183 – What is a Doji (and Why Should I Care?)

This transcript was automatically generated by Descript.

Jacob Shapiro: Hello listeners and welcome to another episode of Cognitive Dissidence. As usual, I’m your host, I’m Jacob Shapiro. I’m a partner and the director of geopolitical analysis at Cognitive Investments. I’m coming to you from Wisconsin, Dallas, Wisconsin. I am giving a speech here at the PDPW, Professional Dairy Producers of Wisconsin event here shortly.

It is one of my favorite events because they have an unlimited, all you can eat grilled cheese station, as well as lots of chocolate milk and ice cream sandwiches. So I’m having a good time. Rob and I are back at it for our weekly chat. If you want to talk about anything you’ve heard in this episode, you can email me at Jacob at cognitive dot investments and auspiciously.

This podcast is being published on March 15th, which allows me to say and bid you that a soothsayer bids you beware the ides of March, wherever, take good care of each other. Take care of the people you love. Cheers and see you out.

All right, Rob. Greetings from the waterpark capital of the world, Wisconsin. Dells, Wisconsin. I bet for once you’re jealous of me rather than me being jealous of you in Paris, aren’t you? Oh, totally. Especially in March. it’s actually an it’s an unseasonable 60 degrees here. I feel like an idiot for bringing my winter coat and dragging it through various flights and through airports and things like that.

As usual the last couple of weeks. We’ll do a little micro geopolitics before we get into what I’m Always excited for our conversations, but this is a particularly interesting week. So I’m looking forward to this, but let’s talk a little bit about Wisconsin Dells, Wisconsin, which, goes back to this. I feel like the thread in these various towns that I’ve been to in Wisconsin, as I speak at various events and really throughout the Midwest is that things don’t really change that much.

we talked about how manufacturing towns were always manufacturing towns or tech hubs were always tech hubs and Wisconsin Dells. Has always been a tourist attraction, basically since the very start. So it takes its name from the Dells of the Wisconsin River, which is a, glacial formed gorge that, features beautiful sandstone formations along the banks of the Wisconsin River.

it was named by the early French cause this was old French territory. For rapids or narrows on the river. it’s the Native Americans who were here before the French were the Ho Chunk and the Menominee and the Ho Chunk name for this part of the country means rocks close together. So that gives you a little sense of what things look like here.

the town was founded in 1856 by the Wisconsin Hydraulic Company. Company, which was a dam building and real estate investment business. And the town was not originally called Wisconsin Dells. It was originally called Kilborn city for a guy named Byron Kilborn. And most of my micro geopolitical take here is going to dive into this.

Fascinating huckster. cause my God, what a, story this guy has. born in, Connecticut, I believe. He’s a surveyor, railroad executive, politician. he’s even involved in the founding of Milwaukee. Serves as the mayor of Milwaukee two different times. Comes from a pretty good U. S.

pedigree. His, father was a colonel in the War of 1812. And served as a U. S., member of the U. S. House of Representatives from the state of Ohio at the time. He’s basically throughout his entire life gets accused of corruption over and over again and somehow never goes to jail He just moves on to wherever he goes next and does more corruption He starts in Milwaukee And I didn’t really know this about Milwaukee.

Have you heard of the Milwaukee Bridge Wars Rob? No, I haven’t. So the area that is Milwaukee today was originally three different settlements. Junotown, which was on the east side of the Milwaukee River, Byron Kilborn’s Kilborn Town on the west side of the river, and then Walker’s Point to the south, which was founded by some other guy.

And basically all of these guys wanted to build the railroads and build, Kilborn’s first sort of thing there was he had a steamship collection that was going up and down the river and things like that. and all of them wanted to be the main site of Milwaukee and, Killborn just starts building bridges across the river, doing whatever he wants.

And at one point, people break out like old guns and artillery and things like that, and they’re going to fight each other over who gets to build the bridge that connects Milwaukee to the Mississippi river and everything else. And they even get to Killborn’s house, whose house apparently overlooks his biggest building project here.

And only because his infant daughter tragically died the night before they decide, Oh, we’re not going to blow this guy’s house up and go to war. We’re going to figure out some way to make things work. Okay, and they all go away. At least that’s what the story tells. so there’s that. he’s obsessed with this idea of basically making a link between Milwaukee in this part of Wisconsin in general and the Mississippi River.

He even writes once that if he’s the first one to build a rail Between Milwaukee and the river, then quote, Chicago will not dare to touch our territory. We can defy the world to come between us and this great Northwest. just real delusions of grandeur. the other thing about this was he, first it’s steamboats and then it’s bridges, but he really gets focused on the railroad.

And the thing about railroad is that it’s capital intensive. You need a lot of capital up front, and there’s no capital in the wilderness of Wisconsin. And there’s nothing you can even really convert to capital except the land itself, especially at the different perspective town sites along where they want to put up all the railroads.

So after he does his little Milwaukee bridge war thing, he starts with something called the Milwaukee and Mississippi Railroad. And he, tries to find cash. he even tries to go to the Milwaukee school system and borrow from the Milwaukee school system to build some of his railroads. he ends up being found out that he bribes lots of construction companies and politicians with contracts and paybacks for this and he gets fired.

Fired from that railroad now you would think he gets thrown in jail or he goes somewhere else No, he just goes to the lacrosse and Milwaukee land grant scandal where he moves on to the look the lacrosse and Milwaukee Railroad Which is charted by Kilbourn and a couple other guys in 1852 Have you heard of the lacrosse railroad scandal or the black book scandal Rob really fascinating?

I could we could do a whole episode just on this the way that he finances the construction of this railroad, is described by one Wisconsin historian as a plan unique in the annals of railroad finance. And the historian did not mean that in a nice way. And basically, he convinces farmers along the route to mortgage their farms as security for railroad bonds.

that can then be sold in eastern money markets and then the farmer gets railroad stocks whose dividends quote unquote are signed back to the company. and so by this sort of irregular transaction the farmer is supposed to come into fully paid shares of railroad stock without having to put up any cash.

It was just you sign over the land as a security and you go from there. and things go okay for a while because 1853 to 1856 Boomtown in this part of the world. They’re building railroads everywhere and everybody is convinced. Oh the nothing’s gonna go bad. Everything is fine but needless to say eventually the boom blows up and the stock proves worthless and a lot of farmers are actually compelled to pay Their mortgages or even lose their farms And so all of this might not have happened actually until there’s one part of land That Kilbourn wants to acquire and he gets his lawyer on trying to acquire it and absorbing it in this part of the, in this part of the country, the Milwaukee and Watertown Railroad.

And at that point, whether it’s people figure him out or people are annoyed that he’s getting too big, there’s an investigation into him and they find out all of these different paybacks and bribes and things like that, that he pushed through in addition to this scheme to try and raise capital out of thin air where there really was no capital.

