‘Space Stocks,’ Black Ops and ‘Blind Spots’

---

• In the aftermath of the COVID-19 pandemic, investors have become acutely aware of fat tail risk. “Black swan” events like COVID and climate disasters are no longer once-in-a-lifetime crises..
• The last few years have been a period of profound transformation. Innovations like ChatGPT and other AI applications are changing the game more quickly than we ever imagined. At the same time, the topic of Unidentified Aerial Phenomena (UAP) has become a lot more legitimate in the highest echelons of science, government — and finance.
• Izabella Kaminska and Dario Garcia of indie news agency The Blind Spot are among the first finance journalists to take UAP investment risk seriously, and they’re confident that the finance industry will follow suit.

After the pandemic, we learned all too well that rare but catastrophic events have the power to upend entire industries. 

As the world went into lockdown, airlines struggled to stay afloat amidst global travel restrictions. Investors who never had a global pandemic on their radar witnessed firsthand the consequences of underestimating fat tail risks. Now, another type of uncertainty looms on the horizon: Unidentified Aerial Phenomena (UAP).

“In the last couple of years, I’ve seen such amazing — kind of science fiction level — things come into reality,” says journalist Izabella Kaminska. “I’m not so surprised that a forward-thinking sort of portfolio manager might want to account for that sort of risk.”

Izabella is a veteran financial reporter and the founder of The Blind Spot, an independent news agency focused on finance markets and unknown geopolitical forces like UAP. And since the beginning of this year, she has served as Senior Finance Editor at Politico. The Blind Spot, with a tagline of “where finance and media intersect with reality,” both publishes its own stories and aggregates them from other sources, including a significant amount of reporting from Politico. 

“I’m interested in markets,” she says. “I’m interested in information theory. I’m interested in blind spots and what people are missing.”

Izabella and her colleague, Blind Spot Assistant Editor Dario Garcia, joined host David Dorr for yet another Galactic Macro episode of Top Traders Unplugged to talk about why UAP risk is a valid concern — and what investors can expect next. Read on for a recap of just some of their discussion. 

Accounting for the truth out there

Back in late 2021, Izabella noticed that stories about UAPs gained “a sort of creeping respectability” after many years of the mere mention of such phenomena being taboo. She wrote a story for the FT Alphaville, the Financial Times blog where she formerly held an editorial position. 

Her post “Do Portfolios Have a UAP Risk?” ran with the subhead, “The truth is out there, and markets probably need to begin accounting for it” — and Izabella found a brand-new journalistic beat. The article was quite popular and naturally a bit controversial. But it caught the attention of Dario, a research analyst who reached out to FT via email. Izabella replied to him about five minutes later, and later Dario joined her as an early contributor to The Blind Spot. 

Browsing The Blind Spot isn’t for the incredulous crowd. A story about UAP and aerial safety sits alongside an analysis of “collateral damage” to European markets after the U.S. debt ceiling debacle and a report on the cryptocurrency Tether. 

But there’s definitely an audience for stories about the unexplained aspects of life in the 2020s.

“Either there are lots and lots of people having delusions” or there’s a massive multinational government coverup, says Izabella. No matter what turns out to be true, the topic of UAP has long been “an interesting kind of information black hole for markets,” she says. 

That began to change over the last few years, thanks to the Pentagon’s public-facing release of UAP reports, including several convincing (although perplexing) videos. Izabella thought, given the growing acceptance of UAP as a real phenomenon, that it was worth “putting a stake into it from a financial perspective.” When she began digging, she was surprised to find several SEC filings in which UAP were mentioned in investors’ exposures and risk factors. 

“It turns out, there are a lot of very respectable, high-level people who were thinking similar things,” she says. “That’s not to say we believe in aliens … but it is an information conundrum.” 

We think we’re not alone now

Dario was working in Kroll’s Business Intelligence and Investigations division when he began to see reports of UAP appear through “serious channels” like the National Defense Authorization Act (NDAA) and witnessed the subsequent launch of the predecessor of the DoD’s All-domain Anomaly Resolution Office in 2021. 

