My model is that as median labour power decreases capital and superstars should capture a larger percentage of future productivity increases. And automation should provide huge productivity increases. This seems compatible with index funds being a good bet.
Perhaps I am wrong, but could you provide details as to why?
The model is incomplete in the details (as most models are).
The actual effect is that capital in the companies that are taking advantage of the new globoticized future does great. FANG does great. Upwork does great. AirBnB and Stripe do great, once they go public.
Labor and capital of old-line companies do terribly. This type of economic transformation doesn't just result in layoffs, it results in whole companies going out of business. Their value-networks are adopted to the cost structure of the old world; as that cost structure changes, they have no reason to exist as a firm.
When you buy an index fund, you're buying both of these types of companies. You should probably do okay, because the public market is actually pricing a lot of this phenomena in already: multiples on old-line companies are severely depressed while FANG shares are soaring, and the capitalization-weighting of the index is taking this into account. But you're leaving money on the table: many of the biggest winners will be new fast-growing startups that aren't public yet.
I'm sure the idea is to convert to cash before the apocalypse actually occurs. Even if one misses it by a little (ie, there is some downturn), the bulk of GP's earnings have gone to savings.
You’re assuming cash will hold value after a so-called economy apocalypse?
If the economic credibility of the nation goes, so too does the value of its cash currency.
What’s a “more white collar workers than jobs” economy look like?
Personally, I’m leaning into useful life skills, like growing food, reconnecting to hunting, low level electronics, rebuilding my car, and home myself with my money now.
I’d rather have deep experience in head and hands than a wheelbarrow full of dolla dolla bills y’all with the buying power of East German currency.
Not that I have any way to be sure the implosion is coming any time in my remaining years. But still, if we’re talking about how to prepare for such a thing, let’s get real: investments in today’s ephemeral value stores are the worst idea for securing yourself against economic collapse
The thing about apocalyptic preparations are it is all scope dependent. If it is local than portable valueables and GTFO as an emmigrant able to pay their way is better than five lifetimes of canned goods. And even then the collapsed area will either reestablish a regeime of some sort or be colonized by intact neighbors.
If it is world wide collapse than productive skills may be the best - since even if you have guns you may be outgunned but if you can supply food any remotely smart bandit or warlord would prefer the reliable food stream of a living serf under their protection than just a storehouse's worth.
Of course these are all very long odds and preventing a collapse is likely a far better use of resources.
Depends what you are preparing for. If you think automation is going to happen but that capitalism will survive, then index funds seems line a good idea. If you think capitalism will be supplanted, it depends on what you think will replace it. If we're looking at a Mad Max style dystopia, then sure, it won't help to have lots of shares. But presumably you'd see signs of that before we get there and be able to start converting your money into harder currency.
If we're looking at a benign-ish revolution with redistribution it won't matter much.
Personally I think the most realistic medium term risk scenario to protect against is that capitalism will hang in there, but that jobs become more scarce. An outright economic collapse or major social upheaval is likely to take more time. If you start seeing job scarcity hitting, then sure, start converting some of those index funds just in case things accelerate in the wrong direction.
I guess I’m assuming “economic apocalypse” means “fall of the nation state concept as we know it.” since that is the lynch pin for economic trade.
Business operations as a whole are so reliant on the legal rails, like it or not, they’d have to fail spectacularly to create “economic apocalypse” to my mind.
I forget some people see run of the mill loss of wealth status as akin to loss of life. So perhaps apocalypse to them means going from $100 million in wealth to merely $10 million, but the social foundations that support that wealth largely remain intact
I am not an investment expert, you should consult with your financial advisor, my personal rule of thumb is :
1 - Invest in yourself.
- Health
- Education
- Social circle
2 - Invest in your living space.
- Buy an apartment anywhere on earth where you can afford, you can take cheap flights to anywhere on earth these days. Even the remotest part of Africa can be reached within 1 day and less than 500 dollars.
( you are normally paying more than 700 dollars in rent anywhere in the developed world ).
3 - Buy high yielding government bonds, preferably multiple countries.
4 - Buy index funds.
