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The Interesting Times is a short digest of the most interesting things I find on the internet, typically centered around finance, tech, bitcoin, complex systems and decision making under opacity.
“No amount of sophistication is going to allay the fact that all of your knowledge is about the past and all your decisions are about the future.”
Ian E. Wilson
The Interesting Times is a short digest of the most interesting things I find on the internet, typically centered around finance, tech, bitcoin, complex systems and decision making under opacity.
 
Howdy,

My partner on the Mutiny Investing Project, Jason, will be speaking on a panel about Navigating Market Volatility with some of the smartest people in the business. They'll be discussing:
  • Why the VIX is more than just for tail risk.
  • Is it too late for long volatility protection?
  • What everyone gets wrong about options.
  • The volatility landscape looking ahead.
 
Thought Bubble: Minsky Moments

I recently read Hyman Minsky's paper The Financial Instability Hypothesis, published in 1992.

It has a three-piece framework for thinking about financial markets

Minsky begins with the observations that governments are much more active in markets than at the beginning of the 20th century which mitigates some of the downside risks to firms but can lead to an inflationary bias.

The much greater participation of national governments in assuring that finance does not degenerate as in the 1929-1933 period means that the down side vulnerability of aggregate profit flows has been much diminished. However, the same interventions may well induce a greater degree of upside (i.e. inflationary) bias to the economy.

He then divides economic entities into three classes:
  1. Hedge Entities
  2. Speculative Entities
  3. Ponzi Entities

Hedge entities are those that can pay their contractual obligations through their cash flows and tend to have very little debt.

Speculative Entities can meet their commitments as long as they can "roll over" their liabilities (e.g. issue new debt to meet commitments on maturing debt).

Ponzi entities are those where the cash flows from operations cannot fulfill either the repayment of principal or the interest due on outstanding debts.

If most entities are hedge entities, the economy can be accurately modeled by an equilibrium seeking model (which most economic models are)

Narrator: But most entities aren't hedge entities...

Over long periods of prosperity, what tends to happen is that entities get more and more confident and take out more and more debt. If future growth is assured, more debt just puts fuel on the fire, right? As a result, the economy tends to shift to an unstable system as debt issuance increases.

Over a long period of good times, as debt increases, more and more hedge entities become speculative and speculative become Ponzi.

An increasingly large portion of the economy relies on being able to roll over their debt in order to keep running.

If liquidity dries up and those speculative and Ponzi entities can't roll over their debt, ponzi entities evaporate and speculative entities become Ponzi entities, leading to a rapid collapse in asset values.

This is "The Minsky Moment." and may explain, in part, why markets tend to "take the stairs up and the elevator down."

It is a deeply unintuitive notion: greater periods of stability breed greater periods of instability. The more stable things seem, the more willing entities are to use debt, which leads to more entities failing when the Minsky Moment strikes.

 
Best Stuff I Read
The Risks - Know Them - Avoid Them
Erin Bromage

Helpful analysis of COVID transmission and what to do as the world reopens.

TL;DR: outdoors is low risk but long periods inside even with social distancing can lead to contagion. (E.g. offices, birthday parties, restaurants).

Would love to see more data than what is referenced here. If you've read anything corroborating or rebutting this, please do send it my way.


Venkatesh Rao

We are at peak nation-state and peak centralization and COVID will be seen as the turning point.

Climbing the Wrong Hill
Chris Dixon

“How can smart, ambitious people stay working in an area where they have no long term ambitions?”

Why Is Bitcoin Valuable?
Taylor Pearson

On Monday of this week, Bitcoin experienced a "halvening" where the block rewards received by miners are cut in half, an event that happens every four years or so and results in Bitcoin's limited total supply yielding the many comparisons to digital gold.

I wrote this post a few years ago to explain why I believed Bitcoin was valuable and it's held up quite well in my opinion.


 
 

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Here are a few more things you might find interesting:
Interesting Essays: Read my best, free essays on topics like bitcoin, investing, decision making and marketing.

Online Course: Learn how to choose, plan & accomplish your most important goal in 90 days, even if you’ve struggled with motivation, overwhelm, and focus in the past.

Consulting & Advising: Are you looking for help with making decisions around scaling your company from $500k to $5 million? I’ve been working with authors, entrepreneurs, and startups for half a decade to help them get more out of their businesses.

Internet Business Toolkit: An exhaustive list of all the online tools I use to be more productive.

 
P.S. If you'd like to see everything I'm reading, you can follow me on Twitter or LinkedIn for articles and podcasts. I'm on Goodreads for books. If you've read something you think I'd like, hit reply and let me know what's made an impact on your thinking lately (articles, books, papers, podcasts, whatever).
 
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