And at this point, he gets embarrassed. It’s, this is the Black Book scandal or whatever. And the, his interests here go away and he gets kicked out. and it’s such an important, it’s actually a really, important moment in Wisconsin history. because it’s so corrupt, that, basically it, It provides the impetus for the La Follette progressive movement and all of the rules about corruption and regulating economic activity in Wisconsin have Kilbourne in mind because he was literally so bad and his corruption shocked people so much and made farmers lose their farms that people, just couldn’t believe it.

Now, this, by the way, has nothing to do with Wisconsin Dells. Wisconsin Dells doesn’t come onto the map, as I said. Wisconsin Hydraulic Company, 1852. He’s trying to build a dam here to separate the upper and lower Dells. The, lumber men who were in this part of the country were really mad at him because his dam was going to block the way that they shipped their lumber down the river.

And in 1859, the lumber men just destroy His dam that he’s trying to construct on Adele’s and he can’t do anything because he’s this corrupt guy who has this awful reputation and eventually he retires to ignominy in Jacksonville, Florida, and there he passes away, trying to concoct some new terrible scheme.

and that’s Sounds like a classic American story.

and the weird thing is, it started as Killborn City. it goes to Kilbourne in 1895 and then it’s, changed to Wisconsin Dells in 1931. the dam is called the Kilbourne Dam and it eventually gets built in 1909 because I guess the lumbermen just, I don’t know what happened.

they couldn’t build it off. Since the very beginning of Wisconsin Dells, it was a tourist place. It was where people came to look at the landscape. And it’s become this water park, kitschy Mecca or whatever. The only famous person I can find who has any connection to Wisconsin Dells is Maria Isabella Boyd.

I am betting that a carpetbagger like you does not know who that is. Rob, is that correct? Yes, she is the Cleopatra of secession, the siren of the Shenandoah, the Confederate Mata Hari. She was a Confederate spy in the American Civil War. She operated from her father’s hotel in Front Royal, Virginia, and at one point provided very valuable information to Confederate General Stonewall Jackson in 1862.

He actually wrote her a thank you note, which has been preserved for prosperity, and she was awarded the Southern Cross of Honor for her contributions to the Confederacy, however it was. Alan Pinkerton and his men actually assigned three men to work on her case and they finally captured her in July 1862 after her lover gave her up and they put her in prison for a while, but she always seemed to squirm out of it.

They let her go because I guess she was a woman or they felt bad for her. She got arrested again. and, but she’s released because she can’t, She contracted typhoid and people felt bad for her, she eventually assumes the stage name Nina Benjamin and goes to various cities and ends up in New Orleans where she marries a guy named John Swainston Hammond in 1869.

has a couple of kids and then divorces him and goes on a wild tour of the United States giving lectures about her time as a Civil War spy. And she passes away on one of these tours. She’s giving a discussion in Wisconsin, Dallas, Wisconsin, which at the time is Kilbourn, Wisconsin. so that’s my microgeopolitics for the week.

Is that not the most fascinating thing you’ve ever heard? And by the way, that gives you a sense of where I am right now.

Rob Larity: damn. Next time someone’s flying over the middle of the country, they can think about this and realize How much color they’re missing.

Jacob Shapiro: Yeah. I found this one history of, this region, which was so incredible.

And one of the, one of the quotes that I underlined from it was, the ingenuity displayed in the attempt to veil the transactions that Kilbourn was engaged in, are beyond the possibility of deception is so supremely unique as to. extort attention. So Killborn is, the story of the American Huckster is long.

It’s been there a long time, but he was particularly, notable. And, Wisconsin Dells, I, in some way is his legacy for, better and for worse. Anything else you want to say? there’s nothing really to talk. There’s no globalization or manufacturing or tech revolution story in there.

There’s just good old hucksterism. Is there anything you want to pitch, knock on from that level or you want to dive into the next thing?

Rob Larity: I wouldn’t understate how important water parks are to the economy. let’s not ignore that sector.

Jacob Shapiro: Yeah. Okay. Okay. Mr. Paris. Oh, we don’t have water parks.

We’re fancy and we do sophisticated things. Always punching down, Rob. Always punching down on the unsophisticated Wisconsin water park person. Actually,

Rob Larity: do you know what a really cool book about Wisconsin is that I guarantee almost none of the listeners have ever heard of? Which is worth seeking out and looking at, and you should, you would enjoy it as well.

It’s called Wisconsin Death Trip. Have you heard of this? I have not. It’s a very creepy, photography book, and it was a, I forget the exact story, but a photographer who went through Wisconsin around the late 1800s. And, I think they collected, if I remember this right, at the time, they would take photos of.

newly deceased people. and this book is a collection of the photos, but it’s extremely poignant and haunting. And, it’ll, it’s a good taste of Wisconsin on the dark side of, the more macabre side of, of the ledger for sure. Wisconsin Death Trip.

Jacob Shapiro: Yeah, no offense, I’m gonna stick to my water parks.

I’ll leave Wisconsin Death Trip for you. It’s much cooler than I’m making it out to be. Yeah, I hope so. I’ll check it out. But that doesn’t sound like where I want to spend my time. Okay, Rob, let’s transition. To another cool and historically tinged conversation that is very different, and why don’t we start with, the present and work our way back.

and so the question that I want to pose to you to start is, what is a doji? A doji is a

Rob Larity: cross. I think that’s the easiest way to think about it. If you think of the traditional Christian cross, with, a longer vertical, axis and a shorter horizontal axis somewhere in the middle, but toward the top, that is a doji and it’s a candlestick, Charting, pattern that happens if you’re not familiar, most of the listeners will be familiar.

But for those who aren’t candlesticks are a way to measure during any period of time. Where did the price of any market index or stock or currency or whatever? Where did it start? Where did it go to during the time period? You know how high and how low and then where did it close? And a doji, if you picture the cross, is a candlestick that starts 100 and swings high up and then high down and then closes exactly at 100.

And the reason why we bring this up is because the S& P 500 made a very rare weekly doji. last week. And that is a whole conversation about what that means. But that’s, the context here.

Jacob Shapiro: How, rare is that? Like how often when you’re looking at various charts, do you see doji’s?

Rob Larity: it’s, it depends on the chart.

It’s for the SMP. It’s, fairly rare. and What it means, or the way that it’s interpreted, is that it’s a battle. So traditionally a doji is, taken as a sign of potential reversal. That a trend that has been in place. is ready to reverse because the doji represents a shock. So if you think, if you were to look at a chart of the SMP over the last five months, it’s basically very low vol, just like a line up until the right.

