September 19, 2021
Hi everyone—I’m so glad to have you here. What a week.
Edward R. Murrow once said “Anyone who isn't confused really doesn't understand the situation.” It’s a quote I’ve been returning to as I’ve steeped myself in the maelstrom of misdirection and deceit trying to pass itself off as reality this past year.
Murrow was an outspoken proponent of things like courage and fortitude, and in using his platform as a TV journalist to inform and educate. Difficult topics were not off-limits, especially if they had the potential to reveal or illuminate important truths.
But also—and of particular relevance to a newsletter about understanding business, investing, and value—Murrow emphasized the the importance of thinking about the future and what the long-term consequences are of actions we take today. What are the knock-on effects of a big decision? What is the eventual price we pay for things today? What is the cost of our actions—not just for us right now, but for others later?
Consider this podcast which dropped last week. It’s a conversation with legendary investor Howard Marks, and it gives you a compact distillation of many of the lessons contained in his useful book The Most Important Thing: Uncommon Sense for the Thoughtful Investor. I highly recommend it.
A few big principles he holds regard choosing quality, zooming out, and being patient:
"The younger you are the more you can count on the long-term trend [with] the freedom to ignore the short-term ups and downs."
Howard was a very outspoken critic of Bitcoin several years ago, but has since changed his mind. Why? He learned more about it, and admits that he missed some things—that his initial take was more a knee-jerk reaction than anything else. This is the trademark of a skilled thinker and capital allocator: someone whose mind is malleable enough to be updated and patched in the short term, but principled enough to adhere to a firm set of long-term, value-based principles.
Finance isn’t just about money, it’s also deeply linked to morals and values. After all, without the ability to accumulate and preserve our capital for sometime in the future we never get the space or time to think, question, or plan for anything beyond the present. We resort to instant gratification, YOLO, FOMO, and get-rich-quick schemes. This type of cultural mindset has historically marked the beginning of the end of declines & falls, and breeds corruption at all levels of society.
“It has become more difficult than ever to distinguish black from white, good from evil, right from wrong.
What truths can a human being afford to furnish the cluttered nervous room of his mind with when he no real idea how long a lease he has on his future?”
—Edward R. Murrow
Just this week, we learned that Federal Reserve Chairman Jerome Powell and several other Fed bankers have been using their ability to print money to enrich themselves (under the guide of pandemic relief of course) by frontrunning the purchases they knew the Fed was planning to make with those newly printed funds. Surprised? I wasn’t.
This is nothing short of criminal. And yet, most people don’t know or care, despite this having very real consequences to the future viability of their family’s life savings.
Economic problems are always upstream from the other problems that are more obvious and that affect you personally. The main takeaway I’ve been aiming to communicate with Surf Report is this: you may not be interested in money and economics, but money and economics are interested in you. If you choose not to pay attention it’s at your own peril, a peril that may go unnoticed until it’s too late.
So much of life is uncertain, opaque, and random in day to day terms but usually oscillates around the truth over time, as accepted wisdom catches up to the reality of things. The best investors admit they don’t know how things will play out exactly, but also admit they have to place their bets anyway. This is the game. But by working to understand what’s actually happening it becomes easier to avoid the temptation to believe the perceived near-term benefits that the lies have to offer.
Again, this whole game is only partly about money. Every day you invest your time, attention, emotion, effort... Investing is the art of asset allocation, and assets can be anything. But the strategy is the same: identify the lies and avoid them in favor of what’s true. Then place your bets.
We can never be certain, but we can play the odds. It’s only by admitting the limits of our own certainty that we can ever hope to prosper long term, and only by seeking and adhering to what’s true that we have any chance of surviving long enough to get there.
So when you find yourself confused, remember what Murrow said and learn to embrace it as a sign that you’re simply one step closer to understanding the situation. If you can work to understand the truth of something that most people haven’t yet realized, it’s that type of informational asymmetry that can lead to great long-term investments. (The long-term part is important)
After that, there’s not much more to hope for—and not much more I can tell you— except: Good luck.
Until next time 🤙,
I’m taking a hiatus from the weekly schedule to plan the ins and outs of Season 2, but want to give a huge thank you to all my Pro subscribers who contributed their hard-earned funds to help support the newsletter this whole time. I honestly don’t think I would have made it this far without your encouragement 🙏
In the meantime, check out some past Surf Report issues that you may have missed! There are lots of evergreen essays, quotes, lessons, and resources that I think are still worth your while 👇
Surf Report Back Issues:
Surf Report Issue 1, the one that explained why it’s called Surf Report. Included news of Palantir going public and the closing of Bitcoin discount platform Purse.
