The issue I have with free trade is that nothing is ever free. By having “free” in the name, we are distorting the reality of the situation and not thinking about how the costs of free trade actually change in good times and in bad, like a pandemic. One economic shock can quickly erase all prior gains of free trade. If your TV costs $200 in the good times, but your ventilators cost $500,000 in the bad, you can see how the savings equation becomes a flawed argument.

It is easy to argue in support of free trade because, in theory, it does save consumers a little money, encourages specialization, and that it’s also a healthy way to work with other countries. That argument, however, misses one very important point: what are the costs of free trade when a major shock happens? Today, we have a shortage in medical supplies, medical equipment, and drugs not only because of the global pandemic, but also because in America, we don’t make any of it. We’ve had a decade long love affair with free trade, run by a generation of corporate outsourcers and bailout lords (had to do it), and it’s showing its weakness now.

In my view, free trade has made our supply chain vulnerable. By outsourcing our entire manufacturing sector, we’ve exposed ourselves to a serious risk in a time of need. At this moment, we need medical supplies and we can’t do it. We are waiting on ships to drop them off at our ports. A strong supply chain and manufacturing sector is invaluable in times like this. You can’t put a price on it. As prices sky rocket and supplies run short, the consequences of free trade are simple — all prior savings will be wiped out. It is the Turkey Problem, re-formatted:

Going forward, as an investor and trader, I will be fascinated in pushing this cause. Maybe we should be manufacturing at least some percentage of GDP at any given moment or focusing on industries that are of national security importance. Another thing I am thinking about is why we give so many Internet retailers tax advantages to airdrop cheap outsourced goods from overseas while avoiding interstate taxes and real estate taxes when we could divert those advantages toward manufacturing or real production. I would think one of these industries, over the long-term, is far more favorable and deserving of a tax advantage. We don’t need cheap pizza cutters imported overseas by Amazon when the country is trying to handle a pandemic, we need equipment.

I am also interested in this manufacturing problem to find opportunity. I wonder why, in America for example, we have not made any great leaps in terms of automation or robotics for manufacturing. The fact we are still paying people to sew shirts together is somewhat of a bummer to me considering how often we talk of our genius technologies and put them on magazine covers. Perhaps there is opportunity to fix that.

That is all for now. Thanks for reading.

These days, a common thing I am hearing is that a “company is too important to go under” or “a systemic risk, it can’t go under.” I don’t like these arguments at all. They are based in fear. No single company has ever been the backbone of America, in-fact it’s quite the opposite. Maybe, when companies fail, or on the verge of failure, pandemic or not, the market is telling us something very simple: this company is worth less today, than yesterday, because things have changed and are going to change.

I am rooting for a vaccine. I am consciously moving away from my old ways of living and now investing in things that we need for the future. I think about the stimulus bill and I wonder why hospitals, biotech companies (this is who will find a vaccine!), and protective equipment companies did not get much help at all. I wonder why, instead, we bailed out companies and industries that potentially will never be the same again and have very little use at the moment.

A sad thing, brace for it, I have been thinking about is that without a vaccine, this pandemic could last for 12 months, maybe longer. I find it hard to see why it would just suddenly disappear overnight. This isn’t a reason to be scared, it’s a reason to prepare. I think about how airlines and airports have suddenly gone empty because people want to contain the spread and not get sick themselves. This is incredibly smart behavior and I am on my feet applauding everyone doing this. It also demonstrates the point I’m trying to make: the sudden consumer change in preferences is smart, warranted, and it’s possible everything we did in the past no longer makes sense in the future. What were good businesses back then, more no longer be.

We are potentially doing ourselves a disservice to future progress by keeping old ways of doing things alive with bailouts and not rewarding the things that are working or needed now. There are very few countries that have free market principles and freedoms like the United States. There is no coincidence that the United States is where it is today. The smartest, the ones who adapt and are needed, move up. The others, the ones who did the opposite with reckless behavior or bad decisions, move down. That’s how progress is made. When you keep the wrong people in power, not only are we setting ourselves up for similar behavior in the future, we are also, more importantly, holding back those who are needed at this moment. We are literally stopping survival of the fittest in its tracks. I don’t think she likes being stopped in her tracks.

