The Rock
A road trip, a song, and societal decay
It was time for a summer road trip. I’m in New York this week and was with my kids in Michigan last week and at the last second realized that my two sons had no school or jobs or camp so why not pack up the car and bring them along to visit my family for the week. So we packed up the car and left.
It’s about a ten hour drive. Maybe eleven depending on how many bathroom breaks you take, and traffic at the GW bridge. So, we decided to do it over two days with a stopover at a roadside motel half way.
My oldest son, Ben, suggested stopping at a campground instead. We could make an adventure out of it. It was a great idea and I entertained it, but then started talking myself out of it. An uncomfortable night sleep, bug bites, you know… all the reasons. And I told him “by the time we are done buying a tent and sleeping bags it’s going to cost just as much as the hotel.”
And without missing a beat he says to me “yah, but if you spend the money on the hotel we have nothing to show for it. If we go camping we come home with a tent.” Good point. I bought the tent and off we went.
I’ve got peculiar music tastes. I love listening to sad songs. The sadder the song, the better it makes me feel. It’s always been that way, and I can’t explain it. So after we exhausted our podcast lists and started and stopped two audio books I start sharing some music with them that they don’t really know.
Flying across the Pennsylvania mountains, me, my two sons, and a tent, blasting the painful sounds of Kurt Cobain screeching “my girl, my girl, don’t lie to me, where did you sleep last night?” It was bliss.
An hour later we are getting deeper into the playlist. I get to Harry Chapin. You’ve never heard this guy? There’s never been anyone quite like him. He’s simultaneously the corniest songwriter, and the darkest. A true one of a kind. Oh, you’re going to love this guy.
We start with something dark. We start with his haunting story-song, The Rock. This song is powerful, I tell them. You’ve never heard a song like this.
The rock is gonna fall on us, he woke with a start
And he ran to his mother, the fear dark in his heart
And he told her of the vision that he was sure he’d seen
She said: “Go back to sleep son, you’re having a bad dream!”
Everybody knows the rock leans over the town
Everybody knows that it won’t tumble to the ground
Remember Chicken Little said the sky was falling down
Well nothing ever came of that, the world still whirls around
The rock, of course, is a metaphor. The town living under the giant rock is too.
A good song makes you feel; a great song makes you think. And the song is playing and we are thinking. I’m thinking about the road trip, about the kids growing up, about life, about markets, about America, and about the dark clouds gathering above all of it.
The rock is gonna fall on us. There’s this feeling, this uncomfortable feeling, that this rock could fall on us at any time.
We go back to the Global Financial Crisis, and the lasting lesson we took away was that the Federal Reserve is bigger than the markets, and can save markets at their discretion, and at their mercy. When Covid came, we shut down the economy and printed $5 Trillion out of thin air, and markets doubled.
Stock market returns are now downstream of political decisions.
So the financial system is training investors on this new reality: saving is a sin. Prudence and diligence are not rewarded in these markets. The financial system, including its media and analysis, exist to convince you that there is no reason to act with caution, and there is nothing to fear.
Speculation, leverage and risk-taking pay off. They pay off big-time, and if you don’t throw caution into the wind you are going to get lapped by someone who will.
Price discipline isn’t even part of the conversation. SpaceX could price at $200 Million, or $2 Billion, or $20 Billion, or $200 Billion, or $2 Trillion. It would not change a thing. The same buyers would buy the narrative, the same arguments would be made, and the price paid just does not matter.
Because whatever the price, there will be a greater fool ready to pay more for it when you sell.
Never mind that the Buffett Indicator (market cap to GDP) is at an all-time high of an absurd 230%. Never mind that the S&P price:sales is double the historical average at 3.7x. Never mind that the CAPE ratio is at dot-com bust levels. Never mind the crowding into index funds and the concentration within those indexes.
You know what, let’s go back to the Buffett Indicator for a minute. The idea is to measure the market cap (total value) of publicly listed stocks as a percentage of the greater economy (measured by GDP). A Buffett Indicator under 75% implies and undervalued market. Between 75% and 90% is the fairly valued range, based on historical norm. Above 90% is over-valued.
