Pecking Order

Out of all the animals we keep on our “farm”, chickens are the only ones that bring me no joy. Chickens are, by nature, brutal and cruel. They will torture the weak to death with their pecks, not because they have to, but because they can. It’s the way their brains are hard-wired, and it works for them, as a species. So I pretend that chickens aren’t evil and I’m not complicit. Because I really like the eggs.

We are trained and told that the pecking order is not a real and brutal thing in the human species. This is a lie. It is an intentional lie, one that we pretend isn’t evil and where we are not complicit.

Because we really like the eggs.

And that’s the news from Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average.

― Garrison Keillor

We can’t all be rich.

We can’t all be famous.

We can’t all be Someone Who Matters to the World.

[Team Elite Narrator: OR CAN WE?]

Blake: Put. That coffee. Down. Coffee’s for closers only. You think I’m f**king with you? I am not f**king with you. I’m here from downtown. I’m here from Mitch and Murray. And I’m here on a mission of mercy. Your name’s Levine? You call yourself a salesman, you son of a bitch?
Moss: I don’t gotta sit here and listen to this s**t.
Blake: You certainly don’t, pal, ’cause the good news is — you’re fired. The bad news is — you’ve got, all of you’ve got just one week to regain your jobs starting with tonight. Starting with tonight’s sit. Oh? Have I got your attention now? Good. ‘Cause we’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado. Anyone wanna see second prize? Second prize is a set of steak knives. Third prize is you’re fired. Get the picture? You laughing now? You got leads. Mitch and Murray paid good money for their names. You can’t close the leads you’re given, you can’t close s**t. You ARE s**t! Hit the bricks, pal, and beat it ’cause you are going OUT!
Glengarry Glen Ross (1992)

The truth is that unless you are really rich, you work for Mitch & Murray. Yes, that includes you, Vox writer changing the world one smarter-than-thou opinion at a time. Yes, that includes you, tech start-up developer kicking back in your flair-bedecked WeWork cubicle.

We don’t feel the crushing power of the Mitch & Murray pecking order as palpably as the salesmen berated by Alec Baldwin feel it, because the language of David Mamet has been replaced by the language of Dick Thaler and Cass Sunstein. The modern Mitch & Murrays don’t browbeat us. They nudge us. They convince us that a set of steak knives is a darn good outcome, that it’s a promise kept rather than a threat delivered. Coffee’s not just for closers. No, no … coffee is for EVERYONE. In fact, let’s put some caffeine into everything you drink. Something nice and caffeinated to wash down that big slice of office birthday cake.

Most importantly, today’s Mitch & Murray writ large — the system of Mitch & Murrays — provides credit to the non-rich, essentially limitless credit for anything that’s intangible or depreciates quickly, anything that lets the non-rich FEEL rich. How about a nice dinner out? New smartphone? You deserve it! How about a couple of years of graduate school? More than a couple of years, shooting for a tenure track position? [Heh, heh] I mean … why certainly, even better!

Go on, try the eggs. They’re delicious.

And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

― Ben Bernanke (2010)

Step One in the Pecking Order Lie is to promote a narrative of trickle-down economics — that making the rich even richer is a good thing for the non-rich.

This is exactly what Ben Bernanke is saying here, that the Fed’s extraordinary efforts to prop up the stock market aren’t just good for the rich, but will be good for everyone once the “wealth effect” kicks in and the rich start spending their money.

Whenever someone uses the phrase “wealth effect”, they are promoting a trickle-down narrative.  

How does trickle-down monetary policy work? By spending TRILLIONS of dollars to buy financial assets, the world’s central banks have inflated the prices of ALL financial assets, EVERYWHERE in the world.

This is not a secret plan. This is not a hidden agenda. This is the avowed purpose of what central bankers call Large Scale Asset Purchases (LSAPs). The goal is to force us to “reach for yield”. The goal is to force us to buy more and more risky assets (stocks) at higher and higher prices. The Fed is trying to make the stock market go up. And they’re succeeding.

Here’s a great chart from TCW showing how this works. The orange line is the growth rate of the US economy. The blue line is the growth rate of how rich we are. By tripling the stock market, the Fed has made us much richer than our economy has grown … SOOO much richer than our economy has grown.

But the goodies of a trebled stock market aren’t evenly distributed. Who owns stocks? If we’re talking about households, leaving aside pension funds and endowments and other institutional investors, it’s the rich, mostly. And that household share of the Central Bankers’ Bubble doesn’t increase linearly with wealth, but exponentially, meaning that the really rich own a lot more stocks than the merely rich, so the really rich have gotten a lot richer than the merely rich.

Here’s a chart from Deutsche Bank showing the impact (it’s a year old, so the effect is even more pronounced today with the stock market 20% higher). Thirty years ago, the non-rich (the bottom 90% of American households by income) owned 35% of American household wealth. Today they own about 22%. Forty years ago, the really rich (the top 1/10th of 1% of American households by income) owned about 7% of American household wealth. Today they, too, own about 22%. Moreover, the gains of the really rich have mirrored the losses of the non-rich, which means that the well-off and merely rich (the remaining 9.9% of American households) haven’t seen much of a change one way or another.

Now this shift in relative wealth of the non-rich and the really rich didn’t start with the Central Bankers’ Bubble and its narrative of trickle-down wealth effects from monetary policy. It started roughly in 1980 with the Reagan narrative of trickle-down wealth effects from fiscal policy. And before we make overly facile comparisons with the 1920s and 1930s, this chart isn’t taking into account pensions and social security and other safety net features of the modern semi-sorta-welfare state. So I don’t know how historically abnormal today’s level of significant wealth inequality might be, whether it’s Louis XVI level inequality or simply robber baron level inequality.

But I know that it IS.

I know that inequality is growing. I know that the pecking order has been getting stronger for a couple of decades now, and that it’s been driven by the Central Bankers’ Bubble over the past decade. I suspect that this is probably a good thing for global egg production. I also suspect that this is a bad thing if you care about liberty and justice for all.

The narrative around trickle-down fiscal policy has become highly politicized, as the good Democrat soldiers at the usual Team Elite bastions never tire of telling us how those Republican tax policies will increase wealth inequality. And they’re right.

But these same tireless foes of trickle-down fiscal policy trip over themselves praising and promoting the narrative of trickle-down monetary policy under Bernanke and Yellen, which has been FAR more effective at delivering windfall gains to the really rich than Ronald Reagan or Paul Ryan could ever dream of achieving through tax “reform”.

