Surf Report: Straight Triffin
Issue 23: 02.28.2021 (Free Version)
INTRODUCTION
February 28, 2021
Hey everyone—I’m so glad to have you here. What a week.
The days of the dollar as the global reserve currency appear to be waning.
A big part of the reason is something called the Triffin dilemma, which was acknowledged back in the 60’s well before Nixon took the dollar off the gold standard. In short: it’s the situation where the issuer of a dominant reserve currency (today, the U.S.) has to run trade deficits (import more than export) so that the rest of the world can have enough of the currency to buy goods from the issuer and expand world trade. But eventually, if deficits run long enough, the issuing country (today, the U.S.) goes broke.
Sounds like a lot of macroeconomic mumbo jumbo, I know. But it’s not all that different from what Henry Ford did with his Model T automobile. He insisted that the Model T be priced low enough that Ford employees could afford to buy one themselves, and it was his assembly line innovation that created the efficiency to make this possible. It was a stroke of genius in terms of the flywheel of Model T adoption and Ford’s subsequent success, but it only worked because Ford could afford to pay his workers and still turn a profit.
This is where the comparison breaks down. The U.S. has been importing more than it’s been exporting for so long that it’s been forced to take on more and more debt to keep the flywheel going (imagine Ford taking out loans in order to continually pay his employees high enough salaries), creating a severe imbalance. Central bank policy has been to manage the situation by adjusting interest rates and issue new Treasury bonds (i.e. take out loans), but this past week saw some initial cracks form in the whole charade. The bond market, which has historically been where people go for safe assets (compared to stocks) in the fixed income space, is on the verge of collapsing entirely.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow mornin’” —Henry Ford
This highlights the macro vs micro nature of the economy—high-level dynamics vs. individual human a decision-making. So what can people like you and me learn from all this? A couple things.
When making decisions, always consider second-order thinking. “If this happens, then what? And if that happens, then what?” All effects are also causes in themselves, which create new effects. The further down that line of reasoning you can go, the better.
Volatility is not risk. In an effort to avoid volatility over the past several decades, central banks have arguably created one of the riskiest markets in history. From where I’m sitting, volatility is just what true stability looks like when you zoom in super close. So if you see what appears to be actual stability, it just means the volatility is being hidden somewhere else.
The true solution to the Triffin dilemma is to simply separate the currency from the Treasury reserve asset. So are we looking ahead at a huge “global reset” and hyperinflation of the U.S. dollar as that messy transition ensues? A splintering into multiple, regional reserve currencies?
Hard to say. I’ve personally been converting more of my cash into stronger store-of-value assets, and am also drawing up some extra cash reserves should the market go through a repricing event and experience a significant “correction.” But every person’s situation is different, with different time horizons, goals, budgets, and risk tolerances. I also don’t have a crystal ball. But these macro dynamics are the types of considerations policy makers are weighing as they attempt to navigate this situation as carefully and gradually as possible.
The main reason I manage my own investment portfolio (in addition to simply holding passive index funds) is not to try to “beat” the market, but to actively participate in it and get a better feel for the texture of tradeoffs. Managing tradeoffs is what strategic decision-making is all about, and what we should all be trying to get a little better at every day.
It’s one thing to know what, it’s another thing to know what to do about it.
Until next time 🤙,
“I'd rather hold a volatile asset that's appreciating than a stable asset that is depreciating.” —Michael Saylor
Breaking 🌊
🌐 In anticipation of their massive upcoming IPO and in line with the decentralized coins they are built around, Coinbase announced that they are a decentralized company, with no headquarters.
🎮 Public shares for video game platform Roblox begin trading March 10. (ticker: $RBLX) Their filing shows some impressive numbers and signs of the future of the company. For example: they see 2 billion text chats per day, and say video chat is coming.
🏢 LinkedIn’s new product Marketplaces will allow their 740M+ users to hire and pay freelancers on the platform, pitting the network against current major players in the space, Upwork and Fiverr.
💱 As Janet Yellen continued to try to dampen public interest in Bitcoin calling it ‘inefficient,’ the Federal Reserve’s financial-services systems were down for several hours on Wednesday, preventing all banks, businesses, and government agencies from transferring money. Meanwhile, the Federal Reserve just hired former head digital assets for TD Ameritrade—and well-known Bitcoin advocate—Sunayna Tuteja as their Chief Innovation Officer. Square also announced they purchased another $170 million worth of bitcoin for their balance sheet, bringing their total exposure to approximately 5% of their cash assets, and JPMorgan said investors could consider shifting up to 1% of their portfolio to Bitcoin.
