The Mozilo Market

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Angelo Mozilo, tanning bed aficionado and former chairman/CEO of Countrywide Financial

I’m willing to bet that fewer than half of Epsilon Theory readers know who Angelo Mozilo is. And that’s a shame, because no one better epitomizes the intense financialization of the American stock market from 2001 – 2007 than Angelo. No one better epitomizes the corrupt lending and securitization practices that led directly to the Great Financial Crisis of 2008 than Angelo.

The fact that Angelo Mozilo was allowed to pay a $67 million fine (leaving him with only … oh, $400 million or so left over) on SEC insider trading charges and walk away scot-free from ALL criminal prosecution is something I will NEVER forgive Eric Holder and Barack Obama for. Google “friends of Angelo” when you get a chance. Only Dick Fuld, who oversaw the Repo 105 fraud at Lehman (and who also skated from any criminal OR civil prosecution), makes my blood boil more than Angelo Mozilo.

But this isn’t a note about Angelo Mozilo.

This is a note about Countrywide’s quarterly earnings call in 2008, when Angelo, in response to an analyst’s question, said that sharply increasing mortgage delinquencies and failures were NOT limited to sub-prime, but were now in Alt-A mortgages, too.

I’ll never forget that call. With one comment, Angelo gave the lie to everything Ben Bernanke and Hank Paulson had been saying about the “well-contained” nature of the sub-prime mortgage crisis. You could almost feel the thermonuclear energy coming off that call and spreading throughout the professional investment community.

Markets were never the same after that.

From that call forward, no professional investor responsible for Other People’s Money trusted a single word they heard from Bernanke or the Bush White House on the “containment” of sub-prime delinquencies. No professional investor worth his or her salt trusted a single word they heard in the following months from Merrill and Bear and Goldman and Citi about the marks they had on their RMBS assets. This wasn’t just a US thing. The Europeans were much more flagrant liars. Even as all hell started to break loose for US banks in the summer of 2008, European banks valued their massive portfolios of Alt-A securities at 97 cents on the dollar, all rated AAA, natch. They were ALL liars. All of them. Without exception.

After that Countrywide earnings call in 2008, I trusted NO ONE in government or Wall Street to tell the truth about the mortgage crisis.

And that’s the way I feel about COVID-19 today.

In 2008, you could not trust a single word that anyone in government or the financial services sector told you about their exposure to bad mortgage securities. And because you had zero trust … because you had zero visibility into the actual exposures that banks actually had … you SOLD.

In 2020, it’s exactly the same thing. I do not trust a single word that anyone in the U.S. government (or the Japanese government or the Chinese government) tells us about our exposure to this virus. I believe that most professional investors feel the same way.

And when you have no trust … you SELL.


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Don’t Test, Don’t Tell

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Epsilon Theory PDF Download (paid subscription required): Don’t Test, Don’t Tell



I believe that a healthy society should not have only one voice.

Li Wenliang, Wuhan physician, born October 12, 1986, died February 7, 2020.

Last night, I received a Twitter DM that included screenshots of an email that went out to staff at the UC Davis Medical Center. After checking for authenticity, I posted the screenshots in a tweet of my own.

And that’s when, as the kids would say, it blew up.

I want to highlight a couple of quotes from this email.

Since the patient did not fit the existing CDC criteria for COVID-19, a test was not immediately administered. UC Davis Health does not control the testing process.

The facts here are pretty clear. Patient comes in from another hospital on Wednesday, Feb. 19 – this is one week ago – already intubated and on a ventilator, and the doctors at UC Davis – who have treated other COVID-19 cases – IMMEDIATELY suspect COVID-19.

But the CDC refuses to test for COVID-19.

Why? Because it didn’t fit their “criteria” for testing. They didn’t know for sure that the patient was in mainland China within the past 14 days, and they didn’t know for sure that the patient was in close contact with another confirmed case, so BY DEFINITION this patient can’t possibly have COVID-19. No test for you!

This is “Don’t Test, Don’t Tell” and it is the single most incompetent, corrupt public health policy of my lifetime.

And it’s happening all over the country.

Here, take a look at yesterday’s press conference from Nassau County, Long Island.

Excruciating. They spend the first five minutes of the presser congratulating each other. Then the update: 83 people are in self-quarantine at home, where they are supposed to “check their temperature” daily. Don’t have a thermometer? Not to worry! The Nassau County Health Commission will provide one for you!

Who are the 83 in self-quarantine? Why, they’re everyone that Homeland Security says should be in self-quarantine, based on “current guidelines” of someone who was in mainland China within the past 14 days.

Has it been 15 days since your mainland China visit?

Have you been to Northern Italy in past 14 days?

Have you been to Iran in past 14 days?

Have you been to South Korea in past 14 days?

Well, no self-quarantine for you! You’re fine!

And here’s the kicker. Not only is there ZERO tracking or monitoring of anyone who has been swimming in the coronavirus stew of South Korea, Northern Italy and Iran, but let’s say that you have in fact been to one of those areas recently and now you’re feeling sick. You go to the doctor and you tell her the whole story. Both of you suspect it might be COVID-19. You’re trying to do the right thing here. You call the county health authority. You call the state health authority. You call the CDC. And then you learn the awful truth of Don’t Test, Don’t Tell.


It’s not that testing is not available.

It’s that testing is not ALLOWED.


I’m not panicked. I am perfectly calm.

But I am really, really pissed off.

Because here’s the other quote from the UC Davis email that I’d like you to pay close attention to:

When the patient arrived [Wednesday], the patient had already been intubated, was on a ventilator, and given droplet protection orders because of an undiagnosed and suspected viral condition. … On Sunday, the CDC ordered COVID-19 testing of the patient and the patient was put on airborne precautions and strict contact precautions.

