Camp Kotok: Wall Street In The Woods

Cover photo courtesy of Leen's Lodge

Each year, I attend an event in the Maine woods called, alternatively, “Camp Kotok” or the “Shadow Fed.” The former sounds frivolous. The latter sounds nefarious. Neither is particularly accurate.

The attendees at Camp Kotok are smart. Like, really, scary smart. While there are strict rules about how and what gets reported—which includes who attends—the combined résumé includes economists from governments and S&P 500 companies, CIOs, portfolio managers, politicians, best-selling authors and a handful of overwhelmed journalists.

It’s also surprisingly diverse for a finance-focused gathering—diverse politically, ethnographically, geographically. Walking into the dining hall on a Friday afternoon creates a near lethal sense of impostor syndrome. The only survival strategy is to ask questions and listen really hard to the answers.

‘Forest Bathing’

The Japanese have a concept called “shinrin-yoku,” which means “forest bathing” or “nature bathing.” Where Western societies often go into the woods to do something (hunt, fish, mountain bike, camp), shinrin-yoku is about simply being, absorbing and allowing nature to surround and wash over you.

My experiences at Camp Kotok involve a little bit of shinrin-yoku in the literal sense: There are indeed a few hours a day floating through nature in a boat. But they also involve an intense, highly concentrated kind of economic shinrin-yoku. I surround myself with the zeitgeist and just try and absorb it through osmosis.

Under the rules, attendees can report specific comments with approval of the speaker (and indeed, we’ve included several in this week’s ETF Prime podcast), or, they can report the “sense of the group.”

So here are my big takeaways, with the caveat that the group’s very diversity turns any “Camp Kotok says … ” into a broad-brush synecdoche that probably says more about my listening skills than anything else.

Our Eyes Are Off The Ball
One of my parlor-tricks for large gatherings of smart people is to ask everyone the same question and then contemplate the spread of answers I get.

In the past, I’ve asked dumb things like “best first album” and smart things like “where’s oil going and why?” This year, my question was: "What’s one thing—a risk, a concern, a data point, a situation—that’s really important, that the rest of the econo-finance-sphere isn’t paying attention to?”

The answers here were dizzying. While there were a few somewhat predictable answers like “we’re in a corporate earnings recession and nobody’s talking about it,” there were also some big surprises for me, such as:

• The entire global maritime fleet has to change fuel types in five months, and it’s going to cost a ton.
• The New York PMI (producers manufacturing index) is flashing red-lights about the service-based economy.
• Geopolitics is being swept under the rug, leaving us open to a “hot war” while we focus on all the economic wars.
• The risk from Chinese corporates like Huawei is enormous.
• The degradation of the National Weather Service is going to destroy U.S. agriculture.

The list of terrifying one-liners goes on and on.

My Takeaway: I will ask more questions from a position of complete ignorance. Everyone has something that they know a lot about, whether that’s Dostoyevsky’s epilepsy or Canadian farmland.

Monetary Policy Is In The Blender
One of the highlights of this year’s event was a dinner debate on modern monetary theory. The discussants were, for the most part, not remotely proponents of any version of it, whether it’s minting trillion-dollar coins or simply entering into infinite QE (quantitative easing). And yet, there was a sense of resignation that MMT was coming, whether or not anyone wants it.

By the end of the weekend, I started hearing folks talk about “accidental MMT”—one in which the U.S. stumbles into the endless issuance and self-purchase of debt because politicians have neither the will to significantly raise revenues nor to significantly curtail spending. This contrasts with an “intentional MMT” in which laws are passed, the Fed charter is rewritten and we actually call it what it is.

My Takeaway: This is probably an important chart:

It’s pretty simple: It’s public debt to GDP (gross domestic product). Even with low interest rates, it’s unlikely that, in my lifetime, we’ll reverse this chart meaningfully. Yet I bet we don’t see it on any presidential debate stage.

China Playing Different Game

Quite a few folks at this year’s Camp Kotok can legitimately be considered China experts. Several have spent their entire careers focused on the country. A few have written books on it. And while there was some discussion of the short-term economic impact of tit-for-tat tariffs and currency manipulations, the consensus was that China was playing a much, much longer game than the U.S.

I came away wondering whether the Chinese may actually be relishing the trade war, which has created a global distraction from the million Muslims in concentration camps, the cat-and-mouse game going on in the South China Sea or the threat of Chinese corporations to global infrastructure. And that’s to say nothing of what’s going on today in Hong Kong.

My Takeaway: I’m going to read far beyond the Google news headlines for my China coverage. China simply works on a different time scale, and under different rules than the rest of the world. To assume everything will magically be better the moment a trade deal is announced is likely a critical failure of imagination.
 

Politics—& People—Are Exhausting

As I mentioned, this is a diverse group. In the 2016 election year, discussions around politics dominated, and while incredibly civil and respectful, there were, shall we say, differences of opinion.

This year, the political discussions petered out quite quickly. It wasn’t disinterest that defused things, it was bone-penetrating exhaustion. Even folks I would’ve pegged as the most die-hard partisans seemed to have a hard time mounting a fervent defense of any politician or appointee. The opinions were still there, but the will seemed to have faded.

I feel the same way. Any thinking about policy for the last few years has been waylaid by a discussion of the people (in the nanosecond) uttering the policy.

My Takeaway: Ideas matter, and ideas last forever. People are ephemeral, and in the scope of history, a lot less relevant than the ideas. Here’s where I can make a small change in my day-to-day life that I think will really matter. I’m going to stop reading about people so much, and focus on ideas. Without having been able to articulate it, this is part of why I like stuff like Epsilon Theory and Datatrek and Alpha Architect and Newfound Research.

Off The Lake

Perhaps the biggest takeaway from Camp Kotok—which is sort of the same takeaway every year—is that it’s so important to surround yourself with people who think differently. That can be making sure you have coffee once in a while with that one friend you argue with, or forcing yourself to network at a conference when you really just want to sleep, or engaging the other parents on the sidelines of the soccer game.

Everyone out there knows something you don’t know. Go out there and listen.

Contact Dave Nadig at [email protected]