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Three Delusions: Paper Wealth, a Booming Economy, and Bitcoin
- squozzer 9y agoWhat matters more - the size of the theatre or the size of its exits?
- sophacles 9y agoDepends - is there a fire?
- sdfadfa 9y agoThere's always a risk of a fire. And in our case the risk is huge.
- chickenfries 9y agoCoinbase sent me an email saying that they cannot guarantee uptime during high volatility. The exits are locked.
- Zarath 9y agoOh please, people have had months and months to cash out nearly any time they please.
- chickenfries 9y agoYep, except for when they might want to... y'know. When the price is crashing. https://www.theverge.com/2017/12/22/16810614/coinbase-trading-buy-sell-unavailable-bitcoin-price-drop https://www.theverge.com/2017/12/22/16810614/coinbase-tradin...
- junkscience2017 9y agoLots of permabears will go long when it's obvious markets are headed up, not Hussman. https://www.hussmanfunds.com/strategic-growth-fund/ https://www.hussmanfunds.com/strategic-growth-fund/ As always, Hussman manages the near impossible feat of reliably losing money in virtually any market environment The Dow has risen 5k in a year and Hussman still manages to be in the red....I'm sure his clients are thrilled on top of the how-is-that-possible string of losses in every fund he manages across any time frame...his expense ratio is insane! 5% fee ratio to lose money in a bull market...sign me up? his clients would be better off maxing out a string of savings accounts to earn 0.1% interest but get FDIC coverage most permabears since the 80s realized you can't fight the Fed, even if the whole system is based on BS
- exelius 9y agoIt’s a canary in the coal mine IMO. Sure, he’s early; but he’s not wrong. A very significant portion of growth over the last decade has been the growing ability of US companies to avoid paying US taxes. That growth eventually caps out until you reach a 0% corporate tax rate — the problem here is that shifts the tax burden 100% onto the populace, which absolutely destroys consumer spending and ultimately the economy as a whole. Right now they’re just turning these changes in the tax rate into enterprise value, but it’s a one-time shot. And if you do too much of it, you undermine the economy. But the corporations can’t help themselves, so we will have yet another boom-bust cycle.
- junkscience2017 9y agosorry but the only answer any investor should care about is achieving their financial goals over the expected investment timeframe. markets tend to rise and as a result market declines tend to be temporary the permabear thesis appeared in the early 80s when the US was in a rut and we also became a debtor nation. the permabear thesis -that debt and fiat currency would produce an economy favoring the pessimistic (but not completely imploding to the point of collapse, because you can't invest in that), proved to be wrong over a thirty year window if you have an axe to grind, you will always find a permabear manager willing to tell you tales of doom...it will cost you your financial goals though
- exelius 9y agoI think these funds are useful as a risk hedge — there is some non-zero risk every year that the economy will collapse. If you invest in a fund that will help offset some of that risk by performing above average in a downturn, you might want to do it as part of a portfolio strategy. Nobody should be putting their life savings into one of these. Hedge funds like this aren’t for that; they’re a risk management lever that gets set according to the economic model an investor is using.
- junkscience2017 9y ago
- pdog 9y agoThis guy expects a market loss of about -65%, which would send the S&P 500 back down to 900. He also expects negative total returns over the next 12 years. Of course, his Strategic Growth Fund has not only underperformed its benchmark (the S&P 500 index), the fund actually has negative returns over the past 1, 3, 5, and 10 year periods[1]. Losing money in this market is a truly remarkable feat. [1]: https://www.hussmanfunds.com/strategic-growth-fund/ https://www.hussmanfunds.com/strategic-growth-fund/
- JohnJamesRambo 9y agoThis is why I come to Hacker News.
- misiti3780 9y agobecause of the comment or the article ?
- JohnJamesRambo 9y agoThe comment showing me whether this guy knows what he is talking about or not.
- chickenfries 9y agoHow the hell do you know OP knows what they're talking about? They admit that they don't know finance in the post.
- jhowell 9y agoWhat if he's wrong?
- rz2k 9y agoThe comment didn't include a good metric of whether the author knows what he is talking about. How do his funds perform in bad markets? That is an important part of diversifying a portfolio. Funds that outperform the market in good markets are likely to fall even more than the rest of the market in downturns. It doesn't matter if you make out like a bandit during a boom if you aren't able to preserve much of that accumulated wealth.
- elmar 9y agoI should add Fiat currency...
- neolefty 9y agoThe economy is just a mechanism to have a predictable environment in which to raise children.
- emodendroket 9y agoIn that case it's an exceptionally bad one.
- icebraining 9y agoCompared to what?
- emodendroket 9y agoAlmost anything? Even the market's most ardent defenders would not claim it is a system of constant predictability. If it were predictable investing would be a lot easier.
