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Ep. 551: Jack Schwager Interview with Michael Covel on Trend Following Radio

Jack Schwager
Jack Schwager

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My guest today is Jack Schwager, the author of the Market Wizards series and just completed his second edition of A Complete Guide to the Futures Markets: Fundamental Analysis, Technical Analysis, Trading, Spreads, and Options. Jack has gone into great detail updating his 1984 original edition with over 600 pages of educational insights.

The topic is his book A Complete Guide to the Futures Markets: Fundamental Analysis, Technical Analysis, Trading, Spreads, and Options.

In this episode of Trend Following Radio we discuss:

  • Fundamentals vs. Technical analysis
  • Risk management
  • Contrarian view on fundamentals
  • Charting
  • Science vs. art in trading
  • Whipsaws
  • Exploiting trends
  • Sharpe ratio
  • Efficient market hypothesis

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Ep. 463: Jack Schwager Interview with Michael Covel on Trend Following Radio

Jack Schwager
Jack Schwager

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My guest today is Jack Schwager, an American trader and author. He is the author of the Market Wizard series. His books have remained relevant over the past 25 years, and for many traders they are the best trading books on the shelves today.

The topic is his Market Wizard series.

In this episode of Trend Following Radio we discuss:

  • Trading legends
  • Futures markets
  • Equity markets
  • Gaining clients as a new trader

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Ep. 400: Special Tom Basso Compilation with Michael Covel on Trend Following Radio

Tom Basso
Tom Basso

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Please enjoy this Special Tom Basso Compilation Episode with Michael Covel on Trend Following Radio.

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Want to learn more Trend Following? Watch my video here.

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Ep. 355: Ed Seykota Interview with Michael Covel on Trend Following Radio

Ed Seykota
Ed Seykota

My guest today is Ed Seykota, a commodities trader, who earned S.B. degrees in Electrical Engineering from MIT and Management from the MIT Sloan School of Management, both in 1969. In 1970 he pioneered Systems trading by using early punched card computers to test ideas on trading the markets. Originally profiled in the classic book ‘The Market Wizards’, Seykota has played a pivotal role in the growth of trend following trading for 40 years.

The topic is Trend Following.

In this episode of Trend Following Radio we discuss:

  • Govopoly
  • Trading Tribe
  • Trend Following

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Ep. 319: Salem Abraham Interview with Michael Covel on Trend Following Radio

Salem Abraham
Salem Abraham

My guest today is Salem Abraham, the President of Abraham Trading Company with a 27-year track record. Salem graduated cum laude from the University of Notre Dame in December 1987 with a bachelor’s degree in finance. He began his investing career as a futures trader while still in college, using quantitative models to trade global futures markets beginning in 1987.

The topic is Trend Following.

In this episode of Trend Following Radio we discuss:

  • Living in Asia and Asian economics
  • A market lesson Abraham first learned in 1987
  • The recent action of the Swiss Franc
  • Artificially priced markets and the analogy of a dam
  • Crude Oil as a trend
  • Speculation at the core of Abraham’s business and its effect on markets generally
  • The effect of Abraham’s grandfather on his work
  • The influences on Abraham’s thinking and business decisions
  • Location independence
  • The importance of a link to the outside world
  • Avoiding disaster
  • Being agnostic to the market

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Ep. 216: Jack Schwager Interview with Michael Covel on Trend Following Radio

Jack Schwager
Jack Schwager

My guest today is Jack Schwager, a recognized industry expert in futures and hedge funds and the author of a number of widely acclaimed financial books. Schwager is one of the founders of Fund Seeder. Previously, he was a partner in the Fortune Group, a London-based hedge fund advisory firm. His prior experience also includes 22 years as Director of Futures research for some of Wall Street’s leading firms, most recently Prudential Securities.

The topic is his book The Little Book of Market Wizards.

In this episode of Trend Following Radio we discuss:

  • How Fund Seeder acts as a liason for traders and investors
  • The difficulty of starting out as a new trader
  • How Fund Seeder is a global opportunity
  • Schwager’s last book, Hedge Fund Market Wizards
  • The timeless quality of the Market Wizards books
  • Jesse Livermore’s Reminiscences of a Stock Operator
  • How human nature is the only thing that will never change
  • Looking for a “secret recipe” in the Market Wizards book
  • “The Upside of Down: Why Failing Well Is The Key To Success” by Megan McArdle
  • Why failure is smart and an essential part of success
  • The importance of failure in the context of education
  • Behavioral economics
  • Jack Horner and thinking outside of the box
  • The importance of loving what you do for a living
  • The importance of travel

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Ep. 208: Ed Seykota Interview with Michael Covel on Trend Following Radio

Ed Seykota
Ed Seykota

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Ed Seykota on the cover of Govopoly

My guest today is Ed Seykota, a commodities trader, who earned S.B. degrees in Electrical Engineering from MIT and Management from the MIT Sloan School of Management, both in 1969. In 1970 he pioneered Systems trading by using early punched card computers to test ideas on trading the markets.

The topic is his book Govopoly in the 39th Day.

In this episode of Trend Following Radio we discuss:\

  • Trend Following
  • Seykota’s concerns about our economy
  • The assimilation model and how Seykota sees assimilation happening today
  • The definition of “govopoly”
  • How Seykota’s mentor’s work plays into Seykota’s work today
  • Thinking about systems
  • What we can do to “fix” the economy, or to at least prepare yourself
  • The exponential curve that assimilation takes
  • Noticing things before they’re important
  • Why Seykota doesn’t provide a “solution” to the problem and instead advocates for the system to correct itself
  • What we can do as people in response to the system
  • Detroit as a microcosm of the US
  • Ways to make money during the assimilation

In this episode of Trend Following Radio:

  • What “govopoly” means to Seykota
  • The concept of assimilation in economics and how it affects us
  • Why noticing and understanding exponential growth can be difficult
  • Why sometimes the best course of action is to leave the system to play itself out
  • Detroit as a microcosm of the United States
  • What the US government has in common with the duckweed
  • Making money despite government assimilation and bubbles

“You have to view a system as a whole as opposed to the cause and effect mentality prevalent today” – Ed Seykota – Tweet this

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[toggle Title=”View Full Transcript”]

MICHAEL: Today on the show I have Ed Seykota. Ed was famously first featured in the original “Market Wizards” book. He was also featured in my book, “Trend Following.” I consider Ed a friend and a mentor. He has educated me greatly over the years. I always welcome his wisdom. Today comes something a little different, though: Ed has a new book out called “Govopoly.” It’s worth checking out. Our conversation today gets into a tiny bit of trend following, but it’s mostly about his new book. And like anything Ed does, it’s coming at it from a different perspective. I hope you enjoy.

MICHAEL: You’re pretty well known for being a very successful trader, and you’ve now gone ahead and put a book together called Govopoly that I think is going to surprise people. It’s a little bit different. So what inspired you? What were you feeling that you decided to put this book together?

ED: It doesn’t exactly flow from my work in the markets, or trend following. My market work is all about trend following. I have some deep concerns about our economy, and I wanted to share those. As I say in the introduction to my book, I’ve had those concerns for most of my life. I spent the last probably four years now trying to clarify what it was that was going on in our economy and see if I could make some sense of it. As it started coming together, I found myself writing this book, and then the book becomes an obsession, and then – now it’s done, and I feel good about having it behind me.

But originally, the motivation was I had a feeling. I had a feeling something wasn’t right about the economy. Something just wasn’t moving the right way, and I couldn’t quite put my finger on what it was, and so I said “Well, I need to think about this for awhile.” I came up with a theory, and it seems to make sense, and I built computer models of it, and the computer models verify at least that the theory makes sense. It explains the symptoms. So that’s the origin of the book. It doesn’t exactly flow from the premise of why would someone who plays the markets want to write a book. I see them as fairly separate things.

MICHAEL: Let me jump into – I’m holding your book right now, and there’s a very somber-looking Ed Seykota on the front cover, and there’s a lot of – if someone just picks it up, there’s probably a lot of things when you’re looking at the cover, thinking “What are the meanings here? Where is Ed standing?” And then on the back, the first word you see is the word “assimilation,” which is a very powerful word. Why don’t you talk about the idea of assimilation and how you see that word in our society today. What’s going on? What’s being assimilated?

ED: The premise of the book, and the model, which I call the assimilation model, has to do with the assimilation or takeover or absorption of the free competition sector of our economy by what I call the govopoly system. Govopoly means monopoly by government sanction. As the economy matures, the government becomes more powerful and forms alliances with the various groups to award them monopoly status, and this prevents free competition, and eventually it stifles the economy. This overall cycle is the main cycle that I’m talking about, how that happens and how that comes about and the evolution of it. Assimilation means takeover or absorption, and if you look at the assimilation of the free competition sector by the govopoly system, that assimilation explains most of the things that are going on in our economy.

MICHAEL: Let me take a step back just for people that are new to this. I think what’s so interesting about your book is that you’re not coming from a left perspective or a right perspective in terms of partisan politics. You’re really just trying to explain what you’re observing in the economy. But essentially, you’re laying out a scenario that you see, eventually, at some stage of the game, the assimilation of our economy by government, meaning government essentially runs, controls, owns everything, to some degree? Is that really the thinking process?

ED: It’s not the government. Again, it’s not the government. It’s the alliance between the government and its ability to award monopolies. So you have people on both sides of the political spectrum gain, in the short run, and receive benefits from the government, either protection from competition or outright awards, and there is no limit to a particular political party that can receive these kinds of benefits.

I don’t have a political bias. This phenomena transcends politics and it transcends the, as you call it, left and right politics. It doesn’t have to do with politics, it doesn’t have to do with who’s to blame or anything like that. It has to do with the overall evolution, basically since the mid-1800s till where we are today, and it shows what’s happening and what’s likely to happen from here. It doesn’t have anything to do with partisan politics.