Lenin called communist sympathizers in the West “useful idiots”. The Nudging State and the Nudging Oligarchy have their own willing crew of stooges, drawn primarily from children of privilege (well off or merely rich, not really rich) who want to “make a difference”, who want to be Someone Who Matters to the World.

[Team Elite Narrator: But you DESERVE to be Someone Who Matters to the World, my young friend. You’re good enough, you’re smart enough, and doggone it, people like you. Why, here as a WaPo staffer you’ll be making the world a more succulent host for Jeff Bezos better place for all!]

The picture on the left is Jeff Bezos, age 40, worth a billion dollars or so. The picture on the right is Jeff Bezos, age 52, worth 100 billion dollars or so. HGH looks good on you, Jeff.

I think that at some point in the next decade, it’s inevitable that oligarchs like Bezos will gain access to life extension technologies unavailable to ordinary mortals. At that point, the pecking order will take on an entirely new dimension. At that point, we have a war. Which the non-rich will lose.

You’ll be pleased to know that Janet Yellen, with a reported net worth of about $15 million, is “greatly concerned” about growing inequality, but regrets that the Fed has no purview on this terrible problem. Perhaps Congress should do something, she suggests, like “making college more affordable” — by which she means extending even more debt financing — or “supporting early childhood education” — by which she means publicly funded daycare so that both parents can work in support of the Nudging State and the Nudging Oligarchy.

This is Step Two of the Pecking Order Lie — the provision of massive debt financing to the non-rich, preferably for non-appreciating experiences like going to college or quickly depreciating things like cars and smartphones.

Why? So that the non-rich will FEEL RICH even as they BECOME POORER.

Student debt (and every other form of consumer debt) is the functional equivalent of an office birthday cake. Debt provision and a pleasant narrative to go with it is a highly cost-effective behavioral tool for maintaining worker morale in the face of objectively deteriorating labor conditions.


Milton:   The ratio of people to cake is too big!
 Office Space (1999)

Unless, like Milton, you don’t get your slice of cake. Then you burn the office down. Or vote for Trump. Same thing.


It is a sin to believe evil of others, but it is seldom a mistake.

― Garrison Keillor

The pecking order is real. It is beautifully masked in modern human society, but no less brutal and no less cruel than in the chicken coop.

How do you escape the pecking order? How do you quit Mitch & Murray? Well, you can make a lot of money. That’s the tried and true method. Enough money to build a walled garden around you and yours, expanding it as you can to take in others. F-you money. Somewhere between merely rich and really rich should do the trick, depending on how many generations you want to protect within those walls. Unfortunately, that’s a big gulf these days, that distance between merely rich and really rich, and it’s getting wider every day.

But there’s another way.

No matter how much money we have or don’t have, we can reject the idea that we can be Someone Who Matters to the World and instead embrace the idea that we must be Someone Who Matters to the Pack. Now maybe your pack IS the world. Probably not, but maybe. If it is, then be bold and matter to the world. But more likely it’s your family. More likely it’s your friends. More likely it’s your partners and employees. More likely it’s your church. More likely it’s your school. More likely it’s your country. It’s damn sure not your political party. It’s damn sure not an oligarch.

Why should we reject this notion of being Someone Who Matters to the World? Because that’s the shiny lure that the Nudging State and the Nudging Oligarchy dangle in front of bright young things. And bright not-so-young people, too. The shiny lure of mattering is how they set the hook — which is debt — and that’s how they reel you in. Because once you’ve got that hook in your mouth … once you’re up to your eyeballs in debt … it’s soooo hard to ever get free. I know of which I speak. So do a lot of people reading this note, I bet.

The simple truth is that we can’t escape the pecking order. We can’t escape economic inequality and the hard-wired impulses to brutality and cruelty used to support inequality. Not for long, anyway. Walled gardens never last.

But we can do better. We can reject the lies used to justify inequality even as we accept the reality of inequality. We can be IN the pecking order world without being OF the pecking order world.

There is an autonomy inherent in rejecting the lure of the Nudging State and the Nudging Oligarchy, an autonomy that can power a life well lived. It doesn’t mean rejecting the world as it is. It doesn’t mean leaving the grid for Alaska homesteading. No, that’s a prison of quite another sort. It doesn’t mean mattering to nothing. It means mattering to other humans who see YOU as an autonomous end-in-itself and not as a means to an end. THAT’S your pack. Make a difference for THEM.

In January 1941, eleven months before Pearl Harbor brought the United States into World War II, Franklin Roosevelt gave his Four Freedoms speech — Freedom of Speech, Freedom of Worship, Freedom from Want, Freedom from Fear — memorialized over the next few years by Norman Rockwell in these famous paintings.

What is autonomy? It’s freedom.

What freedoms? These.

If you get nothing else from Epsilon Theory, get this: these freedoms are not granted to us by the State or the Oligarchs. They are not theirs to give. They are not rewards for good behavior or allocations from a central pot. They are ours. They have always been ours. They cannot be taken away.

But we can give them away. We can sell our birthright for a mess of pottage in the form of student debt and a tasty slice of office birthday cake. We can allow ourselves to be beguiled by the glamour of mattering for a Mighty Cause, giving away our allegiance to those who would use us as fodder or feed. We can embrace the pecking order lie and exchange our True Freedoms for Hollow Freedoms, for a freedom of socially acceptable speech and a freedom of socially acceptable worship and a freedom from socially manufactured wants and a freedom from socially manufactured fears.

We can’t escape from a world dominated by the Hollow Freedoms any more than we can escape from a market dominated by Hollow Liquidity and Hollow Volatility. But in markets and in politics we can call things by their proper names. We can maintain our autonomy of mind. We can find our pack and matter to them. We can recognize that a politics without shame is a politics without honor, just as a market without risk is a market without reward. We can take a loss in the short term, knowing that we’re playing the long game. We can do this handshake by handshake, investment by investment, candidate by candidate, good deed by good deed.

And watch how our world starts to change. Watch how we Make America Good Again.

PDF Download (Paid Subscription Required): http://www.epsilontheory.com/download/15785/

The Two Churchills


This is my favorite street art in the world.

It adorns a rail bridge that soars above I-45 in Houston. More than 300,000 cars pass by it every day. It has been modified a couple times by other street artists, but every time it goes back.

It’s a complicated statement, and I suspect people read it different ways. To most, it means to Be Someone Important. To matter. It’s an external way of reading it: to have an impact. To be engaged. To have your contributions to the world, or humanity or some other measure weighed and acknowledged as a net positive. To be known and well-thought of.