From The Tweetbox 🐦
A thread of how Codecademy survived its early mistakes. Lots to learn here and apply to your own endeavors.
Disney shares top $200 and Iger is Thanos.
“Who is the bigger problem? Crypto exchanges or the US Mint?”
“The 25 Worst Pieces of Advice I've Seen (and why)”
The Fed has discontinued the M2 money supply measurement. Weird. Probably nothing.
For The Pros 😎
How to save yourself from a bad startup idea that looks good. (Link available to Pro subscribers)
Foundational mental frameworks to help shape & improve your thinking. (Link available to Pro subscribers)
Check This Out 👀
Deepfakes have gotten good. Very, very, very good. 😯
Twitter announced the rollout of their new feature, ‘Super Follows,’ to let you charge for tweets
“Super Follow” will allow users to get exclusive content, deals, and community access to creators for $4.99/month.
Lyft announced a new feature allowing users in Florida to book rides by phone call.
Sam Bond, regional director for Lyft in the Southeast, said in a statement that the company looks forward to "helping seniors access transportation to essential services and resources that may be currently out of reach without a car."
Worth A Read 📃
Another great one from Morgan Housel, and written as nice bite-sized nuggets of wisdom: When Everyone’s a Genius (A Few Thoughts on Speculation)
"Every investor is making bets on the future. It’s only called speculation when you disagree with someone else’s bet.”
…Of course there’s a speculation spectrum. But let’s not pretend that others speculate while you only deal with certainties."
PNGs 🖼
Is the stock market in a bubble? 🤔:
Shopify just published their Q4 financial results for 2020. Check out this interesting graphic from page 8. The bigger the companies you target, the more you switch from marketing to sales:
“The beginnings of all things are small.” —Cicero
Groms 🐣
Speak.ai is an audio transcription service that goes one step further and extracts insights from audio and video, and they just hit $15k in MRR. It’s a product perfectly positioned for this new media era of podcasts and livestreams.
“Don’t tell me what you think, tell me what you have in your portfolio.” —Nassim Nicholas Taleb
Drop Ins 🏄
My latest investments & trades
Buy & Hold Investments (I will hold these forever)
This section is only available for contributing subscribers. If you’d like to trade and invest along with me, consider one of the paid tiers!
Swing Trades (1-3 month time horizon)
This section is only available for contributing subscribers. If you’d like to trade and invest along with me, consider one of the paid tiers!
Pods & Schools 🐬🐠
🔊 Grow your business with actionable insights from Samuel Thompson, on the Hypefury podcast
I flip it. I say, ‘This is gonna cost 3 grand’ and they go ‘That’s too pricey" and I say ‘I’ll give you a discount for being one of the first customers.’ Because it’s not up to me to pull the price up, it’s up to them to push the price down.
🔊 Lyn Alden, Nic Carter, Brent Johnson, and Luke Gromen chat about the future of the US dollar on the Village Global podcast, hosted by Marc Andreessen and Erik Torenberg via Clubhouse.
🔊 Ryan Petersen- Where There Is Mystery, There Is Margin - an interview with the CEO of Flexport, on the Invest Like The Best podcast.
The real world is not following your logic. You get a bunch of super logical geniuses in a room and a whiteboard, and I promise you, you won't figure out how the world works because it's not structured that way.
📚 The Physics of Wall Street: A Brief History of Predicting the Unpredictable, by James Owen Weatherall
I suppose I assumed that physics and math majors were appealing to investment banks because they were good with logic and numbers. I never dreamed that physicists were of particular interest because they knew some physics. It felt like a mystery. What could physics have to do with finance?
Tools of the Trade ⚒
Products I use to make money
Swan. I recently became an official Swan partner because I love them so much. So if you're like me and just want an easy, automated way to buy bitcoin on the regular with the lowest fees in the game, head to https://swanbitcoin.com/Mulvey. You even get $10 for free ✨
Wealthfront. ~25% of my portfolio is in Wealthfront, which since 2016 has netted me a time-weighted return of ~65% (~62% money-weighted) at the time of this writing, all while harvesting tax losses just like the pros. Use this special link to get your first $5,000 managed for free ✨
StockCharts. I easily make back the small monthly subscription fee with the superpowers it gives me.
Carrd. I use card for all my landing page needs. Use this link or referral code 892PYX69 to start your own web empire.
Disclaimer
Nothing in this email is intended to serve as financial advice. Do your own research.