A Perfect Meme


Every day we run the Narrative Machine on the past 24 hours of financial media to generate a list of the most linguistically-connected and narrative-central individual stories. We call this The Zeitgeist and we use it for inspiration or insight into short-form notes that we publish a couple of times a week to the website. To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.

As you might have noticed, we’ve taken a brief hiatus on Zeitgeist notes here at the end of 2019 – a short period both Ben and I have spent with our families and planning for an exciting 2020 here at Epsilon Theory.

But sometimes an article that rises to the top of our queries is just too good to pass up, even when we’re on vacation.

First there was ‘diversity.’ Then ‘inclusion.’ Now H.R. wants everyone to feel like they ‘belong.’ [Washington Post]

We don’t spend all that much time talking about ‘political correctness’ or the more conservative variants we occasionally refer to as ‘patriotic correctness’. Some readers find that surprising – or irritating, wishing we would lay into some of this nonsense a bit more often. It is true, these moving target norm enforcement rackets sit at the target rich center of the overlapping Venn diagram of paternalistic nudging, highly abstracted language, and missionary behaviors meant to establish new common knowledgewhat everyone thinks everyone thinks our cultural norms are.

It’s not that we don’t see it. It’s just that it’s…been done. Honestly, if the headline alone – much less reading each ever more excruciating word of this Washington Post ‘Analysis’ – wasn’t exhausting to you, there isn’t anything I can write that will change that.

Still, it is interesting that an article like this was among the most connected by language to financial markets news over the last couple days. More detailed examination shows that connection to be the result of a general increase in ESG language showing up throughout financial news. The behavior of executives, the demographic composition of C-suite and boards and the hiring behaviors in the tech industry in particular are all becoming more common in standalone articles and as frames for articles nominally about other topics. It’s part of the Zeitgeist – for now.

And, no, Yay, diversity! – a vastly different thing from the actual pursuit of or belief in the benefits or rightness of diversity – is not new. For years, it has been a banner-waving meme embraced by every Fortune 500 HR department and MBA program across the country so that they wouldn’t have to, y’know, actually undertake the hard work necessary to rid themselves of the self-defeating monocultures of skills, temperament and demographics they’ve so painstakingly created over the decades. If you think the Patagonia Parade is the natural output of a properly functioning meritocratic system or exercise in maximizing aggregate company productivity, I’ve got some energy PE investments those bevested young men are hard at work right now fitting into a 1.2x Q4 mark that I think you’re just going to LOVE. But merging diversity and inclusion language on the one hand, and the workism dogma of belonging, family and community on the other?

Yay, belonging! is a powerful meme. A perfect meme.

It is also deeply cynical.

We have already said our piece on workism, the meme-laden exploitation by employers of our desire to imbue our work with meaning, which forms half of this new idea.

So what is the rest of this new idea?

I mean, it’s all good-sounding stuff, of course. This kind of thing always is, and one does get the impression that people like this are well-meaning. But what does it mean in practice?

It means that if you resist all that nonsense about seeing your employer as your family, you are now guilty of an infraction against inclusion, too. It means that employers will change the dimensions they measure from things they can control (e.g. whether they hire people whose intellect, skills, race, ethnicity, temperament, value system, religion, socioeconomic background, regional background, nationality, gender, sex, etc. may make their company’s ideas and execution more robust) to things they can’t. And THAT means that executives and boards will now have more firepower to arbitrarily claim that they did all they could but couldn’t achieve results due to factors outside of their control – or better yet, to change the subjective standards by which success on this dimension is defined.

That way we don’t have to do anything that matters, and everyone still gets to wave the yay, belonging! flag.

When clear, simple ideas don’t work perfectly – like, say, the embrace of a simple idea like diversity – we have three choices: we can accept their imperfections, we can add more complexity to the ideas to accommodate their flaws, or we can create abstractions which cloud the areas that worked and didn’t work in a fog of linguistic uncertainty.

As a rule, favor the first, selectively apply the second, and avoid the third like the damned plague.


The Long Now


PDF Download (Paid Subscription Required): The Long Now

Every year, I try to put together a series of notes that captures where I think we are, from both a political and investment perspective. This year, that series is The Long Now. I’ve compiled the four notes in that series into a single PDF, attached here.

The kicker here is that I think both parties have embraced a profoundly destructive meaning to the fiscal powers of the State – to tax and to spend. When the tether between taxes and spending is severed – and make no mistake, both the Republicans and the Democrats have been working to this end for 20+ years – then taxes become a pure mechanism for the exercise of government power. They don’t exist to pay for government programs. They exist to satisfy the ruling regime’s conception of justice, equity and retribution for prior wrongs done by the other side. Again, this isn’t a partisan thing. This is a power thing. This is a Management thing.

Regardless of who wins the 2020 election, I believe we are going to be buffeted by punitive fiscal policies in the years to come … punitive on the tax side in the usual sense, where the rich and the old will be pitted against the non-rich and the non-old, back and forth … punitive on the spend side in the inflationary sense, where we will all feel the bite of a monster we haven’t seen in 40+ years.

You know, there was an article in the Wall Street Journal today, titled “China is Taking No Chances with Stagflation”. As if this were something that could be banished by fiat … as if soaring pork prices and declining growth would cease to exist if Chinese citizens were just TOLD that they didn’t exist.

As with every “outlook” or “analysis” article in the WSJ that talk about China, I took this as a crystal ball for what’s coming down the pike in the US in 6-12 months. Seriously. It’s uncanny how that works. (and the subject for another note another time)

So yes, that’s what I think is going to be the Big Story for the next several years … disappointing growth + alarming inflation + a government that tries harder and harder to TELL us that everything is wonderful. A United States that becomes more like China *politically* as well as economically. Smiley-face totalitarian flirtations on the political front, and old-fashioned stagflation on the economic front, all bearded by a stock market that has been transformed into a propped-up-at-all-costs political utility.

The thing is that – depending on where you stand in the pecking order – it won’t feel that BAD as the world is undone by inflation and the politics that comes with it. As the country song goes, “Funny how fallin’ feels like flyin’ … for a little while”. But this IS what undoes us.

We need to get together and talk about all this. Maybe I’m wrong about The Long Now. Maybe I’m exaggerating the issues here. Wouldn’t be the first time. But right or wrong I think we’d all be well served to connect in person and share our ideas and observations. Stay tuned for details on timing and location … probably early fall before the election. Let me know if you’d like to help.


The Long Now, Pt. 4 – Snip!


PDF Download of single chapter (paid subscription required): The Long Now, Pt. 4 – Snip!

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

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

The Long Now is driven by the constant stimulus applied to our economy and the constant fear applied to our politics.

The Long Now is personal.


The Long Now is political.

Make – Protect – Teach

The Long Now is micro.


Today’s note is on the macro structure of the Long Now.

Today’s note is on the untethering of fundamental linkages between the economic policies that organize our social lives as investors and citizens.


Today’s note is on how we survive the Long Now. Because it won’t be easy.

That’s George Clooney in Gravity, right before he ends up like this.

The spacewalking astronaut, risking the abyss with only a slim tether to life, is a powerful trope. Gravity was an entire movie about that frisson of fear we get from these images, although for my money it doesn’t get better than Frank Poole’s murder by HAL in 2001: A Space Odyssey, with the looong shot of the body tumbling uncontrollably through space. Because it’s not just the aloneness and abandonment that sparks our hard-wired emotional response here, but the out-of-controllness of being truly untethered.

We’ve got happy-ending movies that use this trope (The Martian), Russian movies that use this trope (Spacewalker), and even haunted-house-in-space movies that use this trope (Event Horizon). So you’ll forgive me if I’m going to use this imagery, too, because it’s the best story-telling device I know to instill in you the fear and loathing I feel when I think through the consequences of the Long Now.

SNIP! is the Long Now’s destruction of the meaning of words that define our social connections.

Words like “war”.

This is a picture of the Predator drone firing a Hellfire missile. It’s probably going to kill someone that we want dead, and almost certainly going to kill some other people that we don’t mind being dead … collateral damage and all that. As they say on Succession, you can’t make a Tomlette without breaking a few Greggs. This is war, and we fire these missiles all over the world, on the daily, both in countries we have officially invaded, like Afghanistan, and in countries we haven’t, like Pakistan and Yemen.

But we have redefined war to NOT mean things like drone and cruise missile attacks, to NOT mean things like “observer” or “training” missions. We have redefined war to ONLY mean American troops being shot at.

So politicians can speak the words “End the war in Country XYZ!” without actually meaning it. Because what they mean is preventing any American troops from being shot at. But the actual war of drones and missiles and killing … that continues. And it will continue forever in the Long Now.