There’s another reading that is more internal in perspective: to find the whole person that we are. Not an amalgam of symbols and identities and tribal affiliations, or of words we use to describe those things and hide ourselves behind language. To be a man or woman in full. To be someone.

At this moment I’m a man with complete tranquility…I’ve been a real estate developer for most of my life, and I can tell you that a developer lives with the opposite of tranquility, which is perturbation. You’re perturbed about something all the time. You build your first development, and right away you want to build a bigger one, and you want a bigger house to live in, and if it ain’t in Buckhead, you might as well cut your wrists. Soon’s you got that, you want a plantation, tens of thousands of acres devoted solely to shooting quail, because you know of four or five developers who’ve already got that. And soon’s you get that, you want a place on Sea Island and a Hatteras cruiser and a spread northwest of Buckhead, near the Chattahoochee, where you can ride a horse during the week, when you’re not down at the plantation, plus a ranch in Wyoming, Colorado, or Montana, because truly successful men in Atlanta and New York all got their ranches, and of course now you need a private plane, a big one, too, a jet, a Gulfstream Five, because who’s got the patience and the time and the humility to fly commercially, even to the plantation, much less out to a ranch? What is it you’re looking for in this endless quest? Tranquility. You think if only you can acquire enough worldly goods, enough recognition, enough eminence, you will be free, there’ll be nothing more to worry about, and instead you become a bigger and bigger slave to how you think others are judging you.

— Tom Wolfe, A Man in Full

There is nothing wrong with wanting to Be Someone in the external sense. But it is perilous. When our engagement with our communities and our societies is driven by a desire to have the greatest possible impact on the world, we are prone to competitive behaviors and to seeing competitive behaviors in others. At a time when we are already being forced into a Competitive Game, it isn’t a long road from well-intentioned desire to be known for changing the world to existential defensiveness, where we become slaves to how we think others are judging us, or worse, where we impose that slavery on others.

“He was slightly eccentric. He had very unusual taste but was happy so long as he was doing his own thing.”

 Malcolm Churchill, speaking about his father, Lt. Col Jack Churchill

“I felt as if I were walking with destiny, and that all my past life had been but a preparation for this hour and this trial.

— Winston Churchill

‘Eggsy’ Unwin: ‘To Pee or Not to Pee?’
Harry Hart: That was the headline the day after I defused a dirty bomb in Paris.
Eggsy: ‘Germany: 1, England: 5’
Harry:

Missed that game. I was breaking up an undercover spy ring at the Pentagon.

[Eggsy points at the Charles and Diana wedding cover]

Harry: My first mission. Foiled the assassination of Margaret Thatcher.
Eggsy: Not everybody had thanked you for that one.
Harry: The point is, Eggsy, nobody thanked me for any of them. Front page news and all these occasions are celebrity nonsense. Because it’s the nature of Kingsman that our achievements remain secret. A gentleman’s name should appear in the newspaper only three times: When he’s born, when he marries, and when he dies. And we are, first and foremost, gentlemen.
— Kingsman: The Secret Service (2014)

There were two notable men in the Second World War who bore the surname Churchill. Both were British, and both are famous. I’m sure that you know at least one I’m talking about, but maybe not the other. Both were men in full.

Sir Winston Churchill, Prime Minister of the United Kingdom, is regarded by many historians and other chroniclers of the times as the most indispensable man of the 20th Century. More importantly, he is regarded by me that way. As author, orator, humorist, strategist, motivator and statesman, he was a man from another time at a time when the rush of modernity required exactly that.

The other, Lieutenant-Colonel John Malcolm Thorpe Fleming Churchill, was no relation to the prime minister, but had every bit of the more noteworthy Churchill’s quirky personality. He was a newspaper editor, actor and male model born in Hong Kong who toured Burma on a motorcycle while stationed by the British Army there during the ‘20s. When war broke out again in 1939, he joined the British Expeditionary Forces in France. His tenure in Europe was an eventful one.

THE Churchill wanted to Be Someone. His tongue was only planted partially in cheek when he famously (and somewhat apocryphally) said that history would be kind to him because he intended to write it. He cared deeply about how he was perceived and about his reputation. His speeches were famously rich with evocative language and calculated delivery, and he cultivated a preternatural ability to induce emotional response. At that unique point in time, the stalwart British needed a man who would make himself great to make his nation capable of greatness. To modern sensibilities this carries a whiff of distasteful inauthenticity. Our culture so prizes the trappings of humility that the proud hero who knows he is a hero and plays the role willingly is typically considered to be no hero at all. Sir Winston would have reared back his head in laughter at such a heaping load of tosh.

The OTHER Churchill wanted to Be Someone, too. That someone was Mad Jack. He was a character straight out of a storybook, and not some soft Caldecott Medal-winning heartwarmer. We’re talking one of those German tailor-chopping-off-the-kid’s-thumbs-because-he-wouldn’t-stop-sucking them storybooks. In some of his early action in May 1940, he signaled the attack on a German position at L’Epinette by shooting a barbed arrow from an English longbow into a German sergeant. After joining the Commandos, his first campaign brought him to the shores of Norway, where he jumped out of the landing boat, grabbed his bagpipe and blew The March of the Cameron Men before pulling out a grenade and tossing it at the German position.

Later, he landed in Sicily with his pipes on his back and broadsword in his hand. After that, he moved on to Molina. There, together with a corporal he grabbed for the mission, Churchill captured a German position…along with the 42 Nazi troops manning it. In Yugoslavia he was the last man standing from his unit after heavy mortar fire, and fired every weapon he could find at advancing Germans until he ran out of ammo. What did he do then? Well, obviously, he jumped up, grabbed his pipes and played Will Ye No Come Back Again until he got knocked out by a grenade.

He was captured and escaped. Captured and escaped again. Walked 100 miles to Italy and lived out the rest of his life in peace. No, I’m kidding. He rescued 700 doctors and patients in Palestine, defended a medical convoy from 250 insurgent fighters, did more acting, designed surfboards, built coal-fired riverboats and rode motorcycles throughout the English countryside until he finally decided the world was too boring in 1996.

There’s nothing wrong with wanting to Be Someone like Winston Churchill. I think highly enough of him that I named my firstborn son after him (pictured right). There’s nothing wrong with aspiring to greatness, or with seeking reputation. The desire to have an impact on the world usually comes from a good place.