MICHAEL: Let me take a step back to something that you said initially, that you’ve been having this feeling for a long time that there was something wrong. I share that with you, and I was quite happy to see where you went with your book, because I knew something was coming. I knew your new work was coming, but I didn’t know where it was going. So when I saw it, for me it was frankly an “aha” moment. It was like, “Oh, this is a way that I can understand this system that feels so uncomfortable and so wrong for me.” But when did you first start having that deep in your gut feeling? Was this 5 years ago, 10 years ago, going back decades? When did you first start to know that this govopoly system was unfolding?

ED: I had a sense there was something that wasn’t exactly right – oh, when I first graduated from college, I started thinking about it. That’s many, many decades ago. It wasn’t until I started viewing it and saying “Yeah, I don’t like it, and it doesn’t feel right, but the system itself has a logic of its own. The system is doing what it needs to do,” and I stopped trying to make the system wrong and stopped trying to blame people and said, “What’s really going on? How does the thing work?” When I started thinking that way, then the thing started getting clearer to me. The whole notion that there was somebody to blame and it isn’t doing what it’s supposed to do, all those notions were interfering with my thinking. Once I got around to “Here’s what it’s doing; let me try to understand what it’s doing instead of not liking it. Let’s try to understand it.”

MICHAEL: Growing up as a young man, you were heavily influenced by a professor at MIT, a Jay Forrester. I’m curious; how did Jay Forrester’s work, his systems dynamics work, how did that influence you and how has that played in a role in, for you, understanding this system that you’ve been observing?

ED: Forrester I think is just an amazing person in many ways. He’s also responsible for putting together one of the first working computers and had tremendous work and positioning servo dynamics and also holds some basic patents on core memory, back when they used to wind them out of magnets and so forth. He’s a tremendously inventive guy, and he had this notion of looking at things in terms of a system of interacting elements. This is a point of view which is easy to talk about in a couple words.

To fully get an idea of how to analyze systems, I wish there was a way – and so does Forrester – I wish there was a way to convey that in a couple words. The people that seem to really understand it are the people that have come up through engineering and deal with circuit designs, servo designs, and see that if one thing changes, it changes everything else, and everything regulates and changes everything else. So you have to view a system as a whole as opposed to what’s popular and prevalent today, which is viewing things as trigger models. I call them trigger models because you say “What’s the cause?” There’s this cause and effect mentality, and that guides our governmental policymaking and it guides our thinking. Trigger models just don’t work. You identify the cause, you think that’s the cause, and it’s not really the cause; it’s just one of the events that sets it in motion.

In the book, I use an example of a pendulum, where you ask someone how does a pendulum work, they say “You have to give it a good swing and it’ll just keep going.” So they’re talking about the event that sets it off, but the whole dynamics of how do you account for it going back and forth, and how do you account for the particular period it has, or the frequency of its oscillation, and what happens when you shorten the string or when you increase the mass of the bob on the end – you have to understand the dynamics of how it works to come to terms with those issues.

Forrester had this notion that you could apply system thinking from engineering to solving business problems and look at social systems the same way, and that was his enormous contribution. I was fortunate enough to be at MIT at the time he was active in teaching these things, and it changed my thinking enormously, as it has countless other people. He’s made an enormous contribution to thinking in general.

MICHAEL: Just to interject, it was the systems dynamics thinking, this also led – I’m not going to go there right now, but this was part of your thinking as well for your trading career, too. His foundation, a lot of the things you learned with him, was foundation for your whole life.

ED: Oh yeah, enormously. Yeah, the work I do in the Trading Tribe and the role thing and the psychology, how we approach how you adjust attitudes and so forth, we look at that in terms of a system. Everything I do is in terms of system thinking and putting together some of my trading systems the same way. At the time that I started doing that, there weren’t a whole lot of people doing it. I was one of the first that started it, mostly because digital computation appeared just about that time, and I said “Oh, let’s use computers to look at the markets and let’s build systems and see how they work.”

So yeah, I’ve been very active and interested in how systems operate, and I’ve done some work on looking at fluid dynamics and how a lift works and airplane wings and found that there were some – if you look at the system dynamics of lift, you find a lot of things in textbooks now that are, I believe, questionable. I have been interested in looking at that, and the Bernoulli principle as well. Yeah, everything I do, every thinking process is based on systems.

MICHAEL: Let me go to I think the big issue that many people might have with your book. I know you, I’ve known you for a long time. You’re a good-natured guy. You’re straightforward, you’re honest, you’re direct, though, and I think sometimes that straightforward, direct, honest, people might say – for example, if you’re talking about assimilation model, the govopoly system, and you’re essentially saying that resisting this through elections and that kind of stuff really can’t work, people could step back and say “That’s kind of somber. That’s very negative,” perhaps. I look at it the other way. I say hold on, this is actually enlightening. This actually makes me feel better, because I can wrap my arms around how this system works.

I think many people, though, in America that are used to the 24/7 news circuit are going to say to themselves, “This is great. Ed Seykota has written a book that says it can’t be stopped, the assimilation can’t be stopped, and he’s got a model to show that.” But I think most people in America just think “The next election can solve it. Can’t we stop assimilation?” Why can’t we stop assimilation, Ed?