- icebraining 9y agoI guess it depends on how you see it. In the past, the system may have fluctuated less, but the bottoms went very low; the current economy (which is broader than "the market") may fluctuate more, but it's also better at providing a predictable baseline. In my European country, even less than a century ago, it was unpredictable for large swaths of the population whether they'd have enough to eat to survive next year. That's not true for the vast majority nowadays.
- emodendroket 9y agoEven in the US, apparently, up to 12% of the population[1] is sometimes in a position where they have to skip meals, so even there, I'd say the depths someone can fall to are, potentially, very low. And a lot of what makes our current system at least somewhat predictable is controls restricting the unfettered operation of the market. A truly unrestricted market would be very unpredictable. All in all, I don't see predictability as a particular strong suit of markets, even with the most optimistic assumptions -- and I'd also say that, contrary to the original post, promoting stability is not the reason they came about. Enclosure was not a particularly stability-promoting maneuver, for instance. [1]https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics.aspx https://www.ers.usda.gov/topics/food-nutrition-assistance/fo...
- jfbourdeau 9y agoGreat article
- VMG 9y agoUnderstanding Bitcoin is hard. Here is a response to some of the criticism: > Every time a block is validated, a single node in the network gets a reward, and everyone else’s computing time is completely wasted. This is a misunderstanding of what PoW is http://www.truthcoin.info/blog/pow-cheapest/ http://www.truthcoin.info/blog/pow-cheapest/ > The system already features a rather steep cost per transaction, and hardly any of those transactions are for the purchase of goods and services Second-layer scaling allows an arbitrary number of off-chain transactions based for a single on-chain transaction. See https://lightning.network https://lightning.network
- UncleMeat 9y agoOnly if "arbitrary number" doesn't include an arbitrary number of addresses. You still need a transaction to set up a channel. Lightning shifts a cap on transactions to a cap on users while assuming that most people transact repeatedly with the same person and that btc users will be happy to lose the trust guarantees that btc brings over traditional services.
- Klathmon 9y agoYou are missing the "network" part of lightning network. A "payment channel" only allows unlimited "transactions" between 2 people, the "lightning network" allows you to chain those together similar to an IP network where you can transact with anyone that has a route to you through anyone else. So if I have a channel open with my friend, who has a channel open with coinbase, who has a channel open with gemini, who has a channel open with you, we can transact over LN without opening or closing a channel.
- VMG 9y agoIn addition to what my sibling comment says, LN channels retains trustlessness. Great Zappa album btw.
- alex_young 9y ago>> Every time a block is validated, a single node in the network gets a reward, and everyone else’s computing time is completely wasted. >This is a misunderstanding of what PoW is http://www.truthcoin.info/blog/pow-cheapest/ http://www.truthcoin.info/blog/pow-cheapest/ Honest question: I tried to find the problem with that view in the link you provided, but couldn't. Can you explain it to others who may share the same belief? I think that's what the Bitcoin white paper describes, but could be mistaken.
- squozzer 9y agoI find myself in agreement with most of the author's statements, especially regarding bitcoin and paper wealth. I also like the following statement -- "If our policy makers are interested in boosting long-term structural U.S. GDP growth, they should be providing direct and targeted tax incentives for real investment, education, research & development, and other factors that could, over time, increase our nation’s productive capacity." Too bad our political system no longer has that capability, if it ever did. It seems tax incentives find their way to the most powerful factions instead of the most productive ends. Real Investment - too many parasitic factors. Education - too many parasitic factors. R&D - too many parasitic factors.
- lmm 9y agoEducation is in a bubble of its own at the moment, partly because it's fun out of proportion to its economic value. We're churning out PhDs who then have nothing to do. "Innovation" tax incentives reward companies for registering patents, but if patents ever did reflect innovation that's long since fallen to Goodhart's law. Infrastructure investment is usually a good idea; so is direct government funding of real research, the kind that NIH or DARPA put out. But if, as the article claims, the biggest issue is the number of people in the labour force, then the best way to improve growth would be to ensure more people can participate in the labour force. That means encouraging things like public transport and flexible working hours, and finding a way to square our current approach to unemployment and medical insurance with the so-called gig economy (i.e. people working multiple part-time jobs). That would be win-win, and is unquestionably the government's area of responsibility.
- philiphodgen 9y agoI look beyond the “there’s a crash coming” sentiment. In that opinion, he is like all other pundits yammering on CNBC: entertaining rather than enlightening. What I like about his article is the insight — new to me — about the nature of paper wealth vs real wealth. He described it in a way that is useful and enlightening to me. The assertion that a security (stock, bond) is not an addition to net wealth — just a zero sum transfer between individuals over time — is a provocative statement that I will ponder for some time.