Translation: for four days, every healthcare professional treating this patient at UC Davis was exposed to airborne transmission of COVID-19. And so was every healthcare professional at the hospital before UC Davis. Because the CDC refused to test this patient for COVID-19 in a timely manner, the doctors and nurses and technicians caring for this patient were put at risk.

Sure enough:

We are asking a small number of employees to stay home and monitor their temperature.

This is the part of the story that we must yell at the top of our lungs.


Don’t Test, Don’t Tell is not just hiding the true extent of COVID-19 cases in the United States.

Don’t Test, Don’t Tell is not just perpetuating the politically corrupt “Yay, Containment!” narrative of this White House.

Don’t Test, Don’t Tell is endangering the lives of our doctors and nurses.


Just like in China.

Just like in Wuhan.

A city falls when its healthcare system is overwhelmed. A city falls when its national government fails to prepare and support its doctors and nurses. A city falls when its government is more concerned with maintaining some bullshit narrative of “Yay, Calm and Competent Control!” than in doing what is politically embarrassing but socially necessary.

That’s EXACTLY what happened in Wuhan. More than 30% of doctors and nurses in Wuhan themselves fell victim to COVID-19, so that the healthcare system stopped being a source of healing, but became a source of infection. At which point the Chinese government effectively abandoned the city, shut it off from the rest of the country, placed more than 9 million people under house arrest, and allowed the disease to essentially burn itself out.

And so Wuhan fell.

The disaster that befell the citizens of Wuhan and so many other cities throughout China is not primarily a virus. The disaster is having a political regime that cares more about maintaining a self-serving narrative of control than it cares about saving the lives of its citizens.

We must prevent that from happening here. From happening anywhere. Yes, containment has failed. But that does NOT mean the war is lost. We can absolutely do better – SO MUCH BETTER – for our citizens than China did for theirs.


The CDC’s Don’t Test, Don’t Tell policy came crashing down last night. So did Trump’s “buh, buh the flu” and “Yay, Containment!” narratives.

Now let’s get to work preparing for the fight to come.

Not in panic. Not in fear. But with resolve, sacrifice and righteous anger for those who would use us instrumentally for their own political ends.

Clear eyes. Full hearts. Can’t lose.


Epsilon Theory PDF Download (paid subscription required): Don’t Test, Don’t Tell


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Covid-19 Cargo Cults

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In the South Seas there is a Cargo Cult of people.  During the war they saw airplanes land with lots of good materials, and they want the same thing to happen now.  So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas—he’s the controller—and they wait for the airplanes to land.  They’re doing everything right.  The form is perfect.  It looks exactly the way it looked before.  But it doesn’t work.  No airplanes land.  So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land.

Richard Feynman, The Cargo Cult Science (Speech at Caltech in 1974)

A friendly reminder: this is general commentary and IS NOT investment advice. You should act based on your own situation, because this analysis is generalized and doesn’t take it into account. We don’t have a crystal ball. If we make forward-looking statements about the markets, they will often be wrong. Because we’re discussing tail risks, it may be INHERENTLY MORE LIKELY than not that we are wrong. Clear Eyes, Full Hearts.


I tease Ben sometimes for devoting his graduate studies to political science. Not because it isn’t a worthy field of study. I tease him because the idea of politics being a science is absurd on its face. And then he usually reminds me that my economics degree is nominally referred to as a science degree, too.

I am immediately chastened.

There are a lot of scientifically minded people in the investment industry. In general, this is for the good. I mean, of course it is. Investing in risky assets constantly appeals to our baser tendencies toward fear and greed. Worse, we do not respond to those appeals in isolation. We are surrounded by others who are watching us and responding to our actions for their own benefit. Process is a gift to investors.

And yet.

When we are free to be, shall we say, uncommercial, outside of the behavioral benefits accruing to process-adherence it is very difficult to find much that we do in the investment industry that is not what Physicist Richard Feynman called cargo cult science. When he wrote and spoke about cargo cults, he usually referred to very obvious pseudosciences like phrenology, astrology or reflexology. But his fundamental analogy is much more expansive, and in classic Feynman style, works in micro, macro AND meta. It is simultaneously an illustration of the practice of pseudoscience and the philosophy underlying pseudo-scientific practice.

If you imagine the islanders trying to recreate the landing of the airplane that brought goods and supplies, you are seeing the frustration yielded in the practice of pseudoscience. They observed a pattern: runway is cleared, fires are lit, man sits in a shack with things on its head, plane with goods and supplies lands. Easy peasy. They want to reproduce the final result, so, they get to clearing and manufacturing a makeshift set of wooden headphones.

It sure looked better in the backtest.

But Feynman’s analogy is not just an illustration of what cargo cults do. It’s also an illustration of why they do it. Instead of thinking about the airplane as an illustration of some feature of the world a scientist might be trying to research, think about the airplane as science itself. People who earnestly want to be more scientific see what scientists do. They do experiments. They measure data. They write it down. They perform calculations based on the data their experiments yielded. They build things based on those experiments. Alas, adhering to the cartoon of sciencey-looking process is not science. Neither is the closely-related meme of Yay, Science!

I don’t mean to be unkind. I’m also not condemning inductive reasoning in full, since in sciences where it can be combined with observation in ways that aren’t available to us in financial markets it has been responsible for some of our great discoveries.

