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Enemies Real and Imagined

By Rusty Guinn | July 21, 2021 | 10 Comments

I think there’s a non-zero chance that the delta-variant becomes something that markets really are focused on. Maybe that happens months from now. Maybe days.

But until that happens, the delta-variant narrative explaining markets is a wall of worry, an artificially easy hurdle to climb for a market that only really cares about a dovish Fed sticking to its transitory inflation story.

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ZG-item-cap-black

Low Demand, Low Supply, High Price Expectations

From the ET Forum …

So that’s where we are in our local real estate market – low demand, low supply, high price expectations – and my sense is that this is where we are in lots of markets … not just CT residential real estate. Maybe it’s just the summer doldrums, I dunno. Maybe I’m just taking my local experience as more meaningful than it is. I’d be really interested to hear if anyone is seeing or experiencing the same, either in RE or anywhere else.

Because this is how stagflation happens.

Seasonality is so tough to parse, especially against pandemic-affected seasonality, but it sure seems like inventory got legitimately bought down in Q4/Q1, after which brokers sold that experience and y-o-y % changes to drive a corresponding increase in supply.

Also no idea wtf is going on in multi-family / condo land around here, but definitely seems distinct from the single-family experience.

— Ben Hunt | July 28, 2021|

Let Me Make the Songs

Epsilon Theory may have gotten its formal start in 2013, but the soft launch took place in 1991. That’s when my partner Ben finished his doctoral work at <lifts nose slightly> a school up in Cambridge. His work there (and his 1997 book, Getting to War) focused on how news could be used to predict the likelihood of war. It also analyzed how news was used by institutions and individuals to foment an appetite for and belief in the necessity of war, which is related to but not the same as the ability to use that news for predictions.

So yes, we were interested to read about Project Cassandra, a collaboration between German academics and military leaders to quantify the risk of conflicts using…literature. The Guardian covers it here in what I think is a very worthwhile read.

Jürgen Wertheimer, who set up Project Cassandra, standing in front of a green chalkboard
Jürgen Wertheimer, head of the Cassandra Project (Source: The Guardian, Dominik Gigler)

The project is really interesting. It confirms, or at least shares, many of the core principles of our Narrative Machine project. Not least among them is the recognition that oft-mined sentiment possesses a fraction of the influence of memes with subjective power that can only be identified objectively through words and phrases of meaning. Or the observation of identifiable, recurring story archetypes.

Leaving aside that we focus on different universes of creative output, our projects DO differ in one respect. The Cassandra Project appears to place great emphasis on the ability to quantify the popular and critical acclaim of a fictional literary work. For example, more popular, more viral, more well-regarded work would have different influence, which is a perfectly sensible hypothesis.

Because we focus on a larger and more frequent dataset of news, blogs, press releases and transcripts, we get to do two different things: first, instead of estimating how much of an audience has heard an idea and how much that idea has changed their minds, we can more easily observe how much a specific memetic idea has reproduced within the dataset over time.

Second, because our dataset includes items which are nominally news / non-fiction content, we can observe the extent to which explicit and implicit opinion language is being deployed, which also provides a window into the narrative-shaping efforts of common knowledge missionaries.

Two different approaches to a similar problem. I prefer ours, because I feel more confident saying that an idea has reproductive legs by observing how it changes the language other people use to discuss it, and because knowing some of the intentions of powerful institutions and influential individuals is an indispensable part of any effort to quantify the potential effects of narrative.

But there are absolutely features of the zeitgeist which will only manifest in the arts, in literature, and in the groanings and yearnings of those who make the songs. For that reason alone, we think the Germans have the right of it here in the way that the Scots did before. It’s a very cool project.

Let me make the songs of a nation, and I care not who makes its laws.

Andrew Fletcher, Commissioner of the Old Parliament of Scotland (1703)

— Rusty Guinn | July 8, 2021 | 12:32 pm

The Political Autotuning of Inflation

The politicization of inflation into a partisan “There Is No Inflation!” TM narrative by the nudgers and mandarins on the left is really depressing.

The politicization of inflation into a partisan “Biden Inflation!” TM narrative by the clowns and raccoons on the right is really depressing.

