Putting our heads together is what Stray Reflections does best. All of us are smarter than any of us. Here’s a summary of the most helpful insights gained from the community in our members-only Slack group last month.
1. Short Bears (#history)
2. Long Blood Donors (#crypto)
3. Short Techno-optimism (#energy)
4. Short Gremlins (#life)
This excerpt from Mark Skousen’s The Maxims of Wall Street was shared in the #history channel.
In the early days of the Twentieth Century, when J.P. Morgan ruled Wall Street, a visitor came to the City. He was a long-time friend of Morgan, a commodity trader from Chicago. He was what might be called a “perma bear” following the Panic of 1907. No matter how high or low the stock market went, his outlook was pessimistic. Another crash, panic and depression were just around the corner.
This was his first visit to the world’s greatest city. He arrived at 23 Wall Street, and was ushered into J.P.’s spacious office overlooking the Exchange on one side and George Washington’s statue on the other.
They immediately began talking about the markets. Morgan was as bullish as ever, and his commodity friend was familiarly bearish.
“J.P.,” he said, “the news overseas doesn’t look too good.”
“A buying opportunity!” responded Morgan.
After an hour of friendly jousting about the markets, Morgan invited his guest to join him for lunch. They walked outside and started moving up toward Broadway. On the way, his friend couldn’t help but admire the skyscrapers that dotted the Manhattan horizon.
Morgan gave him a tour of the giant buildings, pointing out the Singer Building, the Woolworth Building across from City Hall, the famous three- sided Flatiron Building, and the recently completed Met Life Tower, rising 50 stories high, then the world’s tallest skyscraper.
His friend was duly impressed. He said he had never seen anything like it, not even in Chicago.
Finally, J.P. Morgan stopped his friend and said, “Funny thing about these skyscrapers—not a single one was built by a bear!”
Long Blood Donors
CT (Puerto Rico): My biggest concern right now with crypto is the lack of marginal buyers. I have talked to about a dozen people in the past two weeks in various parts of the financial ecosystem and not one person provided me with a compelling case.
Specifically, I mean the marginal buyer or coins we all see on the market right now. Most capital is being allocated to BTC or ETH with long time horizons, equity deals and VC/fund allocations which are directly and indirectly seed investing.
Zero people discussed allocating serious capital into something that is already trading. This is a small sample set, but it’s a high-quality cohort. This also doesn’t mean a bear market or volatility; it means that the rotation trade is best place for alpha now. That’s a hard game to win especially with a lot of liquidity.
I think we will continue to see big winners and impressive innovation over 2022 but also may see some sustained bleed outs without the ongoing retail and institutional appetite. Until we have clarity on regulations and to a certain extent inflation, my base case is that any rallies should be used to de-risk.
If something changes in the next few weeks around the Fed or around ETFs/regulations this could change quickly. Would love to hear if anyone has a counter opinion to this that points to big money coming into coins already trading on the market other than BTC/ETH.
AF (Hong Kong): Agreed, hearing similar from the natives and longtime builders in the space. One additional point they added was that the marginal flow is now into NFTs (not very wise), but it’s a continuation of the move from high liquidity to low liquidity (BTC/ETC --> Altcoins --> NFTs) and is honestly not a great sign.
DS (Los Angeles): I also think retail has basically been max-long the past two years and been rewarded for it. Many trades were relatively clear to make like the Layer-1 rotation.
If winds really are changing, I believe now (and next few months) is the most dangerous time for average retail investors. I think this is where many can get chopped up, filtered through volatility, or grind down. What was rewarded before is now a sinking weight.
I think we are in a time where you can be directionally right, and yet specifically wrong. That is, bullish crypto, but not owning quality to avoid bleed out. It makes me think of what’s happened in equities. Anyone playing tech emerging out of the 2020 crash was rewarded. Now some of those same major names are hollowed out.
JM (Toronto): “Cheap solar, cheap wind, and cheap storage mean that we could see the first large, sustained decrease in electricity costs in over half a century.”
