The Finance 2017 Time Capsule Is Something We Should Bury Deep

Did we all just spend an entire year passively colluding with each other?
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I don’t know if this is still a thing, but back in the day, elementary students used to make “time capsules.” Remember those? You’d take some pictures, fill out a questionnaire, and maybe grab some newspaper clippings, then stuff them all into a shoebox which was then literally buried in the playground.

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At some point - maybe right before you graduated to middle school - everyone would dig those things up and ponder what all had changed in the two years between third grade and fifth grade.

If there was an adult version of that exercise, it’s been antiquated by Google. Now, we don’t need to bury a shoebox full of newspaper clippings to save our future selves the trouble of having to painstakingly comb through microfiche. Rather, we can just use Google to rediscover all the stupid shit that went on during a specific window in time.

Still, I can’t help but think that someone should go all old school, print out a bunch of market stories from 2017 and bury them in the backyard for posterity. Because given the sheer absurdity inherent in a lot of what we’ve seen across markets lately, I imagine that some time in the future you could have yourself a hell of a fun party centered on digging up that 2017 shoebox and perusing the physical articles while slamming shots of Kamchatka, which will be the only vodka you can afford after the bubbles we’ve all spent eight years blowing finally burst.

On Tuesday, for instance, Forbes ran a story detailing how, thanks to 2017’s 32,000% gain in a digital token called Ripple, Cofounder and former CEO Chris Larsen is now the 15th richest American. On paper, he’s worth more than Ray Dalio and Carl Icahn. Let that sink in. A digital token which, at least according to some critics, is literally worthless, rose 32,000% in 2017 very nearly catapulting the above-mentioned Larsen ahead of Steve fucking Ballmer on the Forbes 400 list.

The fact that Ripple trounced Bitcoin’s 2017 gain is emblematic of a dynamic that played out over and over last year. Just when you thought you’d seen the most ridiculous headline imaginable, something else came along that made everything that came before it seem completely rational by comparison.

Remember Seth Golden, the former logistics manager at a local Target store who caught the attention of The New York Times back in August? Seth briefly became the poster child for speculative manias after the Times documented his transformation from retail store manager to armchair vol. seller. When that story was published, everyone was sure - sure, I tell you - that nothing could sound more ridiculous than this:

Mr. Golden, who is 40, lives in a suburb of Ocala, Fla. Since he has been shorting VIX, he says his net worth has gone to $12 million from $500,000 in about five years.

When it comes to his craft, he is more the pedant than boastful trader, carefully posting snapshots of his trades on his Twitter feed and churning out dense treatises and videos laying out his methods.

Keep in mind, he’s not just day trading penny stocks. Seth didn’t just have a hot hand in the dice game (“six hours straight, clickety-clack!”). He is selling vol. for God’s sake. That’s not something people quit their day job at Target to do. Maybe you win the lottery, or maybe you get lucky on a Clark Griswold-ish trip to Vegas. Or maybe you get a hot tip on a penny stock and make enough to tell all the other cashiers at Walmart to eat shit. But the idea that, thanks at least in part to the proliferation of doomsday vehicles like VIX ETPs and thanks to the central bank “put”, Al Bundy is trading in his gig as a shoe salesman to sell vol. from the living room is about like finding out that the manager of the RadioShack down the street quit in order to spend more time building space shuttles in his garage.

But again, that was nothing compared to what was coming. Within four months of that article running in the Times, Bitcoin had exploded by 500%. The ensuing digital gold rush transformed iced tea bottlers into tech enterprises, made crypto companies out of bra manufacturers and in one particularly hilarious case, prompted the maker of a bedwetting inhibitor called the “UrinStopper Patch” to get out of the piss prevention business in favor of blockchain.

The result: the Seth Golden story appeared entirely sane by comparison. His short vol. strategy (assuming you can approximate it with XIV), was up around 200% in 2017. If you plot that against the Bitcoin rally, against some of the more egregious examples of short-term gains generated by companies that abruptly added “blockchain” to their name, or especially against Ripple, Seth’s gains look like an EKG flat line.

More generally, I’m not sure it occurs to a lot of investors just how anomalous 2017 really was. Two-way markets are no longer a thing. There is no price discovery. There is just the indiscriminate funneling of money into a market that, thanks to the wave dynamic, has become a self-fulfilling prophecy.

Meanwhile, the fact that Lehman was nearly a decade ago means that by definition, a lot of the folks on Wall Street were still in high school the last time markets were any semblance of “normal.” So they don’t know what two-way markets look like either. Well here’s a little reality check from SocGen’s Andrew Lapthorne:

Those of us expecting greater market turbulence in 2017 could not have been more wrong. Not only did global equity markets perform well during 2017 (MSCI World delivered a total return of 20.1%), but they did so with such low volatility and consistency that if this were a fund, it would perhaps merit a visit from the authorities to check exactly what you were up to!

Got that? If the market (and by extension, index funds) were actively managed vehicles, they would likely be under investigation for possible securities fraud.

So you know, “time stamp it.” Because sometime in the maybe-not-so-distant future, we’re all going to have a good hearty laugh at all of this.

Or maybe not. Because we’re all participating in it. Which means when we dig up our 2017 time capsule, it’ll be difficult to discern whether we’re laughing with ourselves, or at ourselves.

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