The Virtue of Doing Nothing

I was delighted to see that BLM and Antifa have taken over a small area of Seattle declaring it “autonomous”, forbidding the police from entering and putting up perimeter fencing. I was even happier to note the emergence of a seriously alpha black guy named Raz as the self-appointed warlord of the Capitol Hill Autonomous Zone.

There are all sorts of hard heads, up to and including President Trump himself, who want this nonsense ended right now. “Send in the police, the National Guard, the 82 Airborne, Seal Team 6!” Crush the Antifa louts like the roaches they are.

Tactically and strategically sending in law enforcement, much less the military, would be a monumental error.

Antifa (and to a lesser degree, BLM) contains some very smart, very well read, people and those people have made it their business to look at asymmetrical warfare in detail. They are well aware that they cannot defend the CHAZ against even a token show of force on the part of the authorities. However, not for nothing is armed end of Antifa called the John Brown Gun Club.

John Brown was an abolitionist. He was convinced that slavery was against God and, very much in second place, against the principles up which the United States had been founded. He wanted to start a serious insurection and to that end, with a small force, attacked an arsenal at Harper’s Ferry Virginia in October 1859. He succeeded but word reached the Federal government and troops were sent to quell the insurrection. Under the direction of then Colonel Robert E. Lee, Brown was wounded and then captured. He was then tried for treason and hung. Just before his hanging on December 2, 1859, Brown uttered a prophetic forewarning of the coming Civil War: “I, John Brown, am now quite certain that the crimes of this guilty land will never be purged away but with blood.”

Brown was right and the Civil War began a bit later in 1861.

The strategists at Antifa will have also studied the various interations of the Irish Rebellion, the defeat of the British in India, the overthrow of apartheid in South Africa and the various actions of the Palestinians against the Israelis. Of course they have, in many ways it is impossible to study history or political science or “studies” without being exposed to these David and Goliath contests.

The brighter lights of Antifa will have understood the essential lesson of these struggles: you win by losing. Ideally in the bloodiest way possible.

Insurrectionists, at least the smart ones, know that they are not fighting the police or national guard or 82 Airborne with any hope of winning. Instead they are trying to lose to an enemy whose excesses will revolt the general run of the population.

Now, to beat an insurrection, you have to take away its oxygen and let it choke out on its own. For CHAZ the oxygen is attention. The romance of the barricades and audacity of insurrection attracts media attention which allows the Antifa people to seize the mic and make assorted demands. (Including, charmingly, a return of racial segregation.)

Any escalation on the part of the authorities will simply feed the flames. Sending in the riot police under a cloud of tear gas and a hail of rubber bullets (cliches but that’s how this stuff is written) is ideal fuel for the Antifa fire. All the better if a big, strong, articulate black man like Raz is gunned down.

At this moment the very best thing the authorities can do is a very vigorous “nothing”. No response whatsoever. Ignore the demands, ignore the spray paint, ignore the barricades and the stolen fences.

Let Antifa and BLM dig themselves in good and deep. Let the inherent tension between Brother Raz and his people and the revolutionary intellectuals of Antifa have a chance to work their magic. Let the logistical nightmare of 500 extra people in a small neighbourhood work itself out. Keep the water and power on. Perhaps jam cell and wifi signals. Surveil the Hell out of the place and don’t be shy. Keep a large and obvious drone presence so that the insurrectionists know they are being watched.

The ignominious collapse of the CHAZ is only a matter of time and patience. It might take a week, it might take a month, but without martyrs to sustain it, CHAZ will join Occupy in the scrapheap of history.

Market Timing the Surreal

Very smart investment gurus tend to agree: you cannot time the markets. That is, you almost never know where the top of a market is and it is nigh on impossible to pick a bottom.

Some go further and pronounce that picking individual stock or commodity is a fool’s errant and that simply “buying the index” is about the best you can do.

I tend to agree with this view except in the most extreme circumstances and then in only a few of those circumstances. For example, I don’t think the crash of 2008/2009 could have been predicted by any one who was not intimately familiar with the shitshow that was securitized mortgage lending and its implications for over leveraged banks. And, even per “The Big Short”, had you known all of that, the consequences for the overall market of what was essentially a banking crisis were far from predictable.

On the other hand, the bursting of the dot com bubble in March of 2000 was a matter of when not if and it was pretty obvious for at least a year before it finally burst. For a real bubble to form you need novice investors putting value on companies which have no earnings and you need people trading shares for the sake of trading. In the run up to the 2000 crash “day traders” were the new financial heros and people were raising a billion dollars to sell reams of copy paper or fifty pound bags of dog food online.

In the winter of 1928 Joe Kennedy, father of JFK and major stock market player, stopped to get his shoes shined. The shoeshine boy leaned in and said, “Buy Hindenburg”. Kennedy began unwinding his positions saying, “You know it’s time to sell when shoeshine boys give you stock tips. This bull market is over.”

I had a similar experience in late 1999 when a friend took out a mortgage on her condo to buy shares in the billion dollar online copy paper empire. She had a perfectly good job in retail garden supplies. Remembering Kennedy, I advised another friend that her Nortel was looking a bit overbought. As it happened she sold quite near the peak.

The 2020 equivalent of the shoeshine boy is the perfect storm is the free trading platform, robinhood.com. This is a nicely designed site where you can trade shares on your computer or phone. It has become very, very popular with younger, new investors. My late 1990’s day trading pals would have killed for this sort of interface and no brokers fees. It has spawned a whole host of reddit chats, twitter streams and countless YouTube videos on the excitement of swing trading. (One fun spot to watch Robinhood is the https://robintrack.net/leaderboard which shows which stocks the people on Robinhood are buying. It is a bit slow and buggy but a great front row seat.)