While looking through the latest bailout package, it appears that we once again are failing to reward the good behavior and instead are rewarding the bad. Companies on the verge of failure, because of buybacks and no cash, should get wiped out. Equity gone. The shareholder class needs no more support, they got lucky in 2008. We also have the best bankruptcy and restructuring courts in the world. Companies near failure should use those courts, because not only were they managed recklessly with absurd buybacks, no cash, leverage and large CEO salaries, but also, they may not have a place in the future like they once did. Sending money to companies so we can keep a few employees walking empty hallways is unproductive and lost resources when they’re needed somewhere else.

What’s more important is that the $500 billion that went to poorly run companies should have been diverted to biotech companies, hospitals, and protective equipment companies to prepare for the future and save as many lives as possible or find a cure right now. I heard that a hospital in New York is so unprepared they called a frozen meat truck in to help take bodies away. Hospitals, for example, could hire tons of people with that stimulus money and we would be investing in something that’s needed now, not a black hole money pit run by awful risk mangers. I am a huge supporter of the added benefits to unemployment insurance, but we could have done more. Give people 12 months of pay, even if the unemployment rate were to go to 30%, at least we would know 30% of people are still getting paychecks for a year until they find and invest in future progress.

On Twitter, many people ask me about the bailout package or they think I am being too hard on certain CEOs and irresponsible companies. I find that amusing. I am going to be rather harsh in this next sentence, but it needs to be said to those corporate apologists: I highly doubt these companies and CEOs care about you and your portfolio before they do about their own. Even your elected officials were selling stocks in February using inside information about the virus. In times like this, your own risk management deserves all of your attention, I don’t think you want to give someone who pays themselves 500x their average worker the benefit of the doubt.

Ultimately, we should be thinking about new emerging technologies and consumer habits that will come from this societal change and we need to be investing in our front line of defense more than ever.

That is all for now. Thanks for reading.

I often think about the tech industry and how I *never* hear stories of them needing a bailout. I recently read that Apple has so much cash on hand, and lean operations, that the company could last for more than a year without moving. Literally, just sit and drink coffee and they’re good for 12 months, all 100,000 employees.

I think this goes back to 2000, when the DotCom Crash happened. No tech company was bailed out back then. No stimulus was given. The tech industry was largely left on its own. People were wiped out! Businesses lost everything! The bad managers took a risk and learned from it or disappeared.

They were forced to find new leaders and recreate. That is the difference between them and many of the corporations who are on the verge of being bailed out for a second time. Between 2008 and now, irregardless of why, what we’ve found is that once again, many companies took out credit card bills not even a 17-year old could accomplish with an unlimited AmEx card. At a certain point, pandemic or not, it’s just reckless.

Watching companies fail is not fun. It’s sad. Failure, however, is an essential component to progress. It’s what weeds out bad actors or bad decision makers. It’s also what opens doors for those who actually survived. If you failed, move aside, and if you succeeded, you move up.

Risk and reward is what all great achievements are founded on. Someone, somewhere, risked their time, money, and effort to succeed or potentially fail. What I’ve come to realize, however, is that we have a generation of leaders who are no longer interested in what you’ve risked or how you’ve failed, but, instead how you can get bailed out. The leaders of today have paid themselves 300x, 400x, and I’m not joking, sometimes 1000x their average worker salary all while keeping no cash on their company’s balance sheet for a rainy day. Meaning, what we’ve done is bailout a group of leaders two different times for the exact same reason: no cash, huge debt, and enormous leverage. At a certain point, someone has to make a stance: you can’t have both, free market salaries and constant bailouts. You must pick one.

Before you jump on me for sounding insensitive to a global slowdown due to a little virus we will never see with the naked eye, let me direct your attention to why I believe we are in this position again: we keep bailing the same people out, and by keeping them in power, we enable the same bad habits to go on. That’s what this post is really about, getting rid of bad leadership, bad banks, and bad corporations no matter the reason. No one is allowed to take risk without any downside. In 2008, we messed with this almighty equation and it’s never truly gone away. We removed risk for a small group of people and we gave it to everyone else. It’s why we still have no real wage growth for everyday Americans and massive, absurd, megalomaniac wealth at the very top. You can’t kill Risk and Reward without consequences.

