• Right to Repair (R2R)

Most “durable goods” companies have made products that aren’t as durable as they once were and often do so in such a way that the end users cannot fix them. For the uninitiated, durable goods are items that are infrequently purchased and that are intended to have a long shelf life with a more comprehensive list linked above. The legislative approach would require manufacturers by law to think in terms of how modular products are such that they can be repaired to increase their shelf life instead of being replaced and adding to both waste materials being generated en masse and excessive energy being used to produce newer goods that may not be quite ready for market.

• Research and Development (R&D)

A legally mandated minimum spend on the research and development of scientific innovations to close the loop on materials use in terms of emissions, waste materials and new effective ways to utilise emerging technology in areas such as battery manufacturing and Solar PV technology. Often R&D spending is not seen as being all that productive even though economies with thriving research funding often are able to commercialise said research.

• Renewable/Low Impact Design

  1. Air conditioning in hot regions is one of the largest single uses of energy for comfort.

  2. Insulation

  3. Green space/Amenity

Waste Management Aspect

• Agricultural Waste

• Animal Waste

• Building Materials/Construction Waste

• Durable Goods Waste

• Emission Waste (Carbon, Methane, Nitrous Oxide etc)

• Fishing Waste

• Food Waste

• Garment Waste

• Human Waste

• Household Waste

• Plastic Waste

Mining Aspect

• EOL Mine Site Restoration

• Mining Fixed Capital Formation

Energy Infrastructure Aspect

• Solar PV and Solar Thermal

• Battery network

• Hydroelectric

• Wind

• EV Charging Network

Supply Chain Aspect

• Link waste industries with respective value added intermediaries

• Reduce distance of supply chains for critical industries (energy production + distribution as well as staples farming)

The classic example of the gamma squeeze in late 2020 into early 2021 was GameStop and AMC with a basket of other names (Nokia, BlackBerry, Bed Bath and Beyond among a host of others). The thing in common with all these stocks is that they have a secondary options market which drives market maker activity.

When the inevitable capitulation in Bitcoin dominance occurs - we should expect to see small projects inundated with capital flows, especially projects with exposure to the ETH 2.0 advances to the market. Don’t get me wrong, there are a bunch of projects that are a hot mess and not worth allocating money to - these projects typically are not particularly liquid and/or are not readily available on exchanges that have decent vetting processes (Binance, Bitfinex, Coinbase, Kyber Network, KuCoin and a small handful of others).

The Process

1. Coinmarketcap liquidity scanner (Python script)

2. Tradingview Screener

3. Technical Analysis

4. Glassnode on chain and on exchange data

5. Santiment data (or Google Trends)

Essentially a capitulation in BTC dominance is a conformation of a “risk on” signal, as capital seeks alternatives (“alts”) to be invested in. In each previous new low in BTC dominance historically there has been an “alt season” - a huge run up in the price of alt coins. The crypto market is effectively divided into a number of different niches depending on the utility provided by the token or coin, so called Layer 0, Layer 1 and Layer 2 solutions, Metaverse tokens, DeFi, Play to Earn gaming, DAOs and various other governance mechanisms are also prevalent.

The point of the CoinMarketCap turnover script that I wrote is essentially to ascertain what is the most liquid of assets in the sector at any given point, with a cumulative tally of turnover going a long way towards figuring out whether or not a token or coin is undervalued. It is a really good heuristic measure to understand how willing participants are to trade in a token when figuring out whether or not to invest.

Using this turnover measure as a cumulative tally, we can really quickly figure out what to be in at a time when the overall sector turns bullish.

Markets are still at the end of the day physical regardless of our own perception - for example Amazon’s AWS still relies on server racks made from various metals and power from power plants which are either powered by Nuclear, Coal, Solar, Wind or Gas power or any other myriad of chemical, photovoltaic or mechanical energy transfers. The idea that the internet is not physical is to negate reality, and so to truly understand markets we must understand where price signals both in the production and consumption of commodities determines the functioning of markets and their cyclical nature. Think for a second about bubbles, what enables them and how they can lead into otherwise unforeseen results.