I do not prefer gold / silver, there is severe restrictions in moving them around, and high taxation in audit and transaction. government bonds are generally tax exempt. You are better off investing in guns than gold if the economy collapses.
If there is any country in the world that can make national self-sufficiency work, it's the USA. The economy is still the largest, and it is also the most diverse. The USA has a large and varied geography from which to generate materials. The population is large.
China is far less capable, and nobody else is even close to being able to reach national self-sufficiency without going back to a very primitive meager existence.
The problems facing the US in competing with China are structural.
No Amount of mergers between giant monopolies is gong to fix structural problems.
On a cynical level, it maybe that "China" is used as an excuse to push through a merger for profits, but lets assume some innocence.
The execs. realize how costly 5G is going to be, and the only way they know to borrow that amount of money is increasing their underlying capital assets.
The problem is that Huawei became successful in 5G through massive government investment, currency arbitrage ( supported by the US ), cheaper land, cheaper engineer, ...
Just a side note, have a look at how Huawei operates. They build a giant 60,000 engineer city for their employees !
Is the US ready to create a giant 60,000 engineer city to compete in 5g ? where engineers are paid a fat salary with low rent ? ( in PPP terms )
5G maybe the reason why the US has to finally confront the structural reasons why they have become so uncompetitive in electronic hardware in relation to East Asia.
Wait, why are we in a race to get to 5G? Why are we in a competition with China over 5G? This is nothing but spin, and this kind of talk was probably originated by the telcos themselves, who benefit from this sort of high pressure tactic to cut regulation and receive major subsidies. Not my original idea, but it has been a great question to ask.
Why would anybody need to build a city of 60,000 engineers to compete in 5G? Europe's leading 5G makers are not doing that so that they can compete with Huawei, because it's obviously entirely unnecessary.
The US doesn't need to change anything to compete with China. It has been successfully out-competing China in nearly every field for decades, save for low value manufacturing. China poses no greater competitive threat in the middle and upper tiers of economic competition than Western Europe does (presently far less in fact). The US also didn't need to entirely alter itself to compete with Western Europe.
> the US has to finally confront the structural reasons why they have become so uncompetitive in electronic hardware in relation to East Asia
No it doesn't need to do that at all. The US leads the world by a large margin when it comes to the semiconductor industry - the most important components of electronics today. Manufacturing electronic hardware is a low value economic segment, which is why it's outsourced. It can be pushed from China to a dozen other countries instead (see Foxconn's statement that they're prepared to move Apple's manufacturing out of China any time, that's how weak China's value proposition really is). Samsung - the world's leading phone maker - has already done that, moving a lot of their phone manufacturing to Vietnam.
Agreed. There’s a reason the most educated and capable Chinese move the the US and become Americans. America’s cultural and technological dominance comes from its flexibility borne from a willingness to take in hard working immigrants from anywhere. America is exceptional in that it is a country of immigrants.
Yep it’s called brain drain. Many people come to the US to pursue school with intentions to go back home and make things better there, but just fall into life and work and never look back.
A little confused how China has "succeeded" in 5G to begin with. Has 5G already been deployed in China? Are 5G phones out over there? Is it actually what it was claimed to be in the past few years? In what way has it been already successful?
> The NSA’s ‘Tailored Access Operations’ unit broke into Huawei’s corporate servers and by 2010 was reading corporate emails and examining the source code in Huawei’s products.“We currently have good access and so much data that we don’t know what to do with it,” boasted one NSA briefing. Slides also disclosed that the NSA intended to plant its own backdoors in Huawei firmware. In 2014 the New York Times, Time and Reuters revealed that the NSA had infiltrated Huawei headquarters, monitored all of its executives and gone through the company’s entire data infrastructure.
Well this is quite the eye opener. Thanks for sharing. Can I ask what the original website is though? Why is it down?
Let's not forget that our government is mostly run by people with law degrees while china has a large amount of technocrats. Making it much harder to get state-scale large engineering and software projects going in the U.S..
We have had a leader being a technocrat/rich businessman only once before in US history. That was Herbert Hoover. Now Trump. Neither have done anything amazing for business and/or innovation.
The list of Trump's attempted businesses is hilariously sad (except the Fraud which is just sad). Don't even get me started on his Snazzle Snacks pyramid scheme.
