Why subscribe?

This newsletter is intended to share the analytical process I’ve developed over the last 25+ years, which I believe offers a reasonable heuristic for navigating the world as it is, and as importantly, what it may become.

This process has been a World Wide Web-enabled one, which began in 1990 when I purchased my first investment with $1,000 saved for college. It was a smallcap value mutual fund sold at my local bank branch, and I was hooked. The early years of my post-university life were spent amidst the internet mania, where most of what I learned at university was useless. By 1999, when some people were quitting their jobs to trade hot internet IPO’s, I thought there had to be a better way to analyze what had transpired. What resulted was a journey I enjoy to this day, but which included a foundational period from 2000-2006, in which I landed squarely in the neighborhood of what public intellectual Eric Weinstein would later describe in public - just far better than I ever could.

The journey began with a simple question: how does one navigate the madness of crowds? I never worked at a “Wall Street” firm, and everything to come was self-taught with the help of generous professionals made far more accessible via the internet. I became a voracious reader of book recommendations from people who I found to be heterodox in their thinking - an attribute that has remained at the center of my analytical filter ever since. Here are some of the books which were foundational:

Extraordinary Popular Delusions & the Madness of Crowds by Charles Mackay

Markets Wizards: Interviews with Top Traders by Jack Schwager

Beating the Business Cycle: How to Predict and Profit from Turning Points in the Economy by Lakshman Achuthan and Anirvan Banerji

Ubiquity: Why Catastrophes Happen by Mark Buchanan

How Nature Works: The Science of Self-organized Criticality by Per Bak

The (Mis)behavior of Markets: A Fractal View of Financial Turbulence by Benoit Mandelbrot and Richard Hudson

I had spent a few years having explored traditional technical analysis while subscribing to platinum research services such as Ned Davis Research and Lowry. I remained dissatisfied with my analytical process when in 2005 came across someone online talking about non-linearity and Demark indicators. That introduction resulted in my exploration of complex systems science, which relates to the last three of the books above.

By the end of 2006, I had put together most of what the process was to be and just in time for the onset of what would become known as the Global Financial Crisis. The new process enabled me to navigate the historic volatility at a world-class level and do it with simple retail-level instruments such as exchange-traded funds. Out of 16 trades related to hedging risks from May 2007 through November 2008, the process had been significantly profitable on 15, with the sole loss of less than 0.05% of capital. In a year in which many had lost 30%-50% amongst historic swings, the process had provided a relatively stable +11%.

By the summer of 2010, after having vanquished hedges and capturing the recovery, I privately began to think my “analytical shit” did not stink. This overconfidence grew to hubris after having been hedged for the flash crash in May 2010, the debt ceiling-fueled mini-crash of August 2011, and the euro-centric volatility of spring 2012. Then something happened - I blew up.

The process had not failed, but rather I had. As I should have retained from reading the original Market Wizards book countless times, diverging from the process was disastrous. It was not quick and painful, but rather a tortuous 18 months of a slow-motion car crash. Ironically, my own personal self-organized criticality of arrogance and hubris manifested in a fractal mess of cognitive dissonance and confirmation bias. I had lived through two manias already, the internet of the late 90’s and housing of the mid-aughts, and I did not want to experience it again. By January 2013, the process and my trusted colleague were telling me another mania was metastasizing, but I was deeply anchored in the view it would not, and could not, happen again. It was the worst year of my life and resulted in humiliation, severe depression, and was inexcusable.

After slowly emerging from a deep depression with the support of my wife and family, I started a new journey to try and determine what had happened, how I had been so stupid, and what tools I could use to “fix” what had broken - my brain. I spent time learning about human cognition and decision science, while exploring topics such as evolutionary psychology. That process culminated in the fall of 2015, when a certain celebrity gained significant traction in the US presidential primary campaign. Similar to what had occurred by the end of 2006, the evolution of the analytical process was just in time for the world to change in a significant way.

This newsletter is not intended as investment advice. It is an attempt to share what I have learned over the years, and perhaps introduce readers to new ways of thinking about markets, business cycles, and the political economy. The genesis and inspiration for this substack emerged in early September 2021 when I stumbled across these:

Kayfabe Video I

Kayfabe Video II

I had been an avid listener of Eric Weinstein’s podcast, The Portal, since it’s inception, so was familiar with his views. However, these videos, produced by Jake Orthwein, offer something I could never provide.

I am not a creative person and have largely assembled this analytical process by asking questions and then seeking out the best and brightest heterodox thinkers am able to identify. These two videos crystalized for me a creative narrative with which to try and explain what has been evolving in my head for 20+ years. With help from Jake, Eric filled in a pre-1971 gap as to my understanding of how we have arrived at the present.

How do we navigate what may be to come? For better or worse, this is my attempt to contribute to the discourse. The current plan is to try and publish weekly and supplement on Twitter @kayfabecapital.

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Analyzing the madness of crowds with help from Ric Flair and Benoit Mandelbrot

People

To beat the man you gotta use an intersection of Rick Flair, Geoffrey Moore, Lacy Hunt, Per Bak and Benoit Mandlebrot.