Are we allowed to talk about Bitcoin?

Exactly.

This is where I think Mark Zuckerberg is screwing the pooch right now.

Facebook went from a rapidly growing thing into a mature business (as it existed) without that same growth potential anymore. The growth is what gave the company a steep valuation, though. Once you mature, you can become a cash cow, and if you can keep the business stable, it can be a boring company that throws off dividends for eternity. Think. ... the AT&T your grandparents owned a few shares of.

Faced with that, Zuckerberg has decided that he is going to take all of those earnings and invest in keeping the company growing. ... which can be a fine thing if you have a good handle on how to invest and a plan for it leading to almost certain growth quickly. But what he is doing is saying, "We are going to create the Metaverse." Which may be decades away. And he is spending billions of dollars on it, on the assumption that he knows what the standards and protocols will be, how exactly the Metaverse will take shape, and what demand there will be for it.

Not even Steve Jobs was close to being that good, where he could just predict a long-off future and create things in advance that people would demand.

I think he has forgotten. ... the thing that made him successful, Facebook, was not just something that was created that way. It was more that he stumbled onto something that people liked.

It's very difficult to predict a future the way he is and invest in the right things.

 

Yeah, once you get me going on these kinds of conversations, they can sprawl. But I think you are right about there being a temptation to grow too quickly. The biggest enabler of the kinds of mistakes you are talking about has been a really mispriced interest rate environment that made it really cheap to borrow a ton of money and forced investors to take on that risk, which in turn makes the lending standards poor. In that environment, a lot of potentially viable ideas catch a lot of equity and / or debt financing, and they get drunk on the money. Like it is burning a hole in their pocket. And a lot of them burn through an insane amount of cash and then crash and burn. ... even if their business idea was actually viable if done via more organic growth.

When interest rates aren't being manipulated that way, you get much less of the malinvestment I am talking about. To grow a business, you have to do it organically. You essentially create something and if people like it, they will buy what you are selling. You use that to profit, and then take your profits and reinvest them in the company to try to grow and keep feeding demand. It forces yourself to keep proving your concept along the way. You grow with money that you actually earned (which makes people act more prudently). And it makes for more sustainable businesses. Unfortunately, the world has moved away from that kind of normalcy.

 

When pension funds-- which have historically been able to meet their obligations with relatively safe, fixed-income assets (a monkey could run a pension fund) -- are making speculative investments like this was, it is indicative of how much the zero-interest rate environment has created distortions. You never find out about the rot until you get a rising interest rate environment (usually because they unleash consumer inflation and feel forced to tighten economic conditions in a hamhanded way).

This is a fund that in a free market environment, would have had the bulk of its assets tucked safely in high-quality corporate bonds, government of Canada bonds and T-bills. Instead, it has a portfolio stuffed with real estate, publicly-traded stocks (which carry risk) and equity in very speculative private companies and partnerships like FTX. It's because they were forced to move farther and farther along the risk spectrum to try to earn a return that could meet their obligations.

It's all fine as long as an everything bubble is being blown. The risk they've been forced to take on is masked (until the fantasy ends) by everyone being a genius, because asset prices are being driven higher by a wave of liquidity that is being unleashed.

This is what more than a decade of mispriced debt markets creates; they have robbed savers (pension funds and insurance companies, retirees, etc.) in the name of managing the economy and creating a mirage of economic growth that included a lot if debt-fueled malinvestment. Now that we have a rising rate environment for the first time in forever -- and with how bad inflation is, real rates are still negative, so the bubbles are still being propped up artficially -- we are seeing a few cracks. My question is, what other highly speculative and risky things that can't afford a higher rate environment are sitting in pension-fund portfolios waiting to create a hole? We will find out if they lose control and the bond vigilantes can ever wrestle away control of the rates markets from them again.

The misguided policies that have created this environment were designed to steal growth from the future to fund sugar highs. When you get in as deep as they have, and the mountains of debt they have spurred crumble under the weight of the malinvestment it created, we all suffer. And that suffering has serious potential to drag on for a long time.

Healthy, sustainable growth is driven by real demand, and the engine for the investment in a healthy economy is savings (things like pension funds). There isn't a short cut. We destroyed all incentive to save (therefore we are not getting smart investment) by allowing the debt markets to be price fixed by some appointed czars who rationalize the distortions they create as "managing" the economy. When their real purpose is to monetize debt (which benefits politicians who are focused just on the short-term benefit to themselves).

The cost of money (interest rates) is the most important price there is in a market economy. When you intervene -- by price fixing short-term rates, buying trillions of dollars of bonds with money you create out of thin air, to drive up prices and drive down yields, etc. -- you destroy the signals the market gives participants, and you make it impossible to calibrate risk. It's how you end up with a teacher pension fund taking equity in something like FTX.

 

Was he pitching a hagiography or a crypto-revolutionary movie?