It’s really depressing because it makes it impossible for me to say anything on inflation without getting lumped into an insane partisan box. It’s an entirely constructed and false framing of the issue, and I’m just so freakin’ weary of it.

We call this political auto-tuning. We call this a political shock collar.

It’s the go-to move of incumbents in a two-party system with high-peaked bimodal electorate preferences. THIS is why there are no successful centrist politicians. THIS is why there are no stable centrist policies. THIS is why we can’t have nice things.

THIS is why I believe that top-down societal change is impossible, but instead must emerge from the bottom-up through an authentic social movement of Make/Protect/Teach.

Watch from a distance if you like, but when you’re ready … join us.

— Ben Hunt | July 2, 2021 | 11:09 am

Non-Verbal Narrative

We make it no secret that our research program here is all about using natural language processing to identify and measure narratives in the world. But is narrative truly only shaped by verbal and written communication? Do missionary statements have to be made with the mouth?

Of course not.

Here’s narrative missionary Max Scherzer, pitcher for the Washington Nationals, providing an exaggerated form of protest against the revised MLB enforcement policy regarding the use of foreign substances. The umps have generally been inspecting hats gloves and belts for these substances. Max decided to give them a little, shall we say, extra on the belt removal.

Max Scherzer begins stripping on the field as baseball's weirdest new rule  takes effect

Here’s Oakland Athletics pitcher Sergio Romo, picking up every nuance of Scherzer’s crystal clear communication to the commissioner’s office.

Sergio Romo ready to strip for foreign substance checks

Scherzer and Sergio’s sticky substance strip show is memetic perfection in the form of malicious compliance. There is no press conference speech either pitcher – or the others who will no doubt mimic their displays in the coming days – could have made that would have more clearly shifted common knowledge to the belief that the foreign substances rule was being applied, interpreted and policed in an absurd, preposterous way.

Bold prediction: this narrative doesn’t peak until Joe West enrages Zach Greinke into an NC-17 display on national television.

— Rusty Guinn | June 23, 2021 | 9:21 pm

Headline Risk

The average American news consumer is exposed to far more headline text on news websites, social media apps and content aggregation sites than they are to the prose of the articles themselves. It should be no surprise, then, that more fiat news and missionary behavior exists in headlines than almost anywhere else. It typically gets a pass because, well, the whole job of a headline writer is to summarize what an article is about. But that’s precisely the task that lends itself so perfectly to telling us how we should think about the article. What’s important? What should our conclusions be? How should we feel about it?

I’ll give a free subscription to our free newsletter if you can find the fiat news language in this gem of a headline to a CNN news article.

Here are the companies rushing workers back to the office — and the ones that aren’t [CNN]

Aside from the general observation to take care in our content consumption habits, remember that it is the constant barrage of articles – and headlines – like this that reinforces our belief that the missionaries of the “Work From Home Forever!” narratives are dominating the field, at least in the narrative war.

— Rusty Guinn | June 22, 2021 | 9:58 am

ZG-item-cap-black

Low Demand, Low Supply, High Price Expectations

From the ET Forum …

So that’s where we are in our local real estate market – low demand, low supply, high price expectations – and my sense is that this is where we are in lots of markets … not just CT residential real estate. Maybe it’s just the summer doldrums, I dunno. Maybe I’m just taking my local experience as more meaningful than it is. I’d be really interested to hear if anyone is seeing or experiencing the same, either in RE or anywhere else.

Because this is how stagflation happens.

Seasonality is so tough to parse, especially against pandemic-affected seasonality, but it sure seems like inventory got legitimately bought down in Q4/Q1, after which brokers sold that experience and y-o-y % changes to drive a corresponding increase in supply.

Also no idea wtf is going on in multi-family / condo land around here, but definitely seems distinct from the single-family experience.

— Ben Hunt | July 28, 2021|

Let Me Make the Songs

Epsilon Theory may have gotten its formal start in 2013, but the soft launch took place in 1991. That’s when my partner Ben finished his doctoral work at <lifts nose slightly> a school up in Cambridge. His work there (and his 1997 book, Getting to War) focused on how news could be used to predict the likelihood of war. It also analyzed how news was used by institutions and individuals to foment an appetite for and belief in the necessity of war, which is related to but not the same as the ability to use that news for predictions.

