Brainstorms: How to take macro bets in life

Betting on yourself and being align with macro

How to take macro bets:

One of the most misunderstood aspects about macro is HOW to take macro bets. People think that macro is about trading in liquid markets. While there is truth to this, macro is so much more.

Fundamentally, your life consists of various exposures to financial decisions. The house you buy, the car you buy, the job you take, and the TYPE of things you consume are all directly influenced by macro.

The main thing I want to cover in this article is HOW to take macro bets with various portions of your life, even if you aren’t actively involved in financial markets. Let’s start with a very simple example, taking a job. Generally speaking, if you are looking for an entry-level job, you’ll make between $40k-$70k depending on your experience and skill. The rate at which your compensation will increase depends on two things: 1) your individual work ethic/growth and 2) the supply and demand dynamic of labor for that specific job.

#1 is completely in your control. All of us choose to work hard or be lazy. There is nothing genetic about being lazy. It’s a choice. But most people never think about #2 though and this has more control over your compensation than you realize. If there is a huge supply and demand imbalance with labor in a sector, then the rate at which your compensation can increase is exponentially higher. For example, in the most recent macro report (link), I shared this chart:

This chart reflects one of the great supply and demand imbalances of today’s macro regime. There is a significant deficit of skilled employees who are in the construction sector. Any blue-collar workers are in high demand right now relative to “finance bros.” Everyone bought the lie that you need to go to college to have a well-paying job. Now all the people who took out student loans are suffering the consequences of it while construction workers are charging a premium for everything.

If you have a basic understanding of the macro trends that are causing supply and demand imbalances in the labor market, you can actively take advantage of it. When you do this, you aren’t swimming against the current, and your compensation can increase twice as fast if you are working hard.

Now you might be thinking, “I am not really interested in working a job that only pays $50k a year. I want to be in a place where the upside is significantly higher.” Great! The same principle applies! If you want to make more than the median income then you simply need to have increased exposure to the upside either via some type of equity or performance-based payment. There are plenty of sectors out there waiting for motivated people to take risks and start a business. If you scale it properly and use various forms of leverage (code, media, labor, and capital) correctly, you can significantly increase the amount of money you are making. You are still taking advantage of an imbalance in supply and demand but you are just monetizing it differently. Typically this means taking additional risk to have more upside.

Question?

Now just think about this, as you approach retirement, what will have had a bigger impact: 1) trying to actively trade your portfolio in public markets based on macro analysis or 2) exponentially increasing your income every year by capitalizing on macro trends in the economy?

I don’t know the answer to this for you. Perhaps it is a combination of the two. The main idea is that monetizing macroeconomic information can be done in MANY different ways. The great thing about it is that most people in the economy aren’t thinking about macro trends. This immediately gives you an advantage.

If you:

• Constantly work harder than anyone else

• Have a clear understanding of macro trends

• Consistently monetize that knowledge by taking bets via taking specific jobs or starting specific businesses

• And employ proper risk management (see my article on this: link)

You have an incredibly high probability of making significantly more money than the majority of people. At the end of the day, exceptional people make exceptional amounts of money. Don’t expect an exceptional outcome when you are putting in low effort.

Principles:

Let’s go over a couple of principles for this process.

Macro Thesis:

Have a well-thought-out and robust thesis. If you have a specific view about semiconductors, then have a very clear thesis about what the high probability outcomes for it are. For example, semiconductor manufacturing is changing significantly (link):

We all know about the “chip shortages” that have taken place but this is a tangible expression of change.

The main thing to remember for building a macro thesis: SOURCE RESEARCH! Do not make bets on a news article. Make well-informed bets that are based on the actual sources information is coming from. News articles are great for sending you down research rabbit holes, not for being the sole basis of a bet.

Exposure:

The next thing you need to have explicit clarity on is exposure to the thesis. In the TSMC example, would you get a job for the plant? Buy real estate in the area? Supply industrial building materials? Manage transportation? Manage talent acquisition? Acquire a contract with TSMC with your current company?

TSMC is a large company with various exposures to multiple points on the supply chain. Even if you don’t want to work for TSMC but work for one of these companies, the information could be incredibly valuable for a decision or relationship.

My main point here is that buying TSMC stock is not the only way to get exposure. The other point to keep in mind is that when you choose a specific exposure, try to ensure it has positive optionality to multiple outcomes. If there are small changes in the plans or timeline of the TSMC plant, would your exposure be invalidated?

These are all important things to think about and apply to ANY domain.

Payout Structure:

Finally, let’s talk about the payout structure. Any time you construct a bet, there will be risk and reward. Just because you know about TSMC moving a plant to a specific location and taking an entry-level job there, doesn’t mean you’re going to 10x your income in 2 years.

You need to construct bets properly for a specific payout. If you want to make a bet that has millions of dollars as the payout, you need to have some type of embedded leverage in your payout structure. As I mentioned above, leverage can be in the form of code, media, labor, or capital. If you want a great breakdown of this, check out Naval’s thread on “How to Get Rich (without getting lucky):”

https://twitter.com/naval/status/1002103360646823936

Types of Payouts: Let’s go through a couple of examples

• If you accept a salary job, your payout has a defined upside and a defined downside. The downside is your time (and potentially opportunity cost) and the upside is a defined salary with potential increases.

• If you accept a role based on commission, your downside is your time and potentially utilizing savings during dry spells (this can be a negative carry). However, your upside can be significantly more than a salary because you aren’t limited to a pre-defined amount.

• If you create a company that provides a specific good or service, there is likely some type of negative carry to maintain payroll, operations, and production. Even if revenue decreases, your operating expenses typically remain the same. This is significantly more risk but the payout can be significantly higher than a salary or commission role.

Every type of exposure is usually going to have a specific type of carry and payout. Is it a negative carry or a positive carry? Is the payout limited or unlimited?

Once you begin to think in terms of exposure and payouts, then the supply and demand imbalances from a macro trend can make a HUGE difference. Whether a macro trend is a headwind or tailwind can dramatically change HOW you are taking exposure. At the end of the day, if you hedge in difficult periods and leverage up in good periods then you can dramatically change your payout and thereby the trajectory of your life.

Conclusion:

I hope that this article helps you think big picture. If you are running a business then macro trends can significantly influence your payouts. If you are trying to think about the next steps in taking a role or starting a business then macro can inform you WHERE to go.

Markets aren’t the only place to monetize macro knowledge. In truth, public markets are way more competitive than the economy. In today’s world of social media and ample capital via private equity, it’s easy to get funded if you truly have an exceptional business plan based on a durable macro trend.

If you want to dig into this topic further, feel free to message me anytime on Twitter, the Capital Flows Discord, or email (capitalflowsresearch@gmail.com).

This remains the defining idea behind this Substack and we will be moving forward with unprecedented growth:

In the information age, you simply need to be at the right place, at the right time, with the right information to succeed