But if your adviser or consultant does a lot of slicing and dicing of quintiles and quartiles on some good-sounding fundamental dimension and showing you the returns over the last 20 years if you’d bought this one and sold that one, you’re probably paying a cargo cultist to clear you a runway. Many quantitative managers do a lot better than this, of course. Some are, I think, doing something that is close enough to science to warrant the name. But even then, the airplane landing is dependent on some actual transmission mechanism to make it land. And the actual transmission mechanism in markets after removing abstraction layers is always – ALWAYS – another human making a decision for whatever reason they make decisions. This thwarts a lot of good theories. Ours included.

The right question to ask, both in science and in the maybe-science variant we perform in financial markets, is always this:


Why do you believe the measurements you are producing and the actions you are taking based on those measurements are related to the actual mechanic in the real world which produces the thing being measured?


It’s the right question if you’re thinking about what Covid-19 means for your portfolio, too.

The biggest concern I have as a risk manager is related to this question. It isn’t that I am concerned (as an investor) about how many people are infected with Covid-19 in the United States today. It isn’t even that I don’t know how many people are infected.

It’s that it isn’t knowable.

It isn’t knowable because we completely botched testing on initial suspected cases, and we have continued to permit that error to compound. To be clear, I don’t mean “unknowable” in the sense that we will always be inexact in our predictions. I mean unknowable in the sense of uncertainty: that you could produce a dozen different estimates of where we are at today in the development of Covid-19, and any attempt to assign probabilities to each of those estimates would be no better than an arbitrary guess. If your epistemic uncertainty about the predictive power of any of your models is not keeping you up at night, I think you’re making a mistake.

I think that has two implications for investors and asset owners.

The first is that we must be extremely cautious of anyone peddling quantitative, predictive or scenario analysis of what this means for your portfolios. Anyone who is acting positively on the belief that they know something is a cargo cultist. Anyone showing you charts of prior contagions and pandemics and showed you what happened next – whether they intend to frighten you or calm you – is a cargo cultist. Ignore it. And for God’s sake, don’t act on it.

Not until measurement has meaning again.

The second is somewhat related to the first. Acting positively because you think you know something is not the same as responding to the fact that you don’t. Every position in our portfolio is an implicit bet on a variety of things. Your active security positions – overweights and underweights – are bets that other investors will recognize or change how much they care about certain traits that exist today or that you are predicting will exist in the future. How confident are you that the kind of bets you are making will not be swamped by bets and responses other investors will inevitably make about Covid-19?

Your exposure to risky assets in general represents an implicit bet, too.

It’s a bet on functioning economies and trade. It’s a bet on available credit and liquidity. It’s a bet on productivity and the way capital marshals that into equity value. And, uh, I’d be going a bit off-brand if I didn’t mention that it’s a bet on a friendly and accommodative institutional apparatus that includes both central banks and the cadre of MMTers who occupy both political parties. Most importantly, it’s a bet that investors still care about those things. I still think they’re good bets in the long run. I actually still think they’re good bets in the short run, by which I mean that if your central case is that the world will largely continue to spin in 2020, history tells us that you are more likely than not to be correct.

But distributions get a bit funny in the face of the unknowable, folks. While the chest-pounding prediction game practiced by the media, banks and asset managers coerced by their head of sales to go on CNBC IS about acting on what’s more likely than not to be true, investing is not.

In short, if your confidence that the models leading you to active positions will matter in the near term is high, or if your confidence that the aforementioned uncertainty is already being discounted is high, we think you are wrong.

Part of the reason is epistemological. Uncertainty alone may be enough. But that isn’t all. We’re concerned about where we are on the Covid-19 narrative, too.

Our analysis of narrative structure shows that Covid-19 is dominating the last two weeks of markets coverage in a way that no topic has since we begin tracking macronarratives. Here’s the activity in traditional media:

And here’s the activity in social media.

But here’s the thing: our attention measure for Covid-19 over the same period is LOWER than each of Trade War AND Central Banks. It’s lower than the AVERAGE of all financial markets news. What does that mean? It means that authors reference the Fed when they’re talking about banks, when they’re talking about consumer borrowing activities and mortgages, when they’re talking about fears of Covid-19 and other market risks, when they’re jawboning for more easing, and when they’re talking about President Trump. It means that authors reference the Trade War when they talk about Boeing, and Tesla, and farmers, and consumer prices, and Trump’s reelection, and factory shutdowns, and supply chains.

But Covid-19 news? Right now, it’s mostly just about Covid-19 and the initial investor response. There’s a smattering of supply chain linkages, and a couple of companies reporting and warning about its impacts. But generally speaking, we haven’t yet seen the deluge of linking-everything-to-Covid-19 that we expect is coming. Even at a high volume of coverage, it’s its own beat. A sideshow.

As of February 27, even after a 10% drawdown, we believe the narrative about Covid-19 is complacent.



What would we be doing if we were an asset owner or adviser? Most importantly, we’d be ignoring the cargo cultists. We’d avoid actions predicated on predictions, and respond instead to the fact that we don’t know. What does that mean?

  1. It means we’d be actively trimming the risks of ruin. That means leverage, concentration and illiquidity. The last one’s definitionally tougher to trim, so focus would be on the first two.
  2. It means we’d put off hiring new active managers in search of idiosyncratic alpha, and we’d avoid paying for existing active strategy exposure if frictional costs were low (e.g. anything on swap, accessed through platforms like DB Direct, etc.)
  3. It means we’d be thinking long and hard about our dependence on backward-looking covariance estimates. If I was a steward for investors with a short investment horizon or a low risk tolerance that was based on some conversation I had with them about a remote probability of a major loss, I’d be inclined to pull back exposure to risk assets.
  4. It means we’d be couching our investment committee conversations for the near future in terms of insurance. In short, are you an institution whose objectives are better served by paying a 10% premium on your equity book by locking in this drawdown and avoiding potential tails? Or does your agency structure, investment policy and institutional temperament permit you to self-insure and avoid the uncertainty of foregone gains from the brutal difficulty of timing re-entry?
  5. It means we’d be doing all of the above until the cargo cult of Covid-19 analysis turns back into science. In short, we’d be doing the above until we felt that the measurements being provided about the state of Covid-19 infections reflected some underlying reality.

