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Jonathan Treussard is a brilliant analyst of financial markets. He’s brilliant period. How do I know? He’s of the top five economics PhD students I’ve had the privilege to mentor in over 40 years at Boston University.
Jonathan has an amazing back story leading to the founding of his investment advisory — Treussard Capital Management. Jonathan ran away from home in France as a teenager, played guitar on the streets of LA to survive, took courses at Santa Monica College, transferred to UCLA, majored in economics, becoming a math wiz in the process, received his PhD in Economics at Boston University, working, in part, with MIT’s Nobel Laureate, Robert Merton, and then, prior to starting his own advisory, spent two decades working with billion-dollar family offices and in global asset management.
Jonathan and I discussed his investing experience and advice in this podcast of Economics Matters: Investing on Wall Street for the Rich — Lessons for the Rest of US from Jonathan Treussard.
I’m not a big fan of crypto currency as you can read here. But Jonathan thinks its value, particularly that of Bitcoin, lies in its potential to hedge a global financial meltdown — one that might be triggered by, for example, a nuclear exchange between the U.S. and Russia. That’s inconceivable in everyone’s mind except, it seems, Vladimir Putin’s.
Here’s Jonathan article.
On Governance
This one possibly addresses one of the most fundamental things we’ve talked about so far. I keep going back to two words in conversations these days, agency and governance.
Agency is the ability to exert control over your own life. It’s critical and should be non-negotiable, and yet it is so rare. To put it in American terms, agency is the ‘pursuit of happiness.’ It’s not a guarantee of success but it goes a long way.
Having true agency over your own fate requires a careful chemistry, combining knowledge with drive and opportunity, and the ability to recover from mistakes. When you have those things, you take chances. When you take chances, you get to move the ball forward for yourself, your family, and the community around you.
But governance, now that’s next-level stuff. If agency is about having control over your own personal fate, governance allows you to operate on a much larger scale, not as a person but as a group. Governance is the operational leverage required to run big things for the benefit of many.
They say that compound interest is the eighth wonder of the world. Don’t get me wrong, compound interest is pretty special, but I actually think governance might be the eighth wonder of the world. Let me tell you where this is coming from.
Over the weekend, one of my daughters and I walked to the store (we live in California, I know we should be driving. But we wanted to walk, so we did.). We got to talking.
How Do Companies Operate?
My daughter wanted to know how companies work. I explained to her something that may well be the key innovation in the capitalistic system.
When you take on big things, you need scale. Scale may require lots of capital. Lots of capital (in a healthy society with disperse wealth) may require lots of owners.
How do you make sure that the firm operates for the benefit of all those anonymous owners? You get a Board of Directors. Their job is to represent the collective interest of the owners.
But big things also require millions of decisions, some big and many small decisions. So, you need a captain, someone who makes all those decisions all day every day. That’s where CEOs come from. They are “the deciders” (to borrow from a former U.S. President).
Stop and think about what is possible because of this structure and what would be impossible without it.
You get to pool resources, you get to have someone in charge, and you get to have checks and balances so that the person in charge never forgets who they work for. Without it, no multinationals, no multi-billion-dollar pushes over years and decades to conquer the previously impossible, all of it gone poof. Everything gets smaller.
Obviously, good governance is an imperfect ideal. Bad governance happens and you get Enron, and WorldCom, and every other form of misguided use of resources, from the silly to the criminal. That happens when we expect too little from our corporate governance structures.
I think it’s also possible that sometimes we expect too much from them. In fact, one of the more thoughtful critiques of ESG investing isn’t that “caring about the environment, and employees, and and and” is bad. It’s that corporate America isn’t where those issues should be dealt with. Keep it to one mandate, caring about the shareholders, and let the other stuff be someone else’s job. We do have, after all, something called representative democracy (at least we think we do) to address global societal issues…
(At the risk of digressing on top of a digression, note that the Fed has a dual mandate – two mandates – inflation and jobs, and look what a mess that can turn into. Reasonable argument for keeping it to one mandate).
What’s the Opposite of Good Governance? Martial Law or Anarchy?
The answer appears to be yes…
Or either, depending on who you ask over the last few days. The rolling governance crises around the world this week are what is giving this piece a certain degree of urgency.
Earlier this week, in South Korea, President Yoon Seok Yeol took it upon himself to declare martial law, citing the need to contain pro-North Korean elements in the opposition. Martial Law is the suspension of the regular laws that govern public activities, limiting civil liberties in the face of a crisis.
The blowback on the ground and from “key allies” (read, the U.S. government) was so intense and immediate that the Korean National Assembly passed a veto (despite having been technically suspended) and forced the President to rescind the state of Martial Law.
I’m not sure where that leaves us, other than maybe governance actually worked in the case to stop what people are now characterizing as a failed coup by President Yoon.
Onto my native land, France. You will recall that the country held a off-cycle parliamentary election this past summer. One of the reasons for the election in the first place was to get a new National Assembly in place ahead of this Fall’s budget deliberations.
The idea was simple: Get people in place that represent the will of the people now so that negotiations could happen in good faith. This may not come as a shock to you, but good faith negotiations were not to be had. File this under “this is why we can’t have nice things.”