Is this techno-optimism for real?
AJ (London): Not even close if you ask me, just look at Nordic power. Yes, renewable energy is cheaper but we’re not totally off natural gas, coal, and oil, plus there are load factor issues, and fuel switching, and geopolitics and weather!
CR (Austin): Norway has lifted its electricity subsidy for a third time in two months. Initially paying 50 percent of the bills when power prices rose above a trigger level. Now it’s 80 percent.
KC (New York): It’s incredible what is happening. The fantasy is that renewables will save the day, and we are now in a situation where electricity demand is growing globally. We are nowhere near where we need for large scale electricity storage, and the intermittency of renewables exacerbates this point.
We burned more coal than ever in 2021. Sixty percent of coal is burned in China, and they are growing more than the rest of the developed world. Germany restarted a coal utility yet shut a nuclear plant. In India, they are now burning more oil than a year ago to generate electricity; coal is better than oil burning.
A lot of versatile managers are seeing how interconnected things are and the ability to profit is there.
The world is short natural gas, and the US has enormous reserves and ability to develop them, so natural gas E&Ps are still under owned and fervent ESG policies are keeping big funds out of these names.
And uranium to me remains the ticket here—the big opportunity but may take some time to really get momentum.
SB (Amsterdam): The only real solution seems to be nuclear energy. Wind energy is no good solution as it creates waste, and turbines degrade. Solar only generates a low percentage in winter in northern countries.
On the very long term, energy could become cheap, but there would have to be a lot of technological advances.
PG (London): Demand for power is rising way faster because of electrification (most obvious with EVs). Even though traditional power sources share goes down in the energy mix, it still goes up in absolute value.
HU (Estonia): The cost of producing solar and batteries is going up because the electricity cost to produce them is going up.
JM (Toronto): This is what the IEA says: “By 2026, global renewable electricity capacity is forecast to rise more than 60 percent from 2020 levels to over 4 800 GW – equivalent to the current total global power capacity of fossil fuels and nuclear combined.
Renewables are set to account for almost 95 percent of the increase in global power capacity through 2026, with solar PV alone providing more than half. The amount of renewable capacity added over the period of 2021 to 2026 is expected to be 50 percent higher than from 2015 to 2020.”
CR (Austin): I bet against it. Governments are already under investing in fossil fuel infrastructure. The Texas freeze (where I live) is one good example of what can go wrong.
I spent the last year looking at energy transition projects (mostly solar plus carbon capture, utilization, and storage). Based on all the splashy headlines from large companies I thought we were far behind. Unfortunately, my company is about as far along as most other companies and still very much trying to figure things out.
We’re shopping for a long-term power deal in west Texas right now. Solar and wind is incredibly cheap. But this is because too many developers built based on consistent wind and sun and not power demand. I suspect many of these projects barely cover opex.
I’m seeing traditional energy PE funds investing in solar as more of a novelty investment just to show their LPs. The equity check is tiny at 95 percent LTV so it’s easy to take a money back deal.
One of my backers begged me to build out a solar project we were awarded even after panel pricing skyrocketed and the project was negative IRR. Apologies if I sound too negative. I’m skeptical of “all in” renewable strategies. I’m very bullish gas and LNG.
JM (Toronto): On KC’s kind insistence, I took the Judgment Index test. It confirmed what I so deeply intuit but keep buried. Helpful reminder that I need to seriously work on this.
“Your scores indicate that you are greatly undervaluing yourself. You consciously and subconsciously tell yourself that you aren’t good enough, or worthy enough. When self-esteem is low, so too is self-confidence. It NEEDS ATTENTION.”
JB (Orange Country): I’m somewhat similar and have negative self-talk. I’ve used that as a motivating factor throughout my life, but it also has a downside.
KC (Hawaii): That inner negative voice wants us to believe that it’s a “motivator” but in my experience (and with many of my clients) the inner gremlin says this so it can stick around. It’s a master at gaslighting us into believing that the way it treats us, speaks to us is for “our own good.”