The idea is good in principal but its going to be gamed to death.
Some people derive satisfaction from their work !
Others don't.
Also will the pay be the same ? Call me a cynic but knowing business owners they will never accept lower hours for same pay. They will spend all their time figuring out how to game it.
All these solutions, studies seem like busy work for though leaders who have nothing better to do.
The best solution is quite simple - Universal Basic Income.
It can't be gamed as easily and by definition it costs less and gives everybody more freedom at the same time.
Normally I feel like rules that restrict freedom ( like you can ONLY work 40 hours ), you have to be skeptical.
You need to take into account the added value of productivity gains: who’s getting it?
If I have a better yield for a given task, then I will provide exactly what my employer asked me for the price we agreed.
Eg. That means that if we agreed for 8h * 5d for a given task, and manage to do it in 8h * 3d, I obviously won’t work more.
At least not before discussing the share of my productivity gains added value.
Being zealous is the best way to get fooled.
Another thing, these 40h or even 35h in France won’t limit your freedom, you can obviously work more: it’s a disguised pay raise.
I think also that’s not ideal if applied uniformly.
The price of some goods and services will mechanically rise, and you might end up “richer” but everything got expensive at the same time.
It should be bound to the marginal cost of production or the derivative of the price wrt quantity.
If you’re sublinear then you’re good to go. Otherwise it’s simply a no no.
Sorry if there’s some mistakes, I’m typing on my phone.
BoJ's money printing is dwarfed by Fed's and ECB's money printing. Japan has been doing it since 1989, Softbank cant be explained by Japan alone.
> Zero or even negative interest rates will distort valuations and capital allocation.
interest rates policy ( monetary ) has little to do with capital efficiency.
Central banks have rightly figured out a few things :
- Their respective countries have taken on too much debt, and we need to do something to reduce it.
- Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number.
> interest rates policy ( monetary ) has little to do with capital efficiency.
I don't know what you mean by capital efficiency. The BoJ corporate bond purchasing program lowers interest rates for all issuers on the Yen bond market, including the ones issued by SoftBank. Because SoftBank itself invests into the fund (around $28bn) and raised capital with bond issuance the link between BoJ open market interventions and startup valuations should be clear.
> Central banks have rightly figured out a few things :
> Their respective countries have taken on too much debt, and we need to do something to reduce it.
In the case of the ECB and the Fed (don't know about BoJ) the reason is actually the opposite. Fiscal expansion has been very unpopular politically in both the US and the EU (there mainly due to the fiscal austerity demanded by Germany). Because there was no political will to increase national debts, the central banks stepped in and started to directly purchase bonds (both governmental and private) in order to rekindle growth after the financial crisis. If governments started massive infrastructure projects or otherwise expanded their balance sheets, then this central bank intervention would have been much smaller. As a result of central bank interventions - which has reduced interest rates for gov. bonds - countries have started to issue more debt once again.
> Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number.
As far as I know there isn't a consensus for an explanation why the current low inflation environment persists (the "New Normal"). Globalization and technology might well be an explanation but global demographic shifts could also be an important factor (ageing populations and declining birth rates in most industrialized countries).
You are right, since 2013 BoJ has bee busy with the printing press.
> I don't know what you mean by capital efficiency. The BoJ corporate bond purchasing program lowers interest rates for all issuers on the Yen bond market, including the ones issued by SoftBank. Because SoftBank itself invests into the fund (around $28bn) and raised capital with bond issuance the link between BoJ open market interventions and startup valuations should be clear.
Soft Bank has assets that allows them to borrow, if Soft Bank didn't exist, somebody else would have taken advantage of the lower interest rate.
My point is that even when a lot of money is printed, capital goes to who is able to convince the bank the most. BoJ, Fed does not have much control in where the money is allocated.
> ... Because there was no political will to increase national debts, the central banks stepped in and started to directly purchase bonds ...
The problem here is that those bonds were about to lose a large amount of its value - as private debt repayment was not possible. So yes, private debt was high. CB's had no choice but to buy them , or else face a severe contraction in the money supply.
