The Long Now, Pt. 1 – Tick-Tock


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Last year I wrote a series of notes called Things Fall Apart, focused on the transformation of our most important social institutions – small-l liberal institutions like free markets and free elections – from cooperation-allowing games to competition-requiring games. That sounds bloodless and small, but it’s not. It’s literally how society self-destructs in a widening gyre of mistrust and defection.

Today I’m starting a new series of notes called The Long Now, focused on the further transformation of our social institutions into political utilities … into smiley-face Panopticons of self-censorship where our marrow of autonomy and free will is sucked dry by the Nudging State and the Nudging Oligarchy.

Our money, too. Yes, this will be “actionable”, just maybe not in the way you’re used to.

The Long Now is everything we pull into the present from our future selves and our children.

The Long Now is the constant stimulus that Management applies to our economy and the constant fear that Management applies to our politics.

The Long Now is the Fiat World of reality by declaration, where we are TOLD that inflation does not exist, where we are TOLD that wealth inequality and meager productivity and negative savings rates just “happen”, where we are TOLD we must vote for ridiculous candidates to be a good Republican or a good Democrat, where we are TOLD that we must buy ridiculous securities to be a good investor, where we are TOLD we must borrow ridiculous sums to be a good parent or a good spouse or a good child.

It’s all happened before.

Here’s a SJW journalist who saw it clearly in the 1930s and 1940s.

History has stopped.

Nothing exists except an endless present in which the Party is always right.

George Orwell, “1984” (1949)

What Orwell called the Party, I call the Nudging State and the Nudging Oligarchy. I call it Management. Why? Because the future is not – as Orwell had it – a boot stomping on the face of humanity forever. Please. So messy. So … inefficient.

No, the future is a smiley-face authoritarianism, an authoritarianism that is not imposed on us, but an authoritarianism that we embrace.

 It’s not “Yay, Big Brother!”.

It’s “Yay, Capitalism!”, “Yay, Military!”, “Yay, Diversity!”, “Yay, College!” and “Yay, Stock Market!”.

You’re not, ummm, against any of those things, are you? Because that would be … unfortunate. I mean, you helping the terrorists and all.

Things Fall Apart started with the political and ended with the personal. Let’s flip that on its head with The Long Now. Let’s flip it ALL on its head. Because I know a few things about Time.


Tyler Durden, meet Neb Tnuh.

When did the future switch from being a promise to being a threat?

Chuck Palahniuk, “Invisible Monsters” (1999)

I remember exactly when MY future switched from being a promise to being a threat.

It was when my father died suddenly of heart failure in the summer of 1996. He was 62 and I was 32.

There’s something about the dynamic of your father dying suddenly that changes your relationship with the future and with time. Or at least it did for me. Now I was on a trapeze without a net. Now it was All. On. Me. With a baby on the way. Now, to use Palahniuk’s words, the future seemed like a threat, not a promise, where MY death was next in line. For the first time in my life, I felt the pressure of time and mortality, not as some philosophical musing, but for what it IS – an omnipresent pang, a constant bzzt-bzzt-bzzt of that feeling where you wake up with a start and you’re sure that the alarm clock is about to ring but it’s only 3am so you go back to sleep but you wake up again with a start and it’s 3:45 am.

Death inspires me like a dog inspires a rabbit.

Twenty One Pilots, “Heavydirtysoul” (2015)

So right.

See, the threat of the future isn’t a bad thing.

The threat of the future INSPIRES me. The threat of the future DRIVES me.

I’m not moping around waiting to die. I’m not lazing around eating bonbons. The present is for DOING. The present is FLEETING. I’ve got something to SAY before I go. I’ve got a future to SECURE for my children, because in them I can still see future’s promise and not just future’s threat.

This is your life and it’s ending one moment at a time.

Warning: If you are reading this then this warning is for you. Every word you read of this useless fine print is another second off your life. Don’t you have other things to do? Is your life so empty that you honestly can’t think of a better way to spend these moments? Or are you so impressed with authority that you give respect and credence to all that claim it? Do you read everything you’re supposed to read? Do you think everything you’re supposed to think? Buy what you’re told to want? Get out of your apartment. Meet a member of the opposite sex. Stop the excessive shopping and masturbation. Quit your job. Start a fight. Prove you’re alive. If you don’t claim your humanity you will become a statistic. You have been warned.

Chuck Palahniuk, “Fight Club” (1996)

The threat of the future revealed itself to me in 1996 with the death of my father and the birth of my child. One day the threat of the future will reveal itself to you, if it hasn’t already. When it does, you will be CONSUMED by thoughts of the future. You will FEEL the pressure of time more keenly than the younger you could ever imagine.


Time is the fire in which we burn.

Delmore Schwartz, “Calmly We Walk through This April’s Day” (1938)

You’ve never heard of Delmore Schwartz. In 1938 he set the New York literary scene on fire at the ripe old age of 25 with the publication of In Dreams Begin Responsibilities, a brilliant collection of short stories and poems about his parents’ marriage and divorce, and Delmore’s estrangement from them. From their “death”, so to speak. His work is imbued with the failure of the American dream for his generation, with the way in which the Team Elite of prior generations sucked the economic marrow out of the Gilded Age and dominated politics with false narratives. Sound familiar?

Delmore Schwartz wrestled with the threat of the future alone and unloved, and he succumbed to alcoholism and madness. He died in 1966 at the Chelsea Hotel – penniless, childless, friendless – dead for two days before a cleaning lady found his body. He was 52. Time is the fire in which we burn. Or rot.

The threat of the future washed over Delmore Schwartz in 1938 as surely as it washed over me in 1996. As surely as one day it will wash over you. But he never found his Pack.

If you would wrestle with future’s threat … if you would stare back at the abyss, as Nietzsche would have it, or if you would yell at the clouds, as The Simpsons would have it … find your Pack.

But see, that’s only one of the things I know about Time.


As Paul Harvey used to say, here’s the rest of the story.

It was the summer of 1996, early June, and I was teaching a course at Simmons College in Boston to make some extra dough. Jennifer was clerking for a lawfirm down in Dallas, pregnant with our first child. My dad called. He and my mom were in London, where they had rented a small flat for a month. Did I want to come over and stay for a few days? As it happened, I had five days free, perfect for a long weekend trip. I walked down to a cheapo travel agency on Boylston (yes, a physical travel agency), and found a ticket for $600 or thereabouts. Seemed like a lot. I could have afforded it, by which I mean there was room on my credit card to buy it, not that I could really afford it. $600 was a lot of money to me. That said, I hadn’t seen my parents since Christmas, and my dad sounded so … happy. This was a special trip for them, a chance to LIVE in a city that my father LOVED, and this was my chance to share it with them. But $600. I dunno. I called my father and told him that I just couldn’t swing it. He understood. He was a very practical guy. The call lasted all of 20 seconds. You know, international long distance being so expensive and all.

I never saw my father again. He died a few weeks after he and my mother got home.


Yeah, I know a few things about Time.

I know that the moving finger writes, and having writ, moves on.

I know that I would give anything to go back to that week in June 1996 and buy that stupid ticket that I couldn’t “afford” but really I could afford and spend five more days with my father and not do anything special but just BE with him and share a beer at that pub that he mentioned on the phone but that I just can’t remember the name of no matter how hard I try and it’s weird but that’s what bugs me most of all.


What do I know about Time?

I know that there is no Long Now.

The Now is short. That is exactly what makes it precious beyond price.

The Now is for LIVING.

I know that there is no Safe Future.

The Future is risky. That is exactly what makes it precious beyond price.

The Future is for INVESTING.

Yet instead of living in the Now and investing for the Future, we are nudged into “investing” for the Now and “living” in the Future.


Economic stimulus

The threat of the economic future is removed by fiat and narrative, replaced by the Long Now of constant economic stimulus.

Political fear

The promise of the political future is removed by fiat and narrative, replaced by the Long Now of constant political fear.

We are told that the economic stimulus and the political fear of the Long Now are costless, when in fact they cost us … everything.

The Nudging State and Nudging Oligarchy will tell you “TINA!”. They will tell you that There Is No Alternative.

I tell you this is a Lie.

I tell you this is Sheep Logic, the intentional training of human intelligences to pursue myopic, other-regarding behaviors even unto death, through the vehicle of the Long Now.

What is the alternative to the Long Now?

Personal courage

Leaders who act as stewards of the future, not managers of the Now.