Words like “capitalism”.

This is a picture of the billionaire CEO of a government-supported too-big-to-fail megabank, telling his 60 Minutes interviewer that he has no control over his compensation, as that’s determined by the CEO’s board of directors. Interestingly enough, this is also a picture of the billionaire Chairman of that board.

And it’s not just the billionaire CEO bank manager. It’s his centimillionaire lieutenant bank managers. It’s the dozens of decamillionaire sub-lieutenant bank managers. All of them made generationally rich from stock-based compensation in a company where the government guarantees their success. None of them entrepreneurs. None of them risk-takers with their own skin in the game. All of them … lifer managers of a too-big-to-fail bank.

But, hey, the stock is up! They’ve done a good job! What’s the problem, Ben?

That’s exactly the problem. The problem is that we have redefined capitalism to mean “the stock is up”. We have redefined capitalism to NOT mean Smith’s invisible hand or Schumpeter’s creative destruction or productivity-enhancing and risk-taking investments in the real economy. We have redefined capitalism to ONLY mean financial asset price inflation in the here and now. By any means necessary. So that’s what we get. From the Fed, from the White House, from corporate management … that’s what we get in the Long Now … an endless series of policies and decisions in service to capitalism-as-financialization, where capital markets are maintained as a political utility.

George Orwell, who called the Long Now an “endless present, where the Party is always right”, understood how the most powerful weapon of a totalitarian society is to control its language, so that War IS Peace, Freedom IS Slavery, and Ignorance IS Strength.

Why? Because control over the meaning of words is control over how we THINK. When we no longer remember what words mean, when we are TOLD over and over again a NEW meaning … we start to doubt ourselves. We start to doubt our own autonomy of mind. And that’s when they win.

Iakov Guminer, Arithmetic of an alternative plan (1931)

In the end the Party would announce that two and two made five, and you would have to believe it. It was inevitable that they should make that claim sooner or later: the logic of their position demanded it. Not merely the validity of experience, but the very existence of external reality, was tacitly denied by their philosophy. The heresy of heresies was common sense.

And what was terrifying was not that they would kill you for thinking otherwise, but that they might be right.

— George Orwell, 1984

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 that 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, and where we are TOLD that we must borrow ridiculous sums to be a good parent or a good citizen.

And the most terrifying thing is that you start to think they might be right.

Hey, maybe the whole Ukraine thing really is Trump “fighting corruption” and maybe the whole Saudi thing really is Trump “bringing the troops home”. Maybe the really important thing about Jeffrey Epstein is whether or not he committed suicide. Maybe we should really try some “democratic socialism” in 2020 … how bad could it be?

Self-doubt is a biologically terrifying condition for a social animal like humans, and that’s why you see more and more of us becoming rhinoceroses. That’s why you see more and more well-meaning citizens willingly give over their autonomy of mind to the MAGA Train or the Bernie Bros … some sort of social Answer with a capital A … so that the torture of self-doubt can end.

That’s why, in the end, Winston loved Big Brother.

And make no mistake, the Answer is always totalitarian. Not merely authoritarian, but totalitarian. It brooks no dissent, in ANY aspect of your life. The Answer is a general closed-form solution, something we are hard-wired to want, but something that is impossible to find in a social system. Yes, this is the Three-Body Problem.

Unfortunately, I believe that the totalitarian Long Now is going to get a lot worse before it gets any better. I believe that we are going to doubt ourselves in new and profound ways over the next decade. I believe that our common sense will become even more the heresy of heresies.


Because the Long Now has redefined the meaning of “taxes”.

Because the tether between taxation and spending – the most important macroeconomic policy relationship for our lives as both investors and citizens – has been severed.

Oh, I know that this snip-of-no-return doesn’t feel bad. Yet. In fact, it probably feels pretty darn good to you right now.

Funny how fallin’ feels like flyin’

For a little while

That’s from a song in the movie Crazy Heart, and that’s where we are right now. So yeah, you’re going to be told that 2 + 2 = 5, that it’s no big deal to cut the cord between taxes and spending, that in truth it’s good for you. And yeah, you’re going to start to think that they might be right.

The redefinition of taxation and the severing of the Tether of Meaning between taxes and spending isn’t something that I think WILL happen. This is something that I know HAS happened. We’ve had a steady fraying of this cord for about two decades now, ever since Al Gore’s idea of a Social Security “lockbox” (where those taxes could ONLY be used for Social Security spending and paying down the existing debt)  was met with derision rather than acclaim by both parties. Yes, both parties. By steady fraying I mean over both Republican and Democrat administrations. The political beneficiaries of the fraying are different when it’s Republicans doing the snipping or Democrats doing the snipping, but the INTENT – to eliminate the tether between taxation and spending – is the same whether you’re George Bush or Barack Obama. Or Donald Trump. Destroying the relationship between taxation and spending is not a partisan thing. It’s a power thing. It’s a Management thing.

I mean, there are still people who believe that the money they pay in Social Security taxes is their money, that they’ve purchased some sort of old age income insurance plan with their money, like an annuity where their money is invested somewhere to support that income down the road.

But that’s a lie.

In truth there is ZERO relationship between social security taxes and social security benefits today, other than sharing the words “social security”. In truth they are two entirely separate government programs, the former a regressive tax on workers that goes into the big pot of the annual budget and the latter a wealth transfer program to old people that comes out of that budget.


So for twenty years Republicans and Democrats have gone back and forth to steer taxation and spending to their political advantage, with divided government being the only thing to keep the tether intact. But divided government vanished with Donald Trump’s election, and as a result we got the 2017 Tax Cuts and (LOL) Jobs Act, which I think was the final cut.

What did the TCJA do? It lowered taxes by trillions without reducing spending by a dime.

The TCJA levered up the United States of America.

Management levered up our country and used the proceeds to provide a windfall gain for corporations and the rich. You know … “returning capital to job creators”. In exactly the same way that Management might lever up a company and use the proceeds for a big stock buyback. You know … “returning capital to shareholders”.

Both of these narratives – “returning capital to job creators” and “returning capital to shareholders” – had a truth to them, an important truth. I believed in the important truth of both of these narratives for most of my adult life! And yes, I’m using the past tense.

Because in the Long Now, the meaning of both narratives has been perverted beyond all recognition.

Both are now part and parcel of the Trickle-Down Lie, that the crumbs that fall off massa’s table are crumbs that you wouldn’t get otherwise, so let’s celebrate all those extra crumbs. Yay, crumbs!

And yes, there’s an Epsilon Theory note or three for that.

Pecking Order

The pecking order is a social system designed to preserve economic inequality: inequality of food for chickens, inequality of wealth for humans. We are trained and told by Team Elite that the pecking order is not a real and brutal thing in the human species, but this is a lie. It is an intentional lie, formed by two powerful Narratives: trickle-down monetary policy and massive student debt financing.

This Is Water

Time to add a fourth shift in the Zeitgeist: capitalist productivity, now 200+ years old, is becoming capitalist financialization. Wall Street gets something to sell, management gets stock-based comp, the Fed gets a (very) grateful Wall Street, and the White House gets re-election.

What do YOU get out of financialization? You get to hold up a card that says “Yay, capitalism!”.

Yeah, It’s Still Water

One day we will recognize the defining Zeitgeist of the Obama/Trump years as an unparalleled transfer of wealth to the managerial class.

But if we’re no longer even pretending that taxes are necessary to support spending …

If we agree that neither the Republicans nor the Democrats care about fiscal policy except as it advances their myopic political goals …

Then what are taxes FOR?

Yep, this is our George-Clooney-realizes-he-is-about-to-be-flung-into-outer-space moment.

In the Long Now, taxes are for … justice.

In the Long Now, taxes are for … equity.

In the Long Now, taxes are for … retribution.

And what do those words mean?

Whatever Management says they mean.

Donald Trump has a vision of how to use taxes for HIS conception of justice, equity and retribution, a vision that – well, how about that! – advances his political power.

The primary beneficiaries of the TCJA are large public companies, particularly the multinationals that dominate the S&P 500. For example, in each of the past two years, Amazon has availed itself of the deductions and deferrals and lower corporate rates created by the TCJA to be a “net-negative US Federal cash taxpayer”. In English, that means that in each of the past two years, the US Treasury has written checks of more than $100 million to Amazon out of YOUR tax dollars. I know you think I’m making this up, but check out Amazon’s 10-K. It’s all there.

And before you @ me, I am NOT saying that Amazon doesn’t pay taxes. What I am saying is that I really don’t care how much Amazon pays in taxes to freakin’ Ireland. What I am saying is that Amazon is cashing checks from the US government instead of writing checks. As the kids would say, let that sink in.

