CHG Issue #195: A Machine for Discontent
The challenges of trying to be value-added in an instant gratification culture
As far as the value of this newsletter goes, what we don’t write about is probably just as, if not more, important than what we do write about. This is the hardest thing about life; the things you say no to compound the same way the thing you say yes to, but you can’t directly observe them; maybe only on occasion with hindsight.
I’ve learned a lot about the business of writing over the past 17 years of publishing this letter, and I’ve learned that there are a lot of things I could do to get my subscriber count up, but I often choose not to do those things because they just don’t rise to the level of importance for me personally or professionally. Sometimes when I think I have something important to say I may regret that decision, but my platform is not the point of this letter, the point is to be value added, and since most of the value I think I contribute is not writing about things that only serve to distract it makes for a really poor business model; which is why it’s not a business and I don’t end up chasing subscribers.
Jesus used the metaphor of different fields that both get rain, but one produces food and the other one only thorns. Food is value added, whereas thorns are not. You see we live in an age where it rains every day, an age of abundance, not only of the necessities of life but also information. Paradoxically, it seems like happiness and this material and intellectual abundance are not correlated. It’s always raining out and we seem to be getting more and more thorns. Just like it requires effort to tend the field, keeping the weeds and thorns from overtaking it, daily life requires a lot of pruning and care to make sure our abundance doesn't lead us astray.
Our modern economy is often described as Capitalism, but capitalism is merely a system for allocating resources within an economy. The economy today is better described by consumerism, which is fueled by the relentless human desire for more. Capitalism ends up taking the blame for the ills of consumerism because we inherently struggle to blame our well-intentioned desires for our lack of fulfillment.
In a world where today's economic machinery is engineered to run on the fires of perpetual dissatisfaction, the simple act of contentment emerges as a profound form of rebellion. Advertising, the relentless heartbeat of consumer culture, crafts its intricate narratives to cultivate a yearning for what is just beyond reach, perpetuating an endless cycle of desire and acquisition. To feel at peace with one's current state, to reject the persistent whispers that insist on inadequacy and scarcity, is to stand in defiance of a system that profits from our perpetual longing. In choosing contentment, individuals re-assert their sovereignty, unshackling themselves from the pervasive ethos that defines worth by accumulation and status. In this quiet act of rebellion lies a radical reimagining of value and fulfillment, transcending the manufactured constraints of modern consumer society.
Consumer culture has invaded the financial markets not just in terms of the success of the companies that profit from it but also in the way people invest. The business of asset management today is mostly about marketing and the ability to raise money. It is necessary but not sufficient to have a good track record investing money, you need to be able to stand out in the hyper-competitive industry where results are easily misinterpreted and mischaracterized. The markets are so irregular and challenge the convictions of so-called “long-term investors” that investment decisions are increasingly made and sold to investors based on tactics that mirror consumer product marketing strategies.
We are all looking for something, but often times we don't take the time to think about what it is we are looking for. Advertisers are happy to fill that void offering emotional appeal and social proof that they have the very thing we are looking for and will fulfill our desires whether it be happiness or alpha. Daniel Kahneman distinguished between fast and intuitive System 1 thinking which is more susceptible to marketing techniques and slow and deliberate System 2 thinking which is more robust but comes with reduced speed and efficiency. It's important to realize one isn't better than the other; System 1 thinking kept us alive when natural dangers lurked around every corner, whereas System 2 has enabled the scientific and technological advances that have delivered the abundance that we now enjoy. The acknowledgment that we have these different modes of thinking which lead to biases, and that we live in a world that will naturally exploit these biases is a prerequisite to avoid all the pitfalls and false promises that life and the markets throw in our path.
The world is always quick to fill in any gaps which open in our lives which, like a magician's sleight of hand, can distract us from the things that may actually lead to contentment and fulfillment. A great example of this is the rise in the power of statistics in our daily lives. Most people don't possess a robust understanding of statistics, but they easily yield to "high probability" estimations which are easily substituted as facts. The wisdom of crowds lies behind the ready acceptance of these "statistical facts" but that wisdom relates only to the accuracy of statistical estimates not truth or trustworthiness. Discerning the truth or trustworthiness requires extra effort and statistical "truths" come with such empirical credibility and cognitive ease that it is easy to concede our priorities and devolve into an instant gratification society.
It’s not that our reliance on statistics or science has misled us, it’s that we’ve misapplied the lessons these disciplines have for us; the fact that many scientists have grown to be horrified by the applications of their works stands as testament to this.
It's not that we need to slow down and be more discerning, it's that we rarely make the conscious choice to speed up or slow down.
Often times it’s what the market doesn't do that really matters, but thinking along these lines exerts a heavy cognitive strain that we naturally avoid. The answer is to realize there is no answer and that each day is going to unfold as it will regardless of what you do or don't do. This isn't meant to advocate passivism, just an acceptance of reality, like a surfer who rides the waves. It means focusing on preparation instead of prediction.
The market machine is currently focused on tariffs and a change in Fed leadership which it is pricing in to mean Fed rate cuts while risk products have moved back to all-time highs and the FICC markets have settled into near term ranges. Despite all the handwringing there is not much going on. Fixed Income looks attractive on a yield basis, but duration risk remains underpriced as term premiums are still historically low and with short rates trading at the bottom of the range floaters remain the preferred choice. The dollar has broken out lower from a short-term range into the middle of a longer-term range. Gold is consolidating its recent breakout and Bitcoin is trying to break out higher. After a brief rally around the attacks on Iran, oil has settled back down near the bottom of its long-term range. Non-US stocks are experiencing a renaissance which may develop into a longer-term trend. Volatility is declining as risk premiums contract despite the increased uncertainty. The only obvious move from all this is to replace delta-one exposure with convex exposure, ie. buy gamma or puts if you're long and calls if you’re short. The mistake in this environment is to think you need to do something or to start formulating elaborate ideas about what might happen which will only skew your vision when something does happen.
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