So the bulls are in control. buying, Yeah. Feeling good. Feeling good. Markets going up, And then the doji represents a slap in the face. It’s all of a sudden the market bulls tried to take that market higher and Oh, they got a sharp reversal. So think of it in military terms, you’re charging through, you just, you made it through their lines.

your, troops are, blitz, creaking through the other side’s army, and they’re all, retreating back to Paris. And then, oh, they, hold you on the line of the mar and, your, army faces a major setback and there’s a psychological impact to this because all of a sudden you, you suffered a reversal and, I want to talk a little bit about sort of Japan and where this comes from and why this is relevant more broadly, but it’s an interesting, set up here after what we’ve experienced for the last five months, opening up a conversation about markets, but, this is an important thing to be mindful of that something might be changing.

In that trend,

Jacob Shapiro: before we get into the history of it, because I know the both of us, and if we get started on the history, we’re never going to leave it. Why don’t we do last week and give away the punchline? So let’s talk about what do you see in the S and P 500 as a result of the doji has that move been confirmed this week?

Is it still up for grabs? what is the key takeaway? And then we’ll get into What’s behind it?

Rob Larity: whether it’s confirmed or not, we don’t know yet because the market as we record still has two full days of trading. So we have to wait and evaluate, and if the market closes higher this week, then it could be invalidated and it could be healing itself.

so it’s early to say what the implications are yet, but what are the underpinnings coming into this? Why am I highlighting this? Because market breadth is something that is really important that we try to look at, as part of our process. And what’s been going on in the market, as many people know, is that breadth is narrowing more and more if you were to take the average stock in the U. S., it’s done not very well this year. Small cap stocks, the Russell 2000, for example, has not done well. the, everyone talks about the magnificent seven or whatever the latest moniker is. I don’t even keep track anymore. It changes like every two months now, the fangs, the finags, the set, like whatever.

but the reality is that the leadership of the market has been narrowing and isolating. Smaller and smaller group of very high profile stocks where there’s a lot of speculative froth and speculative activity and retail, wagering going on using options among other things. So that is the background, within the equity market itself, which is why we put it on the yellow flag.

The other thing that is relevant is, we use intermarket analysis as part of what we do in evaluating markets. And what does that mean? It means you don’t want to just look at equity markets. You want to look at bonds and currencies and commodities. And when certain things move together, and then one of them zigs and the other zags, That’s important.

So what we’ve been seeing more recently is from Thanksgiving, basically last year, or, Halloween, maybe both equity markets and bond markets were running together. that was when the expectations really started to grow that the Fed was going to cut bond yields went down, bond prices went up.

And between then and the end of Christmas, just. Everyone was making hay on everything. Everything was going up. But since Christmas week, the majority of stuff has stagnated and suffered and bonds themselves are down this year. So the sort of one of the key planks of this market narrative of the S& P going up like it has is now going in the other direction.

So it’s just about taking a weight of the evidence approach and using different perspectives and different tools to gauge the risks, positive ending if in the market at any time. And, the doji capped it off for me last week. I said, Oh my God, there’s a doji now, things are really getting saucy.

But yeah, that’s the background coming into this. the punchline is risks are really elevated. in, in the market right now, and we’ve been, holding back the reins on U. S. equity exposure for our clients, and, quite possibly, we might go full on, fetal position with regard to the S& P 500 soon.

Jacob Shapiro: Even if the Doji gets invalidated at the end of this week? is this, if it gets invalidated, is it just, Sort of a pitched battle that got lost, but the war is still moving in one direction or would that invalidation tell you, maybe I’m off here, or maybe something else is happening?

Rob Larity: I don’t know. it depends on what else is happening at the same time. That’s why I say it’s a weight of the evidence approach. you never want to take one indicator. and base everything on that because it’ll work for you once or twice and then it’ll, throw you for a loop and you’re done.

Jacob Shapiro: Okay, so as we get into the fun part of the conversation, at least for us, I thought the best place maybe to start rather than going straight to 16th and 7th, 16th and 17th century Japan would be to start with what is technical analysis? Because I think that probably links to what we’re talking about here and that really technical analysis has some of its own.

basis in Japanese candlestick charting technique. So do you think it’s a good idea to work our way backwards from there and talk about that for a second?

Rob Larity: Yeah, because the history itself, it’s of marginal importance. I think the key takeaway is, that this is technical analysis and technical analysis is really just using shapes and colors and figures to gauge people’s feelings.

it’s about psychology in the end, and measuring psychology. And that’s a really, important discipline that I think gets vastly overlooked, especially nowadays, because other disciplines have become much more popular. but this is, we always say the three legs of the, stool for everything we do are fundamentals, which is what’s happening in the economy and with businesses, sentiment, what’s happening, what other people think about things and then, technical analysis.

What is the market action? What is the market telling you about? How people are behaving in groups. And, the reason why this is so important is because certain things change, market environments change. it used to be that when bond yields went up, stocks would go down in the seventies. And then for decades, it was the opposite.

And now it’s the same. It’s back to the seventies again. So nothing is ever constant. Technology shifts, the economy changes, but this stuff doesn’t change. And that’s why the Japan background going to the 1755 is interesting because when you talk about technical analysis. That’s a discipline about humans.

And that’s something I think anyone can appreciate. And anyone who’s at all involved in markets can look around and understands that there’s emotion that’s deeply involved in investing or trading or whatever you want to describe it as. Whether it’s someone bragging, Hey, I just made all this money in, in video or the meme stock of the day or whatever it may be, or, People freaking out and selling everything they have because they’re terrified.

As long as humans are involved in markets and driving markets, these tools are going to be valid and really important. And it’s also why markets will never be efficient because humans are not efficient. People don’t buy and sell things because they’re these rational calculating machines of the underlying, discounted cashflow value.

No, of course not. Anyway, that’s the, that’s the kind of broad takeaway. but there’s one quote that I always love just getting to how these things are eternal and how important they are, especially having, been in the business for doing this for 20 years now. You just, you appreciate things more deeply or at a visceral level that you don’t when you’re first starting, even if you nod your head and say, Oh yeah, sure.

And the quote that I always love is from 1989 in an interview in the original market wizards book, which is, I don’t know if you’ve ever heard of that. It’s a. It’s, a classic. You should read it. It’s the interviews with the great traders of the time. but in that book, Ed Seykota, who’s one of the traders, he, had a quote that he said, win or lose, everyone gets what they really want.

From the market. And I think I’ve said this a few times on the podcast before, but it’s so profound and I just come back to it so much that it’s worth repeating because it sounds so like whatever that’s glib. Who cares? That doesn’t mean anything to me. But the more that I meditate on that and experience people in this business and.