A friendly reminder: this is general commentary and IS NOT investment advice. You should act based on your own situation, because this analysis is generalized and doesn’t take it into account. We don’t have a crystal ball. If we make forward-looking statements about the markets, they will often be wrong. Because we’re discussing tail risks, it may be INHERENTLY MORE LIKELY than not that we are wrong. Clear Eyes, Full Hearts.


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Join Us. No, Really.

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Second Foundation Partners builds technologies to research narratives, the stories we tell one another about the world, from financial markets to political news to daily life. We write about those narratives. We consult with companies, investors and governments about narratives. We build investment models based on narratives.

Second Foundation is growing. We are now hiring a Senior Project Manager to work directly with Ben and Rusty to lead the expansion of the data and computational infrastructure underlying our narrative analysis efforts.


What We Need:

We need someone who knows a lot about best practices and tools for ingestion, metadata extraction, metadata enrichment, indexing and querying of pretty substantial quantities of unstructured data.

We need someone who has managed a small team of developers on a project for at least two years. Really, truly managed: Identified key tasks. Assigned them. Held people accountable for deadlines.  

We need someone who can show us that they’ve finished projects that they’ve worked on – and can tell us about them.

We need someone who knows enough to evaluate whether their team’s code does what they say it does.  

We need someone who has participated materially in hiring decisions before and can tell us about their philosophy.

We need someone who has made and is comfortable making business decisions. We want you to tell US which libraries you want to work from, whether you think Azure or AWS or something else is the right choice for various applications. Not the other way around.

We need someone who is not an asshole. If you apply, at some point we will absolutely call people you know and ask if you are an asshole.


What We Want:

We want someone who is willing to work from Fairfield, Connecticut at least 4 days a week. It’s commutable from Manhattan, Westchester County, NY, Fairfield County, CT and New Haven County, CT. If you can show us that you’ve had project success working remotely, we’ll consider it. Maybe.

We want someone who has at least some familiarity with Python, but need someone with enough general development experience to oversee Python developers.

We want someone with an interest in financial markets, media, civics and politics.  

We want you to know we don’t care where (or if) you went to college.

We want 100% of your working attention. Assume W-2. We’ll listen to compelling 1099 proposals.


What We’re Offering:

It’ll pay 150k-300k all-in. We have a good health insurance plan.

The comp range reflects that we’re open to hiring someone with a little bit less or a little bit more experience – as long as they’re the right person.


What You Should Do:

Send us something to [email protected] that tells us why you have what we need and want. If a resume or CV does that, great. If it’s a letter, great. If it’s a video or something else, weird flex, but OK.  

Send this link to someone else who you think fits the bill.


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The Fall of Wuhan

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Epsilon Theory PDF Download (paid subscription required): The Fall of Wuhan


Two weeks ago I wrote about the corrupt political response of China to COVID-19.

Last week I wrote about the corrupt political response of the World Health Organization to COVID-19.

This week I’m writing about the corrupt political response of the United States to COVID-19.

Because it’s happened before.

In August 2005, the city of New Orleans fell.

New Orleans did not fall because of Hurricane Katrina.

New Orleans fell because of the corrupt political response to Hurricane Katrina.

We can stabilize the situation. Again, I want to thank you all.

Brownie, you’re doing a heckuva job!

President George W. Bush

In January 2020, the city of Wuhan fell.

Wuhan did not fall because of COVID-19.

Wuhan fell because of the corrupt political response to COVID-19.

Wuhan is a heroic city, and people of Hubei and Wuhan are heroic people who have never been crushed by any difficulty and danger in history. All regions and departments performed their duties actively and conscientiously.

Xi the Commander (no, I am not making this up; this is how the Xinhua news service describes him now … “Xi the Commander”)

A corrupt political response is always the same. It never changes in form. It never changes in function.

A corrupt political response occurs when a political leader sacrifices national interest for regime or bureaucratic interest … when a constructed narrative of “Yay, Calm and Competent Control!” is maintained for the political benefit of the Leader at the expense of the Led.

Oh, the Leader and his flunkies will convince themselves that the narrative “is in the public interest” … that the narrative will “buy them time” … that the narrative is necessary because “the other side” would do the same or worse if given half a chance. It’s all the excuses that all the Renfields to all the professional politicians tell themselves as they slowly sell their souls. It’s what every President and every Director-General and every Senator and every CEO eventually comes to believe, that their personal interests are identical to “their” people’s interests.

Corrupt political responses occur all the time. Literally every day, all over the world. It’s not a left/right thing. It’s not a Democrat/Republican thing. It’s not a Chinese thing or an American thing or a Russian thing. It’s a power thing. It’s a high-functioning sociopath thing.

Not only are corrupt political responses as common as rain, they’re almost never big deals. It’s not treason. It’s not Benedict Arnold selling a map of West Point. It’s petty stuff. It’s patronage appointments. It’s log-rolling. It’s pork barrel politics. Who’s gonna notice? Who’s hurt?

Precisely because these corrupt political responses are so commonplace and so quotidian, they are almost never revealed publicly. I mean, sometimes you have a “whistleblower” listening in on your petty corrupt bargaining with the Ukrainian President or some such, and it blows up into a bit of a tempest, but that’s the exception rather than the rule. And even so, these normal-time reveals are almost always tempests in teacups … full of sound and fury, but no more than that.