ED: You raise a good issue there, and I do expect a wide variety of responses, and I think that’s certainly a response I expect, is people saying “Why can’t we do something about it?” I draw an analogy, if someone learns they have terminal cancer, in which cancer cells assimilate healthy tissue in the body, and they say “Why can’t we stop it?” It’s sad, and eventually they have to come to terms with it, and eventually it’s all self-correcting anyway. It finally corrects itself.

But my thesis in the book is that this moves forward. At this point, it has to move forward, and it’s in the process of delivering its own cure. The whole political process is part of the way it works. I’m sure a lot of people would rather hear “Oh yeah, here’s the fix,” and if you examine the bookshelves, all the books that are on the economy – and there’s no end of books on the mess we have in the economy – and most of them advocate a political solution. We ought to do this or we ought to do that. They’ve been saying that right along, and we know that doesn’t work. You certainly can get books that tell you if you vote for this guy or you pass this law or you un-pass the other law, it’ll fix everything or set it back the way it was, but there’s no foundation for that thinking. I think this is how the system works.

I’m glad to have people disagree; I’m okay if people don’t like it. I think hopefully, this can serve as a point around which people can debate this issue. I think that’ll be of some service; if some people want to debate it, I’d certainly like to promote that, some discussion of these ideas. If someone comes up with a model that’s better than mine, I’d like to know about it. I’d like to fix my model to reflect the better information. I did the best job I could on this. I expect someone will come along with a better idea sometime; in the meanwhile, I invite all kinds of opinion and reaction, and I have a website where people can write in their opinion, publish what they have to say. Whether or not they agree with me, I think it’s important to provide a forum for people to express their feelings and thinking about it.

MICHAEL: What I think is so interesting – and I’ve had quite a few guests on my podcast that share an overall similar view about the economy and the issues that we have, but I notice – and you point this out as well – I notice that most everyone ends with this – they lay out this somber scenario, they say “This doesn’t look well; the system is broken”, so to speak, and at the very end they go, “But we can all rally together and fix it.” It almost feels like a dark comedy to me, where all these very bright people lay out a very strong scenario of why things are not going right in the economy, and then “We can all rally around and fix it.” I keep thinking to myself, “When does that happen?” And that was why, when I saw your book, I was like, ah, okay. This gives people a place to hang a hook on, to think about this topic from a different vantage point. I think that’s terribly important.

ED: Yeah, I’m glad to have you pick up on that. Yeah, there are things you can do. Personally, there are things you can do to prepare yourself financially and psychologically, emotionally. There are things you can do to prepare yourself locally. I don’t know of anything anyone can do politically. All the political things tend to make the system go more towards assimilation. Everything political moves towards more assimilation until finally the thing self-corrects. So what you can do is come up with a plan to deal with what I believe is inevitable and stop wasting time trying to figure out which political move makes more sense.

I had a friend, a very bright guy, and he ran one of the most successful medical drug firms in the world, and he had a brain tumor. He got all the king’s horses and all the king’s men, and he could afford anything, any amount of medical care, and he knew all of the brightest doctors in the world. I mean, if anybody could get medical care, he could get it. And there was nothing they could do to solve this tumor. It was assimilating his brain.

Sometimes, there’s no way to set it back. It just goes forward. Time goes forward, and things, sometimes they assimilate and they take over, and that’s the way they work. I understand people don’t like it, and it’s probably a lot easier to sell books if you promise some medication, if you say “Well, let’s do this and vote for this guy or that guy or pass this law or un-pass that law and things will get better,” and you promise them salvation. I call those books medicinal. They medicate your feelings, and they maybe make you feel better, but they’re not really laying it out how it is.

What I try to do is say “Here’s what’s going on. Here’s a model that really explains it.” This model explains the situation we’re in, explains how we happen to be in this situation, and it shows that there’s nothing in the system, the system that generates the situation, there’s nothing in the system that can move it backwards, move it the other way. There is nothing there. If there were something in the system to move it back, it would be moving it back, but there’s nothing there.

And there’s people complaining about it, and there’s certainly an increase in popularity of media outlets, radio, TV, and internet and magazines that complain about it and come up with all kinds of ideas for fixing it, and they’re ineffective, but there’s more and more of them because as we head into more and more pain, there’s more and more need for this medication. More and more people want to say “What can we do about it?”

My claim is that it’s doing what it’s supposed to do. The system is already working. It already works. People don’t like what it does, but this is how it works. So that’s the message of the book. Here’s how it works. It doesn’t pretend that it works differently than it does, and it doesn’t pretend that if you go out and complain about it, anything’s going to change. I think the model there is – there’s lots of examples in nature of assimilation, and a predatory behavior – in the animal kingdom, all kinds of animals invade other animals and consume them. It’s a very natural process.

In childbirth, you have an organism living inside of its mother, and it’s basically consuming its mother. Now, in that case, the child actually emerges and then stops consuming the mother’s body, and maybe consumes her in other ways. But that’s a different kind of a parasite; that’s one where, by design, it discharges and separates itself from the host.