The more wise that truly is, because if you look around and any of our listeners know people who invest or know professional money managers, and a lot of them are professional money managers, everyone gets what they really at bottom want from the market. And that’s a reflection of their, personality, of their desires.

Some people are gamblers. They want to gamble. That’s what they get a thrill out of. They’re not there to make money. They’re there to gamble. Some people are intellectually vain. this is my biggest shortfall that I’m always concerned about, by the way, is like trying to be too clever, right? I know a hedge fund manager who was so, smart and he had such an ego, because of that.

And he was never successful in the end and ended up crashing and burning because he didn’t really want to be successful in terms of doing well for his clients. He wanted everyone to look at him and say, Oh my God, that guy’s so smart. And that’s different. That’s getting what you really want out of markets, in a very subtle, subconscious way.

anyway, that’s, that’s going on and on, but, I think it’s, worth putting this in the context of why do these things matter? Why should you care about what the market does? Why, is technical analysis not just mumbo jumbo? Adoge is telling us not about some random picture on a screen.

It’s telling us about the deflated hopes of people who were buying at the start and have been riding this up and all of a sudden are facing a psychological setback. And how, does that resolve itself?

Jacob Shapiro: Yeah. I think there’s a subset of listeners who, will know what technical analysis is, and probably even a subset who are like passionate nerds about technical analysis as well.

I think there’s also going to be a large percentage of listeners who have no idea what technical analysis is, and there will probably also be a large percentage that think it is mumbo jumbo, that think it’s just reading voodoo signals on sheets of paper. And when we first started working together, One of the reasons I felt such a kindred spirit with you was because technical analysis reminds me a lot of geopolitics, and that there are lots of charlatans out there who will say, Oh, look, there’s a river here and there’s a mountain here.

Ergo, China is collapsing. There’s a famine. Everything’s going to be terrible. Who could I possibly be talking about listeners? but there are plenty of other market analysts out there who will do the, Oh my God, death cross crossing over moving average, blah, blah, blah. This means that this is terrible.

And silver is breaking out for the first time in 16 years. If you go on Twitter, you can see all of the stuff. And I get the sense that portion that uses these tools this way, they’re the ones that get all the attention. And so things like technical analysis and geopolitical analysis get a bad name.

but I’ve always said geopolitical analysis in the same way that you said weight of the evidence. You have to think about fundamentals and sentiment and psychology. If you only use geopolitics, understand something, you’re going to get it wrong. I guarantee you, if it’s the only tool in your toolbox, you’re going to get it wrong.

And I feel the same way about technical analysis. I feel like there’s a kinship there between those things. They’re useful tools, but they’re tools that get basically lambasted as as something that a huckster like Byron Kilborn would use because there are a lot of hucksters that are out there selling their snake oil via how they use these tools in a bad way.

I did not read that book that you recommended. I stumbled on a book by Steve Neeson. Have you heard of him? Called, Japanese Candlestick Charting Techniques. And he had a whole discussion at the beginning about technical analysis before he went into his interesting history about, where it comes from in Japan, and I wouldn’t shortchange that, by the way, I think the history is really important and imbues sort of the tools with the what was going on at the particular time, but he at the very beginning has a John Maynard Keynes quote that says, there is nothing so disastrous as a rational investment policy in an irrational world.

And he lays out why even if you think technical analysis is bullshit, it really is the only mechanism that is trying at least to give you a measure of the irrationality in markets. So even if you don’t believe in it, it’s a signal that at least you should have on your toolkit for understanding, why is the market reacting this way and what is going on?

I did a little study on where this comes from in Japan. Do you want to start up or do you want me to tee it up for you to go into the Japanese background here? No,

Rob Larity: why

Jacob Shapiro: don’t you tell me what you learned? All right, so what I learned was, so from 1500 to 1600, I knew this before. Japan was constantly at war with itself and there was always a daimyo who was Looking to arrest control of different territories from, from neighbors and things like that, this roughly a hundred year period is referred to as the age of the country at war.

So it’s not the Japan of today where everybody’s polite and orderly. It was a pretty violent and, inconsistent place. And three of the biggest generals in the early 1600s at the time who emerge out of this chaos are Nobu, Nobunaga, Ada, Hideyoshi, Toyotomi, and EI, Ieyasu Tokugawa. Sorry, I know that I’m not a fluent Japanese speaker.

I think I got those pretty right though. Side note, I knew all of these names and had thought about these guys quite a bit over the last couple of years because when Annie was born and we were in that first three to six months of not sleeping where you are right now, Rob, Netflix had this Great documentary about Nobunaga in particular, and also the rise of Hideyoshi and Tokugawa.

So like I, I was like, Oh, I, these guys are back. Like they’re here in my life. I know something about this. And basically their competition, their moves over a 40 year period to help unify Japan and Japan stays unified basically, up until the present day. Neeson has this quote in his book that Nobunaga piled the rice, Hideyoshi kneaded the dough, and Tokugawa ate the cake, and the name Tokugawa might mean something to you listeners because he’s the one who eventually emerges as the Shogun, and his family rules from 1615 until 1867, and we get into Meiji Restoration Land and things like that.

Now, What does this have to do with candlestick theory and things like that? apparently it all goes back to the importance of rice in the economy. And it’s Hideyoshi who regards Osaka as what he hopes will be Japan’s capital. And also its economic center. Osaka has easy access to the sea.

It was a national depot for assembling and distributing supplies. And it evolves into a city of commerce and finance. And its wealth. is most visible in these vast storehouses of supply, in particular, vast storehouses of rice. and in the 1600s and the 1700s, as things become more unified, In Japan itself, Osaka is centrality as a rice exchange in Japan becomes extremely important.

and the do Jimmo rice exchange gets set up in the late 16 hundreds in Osaka as merchants are trading rice back and forth. And it became the foundation really, of Osaka. prosperity. at its heights, you get over 1300 rice dealers. And this may sound silly, but even though the country was becoming much more unified than it had in the past, there was still no currency standard.

So there was no yen at this point. And the different rival areas weren’t trading in their own currency. The one thing that they agreed on was rice. And rice becomes the de facto medium of exchange. So a daimo who needs money sends surplus rice to Osaka, where it’s placed in a warehouse with his name, and he’s given a coupon as a receipt for the rice, and then he can sell the coupon whenever he wants, if he wants to raise money.

And so given that these daimos were fighting each other and raising armies and things like that, they often had financial problems. So they’re selling rice coupons against the net, the next rice delivery or taxing or things like that. and sometimes the rice crop of several years in the future got mortgaged as they were trying to build their armies and things like that.

