Thursday, January 13, 2022

 The Great Resignation

A by-product of the pandemic has been a spike in the "quits rate," the rate at which people quit their jobs, to an all-time high of 3%+. Now a measly 3% doesn't sound like much from a percentage standpoint, but when you factor in natural retirement, loss of workers, and a huge number of job openings we have a problem Washington.

Keep in mind 3% is the AVERAGE, meaning even with the explosive growth in certain sectors, quitting has become the norm in many fields, like tech and healthcare, which had rates significantly higher than the average. One of the best, if not THE best, piece I've seen studying this phenomenon was published recently in the Harvard Business Review. Yes Harvard is smart. Yes the article was superb, but it never really delved into WHY people are quitting. Worry not fellow financial farmer, ILAF is here with our "curriculum vitae" to help you decipher this trend.

Why does someone work? Generally the answer to that question is "to make money." If we strip out the other common reason "for the benefits," ie healthcare, then almost exclusively people work for money, especially if the state provides either free or significantly subsidized healthcare. I would say the REASON people work for money is to support themselves, their family, AND they REALLY have to work if there are debts like education, housing, and living expenses to pay. To totally generalize from the top two categories of those fueling the Great Resignation, tech and healthcare, I believe that there is a HUGE dichotomy in terms of WHY.

The curve to enter healthcare is relatively steep; there are years of education, training, and commitment to become a nurse, doctor, EMT, provider, etc., etc. Their quits rate would almost certainly have to come from burnout and exhaustion rather than choice, especially if there was significant debt overhang. This quits rate is more aptly termed a capitulation rate. This "cap rate" is a function of Maslow's Hierarchy of Needs, where literally survival trumps employment. Sadly, these professionals are also "being quitted" by mandates. It is a double-edged sword. The flip side of this quits rate in tech, however, is very different.

The tech industry has a much different dynamic occurring. Although the barriers to entry are arguably on par with the medical world in terms of education and skill, the REGULATORY environment is quite different. Generally speaking, in the tech world you are judged, hired, fired, retained, promoted, etc. on your ability to code, create, market, etc. There is an entire regulatory ecosystem MISSING from the tech industry that has allowed it to flourish. Which brings me to the quits rate for tech.

The tech quits rate is on par with the healthcare industry, but for vasty different reasons. The WHY, especially for the core quitters in the 30-45 age band is pretty simple. They don't necessarily HAVE to work. Through a confluence of events many of the tech quitters do not have high debts, nor onerous regulatory requirements to keep current to keep employed. Most own or owned some portion of a company that has gone UP in value. So debt free or low debt with a stash of cash and manageable healthcare costs make leaving work out of CHOICE for tech easy.

What does this quits rate dichotomy mean? I don't see healthcare DEMAND easing, so either more less qualified employees will be hired or pay will have to be raised for existing providers to remain or both. I bet on BOTH. The demand is simply too great to shoulder on the existing model, especially with various mandates being imposed on healthcare in general. So as a cost of our GDP healthcare will take an increasingly high bite, regulations will increase, and the misery index of working in healthcare will also increase. When the ratio of administrators to doctors begins to fall we will be on the right track.

On the tech front, billions of dollars are flowing into PE Funds (private equity) and the majority of that is flowing into tech companies. The great winnowing is always happening, where the best and most successful companies gain the lion's share of a disruptive market, whether it be food delivery, social networking, or EV engineering. Many will fail. Billions will be spent and lost. But from that wreckage a handful of truly exception winners will emerge....and in tech, quitting while you're ahead isn't the same as quitting.

Wednesday, January 12, 2022


If the politicians can't be trusted, then what can citizens rely upon to tell them the Covid truth? Why fecal matter of course! Aptly titled "Poopmetrics" this article deals with the increasingly useful, accurate, and utility of measuring fecal matter in wastewater as both a snapshot AND predictive model of the NIH-funded gain-of-function research that lead to the release of Covid-19 from the Wuhan Institute of Virology in 2019.

This raw data gleaned from sewerage is probably one of, if not THE signature scientific advancement, outside the vaccines and therapeutics we have made since the start of the pandemic. It is scientifically sound. It is available at scale. And unless the politicians can corrupt the data flow, it should remain an enduring metric of the current infection pool, its delta (meaning change, in the classical Greek reference), and projected impact across geography in the United States. Obviously it is also scalable from a global perspective. Smoking Gun Alert: Is there a Wuhan dataset available from June 2019-December 2019?

Fecal analysis is about a pure a statistic as inflation and taxation in terms of portability to utility in terms of baseline establishment and predictive value. We can shift resources. Implement different treatments. And hopefully save lives!

From a financial perspective this collapse we see in Omicron in Boston sewerage after a hyper spike is extremely bullish; is this the third and final wave of Covid-19 that will then dissipate into the Spring? That chart sure looks good. Also encouraging is the relatively LOWER negative outcomes as a percentage of infections and hospitalizations. With over 75% of the population vaccinated and with a large percentage of the total population already exposed, recovering, or recovered from having had Covid-19 it seems that we are finally turning the corner on a pandemic which has raged for nearly 3 years.

Takeaways? In life and investing, look for raw, unadulterated visual data. We are a visual species. Politicians lie, but visual data accurately displayed tells its own story without spin. Stack these visual data sources and generate your own conclusion based on facts, reason, and probability. Then make your move.

