Irrational optimists win š
On seeing clearly through 'bubbles', Russia's dumping of the dollar, and the benefits of a balanced and optimistic view of human progress. This is Issue #017 of Forward.
Are we in a bubble? š¤
Itās hard to move around in tech or finance these days without someone referring to bubbles popping and signalling impending doom. The issue with this line of thought however, is that bubbles (with some good reason) are always considered the harbingers of downfall.
Is that always true though?
Maybe weāre all playing fast and loose with the term just because dropping it in conversation has become cool. What if bubbles were truly defined as, letās say:
An objectively irrational shared belief in a better potential futureā¦
But that doesnāt just describe someone bidding up asset prices; it also describes anyone who chooses toĀ buildĀ that kind of future.Ā
š Well-Behaved Bubbles Often Make History
Think Apple when the iPhone was in development, or Amazon in the heyday of the dotcom ābubbleā. Sure, the overall hype and hysteria in these sectors fizzled out extravagantly, but some very valuable products emerged from this irrational belief in what the future could look like. Even if they were not always the ones people initially bet on (*cough* AWS *cough*).
Our takeaway? Buy the ambition, ditch the hysteria.
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Thatās a nice house of cards š
Weāve talked before on Forward about how continued intervention by central banks in artificially lowering interest rates opens up a whole Pandoraās Box of problems. The latest impact can be pointed out in the bizarre way credit rating agencies are upgrading the ratings of companies in 2021.
The rationale? If these agencies are to be believed, yes these companies are taking on excessive amounts of debt, but it comes so cheap!
If you can issue bonds on the back of borrowing that benefited from artificially lowered interest rates, invest the sum in volatile assets like Bitcoin, and still get good credit ratings, why not right? š¤·āāļø
Hereās a quick explanation by Daniel Lacalle on why this system isnātā¦ the best idea.
Do svidaniya, dollar! š²
Studying Russian history is a fascinating dive into a rabbit hole of geo-politics and social policy. The Soviet Union and the result of regionās many experiments with economic systems offer interesting parallels to how much of the world is growing increasingly sceptical about market capitalism today.
It appears there is a new chapter starting in Russiaās role as a central character in world politics, as it has announced its plans to dilute its holdings of the US Dollar in favour of Euros, Yuan, and gold.
The Dollarās role as the worldās reserve currency, and the amount of control that gives the US in dictating terms of engagement on the world stage, coupled with the countryās increasingly risky economic policies, is making counterparts skittish.
If youāre into following soft power moves on the world stage, this not so subtle shift in the currents is definitely worth keeping an eye on.
The big money masterclass š
At Forward, we like to cut through the fluff and really pull back the curtain to analyse the individual cogs that make the global economic machine tick. We do this in the hope of sensitising you to the undercurrents of the world, so you can make more informed guesses of the future and invest accordingly. To āsee through the bubbleā, so to speak.
Every few issues, for the benefit of new readers, we also share resources that unpack the true nature of money.
If youād like to start with a surface level history lesson, check out this blog by our sister brand Yodaa.
š The Story of Money ā Past, Present, and Future
If youād like a proper crash course however, we highly recommend this webinar featuring economics professor Michael Hudson. [2 hrs, 12 min]
Money, you see is more than paper notes serving as a medium of exchange. In fact, as Stephen Livera argues, the very nature of fiat money may be causing humans to prioritise short term gratification in favour of long term thinking. Making us prioritise hunting for our next meal instead of advancing society.
Maybe thatās why Bitcoin currently has roughly as many users as the entire Internet did in 1997. And itās growing a lot faster.
āInvesting is the intersection of economics and psychology. The economics, the valuation of the business is not hard. The Psychology ā how much do you buy? Do you buy it at this price? Do you wait for a lower price? What do you do when it looks like the world might end? Those are the harder things.ā
ā Seth Klarman
Stuff we loved this week š
Marc Andreessenās been busy lately. We shared an excellent interview of his in just our last issue, and now heās gone and done another one. This time, heās answering questions from Noah Smith, and doubling down on his famous essay āSoftware Eats the Worldā, comparing softwareās influence on the real world to alchemy. Itās well worth the read.
Speaking of Forward regulars, itās been a quiet few weeks for us without something new from Balaji S. Well, heās back now, sharing his thoughts on China and the decentralised creator economy. [1 hr, 45 min]
In every craft, seek the expertise of its experts.
Feels like sound advice, so for anyone whoās participating in the capital markets in these strange times, here are 50 years worth of insights from Steven Cohen, chairman and CEO of Point 72 Asset Management.
Food for thought š”
When was the last time you took a step back from the glory of the digital world? How often have you marvelled at human endeavours like global logistics? Breaking the sound barrier? Manufacturing at scale? In this brilliant essay, Dan Wang reminds us about blending technological progress with optimism and a well rounded view of the world.
Want to develop a competitive edge in business? Maybe forget the advice of your average startup guru and eschew conventional VC wisdom and take inspiration from chess. In other words, āseize the middleā.
To close out this issue of Forward, weāll leave you with some wisdom from Morgan Housel on the difference between projection and reality, and why you should be kinder to yourselfā¦ and others.
Everyoneās dealing with problems they donāt advertise, at least until you get to know them well.
If you think this newsletter made your Sunday morning a little better, please spread the love and send it to your friends. Weāll see you again in two weeks.
Until next time,
Your friends atĀ NEO