Moving Week

Posted on Sunday, August 22nd, 2021

It was and seemingly still is College Move In Week. As you read this I will be – for the second time this week – at the University of North Georgia campus moving my son into his room. Our reservation for move-in was Thursday afternoon. The heavens opened as we approached campus which I took as a slightly ominous sign. We needed to wait our turn in the car line before we could proceed and that gave the storm some time to slow to a drizzle. I was one of the few dads that was not completely soaked from head to toe – Must be the Luck of the Irish. We got 90% of his things moved in and are now headed up on Sunday to complete the task so he can be ready for Monday morning classes.

To clear up any confusion on last week’s letter I would emphasize this portion of our note. We don’t know the next event that will collapse the sand pile. The crux of the issue is that the whole system is continually unstable.

In this simplified setting of the sand pile, the power law also points to something else: the surprising conclusion that even the greatest of events have no special or exceptional causes. After all, every avalanche large or small starts out the same way, when a single grain falls and makes the pile just slightly too steep at one point.

What makes one avalanche much larger than another has nothing to do with its original cause, and nothing to do with some special situation in the pile just before it starts. Rather, it has to do with the perpetually unstable organization of the critical state, which makes it always possible for the next grain to trigger an avalanche of any size.

The critical state of the sand pile means that any news event can be that grain of sand that causes the pile to collapse. What matters most to us is – the liquidity or lack of liquidity embedded in the system at any given time and the liquidity that can be brought to bear given a collapse. It is a liquidity crisis that amplifies the critical state and causes the greater avalanches. That brings us to George Soros’ Theory of Reflexivity but maybe that’s for another day.

Back in July we wrote our quarterly letter to clients and we felt that the mainstream media had taken hold of the rising inflation thesis and that indicated that perhaps commodities had run their course – for the moment. Since our post crude oil has retreated 17%. Back then we thought that the conviction on inflation would get tested and it has. It is put up or shut up time for oil and the commodity sector. A peak in the delta virus over the next six weeks would put that conviction to the test but we would then see a rise in economic activity soon thereafter.

Here is what we had to say back in July.

Everyone is also talking about inflation as those headlines have become ubiquitous. When we started talking inflation the investment world cognoscenti was making fun of people talking about inflation. The consensus on inflation is that it is rising and getting sticky. Will the consensus around inflation change? Will the inflationistas shrink in their conviction and get shaken out of their positions? We think that their conviction on inflation will get tested before inflation heads even higher.

The Federal Reserve will now be meeting virtually for their annual meeting in Jackson Hole, Wyoming. Passenger traffic in the US is down 25% in the last two weeks due to Delta. Delta is having an effect on economic activity. We think that Delta is going to move like a quick summer storm.

I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

 

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

 

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.