Hope everyone is having a good July and enjoyed a fun 4th of July! We had a wonderful time teaming with my next door pit master throwing our second annual block party! We hired a wonderful young local musician (Shane Clark) as we devoured Phil’s BBQ and connected with our neighbors.
I had promised a few thoughts after attending several investment conferences this spring/summer. Given the large number of speakers, I will summarize a few points and focus most of my thoughts on the conference I attended live (Epsilon Connect). From April to June I attended the Strategic Investment Conference (SIC-virtual), Epsilon Connect (live-Nashville), and the Investment & Wealth Institute’s ACE Academy (virtual).
SIC (https://www.mauldineconomics.com/sic-2023/order-main) focused on both geopolitics and markets, and its organizer John Mauldin didn’t disappoint again with a lineup that included: David Rosenberg, Lacy Hunt, James Bianco, Louis Gave, George Friedman, Neil Howe, Frank Luntz, Liz Ann Sonders, Stephen Wolfram, and Felix Zulauf. The theme was “Thinking the UnThinkable”. Much like last year, speakers had wide divergence of opinions, but my general takeaways were that inflation will likely remain sticky (once again this was area of least agreement), the market is likely to avoid a deep recession in ‘23 (most thought a small recession likely), countries avoiding geopolitical conflict could outperform, AI will transform many industries as a revolutionary new technology, the Fed’s actions will continue to drive US market sentiment and to buy lots of popcorn for the drama of next year’s elections. My favorites were probably Dr. Wolfram’s discussion of AI (his math technology actually has a plugin to ChatGPT) and Louis Gave, who was spot-on last year and brought up interesting points on the potential gains from India given both their relative neutrality in the current conflicts and favorable demographics.
The ACE conference (https://content.investmentsandwealth.org/ace-2023-sandiego) had market experts like UPenn Professor Dr. Jeremy Siegel (VERY bullish), but the conference focused even more on advanced planning topics. Dr. Siegel had a fascinating slide showing the strong correlation of M2 growth to inflation (with a 2 year lag)—probably the simplest explanation of the inflationary environment and based on Milton Friedman’s theory that inflation was primarily a monetary phenomenon. If true, it would indicate that inflation has peaked (though will continue to drop only slowly) and equities will resume a bull run. Regarding planning, many of the tax provisions of 2017 will expire in 2026, resulting in lots of tax and estate planning considerations prior to 2026. We certainly have time, but these changes will affect those with high incomes, businesses and larger estates. SECURE Act 2.0 was covered as well, including the increase in age for RMDs and the added tax benefits for starting/maintaining a 401k. Roth conversions during bridge years (the time after retirement and before taking social security, meaning taxable income likely far lower) were also discussed.
Epsilon Connect—Vanderbilt Campus, Nashville (https://epsilonconnect.org see if you can spot me!)
I love live music. Listening to the radio, you know exactly what to expect from a song. Live music, on the other hand, is a conversation. Amongst band members. Between the band and the audience. And both the beauty and excitement is that you don’t know when a magical moment will happen. The artists take risks with the music. It’s one reason I especially like jazz as you’re expected to take risks… you’re expected to have a voice and people want to hear what you have to say. Sure, there’s generally structure around the music. You have a chord chart that gives you the tempo, the key of the music, the chord progression, and the ‘head (or top)’ which is the beginning melody of the song. (Now you know why musicians tap the top of their head—‘go to the head/top’). But artists have plenty of leeway to use their own voice. And if the musicians are at the top of their game, they are rewarded with a special moment and you the listener get to be part of it. That special moment can be magnified if there’s a unique environment or time surrounding that show. I’ve seen a few in Charleston—Ranky Tanky’s first return to Charleston after Grammy at the outdoor venue The Bend in ‘21, or Tommy Gill’s CJO interpretation of Gershwin’s Rhapsody in Blue in ‘2010 (4 yrs before his untimely passing), or more nationally shows like Ellington at Newport back in 1956 that I’ve heard about (resurrecting his career & changing the fortunes of jazz in coming years). But this conference not called a ‘conference’, even though in Nashville, was not about music.
As you know from my past notes, Epsilon Theory has been one of my favorite newsletters to help shape my macro view of the markets. A quick look at https://www.epsilontheory.com/called-it/ demonstrates they have historically done a good job with macro calls, including calls on inflation. Their unique lens of viewing markets involves decades of studies on how language and narratives within mass communication can be parsed against history, game theory and human behavior in order to be somewhat predictive of future trends. They have developed some interesting tools to help organize these mass communication trends, even before ChatGPT came into being. Now they use AI to further broaden the analysis, even helping members (yours truly included) understand and utilize the technology. This lens also gives them a unique insight into geopolitics, but I think leaves an important blind spot.
Back to the conference not a conference. Some called it a retreat, others an ‘un-conference’, others a colloquium. Interestingly, there was a sense of shared pride in being unable to name exactly what it was. What the heck was it? On the surface, it was an investment oriented gathering of leaders from different backgrounds with a common thread of “clear eyes and full hearts” discussing markets, citizenship and community. It certainly had good speakers (Grant Williams, Ben Hunt, Rusty Guinn and Brian Portnoy to name a few). It certainly had breakout sessions and opportunities to network. If you attend conferences, you know that interacting with the other attendees is usually the most interesting and useful part. It is here where I think this un-conference took on a life all its own. The un-conference was capped at 100 attendees in two separate sessions who all self-selected with the previously mentioned filter of clear eyes and full hearts. So it was small and full of truth-seeking big-hearted people. Next, attendees were told “everyone has a voice” and encouraged to participate to maximum extent possible. Next, there were no service providers or vendors and it was emphasized not to “sell anything”. Finally, there was a promise to dive courageously into timely problems of great interest to all attendees with the backdrop of living in the abnormal time of inflation, divisive politics and international conflict: markets—how to navigate portfolios (Investing in the Real), how to be a better citizen (Citizenship in Fiat World) and how to support those important to you (Defining Your Pack). Then you add other intangibles of it being the very first un-conference of its kind and that some participants had not ventured to a larger event since Pandemic. There were musicians at the top of their game, they were asked to take risks and speak out, and there was a ‘chart’ given to all attendees. So with that backdrop, what happened? There were thousands of meaningful conversations amongst a fully engaged group and everyone couldn’t get enough of the brain food and camaraderie. Sometimes supplemented with food, drink or music—it was Nashville, after all! Friendships were formed and actionable ideas abounded as I felt quite fortunate to be an active participant. Everyone else felt same way.
What was discussed? First part of conference was downright depressing. I think the organizers were testing their version of Stockdale’s Paradox on attendees (theory of how POWs survive: recognize hard truth of your reality, but maintain hope). Ben opened it up discussing a common ET theme: recognizing “the water in which we swim.” If something is ubiquitous, you don’t think about it… like fish don’t think about water. Narratives/stories are the loud ubiquitous water where we’re now swimming. And friends, it’s polluted. You may have noticed.
Rusty kicked off our first breakout session: “Citizenship in a Fiat World”. Fiat is Latin for ‘let it be done’, and means ‘declared as true’. Fiat world implies you are being told what is true even as it may or may not be the actual truth. I’m sure everyone senses that we are being ‘nudged’ by fiat forces into not liking each other. The un-conference calls it the ‘widening gyre’. The evidence from their narrative machine was depressing, if even you already feel it in your bones that something isn’t right. Not quite “When the Man Comes Around” (Johnny Cash)
“Multitudes are marchin’ to the big kettledrum,
voices callin’ voices cryin’…”
but forces that are doing everything they can to separate us and there is ample evidence of it working. At the end of the talk, the floor was open for solutions, which were discussed until the bell tolled for the next session. Yet, musicians didn’t want to stop playing and were going to find their venue.
Can’t have an investment un-conference without discussing investments. Ben headed up “Investing in Real”, implying trying to find ‘real’ value amongst all the fiat. Once again, much of the discussion initially was disturbing. The market isn’t being driven fully by fundamentals, it’s being driven by stories and flows (trading). Here again, you may have felt this in your bones, but Ben highlighted examples of how value oriented fundamental stock analysis has struggled since the Fed started quantitative easing in 2009. He also showed how US wealth has growth faster than GDP, very much in-line with the high debts. It’s what he calls, “the long now”—borrowing from future for more of the present. Warren Buffett, who has struggled vs the S&P since 2009, once paraphrased Benjamin Graham, saying: “in the short run, the market is a voting machine, in the long run it’s a weighing machine.” Well, the short run has become long, even though fundamentals never disappear even if beneath the surface. Thus, it was suggested the way through these markets is understanding narratives, trading off of secular themes, and not buying ridiculous securities. A warning was issued for risk assets when and if the Fed decides to raise the inflation target. Again discussions abounded long past the bell and the revolutionary technologies of AI, LLMs, blockchain, quantum computing highlighted as exciting areas of future growth. Interestingly, these technologies are considered highly deflationary, which will help the Fed—but it is very difficult to predict timing. Just like the song, the markets are Beautiful Crazy (Luke Combs)
“she’s unpredictable, unforgettable…
Beautiful crazy, she can’t help but amaze me…”
Long term, beautiful human ingenuity does not have an upper bound.