Professional courage

Investors who take more risk with what’s Real, and less with what’s not.

Social courage

Citizens who take back their vote, and who refuse to play the Fool.


PDF Download of single chapter (paid subscription required): The Long Now, Pt. 1

PDF Download of entire series (paid subscription required): The Long Now


The Dog That Didn’t Bark


The dog that didn’t bark is the punchline to a famous Sherlock Holmes story, Silver Blaze, where our man Sherl deduces that the killer was a familiar presence at the murder scene because of the absence of a clue – the watchdog who barked not at all as the murderer came and went.

It’s the same thing with US fiscal policy … it’s the absence of a clue that tells me the market is extremely complacent about what is coming down the pike here.

That clue is, of course, the market narrative, and when I say that a market narrative is absent from US Fiscal Policy, I mean that there is no connection between the occasional financial media article about budget votes or fiscal policy and ANYTHING written about markets per se. This was the point of an ET Zeitgeist note I published last Friday, titled We’re All MMT’ers Now. It’s a quick read and worth your time.

In this email, I want to show you the Narrative Monitor we maintain on US Fiscal Policy so that you can understand why we think this is a big deal.

Here’s the page on the ET Professional site where you can access this Monitor data, and here’s what Rusty had to say about our results:

  • As in prior months, there is very little attention being paid to fiscal policy/budgetary topics, and practically no linguistic connection between them and financial markets narratives.
  • Cohesion and Fiat News, too, remain at floor levels.
  • We counsel some awareness of the scale of policy proposals, especially those being promoted by leading Democratic candidates. The market is paying zero attention with zero cohesion, which we observe as a complacent structure.
  • A sufficiently credible candidate with a GND/MMT-style approach could be a significant surprise to a market that could not care less about debt ceiling negotiations, government shutdowns, debt levels or budget deficits.

And here’s the narrative map itself:

What Rusty is focused on is the peripheral position of market-related narrative clusters (what’s moving the US market, why are China stocks rallying/falling, etc.) all found at the top of the narrative map, and the distance and empty space between these clusters and the center of the narrative – the record US budget deficit – as well as the distance and empty space between these clusters and the bottom of the narrative map – the fiscal policies proposed by Democratic candidates.

Up/down/left/right means nothing in these narrative maps. You can turn them 90 degrees or upside-down and nothing changes in their meaning. What is meaningful is centrality and distance and the connective links between clusters.

When Rusty and I see a narrative map like this, we immediately look at the narrative core of anything written about US fiscal policy – the record deficit shown as a bright red cluster – and how linguistically divorced those articles are from ALL other articles that show up when you do a search on “fiscal policy”. None of these peripheral articles are really about fiscal policy. They use that phrase in the article, but the article is about something else.

We also see that the articles about markets are as far apart from articles on Democratic candidate policies, like student debt forgiveness, as it is possible to be on this map. In other words, even though all of these articles share the phrase “fiscal policy” somewhere in their text, there is ZERO linguistic connection between an article about markets and an article about what a Democratic president would do about student debt. THAT is what we mean by a complacent narrative structure.

Will the market go up or down as it becomes less complacent over fiscal policies over time? Yes. And I’m not trying to be cute with that answer.

I don’t know what the market reaction will be as (or if) fiscal policies and proposals become biting (or pleasing) realities. All I know is that the market is unprepared for this. All I know is that fiscal policy is NOT in the price of financial assets today.

Yours in service to the Pack,



Children of a Lesser Narrative


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.

Why We Should Fear Easy Money [NY Times]

There’s an ET note for that.

There’s an ET note for that, too.

There’s an ET note for that, too, although we’d probably differ on the focus on bearish sentiment. The author is certainly right that these are possibilities, but we think the transformation of capital markets to utilities is a powerful, largely stable narrative.

You may not know his name if you aren’t in the money management industry, but Ruchir’s is a powerful missionary voice. Pension funds, sovereign wealth funds and others care what he says. They will repeat it to their boards. They’ll put it in their own words and call it their new outlook, or else they’ll put it in the ‘risks’ section of their 2020 strategic planning. That’s how narrative works.

Alas, this still isn’t the dominant narrative. Frankly, against the tide of ‘Financial Asset Appreciation = Economic Strength = National Strength’ memes promoted throughout political and financial media, it barely registers. Still, it’s gratifying to see some emerging coherence around these ideas, even if the piece had to summon the spectre of a crash to fit the Zeitgeist.


We’re All MMT’ers Now


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.

Why Trump swallowed a budget deal that bleeds red ink [Politico]

“The president asked Mnuchin to negotiate a deal. And Mnuchin went to Pelosi saying, ‘How much is it going to cost me to get a debt limit increase past the election?’’’ one former senior administration official said sarcastically. “He doesn’t care about the cost. Wall Street is happy. The defense folks are happy. That’s good enough.”

“He didn’t do anything. The pay-fors, offsets are a joke. It’s an accounting trick,” said one GOP senator. “It was sad. And he’s gleeful that the president loves him best for the moment.”

Back in 1971, Richard Nixon famously said “We’re all Keynesians now“, referring to his embrace of stimulative Federal government spending to juice his electoral campaign in 1972.

The only difference between Nixon and Trump in this regard is that at least Nixon made a half-hearted attempt at pretending that he cared about deficits. Ditto Reagan. Ditto Bush 41 and Bush 43. It’s my catchphrase about the oligarchic excess of the Trump regime:

They’re. Not. Even. Pretending. Anymore.

That’s why I found this Politico headline so funny … that somehow it was difficult for Trump “to swallow” a budget agreement that runs $1.4 trillion deficits for as far as the eye can see.


This is exactly the budget that Trump wanted. Please, please don’t throw me in that briar patch!

You know, we spend a lot of time here at Epsilon Theory with Natural Language Processing (NLP) engines that allow us to visualize the narratives that wash over us like water. I would like to show you a visualization of the US budgetary debate narrative. I would like to show you a picture of the fiscal policy narrative and its connection to the investment narratives that swim in the financial markets ocean. There’s just one problem.

That narrative connection does not exist.

I mean … are there occasional articles printed in the national media about the federal budget and the national debt and all that “stuff”? Sure.

But there is essentially zero narrative or linguistic connection between those articles and anything written about financial markets. Our words about markets and investing do not connect to our words about budgets and spending. At all.

I’ve never seen a less cohesive, less attentive narrative structure.

And I’ve seen a lot of narrative structures.

Why is this important?

Because THIS is what complacency looks like.

What breaks that complacency?

If Trump is reelected in 2020, I think he pushes forward a $2 TRILLION bond issuance that is fully or partially monetized by the Fed. They’ll be called Infrastructure Bonds.

If a Democrat is elected in 2020, I think she or he pushes forward a $2 TRILLION bond issuance that is fully or partially monetized by the Fed. They’ll be called Green Bonds.

It’s the same damn thing. Because … once again, with feeling … They’re. Not. Even. Pretending. Anymore.

Does the market go up or down on this? Yes.

We’re all MMT’ers now.

You ready for that? I bet you’re not.


The Patsy, Revisited

Image result for warren buffett

As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

Berkshire Hathaway Chairman’s Letter (1987)

This is the ur-quote. The True Source from which all hedge fund investor letter quotes spring.

I’m not criticizing. It’s a great quote. I’m also not pointing fingers. We’ve used the true-to-Buffett ‘patsy’ version of the quote at least once in past Epsilon Theory notes. We have used the ‘sucker’ version at least six times, by my count.

Funny thing about this quote, though. It means something different depending on who’s saying it.

It is used most often by Very Smart People to wave indistinctly at a crude straw man in the distance they call Most Investors. This straw man is clothed with all sorts of really lamentable traits, you see. He buys when everyone else is greedy. He sells when everyone is fearful. He hates value stocks and he always pays high active management fees. If you ever happen to play poker with Most Investors, just remember that he is always, always the Patsy.

Slightly less often, it is used by equity investors and fund managers in reference to reasons they have incorporated some acknowledgment of behavioral finance, sentiment, consensus views or momentum into their thinking or their process. It’s the calling card of the Wise-Sounding Skeptic, who can always get some street cred for telling you that there’s no free lunch, or that anything that seems too good to be true probably is. Again, before you hit the search window up there, remember: I’m not pointing fingers.