So yes, we were interested to read about Project Cassandra, a collaboration between German academics and military leaders to quantify the risk of conflicts using…literature. The Guardian covers it here in what I think is a very worthwhile read.

Jürgen Wertheimer, who set up Project Cassandra, standing in front of a green chalkboard
Jürgen Wertheimer, head of the Cassandra Project (Source: The Guardian, Dominik Gigler)

The project is really interesting. It confirms, or at least shares, many of the core principles of our Narrative Machine project. Not least among them is the recognition that oft-mined sentiment possesses a fraction of the influence of memes with subjective power that can only be identified objectively through words and phrases of meaning. Or the observation of identifiable, recurring story archetypes.

Leaving aside that we focus on different universes of creative output, our projects DO differ in one respect. The Cassandra Project appears to place great emphasis on the ability to quantify the popular and critical acclaim of a fictional literary work. For example, more popular, more viral, more well-regarded work would have different influence, which is a perfectly sensible hypothesis.

Because we focus on a larger and more frequent dataset of news, blogs, press releases and transcripts, we get to do two different things: first, instead of estimating how much of an audience has heard an idea and how much that idea has changed their minds, we can more easily observe how much a specific memetic idea has reproduced within the dataset over time.

Second, because our dataset includes items which are nominally news / non-fiction content, we can observe the extent to which explicit and implicit opinion language is being deployed, which also provides a window into the narrative-shaping efforts of common knowledge missionaries.

Two different approaches to a similar problem. I prefer ours, because I feel more confident saying that an idea has reproductive legs by observing how it changes the language other people use to discuss it, and because knowing some of the intentions of powerful institutions and influential individuals is an indispensable part of any effort to quantify the potential effects of narrative.

But there are absolutely features of the zeitgeist which will only manifest in the arts, in literature, and in the groanings and yearnings of those who make the songs. For that reason alone, we think the Germans have the right of it here in the way that the Scots did before. It’s a very cool project.

Let me make the songs of a nation, and I care not who makes its laws.

Andrew Fletcher, Commissioner of the Old Parliament of Scotland (1703)

— Rusty Guinn | July 8, 2021 | 12:32 pm

Proof of Plant: A New Vision for Crypto, Part 1

By Ben Hunt | June 23, 2021 | 35 Comments

I want to change the language of crypto from mining to growing. I do not mean this in a metaphorical sense. I mean a proof-of-plant method for literally growing cryptocurrency tokens as a representation of the value stored in the human cultivation of plants.

Read more

Reinventing the Financial System

By Marc Rubinstein | June 15, 2021 | 4 Comments

If you’re like me, you’ve been put off from digging deeper into DeFi by the terrible signal-to-noise ratio of anything crypto-related on the interwebs. That’s why I found this DeFi primer (using Maker DAO as a specific example) by ET contributor and banking analyst Marc Rubinstein to be so fantastic.

Read more

Sometimes a Cigar is Just a Cigar

By Ben Hunt | May 22, 2015 | 0 Comments

More on Information Theory.

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Recent Notes

Cursed Knowledge #3: The Molassacre

By Harper Hunt | July 26, 2021

The Boston Molassacre was one of the great tragedies of the early 20th century. So why isn’t it treated like one?

Read more

Ever Grande

By Marc Rubinstein | July 26, 2021

The Chinese real estate developer Evergrande is the epitome of Too Big To Fail. It is truly Ever Grande.

So what happens if it does, in fact, fail?

Read more

Enemies Real and Imagined

By Rusty Guinn | July 21, 2021

I think there’s a non-zero chance that the delta-variant becomes something that markets really are focused on. Maybe that happens months from now. Maybe days.

But until that happens, the delta-variant narrative explaining markets is a wall of worry, an artificially easy hurdle to climb for a market that only really cares about a dovish Fed sticking to its transitory inflation story.

Read more

Welcome to Metaworld

By Rusty Guinn | July 16, 2021

The language of practically every topic of any social importance is now defined by people discussing how other people are discussing it. It’s true for the environment, race, politics and now – violent crime.

Welcome to Metaworld.

Read more

ET Podcast #12 – Proof of Plant

By Ben Hunt | July 16, 2021

I think this is how crypto can change the world. Not as “money” and not as Bitcoin! TM and not as a security and not as this speculative coin versus that speculative coin. Not by facilitating a market of goods, but by facilitating a market of GOOD.