Next Rafa and Craig hosted a session called “Finding your Pack”. Perhaps they could have called it, “finding shelter within the storm of the gyre.” Amongst the main sessions, this was the most positive all around as we worked on identifying what identifies a pack and makes it successful in nurturing its members. Know that country song by Toby Keith, “I Love This Bar”? The final line is:
“… come as you are, I love this bar….”
A bar where people of all stripes chill in shared humanity. That was the feel of this session. Through polarizing politics, pandemic isolation, and the alienation of being told what to think, we need important people around us to learn, grow, support, protect and make things. It can be a shelter and indeed a place for the growth of ideas. Arguably, it is the source of most good ideas. Now the stage was set for the band members to improvise.
Ah the conversations! There would be no way to share all the ideas I discussed with others, let alone ideas shared outside of my earshot. And there were optional breakout sessions where some of these discussions occurred. Plus this note is really getting long and I need to wrap it up! We tried to tackle how to fight the gyre. If it was possible to fight it or if we were within Neil Howe’s The 4th Turning. How we could support each other through it regardless? How we could help protect our families, our packs, our clients and our portfolios? We discussed new useful tools created by ET to help identify the extent of us being ‘nudged’ into how to think (www.fiatnews.com) so we can better protect our agency. We discussed potential de-polarizing political solutions: campaign finance reform, term limits, third parties, and congressional apportionment amendment. We discussed what people are doing to build community, such as this wonderful project in San Antonio (https://atpearl.com/about/history/ ). We discussed the power of the pen and ideas to write more effectively. We discussed the business uses, self-defense uses, dangers, future and invest-ability of AI and LLMs. I sat in one conversation at dinner in the middle of three high power tech execs on topic, happy to say I didn’t embarrass myself and took notes even as I have much more to learn. I’m certain there were red/blue/purple/green/whatever parties all well represented, but you know what? Absolutely no ill will. It didn’t matter, we’re in this together. I love this bar.
Finally, at commencement, Ben started singing Tim McGraw’s “Humble and Kind”. Not really. But yes, he started with how the simple act of kindness is so powerful. And so against the power of ‘nudge’. Ultimately, everyone was challenged to find answers, not necessarily The Answer. Meaning, what bottom up good can you do within your circle that adds rather than detracts. I personally think society now is kind of like the emotional bank account within a marriage. The Pandemic was a huge withdrawal from this account as we were isolated. The huge amounts of money going into red and blue campaigns (https://www.opensecrets.org/elections-overview/cost-of-election?cycle=2020&display=T&infl=N) thrives off withdrawals from this account—the more we distrust, the more withdrawals are made from account “to save democracy”… and the more it brings additional donations. Yet, sit down and have dinner with your friend in the other tribe, and I think you’ll find “Most people are Good” (Luke Bryan)
“I believe if you just go by the nightly news,
Your faith in all mankind
Would be the first thing you lose.”
Ben commissioned group to start adding back to this emotional bank account (my analogy), even if it’s through small acts of kindness. And many are adding significantly back to this account every day, here are just a few from the CMOH I attended in April: https://www.cmohs.org/citizen-honors. They’re everywhere if you tune out the noise of nudge and don’t click on the bait in your NextDoor feed (true story) that says, “I need to VENT!!!!!!!! Because I’m MAAAD beyond belief!!!….” My translation: “I want attention and I know this will get clicks!!!!” “Changes in Lattitudes, Changes in Attitudes” (Jimmy Buffett)
I believe the conference in their initial negative bias missed something very important. Their narrative machine is based upon online sources: news publications, Facebook, Twitter, YouTube, Google search, etc. It does not, can not, include individual conversations between live people. Few of the thousands of Epsilon Connect conversations can be found or analyzed on the internet. There’s no way to measure the billions of conversations that occur between us daily. But I’d contend that these are, on balance, far less contentious. We act differently when we’re in the panopticon of Facebook or anonymity of our car. Yet if we’re looking at each other and having a conversation, our shared humanity more often finds its footing. It’s one reason why the conference was so much fun. Indeed, sociology studies from years ago have shown the same effect—we may have negative attitudes in a poll towards a group, but it plays out very differently when eyeball to eyeball: “Attitudes vs Actions” LaPiere. https://academic.oup.com/ije/article/39/1/18/716924 . I don’t know if this blind spot is enough to overcome some of their conclusions, but I do know that our reality is better than what some Facebook message boards would have you believe.
I do think I figured out a better name for this un-conference. Everyone had pride in the overall lack of judgement, lack of pretense, shared humanity and open communication. You may have heard that some smart people (esp in tech community) call each other “degens.” Sounds like “Friends in Low Places” (Garth Brooks) to me…
“… And I’ll be okay
Yeah, I’m not big on social graces, Think I’ll slip on down to the OASIS!”
My suggestion is “Epsilon Oasis.” Whatever it’s called, perhaps I’ll see you with the other musicians there next year.