The Plunge Praise Team

Jared Dillian | The 10th Man
April 16, 2020

The financial commentary community is pretty small, so I try not to step on any toes.

For years, I have observed the dedicated short Tesla community, known as TSLAQ. A spirited bunch. (Disclosure: I have been both long and short TSLA since 2013.)

For years, they passed around pictures of defective cars, assembly lines in a tent, and traded rumors of Elon Musk’s extracurricular activities.

Then the stock squeezed from $180 to $900, and something interesting happened: the TSLAQ guys became more right. They were ever more convinced of their own rightness, the higher the stock went.

Of course, anyone who was actually short the stock without any sort of protection got carried out. Once the short squeeze subsided, they were back in there yelling about how a stock that just went up 400% was going to go bankrupt.

Insane behavior, really. I mean, find another stock. Literally anything is easier to short than Tesla.

Financial pundits are generally split in half: the hard money types and the soft money types. The hard money types are bearish on stocks, bullish on gold, and hate the Fed. The soft money types are the opposite. The two types mostly hate each other.

The hard money guys go on hard money podcasts, and the soft money guys go on soft money podcasts. There is zero overlap. I have a lonely existence, since I am not invited to either party. I am chaotic neutral and will join the team that is winning at the time (more on this later).

Outside of a recent rally in gold, the hard money guys have not had much to cheer about. They’ve compiled exceptionally poor track records over the last 10 years. They have had struggle sessions on Twitter and complained about things. They have complained about passive investing (as I did), buybacks (as I did), moral hazard, excessive leverage, and all that stuff.

The trouble is, when you complain about something, you make it stronger, according to Nassim Taleb.

Then finally, after years of toil, the market crashes. Vindicated! But the hard money guys were right for the wrong reasons.

You know what happens next—the Fed backstops the whole system, and the crisis is averted. Looking into my crystal ball, I see years of compressed volatility, ultra-tight credit spreads, and stocks spinning off into space. Another 10 years in the wilderness for the bears.

Chaotic Neutral

Years ago, in The Daily Dirtnap, I laid out my philosophy on investing. My politics are libertarian, but I’m not a hard money guy like most libertarians. I’m not a soft money guy, either. I don’t care about being right—I care about making money.

The only thing I believe with any certainty is: nothing. I don’t care what is right, what is wrong, what is good, what is evil, which may seem like a relativistic slippery slope. But the market doesn’t care about your principles. For 10 years, principles have gotten you nowhere.

Do I have principles? For sure, I have principles. I have disagreed with buybacks for years, mostly because corporations destroy value when they can trade their own stock.

We have known for a while that buybacks greatly contributed to the stock market’s rise over the last 10 years. If you had the intellectual flexibility to disagree with a thing, and then trade on it anyway, congratulations! You are doing this correctly.

Chaotic neutral, as many of you know, is an alignment from the Dungeons & Dragons role-playing game. It is a set of values. The chaotic part means that you believe in randomness, not determinism.

The neutrality part is very hard. To be truly neutral, you must recognize that good people think they are doing good, and evil people think they are doing good. Everyone thinks they are doing good.

The neutral person views good people and evil people with some equanimity. They are both busybodies, trying to make the world in their own image. If you don’t get involved in these controversies, you can focus on making money. The only neutral country in the world—Switzerland—is also the richest. By a lot. Not a coincidence.

I wrote this in 2012:

This is known as a chaotic neutral philosophy, and the one thing that you can say about chaotic neutral people is that they are survivors. In politics and in life, it is principles that can get you in trouble, and there is no idea that I would die for. Why die for an idea? That is dumb. It is better to be alive. History is littered with the corpses of “lawful good” characters like William Wallace who were champions of a cause, and all I know is that it is better to not be dead. I won’t fight for a country, a flag, a church, a religion, truth, justice, or the American way. I won’t even predictably fight for myself. I’ll run.

My guess is that you strongly disagree with this. As an investor, philosophy is important. What you believe is important. There is no right side or wrong side—there is only the winning side. And you have to be able to change sides on a moment’s notice.

Porkulus

There is a lot of wrong out there these days. The federal government is bailing out a lot of companies that could have done a lot more to prepare for this day, but didn’t. That is wrong.

The Fed is lending to state and local governments. That is wrong.

The Fed is buying high-yield ETFs. Super wrong.

All of this is wrong. It also creates gigantic opportunities if you can do the opposite of what your heart is telling you to do.

In the European debt crisis, the entire short thesis was based on the idea that the ECB did not have the ability to monetize its debt. Then it did.

The cognitive dissonance was beyond belief. “They can’t do that!” people said. And they did. Eight years later, yields on Greek government bonds were negative.

We are having our ECB moment right now. Twitter is full of wailing and flailing and “haha money printer go brrrr.” Yes, capitalism is ending before our very eyes. It is unspeakably awful.

Might as well make some money off it.


Jared Dillian

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