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Afghanistan, Shrink-flation and a Good Reminder of Maximum Regret
Level 1 - NGMI
Welcome Avatar! Lots of major news (Afghanistan, supply chains etc.) and in usual form, we’re going to focus on how this impacts you and what to do about it. As a quick note, we do not talk about things we do not know and everything here is an opinion.
Example: Yesterday during the monthly Q&A we were more than happy to say “We don’t know”. If we’ve never worked in a specific industry we don’t “guess”. Questions about law and other industries are certainly beyond the scope of this website - we focus on Crypto, Wall Street and E-commerce, which is more than enough.
In a similar manner, when we provide opinions on Afghanistan we’re not going to comment on what it is like out there (people in the military would be ones to ask on this topic). Instead, we provide a macro view, how it impacts your life and how to adjust based on new information.
There is no doubt about it. The situation is a disaster. Having the Taliban take over, US troops killed and video clips of people jumping on planes chasing the US out was not a good look. It’s pretty interesting to see how violently polarizing politics is. While we don’t vote (as we’ve stated many times), we don’t understand how Trump is banned but the Taliban is allowed to post memes suggesting that women are objects. Quite an interesting dilemma there but we don’t worry about things we cannot control.
Back to you. What does this all mean for you? Quite a bit actually.
Implication #1: Most federal level items are now put on the back burner. While this *does not* mean that things won’t change, it means that the focus is now shifting to two clear issues: 1) COVID-19 and 2) the Afghanistan issue.
At this point the government is bogged down by a couple of major issues and doesn’t have time to look at small problems.
For the next 12 months you should expect to see minimal federal changes. As a clear example, don’t expect massive changes to taxes this year. They just don’t have the time to figure that stuff out. The best they can do is probably change the capital gains tax (easiest and least debated) since wealthy people can simply refuse to sell (no selling = no capital gains tax by definition). This was an item discussed surrounding the $3.5T infrastructure bill.
Implication #2: If we look at the state level, we can make a pretty clean argument that suggests the winners and losers were already chosen. California saw massive brain drain and income exodus. New York as well. Florida and Texas were big winners.
Now think this through. Much like the rigged game of life itself, if you’re winning you’re likely to continue down that path. Florida and Texas are pretty safe places to live (in terms of policy changes) since they saw the most benefits from 2020. If you’re worried about policy changes we’d stick to those states in the Mainland.
If you are in California or New York and you have the opportunity to bolt… You should bolt. Do everything you can humanly do to secure remote work.
Implication #3 - Big WiFi Money Premium: Feel free to laugh at us. The fact that internet businesses trade at *discounts* to real estate in places like California/New York is insane to us. If you understand the magnitude of changes we’ve seen (~40% increase in money supply, more spending down the pipe and more focus on taxing the wealthy), it means you want to be mobile.
The ideal business is software at this point. If you can uproot and move around, there are many tax free areas that are of high value for you: Puerto Rico, Singapore and Dubai (depending on your residency). Generally speaking, best option for a US citizen is PR which we’ve covered in the paid Substack already.
The *Big* good news here. After all the chaos we think you’ve got ~3 years to figure out some sort of internet business. This is a healthy timeline as our motto has been “Give up three and you’ll be free”. Most who have followed this plan (since we started writing in 2012 or so) have successfully made it. All this disruption gives you time to become more liquid and mobile.
Implication #4: You probably know this with certainty but just for good measure, more green light to spend. Quite easy to justify more spending on defense or anything else related to COVID-19 or Afghanistan.
In fact the $3.5T infrastructure bill might go through if they throw in some emotional angle surrounding one of those two topics. However. The exact number isn’t relevant. Eventually they will pass more trillion dollar plus spending bills. We’re old enough to remember when a $700B bailout (2008-2009) was blasphemy (LINK). Now we’re in multiple trillions as a “normal occurrence” (5x the size in the infrastructure bill alone).
Implication #5: Structural and Generational changes are difficult to grasp. The older you are the more impressed we are that you’re even reading this website. It challenges a lot of core beliefs you had: 1) America is always number one, 2) Fiat is always the unit of account and 3) the Unit of account for wealth may be wrong.
We haven’t quite given up hope on the USA, however, the smart people need to get their assets in order. Attempting to fight the structural change to crypto is going to end in disaster.
We know one thing for sure. This won’t end well for the masses. Denominating your earnings in US Token can cause you to sell when you should hold (look at all currency devaluation roadmaps, asset holders are winners).
Concluding Remarks: We’re not here to make any political commentary. We’re not the greatest place in the world for any sort of emotional response to anything (or emotional support). All we can say is how this will *likely* impact you. Since life is single player, you always put your emergency air mask on before you help others (save yourself).