How does this advance Trump’s political power? Because the windfall tax benefits that the TCJA created for large public companies like Amazon and Apple and Microsoft translate directly into higher stock prices. Because in Trump’s own words, “the stock market is my report card”. Because Trump realizes that you can politically argue to death whether the real economy is doing better or worse, but you can’t argue with a new high for the Dow Jones.

What does it mean to transform capital markets into a political utility, and use the tax code to do it?


Similarly, Bernie Sanders and Elizabeth Warren and No Malarkey Joe and Mayor Pete and all the rest have a vision of how to use taxes for THEIR conception of justice, equity and retribution, a vision that – well, how about that! – advances their political power.

None of the “wealth tax” proposals you hear from the Left are being proposed to pay for anything in a budgetary sense. They are explicitly proposed so that the rich pay their “fair share”. In fact, when candidates make the mistake of expressing their wealth tax idea in a fiscal sense – as Elizabeth Warren did when she linked it to “paying for” Medicare-for-all – the narrative immediately shifts from “fairness” to “making the numbers add up” (Spoiler Alert: they don’t and they never will), and these candidates immediately take a hit in the polls.

Bernie gets it. He doesn’t even pretend to make this about budgets. He realizes that the political popularity of the wealth tax has nothing to do with making the rich pay for a government program, and everything to do with making the rich pay for their sins. And yes, Bernie believes that great wealth is a sin. He believes that great wealth should not be allowed, not because it’s a source of unaccountable political power (my beef with great wealth), but because he believes it is fundamentally unfair. So do a lot of voters, maybe more than care about the Dow Jones.


Feeling out of control yet? Wait, there’s more!

If the meaning of spending is no longer constrained by taxation …

Then what is spending FOR?

In the Long Now, spending is ALSO for justice and equity and retribution … ALSO in whatever mode or measure fits the regime goals of whatever Management is in power at the time.

I think that whoever is elected in 2020, we will see a $2 trillion spending plan enacted in 2021.

If it’s a second term for Trump, it will be the 2021 Make America Great Again Act, and we will call them “Infrastructure Bonds”.

If it’s a first term for a Democrat, it will be the 2021 Take Back America Act or something like that (I suppose if it’s President Biden we can hope for the 2021 No Malarkey Act, although I’m rooting for the 2021 OK, Boomer Act), and we will call them “Green Bonds”.

In either case, I expect that the Fed will monetize at least half of the bond issuance. At least half.

In either case, I expect that the primary corporate beneficiaries of the spending will be exactly the same. Exactly the same.

And so here we are.

I believe there are no limits to the retributive and malicious use of taxation as a political weapon.

I believe there are no limits to the retributive and malicious use of spending as a political reward.

Sometimes those political weapons and rewards will be used by the rich and the old against the non-rich and the non-old, as we saw with the TCJA and Trump. Sometimes it will be the other way around, as we will see the day after a Democrat takes the White House, whenever that might be.

What’s to be done? Well, I suppose this is the point where I should tell you what I would do if I were given magic genie powers to change the world from the top down. And then you’d argue with me about my proposals and tell me what you would do if given magic genie powers.

How about we not do that? I don’t have magic genie powers. And neither do you.

It’s not that the severing of taxes from spending WILL happen. It’s not that the NEXT administration is going to make the cut. It’s ALREADY happened. It’s been happening for twenty years! This ship has sailed, and now there’s not a damn thing that you or I can do to turn it around. All we can do now is survive the voyage.

When I started this note, I said I wanted to instill an emotion of fear and loathing in you from the realization that the meaning of taxes had become untethered from the meaning of government spending. That phrase – fear and loathing – is of course a catchphrase for Hunter S. Thompson, who used it in the titles of his best-known works … Fear and Loathing in Las Vegas, Fear and Loathing on the Campaign Trail, etc. Thompson had lots of catchphrases, lots of mottos, lots of great quotes. My all-time favorite, though, is this:

When the going gets weird, the weird turn pro.

I love it because there are so many plausible interpretations, and it just sounds so cool to take a tired inspirational quote about what to do when the going gets tough, blah blah blah … and turn it on its ear. Or foot, or whatever body part you think Thompson would have approved. Here’s what it means to ME.

“The going gets weird” = an economic and political environment that no one alive has experienced.

I think that the smiley-face totalitarian genie (and yes, I wrote ‘totalitarian’, not ‘authoritarian’) is going to be let out of the bottle as the meaning of taxes becomes justice, equity and retribution.

I think that the not-so-smiley-face inflation genie is going to be let out of the bottle as the meaning of spending in the real economy becomes untethered from any concern of paying for it.

To paraphrase Richard Nixon paraphrasing Milton Friedman, we’re all MMTers now. “Modern Monetary Theory” is here, firmly ensconced in BOTH political parties in the Long Now.

We’re All MMTers Now

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. We’re all MMT’ers now.

Modern Monetary Theory or: How I Learned to Stop Worrying and Love the National Debt

Modern Monetary Theory is neither modern nor a theory. It’s a post hoc rationalization of politically expedient policy that makes us feel better about all the bad stuff we’ve done with money and debt in service to Team Elite. And all the bad stuff we’re going to do in the future.

A recession isn’t weird. Deflation isn’t weird. Authoritarian isn’t weird. I don’t think ANY of those things is coming down the pike, and you don’t need my help (or anyone else’s) if any of them does.

But smiley-face totalitarian stagflation where capital markets have been transformed into a propped-up-at-all-costs political utility?

Now THAT’S weird. And that’s what I think IS coming down the pike. And we’re all going to need all the help we can get. Which gets us to the second half of Hunter S. Thompson’s quote.

“The weird turn pro” = an all-in engagement for those who see the societal transformation; a recognition that the fundamental rules of the social game have changed, and a willingness to confront the implications of that change in every aspect of your life without surrendering to an Answer.

How do we confront 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.

You know, in one of my twitter fights with Angry-Billionaires-and-their-Renfields™, I was called “a bizarre combo of Zerohedge and self-help guru”. It was meant as an insult, of course, but for me … man, I wear it like a badge. Because I DO believe, in Zerohedge-esque fashion, that “the system” is designed by and for a Team Elite that, in the immortal words of The Outlaw Josey Wales, pisses down our backs and tells us it’s raining.  And I DO believe, in self-help guru-esque fashion, that the only effective resistance to the Nudging State and the Nudging Oligarchy is through a bottom-up grassroots social movement that is driven by one thing and one thing only: each individual’s courage and determination to maintain their autonomy of mind … the courage and determination to believe that 2 + 2 = 4.

The revolution will not be televised. The revolution will not be in the streets.

The revolution will be in our hearts.

It’s the hardest thing you’ll ever do, precisely because no one will be watching.

But you won’t be alone.

In 2020, we’re going to host an international conference to come together on this, an Epsilon Theory Forum. It’s intended to be the anti-Davos … a meet-up for those who still have a soul, who care about something bigger than the celebration and perpetuation of Team Elite. And I can promise you this … there won’t be a single billionaire on a panel at the ET Forum. But there will be plenty of real people … people with ideas and experiences that aren’t contingent on how many zeros they have after their name.

Clear eyes, full hearts, can’t lose.

Make / Protect / Teach.

As wise as serpents, and as harmless as doves.

We’ve got a lot of slogans. In 2020 you’ll have a chance to take action. You’ll have a chance to talk this through with like-minded truth-seekers, to figure out TOGETHER what a bottom-up grassroots social movement devoted to preserving each and every one of our autonomies of mind can do. It may be too late to prevent the SNIP! that severs the tether between taxation and spending, but it is high time to create new tethers, new personal bonds of association, loyalty and mutual support. Yep, it’s a Pack. And that’s how we survive the Long Now. Together.

Send me an email if you want to help. And spread the word.

Yours in service to the Pack,

[email protected]

PDF Download (paid subscription required): The Long Now, Pt. 4 – Snip!

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


An End to War!


Every day we run the Narrative Machine on the past 24 hours of financial media to generate a list of the most linguistically-connected and narrative-central individual stories. We call this The Zeitgeist and we use it for inspiration or insight into short-form notes that we publish a couple of times a week to the website. To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.

Last Friday, the Washington Post printed an article that scored near the top of our Weekend Zeitgeist, when we explore articles outside of our typical focus on financial markets. We didn’t write anything about it, in part because we think it’s worth being a bit more skeptical about feature and opinion pieces whenever you do agree with them.