Ironically, in both of these cases, the focus of the aphorism is about you or about them. The other people at the table, who are sort of the whole point of the thing, are rarely more than an abstraction of individual actors into some archetypal idea of “the market”, if not another layer of abstraction into that loosely related piece of conceptual art called Most Investors. Hell, even Uncle Warren’s original bit was about Mr. Market.

You know who gets it, though? Debt guys.

No, not universally. Contrary to popular opinion (see, I built my own Most Investors, too), there’s no ‘smart’ part of the market. There are plenty of lousy credit long-short PMs, and even more dummies who’ve made a nice living getting pensions locked up in sidepockets or second extensions on way too much of NAV because of poorly executed loan-to-own strategies. But the guys who are actually in the business of worrying about where the rights that matter sit in the cap structure are the guys who are also in the business of understanding who is sitting at the table with them.

Not in some abstracted Mr. Market sense, but in the real-world sense of “Hey, who else actually owns this shit?”

In practice, most modestly shrewd equity investors can get away with abstracting the poker analogy to Mr. Market without worrying too much about who else actually owns what they own and why. There are generalizable archetypes of behavior and preferences. We kind of know how the academic factor quants are going to respond to this or that. We kind of know that there are knowable quantities of price-indifferent passive money. We suspect there’s a certain amount of contrarian capital ready to BTFD, and a certain amount of CTA money ready to take one on the chin when they do. We let that one guy at JPMorgan throw a dart to be breathtakingly wrong again about how much risk-targeted AUM is ‘in motion.’ Whatever mental model we have isn’t going to be anywhere close to perfect, but it’s usually going to be good enough for Bayesian work.

But if anyone is willing to tell you that they have a view on how a speculative asset (see here for the particular definition of this term I mean) will perform in a period of stress for risky assets, or that it should have a weak or negative correlation to, say, equity markets, and if their analysis is based on some trait or analysis of the asset itself and not the behaviors of the specific people who own the thing, they are probably raccoons.

And yeah, there are a lot of suspects for this particular crime. Folks selling you crisis risk portfolios holding selling something other than long USTs? Crypto “hedge funds” with correlation matrices in the deck? They deserve your skepticism.

No, not all of them are guilty.

But if a fund manager, salesperson or consultant tells you they know of an asset class that will buck the trend if and when risky assets deflate, here’s a tip: ask them who the other people sitting at the table in that asset are. Ask them to be explicit. Ask them to tell you why they believe those people will respond that way and not in the price-sensitive way Most Investors respond to broad-based risk aversion.

When you do, if they can’t answer, or if they start talking ‘fundamentals’ of the asset, please call your local animal control.


So I got that goin’ for me


Dry a subject as you’d imagine they would be, buybacks have become a topic every bit as polarizing as some of our political discussions. No matter how nuanced your view, it will be auto-tuned to some extreme by the obedience collar-wielding ideologues on one end of the spectrum or the dog whistle-wielding ideologues on the other.

Even now, someone is preparing a “stop with the bothsideism – it’s just math” response without reading any further.


It’s not about the math.

Sure, in nearly all cases where companies buy back stock, in the narrowest interpretation of that specific action of buying back stock, is management acting ethically and in the interest of shareholders”? Almost universally yes, because math. In a nearly universal range of circumstances, stock buybacks evaluated independent of other considerations are a really good, really efficient way to return capital to shareholders to deploy as they desire. In a very real sense, it can represent a company delivering on its most fundamental duty to the people who trusted it with capital: returning it to them with greater value.

So why isn’t it about the math?

Because the questions being asked about buybacks go beyond “in the narrowest interpretation, is management acting ethically and in the interest of shareholders.”

Because what buybacks (and any form of return of capital) tell us in general about corporate opportunities and American willingness to take business risk to produce returns at a macro scale matters.

Because what that tells us about how central banks and other policymakers are artificially influencing the relative attractiveness of those investment opportunities matters.

Because the way in which stock-based compensation structures may be exploiting the general (and appropriate) approbation of stock buy-backs among investors in order to mask the appearance of higher tax-advantaged compensation matters.

Because the way in which financialization in general is squeezing margins higher and making markets as measured on a P/E basis less expensive-looking matters.

Because even if you don’t think these things are nearly as bad as buybacks are good (and they are good), if you don’t realize that Wall Street is losing this meta-game, you aren’t paying attention.

So when you read this article in the Atlantic today, I suspect you will probably respond (or already responded) like I did:

You will cringe at the predictable framing of the issue around Michael Milken for some damned reason.

You’ll have ammunition ready to dispute the conclusions, robustness and analytical quality of the Fortuna study.

You’ll wince at the loaded word choices. “Draining capital.” “Corrupts the underpinnings of capitalism itself.” Really?

You will be ready to highlight how comparison of buybacks to corporate salaries without applying the same logic to dividends, debt reduction or any other effective return of capital is cherry-picking bias meant to inflame a certain kind of reader.

You will read the closing paragraph, chuckle at its sheer cheek, and find your brethren in the break room, colleagues at other shops and followers on social media to laugh about its bias and absurdity.

And you’d be in the right to do so. It is. It’s biased. It’s absurd.

And yet, it is also worth remembering our oft-told tale of coyotes and raccoons.

You see, you and me? We’re the coyotes. We’re wise enough to understand that those jars of pennies the Wilton retiree is shaking at us won’t actually hurt us. We know we’re right about the math of this efficient return of capital that is buybacks, and we’re going to shout down all this terrible analysis until everyone realizes we’re right. We are too clever by half.

Those guys in boardrooms figuring out ways to take advantage of our charitable passion for this issue to immunize their non-cash comp? They’re the raccoons. And they will continue to succeed in skimming the cream off their artificial EPS beats as long as we’re so focused on arguing with the Gell-Mann Amnesia-ridden readership of the Atlantic about the obvious damn math of buybacks.

It’s. Not. About. The. Math.

If we care about maintaining the flexibility of corporate management teams to deploy and return capital flexibly and with the least interference by regulators and politicians – and we should – every moment that we spend as an industry debating and analyzing the math of buybacks instead of actively seeking out and rooting out raccoonish boards and management teams is an utter waste of time. The right to return capital in a very sensible way will be legislated out of existence (again) while we thump our chests about whether the data-set used in some dumb article properly accounted for survivorship bias.

This topic is firmly in narrative land now, folks, and if you’re playing this as a single debate to be won instead of the metagame it now is, you’ll lose. But at least you’ll be right. So you got that going for you, which is nice.


I’m Not a Raccoon! I’m the Lone Ranger!


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.

U.S. Regulator Probing Crypto Exchange BitMEX Over Client Trades  [Bloomberg]

The U.S. Commodity Futures Trading Commission is investigating crypto exchange BitMEX, according to people familiar with the matter, a platform that’s become wildly popular in Asia for letting people make big bets with little money down.

BitMEX Chief Executive Officer Arthur Hayes said in an interview in January that BitMEX removes anyone who flouted company rules barring U.S. residents and nationals. However, it is possible clients masked their location by using virtual private networks to assign their computer an Internet protocol address from a BitMEX permitted country, tricking filters put in place, Hayes said.

“It’s possible.”

LOL. We can all chuckle and laugh about the obvious hucksters and con men in crypto-world, the obvious raccoons like Arthur Hayes.

Luckily for Arthur, I’m sure that none of these recent legal “entanglements” will keep him from making his appointed rounds on CNBC.

I mean, when you have Sam Waksal on your network to talk about fraud in the biotech world … not as farce but as serious commentary … well, friends, we’re no longer arguing about what CNBC is actually selling, only the price.

But I want to say something about non-obvious raccoons. I want to say something about people who are not the target of an active criminal investigation or who have not gone to prison for fraud, but are hucksters nonetheless.

Anyone who tells you that you should hodl Bitcoin buy-and-hold a non-cash-flowing, non-productive thing because of “network effects” or Metcalfe’s Law or the like … that person is talking like a raccoon. I’m not saying they ARE a raccoon. Maybe they haven’t thought this out and are just parroting an ur-raccoon. That’s at least three mixed metaphors, but you get the drift. I’m trying to be generous here.

And to be clear, there are plenty of non-raccoon arguments for hodling Bitcoin buying-and-holding a non-cash-flowing, non-productive thing. There’s an inflation argument. There’s a security and privacy argument. There’s a fashion argument. I’m sure there are more.

Also to be clear, it’s not raccoonish to say that you should TRADE Bitcoin a non-cash-flowing, non-productive thing based on the transactional popularity of that non-cash-flowing, non-productive thing. Lots of people trade precious metals, for example. They buy and they sell based on anything they believe motivates other buyers and sellers. Good for them!

What I am saying is that there is no inherent VALUE in Bitcoin a non-cash-flowing, non-productive thing from network effects. There is no “tipping point” in the adoption rate or transaction volumes of Bitcoin a non-cash-flowing, non-productive thing beyond which it becomes “too big to shut down”.

In ten-dollar words, network effects are epiphenomenon, not phenomenon, when it comes to non-cash-flowing, non-productive things. They are a shadow of a belief system, not a signal of a belief system.

What did it mean that lots of people in 17th century Amsterdam transacted in guilders and tulips? It meant that lots of people in 17th century Amsterdam transacted in guilders and tulips. That’s it. There was no grand statement beyond that. There was no signal of inherent value contained in the transaction volumes of tulips. There was no more inherent value to a Semper Augustus bulb in 1636 than in 1626, even though lots more people bought and sold tulips in 1636 than in 1626.

Price drives the transaction volumes of Bitcoin non-cash-flowing, non-productive things.

Not the other way around.

There are prominent people at the intersection of Wall Street and crypto who know this to be true – who know that the Yay, network effects! narrative is complete BS when it comes to Bitcoin – but who promote the narrative anyway.


Because it’s narrative that drives the price of Bitcoin non-cash-flowing, non-productive things.

Because they are raccoons.


They’re. Not. Even. Pretending. Anymore.


Yesterday I published a brief note called “I’m Not a Raccoon! I’m the Lone Ranger!” about the hucksters and the con men in the crypto space. The point was that the obvious frauds reveal themselves pretty easily, but there are less obvious – yet no less fraudulent –narratives for Bitcoin being made by prominent people who live at the intersection of Wall Street and Bitcoin. These are people who should (and I think do) know better, but promote these false narratives anyway because it makes them money.

The false narrative I was referring to specifically in that note was the idea that ‘network effects’ or Metcalfe’s Law or some other description of transaction volumes was a source of intrinsic value in Bitcoin. This is nonsense. There are no ‘network effects’ for a non-cash-flowing, non-productive thing. There is no ‘tipping-point’ in the transactional network around a non-cash-flowing, non-productive thing beyond which it becomes ‘too big to fail’ or becomes ‘an accepted store of value’.

Are there non-fraudulent arguments for buying-and-holding Bitcoin? Sure! There’s an inflation hedge / fiat debasement argument. There’s a security / privacy argument. There’s a fashion / expression of identity argument. But my raccoon-radar starts beeping like crazy whenever I hear someone make a network effects argument for buying-and-holding anything, much less a non-cash-flowing, non-productive thing.

I had the same raccoon-radar reaction yesterday to the FT article by Rick Rieder (Blackrock’s global fixed income CIO) and the CNBC appearance by Larry Fink in support of that article: “ECB can boost growth across Europe by buying stocks”.

The money quote:

“Lowering the cost of equity would stimulate growth through organic channels of investment, including research and development, which can provide durable economic gains.”


I mean … I like to think of myself as something of a connoisseur of trickle-down economic arguments. I get the joke. But this is INSANE. The ECB is going to spur growth in the real economy because publicly traded corporations are going to spend more on R&D if their stock price goes up? WHAT?

I’ve met Rieder and Fink a couple of times, but I don’t know them. At all. Maybe they’re decent guys. Maybe they really believe in their heart of hearts that this is wise public policy. I truly don’t know.

But if it talks like a raccoon and walks like a raccoon …


The Only Winning Move


To date we have written about the Panopticon in a mostly figurative sense. Clear eyes today means seeing it in a literal sense as well. Here’s your top of the Zeitgeist piece, a Financial Times feature on the death of privacy – and more importantly, the arguments being made in favor of its demise.

Is Privacy Dead? [Financial Times]

This is rather obviously an argument for the inevitability (if not explicitly in support) of the literal Panopticon. Indeed, there are few nudges more powerful than those which compel us to believe that we are already engaged in a contest of mutually assured destruction. How does the nudge work?

It tells you that you aren’t protecting your family if you don’t participate in the ritual of collective surveillance.

If tells you that you aren’t a functioning, right-thinking member of society if you don’t do your part to aid the herd immunity of mutually assured surveillance.

We killed our web-based ads this week. We did it for a few reasons. First, in all candor, we did it because the revenues from it were good (you’re an audience advertisers desperately want to reach), but not life-changing. Second, we did it because no matter how hard we worked with our partners, ads we didn’t feel good about kept slipping through the net (and while we’re not judging you, please bear in mind that some of the example ads you sent to me and Ben were, shall we say, uh, the result of your own browsing histories). Third, we did it because the technologies required to serve up the most valuable ads put us in the position of asking you to give up control of some of your data in ways that we found it hard to justify.

I don’t want to make this some kind of big deal, because it isn’t. We still have to collect information about you to accept payments – although even there, we are in the process of exploring the integration of btcpay through a self-hosted node to reduce even that requirement for those who are so inclined. And we are not communists: if we can find ways to serve non-subscribers advertisements that don’t effectively treat your data as if it were our own, we will put up the most obnoxious banner ads you can imagine – and smile doing it.

But no, the Big Deal is when all of us choose to act with reciprocity – acting in ways that are likely to promote cooperative gameplay. And friends, mutually assured surveillance is the ultimate competitive game, a massively sized and massively failed stag hunt that is part of the transformation of all of our social engagements into games with bad equilibrial outcomes for everyone. The nudges that can be summoned to secure our compliance are many:

We will hear that what we can do with others’ data can make us (and our shareholders) wealthier.

We will hear that it will make us safer.

We will hear that it will make our neighbors and communities safer.

Every last one of those things will be 100% true. Clear eyes.

Every last one of those things will also be 100% wrong. Full hearts.


The Problem with Brussels Sprouts


I think it started in 2010.

Within six months of patient zero, they were everywhere. Every gastropub. Every upscale comfort food concept. Every ‘American Brasserie’ in a gentrifying neighborhood. Every farm-to-table that became an OK-maybe-a-little-Sysco-to-table after six months of food cost realities.

Brussels sprouts.

No, not the actual vegetable. That would be gross. No, I mean Brussels sprouts! These things that we quartered, soaked in olive oil and butter, bathed in salt and pepper and scorched until the memory of green was all that was left. These were things that, seemingly out of nowhere, an entire industry sold aggressively to a generation whose smell memory could still produce on command that acrid, metallic scent of unseasoned frozen sprouts being microwaved in water in a shallow Corningware dish – you know, the one with flowers or a cornucopia-style collection of earthy vegetables on the side?

Y’all, the only reason anyone orders this vomitous cabbage is because it is transformed into a cartoon of itself.

But hold that thought for a moment.

I had a colleague – now, sadly, passed away – who had a favorite expression: blue light, blue suit.

The idea behind the idiom was that the job of a fiduciary was not to blindly deliver what a client wanted, but what they needed. Still, one couldn’t get around the fact that clients want to be sold on what they want. If they want a blue suit, then give them a blue suit, dammit. But not an actual blue suit that would be wrong for them. Give them the gray suit they need – and shine a blue light on it if you have to.

I had a boss whose oft-used variant was the red convertible. Do your analysis, add whatever conclusions, bells and whistles you want, even take it up a notch. But the thing I get at the end of the day better at least look like a red convertible.

I met another wealth advisor once who favored a food-related analogy for the same concept. Investors need to eat their broccoli, he said, so figure out a way to make it taste good. It was, as you might imagine, a story offered in defense of investment policy statements which emphasized asset classes and strategies which (nominally, anyway) diversified home country equity risk. Heavy on foreign equities, alternatives, real assets, that kind of thing. After 10 years of S&P dominance, nobody really wanted them, but they needed them. The trick, he figured, was making the clients OK with getting the things they needed but didn’t really care about.

It occurs to me now, I suppose, that the food-related examples of this idea are overwhelmingly common. I know a CIO, for example, who characterized some of his firm’s strategies as hiding the pill in the cheese, a tactic immediately recognizable to any dog owner. It’s your job to give him what he needs, and it doesn’t matter how he gets it.

This is the heart of the meta-game of money management.

It is easy to see for those inside the industry why this meta-game playing is necessary. I hope that it is also easy for those same people to see how it might go very wrong. In practice, however, our own self-deception about why we sell investment advice in certain ways makes it far more difficult to detect. In the interest of circumventing that self-deception, let me offer another axiom:

There is no wealth management firm in the world for which investment expertise is a sustainable competitive advantage.

This is the Brussels sprouts are objectively gross statement of the story I am telling here. The only difference is that whereas some of you may have sufficiently bad food opinions to reasonably disagree with that statement, if you disagree with the above statement about investment expertise, I think you are probably just wrong.

If you think that the edge in your advice service is performance, you are probably wrong. If you think that the edge in your advice service is investment selection, you are probably wrong. If you think that the edge in your advice service is investment insight, you are probably wrong. If you think that the edge in your advice service is uncovering new investment ideas, you are probably wrong. And yet, if prospective clients don’t believe that we can do each of these things, we will almost certainly fail to build a business. What’s worse, those prospective clients will do business instead with someone less scrupulous.

It is an uncomfortable truth, but the only reason we are usually hired is because we have been transformed into a cartoon of ourselves. A cartoon of relative expertise. A plate of Brussels sprouts, charred and covered with so much fat and salt as to be almost unrecognizable.

The inevitable path of the meta-game conscious financial adviser, then, is the creation of that cartoon of expertise. What does that cartoon look like? Well, we either celebrate some expertisey-sounding thing about our firm that really has nothing to do with expertise or the odds of any investment outcome, or we hold out the notion that something we are doing may be related to producing better investment results without exactly saying it.

We tout the home office’s resources.

We talk about the depth of our teams and resources.

We talk about team credentials.

We talk about our access to unique investments.

We talk about our ESG framework.

We talk about our research, our data, our analyst team.

We talk about our process.

We turn ourselves into a talking head. An expert.

In each of these cases, we may not say that these traits are definitely or explicitly related to better investment outcomes, but the reason we cultivate them and talk about them is absolutely to satisfy the client’s desire to hire a financial adviser with the most investment expertise. It is how we create a cartoon about our expertise, knowing full well that the client will associate that with their expected investment outcomes.

So if you’re a financial adviser, here’s the question you’ve probably asked yourself more than once: is this honest? Is it fair and good and right to heavily emphasize things in marketing that aren’t false, but which don’t really matter that much to the client’s outcomes, simply because we know the prospect or client cares about them? Does the fact that we really are delivering a very credible, high quality advice product at a really competitive fee that is far better than what the charlatans and churn artists out there are pitching mean that we can feel less bad about mentioning our amazing stock guy who’s had a great run the last few years <reluctantly insert compliance-required disclosure here>? Or the fact that our US-tilted portfolios outperformed our peer RIA across town, even though our positioning reflected bad diversification hygiene and our results reflected simple good fortune?

There’s a lot of salt and butter on those Brussels sprouts, y’all. These are hard questions. I don’t have an answer. But I do have a process: Clear Eyes, Full Hearts.  

Clear eyes: There’s no way around it. We have got to talk about these things. Our clients are grown-ups, and don’t deserve our condescension. Yes, we’ve gotta have a page in our deck with the team’s years of experience and degrees. Yes, it’s OK to talk about our process and why we think it works. Yes, it’s OK to talk about historical client outcomes, provided we’re doing it in a seriously, honestly, humbly non-promissory (and compliant) way.

Full hearts: No, we don’t have to build our entire proposition on a cartoon of relative expertise. We don’t have to treat clients like children, but we also don’t have to treat them like marks. I think that means emphasizing, not just in marketing but in practice, the elements of financial and investment expertise that are real, important and rare. I can think of six:  

  1. Identifying and consistently reevaluating and delivering the right level of risk.
  2. Delivering a nuanced, real understanding of diversification.
  3. Really influencing household expense management.
  4. Financial, estate, tax and philanthropy management.
  5. Business consulting for entrepreneurs and business owners.
  6. Structuring investments to properly complement existing illiquid holdings.

The more important truth, of course, is that the single most important thing an adviser can deliver isn’t any of these things. It isn’t a question of investment expertise at all. It’s…well…advice. When risk appetites are high, restraining exuberant behaviors. When risk appetites are low, restraining fearful behaviors. And in all cases, working constantly to ensure that when these times arise, we have the kind of relationship and trust with our clients that will make them listen. The relationship is the thing. And while I’m not saying that you, individual FA, don’t have a couple relationships that are strong enough to withstand a pretty rough go of it, I think we all need to be pretty clear-eyed about how much of these relationships will boil down over time to the perception of the results we produce.

I am also not saying that you should not earnestly try to outperform peers. I believe that there are behaviorally-driven strategies that will (nearly) always work over sufficiently long periods, even if those periods do seem to be getting, ahem, a bit longer. I believe that there are inefficiencies driven by non-economic actors in a variety of financial markets that can create opportunities with uncorrelated sources of return. I believe that there are changes in the structure of markets that occur from time to time that can create periodic sources of return. Ben and I spend half our time on these things, for God’s sake.

But they can’t be the fundamental value proposition. Not for someone who wants to do this the right way. Control your cartoon, but don’t let it turn you into a raccoon.


Mailbag: A Modern Vocational Curriculum


Few topics seem to arouse the kind of interest, creativity and occasional rancor as our diversions into higher education. When we wrote about a vocational curriculum that we thought would do a far better job achieving the true professional preparation aims of a mixed post-secondary educational system, we received a lot of thoughtful comments – enough that it made sense to make sure all of our readers saw them:

Interesting selection. You might be interested to know that something very similar ( already exists. I have no association with them, other than working with some graduates and recommending people send their kids there as opposed to University. There are a couple of changes:
1. Students pay no tuition until the graduate and get a job that pays $50K plus/year.
2. The annual amount they pay is charged as a percentage of their salary and is capped both in what’s paid in a year (I think around $17K) and in total (I think its around $30).
3. There is testing to get in.
4. It is based around software engineering.
5. The program takes 9 months to complete.
6. Lambda school is incentivized to get the students jobs, though there is more demand for graduates than there are graduates.

I can attest that their graduates are excellent.

– Andrew Meyer (ET Subscriber, via website)

We are big fans of Lambda . That said, it is a software development-focused program, whereas we think the problem it would solve is much larger. Still, both our theoretical solution and the solution Lambda is actually pursuing are both incapable of solving the credentialing problem on their own. This is a demand-side problem (w/r/t labor), not a supply side problem.

I’ll add an anecdote from my earlier years…..I knew a Burmese family that was rather wealthy – the men told me that as part of their social education, they had to spend one month as Buddhist monks , and beg for food on the streets every day . Regardless of the fact that they lived in big houses with multiple servants or that their parents drove expensive European cars.
The idea – to teach them humility ……
Of course, they cheated by asking friends and relatives to give them food every day but I thought the original concept – humility – was a good one.

– Cartoox (ET Subscriber, via website)

One of the primary challenges of the American public school setting, I think, is its inability to cultivate humility. The entire experience teaches most students that strident confidence is the path to success. In fairness, that is ONE path to a form of financial success in some professions, but the kind of self-introspection and honesty necessary to achieve more meaningful forms of success don’t come easily to those who (like me) were educated in environments where maximizing relative comparisons was the most immediately profitable path.

I could quibble in detail and pick nits around the edges, but my first reaction is that I wish that had been there for me. This would change the world, and it got me wanting to start a school.

– Howard Wetsmann (ET Subscriber, via website)

Thanks, Howard. Me too.

This is stellar. I’d add a module on design/aesthetics and probably pull the calculus. Just a tiny bit of design training makes a world of difference in almost every aspect of business.

– Brent Beshore (Via Twitter)

I struggled over this exact thing. I don’t know that I’d swap out calculus (it’s a hill I’ve chosen to die on, for better or worse), but Brent is right – design is huge. The ability to frame an idea in words is powerful. The ability to frame it in visuals is no less powerful, and in some circumstances even more indispensable.

If this was your reaction, too, I probably agree with you.

You inspired me to take a stab at this myself, @EpsilonTheory: (link:…. Quite similar to @WRGuinn‘s answer, but with a bit more focus on meta-skills. Interested in your thoughts!

– Daniel Thomason (Via Twitter)

Please take a look at Daniel’s link.

There are some things here with which I’m in violent agreement, and a few which I’m not sure about. Most notably, Daniel’s list is high on meta-skills, as he points out, which I think is spot on in terms of what leads to professional, financial and personal success. These are things like ‘discipline’, ‘decision-making’ and the like.

When we consider education, however, I personally think that we must separate what is important from what a formal direct educational platform is the best venue to convey. I agree with Daniel, for example, that personal discipline, self-control and decision-making processes are going to be far greater indicators of success than whether you remember the derivation of Black-Scholes. Where I differ, perhaps, is that I think that these are skills that are best developed in live workplace situations. Entry-level professional projects have a comparative advantage vs. formal education in developing them, and I would not focus on them in a vocational program. Your mileage may vary, however – just my take.

I’d add a course in ethics. I took an ethics course in biz school that was revealing. The class was mostly mock situations wherein collaboration produced a satisfactory result, but individual promise breakers came out better. Everyone needs to know how it feels to be cheated.

– George Hill (Via Twitter)

Unfortunately, everyone will learn how it feels to be cheated pretty quickly in their career.

This is a similar point to the one I would make to Daniel: much of what we teach is based on what we believe is important, even if the setting isn’t one that will most effectively convey the lesson. Unlike Daniel’s point, however, I think that ethical behavior is a thing which – if it isn’t clear by the time someone has graduated high school – is probably either unlikely to be grasped at all or which has been very consciously ignored by the student. In either case, post-secondary instruction doesn’t seem as useful to me.

If reinforcement is useful, it will be in assuring young professionals that there is a path to financial success and opportunity that permits reciprocity and full heart behavior. Again, however, I think that is a thing that can only be learned in practical settings.


Get Up and Dance

– Chuck Prince, Citigroup CEO (2007)

As long as the music is playing, you’ve got to get up and dance. We’re still dancing.

Chuck Prince made his infamous get-up-and-dance quote to the FT in reference to Citi’s levered loans business, although it was later taken to refer to subprime lending. No matter, it’s the perfect quote for any age and any asset class where institutions intentionally take risks they know are foolish, but risks they believe are manageable because there’s a greater fool looking to get on the dance floor after them.

The greater fool theory is the driving force behind the bid for negative-yielding debt, whether it’s European government bonds or European investment grade corporate debt.

Sure, it would seem that I’m the fool for paying the German government 25 bps per year for the privilege of giving them my capital for ten years, but if there’s someone down the road willing to pay me a nice premium over what I paid for this Bund because the 10-year rate is now -35 bps … well, take my money now, Ms. Merkel!

The rationale for buying negative-yielding debt securities is capital appreciation and gain-on-sale, not (obviously enough) the expected return of the coupon as the security is held to maturity. In other words, the get-up-and-dance game is always a return ON capital game, not a return OF capital game.

But playing for capital appreciation in a (supposedly) risk-free rates portfolio or an IG debt portfolio is a VERY different game than playing for capital appreciation in an equity portfolio or a distressed debt portfolio.

Who is managing these negative-yielding IG and rates portfolios? The same portfolio manager who has made a career out of honing a hold-to-maturity mentality? Or did they parachute a distressed guy into this world of macro carry trades and monetary policy analysis? Either way, it’s a prescription for massive error. Either way, it’s the management of the now $13+ trillion in negative-yielding debt securities that I think is the catalyst for a blow-up here.

Let’s leave aside the distressed guy parachuting in to manage this portfolio. Because that’s not what’s going on. What’s going on is that there are a lot of hold-to-maturity IG and rates guys who now fancy themselves as momo traders. I mean … that’s not really how they think of themselves. They think of themselves exactly as Chuck Prince thought of himself – the true heir to Sandy Weill, master of the deal and the pivot, a man who knew how to hoof it – when really he was just another lawyer who couldn’t dance to save his life.

Bull markets make everyone think they’re a freakin’ genius. While bear markets doth make cowards of us all. And that last part is the problem.

In my experience, hold-to-maturity guys – and here I’m talking about both hold-to-maturity bond guys and their equivalent in equity-world, the put-it-in-a-drawer-and-never-sell-a-share guys – always get two things wrong when they decide to play the get-up-and-dance game.

  1. They vastly overestimate the liquidity in their market, and they are paralyzed by the absence of bids when the shit hits the fan.
  2. Their sell-discipline muscles have atrophied (if they ever existed), so they hang on waaay too long before making the first sale, and then they panic and puke out the rest into an illiquid market.

This is why I think the negative-yielding bond bubble ends in tears.

Not because bond managers are wrong about the intentions of central bankers and the direction of monetary policy for the foreseeable future. But because they overestimate their ability to trade this portfolio and they underestimate the mad rush off the dance floor when nobody sees a greater fool waiting in the wings.


We’re Gonna Need a Bigger Boat


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.

Artprice100(C): The Art Market’s Blue-chip Artists Yield Nearly as Much as the Top Performing Companies in the American Economy  [Morningstar]

Gender Face Swap Filter Is a Windfall for Snapchat  [US News & World Report]

As rivals combine, US Foods can’t make a deal  [Crain’s Chicago Business]

Back in April I wrote “This Is Water” about how financialization – by which I mean profit margin growth without labor productivity growth – has become the water in which we fish swim. We don’t just take it for granted … it has become completely unnoticeable even as it has transformed our capital markets into a wealth inequality machine.

Today, when I was looking through the most-connected financial media articles to write a Daily Zeitgeist note, I found three unrelated articles, each of which touches an element of financialization.

The first two articles touch on the ephemera, the frothy excess of a world where an essentially unlimited quantity of essentially costless money is available to pursue … whatever.

In this world of foam, only an idiot would actually invest in productive real-world assets. Why? Because in a financialized world the risk-reward-time dynamic of playing a new casino game dwarfs the risk-reward-time dynamic possible anywhere else.

Witness, for example, the ArtPrice 100 (c) index – a securitization of a tracking index for fine art auction sales. To be clear, you’re not actually buying or selling art here. You’re not even buying or selling shares in an ETF that is actually buying or selling art. No, you are making a bet on the “score” of the next fine art auction. It’s not just the functional equivalent of betting the over/under of a sports score with a legal bookie, it IS a bet on the over/under of a sports score with a legal bookie.

And worry not … “Artprice is preparing its blockchain for the Art Market.”

Next, we have the revenue “windfall” that a gender-swapping photo app is providing for Snapchat, now up … [checks notes] …. 190% through six months of 2019 and sporting a $22 billion market cap.

SNAP is a company that will never see a penny in GAAP earnings, of course, but that’s not what will make this stock go up or down. No, this stock will go up or down depending on the “score” of the next earnings announcement, where the game is how many Daily Average Users (DAUs) the company reports and projects for next quarter. Think they’ll top 197 million DAUs this quarter (last quarter was 190 million)? Then BUY! Think they’ll just hit their lowball DAU projections? Then SELL!

The third article has nothing to do with the ephemera and foam of financialized markets. It has everything to do with the barriers to further financialization, which are purely political.

US Foods is the third largest food distribution company in the United States, just behind PFG in annual revenues and less than half the size of the clear market leader, Sysco.

How do these companies drive profit margin and earnings growth? Through investment in more efficient supply chains and transportation networks?


No, silly boy, they drive earnings growth through consolidation and the resulting ability to squeeze their suppliers more effectively. Consolidation which has ZERO financial barriers when your cost of capital is near zero and debt markets are tripping over themselves for the chance to throw money at companies like these.

The problem for further consolidation is purely political – will the FTC allow the mergers and acquisitions that the strategic planning groups at these three companies come up with?

The point of this article is that if PFG’s proposed acquisition of Reinhart Foods is given the green light, then a) US Foods drops to third place in the mega-size sweepstakes, and b) there really aren’t any more regional acquisition targets of any size (like Reinhart) for US Foods to go after.

The obvious solution? Cue a potential merger with Sysco to create the behemoth of all behemoths in the food distribution space. The only problem there is that this merger was proposed back in 2013, and it was nixed by the FTC.

Can US Foods get a merger with Sysco through the FTC six years later? I don’t know. But I’d bet a lot of money that they’re going to try.

And in a They’re. Not. Even. Pretending. Anymore. world, especially now that you’ve got Republicans as three out of the five commissioners, reversing the 2013 Obama ratio … I think they’ll get it.

Financialization is not a mean-reverting phenomenon. It’s too good of a gravy train for Wall Street, corporate management and the White House to stop now. So they won’t. Like any self-respecting Great White shark, the Nudging State and the Nudging Oligarchy never stop swimming. They never stop eating.

Want to survive these financialized waters if you’re potential shark food? You’re gonna need a bigger boat.


When Did You Stop Beating Your Wife?


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.

De Blasio’s ‘pay parity’ hypocrisy  [NY Post]

Back on planet Earth, there’s a gender pay gap at the top of his own administration. As Julia Marsh reported in Sunday’s Post, four of the five highest-paid members of his administration are men.

Overall in de Blasio’s top ranks, women earn 81 cents for every dollar earned by the men. And both Schools Chancellor Richard Carranza and new NYCHA chief Gregory Russ have salaries over $400,000, much more than their female predecessors.

Bill de Blasio is an apparatchik.

Give him a bowler hat and an umbrella, and he’s a dead ringer for John Cleese’s classic character, the Minister of Silly Walks.

My personal opinion of Bill de Blasio’s political career and ideology is a sense of relief that he’s too inept to be truly dangerous.

But is Bill de Blasio a hypocrite? No.

Bill de Blasio is an authentic good leftie soldier, and it’s that authenticity that makes him a successful politician today.

Even if it also makes me throw up in my mouth a little bit.

Sure, Bill de Blasio is pandering in a particularly cringe-worthy way when he says that he’ll force equal pay for women’s national sports teams “if elected president”. But at least it’s authentic pandering. There is no bone in Bill de Blasio’s body that does not believe this is the right public policy position, no matter what ridiculous lengths he might take it.

And that’s what makes this series of “articles” and editorials from the NY Post – claiming that there is some massive inequity and hypocrisy in de Blasio’s treatment of women in his own administration – so popular and central to this morning’s media Zeitgeist.

But as it turns out, everything about this “reporting” on the pay-parity hypocrisy of the de Blasio administration is complete horseshit.

For example, when the NY Post says that “four out of the five top-paying jobs in the de Blasio administration belong to men”, they neglect to tell you that one of those four men is de Blasio himself. How dare de Blasio – who does not set his own salary, of course – include himself in his own administration! So out of the five top-paying jobs of people Bill de Blasio hired, three are men and two are women. The sexist pig! If de Blasio had hired a woman for any one of those three jobs now filled by a man – something I’m sure he now wishes he had done – the entire pay-parity “scandal”, where “women earn 81 cents for every dollar earned by the men”, disappears.

This article is not a lie. There is no “fact” here that is not checkable and true. This article is not Fake News.

It’s worse.

This article is Fiat News, the presentation of opinion as fact, in pure and despicable form.

This article was specifically designed to manipulate someone like me … someone who is VERY predisposed to believe the worst about Bill de Blasio because I dislike his politics SO MUCH.

It’s a particularly virulent and destructive form of Fiat News we call a rage engagement.

Once you start looking for rage engagements – and their twin, the mirror engagement – you’ll see them everywhere in today’s media. Why? Because they WORK. Because we are hardwired to respond to manipulative “evidence” like this. Because this is how others win The Game of You.


Every Shot Must Have a Purpose


  PDF Download (Paid Subscription Required):  Every Shot Must Have a Purpose

I rather enjoy playing golf. But there’s no denying golf is infested with raccoons trying to sell you stuff. Swing trainers. Special clubs. Systems “guaranteed” to lower your handicap.

This ranges from the oversold…

…to the utterly ridiculous.

Not to mention a fair bit of coattail riding on anyone with an aerospace engineering background.

Golf’s a lot like investing that way. And a lot like life, for that matter. Once I realized this, I began to enjoy the game much more, as an exercise in both mental and physical discipline.

Any progress I’ve made on that front, I credit first and foremost to the book Every Shot Must Have a Purpose, by Pia Nilsson, Lynn Marriott and Ron Sirak. It’s rather critical of current methods of golf instruction and training—particularly of what the authors see as an overemphasis on technical mechanics at the expense of player psychology. Early on, they write:

This is where honesty comes into play. The first step toward expanding our perception of the game in general and reaching a better understanding of our own game in particular is to face reality. If that bad swing was caused because you tensed up under pressure, hitting a million practice balls won’t fix the problem.

Rather than the minutiae of swing mechanics, or gimmicky shortcuts, you’re better off focusing on:

  • Course strategy and risk management
  • Shot commitment
  • Focus and tempo

We see this in investing, too. Particularly when we’re investing other people’s money. The most grievous portfolio construction issues I see inevitably seem to center on basic issues of strategy and commitment. Particularly around whether a portfolio should be built to seek alpha or simply harvest beta(s). 

You don’t have to shape your shots every which way and put crazy backspin on the ball to break 90 in golf. Likewise, not every portfolio needs to, or even should, strive for alpha generation.

There are few things more destructive (or ridiculous) you can witness on a golf course than a 20 handicap trying to play like a 5 handicap. And it’s the same with portfolios. For example, burying a highly concentrated, high conviction manager in a 25 manager portfolio at a 4% weight. Or adding a low volatility, market neutral strategy to an otherwise high volatility equity allocation at a 2% weight. (See: Chili P is My Signature

I’ll go out on a limb and suggest very few financial advisors and allocators build portfolios capable of generating meaningful amounts of alpha. The hallmarks of portfolios purpose-built for alpha generation are concentration and/or leverage.

The hallmark of a portfolio lacking strategic direction and commitment, on the other hand, is optical diversification that rolls up into broad market returns (more pointedly: broad market returns less expenses).

I’m absolutely not arguing every portfolio should be highly concentrated. Or that every portfolio should use leverage. I’m merely arguing that portfolios should be purpose-built, with portfolio construction and manager selection flowing logically from that purpose. 

How is it we end up with portfolios that are not purpose-built?

We don’t commit to the shot.

Nilsson, Mariott and Sirak describe a textbook golf example:

Patty Sheehan, the LPGA Hall of Fame player, was playing the final hole of a tournament when she needed to hit a fairway wood second shot to a green protected by water on a par-5 hole. A birdie was essential to play in contention, and the possibility of an eagle was a chance she had to take. What resulted, however, was her worst swing of the day–in fact, probably one of the worst swings she ever made in competition—and she cold topped the shot. As the ball bounded down the fairway and into the creek short of the green, she watched her chances of winning disappear with it. […]

[T]he TV commentators missed the point. If they wanted to run a meaningful replay they should have shown the tape of the indecision BEFORE Sheehan hit the shot. First she had her hand on a fairway wood, then she stepped away from the ball and her caddie handed her an iron. Then she went back to the fairway wood. The indecision in the shot selection led to a lack of commitment during the shot. The poor swing resulted from poor thinking.

For an investment committee, the rough equivalent is the four-hour meeting that results in a 50 bps change (from 4.50% to 5.0%) to the emerging markets weight in the Growth model portfolio.

At best you are rearranging deck chairs with these kinds of moves.

Granted, when it comes to investing some of us will have a more difficult time managing shot commitment than others. For the self-directed individual, this is simply a matter of managing your own behavior. Advisors and institutions, on the other hand, must manage other people’s behavior, often in group settings.

There’s no easy solution to this issue. It can be fiendishly difficult to manage. But there’s at least one essential precondition for shot commitment in investing and that’s a shared investment philosophy. A code.

I’m not talking about the obligatory investment philosophy slide of everyone’s investor deck that’s included to pay lip service to a “process orientation.” I’m talking about genuine philosophical alignment. The kind of philosophical alignment that runs deep into the marrow of the decision makers’ bones and therefore permeates every aspect of portfolio design and management.

What does this look like in practice?

More time spent on philosophical discussions around persistent sources of returns and, more importantly, whether the investor(s) can credibly access them.

Significantly less time spent on chasing shiny objects, debating the merits of individual investment manager performance and statistical rankings of investment manager performance. (In fact, it’s okay to spend basically no time on this at all)

Significantly more time spent on managing the alignment of expectations across investment professionals, clients and other stakeholders in an accessible, plain-language manner. 

This is fairly straightforward in principle, but extremely challenging to execute.

  PDF Download (Paid Subscription Required):  Every Shot Must Have a Purpose


Election Index: Beyond the Debates – 6.30.2019


This is the third installment of Epsilon Theory’s 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 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.

Our first edition covered April 2019, and included detailed explanations of each of the metrics we highlight below. If this is your first exposure to our narrative maps, analysis or metrics, we recommend that you start with that primer.