But in seeking to promote our brands, in our search for greater impact and influence, we are doing a lot of things that are killing our ability to have real dialogue with one another. As we grapple with how to break ourselves out of the Competitive Game we’re being forced into, we must also understand the forces that are keeping us there. Here are some of the ways in which our desire for our small voice to have an impact among 7 billion others is keeping us there instead.

The Principal / Agent Problem in Media

In Fiat Money, Fiat News, Ben discussed how, in the same way that bad money drives good money out of circulation, fake news drives real news out of circulation. Like money, this can manifest itself in two ways: through true counterfeiting of the news itself, or through biased presentations of facts published as advocacy by institutions acting as principals. In other words, fiat news. Some of those institutions are sovereign entities like, say, Russia that have an interest in promoting their interests through both fake and fiat channels. But some, probably most, of those in the business of fiat news are the media outlets themselves.

The media’s indispensable function is its ability to make available information that others do not want disseminated, especially when those others are governments, corporations and other powerful entities and individuals. In this function, journalists act as agents for the public, and do it a significant service. In some cases, that service really changed the world. The intent was to reveal and inform, and the outcome was a shift in the course of history.

This is changing. It has changed. From its historical role as agent, news media has increasingly set itself up as a principal. How? Rather than informing and allowing the dice to fall as they may, the media often now enters the fray with a view on the right outcome for the dice. Most media institutions have the good sense not to include outright lies, of course. But when you have an interest in the outcome of the story rather than its capacity to inform, you end up with fiat news like this, where CNN intentionally cuts off a portion of the video that would ruin the intent of their story, which is very obviously not to inform. You end up with fiat news like this, where you must read 7 paragraphs into a story to discover that a man being executed confessed to raping and murdering a 16-year old girl. Even that fact is couched in dismissive language that is very obviously intended to guide the reader to a salacious conclusion.

It’s not hard to come up with all sorts of explanations for why this is happening, from the consolidating ownership of media outlets, to the democratization of news via cheap internet venues that create a lowest-common-denominator effect, to the infotainment impact of always-on cable news. I think the root cause is more insidious. Through the feedback processes of each of those things and the resultant ways in which journalism is now taught at universities, a very significant portion of those entering the media want to Be Someone like Winston, not Jack. They are becoming journalists because they want to change the world. And so, in setting out to change the world, to borrow from the Washington Post’s insipid masthead postscript (“Democracy dies in darkness!”), they cease to be a light that shines in all dark places, and become instead a hand that guides the light to only those dark places that fit their aims.

Don’t believe me? Just take a look at these responses to a question posed by the Future Journalism Project survey from a couple years ago, which asked “Why did you become a journalist?”

“Soon you find out that you can really make a difference.”
“It can change the world.”
“I’ve always wanted to change the world.”
“I developed a sense of injustice [sic] for the underdog, because the underdog, I felt, was me.”
“I learned that injustice is part of our world, but that need not be a hopeless feeling. Not when you’re a journalist.”

It’s not that these are bad sentiments, or that they’re coming from bad people. Quite the contrary. But when the institutions that are supposed to act in service to the public start taking sides in the public debate through their news practices, even if it comes from a good-hearted place, from a desire to Be Someone, it is a terrible thing. In the same way that our American constitutional experiment is built upon the need for the rule of law despite the theoretical existence of benevolent kings, we should demand a similar standard from our media. When the media acts as principal, they, perhaps more than any other political institution in the world, serve to strengthen the equilibrium of the Competitive Game we are in.

Whataboutism, Grand Narratives and the
Hunt for Hypocrisy

The tribal layperson is guilty, too. The same competitive forces that push us into promoting our views and drowning out those we disagree with when we’re entrusted with impartiality like the media have similar effects on us in our personal lives. After all, if we are to make ourselves and our tribe great, we can do so by defending ourselves or by tearing others down. The most common form  whataboutism tries to do both. It’s a major part of the hunt for hypocrisy that dominates so much of the dialogue of the Competitive Game.

The Soviets made famous and frequent use of it during the Cold War. Václav Havel characterized its most common construction as a debate between two parties:

  1.  Your subway does not operate according to the timetable.
  2.  Well, in your country you lynch blacks.

The basic idea is to transition the discussion of an issue that threatens one’s tribe from a substantive one to a discussion of relative credibility. Sure, you may want to criticize the efficiency of our implementation of state-run, state-owned transportation, but we refuse to even broach the issue with people who still have racism in their country. Or: I don’t need to listen to a Roy Moore argument from the party that defended Bill Clinton. In other words, the tu quoque fallacy has taken the place of most every form of debate that used to be common to our national politic.

For a modern perspective, look at the below from Ben Shapiro, who I think is actually a pretty thoughtful conservative. This was his initial take on the day when the claims that Roy Moore assaulted a 14-year old girl some decades ago came to light:

Now, bear in mind, Shapiro followed this up with a clarifying comment asserting that Moore should step away in shame, full stop. The reality is that there are infinitely worse perpetrators. Paul Krugman, once a legitimate economist (no, really), can now be summoned by sacrificing three unblemished rabbits in a candlelit pentagram and repeatedly chanting “tu quoque” in monotone. But the blurb above is still fascinating in one fell swoop, it accurately explains and decries the problem created by whataboutism, and in doing so uses that as an opportunity to engage in some hypothetical whataboutism of its own. This is how it works:

  1. Someone from our Tribe does or says something dumb or evil.
  2. We see a narrative forming ascribing that dumb or evil thing as a trait of our Tribe.
  3. We are frustrated by the injustice of that, since the other Tribe is way worse on that dimension.
  4. Instead of disavowing that trait in our Tribe without qualification, we say, “Well, what about them and THIS thing they did.”

Sometimes whataboutism isn’t just about trying to assault our opponents and weaken their credibility with outright claims of hypocrisy. Sometimes it’s demanding that every person we debate with follow our priorities of issues, or that they follow the forms we prefer for discussing them. I think you know what I’m talking about, because we see it all the time:

In the rare moments when our political and social dialogue isn’t “Well, what about what your tribe did”, it is often “If you said this, why didn’t you say this?” We are endlessly charitable in assuming that our own philosophies are consistent with our words and actions, but we fill in the gaps for others with far less kindness. If someone engaged in a Competitive Game against us doesn’t condemn an action as quickly as they ought to, if they don’t use the same number of exclamation marks as when they criticized someone else’s actions a month before, if they want to discuss or write about X when much bigger issue Y just happened, if they don’t balance and season every single political or social statement they make with comments on any possible related issue, we attack.

