Why has the Russian Ruble gained so much value over the dollar since the Ukraine invasion and the US financial sanctions that should have crushed them?
The Russian Ruble is backed by oil, natural gas, gold, and commodities, whereas the US dollar is backed by…well, nothing other than the trust that is falling off a cliff right now.
The charts below have been circulating around this week, all currencies relative to the US dollar.
THE BEST PERFORMING CURRENCY VERSUS THE US DOLLAR in 2022 WAS THE RUSSIAN RUBLE
If you were not holding US dollars since Nov 2021, you fucked yourself. What’s going on here in the above charts? It’s about relative value. The dollar relative to the Yen for example. $/yen, $/Ruble, $/Euro.
In order to make sound decisions with our savings, we must pay attention to the ratios as they relate to our personal situations.
Currencies are traded against each other on the global Forex market and their value fluctuates based on their countries fiscal and financial performance, central bank’s monetary policies, money printing, interest rates and sentiment.
- From 2001–2008, one would have lost about 45% of purchasing power holding dollars versus the UK’s sterling pound.
- However, since 2008, it’s the other way around, holding the sterling pound meant one’s purchasing power was halved.
After the 2008 crisis in the US, it was common sense to runaway from dollars, however it was the worst decision one could have made.
The Dollar Index, DXY, which is the strength of the dollar relative to a basket of global currencies in general is going to be volatile (spike up and down) as global central banks and their governments fumble the money ball down the field of monetary policy and fiscal irresponsibility, and then off a cliff.
- The key takeaway, holding dollars will maintain the most purchasing power relative to other currencies in most scenarios. The caveat is, we don’t know what actions the humans in control of central banks and governments will do on a given day; we must pay attention and approach this as a game.
- The good news, the humans making these decisions are greedy, fearful, and irresponsible; those are traits of predictable behavior.
- Remember human’s propensity to think in linear time from Part I? Last week the DXY was at 114 breaking the UK pension plans, this week it dropped like a rock to 111; it would have been wise to buy some gold last week. Gold’s price is up from $1626 to $1700+ now.
BRICS is saying, “Fuck you US dollar!” Brazil, India, Russia, China, and South Africa are working together. They are doing the right thing, backing their currencies with hard assets and commodities and at the minimum, buying energy and trading products amongst their native currencies instead of the US dollar.
- Every country wants to buy oil, and energy in their native currency because they can print it.
- The way the world works now, they have to do it in dollars and it’s killing everyone but the US. (see Milkshake Theory)
- Zoltan and Bretton Woods 3.0 podcast
The invisible fox in the hen house is a slow-grind of devaluation by monetary debasement. It’s looking like rather than sweeping executive orders as in the past, it is strategic monetary policy to inflate away the US debt. The house wins and the people lose half of everything.
After 5 years of 10%+ inflation. Your $100k savings is down to about $59k in purchasing power or you need $169k to buy that $100k Corvette you fell in love with 5 years ago. But you said the dollar is the safest bet right now? It is, that’s why it is truly terrible times.
The Truth about Rising Home Prices
If one owns a home or land right now, they are feeling great as home prices have risen higher and higher than when they purchased them. Feels like a win, but technically homeowners have been losing too.
The increasing valuations are not primarily driven by fundamental supply and demand first principles, they are driven by monetary debasement. It applies to the S&P 500, NASDAQ, automobiles, you name it.
One can quickly see what’s happening by reviewing this chart of the US Shiller’s Home Price Index divided by M2 monetary supply.
- There’s a rise in home prices from 2001 to 2006 due to the the sub-prime mortgage buying frenzy, price increase was “demand” driven.
- Then a massive fall in prices when the crisis started in May 2006; the price waterfall was “supply” driven.
- It continued until parity was reached and it’s been flat ever since, except for the COVID dip of 2019–2021; supply or demand had ZERO impact on price during the dip, it was the money supply.
This chart shows both the money supply and the home prices following the same trend and slope; home prices in white, monetary supply in blue. Clearly, home prices are increasing to offset monetary debasement.
This one adds the S&P 500 and it’s the same thing.
I could do this all day long…If it is not completely understood by now, 9 times out of 10, the rising prices of hard assets over the past 20 years is not because those assets gained value from basic supply/demand first principles, it’s simply because the dollar supply has increased.
Key Takeaway — Housing is a damn good hedge (hard asset) against money printing to maintain net worth, however don’t be fooled into thinking your purchasing power increased, its a wash in real terms.
Lovely, Now What?
“Keep in mind that the closer we get to the Fourth Turning climax, the greater will be the risk of a Great Devaluation. Hedge your portfolio and include assets in foreign markets where the saecular rhythms do not appear to coincide with America’s. Enter the Crisis with a reliable cash flow, diversified savings, and some liquid assets. Really know where your money is. Try to ensure that no one severe outcome (inflation, deflation, market crash, bank panic, default on the national debt) would destroy your entire asset base.”