And while I can’t help rolling my eyes a bit at the repeated appeals to international law (sorry, still an unabashed chauvinist about that sort of thing), there is a lot in this piece I do agree with. Hence the skepticism. America’s nearly constant state of war over the last few decades is a classic dog that didn’t bark, an event that is newsworthy because we have been told it is un-newsworthy, like a strike aircraft we can only see because it was painted blacker than the night sky itself.

American weapons are fired in anger daily. They kill real people, deserving and otherwise, daily. Except for a predictably politically motivated annual tally article published in tandem with some scheduled Pentagon disclosure or FOIA request, we simply do not hear about it. If we do hear about it, especially in our industry, it is abstracted into figures and good-sounding features of people just doing their job. Hellfires and Block III Griffins are the new “razor blade” model for business models with high levels of recurring free cash flow, don’t you know. Hey, we fire the occasional Viper Strike, too, if you’re willing to deal with a lack of transparency on how that’s hitting your bottom line in the BAE/EADS JV that builds them, there’s something for you in Europe, too.

The Infinity War [Washington Post]

So why now? Why would this piece be among the most connected by language to other articles published over the weekend?

Because nearly every politician from nearly every party is calling for an end to our Infinity War. This language being begged for and described in this opinion piece exists in dozens of recent pieces covering the upcoming primaries.

And why did we decide to post it today?

We posted the article because these arguments – for the most part – aren’t earnest expressions of a desire to end war. They are memes of An End to War!, good-sounding narrative constructs structured to pretend that stand-off weapons, cruise missile strikes, targeted assassinations and UAVs are not part of what needs to end, but things we will define as not being acts of war at all. An End to War! is at the top of the Zeitgeist because our politicians, parties, think tanks and other Important Institutions have decided that so long as no American troops are put into harm’s way, what we are doing isn’t actually war.

War is over if you want it. Just change what you call it.

When we refer to the Long Now, what we mean is the way we borrow from the resources, stability and happiness of our collective future to smooth the edges of the present. Anything to reduce what feels like volatility. Anything to reduce the perception of geopolitical risk. Anything to avoid someone saying that there was something else we might have done. The Long Now is the prioritization of the subjective perception of the present with no concern given to the cost that will come due in the future.

The Infinity War is a part of the Long Now.

Don’t mistake me. Being lawful good doesn’t mean being lawful stupid. Legitimate states have enemies. They will and in some circumstances ought to conduct open war to defeat those enemies. And when they do, I hope it is our boys and girls who make the other poor dumb bastards die for their country. But remember this: Obama and Trump both ran on An End to War! The 2020 candidates will run – in part – on An End to War! Clear Eyes means seeing that they don’t mean what you and I mean.

It is well that war is so terrible, otherwise we should grow too fond of it.

Robert E. Lee, in a comment to Lt. General James Longstreet about the Battle of Fredericksburg

Full hearts, too. We have become far too fond of war, and far too unwilling to ask questions about why it is conducted in our name. You and I may agree or disagree with the answers we get, and that’s OK. We may disagree about whether we ought to participate in this kind of action or that. That’s OK, too. I disagree with 2003 version of me who was a full-throated supporter of the Iraq War. But no matter our posture on the role of violence on our behalf in executing US foreign policy, memes of An End to War! which abstract away targeted, smaller-scale violence-at-a-distance into topics unworthy of our notice serve no American.


It’s Not So Much …


To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.

For some reason, it’s not so much the fact that Harvey Weinstein is using a walker to make his appearances in court that makes me want to burn the world down.

It’s the popped collars.

It’s the bevy of 400-pound “assistants”.

What a freakin’ charade.

Harvey Weinstein, Ex-Associates, Accusers Reach Tentative $47 Million Settlement    [Wall Street Journal]

“Harvey Weinstein, his former associates, insurers and accusers have reached a nearly $47 million tentative settlement of almost all the civil cases pending against him, about $25 million of which will compensate women who have accused the Hollywood producer of sexual misconduct, according to people familiar with the matter.”

For some reason, it’s not so much the fact that only $25 million of the $47 million settlement is going to the actual victims of this serial rapist that makes me want to burn the world down.

It’s that the settlement will be paid for by insurance policies.

It’s that more money is going to creditors of the film studio ($7 million) than is going to the women who actually brought the civil suit ($6 million).

It’s that $12 million is going to pay the lawyers who defended Weinstein’s partners.

It’s that $1 million is going to Weinstein himself to defend him against accusers who didn’t join the settlement.

I think Harvey Weinstein will be acquitted in his criminal trial … or at worst he’ll plead out to a much lesser set of charges. And when that happens, he’s golden. He’ll still have all his money. He’ll still have his freedom. He’ll still have an audience willing to pay attention to what he says. Maybe he’ll move to France and hang out with his hero, Roman Polanski.

If you don’t see that there is one set of rules for the very rich and another set of rules for everyone else … if you don’t see that there is an unaccountable political power that accrues to the very rich in both big social ways and in small personal ways … well, you’re just not paying attention.

When I was boy, I would stand up every morning in school and pledge allegiance to a flag that promised liberty and justice for all. I bet you did, too.

More and more, I think we were played for fools.


New on ET Pro: the Debt and Credit Monitor


One of our original macro narrative Monitors attempted to analyze the US credit cycle, but we rarely got enough media articles in a given month to generate robust results, so we placed it on hiatus. Recently, however, we (and once again this is the royal we … it’s actually all Rusty) hit upon a clever way to recast our search queries so that we think we are now able to capture a decent narrative signal on debt and credit markets. Here’s the narrative map for Debt and Credit in November, first colored by cluster topics and then colored by sentiment (you can see the high resolution graphics in the Monitors document):

We’ve got three takeaways from these maps and the prior 12 months of narrative analysis with the new query formulation:

  1. After a mid-year bout of complacency in credit markets, the past few months have seen a rapid acceleration in cohesion (focused and connected narrative topics) mostly around a negative sentiment narrative of concern regarding leveraged loans, CLOs, and the liquidity of CCC loans.
  2. This is taking place as the proportion of articles we measure as Fiat News (highly opinionated/editorial articles) has risen consistently. Missionaries are increasingly promoting the idea of a ‘coming collapse’.
  3. At the same time, however, there is also an almost equally positive sentiment narrative building around technology-based lending solutions in consumer credit.

We’re going to do more with credit narratives in 2020, as we know that a lot of our Professional subscribers work in FI and credit markets. If you have questions regarding our Debt and Credit Monitor, please give us a shout!

That brings our total of ET Pro Monitors to six, covering:

  1. Inflation
  2. Central Banks
  3. Trade and Tariffs
  4. US Recession
  5. US Fiscal Policy
  6. Debt and Credit

Of the six, Trade and Tariffs remains the most dominant in terms of narrative attention. It’s also relatively coherent, as it remains dominated by US-China vocabulary. But I want to highlight two really striking (to me, at least) narrative phenomena happening here:

  1. As described in the last several emails I’ve written you (“Silly Season” and “The Sillier Season”), coherence continues to collapse across almost all macro narrative categories. What does this mean? It means this is a market waiting for a Big Narrative from a Big Missionary. Could be a positive narrative and it could be a negative narrative. But the will-they-or-won’t-they-sign-a-deal narrative regarding the US and China, what I’ve described at length as a game of Chicken where no odds are assignable, is no longer enough to move markets up or down with any sort of narrative half-life. I think that if nothing else, we’ll get a Big Narrative of some sort coming out of the Iowa caucuses in early February. Maybe that will be a market-positive narrative. Maybe that will be a market-negative narrative. Maybe we’ll get something else before then. But right now there is nothing to serve as a narrative engine – risk-on or risk-off – for this market. God help us, but fundamentals and stock-picking might actually matter for a while. I’d be long dispersion while this continues.
  2. The other really striking finding is in regards to the inflation narrative. Attention has collapsed, as has cohesion. This is the most complacent narrative structure around inflation that I’ve ever seen. If you’re looking for an asymmetric trade, where a little narrative shock could go a loooong way, this is where you need to spend some time.

And that leads to a final thought. It’s been a fantastic year of growth here at Epsilon Theory, and we truly couldn’t have achieved that without your support. We are more committed than ever to being an independent voice for original research and original thinking, and the Professional subscriber base is our most important resource for ensuring that. THANK YOU!

Happy holidays (and yours in service to the Pack),



Epsilon Theory: A 2019 Retrospective


After a year (well, 11+ months, anyway) in which we published 225 standalone pieces and numerous additional multi-topic Zeitgeist posts, we thought it made sense to take stock of what we’ve actually been telling you lot. Instead of the usual “The Year in Review” or “The Year Ahead” nonsense you don’t want to read and we don’t want to write, what we’ve got for you is a quintessentially Epsilon Theory experience.