But every once in a very great while, an honest-to-god crisis reveals the consequences of your petty everyday corruption, consequences that are paid in the LIVES of those who trusted you to be better.

Every once in a very great while, an honest-to-god crisis reveals the political self-interest and mendacity behind your carefully constructed narrative of “Yay, Calm and Competent Control!” .

Like the fall of New Orleans revealed George W. Bush.

Like the fall of Wuhan revealed Xi Jinping.

What we must prevent today is the NEXT city to fall.

We must prevent the fall of Daegu. We must prevent the fall of Qom. We must prevent the fall of Milan. Looking ahead, we must prevent the fall of Yokohama. We must prevent the fall of San Francisco.

Because containment has failed.

What we’re seeing in South Korea, Iran and Italy is what exponential disease propagation looks like in the real world. Real world data is spiky. Real world data is messy. Real world exponential growth looks like nothing, nothing, nothing … then cluster, cluster, cluster … then BOOM! My rule of thumb: when a country reports a death from a local COVID-19 infection, then the disease is already endemic in that country. Implementing extreme quarantine measures after that first death – either within that country or by other governments to isolate that country – is closing the barn door after the horse is out … it’s too late. Doesn’t mean you shouldn’t do it for disease minimization or social distancing. But it does mean that a goal of containment is unrealistic.

What we’re seeing today in South Korea, Iran and Italy is the BOOM. Other countries will follow. The United States will follow.

And so now we must fight.

As individuals that means social distancing. As individuals that means doing what we can to stay healthy and prepare for a storm. As a nation that means a war-footing to build dedicated treatment wards before they’re required, to protect healthcare professionals before they get sick, to update our testing and diagnostic capabilities before they are swamped … to do everything possible to bolster our healthcare systems BEFORE the need overwhelms the capacity.

Above all, that means calling out our leaders for their corrupt political responses to date, and forcing them through our outcry to adopt an effective virus-fighting policy for OUR benefit, not theirs.

Because a city does not fall just because it is hit hard by a plague.

A city falls when its healthcare system is overwhelmed. A city falls when its national government fails to prepare and support its doctors and nurses. A city falls when its government is more concerned with maintaining some bullshit narrative of “Yay, Calm and Competent Control!” than in doing what is politically embarrassing but socially necessary.

That’s EXACTLY what happened in Wuhan. More than 30% of doctors and nurses in Wuhan themselves fell victim to COVID-19, so that the healthcare system stopped being a source of healing, but became a source of infection. At which point the Chinese government effectively abandoned the city, shut it off from the rest of the country, placed more than 9 million people under house arrest, and allowed the disease to essentially burn itself out.

And so Wuhan fell.

The disaster that befell the citizens of Wuhan and so many other cities throughout China is not primarily a virus. The disaster is having a political regime that cares more about maintaining a self-serving narrative of control than it cares about saving the lives of its citizens.

We must prevent that from happening here. From happening anywhere. Yes, containment has failed. But that does NOT mean the war is lost. We can absolutely do better – SO MUCH BETTER – for our citizens than China did for theirs.

And so we must call out the Director-General of the World Health Organization for his corrupt political response to COVID-19, where by continuing to toe the (literal) party line, he sacrifices WHO’s authority and credibility on the altar of China “access”.

During my visit to Beijing last week, I was so impressed in my meeting with President Xi at his detailed knowledge of the outbreak, and for his personal leadership … if it weren’t for China’s efforts, the number of cases outside China would have been very much higher.

WHO Director-General Tedros

And so we must call out the President of the United States for his corrupt political response to COVID-19, as well.

China has been working very hard to contain the Coronavirus. It will all work out well. In particular, on behalf of the American People, I want to thank President Xi!

President Donald Trump

Now the virus we’re talking about, having to do, a lot of people think that goes away in April with the heat, as the heat comes in, typically that will go away in April. We’re in great shape, though, we’re, we have 12 cases, 11 cases, and many of them are in good shape.

Trump’s enthusiastic support of Xi and his narrative of “Yay, Calm and Competent Control!” is absolutely a corrupt political response. It is an intentional trade-off of national security for domestic political gain – one part continued Chinese commitment to buy US agricultural products, something that Trump sees as critical to his electoral chances in November, and four parts continued stability for the stock market, something that Trump sees as absolutely critical to his electoral chances in November.

And before all the MAGA snowflakes get their feelings hurt by this criticism of Dear Leader … yes, I wrote a blistering note criticizing Obama and his corrupt political response to Ebola in 2014. It’s just unlucky for Trump that his deadly plague has a lot higher R-0 score.

And I’m not saying that Trump should be impeached on this. I’m not saying that this is some high crime or misdemeanor. No, no …

I’m saying something much stronger than that.

I’m saying that our actions today are what history will remember us for. And how we will be judged by our children and their children. That’s true for ALL of us, Team Elite or not, Bernie Bro or not, MAGA or not, commoner or king. Or even President.

I’m saying that there are decades where nothing happens, and then there are weeks where decades happen. This is one of those weeks. That’s paraphrasing an old enemy of the United States, but I’m saying it because I love my country.

I’m saying that we can absolutely still win this fight. I’m saying that this fight can bring us TOGETHER rather than drive us farther apart. If we let it. If we’re brave enough to do the right thing and not the narrative-expedient thing.

I’m saying that it’s time to speak out. Yes, you. I’m talking to you.