Prime Minister Barnier proposed a budget that leaned toward austerity or at least some form of fiscal responsibility, to get deficits and debt burdens on a more “conservative” trajectory. The two wings of the National Assembly, the hard-left France Unbowed and its coalition and the far-right National Rally and their friends, joined forces to defeat the budget proposal over things like indexing pensions upward in 2025 and adding copays to medical visits. A no-confidence vote later, Prime Minister Barnier is on his way out, the budget is in limbo, and the 2027 presidential election is on everyone’s mind.
On the one hand, it seems that the global democratic order had a very bad hair week. What comes to mind is Benjamin Franklin’s "A republic, if you can keep it" in response to what form of government the People would have. Let’s hope the world’s representative democracies can keep their form of government.
On the other hand, I am reminded of my former boss (and now Advisor to Treussard Capital Management) Katy Sherrerd’s counsel that sometimes “getting all the yuck on the table” is what it takes to start working through a messy situation.
We’re going into 2025 with a whole pile of yuck on the table.
Out of the Frying Pan and Into the Fire, Crypto-Style?
When you get disillusioned with people and their apparent commitment to make a mess of governance, you get to thinking “What if we cut the people out of the equation?” That should do it, right?
As far as I can tell, that’s the most basic argument for crypto “as a currency.” Let try to explain it in the most generous way that I can.
The argument goes, human currencies (which we can fiat currencies in econ-land) are bound to fail. They’re a weird trust-fall exercise by which we trust that the government can issue units of account called “money” and we can use them to facilitate all sorts of regular activities as people. We use money to make buying and selling things easier than via barter. We can keep it to “store wealth,” i.e. hold onto those things to consume later, etc.
But, the argument goes, look at the mess that our governments make of things, starting with inflation and national debts, so this fiat currency thing is pure faith, and our leaders are flawed so they’ll make the value of those things go to zero sooner or later.
People are flawed, for sure.
Our governments can and do make a mess of things.
Inflation is a real issue that erodes the value of money over time.
Yes, yes, and yes.
But the fundamental nature of our currency is that it is the one thing that our government accepts for tax payments. They want dollars. Not rice, not seashells, and definitely not bitcoin. And you would say that’s a pretty weak reason to go along with it, except that our government is also the only party in this whole machine that protects not just our interests but our basic safety via a little something we call our military.
To put it simply, we pay taxes so we can live within this country and pursue our own version of happiness while our military keeps most versions of the “bad guys” in check.
So forget that bitcoin is volatile and just another form of a trust fall. If the government wants dollars from us in exchange for protection, dollars are the only currency in the land.
Now, crypto (and bitcoin in particular) has managed to gain what my friend Dave Nadig calls “psychological commodity” status, which is basically to say “digital gold” is not a completely ridiculous way to think about it. But psychological commodities are just a thing that somehow people attach value to, not unlike art. Think of bitcoin as “performance art” at scale. Note that people “invest” in art, so maybe that’s a reasonable way to rationalize owning bitcoin.
But here is the thing. There is still no fundamental value attached to it. The price is a number bouncing around based on pure psychic forces.
(I will spare you why fiat currencies are better than currencies tethered to something like gold. We had a gold standard. It made the Great Depression worse. It also tends to make economic cycles more extreme, and deflation becomes a real concern too. Oh, and mining gold is costly, just as is mining bitcoin).
Now, these are all the reasons why “I don’t get it.” But here is the thing that makes me worried, and it’s not just that mom-and-pop might lose their life savings in a massive “honey pot” (though that’s a real concern). It’s that, as my friend Dave points out, all the scenarios where bitcoin goes to $1M or $10M or whatever number seems really high are basically catastrophic scenarios.
However hypothetical as it is, the collapse of the US dollar would be a catastrophe.
But here is a scenario that really worries me. Call it a “singularity.” Pretend that tomorrow, the U.S. is on the receiving end of a nuclear attack and that somehow, we don’t get our act together fast enough (whatever that means). At that point, pretend that people conclude that the U.S. is on the fast track to ending. People might dump all forms of U.S. assets, from stocks to Treasuries to dollar reserves and shove it into bitcoin, ‘cause why not.
The next morning, our new overlords may be a new class of bitcoin trillionaires. That’s not a good scenario. That’s a very bad scenario. It’s also one in which life as you know has just ended. Maybe that means that bitcoin could be a doomsday hedge, but that’s a lot of ifs on top of a nightmarish scenario. And there is a fine line between being prepared and turning into a tin-hat “prepper”. I just don’t know where that line lies. I mean it.
Or the bitcoin “performance art” turns out to be the single largest exercise in mass delusion we’ve seen in a long time. Still seems like a reasonable baseline. The problem is that prices going up (so far) don’t help you tell what we’re looking at in terms of the endgame.
Either way, a currency it is not.
And I can’t shake my friend Dave’s words:
“Personally, I can’t bring myself to bet on the collapse of Western Democratic Capitalism. I don’t judge those who go all in, but I’m not short any asset, much less my country.”