And to give you an idea of the popularity of rice futures trading, in roughly 1750, there were a total of 110, 000 bales, of rice, 000 bales of empty rice coupons traded in Osaka. Yet throughout all of Japan, there were only 30, 000 bales of rice. So it’s like interesting how the trading gets up.

and I don’t know, there, there are different traders that emerge at the center of this, but there’s one in particular that Neeson points out. I’m probably gonna butcher the name. His name is, Munihisa Homa. Is that a, Homa is a name that I recognized from World War II reading and things like that.

but yeah, But he basically becomes this big trader from Sakata and his Sakata’s rules and his theories about how to manipulate markets and trade these empty rice coupons becomes Japanese candlestick literature. How did I do? Does that, sound right? No, it’s perfect. That’s exactly right.

Rob Larity: Murahisa Honma, that’s, he’s the guy. And He actually has, in 1755, he wrote his, main book of trading wisdom, and he has a wonderful quote, at the start of it that I’d like to read, and he says, Farming and investment share the same roots. It is the people who do the work, but it is the grace of heaven that makes things grow.

Those with a pure mind who believe in heaven will be guided into a bountiful world. The mind always counts more than the loss or profit. And I think that’s, it’s, a charming way to think of it, but it also, this notion of the mind and, keeping a, keeping an even keel, keeping an even mind and being mindful of how others are behaving is ultimately the core of technical analysis.

And it also reveals the wealth of Japan at that time and how it’s, How do you say, when you have to go into a market and exchange with other people, you can’t have illusions about. reality to some extent. technical analysis is about getting out of your own head and trying to understand where other people are coming from, who’s on the other side of the trade.

And that’s what Munihisa Honma writes a lot about is understanding, that you’re not so different from other people that when you’re bullish, they’re going to be bullish. And you have to be mindful of, how you stand in relation to others and be humble and respect, That the market is bigger than you and all of this sort of traditional trader wisdom But it’s poignant that it emerges during this period of prosperity And it’s poignant that this wisdom emerges 300 years ago and it’s Nothing has changed if you read any trader book, you know from market wizards to munihisha honma It’s the same shit, it’s the same wisdom the same human Drives that are behind all of this for hundreds and hundreds of years.

So there’s something very, Very powerful about that, I think.

Jacob Shapiro: There is, and this is also why I think the context of where it comes from is actually more important than you were willing to say earlier. Because, Japan itself is really interesting when you think about it. First of all, you were using martial technology when you were describing technical analysis to begin with.

And that’s because it comes from an era of extreme violence. and war inside of Japan. So all the traders at the time having their minds, Oh my God, the Dymo and the wars and who’s, which faction is going to raise a militia that’s going to come and do all these things. Like it was, it becomes a unified society, but it’s forged in a crucible of intense violence and intense stability.

And that’s maybe that. Made them sensitive to markets, which are also the same. They’re volatile and they’re sensitive and they do all these other sorts of things. There’s also, a real strategic tradition in Japan of, and this has worked against Japan and wars and it’s worked for them, but for the.

What Americans would call the silver bullet, like finding the one battle, the one strategy that is going to bring you to ultimate victory. and this worked for Japan in the wars against Russia in 1904, 1905, it blew up on their faces in world war II because they thought, Oh, if we could just do Pearl Harbor, if we could just do this one thing, like The entire tide is going to change.

And sometimes it doesn’t matter, like a battle doesn’t actually decide the war. And I feel like that’s maybe part of it. And maybe one place that technical analysis can take, or at least absorb some of that silver bullet mentality. I’d also say though, on their plus side, and you see this in Japan’s foreign policy.

You see it. I think in Japanese culture and behavior, Japan is very comfortable with ambiguity. They have no problem, for instance, in being a geopolitical rival of China and also China being their most important economic trade partner. They don’t have this sort of you’re with us or against us.

Everything is black and white. They can very easily shift from, yes, of course we’re rivals and yes, we have to trade with you. We can put on this hat and then we put on this hat and everything is about, Strategic ambiguity and being comfortable with that level of ambiguity, which you have to be with what we’re talking about.

Could it like, is it a doji? Is it not a doji? Did it get invalidated? Is it a doji and something else is happening and somewhere else that tells you something different about it? there’s this ambiguity that is imbued in these tools that I think is maybe one of the reasons that Western users of these tools maybe go off the rails because it’s not a measuring stick.

It’s not doji equals short S and P 500. It’s, Oh, Okay, this is like one thing on the set of data that I have in front of me. Let me see what is going on with everything else. Let me check in with the other rice traders in Osaka or with this, that or the other thing. And then maybe I’ll make my decision or maybe I’ll stand pat.

So I think those are maybe imbued within this form of analysis. And maybe they’ve been lost to the sands of history. Oof, that was saccharine.

Rob Larity: there’s a certain Humility implied in ambiguity and being able to accept ambiguity, right? I really like military metaphors for technical analysis because I think they’re so apt.

Because really what it measures is the behavior of people in groups. And a military is exactly, so much of military is just morale. just thinking traditionally, obviously war has changed quite a bit, but if you think the traditional view of military, the charge, the defense, when you start to break, think of, The Greek hoplites, side by side and are they gonna hold?

Are they gonna break? Who starts to run first? that’s how markets work. And the other, analogy that I think is, is connected to that is, is sports. anyone who watches sports, and you and I both are really into that, the psychology and the sentiment of the players is such an important factor, and it’s about people behaving in a group.

It’s a, sports are a low level military conflict. I really like those metaphors because I think people behave in groups similarly. From a psychological standpoint, whether you’re talking about in a game or in a war or in markets, and it lends itself to similar imagery.

Jacob Shapiro: yeah, and the thing that war and sports and markets have in common is ultimately, all my comments about ambiguity aside, there’s a winner and a loser.

Somebody wins and somebody loses, and then whoever wins also gets to write history. This was another thing that I thought was interesting about Homa. Nissen in his book talks about the legend that rose up around him and how he made a hundred consecutive winning trades and never had a bad one as he amassed this huge fortune.

And I wonder, that must have been difficult for him because at that point he goes from being a trader to being the psychology is he’ll never lose so he could make a bad trade and people would be, Oh, homeless doing it. So it must be the right trade and people would pile in. And I wonder if Warren Buffett has that feeling to like he just got some big calls right early on or a reputation or a psychology emerged around him.

And now When Warren Buffett says, Oh, I’m buying Japanese stocks or I’m buying this. there’s a, there’s like a psychological sympathy rally because of course the wizard from Omaha like knows what he’s doing. So it’s, that’s also gets, in there with the psychology. I don’t know if you, obviously we’re not there yet.

Cause nobody knows who we are besides from you faithful listeners, but, it must be a good problem to have when you get to that

Rob Larity: point. That’d be nice. When we say, Oh, you think Japan’s going to go up? Oh, it’s going to go up. I, I think, There’s a big difference in, in that phenomenon between market investors and people in business.