I’m saying it’s time to talk with your neighbors and your friends and your coworkers, and when they wave you off or give you the usual talking points from Dr. Gupta (“buh, buh the flu”) or the White House (“buh, buh the heat”), then you look them in the eye and you ask them to remember how they felt when New Orleans fell, how they felt when they saw those pictures from the Superdome, how they felt when our own government abandoned our own citizens in the wake of a natural disaster, not through malice but through incompetence. Ask them why we shouldn’t act now to prevent all that from happening again on a national scale. And then send an email to the White House and your governor and your reps and Senators. Together.

Once more with feeling:

Containment has failed. And so now we must fight.

As individuals that means social distancing. As individuals that means doing what we can to stay healthy and prepare for a storm.

As a nation that means a war-footing to build dedicated treatment wards before they’re required, to protect healthcare professionals before they get sick, to update our testing and diagnostic capabilities before they are swamped … to do everything possible to bolster our healthcare systems BEFORE the need overwhelms the capacity.

Above all, that means calling out our leaders for their corrupt political responses to date, and forcing them through our outcry to adopt an effective virus-fighting policy for OUR benefit, not theirs.

We got this.


PS. Trump tweeted this out as I was publishing this note today. Honestly, you can’t make this stuff up.


Epsilon Theory PDF Download (paid subscription required): The Fall of Wuhan


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Kitchen Sink It

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Sometimes it’s best to go straight for the trident.

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I have been under withering (if modestly deserved) friendly fire recently for posing a riddle and sitting on the answer. It is with some hesitation that I pose another.

Relax. I won’t make you wait for the answer this time.

What is every marginally competent CEO AND every financial journalist on the Coronavirus beat planning right now?

Kitchen sinking it.

Let me show you what I mean. Here are three of the top five most linguistically connected financial and market news articles published a couple days ago. If watching Michael Bloomberg self-immolate on stage isn’t crowding out all of your short term memory, maybe you’ll remember these articles:

Apple Shares Drop After Virus Warning Rattles Tech Investors [Houston Chronicle]

Apple’s coronavirus warning wasn’t a total surprise, but magnitude rattles Wall Street [DJ Marketwatch]

Apple Investors Get Nervous After Tech Giant Cautions on Coronavirus Impact [The Street]

Yeah, me neither. Why? Because in two trading days the stock bounced right back to where it was before Apple gave markets its guidance on Coronavirus impact. As I’m writing, it’s about 10 basis points away.

A similar story hit the Zeitgeist yesterday for Puma – who reported half their stores in China being closed – and Adidas, who reported an 85% drop in sales compared with the same period last year. And that’s just sales impact.

Adidas and Puma warn of coronavirus sales drag [Financial Times]

Those stocks, on the other hand, barely attempted a headfake downward before bouncing well into positive territory. Let’s make the obligatory (and important!) observation that stock prices are driven by a billion things. Let’s make the second observation that investors are not stupid, and that active investors who owned these stocks probably knew before formal guidance that they had stores in China. They have probably read something about the Coronavirus. Presenting that day’s price behavior as a simple, straightline function of the announcement event alone is obviously silly.

And yet: if you were CEO of a company that’s been sitting on some bad assets, postponed cash outlays or ugly one-time expenses that you needed an excuse to vomit out, and you saw the collective yawn with which markets have viewed other negative Coronavirus-related guidance, what would you do?

You’d kitchen sink it. Let it all out, fellas. You’ll feel better afterward.


We’re seeing an entirely different type of kitchen sink on the side of institutional missionaries in central banks and financial media, and it’s a familiar story. Here’s one of the most connected stories in today’s Zeitgeist run:

Fed Flagged Coronavirus Risk at January Meeting [NY Times]

The Fed wants us to know they’re on it. Financial media wants to make sure that everybody knows everybody knows that the Fed is on it. It’s our old friend “The Narrative of Central Bank Omnipotence.” Is that why stocks guiding on Coronavirus fears have been greeted with a yawn? Why a serious regional health issue with non-zero global pandemic risk hasn’t really manifested in risky asset prices? I think you’d be kidding yourself to say that it’s not at least playing a role.

But what’s more interesting to me is how media calls for us to connect our expectations for central bank action with the Coronavirus problem have been positively related to the level of focus on the pandemic itself. In other words, when the share of equity market news that is focused on the Coronavirus increases, the share of THAT news which is focused on central bank response increases too. When the day’s updates feel a little bit more dire, we immediately start talking about throwing the kitchen sink at it. When you hear us talk about the drum beats of narrative, this is what we mean.

What does it all mean? Well, we won’t tell you that good or bad news on Coronavirus won’t matter to markets or stocks, especially in the short run. Clearly there are people who are going to try to trade on news and their predictions of it. But if I had genuine concerns about Coronavirus-related risk for a portfolio position, at least for now I’d be a little less focused on predicting, and a little more focused on observing missionary statements about Fed/ECB policy.

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Thanksgiving

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The most interesting person I know died on Saturday.

I met John Blaisdell in 2008. Salient, where he was CEO, wanted to replace a local financial institution that had participated in a first leg of growth for their fund-of-funds business. I was an associate at a private equity firm that existed to do deals like this. Our brilliant idea was that we’d pay a sub-equity multiple for a self-amortizing share of revenues, which is a fancy way of saying it just goes away after a certain number of years. Did I say brilliant? I meant terrible. Yes, the idea was to produce nice, clean transitions for asset-light, founder-owned investment businesses. The problem was that we always got outbid on the best companies and ended up with too many adversely selected ones – firms who did a deal with us because they couldn’t really get an offer from anyone else.  

We were outbid by Summit.