A gray haired historian with round spectacles picks up his head and says: “Why yes my good sir, America was never founded or meant to be a place where a small number of people get to take risk and have no downside. Actually, it was built on quite the opposite. Free to succeed and free to fail.”

Today, I am all for bailing out the small businesses, the underdogs, the very thing America was founded on. They got burned in 2008 at the expense of big banks and they can’t get burned again. Someone recently calculated that if we do $6 trillion in stimulus, we could actually send $45,000 to each household. That’s where the bailout should go. We should send no more money into the black hole that is soulless corporations where companies are run so poorly the CEO has more cash in his personal bank account than on the company’s balance sheet. I have no friends and no family members who would ever run their household the same way our current generation of leaders run their companies.

I like failure. I have been through it and I have learned to grow from it. I know of no great people who have never failed. The best people, the absolute leaders who you want to be friends with, have failed horribly, learned from that, and made their way out better than before. Redemption is beautiful.

Before I conclude my lovely rant, I would like to point out that a *RECORD* number of CEOs quit, miraculously, right before this all started in January and February. They knew, and they ran, but of course they lined their pockets first. Their only downside today is finding out their favorite restaurant is out of wagyu steak. They need no excuses. No one needs to defend them any longer. These people have raided America for enough money and until it stops, the bailouts will go on at the expense of everyone else, and the future will continue to be socialism for the top and free markets for everyone else.

Thanks for reading.

In financial markets, it’s said over and over, that it’s not greed that drives the world, but envy. Everyone is always so interested in keeping up with the person next to them or the returns they have, that it pushes them into wanting to follow them, take risk like them, get “rich” like them. It pushes them to do things they would have never done before or act like people they are not.

Peer pressure may seem elementary, but it extends to many things beyond just human interactions. It is in abundance in financial markets. Hearing of godly sums of money and wanting to be near it has been in markets since the dawn of the Buttonwood tree. Visions of grandeur. Illusions of money raining from the heavens.

I write this post, because as I reflect on market dynamics of the last two weeks, I am now hearing stories that bother me. First off, if you can’t take a 30% drawdown in markets you should not be invested. People too often forget that a large portion of investing is making money off of other people’s money. That is not a noble pursuit no matter how you cut it. In the Financial Crisis, when I was just getting started, I learned that lesson in a very harsh way. Quite frankly, I wish I left this industry and got into something that actually changed and helped the world. Sadly, today, I am a trader through and through and it’s what I do. It’s what I am.

Sometimes, I take a crass approach to it all, but I believe people need to remove the image of riches they have in their minds that supposedly come from markets. There is no free money. You can’t put a price on peace and harmony. It may be ridiculous for me to write a message like this now about markets while they are down, but no one wants to listen in a bull market. Everyone only wants to cheer. I hope I have your attention because I think, going forward, as a society we can do so much better being less focused on financial markets, CEOs, magazine covers, and the modern hype machine. We can do so much better focusing on the sciences, something real, or any other pursuit beyond somehow, magically, turning one dollar into six.

For those who remember the Financial Crisis, this same message was echoed, yet we clearly learned nothing from it. I mean, I just can’t even begin to fathom that practically 10 years since the Financial Crisis, since the modern world almost ended, we are on the verge of bailing out companies again because of the debt they took out and the enormous sums of money they spent on buybacks or themselves. When I was 4 years old I had a piggy bank. I don’t understand why companies or corporate mangers can’t do this today.

One final note, while I am on this, is that I would like to see more young people get leadership positions. I am exhausted from the current generation of leaders. They were there in 2008 and here they are again, bloated on excess. Look at Boeing’s balance sheet. Look at Marriott’s balance sheet. Look at the airlines’ balance sheets. There is nothing there, but a failure of risk and a failure of understanding short-term excess jeopardizes long-term success. I’m not joking. There is nothing there besides this idea that they could leverage the future cash flows on their own riches now. Sure there’s some IP (intellectual property), but what the f*** is IP when you’ve been hacked 100+ times. They get no excuses.

That is all for now. See everyone next week.

One thing I have actually learned about difficult times, if there’s anything to learn from them at all, is you learn who the toughest and realest people are. You also learn who the weakest are. The ones who played you the entire time.

