Investments and Money

I am a difficult person on this topic. As a near 60 year old, many people around me are very focused on their Investments.

I think I reply pretty consistently, borrowing from some of my Dad’s lessons on this topic.

Dad would say, invest in your own business. At least you have some control over what happens. I think this was born from many disappointments in business, where an external event (like a currency revaluation) wiped out years of work.

I would state slightly differently. “I only Invest in my own Education and my kids Education. Everything else is a Rigged Game were you cannot lose if you don’t play (paraphrasing Marla Daniels, from The Wire)

And this gets me some Understanding Looks. Also, plenty of well deserved skepticism.

Today, I feel inclined to explain my conclusions in a couple of paragraphs. The details are optional reading, below the summary.

Axiom - I don’t believe in Perpetual Motion Machines.

I ask ‘investors’ if they believe in Perpetual Motion Machines. They generally say No.

I ask them then, how do you explain an Investment environment where the FAANGS and the Vanguards and Blackrocks perpetually Go Up?

“Winners and losers” they say. There’s an unspoken presumption that the speaker is A Winner( see Winners are Losers)

I ask. “So, you take Money, a claim on future energy, put the claim inside a system and expect more claims on energy to come back to you.”

I’m getting blank looks by now. “What?”

So, you are either ‘winning’ and taking someone elses claim on the future energy, or it’s perpetual motion machine. Or a bit of both.

I’m getting angry looks by now. How dare I threaten the Growth Religion?

I’m happy to be a heretic on this one.

Transcript of Jeremy Grantham

I felt the need to transcribe the key parts of this

It’s created the biggest evil in our society and that’s inequality.

If you drive up the price of assets and it’s bound to happen if you drive rates to negative territory, Who do you make money for?

You make money for the people with assets who own the assets. The top 1 percent has 35 percent of all the assets. The top 10 percent have practically all the assets.

What’s the asset ownership of the bottom half? A rounding error. Practically none.

So, you mark up the assets and that’s your contribution to society.

What you are doing is pushing down on labour, pushing down on the bottom half, with no offset from increasing their assets, since they have none.

And you’re making the top 1% ineffably rich and the data bears that out.

Right down to the last two years when the top 1% has doubled its wealth during Covid. And the bottom 50%, I can assure you, has not doubled its wealth.

The dominance of a handful of firms has increased in most subsets.

And so profit margins have gone up and the power of corporations has gone up. And they’ve been able to use more of their power to influence governments. And they have. There is a lot of regulatory capture where people from business tend to run the agencies that regulate industries.

So, it’s been a wonderful time to make money in the Corporate system. And the share of GDP that goes to corporate profits has steadily risen and the share going to labour has steadily fallen.”

More than a couple of paragraphs

So, I’ve already taken way longer to express these thoughts than intended. In some ways, I could have deferred to Grantham. He has a lot more credibility in this area than I’ll ever have.

I’m going to try and tease the energy accounting apart below. If you made it this far - thanks for your patience. This becomes more tedious and optional as I continue.

Giving the 2nd Law of Thermodynamics it’s Due

For now, I’m happy to accept that energy is never create or destroyed in a closed system. Is the multiverse a closed system(s). If cosmic Inflation is the state of affairs, then the amount of Dark Energy does inflate with the volume of the Universe…

Yes, there are some subtle ideas there. There might be energy at Zero Point. When people want to talk about Money, I’ll stay inside the biosphere and at People scale for now…

In fact, I think you’ll find it fairly easy to get a consensus on the failure of Over Unity Energy devices to match any claim made about them. A certain skeptic will offer you “there’s no such thing as a Perpetual Motion Machine” - she’d be talking about conservation of energy.

And a Talebian Fat Tony might offer you “No such thing as a free lunch” - he’d be talking about money.

Money - a claim on Future Energy

I’m quoting the great Art Berman here. For all it’s complexity, you can look at our system of money as some kind of claim on future energy. Examples include:

• The food, fuel and fibre that we need to satisfy the ground floors of Maslow.
• The mining and refining of the earths resources.
• The Embodied Energy of industrially produced goods.
• The Maslovian needs of all people in there Work interactions.

I would argue that the post Nixon Petro Dollar System married global military supremacy with the longest chain hydrocarbons. This happened at the end of the USAs dominance as an oil exporter (I will write on this soon - working title USA - A Marginal Energy Exporter )

It’s an Imperfect Claim

Here are some wild extremes within the $s role as unitary Claim on future energy.

What should a barrel of oil cost?

The following is meant to be an example of how skewed the pricing mechanism is, when comparing human labour to a bunch of long chain hydrocarbons

1. So 1 barrel of oil has 6.1 billion/4,184 = 1,454,459 kcals. Using a range of 100-700 kcals per human hour of work, you can think of that barrel 2078 <-> 14544 hours of work per barrel of oil.

2. You can buy that barrel of oil today for USD$91.90

3. At the lowest range (2078 working hours) and the highest state-based US minimum wage, California $15/hour, that barrel should cost 2078*15 = $31,170.00

Ben’s Potato Index

1. I’ve observed the (super)market price of potatoes in many parts of the world, and compared a kilo of potatoes to the minimum wage. A kilo of potatoes is approx 1/3 of an adult calorific needs ( 750 out of ~2200)

2. The price of a kilo of potatoes in California today is USD$1.80. In an 8 hour day at minimum wages, a person can acquire 8 * $15 / $1.80 = ~66kgs of potatoes (ignoring taxes for now). That’s something like 20 days worth of carbs and fibre.

3. Try acquiring 20 days worth of calories and fibre for yourself, vs a full day shift in a low paid job. I think you’ll be detecting a problem with the unitary claim on future energy. I think

4. Cheap fossil fuels underpin industrial farming and the Potato Index.

Trillion is the new Billion

1. A US $100 note is a pretty popular item, all around the world. A Trillion Dollars worth of Hundreds looks like this

2. World GDP measured in USD is reported today as ~$84 trillion, about $10k/person.

3. World Debt to GDP reported by The Economist Feb 22 is 3.5 times global GDP. We’ve borrowed three times as much as we produce per year, and this money system allows that to continue.

4. Given that nation states are apparently on the same Growth at All Costs Train, how can this continue ad-infinitum?

The only game in town.

The disconnects about Money and Energy get far worse if you dig into the ecological impact of the mining and burning of resources. For me, it’s our addiction… our dependence on our ancient sunlight that is the key issue.

Who wants to do the work of all the Cheap Energy we use every day?

No Questions. No Answers. You accept it and move on.

I’m quoting Jean Reno from the final frames of the film Ronin.

It’s a bit of a Leap for me to jump from “this system looks entirely broken and unsustainable” through to Acceptance.

This is the duality I live in these days. Nevertheless…

None of this makes me keen to become an Investor in the stock market sense.