What we have here, in the assimilation model of the economy, we don’t have that kind of assimilation. The government does not by design intend to separate itself from the host and let the host alone. It just doesn’t work that way. This is more like cancer that metastasizes in the body, it appears everywhere, and there’s no way to get rid of it, and there’s no clinic. There’s no clinic you can go to to remove it. If you look at the overall system, this is what it’s supposed to do. This is how it works. If you look at it as a system, this is what the system does, this is how it’s supposed to operate, this is how it operates, and that’s that. And then you can have your feelings about it.

I suppose, my guess is, the reaction to my book, I expect about 90% of people expressing feelings about it – I’ve had a lot of that – and a few people actually address the issue, like what you’re doing. You seem to be open to addressing the issues. So I’m delighted to have someone interested in what the book actually says. I also expect it’s likely to excite a lot of feelings, because there’s something about it that brings up all of the feelings about what they don’t like. For that purpose, too, I tried to stay very apolitical about it and not further go down the line of polarizing people.

I’m just looking at the system, and I’m not wanting to polarize this in terms of who’s right and who’s wrong and whose policies – if you look at the evolution, every administration, every group of people, they all start out idealistic, and then they wind up being absorbed and assimilated into the system, too. So that’s not how you have – you have this and this champion, and they say “We’re going to fix the system,” and then they get into the actual how does the system work, and they can’t get their agenda to work, and some of them move over to the other side, and that’s how the system works.

MICHAEL: Ed, you bring up another issue; as we move towards assimilation, as you describe in your book, you attach a wrinkle as we move towards assimilation, and the wrinkle, as I see it – and it’s clearly evidenced with a unique picture on the front cover of your book – is the exponential growth, the exponential curve that assimilation takes. Because I think if people dig into your work and they start to follow this, they might think in the typical way maybe that human beings like to think, which is kind of a linear progression.

But the way that you see this, the way you see the assimilation model unfolding, is that at some stage of the game, there’s going to be an exponential growth rate in the assimilation model as it moves towards the takeover, so to speak. Why don’t you explain that? Maybe even talk about duckweed and how you made the analogy to explain this exponential process. I think this is very difficult for people to maybe accept and even understand.

ED: Yeah, thank you for bringing up that issue. That’s probably the other major point of the book, is that this process of assimilation has an exponential characteristic. It’s exponential. That means it has a doubling time, and things that double, they tend to – when they’re small – and that’s why I use duckweed. I chose duckweed because that’s one of the fastest growing plants, that some species can double in a day or two. If there’s only a few duckweed in your pond, you don’t care, but when it gets to the point when you notice it, it’s already too late to do anything about it.

It’s the same way with any process. The same thing with cancer. There’s certainly a lot of wisdom behind the idea of check often and get it early. If you wait until you notice it and it starts to cause symptoms, it’s too late to deal with it. This is the nature of exponential growth. It’s probably one of the least well understood mathematical principles, and the most important one, how exponentials work. They work so that you don’t notice them until they become important, and when they become important, then it’s too late to do anything about it.

In your language, in phrases, you say “Things are getting exponential now.” Well, it’s not exactly accurate. It’s been exponential all along; they’re just getting noticeable now. Something that’s really small – if you have a penny, and it doubles, well, great, you’ve got two pennies. That’s probably not going to do much to your net worth. And then you have four, and then you have eight, and sixteen and so forth. You don’t notice it, but to the point where maybe you have a million dollars, and then you have two million and whatever, you start to notice it. By the time you notice it, it becomes important.

In this case, it’s important to notice that this is now to the point we have the last phases, where the govopoly system is now assimilating the free competition sector at a rate which is enormous, and we have now the lowest percentage of people with jobs. That is the number of people in jobs divided by the number of people, without the advantage of all of the mathematics about who’s available and so forth. But the actual employment, number of people in jobs divided by the total number of people, that’s at an all-time low for the last 30 or 40 years. Manufacturing is down. You’ve got personal freedom down.

You’ve got all of these symptoms showing up now, and we’re now noticing them. At the point we’re noticing them, it’s way too late to do anything about them, because the process itself has now grown to the point where it’s important, inexorable, and it can’t be stopped. It has to stop itself. So eventually, I think we’re going to get increasingly volatile markets, bubbles. We have a long-term trend towards lower standard of living. That’ll show up as higher debt, and eventually inflation. Huge dependency on government. We have more class warfare, a lot of waste, loss of personal freedom.

All of these symptoms, and people want to address the symptoms, are part of a system which is larger and explains all of these factors. The system has been growing along for a hundred years exponentially. It’s been growing, but now we start to notice it, because now someone you know lost their job, someone you know had to close his business or went out of business. So it’s getting personal, and it’s getting close to people. It’s been going on, but it’s been small.

But as it grows and it grows exponentially – on the cover of my book, I have myself standing in a pond of duckweed. That’s one of my main metaphors, is how does duckweed grow, and there I am, playing my banjo in duckweed, and part of my conclusion is you might as well do what you like to do and just accept the fact that the duckweed is here. It’s here to stay, and it’s going to be here to stay until it kills everything else in the pond – that’s what duckweed does; it eventually smothers everything else in the pond, and that releases additional nitrogen that the duckweed likes. But I have a picture of me playing my banjo in the duckweed, and I just accept it. You don’t see me doing anything to try to eliminate the duckweed. I’m just out there doing what I need to do, which is playing my banjo.

