We have finally curbed the growth of the ‘invisible enemy’ for California, which is amazing news! Unfortunately the rest of the US and most of the world tend to follow politics over facts. Thankfully all of us are safe and we have a lot to be grateful for. I continue to be humbled by the adversity of the human soul, especially for all the care workers, medical professionals, and all the folks that put other people before themselves. That humbling quickly changes to rage and anger when I think of the state of our politics, economy, and the spotlight that is placed on the realities of our lives. Unless you are involved directly with finance, you are just a pawn in a rigged game of life, where the house always wins.
“Fool me once, shame on thee; fool me twice, shame on me”
As I have been researching the origins of our financial system, I continue to be shocked at how repetitive the financial world is.
Our country was born into debt, that is all its ever known, thanks to a self-taught economist named Alexander Hamilton. In 1790, we were in a 30% debt to GDP ratio. Back then, the Continental Congress printed money to stop the increase of tax and guess what? The whole market crashed! Back then, America’s GDP was growing and Thomas Jefferson was focused on paying down the debt as fast as possible. Alas, all the work was undone, when the US had to borrow to go into war!
After World War 1, our debt to GDP ratio was 33%. The treasury was optimized to fund wars and as a result, was optimized to have borrowing powers that gave them the flexibility to fund wartime moments. After World War 2, our debt to GDP was 113%, which was an all time record!
Ironically, we were born into a recession, thanks to President Raegan and his presidential predecessors. All the federal economists before Paul Volcker, were basically following the wrong economic theory, so he had to come in and make Americans drink the kool aid, raise taxes and reduce the overall debt with tight financial controls. Subsequently, in 2010 he said that the core reasons for our economic issues are greed and hubris.
The risk vs reward ratio that our American economy is built on, is completely misaligned and favors the rich and the elitist, who have special access to politics and information.
Do we want to create an open market financial system or a bank centralized market system? Worth watching this talk. After 1980, we went through another recession in 1981, due to the Iran Revolution, thanks again because of the energy situation from the ‘70s.
During the early 1990s, the financial system did the same horrible thing, because of no governmental regulation to banks, more than 1000+ savings and loans companies collapsed! (Article) Then 1989, we have George Bush, saying he’s not going to raise taxes, but just print money. In 1990, banks took advantage of consumers, the rich got richer, and President Bush just printed more american monopoly money. Common theme during the 1990s, print more monopoly money, make anyone in finance more money, and hurt the rest of america.
When we were graduating, you had the same situation, 2000s again, bankers/finance wanted to make tons of money, so they accelerated the IPO market and took huge amounts of risk and made tons of money. Consumers and most entrepreneurs failed, while the banks made out. Then the unfortunate 9/11 situation, which caused a mini-recession, and caused banks to raise interest rates to slow down a recession.
In 2007, the same nonsense again, the financial system got greedy and wanted to give out cheap debt to consumers, and then create derivatives on top of mortgage backed securities. All of this expanded, until it crashed. Banks got bailed out, consumers got screwed, and more money was printed.
We are now experiencing our 6th recession since we’ve been born and again, it all stems from Greed and Corporate based Capitalism. Originally, I thought it was a cop-out, to focus on making money, optimizing ‘vapor’/trading money/stocks, and playing with monopoly money (unlimited amount of central bank usd printing). Basically, I never wanted to focus on making money, without it being about technology, doing something good, or starting a business. I would rather focus my time and energy understanding how to beat the house, rather than fall for all the mouse mazes they have created.
There are two harsh choices in front of us:
1. Inflation, more money printing, which means the rich get richer
2. Deflation, where money actually retains value
Given Trump or Biden, we are screwed. Our time and energy needs to be focused on winning this game.
Look at this data, I have been looking at this information for the last month. It is frightening and insane! We have created printed so much fake money, that you either learn to play the game or you will end up losing.
One of the many realizations that I’ve made is around: Owning vs Operating. Living the Silicon Valley dream is complete crap if you are expected to own and operate a business that is structured for the owners/investors to always get preferential treatment. To be more concise: If we aren’t making the next ‘unicorn’, then we should prioritize ourselves as owners first, and find operators to run the business. We should remove ourselves from the day-day minitua, because most of this world is coin operated. We will always be able to find someone to operate, provided the incentives are aligned correctly.
My second biggest realization is that we need to think big and audacious. If you think small, the entire economy is set up so that you are basically considered an employee, not optimizing for taxes, and you’re still a slave. My second biggest realization, smart people leverage large amounts of debt, reduce risk, and are able to execute to plan.
If it wasn’t for Covid-19, our economy was destined to crash, primarily due to the unlimited money supply being printed and the rising of the debt:gdp ratio. I encourage you to read the article on the history of recessions in the United States (here). Following the pattern, we can expect another horrible situation happening in the next 10-15 years.