In short, what we want to do is help you:

  • Recall some pieces that were among our most-read and most popular;
  • Find some new pieces which may have slipped underneath your radar, but which have a lot of influence and explanatory power on the overall Epsilon Theory output for 2019;
  • Find some philosophical rabbit holes to follow for a while, perhaps helping you find connections between concepts and notes we’ve written that aid in understanding or putting them to use.

So, true to form, the first thing we’ve got for you is our 2019 Discovery Map, an NLP-based clustering and graphing of all of our content (other than Zeitgeist pieces from the first half of 2019 which bounced across multiple topics). What you will find is a few high-level, linguistically related clusters with a fair amount of internal diversity and fascinating points of connection to other topics.

Simply mouseover any node / article to see its name and, if you want to read it, click it and go.

Where should you start?

By Navigating the Discovery Map

Highly Central / Influential Articles: Your eye probably gets drawn to the middle of the screen, maybe a couple of those Big, Red Circles at the middle of the central-most cluster. Mouseover them and you’ll see The Long Now, Pt. 2 and The Long Now, Pt. 3, two of our most-read but also most linguistically connected notes of 2019. Starting here, you could follow language and narrative-based relationships to the outer quadrants of the topics we cover by simply following some of the connecting lines.

Highly Interconnected Articles: You may also be attracted to multi-disciplinary articles which bridge the gap between some of the higher level concepts that we write about here. Look for the nodes which connect across to one or more clusters of a different color. For example, the top-most article in the yellow cluster – The Citizen’s Response to the Long Now – is an article called How to Live Safely in a Wall Street Universe, a gem from Ben which includes one of the most powerful bits of advice I think he’s ever written: “Never ask for a cut on an existential trade.”

You’ll find another similarly interconnected piece in my contribution of A Holy Day from earlier this year, or The Stereogram, which bridges our criticisms of Fiat News media with a more intense focus on China this year.

By Reading What Others Read

If you’re looking for a more traditional marker that an article might be worth your time, here are our most-read pieces from 2019:

#1 Most Read: This is Water

#2 Most Read: Yeah, It’s Still Water

#3 Most Read: The Spanish Prisoner

#4 Most Read: Modern Monetary Theory or: How I Learned to Stop Worrying and Love the National Debt

#5 Most Read: The Long Now, Pt. 1

By Reading What Others Didn’t Read…But Should Have

We also have a range of notes which people didn’t read as much, but which are among the richest examples of connectivity between core Epsilon Theory concepts. If you’re a frequent reader but looking for some gems you might have missed, this is where you’ll find some good jumping off points to explore other notes.

#1 By Our Own Petard

#2 Send Lawyers, Guns and Money

#3 The Patsy, Revisited

#4 The Age of the High-Functioning Sociopath

#5 In Praise of Work

However you decide to navigate the 2019 Epsilon Theory oeuvre, we hope you find it thought-provoking, enjoyable and worthwhile. For those of you navigating it as pack-members, we remain grateful as always for your support. And for those who, in navigating these notes, find something you want to be a part of, we hope you’ll consider Joining the Pack.


One Narrative Keeps on Trucking


Every day we run the Narrative Machine on the past 24 hours of financial media to generate a list of the most linguistically-connected and narrative-central individual stories. We call this The Zeitgeist and we use it for inspiration or insight into short-form notes that we publish a couple of times a week to the website. To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.

There has been a constant narrative undercurrent in the 2019 Zeitgeist we haven’t covered yet. The articles attached to the narrative have ranked highly nearly every day of the year, but never quite high enough to make our list of the top 5 most linguistically connected articles published by financial media on a given day. Today the topic broke through.

What is it?

The death of trucking.

An American trucking giant is slated to declare bankruptcy, and it may leave more than 3,200 truck drivers stranded and jobless [Business Insider]

Why did it finally break through to the top of our model’s attention? For a few reasons. First, a declared bankruptcy is a news event that will get mirrored coverage from multiple outlets. Second, the article links to prior pieces that covered an Amazon-specific angle, which it doesn’t take much prodding to discover is how, exactly, Amazon is the one killing it. But third, and most importantly, this article begins to shift the focus from a problem with the industry to a problem for workers. This transition alone, along with its attendant fiat news and affect-laden language, connected this article to all sorts of political articles, opinion pieces expressing concern about the rise of left-populism among Democratic primary participants and the projected impact on markets, etc.

I suspect our readers will have wildly different views on whether the rapidly increasing propensity to frame business problems in context of their impact on labor is a good or bad thing. What matters, however, is that you know that it IS a thing, and that it is absolutely not going anywhere any time soon. It is a feature of the widening gyre, we think, that left populist and right populist language will dominate the narrative structure of nearly every conceivable social, political, economic or cultural topic for the foreseeable future. That is exactly what we are observing, even from Business Insider, and even on a subject as outside the mainstream of most Americans’ discussions as the prospects of a largely unknown trucking company.

In full disclosure, yes, I did pick the #2 most connected article over the #1 article so that I could post this with a picture of Large Marge. Plus I didn’t have anything to say about the Peleton Ad response (the #1 article in the Zeitgeist) that Aviation Gin didn’t already say.


Mailbag: By Our Own Petard


Sometimes we get enough good responses to a note from pack-members that we think it’s worth publishing them on their own. Our readers had some especially useful thoughts on our note about principal-agent problems and the meme of alignment! in the hiring of advisers, consultants and fund managers.

Thank you! This is one of the things that I have been trying to explain to clients and regulators ever since the Department of Labor released its Fiduciary Standard. There is no such thing as conflict free humans. There is no ideal compensation method. Every one of them has a conflict. Commissions are evil? Taken to excess, sure, but if you are a buy and hold investor it can be the cheapest way to pay for occasional advice. Advisory fees are perfect? Why does the SEC have a bulletin on reverse churning? (Charging Advisory fees, but not trading frequently enough to make the advisory fee cheaper than a commission model.) Advice only model? Who will help me execute the advice? I get a blueprint, but how do I pick a contractor to make it real?

Don’t even get me started on updating the regulations. Bernie Madoff, Ken Lay, and numerous others were fiduciaries for their investors. It did nothing to protect the investors. Governmental regulations are like a warranty. A warranty may force the manufacturer to repair their product, but it won’t prevent the hassle and other costs associated with a failure in the product. A strong warranty does not make up for a poor quality product. I would rather have a high quality product with no warranty. (Also, any car dealer will tell you that warranty repairs are the ultimate in misaligned incentives.) Technology will take an extremely long time to replace human interaction. (if it ever does.) No one cares about hurting a computer or robot’s “feelings.” We feel beholden to other people. How do I know? Look at physical fitness. How many people have lost weight, improved their diet and turned their life around because they bought a Fitbit or Apple Watch? How many have done it with a personal trainer and/or nutritionist? Investment analysis, portfolio design, portfolio management, financial planning, tax analysis, budgeting, really all of the math components of financial success will be automated. I’m sure there will be several different competing tools. None of them will take the place of a caring human financial advisor that will encourage you to use the tools, understand the differences between them, and provide personalized interpretation (wisdom) on using them to maximum advantage. I don’t work with institutions, I work with people. People want a caring guide to show them the ropes, identify the traps, and generally help them do better than they could do on their own. My clients are part of my packs. I use this part of my pack to help me do a better job for that part.

Pack Member TheCoeus

We believe in advice, too, a belief we have brought up a few times whenever the “everything in finance will be automated” crowd shows up after Vanguard or Blackrock enters a new segment.

Like TheCoeus, I am not, however, a believer in the Fiduciary Rule. I’m also not a believer in the application of the standard duties of care, loyalty, etc. to corporate and other board structures. Not because I don’t think that there are such duties we owe. Of course we do. But because “prudent man” standards are precisely what give us layers of consultants and bankers and lawyers to ensure that executives, boards, pension management teams, service providers and others have done enough to offload accountability for the decisions they’ve made. That is the problem with any good idea made into a meme, like alignment!: it auto-tunes our behavior to satisfy the parameters of the meme instead of embracing the underlying concept with a full heart.

The thing many fee-based clients don’t understand is this: they are subsidizing commission-based clients. My commission clients (usually older, buy-and-hold, low maintenance people) don’t do nearly enough trading to justify charging them a fee. But they still get phone calls, meetings, Christmas cards, and all the services they need. But maybe they make one or two trades a year. Without the fee-based people essentially paying the bills these commission clients would be passed off to someone else or sent online. And they don’t want that. A lot of them have been with my family for decades. We have relationships. So they get everything they need and it costs them very little. It’s a great deal for them.