MICHAEL: I think this is where you point of view will probably cause some people some discomfort, because you’re saying that the typical ways that many people in society want to address these problems that you see, you’re pointing out, “Hey, this hasn’t worked. It’s moving towards assimilation,” and that’s going to cause many people who have entire lives and careers built around providing this medicine – either political medicine or actual medicine, whatever – but many people are going to feel threatened by a model that says “Hey, the model is in place. It’s moving forward. We can’t stop it, we can’t control it. It’s going to do what this particular model wants to do,” and that’s going to be alarming for some people. This is not a message – and you know this, Ed – this is not a message that is out there in other books. It’s not in mainstream media at all.

ED: No, it’s not. Yeah, I had trouble getting mainstream media interested in this project, which I wasn’t surprised. I think you’re correct. It’s going to alarm and irritate people, and I see that as a benefit. If people can develop a sense of unease and irritation that something isn’t right and there’s nothing they can do to fix the system, then they can divert their attention to something meaningful and worthwhile, which is to align themselves so that they’re going with assimilation instead of against it.

And yeah, I project a lot of people may find themselves in a deteriorating situation, their quality of life, without work or suddenly without work, and if they can get irritated to think about this before it happens, maybe they can prepare themselves a little bit for what’s happening or what’s on the way. It would be, I suppose, fantasy to think “Okay, everybody’s going to get the book, everybody’s going to read it, everybody’s going to see how the system doesn’t work, and everybody’s going to get together and change the system.” But I don’t think that’s realistic either. I think a few people may catch on and see “This is how it works,” and maybe they’ll agree with me. Maybe they won’t. But I don’t think that changes the system.

So I think yeah, you’re right. People are going to look at this, and this is not a medicinal book. This doesn’t leave you feeling like there’s a policy we can change to fix it, and it doesn’t do the distraction thing. “You’ve got to get on the right side or the left side or the blue side or the green side or the red side and let’s take up the banner of our group and let’s march into battle and set things straight.” I think that’s medicinal, too. It gives people a distraction. You get them on a team to fight something that they can’t win anyway.

But I don’t do that. I don’t exhort people to fight or do anything. I say “Here’s what’s going on; here’s what I think you can expect to happen. If you agree with this, the thing you can do personally to prepare yourself…” I think part of that process, part of that dynamic, would be an awareness that “Whoa, this is major, and it’s imminent.” I think that’s likely an uncomfortable feeling, so I think one of the ways the book can serve people is by making them uncomfortable. I’m not going the other way. I know you can sell more books by promising some salvation and making them feel good, but that’s not what I’m doing here. I have no idea how the book is going to run. Some people like it, some people don’t. But it’s not medicinal. I’m not promising a solution, and purposely so. I think the very thing you point out, it’s likely to irritate people, well, great. Then I’ve accomplished my mission.

MICHAEL: I think that’s selling yourself a little short. I think your mission is bigger than that. For someone like myself, and there’s many other people like me, I read it, and I actually walked away feeling good. I walked away feeling like “Oh, wow, I’ve got a place, I’ve got a way in my mind to look at society and look at what I’m in the middle of, growing up, my formative years in the ’90s and the 2000s here, and I can kind of make sense of this all.”

What’s so nice – and I think maybe we can shift there, because I don’t want people to think this is all somber – is that you say to people, “Hey, go enjoy life. Do something fun. Paint a picture, learn the banjo, trade. Enjoy life. But just don’t spend an infinite amount of time glued to the cable news shows or debating politics or this or that, because the system is going to do what it’s going to do.” So for me, I love that message, because then it’s just like “Hey, you’re right. We’ve got limited time on this planet. Let’s go enjoy ourselves.” I’m barking up the right tree, aren’t I, Ed?

ED: Yeah, I’m glad you got to that point with it. You got through the irritation and you went through to the personal resolution and “here’s what I can do as a person to cope with it.” That’s the ideal, is to go with what you feel in your heart, and you’re happy anyway. That’s what makes people happy, is when they find something they can do and they share it with other people. That’s about as good as it gets. I think you always want to do that, but especially now.

If people can just find that whatever it is inside them that they want to express and find a way to express it, that’s how the new society is going to have to form anyway. You might as well start practicing. People that make it through whatever’s going to happen, however this thing is going to fall apart and reform, it will reform around people who are doing something they like doing that’s of service to others, and eventually we wind up with a solution. Because the system has to fall apart. There’s no way you can basically replace work with printing money. You can’t do that, although we’re running that experiment again to prove it.

So yeah, I think if you can get to that point, where just find something you like to do – personally, I’m spending much more time now playing banjo. I’m starting a band, and I’m out playing maybe three, four times a week. I just decided that’s one of the things I like to do. As you say, it’s more fun doing that than watching the news.

MICHAEL: Absolutely, absolutely.

