Tuesday , October 20 2020
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Three Things I Think I Think – Cycles, Hunting Biden and Hacking Life

Summary:
Here are some things I think I am thinking about: 1) When the boom doesn’t cause the bust. The new Howard Marks missive is typically excellent. Howard cites something that I discussed in my April note about the markets and why this market recovery could end up being much faster than many expect. My working thesis for the last 6 months has been that this decline isn’t a “cycle” resulting from a boom. It’s just an exogenous shock. Said differently, the boom didn’t cause the bust. The bust occurred because of an exogenous event. For instance, if a meteor had hit NYC in 2010 the economy would have taken another tumble following the financial crisis. But you wouldn’t have called that 2 year recovery a whole new “cycle”. I think similar thinking should be applied here. Yes, there was a good

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Here are some things I think I am thinking about:

1) When the boom doesn’t cause the bust. The new Howard Marks missive is typically excellent. Howard cites something that I discussed in my April note about the markets and why this market recovery could end up being much faster than many expect. My working thesis for the last 6 months has been that this decline isn’t a “cycle” resulting from a boom. It’s just an exogenous shock. Said differently, the boom didn’t cause the bust. The bust occurred because of an exogenous event. For instance, if a meteor had hit NYC in 2010 the economy would have taken another tumble following the financial crisis. But you wouldn’t have called that 2 year recovery a whole new “cycle”. I think similar thinking should be applied here. Yes, there was a good deal of build-up in various sectors that could have contributed to the bust, but this is really about causality. And the cause of this bust was, definitively, not an organic decline in output due to excessive output (like the Internet bubble or housing bubble). It was, specifically, a decline in output because of the virus shock.¹

Now, this is really important to understand when you’re trying to understand why the stock market has reacted and also why the coming couple of years could actually be very good for the economy. In short, the stock market is front-running the probability of a vaccine. And in the case of a vaccine life essentially returns to some semblance of normalcy reflecting where we were in 2019. So, let’s say we get a vaccine in mid-2021. In that case the economy will begin to aggressively soak up all that excess labor to meet all that pent up demand. You’ll go to dinner more, movies more, take two vacations next year. Etc. As that pent up demand soaks the economy in 2021/2022 the labor market snaps back aggressively and by the end of 2022 the economy looks more or less like it did in 2019. The end result will be this weird “recession” that wasn’t really a cyclical recession at all. Instead, it will look more like a continuation of the 2019 expansion with 2-3 year pause within it.

Not sure I explained that as well as I could have, but I hope you get the point.

Anyhow, go read the Marks letter. It’s quite good.

2) Hunting Biden.² Twitter and Facebook are under fire again for censoring articles at will. Basically, the NY Post published an article about Hunter Biden getting money from China and Twitter and Facebook blocked the article citing an inability to confirm the sources. Basically, they claim it’s fake news. Hmmmm. This. Is. Messy.

My view is pretty simple. The Internet is not a public park. It is (mostly) private property. For instance, you’re free to create a username and post comments in my forum. I invite you to do that. But if I don’t like your comments then I can delete them. It’s like my house. I leave the front door wide open and I invite people to come in and talk to me and the other people inside. But as soon as you start misbehaving it is 100% my right to kick you out. The Internet is mostly a bunch of privately owned websites that post things and sometimes allow other people to post things. These sites are private property even if they’re open to the public. So, if Twitter wants to ban cat videos then that’s their right.

Of course, it’s more complex than that. If you come into my house and use the R word then I might get upset and kick you out. You don’t have some first amendment right that supersedes my private property rights. Should I get upset about the R word? Maybe, maybe not. That’s a subjective matter as Robert Downey Jr so eloquently explained in the Tropic Thunder link.³ But we should be clear. If these private firms want to police their websites then it is their right to police them using the necessarily subjective criteria that they deem appropriate.

3) Useful Hacks. I came across this old Morgan Housel post on life hacks. It kind of reminded me of my 40 things I’ve learned in 40 years. It also reminded me to promote Morgan’s new book, which doesn’t need any promoting. But he’s one of the best thinkers in finance so give it a go.

On another, much more random note, here’s my finest work on twitter to date:

¹ – This was the same argument I made back in April and May for the Fed and Treasury’s stimulus programs. Which, as we all know by now, have been resounding successes that helped stave off a much deeper economic downturn. 

² – This is obviously a very clever title because Biden’s son is named Hunter. HAHAHAHAHAHAHAHAAA!  [I’ll show myself out, thanks]. 

³ – While we’re on this important matter, can we all agree that Tropic Thunder is, by far, Tom Cruise’s greatest performance? 

Cullen Roche
Former mail delivery boy turned multi-asset investment manager, author, Ironman & chicken farmer. Probably should have stayed with mail delivery....

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