Surf Report Issue 2, the one that pointed out ~$2 Trillion had been printed in 2020 as Twitter CEO Jack Dorsey bought $50M worth of Bitcoin and Microstrategy CEO Michael Saylor bought $25M worth. Bitcoin price: $11k
Surf Report Issue 3, the one that taught us that “if you want to connect dots you need to collect dots.” Included news of Fidelity recommending 1-5% of portfolio allocation into Bitcoin.
Narrative Creatures & Why Facts Need Fiction, the one announcing the launch of my book, and the value of books and story in general for investors. Included news of governments exploring cryptocurrency and the shutdown of video streaming platform Quibi after just 6 months (and after raising $1.75B in funding).
Never Short Fun, the one where I wrote a guest article for the Investment Talk newsletter and relate surfing to paying attention to gaming companies. Included news of Bitcoin trading at near 3-year highs while outpacing stocks, gold and other assets.
The Dao of Capital 📚, the one with a summary of all my favorite highlights of the book The Dao of Capital: Austrian Investing in a Distorted World, by Mark Spitznagel.
Why nobody knows anything and that's okay, the one where nobody correctly predicted the presidential election’s effect on the markets. Bitcoin price: $15k, a new 52-week high.
As long as you're smiling you're doing it right, the one with the shark attack survivor and shark advocate. Included news of billionaire hedge fund manager and legendary investor Stan Druckenmiller mentioning on CNBC that he had warmed up to Bitcoin and owned it.
You can never do just one thing, the one about the first law of ecology and the interconnectedness of covid, the Fed, and Bitcoin. Included news of Tesla being added to the S&P 500, and Bitcoin surpassing the market cap of J.P. Morgan—with the world’s largest asset manager, Blackrock, announcing they believe it could replace gold.
Lessons from the late, great human kindness factory, the one about the tragic death of Zappos CEO Tony Hsieh. Included news of Janet Yellen being selected as Secretary of the Treasury (“Our current period of high unemployment due to Covid will likely see even more government stimulus given Yellen’s track record of printing money without fear of long-term inflationary consequences”).
The value of short sellers in a world gone 🚀, the one about why short selling has unexpected benefits. Included news of the Dow Jones having its best month since ‘87, and Visa slowly building its crypto empire.
The unexpected upside of rabbit holes, the one about Pomp’s convo with a 32-year old Canadian construction worker about Bitcoin. Included news of Blackstone acquiring more than 1 billion square feet of property in over 200 transactions around the globe.
The trouble with root causes, the one about The Five Whys and how to make decisions in a world that is opaque, complicated, and unpredictable. Included news of Coinbase plans to go public and Bitcoin reaching $24k.
Ambition is a vector and why that matters, the one about knowing the difference between dots and arrows in matters of thinking and judgment. Included news of Bitcoin surpassing the market cap of Visa and Mastercard. (“Bitcoin is currently transitioning from speculative to sensible asset, as the Federal Reserve has sent interest rates near zero for the foreseeable future and continues to print money, weakening the U.S. dollar and reducing the purchasing power of cash reserves”)
Special 2020 Closeout Edition, the one with links to the best from Surf Report so far. Also included a "New Year’s Grab Bag” of resources and perspectives from that week.
Knightian Uncertainty, the one about “fundamental degree of ignorance, a limit to knowledge, and an essential unpredictability of future events.” Included lessons from former pro poker player Annie Duke, Jack Mallers’ announcement of revolutionary Bitcoin payment app Strike, and Elon Musk’s becoming the richest man on the planet.
Lifting while we climb, the one about Tyrone V. Ross Jr.’s take on America’s unbanked, underbanked, and the importance of financial literacy. Included news of Anchorage becoming the first federally chartered digital asset bank, and the launch of Blockworks’ editorial site.
The gravity of all the things, the one about the relationship between Nash equilibria, Schelling points, attractors, regressions to the mean, and Benford’s law. Included news of Yellen’s crypto taxing ideas and BlackRock’s SEC filings revealing an intention to trade Bitcoin futures.
Game Stopped, the one about GameStop reddit-fueled short squeeze. This one was a doozy.
