Dearth, Wind, & Fire


California dreams are becoming nightmares.

The state - known for perfect weather and picturesque everything - continues to be on fire. According to the California Department of Forestry & Fire Protection, 252,673 acres have been torched so far in 6,541 discrete fires.

In a way, those are good numbers. An average of 404,368 acres burned in each of the last five years. The improvement likely has something to do with a mandatory “de-energization” instituted by Pacific Gas & Electric, which shut down the grid in many places so that tree branches wouldn’t spark fires when they flew into power lines.

California is America’s largest state economy. And a dearth of proper planning means its activity can literally get blown away at certain times of year. This is the economic cost of climate change made tangible; one of many instances where a management team mortgaged its community’s future for a chance at short term profit.

Imagine what the world might look like if nothing changes: The wealthy buy solar panels and generators while less fortunate folks make do in the dark. Extrapolate that forward, and it starts to sound like what’s imagined in H.G. Wells’ The Time Machine. In that short story, human society has striated into two distinct races. The fragile Eloi (who live in the light) and the terrifying Morlocks (who live in the dark).

The illustration below should catch you up if you haven’t read the text. What can be done to prevent this?

On this episode of Free Money, Ashby and I talk about where to find the $70-$200 billion dollars it will take to gird California’s grid against future interruptions. We also show off a few new sound effects.

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And as always, we take questions from listeners. This week we answered:

  • What the heck is Modern Monetary Theory?

  • Are you two still drinking secret toasts to the health of Michael Bennet?

  • You two seem to concentrate on “boil the ocean” type problems. Have you ever been able to declare success in anything?

Morlock from Kaibutsu Gensō Gashū illustrated by Tatsuya Morino

Misogyny and Maple Syrup


Does misogyny cost money? 

Yes, but not enough.

Ken Fisher - who runs the eponymous Fisher Investments - has a long history of inappropriate invective. One particular instance earlier this month at an investment conference triggered an outcry and then outflows of about $3 Billion.

That response took remarkably quick action from the asset owner community. On this podcast, Ashby wondered aloud why these large institutions were quick to respond when a man says bad things, but drag their feet when it comes to deeper issues of racism, climate change, and technological disruption.

Good questions to ask!

But I wonder why Fisher doesn’t just lean into sexism. His Camas, WA advisory firm is only about three percent smaller after all of the fallout. I even went ahead and mocked up a new ad campaign featuring the man’s prodigious forehead.

It could work! Misogynists need money managers too.

Anyway, we also took questions from listeners. This week we answered:

  • What’s the worst name you’ve ever come across for a financial services firm?

  • What do you believe about investing, but know that you could never prove?

  • What’s the best investment advice you’ve gotten from someone outside the industry?

How to Hedge against the Heterosexual Ideology


Capital markets are an inherently queer place. Securities produce financial returns by manifesting intrinsic value.

Or as some might say, “living their best life.”

As America’s leading loft-based finance transsexual, the inherent gayness of creating shareholder returns this way has long been old news to me. But while Ashby and I were discussing queer issues on this latest episode of the Free Money Podcast, he reminded me that some have been working to exclude companies which support (among other things) the “LGBT Lifestyle” from their investment portfolios.

The Inspire Global Hope ETF (BLES) is perhaps the largest such fund. And with roughly $150MM in assets under management, it’s no behemoth. But with a slightly bigger base of assets, it might form the basis for a poetically beautiful pairs trade. That’s where investors buy one security and bet against another, hoping to profit from the difference between their performance.

The chart below shows:

  • The aforementioned BLES ETF in khaki (the official heterosexual color).

  • The LGBT Employment Equality ETF (PRID) in lavender (the official gay color).

  • The MSCI ACWI index in black (the official color of benchmarks).

An investor who bought PRID and bet against BLES at the beginning of 2018 would have captured a 12.7% performance spread before fees and transaction costs. In other words, if this fund gets a little bigger, one could build a business around betting against it.