We have no choice, we think. We were destined for this. We have to fight this battle, and we have to win, because it’s not acceptable to be the party that is more associated with this Bad Thing. But when we see every battle as existential, when we seek to purposely dominate others by inserting meaning they never intended, when we search for every hint of hypocrisy to make ourselves great, to Be Someone in the great conversations of our time, we perpetuate the Competitive Game.

‘Collective Munchausen Syndrome’

While the ways in which the Competitive Game drives us to dominate and diminish others through language are perhaps most prevalent, so much of what it means to Be Someone is still locked up in identity. Lebanese-Canadian evolutionary behavioral scientist Gad Saad coined the above expression to describe how people in large social settings have taken to competitions in (usually imagined) victimhood. From Donald Trump complaining about #FakeNews and the mean jokes of the SNL cast, to the sorts of absurd ethnographic intersectionalist ramblings you’ll find coming out of most sociology departments, practically everyone across the sociopolitical spectrum is in on this game. There are few behaviors which are more conducive to maintaining the strong equilibrium of our Competitive Game (and to establishing some strategic dominance within that game) than establishing the strongest victimhood credentials. The reason? Because like the other strategies here, it simultaneously argues that our voice ought to be louder and that other voices ought to be silenced completely. It is a tactic perfectly engineered for this time.

Some will misunderstand my meaning here, I think. It would be stupid to deny that privilege, the word typically used to cast someone as an anti-victim, exists. If you can’t accept that certain birth circumstances make your success and ease of navigating our society easier or harder, you’re not approaching the question seriously. If you can’t accept that certain life experiences will have similar impacts, you’re being obtuse. But there’s a marked difference between (1) recognizing those truly different starting places and working wherever possible to eliminate them within society, on the one hand, and (2) concluding that they constitute a system of oppression that can only be addressed by empowering those who would silence the views of any they would call privileged, on the other. The prevalence of this approach is a nightmare for any hopes of escaping the Competitive Game. The answer to this, as I argue in Gandalf, GZA and Granovetter, is only for a critical mass of citizens and voters to choose to hear all voices, knowing that no individual may be reduced to her privilege or victimhood.

We respond to symbols and events based on millions of experiences, and no one can tell us what they mean to us.

OK. So now what?

Well, in the last three notes on this topic, including this one, I’ve written about a range of things I think we can do to hit escape velocity from the Competitive Game equilibrium.

  1. We can stop treating every issue as existential. (Yes, I’m looking at you, ‘But Gorsuch’ Republicans and ‘Trump is the End of the Republic’ Democrats)
  2. We can stop telling people what they intended by their words and actions.
  3. We can stop allowing people to tell us what we intended by our words and actions.
  4. We can stop looking for hypocrisy everywhere.
  5. We can stop using identity to shut out opinions we don’t like.
  6. We can stop abusing the trust people put in us to represent their interests by promoting our own.

But what else?

For those of us who think about improving civic engagement, who want to be citizens, I have a humble suggestion: stop trying to be Winston Churchill. I recognize that this counsel is likely to be as popular as my advice from Before and After the Storm (i.e. learn to lose). I’m not saying not to be ambitious. I’m saying that instead of identifying strategies for debate and discussion which elevate us while they demean and debase our opponents, instead of making every matter existential, instead of choosing grand rhetoric, instead be the most independent, extraordinary, true version of who you are. If you can manage to find a truly independent voice in your personal, political and financial life, pursue it with reckless abandon. Don’t set it to the side so that you can build a brand or make an impact.

Trust me. If you’ve decided to Be Someone like Mad Jack, you’re going to have an impact. So get your ass out of the boat, grab your bow, strap on your broadsword and sound the pipes. All that’s left is to decide what song you’re going to play.

And Ben and I would like to hear it. Send us a note at Rusty.Guinn@EpsilonTheory.com and Ben.Hunt@EpsilonTheory.com telling us what else you think we need to commit to as citizens to break this cycle. Let’s continue the dialogue.

PDF Download (Paid Subscription Required): https://www.epsilontheory.com/download/15790/

Make America Good Again

On episode 26 of the Epsilon Theory podcast, we welcome back Rusty Guinn, our executive vice president of asset management, to talk about political markets — a topic just as important to Ben as capital markets. Be sure to also check out the companion pieces to this podcast: “Always Go To the Funeral,” “Sheep Logic,” and “Before and After the Storm.”


2016-07-et-podcast-itunes 2016-07-et-podcast-gplay 2016-07-et-podcast-stitcher

Harvey Weinstein and the Common Knowledge Game

I’ve written a lot about the Game of Markets, aka the Common Knowledge Game, most recently in Sheep Logic. The thing about the Common Knowledge Game, though, is that once you start looking for it, you see it everywhere, not just in our investment lives, but also in our social and political lives. The public unmasking of Harvey Weinstein as a serial rapist (that’s the word, people) is an archetypical play of the Common Knowledge Game, and recognizing its dynamics should open everyone’s eyes to how other high and mighty people and ideas can take a fall.

The core dynamic of the CK Game is this: how does private knowledge become  not public knowledge  but common knowledge? Common knowledge is something that we all believe everyone else believes. Common knowledge is usually also public knowledge, but it doesn’t have to be. It may still be private information, locked inside our own heads. But so long as we believe that everyone else believes this trapped piece of private information, that’s enough for it to become common knowledge.

The reason this dynamic — the transformation of private knowledge into common knowledge  is so important is that the social behavior of individuals does not change on the basis of private knowledge, no matter how pervasive it might be. Even if everyone in the world believes a certain piece of private information, no one will alter their behavior. Behavior changes ONLY when we believe that everyone else believes the information. THAT’S what changes behavior. And when that transition to common knowledge happens, behavior changes fast.

The classic example of this is the fable of The Emperor’s New Clothes. Everyone in the teeming crowd possesses the same private information — the Emperor is walking around as naked as a jaybird. But no one’s behavior changes just because the private information is ubiquitous. Nor would behavior change just because a couple of people whisper their doubts to each other, creating pockets of public knowledge that the Emperor is naked. No, the only thing that changes behavior is when the little girl (what game theory would call a Missionary) announces the Emperor’s nudity loudly enough so that the entire crowd believes that everyone else in the crowd heard the news. That’s when behavior changes.

And so it was with Harvey Weinstein. Apparently it was no great secret that he is a serial rapist. Apparently everyone in Hollywood was familiar with the stories. It was ubiquitous private knowledge, and pretty darn ubiquitous public knowledge. I mean, if you’re making jokes about it on 30 Rock, it’s not exactly a state secret.

