The Dao of Capital: Austrian Investing in a Distorted World

Chapter Ten

Austrian Investing II: Sieg fried

Exploiting the Böhm-Bawerkian Roundabout

The roundabout route—leading first to an intermediate point, a Ziel, from which to launch the next campaign in pursuit of the destination, the Zweck—is the road map for Austrian Investing. On the first leg of the journey, as I laid out in Chapter 9 with Austrian Investing I, we focused on the distortion in the financial markets, indicated by the telltale sign of an MS index significantly higher than 1. Recall that this signal tells us that the physical structure of production of the real economy has been, through monetary sleight of hand coerced away from stationarity, and is poised to snap back again as the forces of negative feedback become ever stronger. Once we have identified such a scenario, we can exploit our knowledge (elusive to most, and known only through study of Austrian theory) through two basic responses: We either can keep our capital on the sidelines in reserve (what I have called the basic Misesian strategy), or we can enter positions that opportunistically generate capital when its deployment is most effective (the more sophisticated complement of tail hedging, and what I call Austrian Investing I)—shi strategies all.

Now, in this chapter, we are ready for the second part, where we seek out opportunities that are aligned with the true Böhm-Bawerkian roundabout of the Austrian Unternehmer. Rather than gauging the stationarity (or lack thereof) of the market as a whole, in Austrian ...