Pack Member Desperate_Yuppie

A similar observation with some practical implications of it.

Because our industry is (often very rightfully) obsessed with process, we like to think that cutting off the possibility of the appearance of not having our clients’ interests at heart by eliminating structures with the potential for abuse is the right choice, somehow better than building a practice around values that requires effort and discipline to achieve without error.

I’m with Desperate_Yuppie here (Ed Note: Some of y’all’s handles…). Putting alignment over alignment! can accommodate a wide variety of fee structures.

Hi Rusty. Re your recommendations, how do you suggest calculating the beta hurdle, adjusted for long/short exposures?

Pack Member Bruce Winson

I have a few thoughts on principles here, but above all: simplicity.

I don’t think it’s every worth getting caught up in trying to create a hurdle from anything that starts to look like risk model beta, whether that’s holdings-based (e.g. Barra, etc.) or multi-factor regression based on historical returns. It is a recipe for an irreconcilable argument with your manager. Every time.

If you are dealing with a delta-1 long/short equity or credit manager, by which I mean one which almost always expresses exposure through vanilla long and short positions and only rarely options, I think you are best served by suggesting a hurdle based on 3-to-5 year average net exposure. Once you start getting into documentation of more complicated calculations or beta adjustments to that net exposure, the execution/completion risk becomes overwhelming. Don’t get cute and include an ongoing update to the calculation. Find the number. Hard code it in the document. Monitor it and re-open the issue if it’s no longer appropriate. I’ve been successful getting this kind of hurdle.

Once you start getting into more complicated strategies that have long effective net exposure but incorporate asymmetric securities to get it, you can either get in the game of incorporating delta measures into your hurdle (woof!) or basing the hurdle on a single factor returns-based beta/slope calculation against the major beta benchmark (also woof, but less so). I’ve successfully negotiated the latter. Never the former.

If you’re dealing with managers who maintain that they have no beta bias – especially in global macro, managed futures, and market neutral strategies – good luck. I’ve had zero luck getting any of these funds to agree to any kind of hurdle like this. T-Bills or LIBOR-Plus hurdles, sure, but not any net exposure-based, returns-based, or other approach to calculating long-term beta biases.

No, not even when you show that their macro fund’s returns are just a steaming pile of negative alpha wrapped around mostly static rates beta and random rotation through different carry trades.

This a really important post. My experience as a manager has been that even the best efforts never get us to complete alignment and, as Rusty suggests, we need to accept this. I used to think the gold standard in alignment was for managers to have a large % of their net wealth invested in their own funds. I still think this helps, but following Rusty’s logic, it’s no more than that. What I came to realize as a manager with something like 80%+ of my wealth in my own fund was that my risk preference at certain times was likely to very different from my clients where our fund was one piece of a much larger portfolio. This really hit home in 2009/2010 after we had navigated the GFC with only a modest single digit drawdown which we recovered over the next 18 months. We could have recovered more but remained in somewhat of a defensive crouch with lower levels of leverage than pre-GFC. A client said he was disappointed in our results – we should have more aggressively re-levered post the crisis. At the time I honestly felt he was a bit crazy – wasn’t the crisis driven by excess leverage? But with time I’ve realized that part of it was a difference in our risk preferences. As managers with the vast majority of our wealth in the fund we were nervous about re-levering, even if we didn’t explicitly recognize this. As an outside investor, with distance and other investments they felt this was time to be greedy when everyone was else was scared. We ended up not being aligned at that moment and I think a big part of it was that having so much invested in the made if very difficult to asses the risk-taking environment objectively.

Pack Member Kevin Coldiron

I really hope people take the time to read what Kevin has to say here. He has run hundreds of millions in long/short and market neutral quant strategies really successfully, honestly and transparently, and his thoughts here are the thoughts that have been shared with me by many others many times. (Full disclosure: he was someone I was happily invested with in a prior asset owner’s seat.)

There’s a sub-meme within alignment! of skin-in-the-game! that is similarly based on very sound principles, and which gets quantized into a cartoon version of itself. I don’t have a problem with wanting managers to eat their own cooking – and I absolutely understand the underlying impulse behind the request. Still, as with all the other activities we mention in the piece itself, we must recognize something important about alignment and incentives. If something puts us in the same boat as someone else, but changes what that boat is to something the other person didn’t really want or need, we have not created alignment.


Credit and Debt Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.

  • We have reworked our debt and credit queries to better represent the narrative structure of the market we intend to represent.
  • After a mid-year lull in concerns about credit markets, the last few months have produced a rapid acceleration in cohesion, mostly around a narrative of concern around the leveraged loans, the CLO market and the liquidity of CCC loans in particular.
  • This is taking place as the proportion of articles qualifying as Fiat News – one measure of the affect/opinion content of articles – has risen consistently. Missionaries are increasingly promoting Common Knowledge of a ‘coming collapse’.
  • Fascinatingly, however, the narrative for lending and credit is offset by almost equally positive and constructive Fiat News behavior celebrating the entry of technology-based lending solutions in the consumer credit area.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention

Source: Quid, Epsilon Theory

Narrative Cohesion

Fiat News Index

Narrative Sentiment

Key Articles

Developers Tap Non-Bank Sources to Finance Spec Office Projects [NREI]

AGL Credit CEO Says Credit Is Misunderstood – 11/12/2019 [Bloomberg]

Caffeinated high yield buzzing as coffee bonds mandated [Global Capital]

Is The Fed Secretly Bailing Out A Major Bank? [Zero Hedge]

How Do You Spell R-E-P-O With C-L-O? [Alhambra Partners]


US Recession Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.

  • There is little cohesion or attention to a US Recession narrative at this point – not because there is major disagreement per se, but because (we think) most commentators have moved on from it as a topic.
  • It is, for lack of a better description, simply not part of the Zeitgeist anymore.
  • Sentiment has begun its rise as more stories have focused on the fading of recession fears, aided in part by an increase in Fiat News from news outlets with an interest in promoting that as Common Knowledge more quickly.
  • If we had a view (and we do not) that indicators of a recession in the United States might rear their head again in the near future, we think it would represent a shock to presently complacent Common Knowledge.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention

Source: Quid, Epsilon Theory

Narrative Cohesion

Fiat News Index

Narrative Sentiment

Key Articles

S&P 500 earnings swoon now seen extending to fourth quarter [Reuters]

Reuters poll: Trade truce unlikely in 2020 but U.S. recession fears recede [Reuters]

CLOs Cracked Like No Other Credit Market. So Now What? [Bloomberg]

If you offer good value in retail, you’re winning. Everyone else is in trouble [CNBC]

The lagging manufacturing sector may be about to rebound, according to a reliable indicator [CNBC]


US Fiscal Policy Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.

  • No change since September: there is no Fiscal Policy, Deficit or Austerity narrative, at least as it concerns markets.
  • We are still observing a rebound in sentiment to normal levels, but we think this is related to generally more positive financial markets commentary during recent (better) equity market performance.
  • As with inflation, we believe that is because of narratives in political world. There, we do observe an emerging language about US debt levels, deficits and spending. It exists purely in political and wonkish debates, and has been almost completely untethered from financial markets discussion.
  • Like many other categories, we think there is a powerful complacency about this issue. Recalling some of Ben’s notes this year with tongue planted firmly in cheek, “We are all MMTers now.”

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Cohesion

Fiat News Index

Narrative Sentiment

Key Articles

‘I am a scavenger’: The desperate things teachers do to get the classroom supplies they need [Washington Post]

U-Va. doctors voice opposition to own hospital’s aggressive billing tactics [Washington Post]

Never Say Never to Forever Bonds [Financial Advisor]

Chicago Teachers End Strike, Their Longest in Decades [NY Times]

Two Risks to Stability Are Building Amid Short-Term Calm [Bloomberg]


Trade and Tariffs Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.

  • Nearly all our major macro narratives have sharply lower attention and cohesion in the month of November – Trade and Tariffs are no exception.
    • We do not wish to overstate this. Even after this erosion, it remains Common Knowledge that the Trade War is what matters to risky asset markets.
  • The erosion in cohesion is, perhaps, the more interesting. We are observing increasing polarization in the narrative structure.
  • The visualization on the following page does a good job of presenting this. The east quadrant is defined by the language linking positive, optimistic and hopeful takes on the Trade War. The central, west and south regions are generally less constructive.
  • It is instructive to us that the constructive clusters are less connected to the overall story being told. Regardless of sentiment scoring, we think that the current game of chicken Common Knowledge is that the Trade War isn’t and shouldn’t be a source of hope.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Attention

Narrative Cohesion

Fiat News Index

Narrative Sentiment

Key Articles

U.S. CEOs who win trade barriers for their firms see big compensation boost [Reuters]

Super Rich Rethink Buying Yachts In Uncertain Economy [Bloomberg]

Here are the economic issues that will define the year until Election Day 2020 [CNBC]

Trade War’s Forgotten Farmers Get Crushed in U.S. Cotton Country [Bloomberg]

Goldman says political gridlock to propel stocks in 2020: ‘United we fall, divided we rise’ [CNBC]


Central Bank Omnipotence Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.