But there was never a Missionary. There was never anyone willing to shout the information so loudly and so publicly that it became common knowledge. That’s what Rose McGowan did, and that’s the power of Twitter and modern celebrity to establish Missionaries and create common knowledge.

Once that common knowledge was created, once all the private holders of all of Weinstein’s dirty secrets believed that everyone else believed that he is a serial rapist, then everyone’s behavior changed on a dime. His publicists and lawyers and partners and colleagues and board of directors and wife were shocked … shocked! … to hear of his behavior, and certainly would no longer be representing him or working with him or associating with him ever again, even though NOTHING had changed in the information they already possessed. Ditto with Weinstein’s other victims. Their behavior changed, as well. That’s not a knock or a slam on them. In the absence of common knowledge, staying quiet whether you’re an abettor or a victim — is the rational thing to do. In fact, this is what Weinstein and his abettors count on, that their threats and shaming and bribes will set up a Hobson’s Choice for victims. Sure you can go public, but no one will believe you and then we will ruin you. So yeah, go ahead. It’s your choice. Of course no one goes public, because a Hobson’s Choice is not a real choice. Only a victim with Missionary power (and that’s a really rare thing) has the option to not just go public with the story — because simply going public is not enough to change behavior  but to create common knowledge with the story.

What are the broader lessons to take from all this? I’ve got two.

First, there’s enormous economic, political, and social power in being a Missionary, and social media has completely transformed the Missionary creation process just over the past few years. This is why it matters how many Facebook followers you have and how many RTs you get on Twitter. This is why Donald Trump adopted social media so early and used it so prolifically. Twitter in particular is a Common Knowledge platform of great power. Having lots of followers isn’t “monetizable” in the sense of traditional marketing. But that doesn’t mean it’s not incredibly valuable. Put differently, celebrity in and of itself has never been a greater source of political power than it is today. Why? Because Common Knowledge Game.

Second, there’s a lot of ubiquitous private information about powerful people and powerful ideas trapped in the crowd today, just waiting for a Missionary to release it as common knowledge. The more powerful the person or the idea to be brought low, the bigger the Missionary (and platform) required. But nothing’s too big, and once the common knowledge is created, behavior changes fast. My pick for the big idea that gets taken down? The idea that inflation is dead. We all know it’s not true. We all know in our own heads that everything is more expensive today, from rent to transportation to food to iPhones. But it’s not common knowledge. Each of us may believe that inflation walks among us, but none of us believes that everyone else believes that inflation is here.

Not yet.

But we’re only one big Missionary statement away.

PDF Download (Paid Subscription Required): http://www.epsilontheory.com/download/15796/


The Myth of Market In-Itself: Things That Matter #3, Pt. 2

Nothing at all. No figures. Only a blank.

“What’s it mean?” Reinhart muttered, dazed.

“It’s fantastic. We didn’t think this could—”

“What’s happened?”

“The machines aren’t able to handle the item. No reading can come. It’s data they can’t integrate. They can’t use it for prediction material, and it throws off all their other figures.”

“Why?”

“It’s—it’s a variable.” Kaplan was shaking, white-lipped and pale. “Something from which no inference can be made. The man from the past. The machines can’t deal with him. The variable man!”

Philip K. Dick, The Variable Man (1953)

This science fiction classic imagines a future world where specialization and technology have made versatility, adaptability and ingenuity obsolete. The unwitting introduction of a man from the past Thomas Cole capable of solving practical (and mundane) problems of this world throws off the models they use to predict the outcomes of government and military action.

Thomas Cole breaks the models because his foreignness allows him to see problems outside the confines of specialized taxonomy. He isn’t too dumb to see the tribes and archetypes of the future. He transcends them, and can’t be controlled by them. The successful navigator of policy-controlled, narrative-driven markets must be Thomas Cole. He must be The Variable Man.

When someone shows you who they are, believe them the first time.

Maya Angelou, as told by Oprah Winfrey

I have given them Your word; and the world has hated them because they are not of the world, just as I am not of the world. I do not pray that You should take them out of the world, but that You should keep them from the evil one. They are not of the world, just as I am not of the world. Sanctify them by Your truth. Your word is truth. As You sent Me into the world, I also have sent them into the world.

The Bible, The Gospel of John 17:14-18

One of the most powerful consistent themes of many religious texts is the battle between the adherent’s role in the spiritual world and in the physical one. The approach Jesus describes here in the Gospel of John is to be in the world, but not of it. It’s a consistent message for the man who dined with gamblers and prostitutes.

We’re presented with the same challenge. Behavior exists. Tribes exist. Taxonomies exist. “Communications Policy” exists. Rejecting them doesn’t mean rejecting their existence, and it absolutely doesn’t mean that we ought not to invest and trade with awareness of how they impact markets. Being as shrewd as snakes and as innocent as doves means a willingness to know about tribal thinking even when we reject it in ourselves.

The Most Interesting Man in the World: “I have no idea what this is.”

Although, truth be told, there are some things it’s worth being content knowing nothing about.

We will live in this world, which for us has all the disquieting strangeness of the desert and of the simulacrum, with all the veracity of living phantoms, of wandering and simulating animals that capital, that the death of capital has made of us—because the desert of cities is equal to the desert of sand—the jungle of signs is equal to that of the forests—the vertigo of simulacra is equal to that of nature—only the vertiginous seduction of a dying system remains, in which work buries work, in which value buries value—leaving a virgin, sacred space without pathways.

— Jean Baudrillard, Simulacra and Simulations (1981)

If anything describes the feeling I get about the market, it is disquieting strangeness. Sound familiar to you? As Baudrillard pointed out, this is the vertigo we get from a world of things that are not things in-themselves, but socially constructed amalgams of symbols and proxies for those things. With every Narrative, every bit of fiat news, the vertigo for those who seek after the truth of something increases. There is no cure, but the only treatment is to try to really, truly understand the simulacra of reality for what they are.


We live in a world awash with archetypes.

A personality test once told me that I’m an INTJ. When I play(ed) Dungeons and Dragons my alignment was Chaotic Good, and I usually roleplayed a Half-Elf Bard. I’m a #NeverTrumper on the libertarian wing of the Republican Party. I attend a Presbyterian Church, but I’ve always identified as Non-Denominational, which is, of course, a denomination that takes its denominational identity from not belonging to a denomination. I’ve been a WASP all my life, and a non-POC cishet who was coercively assigned the male gender at birth for about 2 ½ years since society decided that the sentence I just wrote is not at all horrifying and makes any kind of sense. I am of Scots-Irish extraction, a Libra or a Virgo depending on the calendar, and Buzzfeed tells me I would be Faramir[1] in the Lord of the Rings Universe, Jon Snow in Game of Thrones and Miranda in Sex and the City. Apparently, if I were admitted to Hogwarts the sorting hat would put me in Ravenclaw.

