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How to find unity in the division and chaos of today Cedars Hill Group — October 7, 2025 — The tension between tradition and novelty is timeless. It causes pain and if we don’t learn from it, we ultimately become stuck in our ways and eventually outmoded... Cedars Hill Group — October 7, 2025 -- The tension between tradition and novelty is timeless. It causes pain and if we don’t learn from it, we ultimately become stuck in our ways and eventually outmoded. The ability to learn from pain is central to all competitive activities and the paradox of greatness is that you must experience a lot of loss on the path to greatness. Another important insight into greatness is that it is nearly impossible to hold onto for any extended period; there will always be a new winner. Realizing greatness is not a destination is a prerequisite to be great because you cannot do what it takes if you think greatness is just around the corner. Think about running a marathon, you do what needs to be done to finish the race but no more. Greatness not only finishes the race but keeps going. Society celebrates greatness but not the methods that enable it. New innovations are dismissed or met with outright resistance. If you have a new idea about religion or social intercourse you are likely to be run out of town, derided as a person bent on destruction, lacking morals, and a danger to society. When you find others invoking morals and religion as an argument against some new way of doing things you have struck a nerve. Society is a weathervane and it’s a mistake to base your values and integrity on it. The minute you are certain of something your creativity dies, and you have lost your ability to think clearly. You must have confidence in your foundation to push off into the uncertainty of the world but the strength to realize when it’s time for a new foundation. Beware of mistaking novelty with superiority. The tension between tradition and novelty is not about age, it’s about time; and as we know time is the confounding variable of life. We must be able to respect tradition because it is our foundation, but we must also be able to see that it may not be where we are going. Transitory vs FoundationalWhat is a practical way to navigate this tension and these paradoxes?
How do we know when to embrace the new or lean on tradition? While these are good questions, they are the wrong ones to be asking. We need a causal understanding of why tradition has worked and when those fundamental linkages breakdown we must be able to recognize it and update our beliefs. This is what it means to think. Not just think about what you want to do this weekend, but to really engage your brain and live life. One of the greatest tragedies of life is how very few people do this consistently. Thinking will reveal when the innovation takes root and when it fails. Many simply embrace something new because they are not happy with the status quo. This sort of change is usually transitory. When novelty reinforces itself and creates a positive feedback loop then you have something with legs. If you take the time to think about things you will find most ideas fail on their own premises. For example, the Efficient Markets Hypothesis assumes that all available information is instantly reflected in prices, so no one can systematically outperform the market. However, if this were true no one would bother analyzing information or trading on mispricings — yet that activity is what makes markets efficient. Therefore, if the hypothesis was universally true it would cease to be true. Let’s look at our inflation view under this framework. We believe that inflation has ended the secular trend lower and has begun a secular trend higher. Why? The disinflationary impulse from globalization, high debt levels & excess capacity, and the disinflationary impact of technological innovation are in the final innings or reversing. 1. Premise: Globalization is reversing
2. Premise: The marginal impact of higher borrowing to increase productivity and capacity is diminishing
3. Premise: The disinflationary impact of technological innovation is waning
These are the things that are signaling to us that the disinflationary forces of the past forty-years are diminishing and potentially reversing. We have seen confirmation in market prices recently, however there is potentially a time horizon mismatch as the market is expecting inflation now, while these forces are longer-wavelength forces and may play out over a longer time frame than the market pricing would suggest. In the short term we may see disinflation or even deflation. Why? AI is a disinflationary force in the short-term, and the disinflationary forces from the last cycle have not fully reversed. I met a company last week that was able to cut more than half their payroll this year by replacing workers with AI automation. This is a small and relatively unsophisticated company that was able to achieve this which means they are not the only ones doing it. In the 1990s and early 2000s we saw a huge increase in productivity and lower consumer prices as the internet accelerated the globalization of supply chains which led to intense competition for consumer goods and lower prices. That force lasted for quite a while so while AI will most certainly lead to a surge in productivity in the future the near-term impact may be disinflationary due to weaker job growth which we are seeing in real time. The impact of increased productivity from AI may also not translate 1:1 into lower prices in the future because of the larger impact on growth it will likely have relative to 1990s and 2000s experience; but this will take years to reveal itself. We update our beliefs as these causal linkages reveal themselves as either broken or working. We also realize that these links operate on different wavelengths and that is primarily where market inconsistencies come from. Alpha comes from betting against the market when its pricing in a traditional causal link that has changed or betting with the market when you are in the early innings of that change. Timeframe mismatches happen frequently because of the emotional response to change. Investors are frequently slow to adapt and once they do, they tend to over-explode. There is also institutional bureaucracy which slows the adoption of change. Real money investors can move markets because they manage huge portfolios, but are usually the last to adopt, whereas fast money adopts quickly but doesn’t have as much firepower. When tradition devolves into empty platitudes you tend to find that the causal linkages that formed the tradition are breaking down. Often market prices are slow to confirm this which leads to high dissonance, which is what we are seeing broadly in society and the markets today. When dissonance is high the stakes are raised and the potential for alpha is increased. It is important to anchor your views in causal linkages, but it is even more important to recognize when those linkages break down, and not just temporarily. The nature of markets is that price will always challenge your views, but price is the highest frequency variable and easily misleads. Alex Campbell laid out a fantastic framework for navigating this in his most recent post: Add to position (trust your model) when: ✓ Linkages confirming sequentially (A→B→C happening in order) ✓ High dissonance (large gap between fundamentals and price) ✓ Time horizon mismatch (market pricing different timeframe than your thesis) ✓ Position isolated (not part of broader “everything going wrong”) Cut position (trust the market) when: ✗ Linkages breaking (A→B not happening as predicted) ✗ Low dissonance (price and fundamentals agree you’re wrong) ✗ Correlation clustering (all your positions moving against you) ✗ Unknown unknowns (things happening you can’t explain) Conviction Through Dissonance There is a principle that underlies this framework which applies to everything in life and the markets. It is to have a strong foundation and integrity based on truth but also realize that our beliefs can turn into prisons for ourselves and others if we don’t embrace the inevitable dissonance that results when life throws you a curveball. When we allow traditions to divide us, we devalue one of the greatest gifts we possess which is the unity in our suffering (dissonance). Comments are closed.
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