Again, it is currently 230%. For the past decade, stocks (measured by the S&P) has grown at 14.8% per year, while the GDP has grown at 2.4% per year. If those annual returns continue here is what the Buffett Indicator will look like:
In 5 years: 407.3%
In 10 years: 721.4%
In 20 years: 2,262.4%
In 100 years: 21,179,757.3%
This is entirely unsustainable. And besides, why should you receive any risk premium when there is no market risk!
But let’s forget all that nerd math, because this time is different. Because if you dared to think that way at any point in the past twenty years you’ve been punished for it. And besides, what kind of a jerk roots against the US economy?
“The rock is gonna fall on us,” he stood and told the class
The professor put his chalk down and peered out through his glasses
But he went on and said; “I’ve seen it, high up on the hill
If it doesn’t fall this year then very soon it will!”
Everybody knows the rock leans over the town
Everybody knows that it won’t tumble to the ground
We’ve more important studies than your fantasies and fears
You know that rock’s been perched up there for a hundred thousand years
Something about farm country revives the patriotic spirit. We are winding around these mountains, and the scenery is beautiful. And there are American flags everywhere. You don’t see that in cities these days.
America’s 250th birthday is in two weeks. 250 years of the greatest country in the history of the world.
The Roman Empire, from Augustus to Marcus Aurelius, lasted about 207 years. The Qing dynasty lasted from 1644 to 1911. That’s 267 years. The Ottoman Empire lasted about 250 years.
The United States of America is sitting on $39 Trillion in national debt. That alone amounts to $355K per taxpayer. Annual tax revenue is $5.5 Trillion, and we are running at a $2 Trillion annual deficit. Debt-to-GDP is 121%. Social security shortfall is $31 Trillion. Debt service is almost 20% of the federal budget. I could go on but you get the picture. And the picture is grim.
It’s hard to contextualize numbers so big. At a certain point you stop trying. And at a certain point you stop thinking about how it can all be reversed or paid off. What the end-game is.
To do it honestly would require vast spending cuts, and let’s be honest, the will of the people isn’t there, and the strong leadership required to do hard things is certainly not there.
So that leaves, what? A debt jubilee? Hyper-inflation? The end of the US dollar? Where does this go? Who is asking these hard questions, and who is formulating the plan?
We’ve got subversive politicians and a subversive university system that is indebting our kids while teaching them to reject personal agency, capitalism, and everything that made America different and special.
How do you inherent something as amazing as America, and then reject the very ideals that made it amazing?
We’ve perverted capitalism into corporatism and cronyism, particularly in the most vital sectors like healthcare and education, and then we’ve allowed the gullible and disenfranchised to blame that perverted form of capitalism on capitalism itself.
“The rock is gonna fall on us.” He told the magistrates
“I believe that we can stop it but the time is getting late
You see I’ve done all the research my plans are all complete.”
He was showing them contingencies when they showed him to the street
Everybody knows the rock leans over the town
Everybody knows that it won’t tumble to the ground
Everybody knows of those who say the end is near
Everybody knows that life goes on as usual round here
We are on the highway and we pass a billboard for Draftkings. The beautiful mountain scenery interrupted by a little reminder to place a bet. We passed a billboard for a casino just a few minutes beforehand. There will be many more billboards to come.
When we got to the campsite there was no cell service, and we were grateful for that. We missed the NBA final clinching game. Instead we sat at the campfire, we roasted hot dogs, we did the camping things.
Around the country, fortunes were won and lost on the game. $3-5 Billion is the total estimate of bets placed on the NBA finals this year. The NBA league itself has partnerships with both DraftKings and FanDuel, while BetMGM is the “Official Gaming Partner”, whatever that means.
Every sports broadcast or podcast or blog has become bombarded with ads to bet. And always with the small print “gambling problem? Call 1-800-gofuckyourself” competing with the large print ads, as if that makes it legitimate.
As QTR said: “I do not think we fully appreciate how psychologically corrosive it is to live in a world where you can gamble on literally anything, all day, every day, from the same device you use to socialize, work, and exist.”
