What has high finance, chronometers, and the Daedalian wings of paper money in common?
Put differently: Where does John Harrison and Adam Smith meet Satoshi Nakamoto?
Holy moly, was this a wonderful read.
If you don't know about it or haven't read it, and have an hour or so to spare (+ cognitive space to dissect some pretty heavy, fast-paced stuff), click over to the NYDIG page and read the Stone Ridge 2024 Investor Letter right now.
I used to read Warren Buffet’s annual shareholder letter on the day it came out (#851506). Every year, I’d set an hour or two aside to read it in full. You learned a bunch of tidbits about investing over the long haul, about his various businesses, and usually some extremely interesting anecdotes or perspectives through which to understand some industry.
I believe the idea of “float” in an insurance company, and how insurance is like banking (but with better run control, where depositors’ whims are replaced by claimants’ predictable/uncorrelated accidents), finally clicked for me from one of these letters.
Ross Stevens is sort of becoming the equivalent in the Bitcoin sphere. We get the annual Stone Ridge investor letter with a similar feel to it—though with Bitcoin instead of legacy finance value investing.
And boy, does Stevens have nasty things to say about those guys. Profound, accurate, revealing—but nasty nonetheless.
Central banking/liquidity creation is modern cargo cult—worn comparison but yes, still good:
Fiat central bankers observe that wealthy people have money, so they reason that printing more money will make more people wealthy. Printing pieces of paper to attract prosperity is no less preposterous than building a wooden bird to attract an airplane.
At Stone Ridge, we like businesses with returns dependent on geological processes under the Earth, and the Law of Large Numbers, not the whims of central bankers.
BUT, central bankers as cargo cultists, can only print money; they cannot print anything money buys. I'm like a broken record on this (#737272, #809392, #793537).
Speaking of which, this segment could have come straight out of a MONEY CLASS:
Money is valued not for its own sake, but solely for its prospective exchange utility. That’s a fancy way of saying we hope it keeps its value long enough for us to trade it in the future for something we actually want. Nobody wants green little pieces of paper. Or bitcoin. We want what those things can buy us in future. Perhaps an education, a dream house, a wedding, a bucket-list trip. Those who excel at delaying gratification, and mentally managing the associated uncertainty along the way, end up accumulating the vast majority of capital and enjoying the vast majority of health and prosperity. Low time preference is the most reliable source of life inequality. This means stay humble, stack sats, and HODL an uncomfortable amount of bitcoin for an uncomfortably long time. Bitcoin is the most potent device ever invented for transferring wealth from the impatient to the patient. Be patient.
He discusses how Stone Ridge have carved out corporate insurance "yield" by using gas extraction (or something?!... can't say I understood that well). Anyway, discussing fragile banking and Adam Smith's real bills doctrine, we get this nice sentence:
Partnering solely with maturity-matched “forever balance sheets” in explicit rejection of banker’s mythological quest for liquid land, we have set out to do nothing less than make American housing affordable again.
Next, this question has me dumbfounded; I have no good answer to why the yuppie elite (and their aca/journalist hangarounds) hate bitcoin as much as they do—even understanding full well, feeling it in their bones that something is broken.
why does bitcoin generate such intense animosity? Perhaps for the very reason that it is voluntary? Or perhaps because its foundational promise – individual sovereignty at the expense of personal responsibility – is offensive to the foundational worldview of those confused critics who think they’re in charge.
Stevens doesn't know either, merely offering some candidates. (#823302?)
Up next for slaughter? HR departments. In an age where DEI is dead and ESG is dying, the HR department is next. Worthless parasites, in corporations and government alike, have no place in a modern, flourishing world. Happy to see them go:
Nice. So what's that Harrison-Nakamoto connection?
Harrison was winner of the Longitude Act Prize back in the 1700s, figuring out how ships could use time (and accurate time-keeping) to find their locations on the high seas (this, by Jason Crawford, is the best popular piece I've ever read on that).
The connection is using the predictable, objective passing of time to fix unfixable problems in the world. Wonderful:
A transaction involving a bearer instrument, such as a $100 bill, does not need to be timestamped. That is, we do not need to record the time of the transaction. If I give you a $100 bill, you have it, and I no longer have it. Physics, not trusted ledgers, takes care of telling us who owns what, and when. A transaction involving an electronic instrument, such as a $100 wire transfer, does need to be timestamped. If I wire $100 to you, someone must verify that you have it, and that I no longer have it. We must also trust that person – or that bank or that government – to maintain the verification, via a trusted ledger. “The history of fiat currencies is full of breaches of that trust,” once wrote a very wise man.
If you want more on this, I recommend Jack Mallers' talk at Madeira:
Anyways, plenty more where this came from. A wonderful read.
/J
This post might be more relevant and engaging in the ~econ or ~Stacker_Stocks territory.Stone Ridge is, I guess, the umbrella, but I was in a small room with principals from Ego Death, Time Chain, Wolf, NYDIG. Maybe I'll break it up into a few posts.