Musings: Murder, Regression to the Mean, and a Stock Ripe for a Short…

Alex here with your latest Friday Macro Musings.

Latest Articles —

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Articles I’m reading —

Alex Danco published a great piece titled The Founding Murder and the Final Boss (Danco is the one who did the excellent Rene Girard primer I shared a number of weeks ago). It’s another Girardian take, this time on the ritualistic narrative Silicon Valley partakes in when one of its own flounders and goes belly up.

The idea is that the Valley subconsciously evolved a social contract in order to stave off the collective belief that we’re in the midst of another dot-com bubble — the Valley’s “Founding Murder”. Put another way, they ritualize the death of one of their own in order to “make sure that the struggle or failure of any one company would never be interpreted by the community as a warning sign that the whole undifferentiated bubble could collapse” as Danco puts it.

It’s a thought-provoking piece and makes you question what other social rituals we may have evolved to distract us from the truth in order to serve a narrow purpose. Here’s the link and a section from the post.

As a community, we’ve gotten impressively good at collectively interpreting these failures in the healthiest way possible: founders are rarely demonized; there’s just the right amount of performative fretting, but no serious fear. For small failures, anyway, we’ve gotten really good at ritualizing them into the highest level of “failure interpretation”: not by panicking (the lowest, most dangerous level) or by isolating it as an ignorable one-time thing (the intermediate level, which works when used sparingly), but in an active form of kayfabe where failure is good!

The collective memory of the real founding murder (the dot com crash) is an essential part of keeping kayfabe. The stronger that memory, the more effectively we can say “up is down, black is white, failure is great” with a straight face, mean it, and actually perpetuate a desired outcome that is useful. It’s an remarkable conjuring trick, really; if enough of us believe that failure is good, then it becomes good.

Here’s one for the mon-pol nerds.

I recently came across a fantastic blog called “Concentrated Ambiguity” that dives into the nuts and bolts of international capital flows — he also has some great posts on the recent repo hysteria that has infected so many amongst us. It’s heady stuff but super interesting if you’re at all into learning how the international finance sausage is made (link here).

Lastly, Bessemer Trust recently published a report looking at the Japanese stock markets (link here).

The report is overall neutral on the country. They like some things, such as its improved capital discipline, governance, and rising buybacks, but are put off by the upcoming consumption tax increase. I myself am more bullish on Japanese stocks over the intermediate-term. There’s quite a lot to like from a purely technical and positioning standpoint. Plus, there are things like these two charts below from the report (1) buybacks are rocketing higher and (2) it’s trading on the cheap.

Charts I’m looking at—

The trend in these two charts below has me worried. Both aggregate return on equity (ROE) and net profit margins have rolled over again and are trending lower. There aren’t many times in history where we’ve seen margins and ROE contract this much and then not experience a recession.

Just some food for thought. There’s a lot to be bullish about — at least in the near to intermediate-term — but there’s also increasing signs of trouble on the horizon.

Video I’m watching —

So I’ve just started watching this one and am only a few minutes in. I’ve been on somewhat of a Peter Thiel trip these last months and this interview seems interesting so far. Thiel is a strange creature. I certainly don’t agree with many of his views but he’s at least a thoughtful and incredibly bright guy. Plus, some of his ideas are so far out in left-field that I often find myself thinking about a topic in an entirely new way after hearing him speak.

The video is titled “Peter Thiel on ‘The Straussian Moment’” and was put on by Stanford’s Hoover Institute (link here).

Podcast I’m listening to —

Earlier today I listened to David Perrell’s recent North Star interview with the critical thinking savant, Adam Robinson. Adam is a consultant to hedge funds and has quite an original approach to markets, some of which I’ve written about before (link here).

I enjoyed the talk and think you will too. Here’s the link.

Book I’m reading —

The other week I finished reading Sutherland’s book “Alchemy: The Dark Art of Creating Magic…” after seeing a number of people rave about it on twitter. I don’t know how to describe this book because it’s so much more than a book about business and branding. It’s about the oddities of the human mind, the quirky things we do and the real reasons behind why we do them, and much more. It’s a fantastic book, the best one I’ve read this year. Read it. You won’t be disappointed.

Here’s a section from it:

One of the most important ideas in this book is that it is only by deviating from a narrow, short-term self-interest that we can generate anything more than cheap talk. It is therefore impossible to generate trust, affection, respect, reputation, status, loyalty, generosity or sexual opportunity by simply pursuing the dictates of rational economic theory. If rationality were valuable in evolutionary terms, accountants would be sexy. Male strippers dress as firemen, not accountants; bravery is sexy, but rationality isn’t. Can this theory be extended further? For instance, is poetry more moving than prose because it is more difficult to write? And is music more emotionally potent than normal speech because it is more difficult to sing than to talk?

Trade I’m considering —

Short insanity… In other words, short incredibly overvalued crowded momo names like Coupa Software (COUP) that has an $8bn+ market cap and is trading for 26x sales. There’s a big unwind happening in these names and stocks like COUP have a long way to fall just to get back to normal overvalued levels.

Quote I’m pondering —

Mimicking the herd invites regression to the mean. ~ Charlie Munger

There are plenty of ways to play this game well. Doing what everybody else is doing is not one of them.

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.