- lmm 9y agoTrade is a wealth creation mechanism, because different people assign different values to things. When a baker exchanges some loaves of bread with a carpenter for a table, wealth is created: they're both rational actors who know that the thing they're getting is worth more (to them) than the thing they're giving away. The same is true when the baker sells bread for money. The same is true when they issue a bond for their baking business. Of course the bond just moves money around, but a lot of wealth creation consists of moving things around rather than directly building a physical thing.
- dpiers 9y agoCorrect, but the article specifically referred to securities as zero-sum transfers. A security is linked to something that has value, and exchanging the security doesn’t alter the value of what the security is linked to.
- lmm 9y agoA particular stream of payments with a particular risk profile is an asset that has different (present) value to different entities like any other.
- shostack 9y agoI may not be using the proper terminology here, but would I be correct in restating this as: The underlying value of the asset is just one component, but the vehicle the asset is traded through can change that value equation by adding or removing its own value.
- dreamdu5t 9y agoFund managers are just scammers - plain and simple. He loses his clients money, he makes money. He earns his clients money, he makes more money. Either way he wins. It’s all sales and bullshit. Source: worked at a hedge fund
- brooklyntribe 9y agoOk, so if you think the hell thing is going to hell, just go SHORT, it's one click away. How simple is that? And that's why these predictions never pan out, if it's SO EASY to make a ton of cash off a crashing market, then EVERYONE will go short, since it's so EASY to make money. And that's why markets are generally stable and it's what humans do best, we go LONG. :-)
- deleted 9y ago[deleted]
- chickenfries 9y ago> Ok, so if you think the hell thing is going to hell, just go SHORT, it's one click away. How simple is that? Uh, how? Also, the hard part about making money on a short is knowing WHEN the price is going to crash. You can call an obvious speculative bubble what it is without knowing exactly when it's going to pop. > if it's SO EASY to make a ton of cash off a crashing market, then EVERYONE will go short, since it's so EASY to make money If the market is already crashing, why would someone sell you the stock to short sell? Don't you have to short before the price starts to drop? > And that's why markets are generally stable and it's what humans do best, we go LONG. :-) What?
- csomar 9y agoMight explain his bad fund performance.
- todipa 9y agoThere is a lot to dissect but I would focus on labor force. Our labor force used to be all human labor. Now it includes a large number of bots, both physical and software, that take care of business. The (output = labor . x) doesn't work anymore.
- kyaghmour 9y agoGreat. But that begs for more questions. Money is a unit of trade between humans for getting something from the other human in exchange for your money. If an entire class of humans is no longer needed, how will they receive money to pay for what they need? How much is your legal tender worth when large swaths of the country whose denomination you claim your wealth from are no longer "part of the economy"? Not that I have answers to these questions. But we do live in interesting times.
- erikb 9y agoI believe these questions are exactly what is driving the current crisis. Let's not be confused here. People getting more rich, and prices rising doesn't mean we don't have a crisis. The problem is that nobody knows yet, what this world will look like, where the formula value = number_of_people * output_per_person holds true. So where to put all the capital, power, and information wealth that one has created in a system based on that formula? So everything that gives the impression it may make it over the leap into the next system, start-ups, new currency, tech gimmicks, gives some of the people hope that they have finally found something that will protect them and bring them into a good position for the next cycle of politcal evolution. Truth though is, there are no systems that hold forever, or which could predict something which is not part of their system. There is only flexibility, intelligence, and a few tricks that sometimes work. E.g. making fire will probably the same, even if capitalism has ended. A useful trick to surivive cold and food-sickness. Also the ability to build trust relationships may survive as long as humanity survives. But few of these really enable one to continue living in the luxuries wealthy people are used to.
- mcguire 9y ago"Bots" don't have a separate economic existence. They are a productivity multiplier like any other tool.
- simonebrunozzi 9y agoI found this reading very interesting, and novel. However, he lost me when he wrote: "With regard to Bitcoin, my view is that the Blockchain algorithm itself is brilliant. Bitcoin itself, however, is just one application of Blockchain, and a rather awkward one." Every time I read a comment like this, my eyes roll up.
- deleted 9y ago[deleted]
- sdy 9y agoI believe the man is essentially saying that past performance does not indicate future performance. Ironically, most of the comments here are saying he is wrong, because of his past performance. Can we instead talk about his specific points and why they are wrong instead of just focusing on his past performance? Also, it looks to me that his performance was good during the great recession. So if another recession is coming, shouldn't the critics here be flocking to him? Or is everyone stuck in the current bull market feedback loop?
- jjeaff 9y agoSeeing as the market always recovers and then some, you are going to need to make very, very good returns in the downturns to make up for all the list potential on the upside. In other words, the overall return of the markets over their entire lifetime is positive, not negative. It would be great to ride the bull and then switch to the bear in a down market. But that would require timing the market.