ED: My solution to it is right on the cover of the book. You don’t really have to read the book; you can just look at the cover. There’s duckweed everywhere, it’s smothering the pond, so do what you want to do. In my case…

MICHAEL: I just would’ve voted for Ed smiling on the cover instead. Ed in the duckweed, smiling, playing the banjo. Right?

ED: Well, yeah. There was a lot of discussion about that, and I was looking for the smiley thing too. I thought that would work. But I have experts. The photographer was just over – I had a panel of people who were helping me pick the picture, and we had some that were smiley, and they said it’s not the best look. I said okay. Of course, I authorized the picture. It was my choice. I listened to people and they thought that the smiley –

MICHAEL: Well, they’ll hear your smile on the podcast interview.

ED: Yeah, they have to. There’s plenty of pictures inside to hopefully elicit smiles.

MICHAEL: Yeah, you’re good-natured about it. Very much so. Hey, I’ve got a couple more things I want to address with you, but one thing I think people could – some critics would probably say “Ed, this is very alarmist” or “This is well off into the future.” Of course, you address that by discussing exponential. But I saw a show recently on CNN, and it was Anthony Bourdain’s new travel show on CNN, and he was in Detroit. The entire episode was basically going through the ruins of Detroit, this entire failed city. Now, the critics could say “That’s just Detroit,” but it’s also very alarming that a major American city has become a ghost town, a fallen Rome. People can say “Hey, this is alarmist,” but then if you look at the facts, the facts say here’s a great example. Look at Detroit.

ED: That’s the experience of the whole country. Detroit’s a little ahead of the curve. The same policies there, the same policies that account for the demise of Detroit are the same policies we’re using around the country. So that’s a really good precursor. If we assimilate all the assets of the free competition sector, you find Detroit, where we had manufacturing, manufacturing in Detroit – now where is all the assets? Well, if you want to find all those assets, go look in the suburbs of Washington, D.C. There you’ll see the house prices are going up and they’re hiring people and people are driving expensive cars, and you could have a dealership that sells really high end cars. I mean $300,000 and up. You can’t keep them in stock. So if you want an example, where did Detroit go? Well, go look at Washington, D.C. suburbs, and you’ll find it. That’s assimilation.

MICHAEL: Well, if you look at my situation right now, I own property in Fairfax County, Virginia. I grew up in this county, and it used to be kind of – I almost want to say a little bit of a redneck-ish county growing up. Today, in 25 years, it has shifted gears, and if you tell most Americans, “Hey, the highest median income in the country is in Fairfax County, Virginia,” they look at you like you’re crazy. “Hold on, you mean it’s not Greenwich, Connecticut? It’s not Los Angeles? It’s not Manhattan?” No, it’s Fairfax County, Virginia.

ED: I think if this podcast thing doesn’t work out for you, you can always go into real estate advising. I think your perspicacity is most impressive. One other thing I want to round out – when we were talking about trend following, once you get to the point where you see the thing is basically going chaotic, we’ve got bubble markets and so forth, then it comes right back full circle. The only way to really deal with this, you have to go with the trends, because they’re going to be enormous trends. You might get a deflation based on credit implosion, and then you might get an inflation based on printing more money. You might get them at the same time.

Right now, they’re kind of in balance, and they have been for the last several years, so you haven’t had a whole lot of trends because those two forces have been in balance, and both of them are getting larger. But eventually, it’s going to resolve one way or another, and the deflation may win in the short run, and then inflation in the long run. But whenever, it’s very difficult to predict these things, so you have to go with the trends. Once you get to the point where you say “I don’t know what’s going to happen except the economy is assimilating,” then at that point, you have to say “then I have to just go with whatever trend is going.”

In your case, real estate in Virginia. Smart investment. You turned out to be one of the – I guess you’re qualified now as a real estate guru, because you happen to have real estate in the very – and how you happen to have that and so forth, that’s the trend, and the trend has been going up for quite awhile. And the trend, if you look at your house, over the last 20 years, or 30, and you look at a similar house at the start in Detroit, you’d see the Detroit house has gone down –

MICHAEL: To zero.

ED: To a fraction, a small fraction of what it was worth, and your house has probably gone up five or ten times.

MICHAEL: Look, it’s great for my personal situation, but I freely admit that it’s a terrible situation. It really is, that cities – and look, even cities like Las Vegas, you’re seeing 80% of homes underwater, many towns and cities in Arizona, southern California. I mean, real estate has just not recovered. But then you look at this area that I’m in right now, and you see standard issue suburban-style homes selling for $1.5 to $1.8 million? I mean, Ed there’s nothing here. There’s no water, there’s no beaches, there’s no mountains. There’s asphalt.

ED: You’ve got it in a nutshell there. You’ve summed up the whole last part of my book, which is you basically have some mixed feelings about the economy going down, and you happen to be on the right side of it. You’re aligning yourself with assimilation, and you don’t like it personally, and you’re making money at it. So I think that’s what, basically, you’re already doing. You’re already doing what I recommend people do, is figure out a way to align with it. You’ve seen the example of the economy is assimilating, and you figure out a way to make money on it. There’s always opportunity. You’re under a good trend there. I don’t know how long it’s going to last, but you’re certainly under a good trend, and selling Detroit real estate and buying Virginia real estate, that’s a good real estate spread.