  • Central bank policy narratives have become highly diluted relative to prior periods, we think in large part as a result of the emergence of a wide variety of additional macro questions attracting moderate levels of competing attention.
  • When missionaries write about central banks, they are writing stories which do not have much connection to discussions of risky asset markets in general, and writing stories about a huge range of topics, from divergence in stock/bond market returns, to emerging markets turmoil, to tariff-induced inflation, etc.
  • We do continue to see a strong linkage between the Trade War and “necessary” policy response (see SW quadrant).
  • We still think there is a long-cycle narrative of Central Bank Omnipotence – that the Fed will step in if needed on rates, and that doing so will be effective w/r/t asset prices – but there is no question that it is muddled in the short run.
  • Given this narrative structure, we would generally expect greater than expected response to either positive or negative surprise on interest rate policy or associated language.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Attention

Narrative Cohesion

Fiat News Index

Narrative Sentiment

Key Articles

Germany Should Prod Its Savers to Take a Few Risks [Bloomberg]

Fears of radical policies hurt Spanish stocks, analysts sanguine [Reuters]

Companies Cut Back, but Consumers Party On, Driving the Economy [NY Times]

Schwab CEO blames the Fed’s rate cuts for layoffs [CNBC]

Powell: Economy Seen in Sustained Expansion [NY Times]


Inflation Monitor – 11.30.2019


Access the Powerpoint slides of this month’s ET Pro monitors here.

Access the PDF version of the ET Pro monitor slides here.

Access the underlying Excel data here.

  • There is no inflation narrative in the US. Attention and cohesion have completely collapsed, along with the narrative structure on most other dimensions.
  • As with the last several months continue to see election season-related rhetoric surrounding health care, housing and education inflation which continues to have only tangential relationship to market discussions.
  • We have also seen some increase in discussions of inflation related to ongoing tariffs, especially in agricultural commodities.
  • We also note the increased presence of Fiat News, which (in our opinion) reflects more common arguments that the Fed has room to and must act on any economic weakness.
  • We have no fundamental thesis regarding inflation whatsoever. We have no idea if it is coming. But we now consider the Common Knowledge of no inflation in the US to be a complacent narrative structure, and accordingly an asymmetric proposition.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Source: Quid, Epsilon Theory

Narrative Attention

Narrative Cohesion

Fiat News Index

Narrative Sentiment

Key Articles

Two Risks to Stability Are Building Amid Short-Term Calm [Bloomberg]

Fed chief Jerome Powell doesn’t plan to cut interest rates soon [LA Times]

Mobius Says Central Banks Are Taking Wrong Approach to Policy [Bloomberg]

Trump has ‘cordial’ meeting with Fed chair he’d called a ‘bonehead’ [Washington Times]

Louis Bacon Steps Back to End Decades Running Client Money [Bloomberg]


Presented Without Comment


Former Purdue CEO Mark Timney (L) and former Uber CEO Travis Kalanick (R)

Every day we run the Narrative Machine on the past 24 hours of financial media to generate a list of the most linguistically-connected and narrative-central individual stories. We call this The Zeitgeist and we use it for inspiration or insight into short-form notes that we publish a couple of times a week to the website. To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.

Below are two of the most narrative-central articles in financial media today. I’m going to leave this here, as the kids would say, without comment, because I’ve been railing on this topic for quite a bit lately (Yeah, It’s Still Water, When Was I Radicalized?, The Rake, OK Boomer).

But I’ll just say this:

Regardless of your personal views pro or con, if you don’t see that a powerful narrative backlash is forming against corporate management enrichment, you’re just not paying attention.

CEO Named in Opioid Lawsuits to Reap $68 Million for Year’s Work  [Bloomberg]

“Mark Timney faces the kind of allegations that can end careers. The former Purdue Pharma LP chief executive officer is accused of playing a key role in fueling the opioid crisis, according to scores of lawsuits by state attorneys general and others. They allege that he directed staff to mislead doctors about the addictiveness of painkillers, which devastated communities across the U.S.”

“Last December, about 18 months after leaving Purdue, Timney became CEO of Medicines Co., a Parsippany, New Jersey-based biotech firm with an experimental cholesterol-lowering treatment for cardiovascular disease. Last week, Swiss pharmaceutical giant Novartis AG agreed to buy it in a $9.7 billion deal that’s expected to be completed early next year. Timney’s stock options and small stake in Medicines are valued at $87.6 million at the offer price of $85 a share. After excluding the cost of exercising the options and the money he paid to acquire the shares, his take will total $68 million.“

Uber’s former CEO Travis Kalanick cashes in another $93 million in stock as he separates himself further from the rideshare giant [Business Insider]

“Former Uber CEO Travis Kalanick continued his ongoing share sell-off into December, cashing in more than $93 million after selling the company’s stock over a three-day period.”

“Kalanick’s combined sales now ring in at more than $1.8 billion since Uber’s post-IPO lockup period expired on November 6.”


Hyakujos Fox


Once when Hyakujo delivered some Zen lectures an old man attended them, unseen by the monks. At the end of each talk when the monks left so did he. But one day he remained after they had gone, and Hyakujo asked him: `Who are you?’

The old man replied: `I am not a human being, but I was a human being when the Kashapa Buddha preached in this world. I was a Zen master and lived on this mountain. At that time one of my students asked me whether the enlightened man is subject to the law of causation. I answered him: “The enlightened man is not subject to the law of causation.” For this answer evidencing a clinging to absoluteness I became a fox for five hundred rebirths, and I am still a fox. Will you save me from this condition with your Zen words and let me get out of a fox’s body? Now may I ask you: Is the enlightened man subject to the law of causation?’

Hyakujo said: `The enlightened man is one with the law of causation.’

At the words of Hyakujo the old man was enlightened. `I am emancipated,’ he said, paying homage with a deep bow. `I am no more a fox, but I have to leave my body in my dwelling place behind this mountain. Please perform my funeral as a monk.’ Then he disappeared.

– Excerpt from the koan Hyakujo’s Fox

In Zen, a koan is a story or dialogue designed to trigger and test understanding. It’s a fascinating literary form. Incredibly dense. Often, koans convey multiple layers of meaning in less than a hundred words. Sometimes just a few sentences.

The koan Hyakujo’s Fox, sometimes called the Wild Fox Koan, is of particular interest to me because it touches on many of the themes near and dear to us here at Epsilon Theory. Here a monk transforms himself into a fox by “clinging to absoluteness.” While this is absurd on its face, it’s really just a fancy way of arguing that perception is reality.

You are what you eat, the saying goes. More importantly: you are what you think.

Recently, a friend and I were texting about the meaning of life. (what? you and your friends don’t text regularly about the meaning of life?) My friend wrote that in the end, all you can really do is carry your cross to the finish line. I quite like this. It cuts right to the heart of the issue. There are no Answers. There is only Process. I did suggest adding an inscrutable Zen twist, however. My version:

In the end, all you can really do is carry your cross to the finish line. Except there is no finish line, there is no cross, and there is no you.  

People sometimes ask me, if all the world is narrative and meme, then how can we tell what’s real?

As far as social reality is concerned, it’s about as real as any game or theatre production. There’s the White Collar Corporate Power Game, for example. There’s Partisan Political Theatre. There’s the Social Status Game. If you prefer more high-brow forms of entertainment, you can indulge in Religious Theatre and Intellectual Theatre (I have a soft spot for the latter). But let’s not kid ourselves. It’s theatre and games, all the way down.

This shouldn’t come as news to anyone. Heck, it’s been right there in the Bible for over a thousand years. That bit about the camel passing through the eye of the needle easier than the rich man making it to the Kingdom of Heaven? That’s Jesus teaching that wealth and status are not inherently meaningful or worthwhile. Accumulating wealth and power are just games we play.

A while back, I wrote a note about this manufactured nature of social realities. I wrote then that it was a clear eyes note. Well. This is the full hearts sequel. 

You see, I’m pretty confident asserting that social reality–what we think of as “how the world works”–is the output of the following chaotic process.

nature (basically physics & biology) + nurture (operant conditioning) + randomness (error term)

I say this is a chaotic process because social reality is a three-body problem. There’s no closed-form solution. And the process is extremely sensitive to starting conditions. Everything else, as they say, is commentary.

I’m pretty sure the above is true. Yet it troubles me. First and foremost, it induces many a dark night of existential dread—that thick, dark curtain of despair that tends to descend whenever we contemplate our inevitable end. It’s not really physical death that bothers us (if it were, we wouldn’t find very much consolation in religion). No. What really bothers us is ego-death. What really bothers us is the dissolution of the self.

After all, physical death is no biggie if your consciousness (soul) transcends physical death. If that’s the case, then dying isn’t much different from moving to another country. Ego-death, on the other hand, is true death. Ego-death is non-existence. The void.

So what if there is no grand meaning to it all?

What if it all really does reduce down to nature + nurture + randomness, and the entire arc of the history of our universe is just a single run in some elaborate Monte Carlo simulation?

Frankly, you can take this to some pretty dark and nihilistic places. Perhaps no one articulates it better than the Misfit, the psychopathic antagonist of Flannery O’Connor’s short story, “A Good Man Is Hard To Find.”

“Jesus was the only One that ever raised the dead,” the Misfit continued, “and He shouldn’t have done it. He thrown everything off balance. If He did what He said, then it’s nothing for you to do but throw away everything and follow Him, and if He didn’t, then it’s nothing for you to do but enjoy the few minutes you got left the best way you can—by killing somebody or burning down his house or doing some other meanness to him. No pleasure but meanness,” he said and his voice had become almost a snarl.

The Misfit is one of my favorite antagonists in literature. You can read him almost any way you want. Maybe he’s nothing more than a rambling, murderous redneck. Or maybe he’s the most coldly rational, self-aware, introspective character in the story. The Misfit spent an awful lot of time in prison, after all. He’s had plenty of time to meditate on The Meaning of Life.

“Some fun!” exclaims his accomplice, Bobby Lee, after their gang finishes killing the Grandmother and her family.

“Shut up Bobby Lee,” the Misfit said. “It’s no real pleasure in life.”

(SPOILER) That’s the last line of the story. These days I like to read the Misfit as a kind of anti-zen monk. He’s got it all twisted. But he hasn’t necessarily got it wrong. He’s Hyakujo’s Fox. For clinging to absoluteness, he has been sentenced to suffer 500 rebirths as a psychotic spree killer.

So what the hell are we supposed to do about all this, exactly? How does one cultivate a clear-eyed view of our world without embracing murderous nihilism?

For starters, we quit looking for Answers. They don’t exist. Self-actualization has no closed-form solution.

But there is a Process.

The three images above are all of ensōs. An ensō is just a circle, drawn in a single stroke. Hitsuzendō is a form of zen practice where one draws ensōs as a meditative practice. The process is simplicity itself. You just draw a circle with a calligraphy brush. Maybe you close the circle. Maybe you don’t. Maybe you’ve got a thick, continuous circle. Maybe not. It doesn’t really matter what the circle looks like. Don’t overthink it. Just draw a circle.

Here’s the trick: everything we do in life and investing is as simple as drawing an ensō. Every. Single. Thing. As Ben wrote in his Clear Eyes, Full Hearts, Can’t Lose manifesto:

“You want freedom? You want an autonomy of mind and spirit? You want that as an inalienable right? A right that is yours simply because you are a human being? Well, that comes at a price. And the Kantian price is this: everything you do, you must do for the right reasons.

It’s really as simple – and as difficult – as that.

What are the right reasons? You don’t need me to tell you. You already know what they are, in every situation you’re in. You have a moral compass. But I’ll tell you anyway. Acting for the right reasons means acting in a way that reflects who you ARE as a moral human being. It means acting for your identity as a moral human being, not as a propitiation to some god or potentate, not as an exchange for some “greater good” that someone else has talked you into pursuing. Not even for gaining a Supreme Court seat. Not even for denying a Supreme Court seat.”

Note that I wrote this was simple above. I didn’t say it was going to be easy.

Question: Is morality socially constructed through a process where biological systems are socially conditioned to respond in particular ways to particular stimuli, or is morality an innate moral compass manifested in Kantian ethics?

Answer: Yes.

Now draw yours.


Our Dumb World


To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.

When Ben and I have conversations about analyzing the structure of narratives, one of the things we talk about most is the distinction between narratives defined by topical similarity and those defined by similarity in affect or non-topical turns of phrase.

For example, sometimes it is useful to know that the language in coverage of another Lee Cooperman rant about “The Algos” is more or less similar to other clusters of financial markets commentary. But when we see the Cooperman Algos stories all clustered together by themselves, we can be pretty certain that it is a topical cluster, defined by words which describe a thing. In this case, that thing is Cooperman’s willingness to blame every 50bp drop in the S&P 500 on poor liquidity, dumb computers, volatility targeting, risk parity and other such bogeymen. It is simply our collective lot to puzzle out why big up days with practically no major earnings or macro news don’t yield similar frustration.

We may instead see clusters which aren’t so much defined by a topical similarity, but by the affect, quality, sentiment and distinctive traits of language being used, independent of whether they are being used to describe the same thing. Terms and phrases used to describe wealth inequality or social injustice, for example, find their way into very different topics and create dimensions of similarity that begin to shape all sorts of narratives.

We generally find the latter more interesting and informative, but even when clusters are topically driven, we can still measure their proximity to affect/non-topical language-driven clusters. If Facebook earnings coverage (topical) is more similar to affect-driven clusters of articles about billionaires, anti-trust legislation, politics and social justice, that may have meaning. To us, anyway.

Sometimes an article comes across the Zeitgeist which gives you a little bit of both: a clear linguistic relationship to a substantively significant and intuitive topic of the day, elevated in interconnectedness within the overall narrative structure by the affect and quality of its language.

That, dear reader, is how we end up with this at the top of the Zeitgeist:

Amazon Removes Auschwitz Christmas Ornaments, Bottle Openers After Outrage [Huffington Post]

Valentine's Day key chains featuring a photo of a train car that deported Jews for extermination remained for sale on Su


Horrifying for obvious reasons. But also horrifying that being topically related to Black Friday / Cyber Monday topics and non-topically related by merits of the affect of language used in discussion of the horrors of Auschwitz makes something the most similar to all other financial news published over the weekend and today.

December can only get better from here, right?


The Sillier Season


Every day we run the Narrative Machine on the past 24 hours of financial media to generate a list of the most linguistically-connected and narrative-central individual stories. We call this the “Zeitgeist” and we use it for inspiration or insight into short-form notes that we publish a couple of times a week to the website. It’s usually pretty obvious why the articles rise to the top of our natural language processing (NLP) metrics, as they tend to be about specific companies or specific market events … topics where you see the headline and think “oh yeah, I understand why this article is appearing in financial media.”

Until recently, that is.

For example, Rusty wrote a brief note today (“Our Dumb World”) about one of the highest scoring financial media articles, “Amazon Removes Auschwitz Christmas Ornaments, Bottle Openers After Outrage”. This is as horrible as it gets, but we’ve been having lots of weird or off-narrative articles scoring high for narrative relevance recently. The same weird article never stays in the Top Ten from day to day, but it’s another weird flash-in-the-pan article day after day.

I think it’s related to the observation I sent you a few weeks ago (“Silly Season”) where I mentioned the low attention and coherence scores we were seeing across all of our macro narrative Monitors. It led me to ask a Big Question, one that I didn’t have an answer for:

At what point, if ever, do political narratives about Inflation and Fiscal Policy become market narratives about Inflation and Fiscal Policy?

We won’t have this month’s macro Monitor analysis completed for another few days, but I’ll tell you what it feels like to me. It feels like the lack of coherence around our “standard” macro narratives like Inflation or Central Banks or Recession has expanded into a lack of coherence around ANY market narrative, standard or not, macro or not. It’s like anything goes in financial media over the past few months, where not only is the ground unsteady beneath our feet in the real-world of market or company fundamentals, but it’s ALSO unsteady in narrative-world.

It feels like literally anything could happen in narrative-world. I honestly can’t imagine anything that would surprise me, or anything that would make for an investable move in markets, up OR down. It’s like the narrative-world heart is just quivering without a stable rhythm or beat of any sort.

We need a defibrillator.

Can you believe that the Iowa caucus isn’t until February? I think that’s going to be the defibrillator, the first real-world electoral result that begins to focus the political competition that’s going to dominate 2020 markets. That’s when I think political narratives start to become coherent market narratives.

Until then … the silly season is going to get even sillier.