So I think the big difference is people in business, generally speaking, you get a big hit. Like you see this with CEOs a lot. So oftentimes a CEO will have great success doing something. They’ve, turned around a company, they’ve grown into something big and then they sort of coast and the deal flow comes to them.

They become like a black hole in the business universe where they just suck in opportunities and fame and fawning. And. And because of that, they tend to do very well, because it’s about deal flow. It’s about, drawing people’s attention to you, drawing their, attentions to you.

whereas in trading, no one is bigger than the market. And I think that’s why I find people like Munihisa Honma so interesting. Like I guarantee the guy didn’t have a hundred, winning trades in a row. It’s just, it’s, that’s the, Legend grows in the telling sort of thing, but just the notion of no matter how big you are, I think Paul Tudor Jones, your boy is, expresses many of the same things, like even at his peak, when he was the big, excuse my language, the big swinging dick of the financial world, what his, he would say before anything else was, I’m terrified.

I’m always. terrified that everything I’m doing is wrong. And that’s the mentality that you need. And it’s very rare. so I guess one takeaway for listeners or people who are looking for, someone to trust to take care of their, funds or the hot fund manager or whatever is that balance over brilliance.

is the way to evaluate people.

Jacob Shapiro: yeah, you, I don’t know if you’ve seen it. I have to see if I can find it. Shaquille O’Neal had this, it was doing this interview once where he talked about how when he was a rookie or when he was very early on in his career and he was interviewing different financial advisors or things like that to help him manage as well.

And he talks about how like there were so many of them were like, Oh, I’m going to make you 50 percent returns. We’re going to put it in this, we’re going to take over the world, blah, blah, blah. And then he said there was this little quiet demure guy that was like, yeah, let’s make it happen. Buy some bonds, let’s try to get, maybe four to 6%.

And then once we grow that over time, he said he went with him, that was his advice to people, who at least, he’s starting from a huge base, But I, always enjoyed, that story. we still have a lot to get through. We’re not going to be able to get to all of it.

But speaking of correct calls and speaking of psychology, the CPI was released this week. it increased 0. 4 percent in February on a seasonally adjusted basis after rising 0. 3 percent in January. Over the last 12 months, the All Items Index is up 30%. 3. 2 percent before seasonal adjustment. the index for shelter and gasoline rose and those two increases and those indices accounted for over 60 percent of the monthly increase in the index for all items.

Energy index was up 2. 3 percent month over month. Before this month for the last four months, energy prices had been declining month on month. So now rising 2. 3%. Now that means they’re still down year on year. So if you look 12 months ago, still down on energy 1. 9%. But we’re talking about doji’s and reversals, at least in the CPI data, there’s now a reversal for you.

Instead of four months of decline, we now have an increase. our buddy chase over at pine cone macro, Put out a couple things that it was the three month annualized core CPI highest since May six month annualized course CPI highest since July three month annualized super core highest since June six month annualized services CPI highest since February 2023 running at almost 6%.

the last thing I would just put in mind if you look at the Brent crude chart, we’ve been talking about Brent crude hanging out. Range bound 75 to 80, maybe a little bit over 80, starting to poke its head up into what looks like an uptrend, but where it looked range bound before now, maybe an uptrend looks like it’s coming up.

So as we’re recording on Thursday morning. future contracts for Brent crude around 84. there was also, and we won’t have time to get into all this, but there was a really interesting paper published in the National Bureau of Economic Research. I have not read all of it yet. I’ve just skimmed all of it, but it talks about how the United States transformation as a, net exporter of natural gas has actually led to a significant increase in energy prices, comparable to a 30 per ton carbon tax, roughly 30 per ton on natural gas and 20 per ton on, on, on coal, just because of how those markets work together.

and that sort of roughly an LNG induced increase of approximately 1 60 per BTU, which, to put that in terms that’s double what. Natural gas is going for right now in the United States. So a very clear signal, that U. S. exports of natural gas, even though natural gas prices are at a ridiculously low level, going back to the, mid 1990s, those export, those exports are starting to be, are starting to appear in the price.

and then last but not least, EIA. On the one hand, I’m tempted to say if you need toilet paper printed out, their forecasts are not always super great. but, On the other side, though, they’re expecting gasoline prices to be lower over the course of the year, but expecting nominal gasoline increases May through July and those exceeding prices for 2023, which is the period we’re about to get into.

They’re also expecting Henry Hub’s bought price to remain below 2. In the 2nd quarter as the season ends, but still talking about record lows adjusted for inflation and all of the things that we’re going behind that. And they see natural gas production still unchanged despite some of the announcements from natural gas companies like Chesapeake talking about finally cutting production.

So nothing super firm in there, but I don’t know. We’ve been saying inflation and what if energy reverse to the mean and. I don’t know, you get a bad print here and you get some, signs in energy. So how do you make sense of it, Rob? How does it look to you?

Rob Larity: we’ve been talking about this for quite a long time about the drivers that we think are put going to push inflation to re accelerate.

And that appears to be playing out. the only thing I would add here is this is partly, again, I, think I say this a lot. This is why it’s so important to pay attention and to be a bottom up Investor when you’re doing this kind of macro, because it doesn’t take a rocket scientist to just listen to what the companies are saying and all the companies that we work on, like in retail and consumer, the, big things that are so obvious are number one, they’ve all worked down their inventories and now inventories are fine.

So that sort of deflationary tailwind in the market has gone away because now they’re rebuilding their inventories. And, I’m a broken record on this, so I won’t go into it again, but inventories flat to up now, that’s a big deal. Number two, freight 2023 was a huge crash in freight prices. that is bottoming out and that’s a big deal.

and the reason is because you have to put yourself in the mind of a CFO or a CEO, like all of these companies raise prices. Into the end of 2022 and into the very beginning of 2023. That was the peak of the inflationary surge, but they’ve been coasting on that. Like everyone cares about year over year growth, like every company, when they want to present good numbers to wall street.

They want to show year over year percentage growth rates. So they had raised those prices and they’ve, they have not anniversary that yet. So all of their revenue growth, like if you look at any consumer company, pretty much in the last couple of quarters, revenue growth rates have been quite high, even though the volume of stuff people have bought in many cases has gone down.

So they’re getting this huge inflationary tailwind from those price rises, but now you’re starting to lap that. So I think the rubber really hits the road here when businesses say, Oh shit, like we have to put up some revenue growth here. We need profits to grow. We can no longer rely on falling freight and falling energy to cushion our margins.

So they’re going to start raising prices again. And when they do, people are going to freak out because they thought that this was done. so that I think is the bottom up cynical stock investors, take on this very macro issue. but so far that’s, the inflation issue has been moving very much in our direction.