Election Narrative Structure as of June 30, 2019

Source: Quid, Epsilon Theory

Commentary on Election Narrative Structure

  • Our previously expressed views – that adoption of active narratives into public common knowledge would cause Biden to fade in favor of Sanders, Warren and Harris – proved largely accurate (although we did not anticipate how meaningful the bump to Harris would be).
  • Our data covers the whole month (not just the post-debate period), but it is striking that the debate-specific coverage in the southeast quadrant of the graph is so distinct and separate from the rest of election coverage. Some of this is just a reflection of pre-and-post-debate narratives changing, but we think this distinction is indicative of very strong narratives in media that are being promoted by outlets in spite or or in response to debate outcomes.
  • The most connected language and most central articles, however, are not candidate- or issue-specific. They are identity-related, articles about “White America”, ‘Black Voters”, ‘Hatred, Prejudice and Rage”, and the candidates capable of representing and achieving electoral success by appealing to each. In the wake of the Harris/Biden busing debate issue, the media have taken this lens to a new extreme.
  • President Trump has entered the narrative fray on 2020, and coverage of his comments and campaign launch represented a meaningful change in the overall network structure.
  • The debate has not reshaped the narrative of “Issues That Matter”. That continues to be built around democratic socialism and more general leftward inertia. Both fear-driven articles and those with a favorable temperament toward these policies and the inequality faced by the poor, students and migrants are far ahead of competing economic, abortion, impeachment, foreign policy or entitlement program policies.
  • At a high level, we think these are the issues that media outlets are promoting as “what matters” in 2020:
    • Social equality (race, sexuality, gender and treatment of immigrations/asylum-seekers)
    • Economic equality (income and wealth)
    • Healthcare
    • Education, Student Debt
  • We think these are the issues that are otherwise absent so far from any media-promoted narrative about the 2020 election:
    • Trade
    • Foreign policy / military
    • Abortion / reproductive rights
    • Climate change and the environment (surprisingly)
  • As we gauge our own sensitivity to and focus on certain issues, we would be conscious of Fiat News nudges to “care more” about certain issues than others, and to be sensitive to those cases where certain positions are more or less attached to various candidates.

Candidate Cohesion Summary

Commentary on Candidate Cohesion

  • Despite a generally panned debate performance, Sanders remains at the top of our cohesion score, both for the primary process to-date and for June specifically. That means that the language used about Sanders continues to be internally consistent. The Sanders narrative is common knowledge.
  • A Buttigieg narrative, however, has emerged following a debate performance that crystallized in a substantially higher rate of pieces characterizing him as erudite, well-prepared and intelligent, in addition to an almost obligatory reference to the recent police-involved shooting event in South Bend.
  • While Biden content to-date has referenced a generally consistent – if negative – internal narrative, the internal cohesion of Biden stories cratered in June. We think much of this pertains to the conflict between pre-debate stories about Biden as the candidate with the greatest potential among black voters, and post-debate stories positioning Biden based on a segregationist-friendly past. It further muddies the waters of an already challenging narrative to manage.
  • The Sen. Harris narrative was less cohesive in June – a result, we think, of broader, further-reaching coverage after she emerged as a more prominent candidate following her first debate performance.
  • We would continue to be cautious in our consumption of Fiat News about Sanders, where we expect coverage to continue to be auto-tuned to existing narratives of what Sanders is as a candidate. We would likewise be cautious of Fiat News in news about Buttigieg and Biden, where significant change in narrative cohesion indicates to us potential new missionary activity and attempts to change that narrative.

Candidate Sentiment Summary

Commentary on Candidate Sentiment

  • The biggest positive movers in sentiment of media coverage in June were Sanders, Warren and Buttigieg, all of whom were already relatively positive to begin with. But social equality, economic equality and socialist-friendly narratives were especially powerful in June coverage.
  • The negative sentiment attached to Biden narratives persisted in June, and worsened slightly after additional negative coverage of his debate performance and poll results.
  • We think that sentiment, as manifested through Fiat News and affected language, is perhaps the easiest narrative structural element to spot. It is also, however, very easy to slip into confirmation of our preconceptions. When sentiment aligns with our predispositions, we tend to see it as reasonable, factual language. When it is misaligned, we tend to see it very clearly as biased.
  • For this reason, we continue to recommend caution in all news and analysis judging Biden, Sanders, Warren and Buttigieg, regardless of whether the sentiment strikes us as ‘reasonable’ or ‘justified’ given recent events.

Candidate Attention Summary

Commentary on Candidate Attention

  • If you are surprised that Harris has not risen in terms of attention in June, don’t be. Our attention measure is not a measure of how much coverage a candidate or topic receives, and while Buttigieg and Harris were the big winners from June on that dimension, our measure is one of the consistency of candidate/topic language with the overall narrative. Despite a powerful group of post-debate articles arguing for Harris as the ‘winner’ of the first round of debates, the language used to describe Harris’s candidacy remains disparate and distinct from most of the language used to describe ‘what matters’ about the election.
  • In other words, we think that Harris gained in polls and favorability through what was perceived as a rousing personal defeat of Biden, the front-runner.
  • We think that this victory hasn’t really resonated in narrative world, because it isn’t connected to the common knowledge about what the 2020 election “is about”. We think that means that – barring a change in those narratives – observers expecting Harris to demonstrate continued momentum against Warren and Sanders may be disappointed.
  • Sanders is the candidate whose own narrative is most ‘on-narrative’ with the election more broadly. In other words, what Sanders is about (in media) continues to be what the 2020 Election is about (again, in media).
  • The biggest positive mover, as elsewhere, has been Buttigieg. We think that the rise in attention here is more sustainable, given that Buttigieg’s message, sentiment and cohesion appear to have been adopted by media outlets fairly readily and quickly.
  • That also means that we would expect to see more coverage of Mayor Pete’s candidacy that seek to tell a story through Fiat News. We would remain mindful of this in our news consumption.

The Upside Down


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.

Facebook’s (FB) Libra Faces Intense Scrutiny From Regulators  [Zacks Equity Research]

Facebook’s upcoming cryptocurrency, Libra, has drawn attention of banking and financial market regulators and policy makers globally. While the announcement has been applauded by cryptocurrency issuers, users and enthusiasts, it met a fast and worried response from central banks and regulators.

This is because regulators believe that entry of tech giants like Facebook into the banking and financial systems through cryptocurrencies like Libra, without any regulation, is too dangerous for consumers.

A recent statement by European Central Bank (ECB) executive board member Benoit Coeure, quoted by Bloomberg, also suggested this. Per Coeure, “It’s out of the question to allow them to develop in a regulatory void for their financial service activities, because it’s just too dangerous.”

Of course I’m a big fan of Stranger Things. Any show that can celebrate Dungeons & Dragons before it was called Advanced Dungeons & Dragons is a show for an OG gamer like me.

If you haven’t seen the show, the core plot device is a struggle between our dimension and an alternative dimension called the Upside Down. As the name implies, everything is topsy-turvy in the Upside Down, from the most fundamental laws of physics on down. That’s the Big Baddie in the picture above, known as the Mind Flayer (all of the monsters in the show have good D&D names … love it).

Narrative-world is a lot like the Upside Down.

I’m reminded of that when I read articles like the one here from Zacks, where we are told that the crypto community is overjoyed about Facebook’s Libra, but that government regulators are beside themselves with worry.


This Zacks article is a classic construction of Fiat News – the expression of opinion as fact – chock-full of affect-laden words like “applauded”, “worried”, “because”, “believe”, and “suggested”. This article is figuratively shaking its finger at you, telling you how to think about Libra, not what to know about Libra.

Look, if your wall of worry is comprised of a mean letter from Maxine Waters and stern words from Benoit Coeure … well, god bless.

That’s not even a hurdle. It’s like two mini-hurdles that a child could step over.

Please. Libra was designed for government regulators. It is exactly what government regulators want to see in a stablecoin.

And of course all of the crypto raccoons are praising Libra. All attention is positive attention to the hucksters.

Who’s the real Mind Flayer? Modern financial media, that’s who.


You Are Here, June 2019


We’ve published the updated ET Pro Narrative Monitors for June:


Central Bank Omnipotence

Trade and Tariffs

US Fiscal Policy

I’ll discuss in more detail over next few weeks, but here’s the skinny: Yes, we’re still in a zeitgeist of Central Bank Omnipotence, where deflationary shocks simply can’t take the market down for much or for long. That said, the Cohesion measure of both Trade & Tariffs and Central Bank Omnipotence is really breaking down, meaning that there is enormous narrative confusion over how the rate cut trajectory plays out … far more confusion than the 100% implied market odds of a cut would imply.