That’s when he realized the age-old question — are we alone or not? — might be answered soon. He also realized that accepting the answer (which he believes is likely, We are not alone in the universe), will involve some significant financial costs borne by people who have been ignoring this issue. 

Ever since he was a kid, adults told Dario (or it was implied) that commercial pilots “saw things and were not allowed to report them,” he says. 

“It very much surprised me that in my preliminary investigations … that these reports were true. Not only that pilots were handed cease and desist letters for talking about the UAP safety issues publicly, but pilots aren’t even allowed to report anything with the name UFO.” 

‘Fringe’ benefits

“This is something we’ve talked about within our investment shop: When will we see UAPs start to become a common risk disclosure?” David asks. “I was not aware … [but] it sounds like that’s already happened.” 

He’s curious about which companies are folding UAP risk into their strategies, and the language they use to do so.

“It’s very fringe,” says Izabella, who says she came across an ETF [exchange traded fund]  provider offering space exposure — “space stocks.” 

She spoke with the issuer and thinks his approach was “quite curious” — “They launched this space ETF, and they were quite keen to cover all their bases, I guess.” 

“I think it’s really important to frame the conversation in terms of what we mean by UAPs. Because it doesn’t necessarily mean otherworldly intelligence. … It might — I’m not going to dismiss it — but … it could also mean technology that we ourselves invent, that has unintended consequences or perhaps [unintended] uses.” 

‘Common’ tragedy

That could include anything from cutting-edge physics experiments to black ops in secret sites, whether they’re conducted by the U.S. or its adversaries. But if something cataclysmic were to happen, “like a new theory of gravity or something like that” — everyone on the planet would need to know. 

Izabella worries that geopolitical pressure and tension between nations might encourage a secretive approach to innovation, which may create a “tragedy of the commons,” like what we saw with COVID,” she says. 

That makes her think of a compelling analogy: In the early days of the pandemic, “suggesting that COVID may have leaked from a lab was incredibly taboo,” she notes. “You couldn’t say it in polite company without being dismissed as a nutter. Now, of course, it’s completely changed” (although the scientific community at large discounts this theory).

As the Overton window shifted to allow a “proper, serious discussion” about COVID’s origins, we have learned that these projects were happening “in stealth, and the spillovers came into the public domain with huge collateral damage.” 

‘Unhedgeable’ risk and the ‘AI apocalypse’ 

From a financial perspective, Izabella’s approach to innovation is that technology is “almost like magic.” But magical tech can be a very good thing — or it can be very bad. 

File under “almost magic”: artificial intelligence. The idea of an “AI apocalypse” has been largely normalized, Izabella adds. “As technology gets very powerful, the externalities get very powerful on a magnitude that is ever greater. You’re dealing with heaven and hell, apocalypse and utopia.”

That’s the conundrum facing “price setters of risk in the markets,” she explains. “I mean, how do you price apocalypse risk?”

“We need to talk to Lloyd’s of London and, and create some new risk insurance,” David quips.

Today, we’re facing a “new realm of unhedgeable risk, in some ways,” says Izabella. 

When systems become ever more interdependent — more and more “Borg-like,” she adds, in a shout-out to Star Trek fans, “the extremes are falling out of the system.” During the global financial crisis, we got a glimpse of that fallout. But now, “every crisis gets bigger and bigger,” she adds. “The consequences, the Tower of Babel effect.” 

Izabella wonders — with innovation happening faster and faster, if it will evolve beyond our physical capacity as humans to be able to deal with the change and with the risks. So we must develop contingency plans, so we don’t send ourselves into another “dark age,” she says. 

“How do we hedge against the collapse of society because we can’t keep up with the pace of innovation? We either have to have a totally coordinated system where everyone is aligned or some deep, resilient mechanism in it to ensure we can handle that level of technology without blowing ourselves up.”

Is that hyperbole? Perhaps. The concept of “galactic macro” might still seem outlandish to some of our audience. But just as with investments, being early may not always feel good. I know we’re really early in this discussion, but that’s by choice. 

Hang in there — and watch this space.

---

This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.