Over the last few months Ben and I have written a lot about archetypes like this, along with tribes and symbols, and the way that they are used. In Gandalf, GZA and Granovetter I argued that when symbols are used as allegories as tools to divide and dominate they have the effect of either (1) causing people to shift their beliefs and actions to match up with the symbol or tribe they identify with or (2) causing people to treat others as if their beliefs and values align with the symbol. Or, in Ben’s terminology, the (1) obedience collar and the (2) dog whistle. In that note, I took particular issue with the latter, with the idea that anyone gets to determine our intent as citizens or investors.

Here, as we continue the exploration of why investor behavior is one of the Things that Matter in our Code, I want to expand on the first: the tendency for the temperament and behaviors of investors to coalesce around archetypes. Because while we believe we ought to fight to ensure that we are all treated like principals, we also believe that when someone shows us who they are, we ought to believe them. And investors show us an awful lot about who they are. Archetypes are everywhere in markets, and if you have the patience to understand and observe them, you will understand what we think is one of the Things That Matter for all investors.

Notes from a Much More Boring Field

I grew up running through corn fields in Minooka, Illinois, but I don’t have it in me to be a gentleman farmer like Ben.

No, my notes from the field are much more dull as regular readers will know, my prior field was an institutional allocator. And people who were and are in my position bear a lot of responsibility for the archetypes in markets. You see, picking fund managers is hard, usually a waste of time, and basically everybody sucks at it. Fund evaluators have very little visibility into what causes a manager to generate returns that produce outperformance or a higher-than-expected risk-adjusted return. And so, instead of focusing on a few “things that matter” to identifying strategies and approaches that could even conceivably have an edge, the emphasis of nearly every fund allocator is exclusively on process.

Here’s the problem with that: process is a necessary but insufficient condition for consistently beating the market.

The fund allocator’s toolkit is full of ways to tell if a manager is following his process. He looks at tracking error. Rolling correlations to all sorts of indices. Cash positions over time. Factor exposures over time. Risk contributions from factor exposures, country bets, all sorts of things. These are the things that fund managers are expected to discuss, and they are often the right things to discuss. But if you have no justifiable idea whether the process itself should or will lead to outperformance, what the hell are you actually measuring? We have built an entire industry on accurately measuring whether someone followed the recipe, without knowing if the recipe tastes like hot garbage.

As a consequence, the conventions of our industry are exactly the same as the conventions of our political reality: we evaluate participants’ consistency with an archetype that is vapor, a construct, a simulacrum. In so doing, we create strong forces to drive them toward consistently behaving in that very particular way, toward incentives and responses to stimuli that are repeatable mostly because we reward them for being repeatable! It’s not really even a Pavlovian response, because the reward is usually crappy performance.

Managers of institutional pools of capital are one of the largest influences on markets, and so it is critical to understand the languages that coalesce around these archetypes. Others form around the conventions of retail gatekeepers (Howdy, Morningstar… or Lipper for the mutual fund managers who didn’t like their Morningstar rating), around sell-side research providers, around the styles of well-respected investors (e.g. Buffett) or around insufferable gasbaskets (e.g. Cramer). Others form around the self-reinforcing conventions of esoteric worlds like FinTwitter, which end up driving far more of something like USD/BTC than anything fundamental about cryptocurrency.

Returns are anywhere and everywhere a behavioral phenomenon. Dick Thaler likes to quote Herb Simon’s characterization of “behavioral economics” as a pleonasm, but talking about a behavioral approach to markets is just as redundant. It is impossible for a non-behavioral analysis of market returns to be useful. If we are ever to understand why prices move and why our investments generate returns for the portfolios we build for ourselves and our clients, we must at least develop some understanding of how and why blocs of investors form, how they buy and sell securities, how and when they change their stripes, and how that results in changes in the prices of the investments we own. We’re going to do a lot of generalizing, so caveat the below however you deem appropriate. This isn’t a precise science or at least it isn’t yet.

The Value Archetype

It’s easy enough to introduce what it is we’re talking about with a “style” that most investors are familiar with. Well, sort of, anyway.

The language of value is familiar—buy cheap things. The investor who has adopted it is rarely a news-responder. In many cases he fancies himself a bettor on things that are out-of-favor or forgotten. In the market voting machine, he casts his ballots and crosses the [actual and proverbial] spread for things with bad tape, with bad narratives, with problems. Don’t mistake the language for the style. Graham and Dodd, Buffett and their “intrinsic value” ilk are value investors in the way that everyone is a value investor – in that they want to buy something they think will be worth more in the future than it is today. They aren’t who we’re talking about here.

We are talking about the investor who believes that investors pay too much for quality, for growth, for sex appeal, and that it will harm their returns. These days, most of these value investors are quants. Some of them are financial advisors selling a package of contrarian ideas, of differentiated thinking. Many more of them are fundamental shops, folks that focus on multiples-based analysis and build fancy models after the fact to justify the things they buy on the basis of multiples, not that there’s anything wrong with that.

So how do these value investors impact prices and returns?

Visualize the order book from Part 1, and again, think about it in long-horizon terms. Members of the Value Archetype form a big part of the willingness of the market to buy things that most think are unattractive. They form the corpus of the out-of-the-money bid for any security or market, and like their counterparts in the Mean-Reversion Archetype we’ll read about shortly, that’s when they tend to participate in the marginal price-setting process. That, and on the ask side, where they tend to be the sellers of gains. When a lot of people are rallying at this banner, it can be a pretty meaningful force to constrain upward movement in prices.

When there aren’t as many, the Value Archetype plays a much smaller part in the price-setting process. Consider: who is selling a stock that goes from trading at 45x earnings to 50x earnings? It ain’t the Value guy. He sold it a long time ago, and the next guy couldn’t care less.

The Growth Archetype

We tend to think of “growth” as being the opposite of “value,” but that isn’t strictly true. For most of the indexes that track these styles, it is kinda true, although in their vernacular, “growth” is really just “anti-value.” In other words, when you see a growth index, in most cases it isn’t sorting companies by how quickly they grew or are expected to grow, but by how expensive they are. That’s not what we’re talking about.