As of late, I have been somewhat outspoken toward certain figures in our society. The ones who have taken the latest bull market to gloat, write books, and to constantly pound their chests about how good they are. What I find strange about these people is that when times get tough, they disappear. They take off. In my view, these people pillaged for themselves in the good times, just to run away with the loot in the bad. Many CEOs during the Great Financial Crisis proved to be experts at this.

Anyone can show off in a bull market. It is not hard.

Practically no one shows off in a bear market.

So when markets are dropping or cratering, I always turn my attention and remember those who celebrated on the way up and then went silent on the way down. These are the people I want to *avoid* because I do not believe in their moral or ethical code. The people I look for, the people I want to surround myself with, are the people who remained cool on the way up and even cooler on the way down. I trust people who have that kind behavioral and moral control of themselves.

That is all for now.

I will be back with more later.

I think back to just 15 years ago when I did not have a smartphone in my pocket. How little I actually looked down at an LCD light in my hand. I think about now and how every 20 minutes I look down at an LCD light in my hand. Our perception of the world is no longer shaped by our actual experiences in the world, but instead by what we consume on our digital devices.

An old man who went by the nickname Tuataras recently said to me, “you look down more than you look up.”

He is probably right and that is true for many of us.

The other day I was riding a train in a foreign country with two military officers. We randomly happened to be bunk mates in one of the train cars. We talked about Trump and Obama and Roosevelt and World War 2 and a lot more. We talked about things you won’t find online or you won’t find anywhere else. What was being told in the physical world through our conversation was entirely different than what is told in the digital world.

This all had me thinking, in an abstract way, we are already multi-universe creatures. The digital world increasingly is becoming its own separate place where things exist separate from the actual physical world. Different laws, meanings, and ways of life. How much time per day do you spend either looking at a phone or a computer or TV? My guess is, for most people in the modern world, it actually exceeds the time spent looking into the real world.

If our world perception was once shaped by the physical things around us, now it is shaped by the digital things around us as well. Strangely enough, as a society, we are actually gravitating closer to the digital world than the physical world. I’m not sure I fully understand why and I’m not sure I agree with it. We are potentially making a mistake. I don’t know many philosophers who have ventured deep into this conundrum, but I am reading and studying it as much as I can.

I think, right now, the most important thing is to realize that is not bad nor is it good. It just is. Awareness of the duality is the most important thing.

Also, as an investor, going forward, I think this will create an investment opportunity of a lifetime. I am watching closely.

Inside a private classroom on a rainy day, the old man Warren Buffett sat with students and spoke about on markets. It was 2013 and the economy and market was just starting to roar back to its highs. For those who remember 2013, it was a sigh of relief. You could feel it in the air. Markets were truly emerging from the Financial Crisis and Eurozone Debt Crisis.

Buffett, in mid-conversation, started to talk about cash and what it means to his portfolio. Buffett always holds a lot of cash, and generally a large group of people make fun of him for that. They often think he is missing out on great opportunities. Here is what he would tell people who say that:

“Berkshire Hathaway always has $20 billion or more in cash. It sounds crazy, never need anything like it, but someday in the next 100 years when the world stops again, we will be ready. There will be some incident, it could be tomorrow. At that time, you need cash. Cash at that time is like oxygen. When you don’t need it, you don’t notice it. When you do need it, it’s the only thing you need. We operate from a level of liquidity that no one else does. We don’t want to operate on bank lines.

There is no authority for the US Treasury to guarantee money market funds. Their power comes from Congress. Paulson set up an exchange stabilization fund in September 2008 to guarantee money market funds. This stopped the run of money market funds and it was all over. Something like that will happen maybe a couple of times in your lifetime. Two things when it happens again:

1. Don’t let it ruin you!
2. And if you have money/guts, you’ll have an opportunity to buy things at prices that don’t make sense!

Fear spreads fast, it is contagious. Doesn’t have anything to do with IQ. Confidence only comes back one at a time, not en masse. There are periods when fear paralyzes the investment world. You don’t want to owe money at that time, and if you have money then you want to buy at those times.”

Warren Buffett at the University of Maryland (notes and a talk with students)