SB (Amsterdam): Being self-critical and humble isn’t always a bad character trait, right?
There is a difference between excessive self-doubt and critically reflecting on one’s own actions and thoughts. I think there are many people that lack these traits. It’s my nature to be self-critical, and I struggle with excessive self-doubt. But I would rather be too self-critical than not critical enough.
KC (Hawaii): I hear you. Let me clearly state that neither of these are what I would ever call “bad character” traits. They are simply hinderances. With either low or very high costs to ourselves and those around us. But they/we aren’t bad or wrong for experiencing them. They come from our attempt to navigate early experiences and we take them into the rest of our life if we don’t notice them.
Being self-aware is different than being self-critical. It’s the difference between “making a mistake” and “being a mistake.” Also being humble is not the same as undervaluing ourselves. One can value oneself and be humble. We can be self-aware and self-reflective without making ourselves wrong when we make a mistake or behave in a way that we feel doesn’t honor our values.
If we can’t meet our humanity with compassion, how will we be able to meet our fellow man with it? We can only give what we get. And if we keep this from ourselves then we are already in a deficit when we begin to interact with another.
I learned this from Marshall Rosenberg, the creator of NonViolent Communication. Our ability to empathize with another begins with our ability to empathize with ourselves.
There are those who don’t display humility or self-awareness, but I have found this to be a smoke screen of false bravado. Rarely does that bravado reflect their internal state. Rarely do they feel as confident as they appear.
Their self is so intwined with shame and feelings of unworthiness that they can’t afford to be human with themselves never mind us.
Because of how I was raised I was always “scanning” myself, critically reflecting on where I was “out of order” or “not perfect” so to speak. When I read Taming Your Gremlin, I learned how damaging that mindset of constantly looking for fault within is.
It’s a never-ending relationship with the words “should, would, could.” Nothing is ever enough. I was never enough. Over time I’ve learned there is a way to see my mistakes without making myself feel like a mistake. I’m still learning how to practice this.
I still experience tremendous self-doubt or can speak to myself in ways I would never speak to someone else but now I notice it way quicker and can come back to center.
So, when I screw up, consciously or unconsciously, I look at what happened within me that had me respond the way I did to see what “need” I was attempting to get met. And then I try to empathize with that part of myself that didn’t show up in the way I would have preferred to, and I find that moves me closer to the transformation that I seek.
Meeting myself with love and understanding moves me closer to what I seek than shaming myself into it ever did.
SB (Amsterdam): Thanks, I certainly struggle with this. What you wrote makes a lot of sense. I have chronic health issues that have prevented me from reaching a lot of my goals, and it’s hard to find the right balance to keep pushing myself but also not blame myself.
KC (Hawaii): I feel you. I’m sorry you have chronic pain. That sucks. That must be very challenging. It’s tricky finding the balance when one wants to honor one’s body but also accomplish things.
I have had to find a way to reconnect to my body so that I don’t speak to it or view it as the enemy. But for me to get to this I had to first feel my feelings. Frustration. Anger. Disappointment. Betrayal.
I had to come to terms with my feelings for my body not doing it “my way” and each time after this I move myself closer toward a reconciliation with it. We are a team. If I make it wrong in anyway, I’m making me wrong. I’m undermining us together. It’s a lifelong practice.
Sometimes chronic pain can be caused from unhealed trauma. Perhaps consider the documentary The Wisdom of Trauma. I found it to be profound. Gabor Mate who is featured has helped me heal in many ways emotionally and physically. See what you think.
KS (Washington, DC): Something that has been striking me in my study of the book of Genesis is that these characters—Abraham and Jacob—make mistakes and move in fear, yet God keeps ordering their steps and blessing them. It’s been a good reminder that all I can do is my best. I’m finding some rest in trusting that he’s handling the rest.
DS (New York): JM, maybe this will help?
The Pelotaunt seems perfect for you. It’s the only exercise bike that provides you with personalized at-home negative reinforcement and relentless criticism! ;)