Blows my mind how the authors wrote that 25 years ago, and it’s all unfolding right fucking now.
We should also have plenty of Dry Powder
Dry powder is cash or liquid assets in US dollars or digital US stablecoins. Without cash, we cannot pounce on the opportunities that will present.
If you are like me and have your net worth tied up in assets, it’s a sticky situation to generate free cash. The Fed is committed to quantitative tightening to push down inflation until mid to late 2023 and the value of damn there all investments and assets will continue to fall. One would have to sell at the wrong time, with low valuations.
However, the Fed can pivot quickly if something breaks, and we are already witnessing that unfold with the UK and Japan backstopping their currencies. Also, global central banks have all tapped out recently and are printing or hiking interest rates less, so that offsets the Fed’s actions. This conundrum of a game is what the entire finance world is speculating on right now.
What do we do?
We prepare for all outcomes. If a devaluation moment arises, we could be well positioned in gold, hard assets, and housing. If it does not, then we will watch the valuations of assets continue to fall relative to the dollar; hence owning dollars, hard assets and a home is the magic combination.
Add on top of that, buying risk-on assets like Technology and Bitcoin, but only when the signs that money printing will continue six months into the future or when the cycles of those assets are resetting. For example, Bitcoin’s 4-year cycle will be over by end of the year and the new one started; probably a good idea to accumulate at low prices now.
Stanley Drunkenmiller is the Michael Jordan of investing, yet he never retired. He discusses all the ins and outs of the FED, inflation and its implications for his investment strategies, look him up and read this transcript from today (9/26/2022).
HyperInflation | The Mandibles
Obviously, everyone is feeling it and I’ve already given countless examples of its effects and how to deal with it. What we don’t want is for it to go out of control like it did in Venezuela or Turkey.
The Fed is finally doing the right thing to tame inflation by aggressively raising rates because if inflation turns into hyperinflation, it’s game over for everyone. Unfortunately, they are terrible at their jobs, late to the party, and now the rest of the world has to suffer, it’s fucked.
The Mandibles is a must-read book to understand how destructive hyperinflation is and the worst case outcome of the 4th Turning. Read it. Below is a simple preview:
With dry wit and psychological acuity, this near-future novel explores the aftershocks of an economically devastating US sovereign debt default on four generations of a once-prosperous American family. Down-to-earth and perfectly realistic in scale.
Earn Dollars, Spend Cordobas
That has been my formula for the past 13 years which has maximized the dollar’s devaluation to my favor and enabled the life I live today by earning a strong currency, spending in a weak one, and living below my means.
My win was that I was able to work less for the simple lifestyle I prefer to live. Not everyone has this option, but a 6-month stint of remote working two different jobs in Thailand for example, while renting out your house back home could shore up the savings quickly; a short-term concept worth considering and a double win of living free.
Moving to Brazil is not a bad idea; great surf, great culture, and great sex. Oh, lost focus there for a second, the Brazilian real has been holding strong relative to the dollar. They started raising their interest rates a year ago preemptively; their history of monetary policy is fascinating and it’s not their first rodeo.
El Salvador may be better. Their native currency is the US Dollar and Bitcoin is also legal tender, I like this power-duo. Dollars for the daily transactions of life. Bitcoin is for savings that can’t be seized by governments and you can spend it just like dollars there.
Land/Home Ownership
If those previous charts comparing home prices to money supply didn’t grab your attention, I don’t know what will. I’m blowing it in this department, my rent for a 3-bedroom house without maintenance costs has made sense to not lever up with a mortgage that would force me to quadruple my low workload to pay it off; a lifestyle choice of course. If I had read this book a year ago, the timing would have been perfect to diversify into a home; I have some tough choices ahead of me.
I presume everyone is going to be strong in some areas and weak in others. Some are, “Land rich, cash poor”. Others land and cash-rich, but without income streams, and others may be at risk with all their savings in the bank; we all have work to do.
If you locked in a 2.5% rate mortgage last year for 30 years, then as the money printer goes “brrrrrr”, you can pay the mortgage with a devaluing currency while hopefully earning a yield greater than 2.5% in other assets; good work.
Example: Have 300k in the bank, transition 250k to a hard asset or investment instrument that is gaining 5% per year. Take a loan for 250k out at 2.5% with a 50k downpayment (20%) and you are winning, yet still losing to inflation; the game is rigged against us.
Income/Revenue
How much is a kidney worth? We don’t want to be in that situation. Losing one’s job or primary income stream is to be avoided at all costs; figuring out ways to increase it is necessary.