Game... back on, with news of 5.5% of U.S. mortgage holders putting off payments and Twitter’s acquisition of newsletter platform Revue.
Castles in the air, the one about dreaming the future and actually building it. Included news of Bezos stepping down as Amazon CEO and Ross Stevens, founder/CEO of Stone Ridge Asset Management & Executive Chairman of NYDIG, estimating $25B in institutional bitcoin assets by the end of 2021.
Captain’s Log, the one about using log charts, and how most people think and act in linear terms even though life mostly unfolds in a non-linear way. Included news of Tesla’s $1.5 billion Bitcoin purchase, and Miami’s mayor declaration to allow employee payroll, tax payments, and the city’s treasury to accept bitcoin as payment.
No, not that sustainable, the one about the real lesson of sustainability: not to prioritize the environment at the expense of everything else, but to learn from nature itself and think like an organism. Included news of Bitcoin’s $57k all-time high and trillion dollar market cap, Microstrategy’s convertible note purchase, and my observation that the bond market appeared to be in the process of collapsing entirely.
Straight Triffin, the one about the Triffin Dilemma, second order thinking, and the difference between volatility and risk. Included news of Square’s $170M Bitcoin purchase, and the Fed’s hiring of the former head of digital assets for TD Ameritrade (and well-known Bitcoin advocate).
The thing everybody needs but nobody cares about, the one about being a time billionaire, and the importance of choosing the right denominator. Included news of SEC Chief Gary Gensler’s Senate inquiry and Square’s officially becoming a bank.
The Fed, the pine, and the brick waves of England, the one about the unexpected efficiency of wavy brick fences and the importance of achieving goals obliquely. Included news of Norwegian investment firm Aker’s move into the Bitcoin space, and NYDIG’s appointment of New York Life Chairman/CEO to its Board of Directors. Bitcoin price: $61k
You down with YCC?, the one about yield curve control and Ray Dalio’s bombshell post about not owning bonds despite a career devoted to owning bonds. Included news of Morgan Stanley embracing Bitcoin, billionaire investor Howard Marks changing his mind about it, and Visa’s plans to enable Bitcoin payments at 70M merchants.
Risky business, the one about risk management, navigating uncertainty, and taking calculated chances. Included news of Microsoft launching an identiy platform built on top of the Bitcoin network, the Fed Chairman referring to Bitcoin as “a substitute for gold,” and the New Zealand Pension Fund announcing their $17.5M Bitcoin investment.
Fine, I'll talk about NFT's, the one about NFT’s. Included news of the Archegos junk bond collapse, Facebook’s data leak, and Paypal’s launch of “Checkout With Crypto” feature for 29M merchants.
Longitudinal study, the one about the problem of longitude was solved, how it relates to our financial system, and how Bitcoin can solve it. Included news of Yellen’s plans to create artificial stability in the markets, the second-oldest bank in America building a crypto trading platform, and Coinbase’s pre-IPO earnings report revealing incredible customer growth.
Bottom dollar, the one about the definition of money and why it’s such a tricky concept to pin down. Included news of Bitcoin overtaking the British Pound to become the 6th largest currency in the world, Ray Dalio making a case for diversifying portfolios with it, and former acting director of the CIA giving it a strong vote of confidence.
Word is bond, the one about the bond market and how it works. Included Inflation Watch™, news of Signature Bank’s Bitcoin-backed loans, and Square’s whitepaper collaboration with ARK Invest: “Bitcoin is Key to an Abundant, Clean Energy Future.”
Rewardless Risk, the one about a massive Japanese game company’s $100M investment in Bitcoin and their open acknowledgement of concern about the bond market and currency debasement. Included news of Germany’s green light for institutional Bitcoin purchasing, and the fifth-largest US banking announcing the ability to custody clients’ Bitcoin.
Jelly Donut Policy, the one about the Fed’s fatal flaw and the dangers of a fiat-based economy. Included news of Bitcoin coming to hundreds of banks, and the CFO of the largest hedge fund in the world leaving to join a Bitcoin company.
Perception Deception, the one where the government finally stopped denying the reality of the inflation and how Bitcoin’s energy benefits are a key component to incentivizing the use of cheap, renewable energy sources. Included news of Elon Musk’s weird 180 on his opinion of Bitcoin, Palantir adding it to its balance sheet, and MoneyGram’s adding buy/sell capability to thousands of its stores.
