Power and Morality

(WARNING: Intense woo ahead)

The last post was about the nature of power.

This post is about moral and ethical considerations. To this end, I find the following table helpful.

Source: https://rpad.tv/2014/02/20/coffee-talk-615-whats-dungeons-and-dragons-alignment/

This one’s a little easier.

Source: https://rpad.tv/2014/02/20/coffee-talk-615-whats-dungeons-and-dragons-alignment/

If you are anything like me you will recognize these immediately as D&D alignments. Over time I have found this a surprisingly useful model for morality and ethics. For the sake of brevity, I’m not going to get into the ur-source for associating good with the the desire to uplift and protect the dignity of sentient beings and evil with the impulse to subjugate, oppress and destroy. Going to simply refer you to the discipline of moral philosophy on that one.

Now for the woo.

What I appreciate about this model is that it’s just a taxonomy. It isn’t normative. And likewise in the game of life, we are all just LARPing our own conceptions of self. There is something to the idea that people tend to embrace either the lighter or darker side of human nature. My personal cosmology is very much centered on the push and pull across a range of dualities. Altruism/selfishness. Creation/destruction. Order/chaos.

I’ve been tempted at times to believe a rich and meaningful existence is balanced on a knife’s edge between an infinite series of dualities. These days I’m more of the mind that the cosmos is a churning sea of chaotic forces (chaotic in the mathematical sense). These forces act on us externally in our physical reality and internally in our feelings about and models of that reality. You can flow with these forces or you can fight them. The output of this process is your character. Like, literally, in a deep sense, as well as in the superficial context of an elaborate D&D metaphor.

There is no objectively “correct” moral or ethical alignment. It’s all about which cosmological forces you choose to embrace and perpetuate with power.

“I don’t make choices about cosmological forces at all,” some might say.

In my view, whether we choose to think of the actions we take every day as choices is irrelevant. They are still choices.

From this point of view, the morality of power is simplicity itself. What do you want to manifest in the world? The answer is your moral and ethical code.

Now that’s not to say this is an easy or comfortable question to answer. Not if you’re being honest (as opposed to just vomiting up whatever you’ve been socially conditioned to adopt as moral values). If you’re anything like me, you will find honestly exploring the answer to that question often results in odd and irreconcilable contradictions. There is a difference between what you really want, on a “primal” level, and what you tell yourself you want on the basis of socially conditioned rationalization.

People tend to think of themselves as “good.” Yet there is an awful lot of “evil” in the world. I suspect this is simply because most people are just not very honest with themselves.

I am becoming more comfortable with accepting the contradictions and hypocrisy I find inherent in the human condition. Generally, I gravitate toward the light side of things (if you are curious my RPG characters lean toward the wizard archetype, usually with Neutral Good alignment). But I have some fascination with the dark bits as well (see: wargaming hobby). And in my own way I am pretty selfish and even a little greedy. I have to be mindful of overfeeding my selfish and greedy aspects. I do not always succeed. Such is the human condition.

I suppose you could call al this a moral compass.

Where exactly did it all come from? No idea.

And I’m not sure it matters, either.


Everything is turning into a loaded term these days. Power is no exception. I am not a fan of the current public discourse around power. To my eyes this has degenerated into a turgid morality play. (Though in fairness, public discourse around any topic has a tendency to do that)

I like to think of power in neutral terms, as a kind of force. Like gravity. What does that force do? It compels. Power operates on a spectrum of intensity, from subtle influence to physical coercion.

Different attributes and abilities strengthen and weaken any given individual or group’s power. Power has many different sources. Different types of power are fungible, to varying degrees. The most obvious example of this fungibility is with money. If you happen to have a lot of material wealth, say generational wealth, you have lucked into a major source of power. It is trivial to convert money to influence. Hell, mere proximity to wealth can be a source of power.

Another example is being super hot (extremely attractive). Being super hot is a kind of power. It is a form of sexual power. Sexual power, too, is fungible, though not to the same degree as money. For example, if I am super hot I can become a trophy husband and trade hotness for material comfort. (IRL this option is not available to me) Of course, the term “trophy spouse” implies another power relation. You can extend this kind of thing on and on and on.

To me, it is trivially obvious that human civilization is a web of power relations.

This is neither inherently good nor bad. It merely IS. Toss a rock out a window and it falls. Put humans together in groups and you get webs of power relations. This is a fractal pattern that runs from the nation state to the bedroom.

“I don’t have that kind of relationship with my husband/wife/partner,” some will insist.

To which I say: LOL. LMFAO.

As long as you sometimes have conflicting interests and desires, you have some level of conflict that needs resolving. And if you have some level of conflict that needs resolving, the balance of power in the relationship will influence that resolution. Again, that statement isn’t a value judgment. In good relationships, conflict is resolved through mutually empowered negotiation. In toxic relationships, conflict is resolved through emotional and physical coercion.

