The best thing I read last year was @jesse_livermore paper Upside Down Markets. I read it 3x. It’s 40,000 words and heavily footnoted and researched. It’s basically a book.
I took extensive notes on it. I re-factored them twice. If I sound crazy, it’s because it was the most educational economics piece I’ve ever read. Preemptive caveat, but that doesn’t say much. I did the bare minimum to get an economics degree. I have very weak opinions on macro because it’s so over my head it basically feels like voodoo.
I also know I want to gag myself whenever I hear others talk about macro. You would too if you read this paper and then had to listen to any sentence that includes the word “inflation”. Macro is the ultimate tourist attraction. Snapping pictures of shiny explanations to show your friends at home. “Look at how much of the world I’ve seen and understand.”
It makes my eyes roll out of my head. Look, we don’t need tourists to pretend they’re experts. It’s ok for them to go to Times Square. To observe and take it in without feeling pressure to be cool or smart about knowing the real landscape. It’s ok to just not understand.
But if you care to understand and not just pretend, you need to stay awhile. This paper is a tour guide but not the hop-on, hop-off red bus kind. This guide has you crash on the futon before heading to the bodega on Avenue C as you prepare for another 10-mile spelunk of city alleys.
Jesse’s map will open your eyes. Built-up from basic accounting identities, it’s an example of the rigor you must take to actually make sense of an economy from 30,000 feet. The accounting framework alone is worth the journey. Jesse doesn’t call the sensitivities Greeks, but he could have. What are the dependencies? How do second-order effects work? How does the economy tie back to valuation? What does inflation actually do and how? It’s all here.
Last December I started recording an audio explainer of the paper, but I lost steam. I really encourage you to read the original work but in the spirit of a parent who encourages abstinence but still hands their kid a condom, I’m going to hand over my notes. I spruced them up a bit to make up for their length. You can only reduce things so much. Enjoy:
- Moontower Summary Of Jesse Livermore’s “Upside Down Markets” (Link)
If you’d like to hear Jesse’s interviews check: