Space for Rent


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

Taxi and rideshare drivers desperately need revenue from rooftop ads [Business Insider]

While officials in New York, Washington, Chicago, and others have responded to similar situations with a focus on equity, embracing the added driver income opportunity provided by digital taxi-top advertising, some city leaders in Los Angeles stand alone.

The L.A. City Council is considering a new policy to criminalize advertising on taxis and rideshare vehicles — even the decades-old practice of static rooftop taxi ads — going so far as to threaten drivers’ vehicles with impounding. This is especially unsettling given the impending massive, multi-year renovation plan for LAX, a project poised to significantly disrupt operations for taxi drivers, throwing another wrench in their efforts to make a living. It is not an exaggeration to suggest that this latest disruption could be one of the final straws for the city’s taxi industry.

We believe that all full-time drivers should be able to make a living wage and support their families, and we look forward to collaborating with city leaders to build a more equitable future.

“The writer is CEO and co-founder of Firefly, a digital media company.”


I came across this “article” the other day.

Turns out this is a thing. Again, shocker. Here’s a guy you supposedly made $37k by selling his forehead space. Temporary tattoo.

And I’m sure this was a stunt. But you KNOW where this is going. You KNOW what the narrative is going to be.

What kind of regulatory monster are you to prevent people from selling themselves in more and more degrading ways? This is a choice. This is a path to a living wage. This is opportunity and equity.


From Pecking Order, one of my fave notes …

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.


On Tilt


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

Trump says U.S. to impose 5 percent tariff on all Mexican goods [NBC News]

President Donald Trump said Thursday night that the United States would impose a 5 percent tariff on all Mexican goods starting next month, saying the sweeping tariffs would rise monthly to as high as 25 percent “until Mexico substantially stops the illegal inflow of aliens coming through its territory.”

In a statement, the White House said the new tariffs would go into effect on June 10 and would rise by 5 percentage points every month — to 10 percent on July 1, 15 percent on Aug. 1 and so on — until they hit 25 percent on Oct. 1.

Yep, it’s our Carny-Barker-in-Chief.

It’s like he’s a drunk dentist in Vegas for a convention, sitting down at the poker table and getting bored after three hands. So he decides that he can “impose his will” on the table by opening up out of position with rags and making a continuation bet all the way through the river. Like everyone else at the table doesn’t see him for EXACTLY who he is.

What a colossal embarrassment.


Citizen Trump / Citizen Xi


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

China drops heavy hint it is about to pull the trigger on its most powerful weapon in the trade war [Business Insider]

The US heavily relies on China for rare-earth materials, which are 17 elements widely used in products like batteries, smartphones, electric cars, and fighter jets.

Beijing appears ready to weaponize those exports in its trade war with Washington.

China’s top economic planning commission and state media suggested this week that the country might restrict rare-earth exports to the US.

Restricting Chinese rare earths to the US could cripple the American tech, defense, and manufacturing industries.

Emphasis mine.

I put out another Zeitgeist piece on this same topic earlier today.

How will you know that the US-China trade narrative is shifting towards a protracted game of Chicken?

When the narrative becomes dominated by national security language and clusters.

This isn’t a US thing. This isn’t a China thing. This isn’t a Trump thing. This isn’t a Xi thing.

This is a social animal thing.

Before they undertake a risky action like engaging in conflict with another powerful nation … whether it’s a hot conflict or a cold conflict … ALL governments in ALL of history make an effort to prepare public opinion for that conflict through WORDS of patriotism and self-defense.

The words are not lies. The words are not wrong. The conflict may be just.

But you are being played nonetheless.


B3 Debt is the New Black


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

Record B3 Issuances Are Vulnerable To Downgrades And Default In An Economic Downturn [Forbes]

Over a decade of low interest rates and increased participation by non-banks has led to record high new issuance of B3 rated issuers.  44% of new issuers were rated B3 in 2018 in comparison to 22% in 2007, at the start of the last recession. 

Presently, “low rates support still-healthy EBITDA interest coverage. For example, in 2007 median interest coverage was 1.7x versus 2.0x in 2018 while leverage was 6.7x versus 7.0x respectively. Richer valuations and the cheap cost of capital have provided this group with a credit cushion.” 

Emphasis mine.

I’m not sure that people who aren’t immersed in this world realize how crappy B3 debt is. Or how much of it is getting pushed into the market. But here’s the thing.

So long as the Fed keeps its foot on the throat of interest rates … so long as the Fed embraces the Big Lie that near-zero interest rates prevent deflation rather than CAUSE deflation … there is no end to this.

What is financialization? What is the intentional blowing of an asset bubble? THIS.

Yay, capitalism!


Red Dawn


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

Lawmakers raise security concerns about China building NYC subway cars [The Hill]

A bipartisan group of House members from New York are raising concerns about Chinese involvement in building New York City subway cars, zeroing in on the potential that the new train cars could be hacked or controlled remotely.

How will you know that the US-China trade narrative is shifting towards a protracted game of Chicken?

When the narrative becomes dominated by national security language and clusters.

Look, Rusty and I have been all over this for a year. More to the point, we have been right.

If you want to know what’s happening with the Trade & Tariff narrative structure, you should subscribe to ET Professional.

source: Quid, Epsilon Theory

This is what we DO.


In the Flow – Chef’s Knives


PDF Download (Paid Subscription Required):  In the Flow – Chef’s Knives

Two weeks ago, in both the weekly ET Professional email and the ET Live! webcast, I mentioned European Senior Financial Index Credit Default Swaps (CDS) as my favorite way to set up a trade against what we see as a very complacent market narrative regarding US-China trade conflict. In this email I want to dig into that trade a little deeper.

Credit default swaps are like chef knives. They are precision instruments and a necessary tool for so many tasks in the professional kitchen. Sure, they are also sharp as hell and will give you a nasty cut if you don’t know what you’re doing, but the truth in the kitchen and the market is that a sharp knife is actually safer than a dull knife. Even if you don’t cook or trade a portfolio professionally, you’ll want to own a good knife and you’ll want to know the mechanics and the rationale of a CDS trade.

What we’re talking about today is buying protection through CDS. To use the insurance analogy that is typically used in explaining how CDS works, we are buying a “policy” that pays off in full if the referent credit issuance defaults over the term of the swap, typically 5 years.

But hold on, you say. I thought this was a Senior Financial Index CDS. How can an entire index default? Answer: it can’t. This index is composed of 25 individual financial issuers, and if all of them default, then the world has ended and you should be worried about stockpiling ammo and seeds, not managing an investment portfolio. Even if one or two of these individual issuers default, they will be replaced by other issuers and you will never get a full default pay-out. Index CDS is a very different animal than single-name CDS … it’s a synthetic creature with no direct “insurance policy” usefulness.

You are not buying index CDS protection as an actual insurance policy against an actual default. You are buying index CDS protection for the change in value of that aggregated insurance policy as the component values of the component insurance policies change over time. As such, index CDS protection is a trading instrument, pure and simple. It is NOT a buy-and-hold investment or insurance policy or anything of the sort. In fact, the worst thing you can do with an index CDS is buy it, stick it in a drawer somewhere and forget about it, as you might do with an insurance policy.

But if you have an edge on the timing of an event that you believe is systemic … ie, an event that will impact the entire financial system rather than just an idiosyncratic company or sector … then there is no more powerful or asymmetric trade you can put on than with index credit default swaps, precisely because it ONLY reacts to systemic stress. Your counterparties selling you the swap don’t have to worry much about idiosyncratic corporate credit risk, and so the price of the derivative security is typically very cheap, particularly on investment grade or senior debt insurance policies. And because it’s going to be a 5-year contract, there’s a tremendous amount of leverage embedded within the term structure itself … again, if you have an edge on the timing here.

Back in the day, CDS trades were the Wild West. There was no standardization on these contracts, and certainly nothing traded on an exchange. Everything was bespoke, and counterparty risk was a very real worry. Maybe my greatest moment as a PM was novating my CDS away from Lehman, eliminating rehypothecation in the portfolio, and switching my prime brokerage away from Bear Stearns in late 2007 and early 2008. Three big bullets dodged!

Today the CDS world is a lot safer. Starting in 2011, ISDA standardized all CDS trades on two common templates (one for Investment Grade pricing and one for High Yield pricing) and set up a clearinghouse to backstop all member banks’ trades and reduce counterparty risk. Once the clearinghouse was established, it was just a matter of time before the more liquid trades could be moved over to an exchange and eliminate the need for ISDAs altogether, and that’s exactly what happened with the major credit indices. If you can buy and sell commodity contracts on ICE, you can buy and sell index CDS.

Anyone can own a chef’s knife today.

Here’s the core Bloomberg screen (CDSW) for any standardized CDS contract today, with the major pricing elements marked by the yellow boxes, cash settlement marked by the blue box, and P&L marked by the red box:

The top yellow box is what you’re buying – in this case 5 years of protection against default in $10 million worth of the Itraxx European Senior Financial Index. The left-hand yellow box just below is the market price (the “spread”) to take on this contract – in this case 81.5 basis points on the $10 million notional exposure, or $81,500. That right-hand yellow box is the obligation you are agreeing to in this contract – in this case paying 100 basis points per year on a quarterly schedule, so $25,000 to the protection seller every 3 months for the 5-year term.

With a market price of 81.5 basis points, the market is saying that an “insurance premium” of 100 basis points per year is too expensive. In other words, if this contract were not standardized, the market clearing premium would be 81.5 basis points per year. So when this contract is settled, your counterparty pays YOU that difference in premium (18.5 bps) over the course of the remainin term of the contract (4.8 years or thereabouts), plus the accrued premium so far in this quarter. So what you see in the blue box is that you are receiving $104,000 today for the obligation to pay the seller $25,000 at the end of this quarter and every other quarter for which you hold the contract.

Finally, the red box shows you the change in value for this contract for every single basis point that the market price (the spread) moves up or down. So if tomorrow the spread widens from 81.5 bps to 82.5 bps, the value of the contract would increase by $4,742 in your favor. Vice versa if the spread narrows by a basis point.

Since I took this snapshot last week, the spread has widened 8 basis points … call it $38,000 in value … to a market priced spread of 89.5 bps. If I wanted to sell this contract and realize my gains, then, I would pay the new owner of protection $49,000 in principal (10.5 bps x 4.7 yrs) plus $18,500 in accrued premium (the $16,900 accrued when I bought the contract plus $1,600 for the week I’ve held the contract), for a total of $67,500. Since I received $104,000 from the seller I bought the contract from, that’s $36,500 remaining for me.

It’s a weird instrument, right? You have to post some margin to cover your potential P&L losses, but it’s a very small margin requirement if you’re buying protection (significantly more if you’re selling protection) because the asymmetry of how much the spread can narrow versus how much it can widen is so pronounced. I mean, at one point you could buy protection from GS with a 2% margin on notional, so potentially a 50x leverage on a cash account. That would be nuts, of course, but it’s indicative of how easy it is to buy a lot more insurance than you have assets to “insure”.

Here’s the price history of the spread since these contracts were standardized in 2011. I’ve circled in red the last two times we had a sharply strengthening dollar and a sharply weakening yuan, because that’s what I think is highly likely here … not a blowing out of spreads to 300 bps wide like in the full-blown Euro crisis of 2001 and 2012, but a spiking of spreads to 120 – 140 bps wide as systemic concerns of a yuan devaluation and/or a credit freeze around trade finance take hold.

Here’s the first of those red circle periods (Q1 2016), showing how the blue yuan spikes (weakens) before the yellow iTraxx Senior Fin’l CDS spikes.

And here’s the second of those red circle periods (Q4 2018), showing the same thing … and how the yuan has spiked (weakened) again here in May. I think the SnrFin CDS will follow suit. Again.

As always, happy to discuss this instrument and this trade in more detail if you like. I realize this discussion is old hat for some and way in the weeds for others, but I hope you found this primer useful!

PDF Download (Paid Subscription Required): In the Flow – Chef’s Knives




Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

$108 Billion Fund Plans London, New York Hiring Spree [Bloomberg]

Australia’s largest pension fund plans to open an office in New York and expand in London as it outgrows its local market and seeks more investment opportunities overseas.

Mark Delaney, the chief investment officer of AustralianSuper Pty, said the more than A$155 billion ($108 billion) fund will have 30 employees in New York by 2022, focusing on property, infrastructure and private equity investments. Its London office, currently home to about 10 staff, will grow to around 50 by the same date, with a focus on property, infrastructure and foreign-exchange dealing, he said in an interview.

Headline writers just love a good spree. Well, I’m sure they don’t love a killing spree, per se, as headline writers are people, too. I think. But the word “spree” is so evocative in narrative-world, implying at a minimum some sort of wantonness and excess, some sort of moral bankruptcy.

The article itself is fairly humdrum. It’s another triumph of scale in the modern financial world, this time in the form of an Australian superannuation fund.

But this is where we are in 2019.

The financial services world is so threadbare … so slow-growing and right-sizing and mundane … that now it’s a “spree” to open up a New York office. With 30 people. By 2022.


Amazon, Facebook and the Modern Trust [the ET Zeitgeist]


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.’s Ad Prices Could Soar Next Year [Fox Business]

There’s even an opportunity for Amazon to develop its own ad optimization tools like Facebook or Google.

As advertisers see improved return on investment from their optimization efforts, they’ll be willing to spend more per impression or click.

This is a story that I’ve heard Howard Lindzon (@howardlindzon) tell a dozen times …

Back in the olden days, and by that I mean 2012 or thereabouts, Facebook didn’t charge nearly enough for its ad inventory. With a pretty modest budget, a start-up company with a mass-appeal product or service (LifeLock, for example) could get a stellar reach into a crazy number of households.

Those days are long gone. Today you can still get a good reach into whatever number of households you want by advertising on Facebook, but there are no more bargains to be had. Want a crazy number of households? Then it’s going to cost you a crazy amount of money.

From a narrative perspective, what I find interesting is how Facebook’s price increases were implemented under the narrative of “optimization”, as if Facebook were doing you a favor by raising their prices so much.

Sure, the ads today are more targeted and (maybe) more effective, but the price increases and supply decreases are FAR GREATER than the (maybe) improved efficacy. That’s what it means to have pricing power, and that’s what it means – in the modern sense of the word – to have narrative power.

To date, Facebook has been really good at understanding narrative power from the perspective of intellectual property.

But also to date, Facebook has been really terrible at understanding narrative power from the perspective of government and the regulatory State.

Now Amazon is following in Facebook’s footsteps, both in its utilization of the narrative power of “optimization” and in its utilization of the raw pricing power of a monopoly.

Both Facebook and Amazon are smiley-face monopolists, claiming a narrative of efficiency and competition when nothing could be further from the truth. The only difference is that I suspect Amazon will be really good at the regulatory-compliant narrative, too.

No matter.

Time to break up the trusts. Again.


Never Run the Same Gag Twice [The ET Zeitgeist]


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

It’s Never Been Easier to Be a C.E.O., and the Pay Keeps Rising [New York Times]

In our annual ranking, we’re used to seeing paydays so big that they’re difficult to comprehend. But 2018 posed a problem on an entirely new scale. The pay package Tesla promised to Elon Musk was so large, we had to add an extra dimension to the chart below to display it accurately.

You don’t run the same gag twice. You run the next gag. – Ocean’s Eleven

It’s the best line in a movie full of great lines.

Elon is running the next gag.


A Song of Ice and Fire


PDF Download (Paid Subscription Required):  A Song of Ice and Fire

Every winter, we lose something here on Little River Farm. It’s like a tithe that nature takes, year after year after year. This winter was particularly tough. Polar vortex and all that, I suppose.

None of the bees made it.

Sigh. I’ve lost hives before. It happens. But it’s never easy. Never anything but sad. They work SO HARD at staying alive through a New England winter and they’re all boxed away for months and you can’t open the hive to check on them because that would weaken them for sure and it wouldn’t do any good anyway and so you wait and you worry and you do all you can to set up windbreaks and you don’t know if they’re hanging in there and it finally gets warm enough to crack open the hive and get them some help and … death. Nothing but death.

Always go to the funeral.

We respect our animals in life and in death. Especially in death. So I remove the bee husks and the old comb and I make a small fire and I give them to the flames. Because it doesn’t seem right to put bees into the ground. They are of the air in life, and they should be of the air in death.

And we begin again. Always.

But this isn’t a note about beginning anew after a polar vortex of a winter. Well, it kinda is, so hold that thought in the back of your head. But the narrative structure for this note isn’t about winter and ice and the tithe of death. It’s about winter and ice and the miracle of life.

There were two animals I was certain the winter would take from us, and those are the goldfish that live in the horses’ outdoor water trough. Yes, we put goldfish in the water trough last spring. The horses are careful not to eat them or drink them in, and the goldfish are great at keeping the trough clean. Not industrially clean, of course, but fingernail clean. The way a real, living farm should be.

I figured this was a brick of ice in the dead of winter. I figured there was no way on god’s green earth that two little fish could sit outside in what amounts to a big pail of water through a Connecticut winter. Good lord, we had DAYS and DAYS of sub-zero temperatures this January. And yet … there they were, glints of orange-red swimming around in the trough here in late March.

A miracle? Yes. But not the kind of miracle you’re thinking of. Not the miracle of some sort of cryogenic suspension, where the goldfish are like Captain America, thawed out from a giant block of ice after 40 years, ready to pick right back up fighting supervillains or eating algae or whatever it is one does after resurrection.

No, the miracle here is the non-linear nature of water.

See, we all know that when gases or liquids get colder, they get denser. They get heavier. The molecules in the gas and the liquid are less energetic as they cool off. They bounce around less. They sink. This is why pool water and lake water and ocean water gets colder the deeper you go. It’s a perfectly linear relationship … the colder the water, the heavier the water … the colder the water, the more it sinks.

But when water gets to 4 degrees centigrade, this nicely linear relationship between temperature and density stops happening. In fact, it REVERSES. It’s not only non-linear, it’s non-monotonic (a ten-dollar word that means reversal). As water gets colder than 4 degrees centigrade, it no longer gets heavier. It no longer gets denser. It no longer sinks.

Instead, this miraculous substance called water gets lighter as it nears its freezing point. It’s still a liquid. There are no solid ice crystals forming here that have a different density than liquid water. It’s still exactly the same substance in form and chemistry and everything else at 3 degrees centigrade as it was at 4 degrees centigrade, but somehow it is now lighter than it was before. And so it rises. And it rises still more at 2 degrees centrigrade. And still more at 1 degree centigrade. And so ice does not form at the bottom of a Connecticut pond or lake or water trough, but instead forms at the top of a Connecticut pond or lake or water trough, where it forms an insulating barrier against the cold air reducing the liquid water temperature still further. That’s how the goldfish survived. There was liquid water at the bottom of that deep horse trough, even as the polar vortex raged above.

Without this non-linear, non-monotonic property of water, life as we know it would hardly exist.

Every Ice Age would be every bit as much an extinction event as a giant meteor of death. Every lake or pond above or below a certain latitude would be as lifeless as the moon.

It’s a miracle of life that liquid water – the foundation of life on our planet – gets lighter instead of heavier right before it changes state into solid ice.

There’s no reason why this non-linear property of water should exist.

And yet it does.

If you were predicting the behavior of water from a theory of thermodynamics, there is no way you would predict 3-degrees cold water would be lighter than 4-degrees cold water.

And yet it is.

Facts don’t care about your feelings? Yeah, yeah … cute. Here’s the far more serious truth:

Facts don’t care about your theories.

The only way to learn the non-linear nature of water is through empirical observation, through actually living with water and ice rather than simply theorizing about water and ice. Because once you SEE that very cold water becomes lighter rather than heavier, then you KNOW that there must be something WRONG with your theory of thermodynamics, because this behavior is IMPOSSIBLE within a theory of thermodynamics. There must be something ELSE acting on the behavior of water than thermodynamics, something BIGGER and more FUNDAMENTAL than thermodynamics.

In the case of H2O, it’s the asymmetric positioning of the two hydrogen atoms connected to the single oxygen atom. It’s the atomic structure of the water molecule that creates the miracle of life.  

Same thing with economics.

Because money, like water, is non-linear.

Because you think you can explain and predict human behaviors around money based on a macro theory of monetarism (the supply and price of money), and usually that’s true, but sometimes it’s not.

Because there is a more fundamental theory of money – an atomic structure theory of money based on human risk-taking and human social narratives – that subsumes and improves on your macro theory of monetarism.

Does lowering the price of money from 8% to 7.5% create more risk-taking? Does it increase the velocity of money through the real economy as corporate and household risk-takers are willing to borrow and spend and invest MORE at 7.5% than they were at 8%? Yes.

How about lowering the price of money from 7.5% to 7%? Yes.

7% to 6.5%? to 6%? to 5.5%? to 4%? Yes, yes, yes, and yes.

It’s a nicely linear relationship.

It’s exactly as one would predict from a theory of molecules and thermodynamics monetarism and macroeconomics.

So I understand why central bankers believe that lowering the price of money from 1% to 0.5% would act on risk-taking in the same linear fashion. And from 0.5% to 0%. And in the case of Europe, from 0% to negative interest rates, and from slightly negative interest rates to really negative interest rates. They have a linear theory of monetarism and macroeconomics. Lower interest rates have a specific and direct relationship with risk-taking economic behavior and expectations. The lower the interest rate, the greater the spur to “inflation”, by which central bankers mean risk-taking economic behavior.

Inflation not being spurred? Lower the price of money more.

Inflation still not being spurred? Lower the price of money still more.

Inflation STILL not being spurred? Lower the price of money MOAR.

But it’s not working, people. Lower and lower interest rates are demonstrably not spurring risk-taking economic behavior in the real economy. Lower and lower interest rates are empirically not spurring inflation.

When the price of money gets really cold low, like close to zero degrees percent low, risk-taking behavior changes. The rational risk-taker in a zero interest rate world does NOT invest in property, plant and equipment. The rational risk-taker does NOT borrow more and spend more to invest in the future. No, the rational risk-taker believes the central bankers who say that interest rates will be ultra-low forever and ever amen, that future growth rates are moribund and miserable, that our world persists in a long gray slog of deflation just as far as the eye can see.

What do rational risk-takers do in a zero interest rate world? They buy back stock. They buy profitless revenue. They engage in financialization.

They minimize risk and maximize return. They are greedy AND they are fearful. They demonstrate the atomic behavior of rational greedy/fearful human beings since the dawn of freakin’ time.

THIS is water.

This is profit margin without labor productivity growth.

This is the zombiefication and the oligarchification of the US economy.

This is the smiley-face perversion of Smith’s invisible hand and Schumpeter’s creative destruction.

This is the profoundly repressive political equilibrium of an entrenched State and entrenched Oligarchy that masks itself in the common knowledge of “Yay, capitalism!” and “Yay, military!” and “Yay, college!“.

That’s a thick layer of ice above us, growing thicker by the day. But we are still the goldfish on Little River Farm, still swimming in a small pocket of water, not yet encased in a solid block of ice. We aren’t yet the bees. Not yet. What must we DO to avoid the bees’ fate? What must we DO to end this winter that is imposed on us?

We have to Break the Wheel.

We have to break the tyranny of ideas that nudge us into service to the entrenched State and the entrenched Oligarchy, without replacing those ideas with a tyranny of our own.

How do we do THAT?

Well … I know it’s all the rage to rip the Benioff/Weiss screenplay in the post-George RR Martin seasons. I’m pretty bummed myself. But this line by Tyrion in the finale shows the way.

What unites a people? Armies? Gold? Flags?


There’s nothing more powerful in the world than a good story. Nothing can stop it. No enemy can defeat it.

How do we Break the Wheel?

Not by revolution. Not by dragon fire. It didn’t work for Daenarys, and it won’t work for us.

We break the wheel with a better story, with a better theory.

Because that’s what a theory is … a story about how the world works.

By the way, this is how science works. By the way, it’s always science that breaks the wheel.

The story of the Masters is that the market is a macro clockwork machine, governed by linear, mechanistic “laws”. I have a better story.

I tell you that the market is a BONFIRE.

From We’re Doing It Wrong:

Fire is not magic. Fire is not somehow separate from science or rigorous human examination. We know how to start fires. We know how to grow and diminish fires. We know how to put fires out. In a technical sense, Ray Dalio, you can classify fire as a machine.

But you’d never think that you could possess an algorithm that predicts the shape and form of a bonfire.

You’d never think that if only you stared at the fire long enough, and god knows humans have been staring at fires for tens of thousands of years, that somehow you’d divine some formula for predicting the shape of this or that lick of flame or the timing of this or that log collapsing in a burst of sparks.

No human can algorithmically PREDICT how a fire will burn. Neither can a computer. No matter how much computing power you throw at a bonfire, a general closed-end solution for a macro system like this simply does not exist.

But a really powerful computer can CALCULATE how a fire will burn. A really powerful computer can SIMULATE how a fire will burn. Not by looking for historical patterns in fire. Not by running econometric regressions. Not by figuring out the “secret formula” that “explains” a macro phenomenon like a bonfire. That’s the human way of seeing the world, and if you use your computing power to do more of that, you are wasting your time and your money. No, a really powerful computer can perceive the world differently. It can “see” every tiny piece of wood and every tiny volume of oxygen and every tiny erg of energy. It “knows” the rules for how wood and oxygen and heat interact. Most importantly – and most differently from humans – this really powerful computer can “see” all of these tiny pieces and “know” all of these tiny interactions at the same time. It can take a snapshot of ALL of this at time T and calculate what ALL of this looks like at time T+1, and then do that calculation again to figure out what ALL of this looks like at time T+2.

This is an atomic theory of markets. This is the intuition and the technology roadmap to provide a better theory. It’s not that macroeconomics and monetarism are wrong … there’s no such thing as right or wrong when it comes to theory. It’s that macroeconomics and monetarism are not as USEFUL a theory as one formed organically from the risk-taking economic behaviors of actual economic actors.

Look, central bank cultists will never change their beliefs that they are the thin blue line between order and chaos, or that academic economics is the One True Path for enlightenment and the maintenance of that thin blue line. Change isn’t going to come from attacking the Fed or from a snarky blogger. I mean, I did just call them cultists.

No, no …  change will come from a Fed economist reading this note (on her gmail account, of course) and dropping the assumption – because it IS an assumption – that, for all prices of money, there is a monotonic relationship between change in the price of money and change in the velocity of money employed for productive economic purposes. Change will come from this economist allowing for the possibility of a non-linear and non-monotonic relationship between interest rates and inflationary behaviors at very low interest rates, loosening her stochastic assumptions accordingly, and then TESTING this possibility against the actual empirical evidence of the past ten years. Change will come from this economist presenting her findings from within the proper academic forms as an extension and progression of what came before, so that the institutional imperative to self-servingly mansplain our place in the world (you’re welcome!) can be maintained.

Daenarys and her city-destroying dragons couldn’t break the wheel. Moana and her Maui-tolerating wayfinding could.

In a thousand small steps … this is how theory changes. This is how science advances. This is how progress is made. This is how the story that we tell ourselves about who we are evolves into something that subverts institutions from within, not something that attacks institutions from without.

As below, so above.

To be honest, it’s a longshot that we’ll be able to pull this off. After all, we’re not characters in a Disney movie. Or even an HBO show.

One of my favorite authors, Kurt Vonnegut, wrote a lot about theory and non-linear systems and humanity’s place in all that. You wouldn’t know it from a cursory read, because he could spin a yarn, but that’s what most of his books are about. Cat’s Cradle is the novel most obviously connected to my particular theme, as the plot is driven by the invention of a substance called ice-nine, an isotope of water that freezes at room temperature and replicates itself in any ordinary water it touches, thus spreading ice throughout all the liquid water in the world. You know, kinda like negative interest rates.

Along the way to the end of the world, there’s a nihilist religion called Bokononism to explore, with this wonderful quote:

The Fourteenth Book is entitled, “What can a Thoughtful Man Hope for Mankind on Earth, Given the Experience of the Past Million Years?”

It doesn’t take long to read The Fourteenth Book. It consists of one word and a period.

This is it: “Nothing.”

Vonnegut would probably say we don’t stand a chance against the Nudging State and the Nudging Oligarchy, armed to the teeth with narrative-controlling instruments that promote their Wheel-preserving ideas, convincing us to sign away our autonomy of mind.

Like how the narrative of Yay, capitalism! subverts our liberty (and responsibility) to Make.

Like how the narrative of Yay, military! subverts our liberty (and responsibility) to Protect.

Like how the narrative of Yay, college! subverts our liberty (and responsibility) to Teach.

Yeah, he’s probably right.

But then again, Kurt, why did you write?

It’s why I write, too.

I’m publishing this note on Memorial Day for a reason. You get it. I know you do.

We are the human animal.

We are non-linear.

We ARE a song of ice and fire.

It’s a song that has built cathedrals and fed billions and taken us to the moon.

It’s a song that can do all of that and more … far, far more … if only we remember the tune.

The Pack remembers.

Yours in service to the pack, – Ben

PDF Download (Paid Subscription Required):  A Song of Ice and Fire


A Holy Day

Image result for milton lee olive

I am not much given to outward displays of patriotism these days. Part of the reason, I suppose, is how easy it is to become cynical about the many times those who would influence us rely on our willingness to raise our ‘Yay, Military’ signs to serve some other motive. In my book, anyone who uses our most powerful and uniting symbols to marshal us into division or needless conflict has earned that cynicism in full.

And yet, both the 4th of July and Memorial Day are Holy Days. The 4th of July is our Clear Eyes holiday, a day we remember the lengths to which we must sometimes go to demand our God-given rights from those who seek to deny them. Memorial Day is our Full Hearts holiday, when we remember that the greatest gift we can give to another person is to lay down those rights – at times, even our very right to live – on their behalf.

It is a question worthy of thought and consideration on this holy day: How do we shape our minds to permit no one to take from us what we must also learn in our hearts to give freely?

I’ve told the story of Milton Lee Olive – Skipper, they called him – before. The Chicago Tribune also told the story powerfully back in 2002. You can read it in full here. But Olive’s life and sacrifice are worth the telling and retelling, not least because they give us a glimpse into a life lived with Clear Eyes and Full Hearts.

The reason this kid from Chicago and Mississippi joined the army in the first place is a good first clue: His dad thought he’d be safer there than what he was doing before. What he was doing before was working with the civil rights movement to register rural black voters near his grandfather’s farm in Lexington, Mississippi. You can understand the concern. Some of the rural communities he worked with were less than an hour from another Mississippi Delta town, a town where a young man from Chicago named Emmett Till had been lynched for the terrible crime of talking to a white woman in a grocery store only a decade prior. Olive didn’t much care. He saw what needed doing and did it.

Clear Eyes.

Still, he did join the army, although as it happened, the relative safety didn’t last long. The US formally joined the growing conflagration in Vietnam in 1965. Olive’s unit – the 3rd Platoon of Company B in the 173rd Airborne Brigade – was among the first on the ground. They were paratroopers and had made several drops in five months of fighting. It was five months that turned Olive from Milton Olive III, Chicago’s Only 12-Year Old Professional Photographer – a description that adorned a business card he kept in his Bible – into Milt from the Bravo Bulls.

It took less than five seconds for Olive to become a hero – to my family and to America. In a jungle near a place called Phú Cường, very different from the thriving, suburban place it is now, Olive was on patrol with three other men from Company B. One of them was my uncle Jimmy, a lifetime soldier who worked himself from enlisted man to second lieutenant, a man who grew up in a racist town and was raised by a racist family.

Pinned by heavy fire behind a tree stump for several minutes, the squad saw a grenade roll into their midst. Without a moment’s hesitation, Olive shouted, “Look out, Lieutenant, grenade!” He took the grenade in his hand and smothered it with his own chest away from the other men. Some of his squadmates took a little shrapnel, but nothing more. The enemy soldiers were gone. So was Milton Olive.

Full Hearts.

Olive’s sacrifice changed the world for a few that have become many. I’m among them. Thankfully, few of us will be called to make that kind of sacrifice. Yet we will all have moments, I think, where we can choose to do lay down our rights and our privileges, what we think we’ve ‘earned’ and what we ‘deserve’, to make someone else happier, healthier or more free. Even people who wouldn’t do the same for us. Especially them.

If you’re in Chicago this Memorial Day and happen by the Navy Pier or the Ohio Street beach, do me a favor and stop by Olive’s memorial on the back-side of the park. Give Skipper a thought on my behalf – and yours. Only 18, but a man of Clear Eyes and Full Hearts.

A man in full.


The Holiday Zeitgeist – 5.26.2019


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories. On the weekend, we leave finance to cover the last week or so in other shifting parts of the Zeitgeist – namely, politics and culture. It’s not a list of best articles or articles we think are most interesting … often far from it.

But these are articles that have struck a chord in narrative world. 

In lieu of the usual narrative map here, a brief note to our regular Zeitgeist readers: beginning in the next week or so, you should see a site re-design that will change how you see this content:

  • We will be separating the ‘curated’ content into brief individual notes throughout the day, which will allow us to cover topics published throughout the day as opposed to just in the morning.
  • You will either be able to access Zeitgeist content by either (1) clicking The Zeitgeist in the Content menu at the top of the site, or (2) reviewing the individual inks on the “ticker tape” at the top of the home page.

It’s Not Just the Citizenship Question – the Digital Divide Could Hurt the Count of Latinos in the Census [Route Fifty]

This is about the census, but those who read our inaugural ET Election Index will recognize shared DNA with one of the most interesting narrative clusters that emerged from the early primary process: ‘this is election where Latino voting patterns are going to matter.’

I don’t have any insight into whether that is true, but we have consistently found that high attention narratives with limited coverage tend to become highly covered narratives. I feel confident saying you will read a lot more stories about this topic in the coming months.

The FDA Tells the Food Industry to Change How It Uses ‘Expiration’ Dates [Gizmodo]

The food label is a great case study in the core concepts of narrative construction. Most obviously, of course, the label is an opportunity to create and support the identity of the brand being sold. How are you being told to think about the brand?

Even the rules promulgated by the FDA for food labeling, however, railroad both food design and presentation into certain directions. We have long recognized the food pyramid, FDA guidelines and information provided on nutritional labels as a rather goofy cartoonified version of nutrition. But the target of this article is an entirely different cartoon, one I daresay it’s about time the FDA dealt with: expiry and best-by dates.

Image result for expiration label on salt

April 2020? I buy a bottle of Himalayan Salt that precipitated 600 million years ago in the late neoproterozoic in whatever part of Gondwanaland Pakistan belonged to, and of course they give me the grains that are just about to go bad!

Letter: Mink the bear isn’t the problem [Concord Monitor]

Even with the strong pull of the Zeitgeist in national media and global always-on conversations, my heart is warmed when I am reminded that there is always room for a crazy-ass letter-to-the-editor in a local paper.

You keep doing you, Mink the Bear and Mr. Williams.

The Sublime Sensation of the Swimming Hole [Smithsonian Mag]

Hamilton Pool

I suppose it shouldn’t bother me as much as it did, but I spent a good amount of time enjoying the wonder of this place. It’s called Hamilton Pool, and it’s a popular natural location about halfway between Spicewood and Dripping Springs, two of the most Texan places in Central Texas. Opie’s BBQ in Spicewood is, by the way, a criminally underrated beef enterprise worthy of visiting if you ever make it out to Hamilton Pool.

It has always been crowded, and in the last decade or two, you really had to line your car up pretty early to be assured of a good day there. But now, apparently, Hamilton Pool has to be booked online. And it’s even worse than that – apparently monopolization and resale is a thing already.

The whole idea – the very meme attached to swimming holes, at least to me – is that of a found thing. A place that only some people know about that you think you remember how to get to, and which has a rope someone attached some years ago, and it is probably still safe. It’s Holy Theatre and Rough.

I don’t have any good answers for the realities that rapidly expanding populations and broadened wealth – both good things – have forced upon our experiences with nature. There are more of us and more who can now afford to see and do these things. Commercialization and order are almost certainly the fairest ways to manage limited supply, I suppose. That doesn’t change how viscerally my brain responds to the idea of booking a reservation to Hamilton Pool, though.

The Meaning Behind the Democrats’ Infighting Regarding Impeachment [Epoch Times]

I would tell you my opinion on the political import of impeachment discussions, but I am starting to recognize that those opinions are consistent with the emerging narrative. Oh sure, I might argue that I thought them first, but there’s enough reason to doubt the provenance of my views.

What would that opinion be? What is the emerging narrative?

“Continuing to discuss impeachment is a zero upside, 100% downside political maneuver. It will fuel division and rhetoric that benefits extreme candidates – and Trump – and doing it outside of whatever is necessary to placate is a risky move.”

Yes, this particular opinion piece is written by an author from the right, but there’s a reason this ranks so high in the Zeitgeist. I’m more confident this is the narrative, and correspondingly less confident in the independence of my opinion.

What Does the Release of John Walker Lindh Mean? [New York Times]

Yeah, look, I’m all for talking about how we turn people into symbols and then talk about the symbol. That’s kind of what we do here, after all.

But just so that we are super, super clear, the person or persons who greenlighted this revisionist John Walker Lindh fanfiction at the paper of bloody record can go straight to hell.


Going Gray


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

Huawei Founder Says U.S. Won’t Disrupt Business As Analysts Warn Of Sales Slowdown [Forbes]

The U.S. Commerce Department has deemed Huawei a threat to national security, and banned the company and almost 70 of its affiliates worldwide from acquiring U.S. technology without government approval. On Monday, Huawei was granted a 90-day reprieve that allows the company to continue purchasing American goods for its existing handsets and broadband networks until Aug 19.

Ren Zhengfei is 74 years old, yet like all septuagenarian and octogenarian Chinese potentates, he has jet-black dyed hair. But is that a wisp of gray in this picture? I kinda think it is. That’s a big deal in China … they call it “going gray” … when you’ve been disavowed by The Powers That Be and they take away your hair dye. Because you can’t be rehabilitated from that.

You think I’m kidding. But I’m not.

Here’s Bo Xilai, party secretary (i.e., mob boss) of Chongqing, a city with a metropolitan area roughly equal in size to New York.

And here’s Bo Xilai at his murder trial in Beijing.

Pro tip: Bo Xilai’s real crime was not murder. Although … that, too.

How will you know when China is backing down from a national security-oriented trade war with the US?

When Ren Zhengfei is photographed with gray hair.


Narrator: The cause-and-effect was, in fact, that simple


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

The Fed Is Likely to Make an ‘Insurance’ Rate Cut [Bloomberg]

With the bond market pricing in at least one interest-rate cut by the Federal Reserve this year, there’s a debate whether such a move would only serve to benefit riskier assets. Federal Reserve Bank of Kansas City President Ester George recently said lower rates might spur asset price bubbles, create financial imbalances and eventually lead to a recession. Perhaps, but the cause-and-effect isn’t that simple.

Narrator: The cause-and-effect was, in fact, that simple.


The Zeitgeist – 5.22.2019


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

May 22, 2019 Narrative Map – US Equities

Source: Quid, Epsilon Theory

Go Wide, Not Deep [Morningstar]

We think core menus should be wide, not deep—that is, menus should offer exposure to a wider array of investments but not multiple options for the same asset class (with the potential exception of an active and passive option). The idea is to offer a range of investments that will better help participants achieve their retirement goals. We think it’s important to give participants access to funds with unique risk characteristics so they can supplement allocations in their other accounts (such as an IRA) as well as give a financial advisor (who is not associated with the plan) the ability to design a portfolio inside the plan. These funds can also be used by in-plan advice providers, such as managed accounts, to build better portfolios.

Retirement plan menus are ground zero for what is delightfully referred to as “choice architecture” … steering and nudging you into making the “right” choice.

If you don’t like what’s being said, change the conversation.
― Don Draper

Ad men understand “choice architecture”. It’s not called the Wheel. It’s called the Carousel.

I’ll make him an offer he can’t refuse.
― Vito Corleone

Mob bosses understand “choice architecture”. An offer you can’t refuse is what game theorists call a Hobson’s Choice, part of a more general class of games that includes ultimatums and dilemmas.

Like all ad men and mob bosses, Morningstar is in the choice architecture business.

And yes, there’s an Epsilon Theory note for that:

Analysts Make Research Cooler, Wonkier and Bespoke to Lure Cash [Bloomberg]

As the industry wrestles with the problem of making money on its own, the stage is set for podcasts and novella-length thematic analyses.

Yes, please.

“Luring cash” … FFS, people.

Quality corn stover in high demand [Hay and Storage]

I went back down through the line and took a closer look at the corn stover quality in the back row that had not sold yet. One load in particular caught my eye. After confirming there was no mustiness, mold, or mildew on the crinkled corn husks, I asked Eric Motter of Myerstown to share how he produced his 7,500-pound load of 3×3 bales weighing a little over 500 pounds each.

He planted the third week of May and the Roundup Ready hybrid only received manure. I could clearly see the corn held its color until harvest and it yielded well. No foliar fungicide was applied.

I have no idea why an article from Hay and Storage was linked so centrally to financial media, but I am so happy that it is!

Of course, I actually DO have an idea why farm esoterica is a central narrative in financial media today, as farmers are the casualties of this trade war.

It’s not just the corn crop that has only received manure this season.

US stocks have crushed their European peers by 76% over the past decade. Here’s what Goldman Sachs says needs to happen for Europe to flip the script. [Business Insider]

Saved you a click.

Global markets are rallying after Trump tempers his Huawei ban after ‘big reality check’ [Business Insider]

US, European, and Asian stocks rose on Tuesday after Trump tempered his Huawei ban.

The Chinese telecoms giant can buy US products to maintain its networks and release software updates, but it can’t buy American components for new devices.

“This latest move by Trump shows just how haphazard his policies are and also how pervasive Huawei goods and technology are,” said Jasper Lawler, head of research at London Capital Group.

This was the actual graphic associated with this Business Insider “article”. It’s a stock photo from Getty, and I suppose it’s what you get when you search for “Yay, Huawei!”.

And then there’s the obligatory anti-Trump commentary from some London dude, criticizing the “haphazardness” of US policy. As always, there’s no parody like self-parody.


The Zeitgeist – 5.21.2019


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

May 21, 2019 Narrative Map – US Equities

Source: Quid, Epsilon Theory

Washington’s Huawei reprieve triggers relief rally in bruised EU chip stocks [Reuters]

Shares in European semiconductor companies, one of the most sensitive sectors to the global trade tensions, recovered from their worst day in 4-1/2 months on Tuesday after the White House backtracked overnight on tough limits on China’s Huawei.

If you’re playing this game out of necessity … my condolences.

If you’re playing this game out of choice … you’re nuts.

Rise in CMBS IO Loan Issuance Surpasses Pre-Recession Levels, Worrying Some in the Industry [NREI]

Competition that is fueling a spike in interest-only (IO) loan issuance is drawing mixed responses from industry observers. Some view the spike as a worrisome rise in risk that could come back to bite borrowers if 10-year loans mature in a higher interest rate market. Others see IO loans as an opportunity for borrowers to take advantage of healthy lender competition for high quality deals.

Things you see at a top …

Institutional Investors Think They’re Ready for the Next Downturn [Institutional Investor]

Eighty-seven percent of the 75 institutional investors surveyed by Wilshire Associates say they are more or “far more” prepared for a bear market than in 2007, according to a statement Monday from the consulting firm. About 95 percent of investors are at least “somewhat confident” in their readiness to steer through market volatility, while 39 percent feel “very confident,” Wilshire said.

And they’re right.

Not because they’re doing anything special or have any new awareness, but because central banks Will. Not. Allow. a 2008-style deflationary crisis to exist.

Everyone always prepares for the last war …

The Shocking Number of Americans Without a Retirement Account [Fox Business]

According to the Aspen Institute, close to 6 in 10 working-age Americans do not have a retirement account. Sadly, the Aspen Institute also warns that things are likely to get worse due to the changing nature of work.


The American worker is the proverbial boiled frog. Or Milton from Office Space. Same thing.

And yes, there’s an Epsilon Theory note for that. First read this:

And then read this:

Money quote:

Over the past eight years we have thrown our money into relatively unproductive activities (experiential consumption), and we have thrown our bodies into relatively unproductive jobs (experiential production).

It’s as if we’ve intentionally returned to the recommended farming practices of Cato the Elder in 200 BC, where instead of a tractor with a 43 horsepower engine to get the work done, we’ve got “a foreman, a foreman’s wife, ten laborers, one ox driver, one donkey driver, one man in charge of the willow grove, and one swineherd”. Because god forbid we miss out on the experience of being a swineherd. Hey, with modern technology, you can drive for Uberherd swine whenever you like. Just imagine the personal satisfaction, not to mention all that extra cash, that comes with “being your own boss” as an on-demand swineherd.

It’s as if we’ve intentionally returned to the recommended farming practices of Cato the Elder because it IS intentional.

Why High-Class People Get Away With Incompetence [New York Times]

In several experiments, researchers found that people who came from a higher social class were more likely to have an inflated sense of their skills — even when tests proved that they were average.

It’s the only possible outcome of the Lake Wobegon effect … where all of our children are above average. Now they’ve grown up believing that.


The Zeitgeist – 5.20.2019


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.

May 20, 2019 Narrative Map – US Equities

Source: Quid, Epsilon Theory

Planning to irrigate arid lands with produced water [Albuquerque Journal]

Encore Green Environmental is jockeying to become the first company to recycle oil-and-gas wastewater to irrigate arid lands in New Mexico.

The Wyoming-based company has developed a patent-pending process to identify all ingredients in oil-and-gas effluent, known as produced water, before sending it on for recycling. Through the process, the company tests and documents all changes in chemical content during treatment to assure compliance with regulatory standards. And it does detailed analysis of soil content and moisture levels in targeted arid areas to make sure recycled water matches the conditions and requirements of soil and vegetation before irrigating.

I have no idea if this is on the level or not. But I have a very strong idea that the ONLY solution to the environmental debacle that humankind is perpetrating on the Earth will come from procedural and bottom-up technological advances like this. Not from someone inventing cold fusion. Not from government-sponsored moon shots. But from new twists on old ideas, motivated by people wanting to do well for themselves by doing good for all of us.

Bonds aren’t a set-it-and-forget-it investment. Here’s what you need to know. [USA Today]

It’s an infomercial from Ken Fisher, who would famously rather die and go to hell than sell you an annuity, and who is a fairly profoundly weird dude. But he’s not wrong.

Today, your long-dated government bonds are a core holding. They should become a tactical holding.

I don’t mean that you sell them tomorrow. I don’t mean that you sell them next week or next month or next year. In fact, if we get a deflationary shock from a Fed-driven recession, a China-driven global credit freeze or an Italy-led Euro crisis, you’re going to want to buy more. This “tactical holding” will be a very large chunk of your portfolio. But make it a tactical holding. Make it something that you are willing to sell. Without hesitation. Without losing your nerve.

Save the Buyback, Save Jobs [Journal of Applied Corporate Finance]

Too Many Companies Are Paying Too Much for Stock Buybacks [Fortune]

Booking Holdings Is Gobbling Up Stock [Seeking Alpha]

I’m not going to give any quotes from these articles, because there’s nothing here you haven’t read umpteen times before. My point here is that whatever you might think about stock buybacks, it really doesn’t matter what you think.

This is now an issue dominated by common knowledge – what everyone thinks that everyone thinks.

Uber, Lyft and Pinterest prove that private investors are sucking up all the value [CNBC]

Marc Andreessen called “the effective death of the IPO” in 2014 and said that with high-flying tech companies staying private longer, “gains from the growth accrue to the private investor, not the public investor.”

Fred Wilson of Union Square Ventures told CNBC the following year that these late-stage IPOs mean “all of the gains are captured among a very small cohort of people.”

In 2016, Alex Mittal of FundersClub wrote that today’s top tech companies are raising gobs of private cash, “leaving the bulk of returns out of public investors’ reach.”

These are the very people that benefit from companies who stay private longer while their valuations skyrocket, because they’re the early investors. They get to ride the valuation up from the millions to $10 billion, $20 billion or $50 billion and then sell their shares to the masses of public market investors who are thirsting for the next Amazon or Google.

The headline is hyperbolic and silly, but what Andreessen and Fred Wilson are saying is not.

What’s the dominant institutional investment narrative today?

Private > Public

It’s really as simple as that, and there are zero signs of this abating or reversing. On the contrary …

Schools Teach Civics. Do They Model It? [Education Week]

But by late 2017, seniors at the high school had grown frustrated by the school’s limited extracurriculars, lack of spirit activities, and punishments for late homework. Inspired by pro football player Colin Kaepernick’s widely covered “take a knee” protests, they decided to press their case through a small but significant act of civil disobedience.

During morning assembly on Sept. 28 of that year, the school’s 15 or so seniors sat down quietly, rather than recite VPA’s “challenge,” a pledge in which they commit to do their best for “myself, my family, my school, and my community.” Some lowerclassmen followed suit.

“We just didn’t like how we were being treated,” recalled Beverly Felipe, a student plaintiff in the lawsuit. “It was very unfair. We wanted some change in the school and we were hopeful that it was going to happen.”

Punishment for late homework! Lack of spirit activities! The horror!

This article gets it all wrong of course. The school’s response in bringing down the hammer IS the teachable moment. And a good one, too.

Know who else talks like this? The guy in the White House.

It was already a proud day for these new college graduates. Then a billionaire told them he’s paying off their student loans [CNN]

Of course I love what Robert Smith did!

My favorite part is the pressure this puts on other billionaires when they get an invite from alma mater.

Then again, most billionaires are high-functioning sociopaths, so they truly believe that their words and moving speeches are reward enough for graduates.


The ET Election Index – April 2019


In celebration / abject dread of the 2020 election cycle that is already upon us, Epsilon Theory is beginning a new monthly feature – the ET Election Index. Our aim with the feature is to lay as bare as possible the popular narratives governing the US elections in 2020. That includes narratives concerning policy proposals and candidates found in the news, opinion and feature content produced by national, local and smaller outlets.

Our goal isn’t to uncover ‘media bias’.

Our goal isn’t to discuss the ‘fairness’ of coverage to different candidates.

Our goal isn’t to ‘fact check.’

Our goal is to make you a better, more informed consumer of political news by showing you indicators that the news you are reading may be affected by (1) adherence to narratives and other abstractions, (2) the association/conflation of topics and (3) the presence of opinions. Our goal is to help you – as much as it is possible to do – to cut through the intentional or unintentional ways in which media outlets guide you how to think about various issues, an activity we call Fiat News.

Our goal is to help you make up your own damn mind.

What do we do?

We leverage the natural language processing (NLP) tools from Quid to construct network graphs of all available sources from the LexisNexis Newsdesk database. These network graphs are built by comparing each word of the language used in each queried story against each word in every other story, resulting in a matrix of similarity between each such article.

Here at Epsilon Theory, we then take this output and attached meta-data to build and score a range of signals by topic – which can be either candidates, policies or any other categorization scheme which fits sensibly inside election coverage.

Any prose you see under the heading “commentary” you should read as our judgments and opinion. Everything else – unless otherwise noted – you should take as the systematic output of the process and signals described above.

Cohesion: Our Measure of Narrative-Adherence

We think that news and opinion journalism often replace facts and statements with abstractions of those facts. Those abstractions may take the form of euphemisms, logical frameworks, conflations or descriptive turns of phrase. Over time, especially when the abstractions are emotionally or culturally powerful (memes), these abstractions can become increasingly divorced from the facts they were originally built to represent. They may also become loaded with other, more subjective, meaning. This makes interpretation both difficult and variable by individual.

We call these abstractions narrative. By measuring the aggregate similarity of language used by writers in the discussion of a topic over time, we believe we can track the extent to which a narrative exists for that topic. We call this Cohesion.

We also believe that a cohesive narrative tends to cause future content to adhere to the conventions and language that have become common knowledge for that topic. As a result, when we consume news content about topics or individuals with high Cohesion, we must be aware that the information may be presented to us in a way that aligns it with existing narrative abstractions rather than on an independent basis.

In effect, this is one of the ways in which we are subtly guided how to think about an issue.

What does Cohesion look like?

Our measure is based on the underlying aggregate similarity between all of the articles relating to a single topic. When more articles refer to Pete Buttigieg as “a gay, millennial” candidate, this measure increases. When more articles refer to Elizabeth Warren as “policy-oriented”, this measure increases. When articles vary between isolated references to Andrew Yang’s UBI proposal, or his penchant for cryptocurrency, or descriptions of him as an “entrepreneur”, or “technologically savvy”, that cohesion measure will typically fall.

While we calculate our measure based on the underlying data describing this aggregate similarity, we also present visualizations from our partners at Quid. We think it can be helpful to see what connections – and the lack of connections – look like. An extremely low cohesion network might look something like the below.

Source: Quid, Epsilon Theory

In contrast, a high cohesion network might look like the below. In both of these graphs, similarity is presented by proximity on the chart, emphasized in very high cases (‘adjacencies’) by a connecting line, and organized by color into clusters of topical or linguistic meaning/similarity.

Source: Quid, Epsilon Theory

Attention: Our Measure of Association and Conflation of Topics

We also believe it is useful to note when authors use increasingly similar language to describe two topics, especially when one topic is a sub-set of the other. We think that this behavior is often an expressed desire (or belief) on the part of the author to establish or presume a relationship between those topics. Because the relationship between topics and/or people forms a significant part of how we think about issues, their conflation is an effective way to guide us in how to think about a topic.

In other words, these are the topics which warrant the question: “Why am I reading this NOW?”

We call our measure of the similarity of language used between two topics Attention.

What does Attention look like?

While visualization of Attention doesn’t fully capture how connected a topic is to (or better, within) another, it can still be useful to develop an intuition for it. A high Attention relationship might look like the below, where highlighted nodes and connecting lines identify those of a topic within another (in this case, references to the Dallas Cowboys within broader NFL coverage):

Source: Quid, Epsilon Theory

In contrast, a low Attention topic would be one for which the centrality and connectivity of articles was limited. The below visualization presents what that might look like (in this case, an illustration of references to concussions within the same broader NFL coverage):

Source: Quid, Epsilon Theory

Sentiment: Our Measure of the Potential Influence of Author Opinion

We also believe that the graying of lines between news and non-news coverage has created an environment in which nearly every piece can be expected to include at least some affect of the author or publisher, even when great pains are taken by fastidious, ethical journalists to avoid it.

We think sentiment measures – even ours – should be viewed with caution. The main reason is that many topics are intrinsically related to terms which have ‘negative’ sentiment under any scoring system. You won’t find many articles about climate change with a cheery tone, but that doesn’t mean that the author is necessarily including opinion. What can be useful, however, are comparisons of sentiment over time, or comparisons of like coverage – for example, across candidates. That is where we tend to focus our efforts.

Who is it for?

People who want to make up their own damn minds.

People who want to know when conscious or subconscious use of language by politicians, media members and other influential figures and entities is influencing the lens through which we think about and – with other civically and politically minded fellow citizens – collectively experience the debate about our country’s political direction.

Some outlets try to approach these questions through analysis with sentiment, or with sentiment and time-on-air measures, or with fact checks. Those are all adequate for some purposes, but they don’t capture the things we intuitively sense about the nature of political coverage and the stories we begin telling ourselves about “what this candidate means for America” or “what it means that this policy is even being discussed.” Those kinds of abstractions are where we tend to be led toward politically polarized outcomes. They’re also the kind of thing that NLP is very well-suited to explore.

With that, here’s our first look at the summary of Election Narratives as of April 30, 2019, which we will supplement with Candidate and Policy-specific detail in future pieces.

Election Narrative Structure as of April 30, 2019

Source: Quid, Epsilon Theory

Commentary on Election Narrative Structure

  • The Democratic rallying cry that has resonated throughout election coverage is, roughly, “This is not America.” Right now that looks like a progressive populist message, caught up in a variety of discussions about and coverage of socialism, freer immigration, rural America, student debt, and Latino turnout.
  • Among the large clusters of articles that are not “round-up” style pieces, the five most influential clusters on the overall network – meaning those with the most universal language similarity – are (1) Latino Turnout, (2) Mayor Pete Buttigieg, (3) Mueller Report, (4) The Joe Biden Allegations and (5) Rural America.
  • Those with the most similarity to multiple different topics – indicating strong external relevance to other subjects – are (1) New Hampshire Democrats, (2) Latino Turnout, (3) Student Loans and Marijuana, (4) Not America, Ilhan Omar and Socialism, and (5) Mueller Report.
  • While Biden’s coverage was much higher in volume than that of other candidates in April, the content that was most similar to the overall story being told about elections was not about Biden. His most connected topics in April were, alas, not related to his candidacy but to behavioral allegations.
  • PTSD from 2016 seems to have kept Rural America squarely in the crosshairs of a lot of the media discussion about the 2020 election.
  • While an electoral strategy predicated on Latino turnout has not produced much content (yet), what content is there is very consistent with the overall story being told by the media about the 2020 election.

Candidate Cohesion Summary

Commentary on Candidate Cohesion

  • Candidates in bold are those for whose coverage we would exercise special caution in our news consumption habits.
  • Even pre-candidacy, coverage of Biden used very consistent language. With his formal announcement, the April measure placed him at the top. While some of this is related to the topical consistency of the announcement itself (i.e. we don’t think everyone using and printing the same quotes from the announcement is necessarily concerning), we still think that readers should be mindful of adherence to media narratives in coverage of Biden’s candidacy at this time.
  • We share a similar view of Sanders, whose prior candidacy and fairly well-established ‘story’ has created the strongest primary-season cohesion of all candidates. The media have largely decided how to report on Sanders and how to structure their coverage of events relating to him. We continue to recommend caution to readers.
  • Yang, Gabbard, Buttigieg and Klobuchar have tended to yield the least internally consistent language among all candidates; however, both Buttigieg and Gabbard saw meaningful gains in April. We think that is indicative of Buttigieg’s formal candidacy announcement and crystallization of “anti-War” coverage for Gabbard, but readers should be on guard.
  • We are observing some deteriorating narratives for Warren and O’Rourke. That doesn’t mean a negative – it simply means that media articles are not as uniformly on-message in the language they use to describe each of these candidates. We think this is more ‘real’ in the case of O’Rourke, where the previously generous coverage has begun to break down. In our judgment, the weakened narrative structure for Warren is more the result of regular involvement in non-election news creeping in and diversifying the focus and language used.

Candidate Sentiment Summary

Commentary on Candidate Sentiment

  • The candidates in bold are those whose levels or changes in coverage sentiment would give us pause in our consumption of election coverage.
  • Yang’s sporadic coverage is almost universally glowing, as he has thus far received disproportionately positive “Yang Gang”-style puff piece features. As always, we aren’t arguing intent to make him a more prominent candidate, but we would expect his coverage, cohesion and popularity to grow on this basis.
  • Biden gets the other side of the coin. Coverage of him is universally – in both April and on a primary-season-to-date basis – decidedly more negative than that of other candidate. It is somewhat harder to ignore the media’s displeasure with his polled popularity as a candidate.
  • We would use caution in our takeaways from the big movers as well. Before his announcement, Buttigieg was a Yang-like darling in the media. Afterward, he was subjected to substantially more critical language.
  • Sanders, on the other hand, has been a net beneficiary of negativity toward Biden in particular, at least in media sentiment, if not in polls. As noted in the cohesion section, we would exercise caution in consuming news and feature content about both candidates at this time.

Candidate Attention Summary

Commentary on Candidate Attention

  • Among high-polling candidates, the broader election narrative (i.e. topics, language, people and issues) aligns most closely with Sanders and has since the beginning of the primary process. In other words, the things that journalists, opinion writers, bloggers and pundits are saying about the election and its major issues are the things they also associate with Bernie Sanders.
  • Both Biden and Buttigieg’s alignment with key election narratives fell sharply in April, although this is likely because most coverage in April focused on their candidacy announcements (which tend to be unrelated to broader election issues). As noted above, one Buttigieg-related cluster (not the full range of articles relating to him) sat nearest the ‘Zeitgeist’ of the election coverage in April, so ‘non-announcement’ coverage still seems to be high attention for Mayor Pete.
  • By analog, the narrative alignment of Beto’s candidacy improved after a similar drop he experienced in March, although in the aggregate his issues-and-language connection to the broader election coverage is still lower than it was at the beginning of 2019.
  • Despite his popularity in polls, the language used in Biden articles is broadly at odds with general election narratives (which, as you might imagine from Sanders’ much higher Attention score, is because comfort discussing socialist policy is very much on-narrative). It will be worth noting in May how much the announcement drove Biden’s figure lower.
  • In general, our interpretation is that media treatment at this stage has been more aligned with more progressive candidates and their platforms and less favorable to more centrist candidates and theirs.

The Continuing Series

We will publish candidate-specific reports from April for the rest of May as part of our free service on the Epsilon Theory website. Thereafter, this series will continue as an Epsilon Theory Premium feature and will require a subscription.

If you are looking for a more detailed package of our election narrative signals and analytics, including raw data and candidate- and issue-level narrative structure analysis, please email us directly at [email protected]


A Clear Eyes / Full Hearts Story


I like to think that we do a good job responding to our readers’ questions.

If we have a weak spot, however, I know where it is. It is the unerring target of the question we receive most often: “What books would you recommend?”

It is a completely fair question to ask. Our work references a great many books that could (and probably should) come highly recommended. And yes, Ben and I are both passionate, greedy readers of just about anything in our areas of interest. You would think we would recommend books all the time.

But we don’t. Yes, Ben published this list…in 2014.

And yes, we fairly enthusiastically recommended Cixin Liu’s The Three-Body Problem.

But in general, it’s a question we answer a lot less often than we receive it.

I can’t answer for Ben, but for me, the reason is simple: I hate book recommendations. When I used to recommend books, it became obvious to me that people rarely took my advice. If they did, they bought the book and never cracked the cover – which is still something, I suppose, at least from the author’s perspective. I’m not being critical. I did – I do – the same thing. I’d ask for book recommendations from people I considered thoughtful almost reflexively, as if reading what they considered most important would give me insights into how they developed their much more comprehensive worldview. Or maybe I’d just buy the book and leave it unread. Or better yet, maybe I already owned it, and it made me feel like we were on the same team in some way. So I made it a rule to stop recommending books. Mostly.

I am going to violate my rule. I’m going to violate it for three reasons:

  • The book is really, really good;
  • The book expresses a sentiment that I think you will find a useful case study in Clear Eyes and Full Hearts; and
  • The book is short, which means we might all actually read the thing.

Give Michael Brendan Dougherty’s My Father Left Me Ireland a read. It will be the work of an evening.

“Telling a story at all changes your relationship to the events you are describing.”

My Father Left Me Ireland, by Michael Brendan Dougherty

Dougherty’s book explores the power of storytelling on both the teller and the listener. In a deeply personal and arresting fashion, he examines his relationship with a distant sometimes-father, his present-but-complicated-mother, and a shared heritage that acted as a sort of abstraction layer to better navigate the nature of and connections between each of those relationships. For Dougherty, that was Irish culture and identity.

Like so many of us, for Dougherty that abstraction layer – the narratives of identity, who we are, where we belong – first drifted with his mother’s influence toward Irish nationalistic kitsch. We have written a lot recently about kitsch and Deadly Theatre, most of which you can find by searching the Epsilon Theory archives for the word, “Yay.” Among its most powerful traits is its ability to act as a substitute for genuine connection. That’s an attractive enough trait to make it pretty damned common.

Over time, and with greater exposure to a more cynical world, it is similarly common to become acutely aware of the cheapness of that kind of revisionism. So it is that after early exposure to caricatured versions of what it means to be something, we often revert into a deconstructed, nihilistic revisionism of a different kind. We disbelieve and reject that there might be any fundamental value in these seemingly ‘arbitrary’ associations, ideas or institutions. Nationalism, religion, so-called culture, homeland. All hokey constructs, to be seen for what they really are.

And yet.

“Aloofness misleads us. This ironic distance is insufficient when we are really tested.”

– My Father Left Me Ireland, by Michael Brendan Dougherty

So often, this atomized view of the world, as Dougherty calls it, leads us to and is further reinforced by the process of curation, a kind of picking and choosing of ideas and associations and commitments as matters of ephemeral preference. This process supports a worldview that rejects any kind of natural, primordial connection between us and others, or between us and the ideas that ought to be clung to even when they seem to not be working in some present way. It is deeply cynical, something Dougherty recognizes in the letters his younger self wrote to that distant father.

But was I worth knowing? I doubt it. Not only was I painfully insecure, I was shallow. Someone who approaches life like a curator will exchange his faith for merely believing in belief. He’ll substitute taste where conviction belongs. I was content to slide down the surface of things.”

– My Father Left Me Ireland, by Michael Brendan Dougherty

The cynical philosophy is also a broken one – one it takes the birth of Michael’s own child to begin to repair. And there, I think, is the power of Dougherty’s argument: the family is the thing. Not the family per se (although I think both he and I would argue that has a sort of truth as well), but what we understand so intuitively when we marry, or look at our son or daughter for the first time. We know without the need for kitsch or artificial bombast the unbreakable nature of those connections, and the permanent, unquestioned, unconditional commitment they demand from us. We know without anyone telling us how important it is to help our kids know where they came from – the people who sacrificed, the lives they led, the mistakes they made and the values they kept – and to provide the roots that will permit them to make their own I AM.

And if we can know with no great feat of imagination this living contract between those who came before us and those who come after, how much further can we expand our walled gardens? Can we accept that these kinds of connections can be good or healthy with our neighborhoods? Our towns? Intellectual communities separated by miles but connected by electrons? Cultural institutions like charities, churches, artist communities? Nations? Is there room for the stories we tell to be stories about all of us?

It is something to be intransigent about, as one would be in the defense of a home.

– My Father Left Me Ireland, by Michael Brendan Dougherty

Michael’s is a story of Clear Eyes, a parable of the the narrative abstractions and constructions which can create a cheapened form of meaning. Yay, Ireland!

It is also story of Full Hearts, the recognition that there is still identity and reciprocity to be found in stubborn attachment to what kitsch pretends at – the cultural values, connection and uncynical, unfailing belief in the ideas or faiths we believe to be important.

But more than anything, it’s a story about finding a home. Finding your pack.

I think it’ll be worth your time.


The Weekend Zeitgeist – 5.18.2019


Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories. On the weekend, we leave finance to cover the last week or so in other shifting parts of the Zeitgeist – namely, politics and culture. It’s not a list of best articles or articles we think are most interesting … often far from it.

But these are articles that have struck a chord in narrative world. 

May 18, 2019 Narrative Map – Non-Financial Articles

Source: Quid, Epsilon Theory

The Fight Against Anti-Semitism Is the World’s Responsibility [Jewish Journal]

There isn’t much to be said about this, except how depressing it is that articles about anti-Semitism are still among the most-connected to broader narratives in news in 2019.

The Modern Bonfire of the Vanities [American Greatness]

The iconoclasm debate is back on the menu, and the kind of language used by each political pole on this topic is fairly well-established at this point. That means that a story or two, an editorial like this and coverage of Mayor Buttigieg stating his willingness to consider removing art celebrating Thomas Jefferson are enough to bring this back to the front-and-center.

It is a topic that emerges because it is so naturally virulent, and so little subject to mind-changing that the act of bringing it back into the public consciousness seems almost certainly a sign of intent to expand the widening gyre. This ranting opinion article is exactly of that ilk, intended to convince no one of anything, other than to convince anyone right of center to “get mad.” Everyone has abstracted the monuments into whatever issue matters to them, argues on that basis, and all the angry ships from both sides pass in the night.

If the article you’re reading about includes monuments to Jefferson or Washington, consider this a GTC instruction to ask “Why am I reading this NOW?”

The Gig Economy In The Crosshairs: The Ninth Circuit Extends Dynamex Retroactively [Vinson & Elkins]

The article is wonkish, of course. It’s the V&E blog, after all.

But the language of gig economy businesses, wages, and the powerful and rising influence of technology companies on our lives and livelihoods, are all highly connected parts of the Zeitgeist. I think it is likely they will be connected to our upcoming election cycle as well.

The Trailer: The left has pushed the Democratic Party, but Biden isn’t passing the litmus tests [Washington Post]

As we will argue when we launch our ET Election Index in the coming days, while Biden is polling extremely well, the language used in discussions about Biden is among the least connected of any candidate to the narratives and core issues of the campaign. There is plenty of time for that to change, of course, but for now we there’s a meaningful chance that either his dominance begins to fade or his policy platform is forced to move leftward.

The Navy’s probe into sky penis For the first time, the tale can be told. [Navy Times]

  1. God bless the person who wrote this sentence.
  2. God bless FOIA.
  3. God bless the Navy.

See the face of a man from the last gasps of the Roman Empire [National Geographic]

Hedonic adjustments, even in death. Yes, funerals may cost upwards of $10,000, but you really must consider the quality and craftsmanship of this beautiful mahogany-paneled casket before you assert inflation against a shallow rock-lined pit.