A classic example of the logic here is what happened at the end of the 90s tech bubble as explained in a scene from The Big Short where Michael Burry (played brilliantly by Christian Bale) asks an interviewee for his firm, Scion Capital, whether he thought that it was odd that the housing market in San Jose “the tech capital of the world” went up at the end of the tech bubble. The inflation at the end of the tech bubble caused by its rapid rate of growth in demand for raw materials (such as copper, tin nickel and gold for motherboards, wires and various other infrastructure) resulted in a moderate reduction in demand for raw materials and a policy response from the central bank whereby rates were risen until the market meme played out [the cure for high prices is high prices]. Both physical computer parts soared in price as did the raw materials for building as many of them cross over (the nickel in steel rose in price as did the tin and copper required for plumbing and electricity). This rise in raw materials costs slowed the rate of construction and as such the short term supply in housing. By the end of the tech bubble an immense amount of personal wealth had been wiped out and commodity prices were cratering as the demand which was facilitated by those lofty tech stock valuations evaporated - meaning that both rates were able to fall and commodity prices were falling at the same time. Coincidentally, the US dollar was REALLY expensive, hitting a multi decade high in price, meaning that foreign investment in real estate was incredibly unattractive, and the cost of transacting for commodities in global markets was also high (as most commodities are settled in US dollars, the global settlement currency). For perspective, the only other time the USD had been as high as it was at the end of the 1990s dot com bubble at its peak reading (of around 118 in 2002) was during the mid 1980s oil supply glut, not having reached anywhere near as close since in the post Bretton Woods world (after Richard Nixon removed the US from the gold exchange window in 1971).

In this market the US dollar began its decade long decline in value vs the basket of currencies that make up the US dollar index (the DXY). What it meant was a domestic market where credit became more available at the end of the tech bubble to reduce the contagion of fallout from the lack of demand at a time where commodities were very cheap - this is a recipe for a housing bubble, especially in a world where the government wants to be seen to be doing something to help low to middle income buyers.

The ultimate result from the end of the tech bubble was markedly lower nominal interest rates and more credit for homebuyers with the introduction of the “American Dream Downpayment Act of 2003”, where the government effectively insured low income borrowers like military vets and ethnically diverse households in an effort to provide them with housing via Fannie Mae and Freddie Mac. This act lead along with the prevailing market conditions lead to a large run up in construction volumes for new home builds and which lead to me realising that the top of a housing market bubble is when building permit numbers and housing starts begin to fall after a long run up.

By early 2007 it was apparent that the construction costs were hitting builders (which in turn meant fewer construction applications for new homes and that prices to build meant there was no profit to be made in flipping property or in building new houses). The metric is intuitive in the sense that people will renovate when the cost justifies doing so - when renovators are priced out then it is likely that any new dollars spent on existing property will be an overcapitalisation if and/or when the renovating vendor decides to sell later on in the piece. Notice that the volume of new home builds tripled between 1991 at the building permit nadir and its peak in 2006, where it preceded to capitulate a full year before the housing price index had peaked and started to fall.

When you combine low rates with low commodity prices and broad access to finance even to people with poor credit (instead of government owned housing where the burden of credit provision is not hoisted on individuals but rather the government) then you have a recipe for lofty house prices. The answer to Michael Burry’s question ultimately is that the gap between the cost of commodities in the short term, the reduction in the rate of construction caused by the demand for commodities from the tech sector and the growth in credit simply made it incredibly attractive for buyers to enter into housing in the US in the early 2000s (that is, until the USD was cheap enough for foreign investors to flood in, the price of commodities were really high and rates were rising fast which quickly made access to finance harder). Causality is really important in these sorts of situations and being able to see them for what they are rather than what we want them to be is very important. Finance often overshoots to the upside and undershoots to the downside on prices, meaning that at the extremes the policy decision reversals present the opportunities for new paradigms of progress, and that is true of any policy regime, with the change in direction of policy being the point at which short sharp returns are possible.