There may be a few investors out there who are actively looking to buy things because they are expensive, I suppose, but there are plenty who don’t care all that much if it has what they are looking for. What many of them are looking for is growth, or at a minimum the narrative of growth. That narrative may be favoring one stock over a peer. It may be in favoring technology securities over the retail sector. It may be in favoring emerging markets investments over developed markets. There are some investors at certain times and under certain conditions who see valuations as temporary phenomena and growth narratives as the only relevant focus.

Some of these individuals actively choose this posture. They believe the narratives, they buy, and they cross the spread to do it. Prices rise.

Some under this banner have no choice. They have asset-liability issues that require them to seek out growth. They are pushed by falling yields in alternative asset classes precipitated by central bank action. They, too, must buy and cross the figurative spread to do it. Prices rise.

We’ll come back to this, because it’s important.

The Momentum Archetype

Quantitative investors do this. Traders do this. In a way, of course, these are people responding to the Epsilon that represents a portion of market returns. In most cases, they do it because it generally works. Winners tend to keep winning and losers tend to keep losing. Many investors who coalesce around this archetype do so very willingly (pictured right), while others would be mortified to think that they would be tarred with a “technical” investor brush. And so they are focused on consistent improvement in earnings, or in guidance from management, or in an improving story. Narrative momentum rather than price momentum, but momentum all the same.

In the end, what matters is that these individuals ‘cross the spread’ to support continued movement in the price of securities. Some can be long/short, and so this can happen in both directions. But it’s generally long, and getting longer.

The Mean-Reversion Archetype

I’m abstracting a lot from time horizons here, and I’m doing so intentionally. Part of my story is that in a non-ergodic world, the idea that the long-term can be considered fully independently from the path that begins in shorter horizons is madness. And so, while I fully recognize that there are many, many funds that pursue strategies that happily encompass each of value, momentum and mean-reversion strategies, I’m not talking about strategies. I’m talking about frameworks of thinking and talking about investments that color the decisions that investors make across the board.

And on this dimension, while mean-reversion has a specific meaning within the context of, say, CTA and statistical arbitrage strategies, what I’m really talking about is the consciously contrarian asset allocator. Only instead of looking for unloved companies, this is the falling-knife catcher. The one looking for the turn, the top, the bottom, the inflection point.

Some demonstrate this trait consciously, but far more do so passively through policies called “rebalancing,” most of which have a negative expected return. After all, momentum works. But these people are volatility reducers. They step in to provide the bid when the longs are screaming bloody murder and the ask when the shorts are getting crushed.

The Others

Look, there are all sorts of taxonomies people rally around. We could talk about some nebulous definition of “quality” guys or the nothing-land that is most “GARP” investing. We could talk about investors who are students of more arcane technical trading approaches, or about those who invest based on macroeconomic data or news. But it’s the four things above that matter.

Except that there is a rapidly growing fifth category, a sort of Nihilistic Archetype. It’s the passive investor. Except inasmuch as he adheres to another archetype in his cross-asset allocation decisions (which he frequently does), the passive investor expresses no opinion whatsoever with respect to the pricing of individual securities. He doesn’t participate in relative price-setting.

He is out of the game.

Where Does This Put Us?

Can you tell that I’m going somewhere with this? To better understand why I think it’s important for all investors to think about the behaviors of their fellow-travelers in markets, let’s walk through what I think is happening right now:

  • The Value Archetype is dead: No one is rallying around this banner. Read the sell-side language. No one is pitching value-oriented research, because they’d have no one to sell it to. Even the old stalwarts, the quants, have evolved toward either risk premia-based or Value+Momentum+Quality mandates that dampen the emphasis on value alone. Sure, you’ll get the occasional bank strategist calling for a rotation into financials (they’ve got to be early calling the new thing), but of the people setting prices, very few of them are speaking this language. I’m not saying I don’t believe in value. I do! But the market’s belief in it is nothing more than lip service right now.
  • The Mean-Reversion Archetype guys in CTA and Global Macro Land are bleeding out: Selling winners and buying losers has rarely been a more painful trade. I’ve talked to a few FAs who are sticking with long vol trades or defensive positions because, well, at this point, you might as well stick to your guns. But other than that, this is a dead language, folks. If you expect someone to bail you out of a short squeeze, you’re barking up the wrong tree.
  • Passive Investing is levitating broad markets but allowing intra-market volatility: Investors, allocators and fund managers alike have piled into the Growth train, in part because they want to, and in part because retirees and pension plans with unfunded future liabilities have no other choice. Since they are doing so through broad market instruments and are not about to sell into weaker growth prospects, there is continued upward pressure on prices. Within markets, the decline in participants who are actively participating on individual securities is allowing continued spread potential between sectors, styles, etc.

The combined effect? Everything is levitating. With value and mean-reversion as lingua non grata, the people setting prices are (1) Growth investors, (2) Momentum investors and (3) Passive investors adhering to those archetypes. There is no one left to sell, because there is no one left who cares nearly enough about valuation or is confident enough in their ability to time a top in markets to sell into strength. The result is in Information Surface terms a market that has tremendous difficulty generating any price volatility to the negative.

What Does This Mean for Investors?

We can be in the market and be long. We can be not of this market and be ready for the move to the downside. Or we can be in the market, but not of it, by incorporating the behaviors of others into our thinking about markets AND retaining our ability to think independently about possible outcomes. How?

  1. With the core of your portfolio, you don’t fight it. This is most of what being aware of investor behaviors and the complete hegemony they have over market movements means.
  2. You think more specifically about how other investors are thinking about this market. Why they’re buying. Why they’re buying what they’re buying. You think about their motivations. And you think about how a change in their motivations would change in response to various market influences. Is a shooting war in the Middle East going to materially change investors’ view of and preference for growth? (Probably not) Is a material change in language coming from all Central Banks going to shift it? (Maybe, as Ben has written)
  3. You prepare your portfolio or at least your framework for what happens when that informational bowling ball climbs the wall to the downside, because when it does, volatility can return in a big damned hurry.

Thomas Cole wasn’t a genius. He succeeded because he was capable of acknowledging the existence and influence of archetypes without succumbing to them in his own behavior and actions. If you would navigate this market, your Code should allow you to do the same.

[1]Hopefully it’s book Faramir, and not the movie Faramir that Peter Jackson made into a spineless clone of Boromir because Jackson lacks any understanding of plot or character.

PDF Download (Paid Subscription Required): http://www.epsilontheory.com/download/15811/