Here I’m touching on the ethics of power a bit, though the ethics of power are beyond the scope of this post. The ethics of power have no bearing on the nature, existence or pervasiveness of the web of power relations that shapes human interactions. The ethics of power are about the means and ends to which we exercise power. .

There is quite a bit of intention around the use of the term “web” here. A frustrating and pervasive mischaracterization of power is that it is some kind of weird binary–that you either have power or you don’t.

Power is not a binary concept. It varies in its precise nature and intensity. Read up on Nelson Mandela’s time in prison sometime. Mandela possessed extraordinary power, though not always in a conventional political sense. Mandela, and indeed all great leaders, understood the fungibility of power intuitively.

Another abuse of the concept of power that frustrates me is when it is used to pass moral judgments. “Having power = bad. Not having power = good.” That kind of thing. But weakness itself is not a virtue, and strength itself is not a moral failing.

Of course, if we want to get meta about it we can observe that occupation of the moral high ground (the perceived moral high ground, anyway) is a source of power. If we want to get extra meta (and I always do) we can further observe that the ability to define what constitutes moral high ground is an even more fundamental kind of power.

If you feel you are locked out of power, a decent strategy is to redefine the discourse. Not all wars are fought in meatspace. Insurgencies can be waged over ideas.

06/21 Permanent Portfolio Update

Due to my recent data issues, I’ve moved the performance tracking for the live leveraged permanent portfolio strategy over to Portfolio Visualizer. Fortunately, I was able to recover old performance using past updates posted on the blog.

Below is data since I went live with the strategy. Portfolio 1 is the live track record for my implementation. Portfolio 2 is the performance of a static allocation to my implementation since inception. Portfolio 3 is 100% SPY.

Source: Portfolio Visualizer & Demonetized Calculations

As you can see, my implementation has underperformed the static allocation. Bummer. The reason for this is that up until 2020 I was adjusting the gross exposure based on trailing volatility. The strategy de-risked significantly in March 2020 and was slow to get invested again. I’ve since decided to drop this aspect of the strategy and stick to a relatively static allocation with occasional rebalancing going forward. I’m confident the divergence between the live implementation and the static-since-inception implementation will narrow over time.

Current allocation:

33% S&P 500 Futures

22% Laddered Treasury Futures

33% Gold

28% ex-US equity (active mutual funds)

~118% gross exposure (numbers above are rounded)

Periodically I get questions about quirks of this implementation. The lack of US small cap exposure, for example. There’s a simple reason for this. For structural reasons, this isn’t my whole portfolio. I can’t own this strategy in my 401k. Also, I invest in a concentrated portfolio of individual securities with a sleeve of my net worth. So overall, I have that exposure. If the leveraged permanent portfolio were 100% of my portfolio, I’d bring in more of that US small and mid-cap exposure. As I’ve said many times, the philosophy underlying this approach is extremely flexible.

05/21 Permanent Portfolio Update

In a tragic turn of events, a Morningstar Portfolio manager debacle wiped out my historical performance data earlier this month. So we’ll have to make do with just the backtest while I build up the live track record again (as far as I can tell the old data is unrecoverable).

I may try and go back through the old updates to rebuild the “real” track record but it’s not something I’ve put any time into yet.

Current allocation:

33% S&P 500 Futures

22% Laddered Treasury Futures

32% Gold

30% ex-US Equity

~117% gross exposure


This is going to sound nuts (and it should) but I believe in magic.

Well, kind of. I should qualify this, lest you think I’ve finally gone completely off the deep end.

When I say “magic” I am talking specifically about the use of meditative states and ritual thinking as a means of programming the lizard brain. The lizard brain is the System 1 mode of thinking we are all familiar with from Kahneman’s work. It operates below the level of conscious thought, on the basis of heuristics and intuition. Kahneman’s System 2 is the mode we operate in when we are consciously reasoning.

Suppose we think of System 1 and System 2 as different types of computers. How would we program them?

System 2 uses a “higher level” language based on formal logical relationships (or should, anyway).

System 1 is another matter. System 1 does not speak in formal logical terms, by definition. It’s closer to the hardware. System 1 is crude. System 1 is primal. It speaks something like assembly language, whereas System 2 uses a more abstract, object-oriented schema.

I submit to you that magic is the language of the lizard brain.

The lizard brain responds to basic impulses such as hunger, fear and lust. The lizard brain responds to symbolic, emotionally charged language and imagery.

I submit to you that we can reprogram the lizard brain (or at least hack it) through the use of conditioning techniques via emotionally charged states.

I had been meaning to read up on magic, specifically chaos magick, for some time. I was intrigued by references to it by some otherwise quite rational and clever individuals I follow online. To my surprise, when I finally cracked open Peter Carroll’s Liber Null, I grokked the basics immediately.