Most of the investment management companies we looked at buying a piece of were niche investment operations run by a Founder-CIO who begrudgingly took on the CEO title. Salient was not that. John was definitely not that. I honestly didn’t know what to think of him at the time, but I don’t think he ever did anything grudgingly. The man was a dynamo in the most literal sense of the word – in a constant state of physical, intellectual motion. Ever planning. Ever adjusting those plans. Ever tuning his words describing those plans to best reflect the mood of the moment in the room.

I think I didn’t like him.  

I didn’t meet him again until 2012. Lee Partridge was trying to introduce us. I was at Texas Teachers. My best friend Todd (another Texas Teachers PM) and I both thought most OCIO providers we’d met were designing a scale product to appeal to the optics sensibilities of risk-averse boards. Lee wasn’t. He wanted to deal with their fundedness issues and extreme reliance on robust returns for US equities head-on. And he was at Salient. We wanted in.

So I went to meet John and his partners. I still didn’t know what to think.

Imagine a map of the world, only instead of a map of geography, it is a map of temperaments and personalities. Put a pin in Auckland, New Zealand and call it Greg Reid, who ran the midstream energy infrastructure franchise. Put another in Kamchatka. That one is Lee. Put your third pin in Tierra del Fuego and call it Jeremy Radcliffe, John’s right hand man. Then drop a fourth on the Aleutian island of your choosing and call it Andrew Linbeck, who ran the Houston-based wealth business.

There was no pin for John Blaisdell. And there was no pinning him down to any sort of pithy description.

Oh sure, you’d think you had him nailed, but then he would tell you a story about his years as a dancer on the Puerto Rican version of Soul Train. Once you had him pegged, you’d learn another tidbit about his time as Miami city manager during the vice years. And as soon as you thought you finally had the measure of him, you’d walk with him into a restaurant you’d been to two dozen times in the last six months without him as a regular, only to have every server, host, valet, sommelier and unoccupied line cook in the place line up to shake HIS hand and exchange pleasantries with him in perfect Spanish.  Then the next week he’d fly to San Francisco for a closing dinner, stand up in the middle of the winery owned by the billionaire who sold him a company, and belt out a raucous Cielito Lindo, utterly indifferent to whether anyone else joined him on the chorus that normal people know.

I think a lot of people who didn’t know John very well often felt that this dynamism – this intentional tailoring of his words and actions to each person and circumstance – had to be some kind of attempt to manipulate them. Or at the very least, a kind of intellectual inconsistency. I was one of them. For a while.

No one event changes this kind of perception. But some stand out. Like when my wife was due with our first child on Thanksgiving Day in 2014, and John stayed up the night before making a second thanksgiving dinner in addition to the absurd feast he prepared for his own family celebration. Sous vide turkey breast, gravy, dressing, salads, casseroles and pies, with hand-written instructions for the best way to reheat and prepare each. He showed up with full bags at our hungry house, unlooked-for and unannounced. I think the only person who knew was his assistant, whom he asked for our address.

We weren’t alone. Ours was one among a hundred similar stories.

Ultimately, I came to believe that John’s great gift was his ability to spot the innate, under-the-surface potential for connection between people. His great joy, I think, was to forge those connections in the most surprising ways possible. He always wanted to do good deals, yes, but better yet if that deal could shock and surprise, something no one else had thought of. He always wanted to hire good people, but far better if it was a person vastly different from his current partners, in whom he saw the potential for powerful and unexpected connection. And yes, he wanted to be the chain that forged those connections, the hidden link between those pins on every corner of the map.

But those simpler commitments to doing right by his clients and partners were real, too. And not in the obligatory way that all of us must be committed to our clients. In one of the last conversations I had with John, he shared with me something that he had shared many times before. It’s something I know would be familiar to each of his other partners and families. He told me that he had never once delivered a bad result for a family – or his partners – who stuck with him. We all build narratives of identity. This was John’s, an identity that I think he would go to any ends to defend.  

Death is usually a sort of overdetermined thing, influenced and compounded and explainable by more things than any proximate cause. That is a lucky thing for the rest of us. It lets us off easy. We can comfort ourselves by saying “it wasn’t our fault” when someone we love dies way before they should have. And we’re right. It isn’t our fault.

But that doesn’t mean we’re not responsible.

Don’t get me wrong. A life well-lived is a life of investing in the lives of others and accepting their investments in our own. Are you uncomfortable that others’ commitments to you sometimes wake them up in the night? Are you uneasy that someone’s desire to make you safer, happier or more prosperous costs them something? Even if that cost is tough to quantify? Even if it’s one among a million reasons their health began to fail?

I’m not.

This glorious, flawed, messy and big-hearted giant of a person loved me. He invested part of his life in me, and I accepted it with a full heart. I also accept with clear eyes the responsibility that comes with that.

John, you delivered on everything you ever promised me you would. You didn’t need to do a damn thing more to be part of my sons’ legacy.  

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Not Gonna Lie

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Not gonna lie … the more I dig into the statistical analysis of the Wuhan coronavirus outbreak (I used to call it nCov2019, but going forward I’ll call it COVID-19 to follow the latest World Health Organization naming convention), the more I believe that the virus has not been contained in China and that we are far more likely than not to have a major outbreak of the disease outside of China.

This statistical analysis is principally based on two research papers (both attached here as PDFs), one written by WHO-sponsored doctors based in Hong Kong and published in The Lancet, and the other written by DARPA-sponsored researchers based at Los Alamos National Labs. The skinny from these notes is that COVID-19 is ridiculously infectious. Yes, it’s airborne. Yes, it’s waterborne. If it’s anywhere near you, odds are you’re going to catch it. I mean, when China is sterilizing and quarantining paper money from Hubei province, that should give you an idea that no one has any idea whatsoever how to contain the disease once it’s in a population center.

