Jackson

SDE @amazon | independent consultant @block_one_ | sjkelleyjr.com

[Roundup] Irrational Exuberance, The Block One SEC Settlement, and The Masks of Hong Kong

(Read without the paywall)
10/06/2019

Irrational Exuberance

I found Irrational Exuberance after reading a forum post discussing the current level of the Cyclically Adjusted P/E ratio. After looking into the indicator, I saw the book linked at multpl.com under the CAPE chart. 
I wasn’t interested in reading it until I’d finished The Most Important Thing. In The Most Important Thing Howard Marks discusses the importance of understanding where we are in market cycles when deciding when to buy and sell, but not timing the market.
Previously, I’d ascribed to the well known index fund strategy in which market timing is irrelevant as it’s well known that you’ll be unable to time the market and unable to beat professional investors.
According to index fund proponents it’s more effective to buy and hold over an entire lifetime than it is to attempt picking individual stocks or timing the market. It’s also argued that buying the market over the long term beats any other investment. This has been the basis of my advice in previous newsletters against selling in the face of recession fears.
After reading Irrational Exuberance and understanding the CAPE, I’ve decided to stop buying index funds and start building up a cash position. I’m doing this for two reasons. First, I’m already holding a large portion of the S&P in various retirement and taxable accounts, which I will continue to hold indefinitely.
Second, the probability of equity prices retracing in the next 10 years is larger than the returns I expect to receive from the S&P over that period in time. I say this because the CAPE is currently at the same level it was prior to the great depression, and second only to the CAPE value met during the peak of the dot-com bubble.
When will I start buying equities again? I can’t say for certain, but I’ll likely look to be a buyer near the median CAPE range of 16. 
As an aside, I’m thinking of holding my cash in Dharma as Dai is currently lending at 8%. Expect more on this in a future newsletter.

Hong Kong Bans Masks

People are protesting legislation? Better introduce more legislation! To a legislator everything can be solved with legislation. There’s got to be a more nuanced reason Lam is doing this, but I’m not seeing it.

Block.one and Nebulous SEC Settlements

I was planning on providing my paltry insight on the ruling. But, given I found these two analyses [1, 2] and I’m not a lawyer, I figured I’d let the lawyers do what they do best and simply pass the analysis along. At any rate, this is pretty big news from a regulatory compliance perspective.
I also saw that Virginia Tech is hosting a summit that will include Dan Larimer, Hester Peirce, and Lee Schneider. This is interesting because Hester Peirce is the SEC commissioner and Dan and Lee are with block.one. I hope Virginia Tech records or at least livestreams this.

Vanguard’s Blockchain Foray

It looks like even Vanguard is getting into blockchain. This is good because Vanguard’s mantra has always been lowering costs for customers since Jack Bogle invented the index fund. This implies that a blockchain is being used for its efficiency gains in this case. 
What’s interesting about this is the headline doesn’t mention anything about a blockchain, which means the buzzword is no longer getting the clicks it once was. This is a good sign as it indicates the novelty has worn off, as the use case is now more interesting than the fact that it’s on a blockchain.

U.S. House Panel Requests Zuckerberg Testimony On Libra

I don’t think Facebook realized exactly how big a can of worms they were opening with Libra. This highlights what makes Bitcoin so interesting as there isn’t anyone for governments to go after.
After this news broke, more news followed that PayPal was dropping out of the Libra association.

A $4 Payday

I made $4 this week from this previous newsletter thanks to claps from Sophie Amat. Thanks for the claps Sophie!

Alibaba’s FlyZoo Hotel

The more these types of automations occur, the more I feel that they’re a small incremental improvement to society regardless of how cool they may be. Don’t get me wrong, this and others like it are technological feats, but they also aren’t doing much for society at large other than making a large portion of transactions more efficient. But making transactions more efficient won’t matter if income inequality continues to increase, as there will be less transactions occurring overall, offsetting these technological efficiency gains.
FlyZoo is showing up next to Hong Kong protests for freedom where trains are being burned and people shot in the same week. The Hong Kong protests are a stark contrast with this technological efficiency gain I guess is all I’m trying to say.
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