The most important question to me is: “Now that we have experienced our 6th recession fueled by Greed and the Imbalance Incentives of Risk vs Reward, what are we going to do to win at the rigged system of finance?”
“Cash is not King, Dividend-Earning Assets Are. Cash is just getting devalued by the day, thanks to our Monetary Policy. If you earn a salary in dollars as an employee for your own company or someone elses’, you are a pawn in the rigged game of life.” – Vishal
With this updated perspective on life, I would like to share some thoughts.
I really like this photo a lot, because it really highlights the theme from 2019 for myself. Unless you have mental clarity (oxygen mask), you can’t be in a position to help anyone else, not even your child. Mental clarity/sanity is critical for anyone to have as a Step Zero.
Advertising Created Capitalism And Mindless Americans
I have watched this documentary twice now: “The Century of the Self” and wow.
The documentary did a phenomenal job highlighting how an idiot Freud (who was kicked out of Europe because his teachings were utter bullshit) got extremely lucky because his nephew was able to weaponize human desire for America. The part about how they got women to have cigarettes is crazy and how they used advertising/pr to win elections, and create the birth of consumerism, is mindblowing.
Politicians don’t need to engage peoples rational, conscious minds, rather, they just need to focus on primitive impulses. Americans were shifted from a needs-culture to a desires-culture. Man’s desires must overshadow his needs.
The best takeaway: “Although we feel we are free, in reality, we—like the politicians—have become the slaves of our own desires.” If you look at the trend of our current reality and our economy, it is all due to the weaponization of what makes us human.
Founders Should Not Starve
I finished the following book: Real Artists Don’t Starve. I highly recommend you read it, but net-net the author does a great job removing these false narratives where founders/artists should suffer to follow their dreams. Artists shouldn’t starve and the whole concept of pain a founder goes through is a complete false narrative.
There is this screwed up ‘idea’ that if you show pain and suffering as an entrepreneur, you’re living the ‘dream’.
Founders Are Just Whale Captains
I finished reading VC: An American History, and honestly, I would love to be a VC, but not a Founder for a VC ever. The origins of Venture Capital was to fund the Captains of Whaling Vessels. Basically, the construct of equity, is purely created to give Whale Captains a false sense of ownership, so they are incentivized, to find a whale, kill it, and bring it home, so the Venture Capitalist makes money. The Venture Capitalist is just playing the odds, they don’t care, which Whale Captain returns with the whale oil, they just arbitrage risk capital. Most whaling ships would sink, similar to that of a startup. When you overlay the data set of the whaling industry of the 1800s to the startup industry of 1981-2006, it matches perfectly.
Overall, I went down the rabbit hole to understand Risk Capital, because that is all Venture is. VC’s are just creating differentiated risk models and playing the odds, just as you do in a casino. All the original Venture Capital Funds were literally an old-white boys club that found deals, because the ‘valley’ was literally a table at a diner in Palo Alto.
With all the markups that Venture Capitalists do, you could argue that the funds that invested in us, have already used our markup valuation to go and raise their next fund. This is all a game that we should be focused on winning and not becoming a slave to it.
My takeaway is that the cost of capital has become so cheap, there is no reason to take Venture Capital money, unless there is something extremely strategic that you need. After reading the book, when you see a VC on a cap table, that means that everyone on that cap table, is just an employee and the founders equity, is just ‘enough’ to keep them on as slaves for their ‘Whale Expedition’.
Private Equity Models Shouldn’t Be Applied To Startups In Emerging Industries
I finished reading this book: What It Takes: Lessons in the Pursuit of Excellence Stephen Schwarzman is a rockstar. He worked his ass off, built a strong network of friends and had access to capital, proved out that private equity works wonders. He did a model, which I admire and would love to do, finds cheap capital, buys companies, operationalizes them, and enjoys the dividends or sells them.
I’m defining private equity funded companies as being laser focused on generating cash-flow soon versus Venture Capital, which by nature, is to create a longer runway due to the length of the risk capital provided.
My key takeaway here is: Don’t run a startup as a private equity company would, if you aren’t generating cash flow. If you are going to run a company as a private equity company, then find a dividend based company and not a company that is in a brand new market. Living a private equity operating model, in a new emerging business is torture for the founding team, if they are operators! Things are different if you operate a Private Equity focused mindset to a business that is generating cash flow.
Our Economy is Rigged
I finished reading this book: The Man Who Solved the Market and let me start with a photo of his funds’ return:
Please read the chart a couple times over, I know I did. Basically, Jim Simmons solved the market. He has created a universal machine learning model to beat the system. The entire economy is rigged, because it’s predictable, and therefore can be abused and taken advantage of.
America’s response to Covid-19, has been to create more monopoly money and fuel more HFT and Passive Funds, over time, the Active Funds will be reduced to near zero.