MICHAEL: Let me get you to talk a little bit more about – because we’ve talked about some somber issues, or at least some people might perceive them as somber; to me, I perceive them as like “Hey, I can wrap my arms around something.” But you do very clearly at the end – and we’ve already talked about this some – but you say “Hey, look. It’s going to be chaotic. Enjoy the ride. Have a good time.” And you do lay out a way to make money. You do point out that a trend-following trading perspective – you point this out in Govopoly – will be your – I don’t necessarily want to use the word “best”; it might not be the word you would use, but one of your best opportunities to profit from all this unknown chaos that is sure to happen, as you say, as the assimilation model moves forward.

ED: Yeah, there’s ways to do that. It’s like you’re doing with your real estate. You go with the trend, and as things become increasingly chaotic and volatile, and as the system gets to the point where there’s very little left to assimilate, then you get into enormous trends, and if you find out a way to align with those, you can probably do better than you can staying stuck in one asset class or trying to figure it out. I don’t think there’s any way of understanding anything in chaos. When things get chaotic, there is by nature no way to understand it.

So if you have an investing system based on trying to understand things, particularly if you have – I point this out as well – particularly if your system says when you’re wrong, the market says you’re wrong on your idea, and some people double up on it, you only have to be wrong once to be wiped out on that. So you have to find some way of following trends. I point out some ways in my book to do that.

I want to make it very clear, I don’t publish any particular system in the book, and I don’t promise anybody it’s going to make any money. This isn’t, by any means, this isn’t a book that promises some system to get rich on. I don’t have a system in the book. I claim that you have to do your work and you have to find a system that fits yourself and so forth. I don’t have a magic way to get rich in there. Nothing to do with that. There’s plenty of that out there, and I’m not doing that. But I am saying that of all the strategies that you can employ to protect yourself and perhaps prosper during these times, you have to have some degree of ability to detect trends and act on them, and do so with appropriate risk control.

MICHAEL: Ed, we didn’t talk about it in this interview, but you do talk about a lot of very specific issues in the book. You talk about the pros and cons of bailouts, you talk about whether or not American debts can be paid off. You get into the very, very basics of good economics, stuff like tool-making. You get into issues talking about the government, essentially, is there to take care of the govopoly system. It’s really just you break these issues down.

But let me ask as a final question: is there anything that I did not address today, or is there something important on your mind that you really want to leave listeners with? Maybe it’s even summing up what we’ve been talking about. Is there something that I missed that’s near and dear to you?

ED: I’m happy that we couldn’t exhaust the topics in the book in an interview. There’s more to the book than we talked about, so that maybe motivates people to take a look at it. I think I’d like to mention the link. If they want to learn more about the book, go to Govopoly, like government monopoly. Look on, and you can get a sample of the writing, if people are interested in it. So yeah, I would hope that maybe our interview would motivate some people to take a little closer look at it, maybe want to read it. We could go on for a long time.

MICHAEL: For hours, yeah.

ED: I spent four years thinking about this.

MICHAEL: I’m a very hopeful guy for myself. I’m not hopeful for the system that you describe in your book. That system, as you describe so eloquently, will do what it wants to do and do what it’s supposed to do. But I’m very hopeful for my personal situation, for my friends, my family, and I think that’s the positive message that you lay out.

ED: I also want to mention there’s about 360 pages, and I have a picture on every page. So at 1,000 words per picture, that’s 360,000 words that you can get. I think one of the last pictures in the book sums it up, and I think that the point of the book is, bottom line, the point of the book is share the love. If you remember that, you’ll do okay.

MICHAEL: Yeah, I think that’s your – yeah, I’m looking at that picture right now. I’m not going to tell people what it is. They’ll have to go check it out. But I think you’re right on with that, and I always enjoy talking to you. I always learn something. That’s my definition of a good friend, is someone that always teaches me something, every time I talk to them. So I appreciate your time today, Ed.

ED: I learned a lot, too, visiting with you, and I appreciate the fact that you prepared yourself, you read it, and you asked questions that were pertinent to the content. I always enjoy talking to you, and particularly enjoyed this interview.

MICHAEL: Thank you, Ed. Appreciate it.

ED: Thank you.

MICHAEL: As a little extra today, I want you to go check out YouTube and see Ed’s video on the whipsaw song. Here’s a little of the music going out.

Song lyrics:


You get a whip and I get a saw, honey

You get a whip and I get a saw, babe

You get a whip and I get a saw

One good trend pays for ’em all

Honey, trader, baby mine


Now what do we do when we catch a trend, honey

What do we do when we catch a trend, babe

What do we do when we catch a trend

We ride that trend right to the end

Honey, trader, baby mine


So you get a whip and I get a saw, honey

You get a whip and I get a saw, babe

You get a whip and I get a saw

One good trend pays for ’em all

Honey, trader, baby mine


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