Navigating the Gov’t Rebellion Against Time
In the year 2019, why does it seem so hard to invest?
Perhaps it is because no one wants to invest in anything hard. We all want liquid shares in public companies in US markets.
Essentially, the epitome of the old paradigm that has allowed big governments and behemoth banks to triumph for the last decade — in a world without seasons, real interest rates, or even evidently the passage of time.
Without the passage of time, we can all be geniuses and futurists.
Liquidity means timelessness. Instant money. But all real investment of resources and knowledge is illiquid.
For instance, banks used to perform the alchemy of taking the savers’ desire for liquidity and security and converting it into a necessarily illiquid commitment to the future. Taking liquid money deposits and converting it into illiquid enterprise.
This alchemy of savings and investment necessarily entailed acceptance of risk and the passage of time.
Indeed, the process of businesses borrowing liquid deposits to fund illiquid commitments to an uncertain future is at the very heart of capitalism: the systole and diastole of the creation of wealth.
It once rigorously constrained the creation of money.
The system could not create more money than businesses could usefully borrow. Money creation was rooted in the creation of real value.
But as we know, that all changed…
Today, banks no longer make most of their returns from the creation of real illiquid value… Instead, they profit from “proprietary trading.” That is, the manipulation of notional derivatives of value with virtually no limits.
Through the use of quantitative magic tricks — that function in gigahertz and thus beyond time — they launch fantasy castles of many-mansioned “securities” into infinite mazes of new money.
Now, I mentioned that these trades work “beyond time” for a specific reason: Money, the true value of money at least, should be tied directly to time.
What do I mean by that?
I don’t think money is merely a functional tool. I believe it possesses transcendent significance.
We use it to prioritize most of our activities, register and endow our accomplishments of learning and invention, and organize the life-sustaining work of our society.
As a result, I believe money is more than a mere payments system. It expresses a system of the world.
But why time?
Time may seem to be no more a facet of money than air or water is. Think about it, though…
Time is what remains inexorably scarce when everything else becomes abundant. So what better way to measure value and money?
Or consider it this way: The alternative to money is barter — direct exchanges of goods, without systems of storage and distribution.
Imagine the valuation of bartered items in a primitive economy and you immediately confront the centrality of time.
What determines how much of each item for trade is available is the time it takes to produce an incremental unit. A house takes more time to make than a hammer. So very roughly considered, a house might be worth many hammers.
Intuitively, different time requirements make a horse more valuable than an apple, a pair of shoes more valuable than a coconut.
As the common element in all goods and services, time determines the possibilities for exchange. As a barter economy becomes a commercial economy, these common time factors become manifested in money.
So by manipulating money as an instrument of policy, controlling the interest rates that they pay on their own debts, and fostering devaluation of their currencies, governments — and the world of financial elites — is engaged in a passionate rebellion against time, against interest rates, against real money.
We have inflation figures so low that the Fed wants to juice them up to its target of 2%, which over a lifetime, will gobble up all savings. That, once again, notionally stops time in its tracks.
Time laughs at zero interest rates and the expansion of $250 trillion of global debt that will be repaid only through a process of stealing from time-bound savers like us.
Plus, with the government and banks in control of interest rates, it removes surprise and scarcity from the equation. Which means no real value is being created.
Sure, we have new all-time highs in the S&P. And analysts expect more appreciation in the coming year as the Fed steers interest rates lower.
And stocks have gone up for a decade, making all the stock pickers look like geniuses. But all of the upside surprises are already baked into the market.
The stock market is far more likely to go down 40% than go up 40%.
Having lived through the crash of 2000, experienced my own false fantasies of stock-picking genius, I don’t want any part of this economy.
So what do we do now?
Reclaiming Time-Bound Investing: Turning to the Unknown
Successful investing is funding ideas in new paradigms, finding companies with projects and shares that surprise on the upside.
In the old paradigm, the upside surprises have already happened. So profiting in today’s market means mostly rejecting the S&P stocks of the old paradigm.
It means fleeing the fantasy palaces of Central Banks that imagine they can transcend time and space.
It means finding ways to invest in reality: the shift of the most creative domains of the world economy to Israel, China, and biotech.
It means entering the Cryptocosm, which currently commands the most creative energies of the new generation of technologists. Crypto companies will restore security to the porous pyramids of the Internet and real time to global money.
Thus they will make possible once again a process of real investment in new knowledge, learning and growth.
At Daily Prophecy, we want to help you escape from the frauds of fantasy money and oceanic liquidity — and open the process of real wealth creation and preservation to all of you again.
Editor, Gilder’s Daily Prophecy