My takeaway, you can’t just buy a stock and expect to beat all the amazing machine learning algorithms that have taken over all of the public markets. As machine learning models get commoditized, perhaps the spread that experts have will be reduced, but I don’t see it happening any time soon. If we want to take advantage of the public markets, it should be to use cheap debt and bonds and buy dividend producing assets.
Central Banks Rigged the World
I finished reading the book: Collusion: How Central Banks Rigged the World The book is an eye opening account to why the Central Banks were created in the first place.
Quantitative Easing is when the central banks print money to the fed and the fed in time, buys distressed assets from the bank, with the hope that the bank does something about it. Given everything from above and how corrupt the American Government is. Money gets printed and corporations and financial companies again, make money, and screw the people.
My takeaway from Quantitative Easing, is that it’s a legalized ponzi scheme! If money is going to be laundered this way, then we should take advantage of the opportunities, not get a ‘paycheck from it’. All the monopoly money that has been printed, is literally artificially created to give people a false sense of consumerism. Lets make money from the ponzi scheme, rather than a dumb employer of it.
Paying Taxes is a Rookie Mistake
This NY Times Article: Trump Tax Losses Over $1 Billion Dollars through my mind for a ridiculous spin.
This headline is insane, I am not ok with taxpayer money or unlimited money supplying going to these people. The cherry on top is that Kushner just got a $800 million dollar loan to buy apartments, if that doesn’t make your blood boil? I don’t know what else does. Our taxpayer money will be funding Trump’s family for them to get more wealth. Article here.
The reason why our government is screwed, can be seen from this photo above. Literally, nothing goes to actually R&D and infrastructure. The majority of our tax money goes to defense, a horrible medical system, and a bankrupt social security program. It’s very obvious that our bankrupt government can’t fix itself, so it relies on corporations to do it. We should join in on the fun.
I went down numerous rabbit holes on Tax Structuring and my big takeaway is that taxes are created to incentivize political agendas. Ie: Creating New Jobs or New Housing. If you aren’t helping with the political agenda, then you are going to get taxed and all your hard earned money, pays all the politicians and financial agendas. This has really hardened my thought process of never being an employee of any business, but rather, become an owner. We should own the holding company and hire people to operate the businesses under us. Why should we pay taxes, when we should be using taxes to fuel our combined interest with the politicians.
I want to highlight inspirational companies, making an impact with this model.
1. Tiny Capital – https://www.tinycapital.com/
The model is amazing, the founder finds tech companies, creates operational efficiency, pays out the founders, and creates amazing dividend paying companies. He owns all the companies, no outside investors.
2. Pioneer – https://pioneer.app/
This is the next evolution of ycombinator, and it’s really awesome, they have created a decentralized marketplace for founders to come together and build companies. He creates more companies and then invests in what he believes are hits.
3. Atomic – https://www.atomic.vc/
I like the companies that have come out of this incubator.
4. Xenon – https://xenon.io/
Private equity for tech companies is brilliant. Buy the tech companies and operationalize it to create dividends. Period.
5. SoFi, Figure, – Mike Cagney (Two Unicorns for Financial Lending)
Mike, got kicked out of SoFi, and then just did the same thing again as Figure. Both are unicorns and both are just doing financial arbitrage through cheap debt instruments and technology.
6. Upper90 – https://www.upper90.io/
They just provide, again, cheap capital (growth), to companies and make interest/dividends.
https://www.thras.io/ – Buy amazon businesses and juice them for dividends
https://filmrise.com/ – Buy the rights to films and juice them for royalties and advertising on streaming networks
7. FutureLoop – Link Here
Fund great ideas, but not operate them. Starting in the early 2010s, a project sponsored by the U.S. Director of National Intelligence — the Good Judgment Project — demonstrated that 3,000 moderately informed minds could together outperform even the top foreign policy experts or CIA analysts on questions ranging from Turkey’s adoption of a new constitution, to U.S.-E.U. trade deals.
8. Exa Capital, Tera, Constellation etc.
All of these models follow the same type of strategy as outlined above.
9. BlueDot – https://bluedot.global/
They are using AI to detect outbreaks around the world, and they were the first company to find out about Covid-19, amongst all the other outbreaks.
10. Venture Collective — Loeb.nyc – https://www.loeb.nyc/
They are able to focus, not be operators, focus on building companies of value, and then create assets that focus on generating cash.
The framework here is:
Remove as much risk as possible, leverage cheap capital, buy a company that has revenue, focus on mature markets, create efficiency, and milk it for dividends or sell it.
Vishal’s 2020 Definition of Success
= (Work With Friends) * (Leverage Cheap Capital) * (Mature Industry) * (Use AI to Identify a Potential Company) * (Optimize It With Experience) * (Leverage Feedback Loop to Improve)
= Sell/Dividend = Rinse/Repeat = Compound = Win At The Rigged Game of Life
Wealth is not created by the value you create and the risks you take to get there but a political system that rewards its’ insiders.