And yet I’m looking on the Bloomberg, the interest rate expectations, in a month ago. Where that interest rates overnight rates would go from 5. 3 percent at the midpoint to 4. 3 percent at January 2025. So there was pricing in one percentage point of cuts on average. That’s the probability weighted.

assumption between now and January one month later, after the, a few prints here, it’s only gone up from 4. 3 to 4. 4. So interest rate markets still don’t believe what’s going on. That’s why I say okay, that sounds really wonky and boring. the takeaway is everyone who owns bonds should be really concerned about that because if we’re right about inflation and bond markets finally start to wake up and price in, Hey.

Oh, shit, this is not the beginning of a cut cycle. It’s the beginning of, a move back upward that is going to move very quickly in the opposite direction. And anyone who’s sitting there owning bonds is going to lose money.

Jacob Shapiro: Yeah. the political pressure is pushing the opposite direction. Biden is saying things on the campaign trail about how he thinks his buddy Jerome is going to cut.

He’s going to look at the data and he’s going to cut. And the Biden campaign, Needs. they’ve put a lot on winning inflation. So I feel like at least some combination of political pressure and also that narrative being so ubiquitous is maybe what’s, what’s, keeping that narrative so sustainable and maybe the politics will intervene in a way that we’re not expecting although I mean if we’re right about the underlying fundamentals here if the Fed did cut rates probably you’d see a massive surge and they’d have to fix it right then and there so but those are my best Guesses there.

I worry a little bit about how u. s. Politics. I’m always worried about how u. s politics is gonna affect these sorts of things, but It’s a pretty volatile time to have this kind of uncertainty when it comes to inflation and interest rate expectations as we get into the real pinnacle of the presidential election campaign?

Rob Larity: I don’t think, I don’t think Jerome Powell wants to go into a potential Trump administration with rates any lower than they need to be. Because that was the big battle that took place the last time. and Jerome Powell wants to do, I think, genuinely what he thinks is best for the economy and for the country and, his sense of civic duty and blah, blah, blah.

the notion that he’s going to, Cut because Joe Biden wants him to, I think is pretty fanciful and especially I hate to say it, but if you look at some of the cuckoo craziness that’s happening in markets around speculative activity, NVIDIA, like he is clearly paying attention to this.

And if you remember six months ago when markets were on the floor, he had come out and said, yeah, some of the, risk premium is signaling in markets that markets have tightened and that’s good. what do you think he’s thinking now that the S& P 500 is, soaring to 52. 50 and NVIDIA has just tripled and it’s AI mania and everyone is, doing single day option trading on their phones.

do you think that Jay Powell is going to Be cool with that? I don’t think so.

Jacob Shapiro: Not to mention Bitcoin over, what, 70, 000? And people say, no, maybe I should go into Bitcoin mining. I’m starting to hear the crypto talk from people who had been in the fetal position as a result of the crypto winter recently.

Rob Larity: Did you see the, there was a guy on Twitter, I don’t know if this was fake, but it was funny, even if it was fake, where he posted a text message exchange, where he was texting his, his landscaper and said, Hey, are you guys going to come cut the grass? I haven’t seen you for a few weeks. And the guy said, Oh, I don’t cut grass anymore.

I just made a million dollars in Cardano.

Jacob Shapiro: Oh man. Wow. Apparently we missed that candlestick. I hear it’s very easy. Get off the pod, get off our butts on the podcast and go make some millions of dollars with Cardano for our clients. Just really, quickly, RCI Knowledge Platform is our data, is our database for everything important that’s happening in the world.

And you and I and, Other folks on the team are constantly pouring stuff into there and giving initial takes and initial analysis on it. CI clients have access to it. we have a couple of research clients who, don’t use us for money management services and things like that, but want access to the research too.

So we, we have clients who can just get access to the research. all of that preamble to say, we label things and importance one, two, or three and threes are just throughout the course of your week, maybe get to this. You might want to pay attention. A two is you might want to stop what you’re doing and just glance at this.

If not right now, by the end of today, just make sure you take a look at this. And then ones are stop what you’re doing. This is really, important. I don’t care what meeting you’re in. this is how important we see it. Both you and I put ones this week. I’m very, Spartan with my one ranking because I, when I give a one, I want it to mean something for a client.

I know that you were also pretty Spartan with it too. So I thought Before we close, even though we’re at the hour mark, just both saying what put ones on the knowledge platform for us and I’ll start, it was a French magazine. called Marianne, got a, got its hands on a report from French military officials, talked to a bunch of French military officials, and not only concluded that a Ukrainian military victory seemed impossible in the war against Russia, but that the conflict had entered a new phase in December.

it talked about how Zelensky needs roughly 35, 000 men per month. and that he’s recruiting roughly half of that. And there’s a controversial, draft bill to mobilize more Ukrainian soldiers that the Ukrainian government is actually debating this week that lends some of that credence. but the, real thing that was shocking to me was quote, the risk of a Russian breakthrough is real end quote.

So my working model right now has been, Russia is also exhausted. They’ve pushed back on some territory. They’re probably going to make this a frozen conflict, lick their wounds, and then maybe 12 months, 18 months, 24 months from now, they will try again. I didn’t think they were giving up, but I thought we were going to enter maybe a pause from Russia’s point of view.

And this article says maybe not. When you start looking at what they’ve done, that they’ve changed their M. O. by compartmentalizing the city and by using Particular types of bombs on a large scale for the first time, the way that they’re using artillery, the way that they are getting air and ground assets to actually cooperate together and move forward.

they described it as hell for Ukrainian defenses, also showed that Ukraine’s armed forces have tactically shown that they don’t possess the human and material capabilities to hold a sector when it is subjected to this type of effort. And what, the report concludes, what the Russians are going to do with this remains to be seen.

It could be that they’re just nibbling at the edge. but it also suggests that they could try to break through in depth. And that if you are a Russian military leader, you could see this and say, Huh, maybe I could break through in depth. And that this re, these recent maneuvers allow you to think that.

And that, I feel like I’m, Parroting George here a little bit from my GPF days, but he used to talk about Moskerovka, which is this idea of Russia You know disguising its true intentions and that what Russia might be doing here is showing weakness as it pushes much further strength While the Zelensky government is under such pressure while the West hasn’t really showed up for Ukraine in general I am NOT telling you here that I think that Ukraine’s defenses are going to collapse.

But I will tell you that earlier this week, I told a client that my baseline scenario and I’m starting from scratch. I don’t feel comfortable about that baseline scenario at all. And the reason I gave that a one on our knowledge platform was to signal to clients like I’m very, nervous and uncertain about what’s going on here.

