The 10th Man

1984 Was a Warning, Not an Instruction Manual

June 15, 2017

A little bit of paranoia is always healthy.

In the 1980s, the totalitarian fear was that some overenthusiastic government agent would go to the library and pull your library card to see if you were reading seditious texts.

Seems a bit quaint now, doesn’t it? 

It didn’t at the time.

Of course, the East German Stasi went to those lengths to spy on its citizens, but there was never any real danger of it happening in the US.

Fast forward to today.

  • Facebook knows who your friends, friends of friends, and acquaintances are. It knows what you look like, and what your friends and family look like. It knows what TV shows you watch, what music you listen to, and in all likelihood, your political activities.
  • Amazon is today’s library card—it knows every book you’ve ever ordered, along with more pedestrian purchases like vitamin supplements.
  • Netflix is a database of pretty much every TV show and movie you’ve ever watched.
  • Google has a repository of every Internet search made by every American citizen.

F, A, N, G. What does that spell?

Those four stocks have outperformed over just about any timespan.

Does anyone else find it more than a coincidence that they are also potentially the biggest threat to online privacy?

Like I said, that library card thing seems a bit quaint.

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Citizenfour

Upon hearing the Edward Snowden revelations, we discovered we were living in a turnkey totalitarian state.

We learned that the NSA was using pretty much every electronic means available to spy not just on our enemies, but also our allies—and every American citizen.

The intelligence services derived this authority directly from the Patriot Act. This should serve as a reminder that any piece of legislation that passes virtually unopposed in the midst of a crisis is probably bad.

So yes, it is likely that the government knows who your friends are, your political activities, what books you read, what movies you watch, and what you search for on the Internet.

I would bet that it knows all of these things.

Does it care? 

Probably not, unless you simultaneously search for “ISIS” and “Improvised Munitions Handbook.”

But the great libertarian fear is that one day we will have a government that is not so benevolent. And it will know the movements and activities of every person who voluntarily carries one of those surveillance devices with them every minute of the day.

Virtually every aspect of our lives is recorded, unless you arrange to speak with someone in the middle of an open field. And maybe even then…

Divergent

So far, this reads like some dystopian YA novel. I am getting to my point.

It is one thing to bet against Facebook, Amazon, Netflix, and Google—to say that they are overvalued, and to sell them short. That may be a good trade.

But it is unlikely that they will ever, ever go out of business. And it doesn’t really matter if they are profitable. They aren’t “too big to fail,” but “too important to fail.”

I blow minds for a living.

These companies vary from insanely profitable (Google) to somewhat profitable (Facebook) to not at all profitable (Amazon).

People have been complaining about the insane valuations for some time. They’re missing the point.

As I said, it’s not a matter of how profitable these companies are—but how important they are. Not just to you and me, but to Uncle Sam.

Do you think Uncle Sam has an interest in seeing Facebook fail? And to think there was a time when people thought it was the next Myspace. It is immune to obsolescence. It will be around for a hundred years.

Let’s go back to 2011 for a minute.

I posted on Zero Hedge shortly before the Facebook IPO that I thought Facebook would be the first stock to reach $1 trillion market cap. It’s not very well-written by my standards, but read it anyway. Remember, this was pre-Snowden.

The article got very poor reviews (because Zero Hedge commenters are always bearish), and I no longer believe that Facebook will be the first to reach $1 trillion. It will probably be Google or Amazon.

But the point I was making in 2011 stands today—it’s not so much about profitability as it is about importance.

Having Said All That…

I’ve said before that the US stock market is not a bubble.

I’d like to revise those comments—the US stock market is not a bubble, except for a handful of stocks.

Tesla loses money on every car sold and is worth $60 billion. Investors have given Amazon 20 years of runway and there is hardly a dollar of profit.

Which leads us to our quandary:

  • You pretty much have to own these stocks, because otherwise you underperform the index.
  • But you can’t own them, because they are stupid.

What to do?

It gets back to our discussion on volatility, actually.

Same quandary:

  • You can’t be long volatility because the market doesn’t move.
  • You can’t be short volatility because it’s too cheap.

Let’s combine these two concepts.

Stop trying to trade the stupid VIX and go back to plain vanilla calls and puts.

The cheapest options on the board are slightly downside puts in Facebook, Amazon, Netflix, and Google.

There’s no skew.

Implieds are low.

The market is giving you free convexity, practically.

If one of these names has a 10% blowup, it’s a big winner.

It also has the advantage of being the dumbest trade imaginable. If you went on CNBC and said you were buying puts on FANG, you would get laughed off the set.

Which means it’s probably the right trade.

Along these lines—you have to check out the June episode of The Monthly Dirtcast. I’m interviewing Dean Curnutt, CEO of Macro Risk Advisors, and he had some pretty profound things to say about trading volatility.

We’ve had a lot of “lowbrow” finance TMD episodes—this is “highbrow finance.” 

Hope you’re ready.

Jared Dillian
Jared Dillian

 

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Comments

jack goldman

June 15, 12:29 p.m.

The point is not profits. We have counterfeit currency. EVERYTHING is FREE. Profits no longer matter if everyone works for free, paid with free electrons. This is why markets don’t work. A business can lose money for decades and it does not matter. Governments can spend forever, unlimited debt, because debt is global fake counterfeit money. We don’t have markets, we have RIGGED markets. It’s Communism 2.0, globalism, and everything is FREE. It really is different this time because we really can print prosperity. Social Security and Medicare are FREE programs, paid for with FREE counterfeit currency. In real US Treasury silver dollars, real money, the economy is grossly different than the economy measured in counterfeit currency. We are hypnotized by fake news, fake information, fake businesses like the FANGs, and fake lives. We are living a grotesque 1984 Big Brother fake life. Public school teachers teach fake information, to go to fake University to get fake safe zone affirmative action diplomas. It’s all fake. FANGS are fake. That is why FANGs prosper. Real companies making real stuff we really need are dying. FAKE businesses prosper in the fake world. I don’t recognize this chicken shit fake world anymore. I hunt, fish, grow a garden, raise children, build houses, while the fake people prosper and I die on the vine trying to make it work. Real families are dying. People stop getting married and having children. It’s all upside down and backwards from 1966, just the way the globalist Communists wanted it. Globalism is destroying our traditional lives. Good luck.

Carl Froebel

June 15, 10:47 a.m.

This would have been actionable if it was released when you wrote it.  Since Mauldin’s editors needed to review it these stocks have already tanked 5%.


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