Robinhood recently added prediction betting within it’s app. Interactive Brokers has event contracts alongside financial markets. Coinbase and Webull have integrated Kalshi. And hilariously, the sports betting apps are working to integrate traditional investments into their platforms.
It’s all blending together, it’s all the same thing.
Zero day options, meme coins, NFTs. The S&P, the NASDAQ, oil futures, volatility, credit spreads, the interest rate curve.
You can gamble in sweatpants, and you can gamble in a tuxedo. You’re still just gambling.
He went up on the mountain beside the giant stone
They knew he was insane so they left him all alone
He’d given up enlisting help for there was no one else
He spent his days devising ways to stop the rock himself
One night while he was working building braces on the ledge
The ground began to rumble the rock trembled on the edge
“The rock is gonna fall on us! Run or you’ll all be crushed!”
And indeed the rock was moving, crumbling all to dust
He ran under it with one last hope that he could add a prop
And as he disappeared the rock came to a stop
The people ran into the street but by then all was still
The rock seemed where it always was or where it always will be
When someone asked where he had gone they said: “Oh he was daft.
Who cares about that crazy fool.” And then they’d start to laugh
I look down at the dashboard and I’ve crept up to 90 mph. My heart is beating. This song is getting to me.
The guy in the song saved all those people, and never received a single word of gratitude from them. He was never vindicated.
There is this trope that’s been going around social media for the past couple years. The idea is that permabears are disingenuous, and that they are bearish not because they believe it but because it is a shortcut to get clicks and sell newsletters or whatever.
This is a lie.
This lie is told by people who have a myopic view of the world. A world that doesn’t exist beyond their 100 years of S&P 500 data. There are no other countries and no other timeframes. There are no failed currencies, and no failed civilizations.
Imagine a blackjack player going on the most unlikely serendipitous run of cards imaginable, and instead of feeling gratitude and cashing in his winnings, he uses it as evidence that he is in fact due that outcome on a going-forward, permanent basis.
As if US equities can compound at ever-increasing outlier valuations forever. Even as that compounding effect exacerbates that very over-valuation. Even as their society crumbles around them.
But nobody loves a Debbie Downer. And the reality is that if you want a seat at the table, you better learn the company line.
Everything I wrote about BREIT has been proven true. And guess how many BREIT investors wrote to thank me?
Not one.
You can see this in the discourse now. When people point out that Michael Saylor’s only play left is to dilute MSTR shareholders, they are shouted down and called names by those same MSTR shareholders they are trying to warn.
Same story with the SpaceX IPO valuation.
The investors aren’t asking for that analysis. They don’t want to hear it. They are the townspeople in The Rock.
We are literally persecuting short sellers. This is no time for contrarianism. There is no country for short sellers.
But high up on the mountain
When the wind is hitting it
If you’re watching very closely
The rock slips a little bit
It’s morning and we are packing up the campsite. My back hurts. I was right about it being an uncomfortable night sleep and about the bug bites. I was right, and yet I have no regrets. Camping out was a great decision.
I’ve got great kids. It is such a blessing. I might even have more; to hell with being too old for all that. I want them to have a great future. I want them to be as optimistic about the future, about markets, and about their country as my generation was, and generations before us.
They say that a society is great when old men plant trees in whose shade they’ll never sit. Yet our politicians and economists have created a society where we are sitting the shade of trees we’ll never plant.
I am worried. We’ve been selfish. Our markets are fraudulent. They’ve been propped up by money-printing, inflation, and using the middle class to lift the richest asset owners. Valuations are dependent on a greater fool.
The ever-widening wealth gap is causing social division in measurable ways, and in harder to quantify ways. Like I said, the dark clouds are forming.
Being truthful about the state of things doesn’t make you bearish. It makes you aware. It means that you don’t want things to fail. It means that you have the courage to call it like it is. It means that you are looking beyond the next little payday that you can milk out of the system, and looking for a prosperous future with sustainable growth.
It means you care about your country and your family.
It means you care at all.
It means that you have the courage to stop the rock from falling.