Active income, passive income, and multiple income streams will relieve the pressure, and allow one to have the mental courage to take risks when an opportunity presents itself.
If you are not putting that income to work in an asset generating a yield of 10% a year, you are losing to inflation.
The first hour of the work day pays for inflation, and then the next 3 hours pay taxes. From the moment we start working in the morning to lunchtime, it is for the fucking government.
And some folks are bewildered why nobody wants to work???
Lastly, well-funded and led start-ups are a good place to work when things are falling apart, paying employees usually is not a function of income, the money is already raised.
I think the basic ingredients are:
- Land or Home
- Income/Revenue streams
- Sufficient liquid savings and assets for 2 years without income
- Dry Powder for buying opportunities
- Hard Assets like gold, silver, Bitcoin, art, etc.
- 4th turning investment opportunities
Government Seizures
We must also consider the very real possibility of your government seizing your savings, assets, pension, or 401ks for paying for the cost of what they will deem, “national security measures” like energy, climate change, woke policies, or whatever bullshit rationale they provide. If there is a global war, it’s most likely happening.
- Every single country in World War II did this, and America came very close, but it is in the written record of the US Treasury that Roosevelt would have seized American’s savings in the bank to pay for the war if the “War Bonds” didn’t work.
- Must Read — For the War
- Canada just did it with the Trucker protesters and anyone who donated. Bank accounts and credit cards are frozen.
- During COVID, most major US banks limited weekly withdrawals to $2k.
- They will also raid public pension plans and any government-related investing instruments or plans for retirement in the name of “National Security”.
Fungibility is critical too. 5 gold bars won’t help much when buying fruits and vegetables. Gold coins are better, but going to be a challenge. Bitcoin and USD Stablecoins are probably better to facilitate person-to-person, and community value exchanges if there is power and internet available.
Consider what the kids are trading today and using to exchange value amongst themselves, that’s the future. Would have been cool to have some Russian Ruble digital stablecoins this year, I bet my left pinky they’ll arrive in 2023.
Without Health there is no Wealth
Ensuring some sort of insurance is in place or sufficient savings fund could prevent a disaster if unforeseen illness hits, wiping out savings or worse forcing one to have to sell hard assets when valuations are low.
However, with inflation, a health savings fund (ISA) better be liquid and invested, growing by more than 10% a year to offset inflation; almost impossible to do these days though.
“Consider discounting US government promises about the reliability of Social Security, Medicare, and Medicaid, and perhaps even public employee pensions. Any of these could turn out to be no more reliable than earlier promises about Continental and Confederate Dollars. You should start at once to build your financial security. You should save plenty of money, even if that means cutting back on your current lifestyle. The best way to guarantee good health care in old age is to practice good health habits today. Expect a new triage in health care rules, and don’t count on anybody else paying for the residue of your Unraveling-era bad habits.”
However, with the safe and proven advances in regenerative medicine like Stem Cells and some Biologics, the future is promising. I can personally attest to Stem Cells, spent $30k on last year with amazing results. It is a rising trend that will gain more popularity as health care costs continue to grow to an out-of-reach level for the majority due to the racket of health insurance giants.
In the States at least, it may make more sense to focus on preventing illness rather than insuring against it for younger folks.
- Living a healthy lifestyle, nutrition, and exercise are all investments that are risk-free and cost very little.
- Definitely watch this with eyes wide open on the USA health care system and regenerative medicine; worth every millisecond. I’m living proof that stem cells are safe and produce amazing results.
- It is a decent trend to invest in, or industry to find a job or start another income stream working remotely. It is a rising industry that makes too much common sense to ignore.
- And also, medical technology, devices, hardware, etc., are at play for the traditional health care system. It’s the biggest racket in the US with plenty of opportunities to seize.
Retirement, Pensions & 401ks
Public Pensions plans, 401ks, and market management accounts have a real risk of being wiped out, already most have experienced a 10–20% haircut this year versus sitting in US dollars.
- This past week, the UK government just backstopped their gilt(bond) market and currency to save their public pensions from going belly up. That is a giant red waving flag.
- It’s so pervasive throughout the system, it was very close to a sovereign economic collapse.
- If they allowed it to collapse, everyone would have lost their retirement and then create an additional risk of contagion affecting global banks and markets.
- The US is just as fragile and could not be far behind; lot’s of debate circling on this.
Communities, Trust, Network Effects and Crypto
In 4th turnings, there is a swing to communities and institutions to solidify a new order that serves the best interests of the youth, young adults, and future generations.
The newly born generation of Gen Zers will be the Artist archetype and Millennials are the foot soldiers that are marching into the 1st turning in the next 5–7 years. If we think in linear time, we make the mistake of extrapolating today’s trends out to the future, we must ponder cyclical shifts that may take place or have already started as the 4th Turning is climaxing.