We’re going to have Sim back on the podcast. I also to cut in the opposite direction, a Ukrainian author who wrote a book about the initial stages of the war. I’ve been reading it and he’ll be on the podcast in a couple of weeks. It was instructive to read that book while I’m in the water park, capital of the world, because, the French and everybody else have been saying this for years, that the Ukrainians didn’t have a chance and didn’t have the material.

It didn’t have the soldiers and the Ukrainians have proved over and over again, they’re not giving up and that they can lose battles, but that they are in it for the long haul and that they’re not going to just surrender to the enemy. to the Russians, even if there is all these political, there is, even, though there is all of this political volatility and negative signs on the battlefield.

maybe I end back up with my base case scenario, but, a one on the knowledge platform for me this week, because I feel very uncertain in making that, that case until I do some more work. Tell us about your number one. geez, I really want to talk more about Ukraine. I don’t, have anything to talk about.

I, all I have is my previous model. I feel Broken and I have a lot of work to do in the next week or two to talk to experts and look at things that are going on in the ground and see if I can rebuild back to the old model or whether I’m going to say something else. So we can shoot the shit if you want about Russia, Ukraine, but my key takeaway for you is just that I’m feeling very lost in terms of where my sort of analytical North star is for that conflict in 2024 and we’ll try to get it back as soon as I can.

Rob Larity: The only thing I would add on the Ukraine before talking about my number one, which is completely unrelated is, I found this pretty striking. We went, this weekend, when we were in Brittany, we went to visit some friends of my wife’s family and, the guy and his wife, who we went to visit, they live in Brest and, their diehard political activists and they’re in the France on Sumi’s party, Melanchthon’s party, the far left.

And, we had some wine and whatever the usual apparel stuff and the guy who cannot resist talking about politics, nonstop and just parroting the line. He had just come back from a protest for, women’s, equality and pay, by the way, which is why we were a little late getting the apparel started.

I asked him, I said, what do you think about Ukraine? and what Macron said, in terms of providing additional support and maybe troops and stuff. And he said, The war is already lost. Ukraine has already lost. That’s obvious. And the best thing for France to do is to make peace with Russia and accept that.

Which I thought was really, really striking and I think indicative of a large portion of that segment of continental European thought on the subject. which is sad and from my perspective and, surprising, but as we reformulate your baseline, I think trying to understand how this might galvanize or not Europe into, changing its, policies is, one of the big things from an investment standpoint.

Jacob Shapiro: and I don’t think it’s a coincidence that Macron is out there either recirculating or publishing videos of, the early parts of the conflict. I shared this on our. on our slack chat or whatever, the videos of, Macron talking to Zelensky in the 24, 48 hours after the election, first of all, humanizes Macron in a major way.

I, obviously he released it or allowed it to be released because it makes him look good. I know that, but boy, he does look good. and he looks like he’s dealing with, gravitas and that he is genuinely shocked that, that Putin did it. So I think he would, if he was having a pair with your, with your friend, I can imagine what Emmanuel would say to him.

But anyway, why don’t you take us to China to close us out?

Rob Larity: Yeah. this is a much bigger conversation, which I’ll try to keep short in the concerns of time, but my number one was, there was a piece in the financial times, which was talking about how in China. local officials in two of the most indebted and economically troubled Northeastern provinces in Liaoning and Hebei had basically gone to the central government and were negotiating how to get, how to get bailed out, how to secure financing, how to restructure their, debt, which I thought was, was interesting in itself.

But one thing caught my eye, which was not only that they We’re bending the knee, so to speak, to the, central government, but also that if you read what the finance minister of China said in public, he said that they’re pushing for a broader restructuring that includes asset sales. And I thought that was really interesting because everyone thinks about this in terms of restructuring your liabilities, but part of restructuring your balance sheet is always, as well.

You have to restructure the asset side too. And this seems like, why would this be a number one? Why should we care like big deal? one of the things that we’ve been flagging for so long here is, okay, what are the signposts that you get meaningful? change, meaningful restructuring of the Chinese economy that could cause some major shifts.

And one of those signposts that we had laid out was the perspective for wealth transfers from local governments. to households or the household sector. And basically the, removing or the disentangling of the tentacles of local governments from households throats, so to speak. And the mention of asset sales really caused me to sit up and pay attention because that is the beginning, I think, of what you might see if there was broader restructuring of the kind that we would want to observe.

And, that’s a really big, it’s a really big deal. And I don’t want to go into history and everything. Cause we don’t, whatever we’ve been going for a long time here. But when you think about this, like this goes back to a long time. And so much of Chinese history, so much of the Communist Party of China’s history has been about land reform.

And if you think, Japan and China both faced similar challenges after World War II in terms of land reform. And Japan, under our boy, General MacArthur completed the most, I don’t want to use the word severe, but very aggressive and very democratic land reforms where they seized assets from the people who had them and distributed them with very low compensation, by the way, this was a confiscation underseen by MacArthur.

And he architected it, as to individual Japanese households, and everyone was given their small plot and it was a huge success. And as everyone knows, China did not do that. They went with collectivization and it was a, it was what it was, as we all know. the, book that I think is really good on this is Yasheng Wang’s, Capitalism with Chinese characteristics, which is wonky and academic, but it’s worth reading because it talks about in the 1980s, how China tried to undo that by unleashing more bottom up reforms, by enabling people to own businesses and start businesses through these township and village enterprises.

And that this was really a grassroots sort of attempt to shift ownership and economic power in a more broad direction. And then of course, after Tiananmen, that was. It’s squashed. And you saw the beginnings of what we’ve been experiencing for the last 30 years. So I don’t want to make a mountain out of a molehill.

But if you look at China today, this was surprising. I actually looked up the Gini coefficient, which is the measure of inequality. China’s measure of inequality is equal to the United States. everyone talks about, oh, how the United States is so unequal, China’s facing the same issue. And it brings us back to 1945, it brings us back to the same issue that has been the driving force of, the communist wave and everything for the last 75 years.

Is this the beginning of trying to rectify that, to take a new, Approach. And again, don’t want to make a mountain out of a molehill, but if you start seeing more talk of redistribution of wealth, redistribution of assets to individual households, I would say that is of an importance equivalent to the start of collectivization, in the 1950s.

that is a big deal. So that’s why it’s one.

Jacob Shapiro: And I’m sure we’ll pick it up there if not next week in the future. all right, I’m not going to go enjoy the water park, but I gotta go give a speech. So I will see you later, my friend. Thank you so much for listening to the Cognitive Dissidence Podcast brought to you by Cognitive Investments.

If you are interested in learning more about Cognitive Investments, You can check us out online at cognitive dot investments. That’s cognitive dot investments. you can also write to me directly if you want at Jacob at cognitive dot investments, cheers, and we’ll see you out there. The views expressed in this commentary are subject to change based on market and other conditions.

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