Investment, if treated as a competitive sport, must have organized leagues. We of this thread are mostly of the Cautious Opportunistic League. We believe in technology, but also realize that investment is not about technology. We played to win absolutely during the earlier phase of this game, and we are now playing to preserve our gain on a relative basis.
We treasure the big picture ideas of the true believers of technology, however we do know that the big picture of one year is the same as the big picture of 52 weeks. The big picture of outrageous valuation is just that, outrageous. We choose to be not loaded up on and weighed down with technology shares during the end game of mania, and we avoid debt.
We read Business 2.0 and The Industry Standard, and we reflect on Castaway.
Economy of One
Tom Hanks achieves hard-landing in the vicinity of an uninhabited island. He keeps himself alive by engaging in the simplest of activities … picking coconuts for both food and water, and for construction material. Having picked more coconuts than he required consuming in a single day, he has created a stockpile of coconut savings, thus allowing him the time to find appropriate materials and fashion a fishing spear. He now has created disruptive technology.
After stockpiling a savings in coconuts and dried fish, Tom now builds shelter, plants a garden of coconuts and stockpiles more material for fishing spears. A raft is also built.
Economy of a Few
More castaways wash on shore. All willingly abide by civilized laws of franchise, property, and contract. Each castaway specializes in a different activity necessary to sustain life of the now enlarged grouping. We have shelter builders, fishermen, coconut planters, warriors, and, of course, a banker. These castaways economically interact via contracts. The contracts can be traded on a central market place.
A system of credits and promises is created, denominated in accounting coconuts, and a system of pricing denominated in the same accounting coconuts. The amount of total credit and promises in the economy is tallied at the end of each day and compared to the annual expected production of real coconuts. The amount of total assets in the economy is similarly tallied at the end of each day, compared to the annual expected production of real coconuts plus coconuts in the banker’s cave. A system of savings is also created, whereby castaways can save their excess coconuts in the banker’s cave. The banker can also loan out the coconuts to deserving castaways so that they can consume the fruit while working on some great enterprise or technological invention.
The banker does not allow “excess” contracts to take affect when the marginal accounting coconuts required by these contracts exceed the annual expected total production of real coconuts, plus coconuts in the savings pool.
Accounting coconuts are a fairly constant number, increasing only when new coconut fields are either planted or discovered. Actual coconut count rises and falls with severity of storms and productivity of coconut planting and exploration.
The pool of funds, defined as coconuts available for consumption (one year's expected production plus savings stockpile in caves), supporting great enterprises and inventions, remain limited, and bears some resemblance to actual production of goodies (things worth their coconuts).
Economy of Many
As the island’s economy grew, more youngsters created, more technologies became possible, and more bankers banked coconuts, a wise maestro banker convinced others in the community that he ought to be made the Central Banker of coconuts, managing the ebb and flow of accounting coconuts and not be limited by the productive capacity and savings stock of coconuts in the economy.
Paper coconut was born.
Inflation was defined as the introduction of more paper coconuts than was justified by the productive capacity of the economy.
Thus defined, inflation some times caused a price increase of aggregate goods in the economy; at other times cause a price increase of aggregate contracts in the economy.
Once upon a Time
The Central Banker allowed too many paper coconuts to get in circulation, above and beyond any reasonable useful economic production. The mania of paper coconut creation triggered a massive consumption boom, resulting in empty banking coconut caves, duplicate and idled infrastructure, outrageous prices for contracts, and massive debt unserviceable by years of future production.
The pool of funds became poisoned with bad coconuts.
Some in the community say the Central Banker must let the paper coconut edifice collapse and debtors to become indentured slaves until their debt paid.
Some in the community say the Central Banker must print still more paper coconuts.
We of the Cautious Opportunistic League believe the Central Banker should retire, along with the excess paper coconuts, and while at it, the massively leverage members of the community ought to be made to sell everything they have to us at cheap market clearing prices and get back to work if work is to be found.
Chugs, Jay |