Tuesday, January 11, 2022

 ARKK Barometer

Cathie Wood's ARK Innovation ETF (ARKK) acts as an excellent barometer for investor sentiment. Almost halved in a year, while the Dow spiked to over 35,000, ARKK visually displays the change in investor philosophy and risk appetite. 

A disciple of Arthur Laffer, Wood started her investment firm with the underlying thesis of disruptive innovation underpinning her investment goals, namely that disruptive companies create new markets and value networks. These companies hope to displace established market leaders aka entrenched monopolies.

In essence Wood is betting on a future of new technology that would improve humanity with better efficiency, because as a rule monopolies become less efficient and innovative as they mature into complete control of a market.

So why has Cathie's fund be cut in half? Rather than a collapse in the underlying technology, I believe there has been a 180 degree change in investor sentiment that believes reward (or gain) will come from "established" (read monopolies) that have existing market share, customers, and the big "E" in the P/E ratio...EARNINGS.

Mathematically, investors are betting on "business as usual" rather than innovation. Why? Because they are receiving signals that entrenchment wields the power and will be rewarded. Why? Because those are the signals being sent by Washington. How? Increased taxation. Increased regulation. Increased inflation. Increased enforcement. Decreased autonomy. Decreased workforce flexibility. Decreased worker qualifications. Those are a handful of the signals flashing. Investors have taken note.

Contrary to popular belief, Wall Street isn't dumb. Money flows where it is welcome and makes a return. Typically it chases winners. Just take a look at net new flows of money. It almost always flows into funds that have most recently performed well. And flees poorly performing funds. It seeks to survive and grow by chasing returns. The most successful funds of 2021 were the tech monopolies and natural resource monopolies. Small innovation got utterly crushed.

My final thought on this subject is that immutable laws are hard to break. They can be avoided. They can be postponed. But ultimately there is a reckoning. Although policy and regimes may put their weight behind the status quo, ie monopolies, the proverbial sidewalk flower will grow in a concrete jungle. 

Monday, January 10, 2022

 Bad Omens

Although the old Wall Street quip is to never believe that "past results are indicative of future performance," my Stock Trader's Almanac 2022 (similar to the Farmer's Almanac, but specifically devoted to the stock market) is flashing some serious warning signs.

Consider: "Every down January on the S&P since 1950, without exception, preceded a new or extended bear market, flat market, or a 10% correction." We are definitely NOT doing well out of the gate in '22.

Also: "...the second year of new Democrat presidents have been down -2.3% on average."

Finally there are *kinda* a couple other concerns: 1) A raging Covid variant named Omicron which is sweeping across the world at hyperbolic infection rates. 2) Inflation that is almost off the charts (we have to go back to the  late 1970s/ early1980s for similar data points during the Jimmy Carter Administration.) 3) Mid-term elections which promises to be every bit as cantankerous at the last Presidential Election.

What is an investor to do? Head for the hills and bunker down? Withdraw cash from your own savings accounts in amounts less than $10K so the government doesn't put you on a suspected money lauder list? Buy more toilet paper? No I say! Rather consider the following course of action: Remain employed if possible and continue to purchase assets (things that pay you to own them) and keep physically fit.

The stock market, and the entire world for that matter, has almost universally survived and prospered on the back of growth...meaning the survival of individuals and companies via increased earnings in one form or another. A large part of this growth over the past 50 years has been due to the integrated circuit. That has spawned the technology to vastly improve the lives of billions.

The "Age of Silicon" is not over by a long-shot, as growth in medicine, manufacturing, engineering, teaching, and yes even Wall Street is underpinned by the ability to increase speed, accuracy, and quality while at the same time lowering cost and barriers to entry.

So although there are multiple bad omens on the horizon, keep faith with the prospect of a better tomorrow...whether that is next week, next month, or next year. High volatility in Covid, the markets, and even politics does not last. Hopefully all three will moderate in the coming months. Until then, as financial farmer focus on accumulating assets, increasing your cash flow, and keeping physically fit. Life is a marathon.

Sunday, January 9, 2022

 Omicron Surge

The recent Omicron Surge is eerily similar to the Volatility Index in the U.S. Stock Market, so similar in fact this author is willing to step out on a limb and predict that just like sustained high volatility, sustained Omicron is nearly impossible. What does this mean dear readers? The end is near for the pandemic.

How do I have the gaul, the IQ, the "je ne sais quois" to make such a bold statement when the likes of Anthony Fauci, the CDC, NIH, USA Govt leadership, not to mention the entire (mostly) media establishment has not broached the subject? Math my fellow financial farmers!

Extreme volatility is similar to extreme spikes in almost every natural event; it takes extreme energy to maintain extreme deviations from the mean. And nature abhors sustained deviations from the mean. Let me say that again just for good measure: Nature abhors sustained deviations from the mean.

With the Omicron variant now surging to over 1,000,000 (1M) case per day, the White House narrative has changed dramatically over the past several weeks from "We will defeat the virus!" to "Contain the virus!" to "Embrace the virus!" Immutable natural laws are impossible to defeat.

History, I believe, will show that the vaccines acted as a significant and worthy speed bump which prevented millions of deaths, but probably more importantly, bought us time as a nation, as a species, to be overcome by a third wave of intense infectiousness and lower lethality. Reversion to the mean is my expected result.