SoftBank is playing a game that is way above any hedge fund's pay grade, let alone some blogger.
- If SoftBank goes down, every coder loses his/her rice bowl. The pain inflicted on Son, Tim Cook and MBS is minimal, compared to your average tech worker.
- Valuation are not isolated beasts, the nominal value looks high because of the extraordinary financial alchemy that is going on the Fed. Large pool of capitals are betting the Fed is going to continue with QE4, QE5, .... QEn.
Imagine how it feels to be a sovereign wealth fund, watching the Fed print almost a trillion dollars / yearly in good times ! You must be terrified of what happens when the ball stops rolling.
- Owning growth stocks is an amazing way to hedge against many possible future outcome, both good and bad.
> If SoftBank goes down, every coder loses his/her rice bowl.
Maybe for silicon valley and money burning enterprises like uber.
>Imagine how it feels to be a sovereign wealth fund, watching the Fed print almost a trillion dollars / yearly in good times ! You must be terrified of what happens when the ball stops rolling
They are likely well diversified. They are anything but dumb money.
> They are likely well diversified. They are anything but dumb money.
I never said SWF are dumb money, in fact my argument is exactly the opposite. They are watching the Fed reduce their purchasing power through money printing and are rightly buying up growth stock as a way to maintain the value of their wealth.
His point is that their competitive salaries, regardless of their numbers, make other companies, with profit, up their offers a bit.
Instead of getting a small slice of the pie, we get a small slice plus a few percentage points (that perhaps we should already get). That's huge for most people that aren't financially independent or even close to it.
Yup, it's easy to spot a bubble but it's not easy to be able to tell how big it's going to get or when it's going to pop. You can be out by years and by magnitudes, which isn't useful for being able to profit from it. It's better to just plan for the worst and treat your exposure to the upside like a gamble.
I never traded long-dated options when I was in finance, but anything with longer than a three-month maturity was crazy expensive in terms of the spread you'd pay. These are not liquid instruments.
It's been a while since I've done the maths, but I'm pretty sure it'd be cheaper to buy shorter dated puts and roll them over on expiry. Which would still be very expensive.
Options are going to affect the returns so much in good times rhr insurance probably isn’t worth it.
A better idea would be to go long short, 30% short, and 100% long has always been popular. The leverage from the shorts lets you juice the long side while also giving you the 30% short protection. This should allow you to achieve a better Sharpe ratio than the market.
If you can’t get the leverage, consider buying a S&P ETF that has downside protection in exchange for capped returns.
A 60/40 equity/bond portfolio is going to underperform the market pretty significantly most years. Historically, 60/40 has outperformed the market slightly looking back 40-50 years.
Risk parity is probably a better idea and should give you recent returns with some downside protection. The problem is that rebalancing could be costly, you probably would only want to on a yearly basis.
But if you have access to leverage via shorts, I still think that’s the better play.
My personal investments do nothing of the sort though: I just go with a 3x leveraged S&P ETF. Annualized returns of around 20% year over year. Of course, I have massive exposure to volatility and market crashes. But in the five years of investing all of my money in this strategy, I’ve outperformed the S&P by over 80% :)
The past five years has been one of the best forming markets ever. I would not assume a strategy which worked well since 2014 will continue to do well until 2034.
Maybe it wouldn’t work if you are starting today, but I hsve enough returns built up that I should be able to experience a major depression and still beat the S&P. Assuming that the market doesn’t go down more than 33% in a day.
Why doesn't the government stops with QE already ?
With both houses prices inflating, and huge sums of money going into automation startups and investments, the future looks scary, for regular people.
Yes, automation will happen anyway. But why accelerate this very disruptive process(Although one that transfer a lot of power to the already powerful) ? Isn't it better to slow it and have it in a more controlled fashion ?
> If AIG fell it would have quickly led to both JPMC and GS collapse too
Neither had enough exposure to fail due to AIG failing. Rita payouts to Goldman were less than $5bn, much of that being passed on to funds. I don’t recall numbers for JPM, but worst case they wouldn’t have been able to acquire like half of the banks they bought.
It's a good idea to invest in index funds, but investing in index funds expecting a economic apocalypse is not good reasoning.