Alex here with this week’s Macro Musings.
As always, if you come across something cool during the week, shoot me an email at firstname.lastname@example.org and I’ll share it with the group.
Special Announcement —
Tyler will be hosting a live special event on our DOTM option strategy next Thursday, October 4th at 9PM EST, He’ll be covering exactly how we used our DOTM option strategy to identify and purchase a call option on AMD that went up 2000% since mid-July. He’ll also be covering one of the most difficult parts of trading — when to take profits on a massive winner. Sign up for this event at the link below and make sure to attend live. There will be no recordings!
Recent Articles/Videos —
Gerschenkron Growth Model Explained — We explain the Gerschenkron Growth Model and how it spells trouble for China.
Convergent/Divergent — Tyler discusses the difference between convergent and divergent trading and how this idea has helped him structure his portfolio.
Occam’s Razor — Learn why it’s absolutely critical to simplify your trading process.
Articles I’m reading —
The talented Morgan Housel put out a fun read this week titled “Different Kinds of Smart” on the various kinds of intelligence and the benefits/shortcomings of each. Here’s a clip from the piece and the link.
Being an expert in economics would help you understand the world if the world were governed purely by economics. But it’s not. It’s governed by economics, psychology, sociology, biology, physics, politics, physiology, ecology, and on and on.
Patrick O’Shaughnessy wrote an email to his book club years ago:
“Consistent with my growing belief that it is more productive to read around one’s field than in one’s field, there are no investing books on this list.”
There is so much smarts in that sentence. Someone with B+ intelligence in several fields likely has a better grasp of how the world works than someone with A+ intelligence in one field but an ignorance of that field just being one piece of a complicated puzzle.
The WSJ published a great piece of investigative journalism on the strong arm tactics China uses to acquire valuable IP from Western companies. This has been going on for decades and it’s a significant reason why there’s an escalating trade war today.
The article is worth reading in full. Here’s the link and an excerpt.
DuPont Co. suspected its one time partner in China was getting hold of its prized chemical technology, and spent more than a year fighting in arbitration trying to make it stop.
Then, 20 investigators from China’s antitrust authority showed up.
For four days this past December, they fanned out through DuPont’s Shanghai offices, demanding passwords to the company’s world-wide research network, say people briefed on the raid. Investigators printed documents, seized computers and intimidated employees, accompanying some to the bathroom.
Beijing leans on an array of levers to pry technology from American companies—sometimes coercively so, say businesses and the U.S. government.
Lately, I’ve been reading up on an emerging popular economic school of thought called Modern Money Theory (MMT). Here’s a blurb from a post by The Roosevelt Institute which lays out what MMT is all about (emphasis mine).
There is an alternative view propounded by economists following what has been called “Modern Money Theory”, which emphasizes the difference between a currency-issuing sovereign government and currency users (households, firms, and nonsovereign governments) (See here and here). They insist that the notion of “fiscal sustainability” or “solvency” is not applicable to a sovereign government — which cannot be forced into involuntary default on debts denominated in its own currency. Such a government spends by crediting bank accounts or issuing paper currency. It can never run out of the “keystrokes” it uses to credit bank accounts, and so long as it can find paper and ink, it can issue paper currency. These, we believe, are simple statements that should be completely noncontroversial. And this is not a policy proposal — it is an accurate description of the spending process used by all currency-issuing sovereign governments.
MMT’ers argue that governments should be less concerned with running fiscal deficits, because currency issuing governments can’t default on their debt since its denominated in its own currency which they can always just print more of.
This is factually true and if governments were to spend wisely (ie, invest in high return projects like public infrastructure and education), especially in a counter-cyclical fashion when there’s an increasing amount of slack in the system, then it would likely make sense to run structurally higher deficits.
It’s also not difficult to see how MMT could be taken to the extreme and abused by government profligacy. But whatever your thoughts, it’s important to pay attention to because the idea is gaining traction amongst policy makers — economist Stephanie Kelton, a torch bearer for MMT, is the economic adviser to Bernie Sanders. I suspect we’ll see some MMT influence on policy following the next economic downturn; which will certainly make for some interesting markets for us macro players.
Chart I’m looking at —
The economic slowdown in China continues. We’ve been covering this development since the beginning of the year and expect Chinese growth to continue to decelerate significantly going into next year. This is when things should really start getting interesting for emerging markets (chart via Bloomberg).
Video I’m watching —
Kiril Sokoloff interviewed Stanley Druckenmiller for a 90 min chat on Real Vision. I haven’t watched this yet but will be doing so this weekend. Druck is the GOAT and I’m pretty excited to watch this. I’ll take extensive notes and share these with the group.
Book I’m reading —
This week I revisited a book that I read a number of years ago and enjoyed, which is The Warrior Within: The Philosophies of Bruce Lee by John Little.
I’m a big Bruce Lee fan and this book covers his life, his philosophy, and his daily habits and practices. Lee was a deep thinker and achieved an incredible amount considering his short life and the many adversities he faced. There’s tons of practical wisdom in these pages and it’s well worth picking up. Here’s an excerpt:
You must accept the fact that there is no help but self-help. For the same reason, I cannot tell you how to “gain” self-knowledge. While I can tell you what not to do, I cannot tell you what you should do, since that would be confining you to a particular approach. Formulas can only inhibit freedom, externally dictated prescriptions only squelch creativity and assure mediocrity. Bear in mind that the freedom that accrues from self-knowledge cannot be acquired through strict adherence to a formula; we do not suddenly “become” free, we simply “are” free.
Trade I’m considering —
I pitched the bull case for Blackberry (BB) in last month’s MIR. The company came out with earnings today and beat on both revenues and earnings. As of this writing, the stock is up 16+%. The weekly chart below shows a nice breakout of a 9-month bull flag after a long multi-year basing pattern. The fundamentals and technicals suggest this stock is going much higher. I think it takes out its 2013 highs in the not too distant future.
Quote I’m pondering —
Be soft, yet not yielding.
Be firm, yet not hard.
~ Bruce Lee
Be water my friends…
That’s it for this week’s Macro Musings.