- BadCookie 9y agoThe market always recovers? Japan must not have gotten the memo. Or is the U.S. too special to ever have the same problems as Japan?
- jjeaff 9y agoBy "the market", I was referring to the US Markets. We have a few hundred years of history of always recovering. Japan is the special case though. Small and landlocked, rather xenophobic with an aging population. Things that could happen in the US, but the US is just a completely different, and much larger animal.
- olegkikin 9y agoMost people think he is unreliable as a source of market prediction, because he has been absolutely horrible at it, which is somehow his main occupation.
- Yen 9y agoHis chart "Nonfarm business sector: Real output per person" shows a notable _slowing_ of the growth rate of per-capita productivity, consistently, over the last 70 years. I was under the impression that the opposite has occurred - we've achieved mind-boggling amounts of per-person productivity, and rapid rates of growth in productivity, fueled by advances in automation and communication technologies. Is this chart wrong? Is my impression opposite to reality?
- FabHK 9y agoI'd say yes, your impression is wrong, but you're not alone. Productivity growth in the 50s and 60s was consistently higher than it is now. Then it did slow down while IT was taking off, which is known and studied as the productivity paradox [1]: "Academic studies of aggregate U.S. data from the 1970s and 1980s failed to find evidence that IT significantly increased overall productivity." There are many attempts to explain it, including * lag: productivity started to pick up in the 90's (which you can see in Hussman's graph, but it's fallen back now...) * "hedonistic" improvements: IT makes many things better, but they do not show up in GDP measurements Bottom line, though, that arguably earlier technical advances (electricity & machinery, assembly lines & mass production, etc.) had much bigger impact than yet another Tinder for dogs. [1] https://en.wikipedia.org/wiki/Productivity_paradox https://en.wikipedia.org/wiki/Productivity_paradox
- rovolo 9y agoYou're referring to the 'Productivity Paradox'[0] as summarized by Robert Solow in 1987: "You can see the computer age everywhere but in the productivity statistics." Summary of possible explanations from the wikipedia article: 1. Computers made the biggest productivity gains early in their life (50s-70s) when they were used by banks and airlines. 2. Industrialization was a far bigger revolution. 3. Computers demand more training and attention than dumb machines which reduces their benefits. [0] https://en.wikipedia.org/wiki/Productivity_paradox https://en.wikipedia.org/wiki/Productivity_paradox
- KasianFranks 9y agoHe's a short, a bear.
- joshgoldberg 9y ago4th delusion, readers here who have 9-5 jobs are not slaves and it's cool to have no balls and to fulfill other people's dreams
- apo 9y agoWhat the bubble callers miss is that in the middle of a bubble, only cranks call bubble. The opposite is the case now. Every other armchair investor (and their ivory tower counterparts) is calling bubble now: on Bitcoin; on stocks; on bonds. Here's how to identify a real bubble. The conventional wisdom says go all in on a single asset. If you don't, you will get rekt. The only people who disagree with this position are cranks. That's a bubble. It happened in 1999 with stocks and it happened in 2007 with real estate. No asset is in a bubble at the moment based on this definition because the conventional wisdom is against all of them.
- maneesh 9y agoThe writer makes a few good points -- I liked his quoted selection "Faced with extreme valuations, the first impulse of investors..." However, I think there is a fundamental flaw in his analysis -- specifically when he makes this a majority foundation of his point: "Every security is an asset to the holder, and an equivalent liability to the issuer." That's not true right? A few moments reflection makes me think of stocks -- which are equity, not a asset nor liability. [1] What do you guys think? That point seemed to be a big part of his analysis, right? [1] https://www.quora.com/What-makes-a-common-stock-an-asset-or-a-liability https://www.quora.com/What-makes-a-common-stock-an-asset-or-...
- asimpletune 9y agoHe’s just saying it’s an IOU, I think.
- maneesh 9y agobut shares aren't an IOU. They are points that represent a company, and can be traded at a later date dependent on the market. They can't just redeem it for a promised cash amount at a later date -- they are tradeable at what someone else is willing to buy -- with no guarantee that someone else will be willing to buy...
- perl4ever 9y agoI disagree, somewhat. Shares are an "I owe you dividends, if and when" and they also represent voting control that a buyer could use to extract value from the company. Those both mean the holder of the paper is owed something even if it's much more vague than a bond. I guess there are stocks these days that have neither dividends nor votes, though. That seems like a scam though.
- wmrowan 9y agoCompanies issue shares. These shares are listed as a liability on the company's balance sheet. Each share represents a liability to the company because it entitle its holder to a share of any dividends paid by the company. The intrinsic value of a share is the net present value of this future stream of dividend payments, not its current market price. OP's point is that the market price of a share can be significantly above its intrinsic value in periods of irrational exuberance, such as now, creating "paper wealth" that doesn't really exist and which will evaporate when the speculators head for the exit.