What is striking about the robinhood.com world is that it revolves around trading rather than any sort of “investing”. You hop into APPL in the morning, see if you can make a couple of bucks by noon and move onto the next thing. And Apple is a real, solvent, company.

Robinhood has been in the news recently because the herd has charged into the shares of a number of companies which are either in or near bankruptcy. Hertz Rent-a-Car dropped from $20 to $0.50 in three months as the market realized that with no travelers there would be no car rentals. Interestingly, we learn from robintrack.net that at $20 there were a little over 1000 users holding, as Hertz crashed the Robinhood users piled in, at $0.55 there were 44,000 and there are now 158,000. And many will have made money, lots of money, trading the gyrating price from $0.50 to back up to $5.00.

In the run up to the crash of October 1929, long after Joe Kennedy had pulled his money from the market, retail traders were coining it trading the “swings” on margin accounts. It didn’t matter what the company actually did, it was going up. The same “irrational exuberance” was a big feature in the dot com bubble.

Justifying the current trading frenzy are all sorts of snappy phrases, “You can’t fight the Fed” is a favourite. “V” shaped recovery is another. There is a sense that age of the dinosaurs, the Warren Buffets and the Carl Ichans is over, that fresh, app driven approaches to investing, and more importantly, trading have been unleashed.

The election and Presidency of Donald Trump created a sense that we had all stepped into an unanticipated world. At the best of times, Trump is unpredictable and the reactions to Trump are off the scale of normal political response. Then COVID and the huge economic uncertainty it has unleashed came crashing onto the stage. Then the George Floyd convulsion layered on another coat of unreality. In fact, surreality.

Day trading surreality seems entirely crazy but it is also a huge tell. Rail traffic has crashed but rails stocks are up, the US is officially in recession but the NASDAQ hit an all time high on Monday, all measures of the real economy are cratering but the stock markets are flying.

The thing about surrealism is that it depends on reality remaining fixed for its often intoxicating effects. Dali’s melting clocks are striking because they do not conform to how we know real clocks look and behave. Stepping away from a surrealist experience there is a snap back to reality. Sometimes you see that reality differently, but it is there nonetheless.

The Robinhood day trading, options fueled, herd investing suggests very strongly that a harsh, perhaps very harsh, snap back is pending. What triggers that snap back is unknown (and therefore impossible to time). It could be as simple a the closure of a bankrupt commercial mortgage fund or the end of banks mortgage deferrals. Whatever it is will be enough for retail investors to start liquidating their positions.

The lessons of the 1929 crash and the 2000 dot com bust were simple – get out early and be in no hurry to get back in. Right now the dinosaurs like Buffet and Ichan are sitting on stacks of cash. Just like Joe Kennedy was when Wall Street swan dived in October 1929. They got that cash by selling their shares to shoeshine boys and the bright lights at Robinhood.

The second shoe

In Western Canada and the Maritimes, COVID-19 is pretty much done. Still lots of it in Montreal and Toronto. There has been no silver bullet cure found and a vaccine, if it can be found at all, looks to be some distance off.

Meanwhile, our American friends have just had a couple of weeks of protests and riots ostensibly about the police murder of a black man, more generally about the frustration of the American left. The very real chance that Donald Trump will win re-election in the face of overwhelming media and elite opposition is creating massive shock. That, in turn, engergizes a small, but very vocal, minority to take to the streets in protest. The target is “systemic racism” and they just know The Donald is at the root of that system. Like COVID-19, the protests and the riots will pass.

The US stock market which used to be a barometer for the relative strength of the economy has taken a vacation from this role in response to the literal trillions of fresh printed dollars flooding the market. Ever upward regardless of such unwoke concerns as price/earnings and actual profitability. Never mind the millions of unemployed and the tens of thousands of businesses felled by COVID. It is raining dollar bills. (The situation is much the same in Canada with government money papering over the collapse of the oil and gas industry, mass unemployment and business failure, plus unprecedented levels of government and personal debt.)

Cementing my status as a grumpy old, white, man of heterosexual inclination and, thus, as unwoke as you can possibly get, I don’t think all this is even a little bit sustainable. At some point the reality of the massive demand destruction created by the COVID shutdown is going to bump into the massive personal and governmental debt and, to make things interesting, the structural unemployment the shutdown has created.

And that is if things go well.

It is just possible that the economy can be restarted, employment recreated, debt paid down and demand goosed; but the system as it stands right now is very, very fragile. It will not take much to turn a manageable recession into a serious depression.

One of the stranger things about modern economics is how much depends on confidence. If Mr. Jones thinks he will have a job next week he makes different choices than if he doesn’t. Repeat several million times an hour and you have an economy.

The reason why this is strange is that Mr. Jones makes his choices in conditions of uncertainty. In a normal, well functioning, economy that uncertainty is constrained in the sense that the past tends to determine the future. If you have had a job on the 1st of the month, chances were very good you would have one at the end of the month.

For many people the real effect of COVID has been to radically increase the level of uncertainty in their day to day lives. Take a look at this chart:

That is the US personal savings rate. When people are uncertain they don’t spend and therefore the savings rate goes up. If people don’t spend 30% of their income there are going to be significant economic consequences.

Of course, the personal savings rate is about people who actually have incomes and assets of some sort. What happens when you have to make choices with no income because your job has been cancelled due to COVID?

There is much debate about whether or not there will be a “spike” in COVID cases because of the lousy social distancing at the protests. And there is quite serious concern that a second wave of the virus in September is possible, even likely. What is not being discussed is the very real economic and social effects of a sudden rise in uncertainty.