I think there are two reasons for this intuitive response:

First, I have spent most of my life engaged in various forms of creative writing. Fundamentally, there is not much difference between chaos magick and creative writing. Or any creative process, for that matter. It all reduces down to the focused transmission of ideas and emotions through the manipulation of symbolic systems of representation.

Second, for the past couple of years I have engaged in a fairly regular meditation practice. Meditation changes the way you perceive the world. There are lots of books about how and why that works (I highly recommend The Mind Illuminated). I’m not going to rehash the mechanics of it here. The point relevant to this post is basic meditative practice helps you learn to view your thoughts and emotions as objects.

The changes are subtle at first. Personally, I would start to “catch myself” when my emotional state would change. Maybe I am in line at the grocery store and I start to get annoyed because some numbskull can’t use the self-checkout. Increasingly, I am able to consciously short-circuit that mild form of anger and its physiological symptoms. This is pretty mundane and uninteresting. I mention it because it’s probably something you can grok even if you think I’m completely off my rocker with most of this.

Here’s where things start to get magickal.

Once you begin to see your thoughts and emotions as objects it is not a huge leap to begin to manipulate them as objects. I am fortunate not to have intense psychological trauma in my past. But I definitely have unpleasant memories. Meditative states have a habit of bringing those unpleasant memories forward in a vivid way. It’s precisely the kind of thing that happens when you unleash the lizard brain. With some very basic, very mainstream guidance you can begin to work with these thoughts to lessen their intrusiveness and unpleasantness. This is simple, uncontroversial stuff like internalizing and projecting forgiveness of self and others.

We can call this meditation. We can call it magick. We can call it prayer. We can call it performance enhancing visualization. No matter what we choose to call it, it’s all the same thing.

Oh, by the way, we can invert some of these things if we want to get a little more woo and think about the nature of black magic. If you believe you can transmit positive energy, or create positive associations, using these techniques, there is nothing stopping you from doing the same with negative energy. My sense is that the dark side of things initially seems super cool to people who have not actually practiced these techniques “cuz power” and whatnot. This is a bit like a kid finding his dad’s gun.

There is a whole cosmological discussion to be had about the nature of darkness and evil and why they are inherent in existence. Waaaaay beyond the scope of this post. What IS relevant to this post is that if you start hacking around inside the lizard brain with a focus on the darker aspects of your human nature, and emphasize feeding and manipulating negative energy, you may not like the kinds of thoughts, feelings and “forces” that begin to manifest in your life as a result. It is not at all implausible to me that this could cause serious psychological damage. The degenerate form of meta systems thinking is psychosis. You should take that statement seriously.

So if you read this and decide to start experimenting with this stuff, I suggest first checking out this post on potential risks by my Twitter friend @liminal_warmth. Messing around with the plasticity of your brain is not something to be taken lightly. I do not want to be responsible for encouraging anyone to experiment with stuff that unintentionally leads to a destabilizing existential crisis or a psychotic break, and at this point I don’t feel I can improve upon Warmth’s summary of the relevant issues.

Then and Now

This is a brief reflective post about the past and future of this blog.

It has been about 3.5 years since I started writing here. The journey has been fantastic. When I first started posting, it was primarily as an outlet for “takes” I was not able to express professionally. Over time, the blog has mutated into more of an online notebook or idea journal. Some of the early themes it turns out I merely needed to “write out of my system.” Some of my interests have changed over time. And, of course, some of the things I thought I would be interested in writing about publicly, I realized I am more interested in discussing directly in small group settings either online or offline.

Going forward, I will be writing more frequently at https://ensofinance.blog/. The new site is meant to be more of a focused platform, specifically devoted to meditations around personal finance and investing. If that kind of thing is in your wheelhouse, check it out! For now, my target posting cadence is once per week, on Mondays.

I will continue to write here. However, it will likely be less frequent and relatively unfocused going forward (this has been the trend over the past couple of years). This site will continue to serve more as an idea journal and platform for self-expression. If you follow my leveraged permanent portfolio updates, rest assured I will continue to provide those on a monthly basis.

The hot takes and snark will continue on Twitter via my @demonetizedblog account.

If you are a longtime reader and online friend, thank you for your time and interactions! I have made more wonderful online friends and connections through this process than I ever would have thought possible. I look forward to many more years of the same.

03/21 Permanent Portfolio Update

Now here is a spicy update.

Current allocation:

This is about 118% notional exposure due to the leverage in NTSX.

From an attribution perspective, the main pain YTD has been in gold and bonds, with some ancillary pain from my growth equity tilt. I don’t have a lot of Deep Thoughts about this other than that I think what we are seeing is a reflationary trade post-Covid. I would expect this to be bad for Treasuries and bad for gold in the short term, and for the bond pain to ease up a bit as rates find their footing again.