Duration: 1m or 3m (30m to 1h chart)

Buys: Breakout on above duration

Comparisons: Compare basket of assets on a tradingview chart

Coming from a predominately scientific background (having studied Physics, Chemistry, Engineering and Mathematics) I had initially made the assumption that there was some biological introspection driving the philosophy behind what made markets work (although I assumed that it was more akin to biological living systems as that is essentially what a market is with layers of complexity). Alas - as I plunged head first into the world of economics, I discovered that much to my chagrin I was wrong. Market outcomes are driven by the emotions of participants despite the fact that the largest of pockets of money to allocate place their faith in models; models which in turn are based on the assumption that the world won’t end. Models that place an emphasis on “momentum” or “growth”, discounted cash flows, “risk parity”, “value”, the cost basis of money, and various other ideas that are somewhat static. Most market analysts are slowly but surely moving into the 'ESG’ world without understanding that a natural monopoly is a natural monopoly. They’re on the right track, but do they truly understand what the limitations to good intentions are? The saying “the path to hell is paved with good intentions” sadly is applicable here.

For those that aren’t initiated in markets speak - ‘ESG’ stands for “Environmental, Social, & Governance criteria”. These words stand for various considerations that are not necessarily dollars and cents when attempting to value the impact of financial decisions and the direction a company should take.

The “environmental” aspect of ESG is largely focused on decarbonising global economies whether it be energy, transportation, construction, agriculture or various other sources of carbon emissions. It attempts to shift financing from dirty, polluting industries to those that enable us to clean up our act (whether it be by water and land efficient food production or by electric vehicles).

The “social” aspect is largely about the impact that companies have on society - what it is that a company can offer in order to help those in the community that they have some kind of impact on.

The “governance” aspect is basically a “don’t do bad shit and be a caring and considerate organisation” mandate. It is largely associated with companies that are attempting to be more inclusive in terms of gender, ethnicity, sexuality, disabilities and socioeconomics from a governance perspective.

Sadly these same entities have a second incumbent mandate which is to deliver returns to their shareholders in the form of dollar dollar bills. The question is: “which mandate ends up dictating what listed companies prioritise” which can almost certainly be answered by asking a second question regarding the perception to the people with the most control of these organisations (the board members and executives): “cui bono”? To the second question we need only look at the incentive structure and how much of it is linked to total shareholder return for those same board members and executives (hint: its a lot).

From here on I will focus on the environmental considerations contained within the ESG umbrella and what attempting to address it will end up amplifying. The world ultimately has a limited amount of resources with an unlimited amount of ways for people to think they should be allocated depending on the greed of individuals, the needs of a society that has access to these resources or the animosity of societies toward one another when both have something the others want but they don’t trust one another - again markets being impacted by emotions.

When considering things like climate change, ‘ESG’ focused analysts prioritise a basket of technology solutions when attempting to solve an inefficient resource utilisation problem by overusing another basket of resources - this time various base metals. Considering the world dumps 2.12 billion tons of waste a year you’d think we’d start there when trying to develop a mechanism for minimising our impact on the environment. Have we done that? Hell no. The uncomfortable conversation about the first part of the “Reduce, Reuse, Recycle” phrase us millennials all used to hear as kids has yet to play out in earnest. If we are to reduce - who will be first to do so? Will it be those with everything or will it be those with nothing? If history is any guide, I’d bet everything I have on the latter which is one of the worst possible indictments I could make of society, but it is however how humans have operated in almost every instance where kindness, compassion and foresight could have resulted in better outcomes.

I plan to make these blogs on a semi regular basis and more cogent with information that will pertain to what is on my mind about a certain topic from time to time - the one that springs to mind in particular is the wheat and fertiliser shortages being created by the escalation of conflict in Ukraine. The future issues I envisage are to do with our efforts in my home country of Australia to rely less on imported energy specifically fuel given the closure of domestic refineries over time. I’ve often come to the conclusion that the solution to a problem is often in and of itself the origins of another problem, we just need to have enough foresight to see a couple of problems ahead.