Fed Up, the one about how the Federal Reserve is creating a “dangerous complacency” in financial markets, and how banks don’t solve problems they leverage them. Included news of the “crypto crash” when Musk, the environment, tax day, and China collided.
In Memoriam, the one from Memorial Day about how removing the need to sacrifice or make tradeoffs leads to corruption. Included news of Netflix’s move into gaming, Saylor’s Bitcoin Mining Council, and the passing of the Financial Innovation Act into law and making Nebraska the second state to allow crypto banks.
Free & Open, the one about the true, honest, and surprisingly risk-free aspects of Bitcoin compared to our current central bank-based financial system. Included news oif El Salvador announcing plans to make Bitcoin legal tender, Apple Pay adding Bitcoin support for spending, and India’s rolling back its previous anti-Bitcoin policy.
The floating or the swimming, the one about the Fed’s reverse repo market and how to think about tradeoffs in a market gone gonzo. Included news of the Consumer Price Index showing the fastest inflation since the 2008 financial crisis, Biden’s tech advisor disclosing his $1-5M Bitcoin holding, and announcement of the largest renewable energy Bitcoin mining center in the USA being built in Texas.
Every witch way, the one about the quadruple witching day in US markets and how derivatives markets can have outsized ripple effects. Included news of Paul Tudor Jones’ affinity for Bitcoin and China’s mining ban.
The Cantillon spice, the one about Yellen’s fears of a possible government default and her comments from years past that reveal a track record full of incorrect predictions, and why it’s all a bit like Dune. Included news of the extension of the federal eviction ban, Citibank’s Bitcoin wealth management division, and the House passing of bipartisan crypto bills.
Forever Patient, the one from the 4th of July about iatrogenics, the benefits of constant suffering, and the complicated relationship between needing help and giving help. Included news of Lebanon’s economic collapse and currency devaluation, homebuyer confidence collapse, the massive LinkedIn data leak, and the Soros Fund green light to trade Bitcoin.
The Bikeshed, the one about Parkinson’s Law of Triviality, the unfortunate shutdown of New York’s Indian Point nuclear power station, and the fact that our feelings and preferences are not reliable signals of determining what is important and relevant. Included news of the U.S. Treasury yield reaching its lowest point since February, and Visa’s crypto-linked card usage topping $1 billion in first half of the year.
It's Not The Spoon That Bends, the one how the Matrix can teach us to see clearly about investing and why money and prices are about communication. Included news of Square’s plans to create a Bitcoin-centric open developer platform and Fidelity Digital Assets’ plans to increase employee headcount by 70% based on demand for bitcoin services from institutional investors.
Invest At All-Time Highs, the one about the counterintuitive fact that money invested when the market is at all time highs has outperformed money invested on any given day. Included news of Musk getting back on board with Bitcoin after the B Word event with Cathie Wood and Jack Dorsey.
Open Secrets, the one about shadowy super coders and the rationale behind my guest article An Investor’s Case For Bitcoin. Included news of record high S&P, Fed reverse rep volume, and Fed balance sheet.
Prey Attracts Predators, the one about Hugo Stinnes—the Inflation King of Germany. Included news of infrastructure bill backlash, Apple’s surveillance plans, and Gary Gensler quoting Bitcoin creator Satoshi Nakamoto.
The Wyckoff, the one about the secret Wall Street trading strategy from the 1930’s and what we can learn from the big players who can move markets. Included news of consumer prices jumping 5.4%, the S&P closing out another “winning week,” and the failure of the Senate crypto tax provision.
Artificial Quiet, the one that revisited the first law of ecology and delved into the dark side of passive investing. Included news of the T-Mobile hack and the announcement of the leading U.S. mortgage lender planning to accept Bitcoin by year-end.
The Paradox of Thrift, the one about the conflict between the hedonic treadmill and sensible, frugal living. Included news of oil supply slashes, Fed pushback on inflation views, and Fidelity’s bullish Bitcoin price prediction.
Labor Under Delusions, the one where TV pundits garbled nonsense and I gave a breakdown of the full monetary reset that I think is currently underway and explains a lot. Included news of unfundable social security, Evergrande’s massive default looming, and Norway considering distancing its enormous sovereign wealth fund from the central bank.
Being Shown The Door, the one that marked a full cycle of Surf Report and why money, war, and freedom have always had everything to do with one another. Included news of El Salvador officially rolling out Bitcoin as a national currency as Apple was forced to allow developers to allow 3rd party payment options after a court order.
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