Maybe communities establishing trust with code and network effects will capture mass adoption; think blockchain technologies. Millennials built Ethereum off the Gen Xer’s Bitcoin blockchain technology, they are into NFTs (art for the Artist archetype of Gen Zer’s) with large communities growing at a rate faster than the internet. Opportunities centralized around a corporate structure would be something to look for like Yuga Labs and the Bored Ape Yacht Club corporate NFT community, Or NFT exchange powerhouses like LOOKSRARE.
The most glaring risk of all crypto opportunities is the inability to cash out to your local currency. For example, one may have $50k worth of Ethereum right now and suddenly the banking system says, “Nope, we won’t allow you to cash out…”. That’s a real fear, yet play the chain of events out. What’s the reaction function to that?
It doesn’t matter whether we believe in it or not. Blockchain in whatever form it evolves into, IS the piece of the 4th Turning puzzle that connects every facet of the octahedron so far, and one would have to be a fool to dismiss it as a potential opportunity. It doesn’t mean you bet the farm on it. It’s simple. Reach out to the world to experience it first-hand and apply common sense thereafter.
Until one holds their entire net worth on a simple hardware wallet or a phone, or sends hundreds of thousands of dollars for just a few cents to anyone, anywhere, any time, instantly, with no middle man racket bullshit robbing one with fees, this technological breakthrough won’t make any sense at all.
The goal is to position ourselves for a good set-up and ride that wave as long as we can. Our sentiments and beliefs do not matter. Take NFTs for example. The trading culture and status displays are not my thing, but everyone else does, and it’s a real wave to drop into and ride.
DeFi is real. In 2021 I earned roughly $45k in interest by simply staking my crypto savings in the DeFi ecosystem. I earned interest on assets in a bull trend with values rising logarithmically like Bitcoin, Ethereum, and even gold. In hindsight, one of the best moves I ever made. Suddenly in DeFi, one is no longer a victim of an institution’s racketeering, one can trust the code and one has full responsibility and accountability for their own finances. It is the purest form of financial responsibility since banks were invented, and it’s all free.
We can’t be foolish either, bet your ass the current order will do everything they can to kill it, so it is risky of course.
Themes that Could Thrive
First, it’s all about cycles and general timing is critical; it’s what creates the winners and losers. It’s more common to get the analysis right and blow the execution up. That is why it is so important to not blindly follow anyone or anything. Here is a list of my mix of assets and investment instruments I will want to move toward and others away from. Nothing is for certain, this can be completely overboard, however, if many of these concepts were put into play just 10 months ago, a significant advantage would have been gained. Lastly, jobs, additional income streams, and remote work adhering to the themes below could prove to be more reliable, it depends on which direction the wind blows really.
- As currency devaluations worsen, commodities become more and more valuable during a 4th Turning as does Gold and Silver.
- Military, Aerospace, Defense -Already would have been a good idea earlier in the year and the conflicts with Russia and China are escalating.
- Munitions and Self-Defense products — If there is a flip of the status quo, there will be a reversion to the collective protecting itself. Folks could quickly find out there aren’t enough munitions for civil unrest.
- Private Schools & Day Care combos, Education, Online Universities, Children’s Books, Animation, Publishing — Probably going to be turned upside down to accommodate the new order. Whatever it is, the kids are going to have to be taught the new way.
- A glimmer of hope is popping up with nuclear power, most likely the ones who embrace it will thrive in the future.
- Innovative Nuclear power technology, infrastructure, Uranium
- Nuclear Waste Management and Technologies
- Waves to ride up and down in Oil, Energy Companies, Natural Gas
- Start-Ups and Companies innovating in home energy solutions, other than solar and wind.
- Home water collection, reclamation or grey water systems and products.
- Home turbines from a wood-burning stove for example (Nikola Tesla Turbine)
- Copper, Copper, Copper
- Brazil, Mexico, India for emerging markets
- Community/Network Effects based technologies and solutions
- Bitcoin/Ethereum/LDO and other L1s, DeFi leaders like UNI, SUSHI and, BIFI. Their network effects are very powerful for massive gains in the next cycle.
- Mega Crypto Exchange community tokens like Binance’s BNB or FTX’s FTT.
- Interoperability protocols like THOR and ATOM
- DAOs and Web3
- Cultural Communities, Artist Archetypes born in the 4th Turning that will be investing in culture.
- Corporate and Community based NFT exchanges and their tradeable tokens, APE, X2Y2, LOOKSRARE, Magic Eden.
- Community sport and entertainment fan tokens CHZ, TRB, LAZIO
- Sports Betting Apps, traditional or crypto, as folks struggle, they play the lottery.
I’ll add more as I figure more out, if you have suggestions after reading this, please share.