A historical comp to this kind of behavior would be 2013. That was another period where the markets were wrestling with a reflationary dynamic. Here is historical data on a plain vanilla permanent portfolio. The 2013 return is a mere 1.23% (market cap weighted US equities returned 33%; bonds -2.26%; gold -28.33%). So if the dynamic we are experiencing YTD in 2021 continues through year-end, I would not expect much performance-wise.

I shall leave you with the below words of encouragement. This gets at the philosophy underlying the permanent portfolio concept.

There is a Taoist story of an old farmer who had worked his crops for many years. One day his horse ran away. Upon hearing the news, his neighbors came to visit. “Such bad luck,” they said sympathetically.

“Maybe,” the farmer replied.

The next morning the horse returned, bringing with it three other wild horses. “How wonderful,” the neighbors exclaimed.

“Maybe,” replied the old man.

The following day, his son tried to ride one of the untamed horses, was thrown, and broke his leg. The neighbors again came to offer their sympathy for what they called his “misfortune.”

“Maybe,” answered the farmer.

The day after, military officials came to the village to draft young men into the army. Seeing that the son’s leg was broken, they passed him by. The neighbors congratulated the farmer on how well things had turned out.

“Maybe,” said the farmer.

2/21 Permanent Portfolio Update

Not much to report this month (performance as of intraday Monday).

Current allocation is roughly:

32% S&P 500 futures

21% Laddered Treasury futures

32% Gold

30% ex-US equity

115% gross exposure

A Brief Aside About Portfolios & Inflationary Regimes

Lately at work I have been helping a few people (and their clients) think about building portfolios to better withstand inflationary economic regimes. A recurring theme I come across is clients concerned about the potential impact of high inflation on their portfolios, whose first impulse is to cut or eliminate their equity exposure.

If anything, it is the bonds and cash they should be cutting. This is not to say that equities will do super well in an inflationary environment, but they are, at least in theory, capable of passing some inflation through to customers via price increases (what you really want to own in a high inflation period are companies with pricing power). Setting aside TIPS for the moment, bonds and cash are what are going to suffer badly in a highly inflationary environment.

What I think is happening here is that folks are thinking of high inflation as a Bad Thing and then thinking of Bad Things in deflationary terms. It is natural to think that if a Bad Thing is happening you ought to cut equity risk. Don’t do this! It may indeed be worthwhile to cut some risk. Just make sure you are cutting the right risk.

Again, this is not to say that equities will not suffer in an inflationary regime. It is important to disaggregate equities here. Equities I would be most worried about in an inflationary regime would be high multiple stocks with questionable pricing power and little to no free cash flow. These companies are going to be the most sensitive to substantial changes in the cost of capital/”discount rate.” They are the zero coupon bonds of the equity world.

I try to discourage people from positioning portfolios specifically for extremely high inflation or hyperinflation. Doing so requires them to dump their deflation allocation. We just don’t know whether/when significantly higher inflation is going to show up, and how many more deflationary episodes we might endure in the meantime. The basic intuition underlying the permanent portfolio concept is that we are bad at predicting things. Better to strive for a balanced portfolio capable of surviving many different regimes, even if it is not the best performer in any given regime.

12/20 Permanent Portfolio Update

I am changing the name of these posts going forward since I expect to be rebalancing much less frequently and keeping the allocation relatively static. Here is the current allocation:

This is about 117% gross exposure. Going forward, I’d expect these weights to remain pretty similar, with NTSX a little overweight relative to gold and ex-US equity just for leverage purposes. I will likely be due for a small gold-to-ex US equity rebalance soon. Performance versus US large cap:

Source: Demonetized Calculations

You can see a longer-term snapshot of how this allocation would have performed here. This period favors the leveraged permanent portfolio versus a 100% equity allocation, given that it begins with a market drawdown and includes the Covid drawdown. Over time, I would expect the performance gap to narrow significantly, with a 100% equity allocation making up substantial ground in benign market environments (see the latter half of 2020 for a taste). However, I would also expect the leveraged permanent portfolio to continue to dominate a 100% equity allocation on a risk-adjusted basis.

I have written many times that I favor a portfolio that uses the leveraged permanent portfolio as a stable core to support a smaller, but much more aggressive sleeve of concentrated investments. The power of this approach was on full display in 2020 as I was able to trim from the leveraged permanent portfolio near the nadir of the Covid drawdown to buy certain individual equities at extremely attractive levels. The result was a 57% IRR in that more aggressive sleeve.

Overall, 2020 offered a magnificent stress test of the leveraged permanent portfolio concept, given the magnitude of equity market moves both up and down. The portfolio passed this test with flying colors. Performance remained robust across both mini-regimes, within an extremely simple package that required no market forecasting whatsoever. Decent drawdown performance allowed me to play offense when market sentiment was at its worst and I still captured the vast majority of the equity market rebound.