Here’s hoping.

Have a listen to the podcast for some further discussion about queer issues, coming out, and (as always) pensions. And for fun, here’s a picture I took right before coming out two years ago and a selfie I took yesterday. You might say I’ve womanifested some intrinsic value in the meantime.

Pascal's Wager and the Religion of Climate Change


Fox News host David Webb accused American Liberals of “turning climate change into their religion” last week.

An interesting thought.

Pascal’s Wager came to mind while Ashby and I were exploring it on the podcast. It’s a 17th century philosophical argument about the existence of god advanced by the french polymath Blaise Pascal. The gist: humans bet with their lives that god either does or does not exist.

He argued that a rational person should live as though god exists. If they’re wrong, they avoided sin for no reason. But if they’re right, the potential gain (an eternity in heaven) is infinite.

I think this logic holds for climate change. If we’re wrong and the planet isn’t dying, we’ll have cleaned it up for no reason. A specific loss. But if we’re right, the potential gain is infinite.

To me, it’s an easy choice.

Check out the podcast to hear us talk through the logic in more detail. As always, we answered questions from listeners. Write with a question and we’ll answer it in the next episode!

  • HBO’s show succession features a plot line where investors from a Canadian pension fund issued the most creative and aggressive swear words in the entire series. Is this realistic? I thought Canadians were nice. 

  • I saw that someone tweeted candid, negative comments about a startup and caught a lot of flak. Why is outward positivism such an entrenched norm in Silicon Valley?

  • Why do we keep calling it a risk free rate when there is no risk free rate? 

If someone forwarded this to you, don’t miss the next one!

Rethinking Risk with Rick Bookstaber


If financial risk doesn’t confuse you, you’re not paying attention.

That’s advisable.

Market minutia gets treated like breaking news around the world, and people listen even though it’s “a tale told by an idiot, full of sound and fury, signifying nothing,” as the late Jack Bogle told me in 2017 (and Shakespeare wrote a few hundred years earlier).

But the mad moron has a megaphone. Traders listen and then act altogether, which makes them feel like risk exists in two states: on and off.

It’s not so binary in real life.

I’ve pasted a slide from Deutsche Bank’s 2019 market outlook below. At first glance, it shows that risk comes in at least thirty flavors. But seventeen of the scary things it lists have happened, and US Equity markets are just a hair’s breadth from all-time-highs.

So are these things even risks?

Ashby and I weren’t sure when we sat down to tape the last episode of Free Money, so we decided to phone a friend: Rick Bookstaber. He’s the chief risk officer for the University of California’s investment funds—which oversee roughly $120 billion—and a founder of the financial technology firm Talagent.

Before that, he developed risk models to assess vulnerabilities and help stabilize the U.S. financial system at the US Treasury after the financial crisis and served as chief risk officer at Bridgewater, Moore Capital, Solomon Brothers, and Morgan Stanley. He also wrote The End of Theory, an in-depth look at how to account for the human complexity of our financial system.

In other words, we were glad he picked up.

We talked about how agent-based modeling can be used to build a better picture of what’s happening in the markets and why you’re better off ignoring the ones which most often make headlines, like Brexit and the trade wars.

Then as always, we took questions from our listeners. Check out the podcast to find out how the office ball pit below featured in our conversation.

  • I am an Indian citizen, but has kept its money in Swiss bank accounts since my grandfather's time. As of this month, government has all my account details. I'm worried they are going to take my money. What can I do?

  • I run a venture-backed startup in Austin, and the firm that led my "A" round is based in China. I love working with them, but worry that the trade war will somehow affect their ability to follow on in later rounds of funding and doom our company. Am I wrong to worry about this? What should I do?

  • I'm a few years out of business school, working at a multinational company that signed onto the Business Roundtable's recent statement about shareholder value. Their words are nice, but nothing seems to have changed. Should I whistleblow? Would anyone care? Would it help?

A ridiculous office

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