The situation in Afghanistan is disappointing to say the least. As an act of good will, we’ve helped support the cause through our friend Mike Cernovich who has done a fund raiser (LINK in Header). Not everyone agrees with his commentary (or ours) but we trust he will make sure the money goes to the right place.
Conclusion: The government now has its hands tied with *much* more pressing matters. Therefore, you can assume big changes will be slower unless they are related to COVID or the Afghanistan issue. Start that internet business now so you’re mobile if more changes come down the pipe in 2-3 years.
Standard of Living in the USA - Pressure Is On
We’ve been talking about this publicly (not just on the paid stack). Inflation is persistent and will continue to bring problems. We’re already seeing it. If you want to find out for yourself, we suggest you start taking photos of all the products you buy. Companies will reduce the quantity by double digit percentages and raise prices by 5% or so (this is a blanket simple formula).
Instead of trying to fight this, we suggest planning ahead once again and buying items you *can* in bulk. Purchase a good chunk of frozen steak in bulk, buy things like beans/rice/lentils in bulk and purchase other items that can be used over the course of months or even a year in bulk.
Again. This is the last place to go for “frugality” advice. We’re being realistic here. If you’re in a situation where your paycheck is similar to last year (or worse) and prices go up, you need to adapt. Give yourself a shot and save money needed to help generate an online second form of income.
Note for E-com: You should certainly be planning ahead again as well. Go through all the products you have that require basic materials and just order in advance. The shipping part you can’t do much about (unless you’re a massive company and have complex hedges/agreements). Instead, think through the high demand products you sell and just pay up front for it so you can collect that juicy 30% additional operating profit in 12 months (same playbook as 2020).
Regret Minimization - Avoid Selling Too Early
Rewind and put these two items together. If we know money printer go BRRR and assets go up it means you want to purchase perishable items up front (part 2) and use excess US tokens to purchase the store of value (various crypto assets with different risk profiles).
If you still monitor your net worth in US Token terms, you are most likely to sell too early. If you want to read about this psychological phenomena we suggest the book “When Money Dies”. When a currency is being devalued or collapsing everyone thinks they are getting rich. No one takes a step back and asks “does this make sense”
Does it make sense that restaurant companies are worth more or the same as 2019? After they lost millions/billions over the course of the past two years?
Does it make sense that prices are going up when wages haven’t gone up in the past 12 months for the vast majority of the population? After they were forced out of business due to COVID-19?
None of this makes a lot of logical sense. Don’t even get us started on RE prices in major cities that will unlikely ever be the same.
What is the reason for this massive disparity then? It means the underlying economy is not healthy and the purchasing power of the *unit of account* is shrinking. Quite clear. If the purchasing power is coming down and shifting to a new unit of account, this would line up with the prior two items. Remember. Over the past ~1.5 years we’ve printed ~40% of the entire US dollar supply, if your investment returns were below 40% and your net income didn’t go up 40%, you fell behind.
Hopefully this sinks in because we’re still quite early. The vast majority are still trying to “trade” to create more US tokens. They also *dont* have the cash flows to continue trading forever. Most of them don’t have jobs or have low income jobs so they are forced to sell on the way up. Maximum regret is no “I Missed It” - there are hundreds of other opportunities every day. Maximum regret is selling your BTC at $1,000 or ETH at $100 only to see them go up 30-50x in value. It’s harder to “rebuy” higher as you have to admit to yourself that you were wrong.
In short, start pricing your net worth in asset terms. Even if you don’t believe in our world view of the sovereign individual, at least peg your net worth to an asset. It could be as simple as the S&P 500 where you decide if you “earned more money” relative to S&P 500 return or if you “gains more S&P net worth” (ie. you outperformed the S&P 500).
This type of thinking will prevent maximum regret. You will focus more on “what am i going to do with this money if i sell”… Then you will realize there is nothing else to buy.
Final note to visualize this, if you were in Zimbabwe during inflation here is what you would see pegged to the wrong unit of account
You think you’re getting rich! Until you realize that the unit of account is wrong (same chart below purchased in US Token Terms).
Source: Both Charts from Financial Times (LINK)
Now ask yourself if the unit of account is wrong when we look at returns in stocks and real estate. Per usual, this is not investment or legal advice. We’re simply asking that you ask this question to yourself before pricing your “gains” in any particular currency. Be it US Token or otherwise.
Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions written by an anonymous group of Ex-Wall Street Tech Bankers who moved into affiliate marketing and e-commerce.
Q&A: We’ve got a busy day Tuesday so we’ll take questions regarding politics (for the fun of it). Remember. We don’t vote but we’re happy to provide basic opinions on the matter (emotions removed).