Read more

What is Robinhood?

By Marc Rubinstein | July 12, 2021

What is Robinhood? It’s the conflation of gambling and investing. Which is … fine. I guess. But spare me the “we’re democratizing finance” BS.

Read more

Cursed Knowledge #2: Weinstein and the Oscars

By Harper Hunt | July 5, 2021

Harvey Weinstein is a terrible person who did terrible things. But he doesn’t get nearly enough credit, or more accurately blame, for his role in destroying the integrity of the Academy Awards and fundamentally altering how Hollywood makes movies.

Read more

I’m So Tired of the Transitory Inflation “Debate”

By Ben Hunt | July 1, 2021

When a famous person shakes his or her finger at you, they’re not telling you a fact.

They’re telling you how to think about a fact.

Read more

Litigation Finance

By Bruce Packard | June 28, 2021

The formation of new “asset classes” and their associated narratives is a fascinating sight.

Using Burford Capital as a case study, new ET contributor Bruce Packard gives us a great primer on litigation-finance-as-an-asset-class.

Read more

Day-One Advice for New Hedge Fund Portfolio Managers

By Brent Donnelly | June 25, 2021

Over the last 6 months, there’s been a mass influx of new hedge fund PMs, many from bank trading seats leaving for greener (?) pastures. I’ve been in both seats. I’ve had good years and disappointing years. So I present this advice with the utmost humility …

Read more

Proof of Plant: A New Vision for Crypto, Part 1

By Ben Hunt | June 23, 2021

I want to change the language of crypto from mining to growing. I do not mean this in a metaphorical sense. I mean a proof-of-plant method for literally growing cryptocurrency tokens as a representation of the value stored in the human cultivation of plants.

Read more

Cursed Knowledge #1: The Fast Saga

By Harper Hunt | June 21, 2021

The Fast and Furious movies are famous for intense action and ridiculous plots. But the truth about how these stories get made has more to do with the drama happening behind the camera than in front of it.

Read more

ET Podcast #11 – A Working Narrative

By Ben Hunt | June 16, 2021

We write a LOT about work. And the responses we get are … weird.

Once again, the most important narratives are the ones we tell ourselves.

Read more

Reinventing the Financial System

By Marc Rubinstein | June 15, 2021

If you’re like me, you’ve been put off from digging deeper into DeFi by the terrible signal-to-noise ratio of anything crypto-related on the interwebs. That’s why I found this DeFi primer (using Maker DAO as a specific example) by ET contributor and banking analyst Marc Rubinstein to be so fantastic.

Read more

A Working Narrative

By Rusty Guinn | June 7, 2021

The future of remote work after the pandemic ends has been a part of the zeitgeist for more than a year.

Now it IS the zeitgeist. It is also a narrative battlefield being actively conflated with a half dozen other major social and policy topics.

Read more

ET Zeitgeist: Deadly Theatre

By Ben Hunt | June 4, 2021

What is Deadly Theatre?

It’s corporate logos for Pride Month. It’s speaking gigs for Deborah Birx. It’s the cover up for Leon Black.

#BITFD

Read more

ET Zeitgeist: Raccoons Never Sleep

By Ben Hunt | May 28, 2021

Lemonade (LMND) isn’t just an insurance company. No, no … they’re an AI Company! ™.

Plus Chamath is up to his old tricks.

I hate raccoons.

Read more

ET Zeitgeist: With Enemies Like This

By Ben Hunt | May 21, 2021

This has been a bad week for Bitcoin and Bitcoin! TM alike. There’s no getting around that.

But whenever Paul Krugman and the Wall Street Journal agree on something … I want to be on the other side of that trade!

Read more

Mortgage Mayhem

By Marc Rubinstein | May 18, 2021

Mortgages are pretty standard fare in the world of finance, but the American version is special: it grants its user a free option to refinance if they can get a cheaper rate elsewhere.

Every lender thinks they can thrive in this market. But every lender can’t be right.

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Financing the American Home

By Marc Rubinstein | May 18, 2021

As a non-American there are many things I don’t understand about America.

Most of all though, I don’t understand the most American of products: the 30-year fixed-rate fully prepayable mortgage.

Read more