So when I read that there were more new cases of COVID-19 infection identified yesterday on that cruise ship in Yokohama than were identified in all of Africa and the Southeast Asian sub-continent, you can forgive me for believing that we *already* have a cluster of COVID-19 cases in cities like Djakarta … it’s just not being measured. How long will it take for this cluster to reach a noticeable mass given COVID-19’s high reproduction baseline? Using Wuhan as an example, I figure three or four weeks.

We also have a front-line doctor’s report coming in from Wuhan, also published in The Lancet, and real-time feedback from doctors in Singapore and Beijing on what they are observing in patients-under-investigation (PUI). The skinny here is that Wuhan fell because the healthcare system in that city collapsed. Doctors and nurses themselves contracted the virus in vast numbers, and once hospitals became a source of infection rather than treatment, the Chinese authorities made the decision to shut off the city and effectively let the disease run its course.

This is what we must avoid when/if there is an outbreak outside of China.

I believe we must stop playing the “Confirmed Cases” game, which is just that … a public relations game … and start doing three things:

  1. PROTECT healthcare professionals with pre-positioned gear NOW (esp. in cities like Jakarta);
  2. INFORM healthcare professionals with better diagnostic criteria NOW (Singapore is doing strong work here);
  3. INSULATE healthcare professionals with (much) bigger isolation wards that should be built NOW (esp. in cities like Jakarta).

Unfortunately, I don’t believe any of this is going to happen, in large part because senior leadership of the World Health Organization is primarily concerned with maintaining the favor of their Chinese patrons and toeing the (literal) party line. The way that WHO leadership has handled COVID-19 thus far is not just a disgrace, not just a humiliation for the thousands of people doing good and important work under WHO auspices … it’s a betrayal of the entire world.

Yep, strong words. And here’s my latest note to back it up – The Industrially Necessary Doctor Tedros.

When WHO Director General Tedros recommended on Feb. 4 that there should be NO systematic limitation on air travel and visa issuance in and out China, he KNEW that the CCP-provided “evidence” for that recommendation was a crock. How did he know? Because independent WHO-sponsored doctors had published their paper on Jan. 31 showing that the CCP-provided evidence was a crock.

Barf.

Is there good news? Yes. If you’re young and female, you have an excellent chance of surviving an infection, and perhaps being asymptomatic entirely. On the other hand, if you’re an older male with a pre-existing cardiovascular condition or high cortisol levels … well, that’s a problem.

The critical thing is that we can’t let another city fall like Wuhan did.

Not gonna lie … they got us in the first half. But I think if we prepare and strengthen our healthcare systems NOW, we can still win the game.

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Love in the Time of COVID-19

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A professional baseball game during the Spanish Flu epidemic of 1918

The problem in public life is learning to overcome terror.

Gabriel Garcia Marquez, “Love in the Time of Cholera”

Within a few months, the reality of COVID-19 will overtake the propaganda of the CCP and their toadies at the World Health Organization, as real-world companies begin making real-world economic decisions to maintain their enterprises in the face of a real-world threat.

Those decisions will be led by sports franchises.

I realize this sounds pretty out-there to most people. As my father used to tell me, “Ben, being two steps ahead is like being one step behind.”

And I get it. We’re still playing the “Confirmed Cases!” game, where countries like Indonesia claim that COVID-19 doesn’t exist within their borders because they’ve tested … checks notes … 64 people. Where more people apparently caught COVID-19 on a cruise ship yesterday than in Africa and the Southeast Asian sub-continent combined. Where the World Health Organization parrots the (literally) party line from China even though WHO-sponsored doctors have published study after study showing that the China data is a crock.

Barf.

But it hit me like a ton of bricks this morning that the “Confirmed Cases!” game is now giving way to the reality of living with a global pandemic when I saw this announcement from the organizers of the Tokyo marathon.


Tokyo marathon to cancel entries from general public (Reuters)

Tokyo marathon organizers have decided to cancel entries from the general public for the event scheduled on March 1 due to the coronavirus outbreak, Tokyo Shimbun newspaper reported on Monday.

About 38,000 people from the general public were scheduled to run in the event, Japan’s biggest marathon, the paper said.



So I’ll just say this as simply as I can. Three things:

First, this is absolutely the right decision.

Second, the 2020 Tokyo Olympics are finished as a spectator event. Not happening.

Third, if you’re a professional sports league and you’re not making contingency plans to shut down your stadiums and run next season in front of TV cameras only, you’re just not paying attention.


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The Industrially Necessary Doctor Tedros

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Epsilon Theory PDF Download (paid subscription required): The Industrially Necessary Doctor Tedros


The World Health Organisation will lead a mission to China this weekend to start investigating the COVID-19 outbreak.

Sky News, FEBRUARY 15, 2020

“start investigating”AYFKM?

There’s this pleasing mythology out there that the World Health Organization is like some international version of the Center for Disease Control, that it’s staffed by scientists and doctors flying all over the world and racing against the clock to battle infectious diseases and – against all odds – find The Cure.

I mean, that’s an actual subplot of Contagion, where an intrepid WHO scientist tracks down the disease origin in Hong Kong, goes to the remote Chinese village where all of the children are sick (the children!), is taken prisoner, and works heroically (if ultimately unsuccessfully) to get vaccines to the children (the children!).

This is a crock.

The World Health Organization is a political organization, bought and paid for by its sponsor countries (China foremost among them), with a single, dominant mandate: maintain the party line.

Literally.

The truth is that WHO has done nothing more than parrot the official Chinese Communist Party line since the day the world learned of COVID-19.

The truth is that only now – TWO MONTHS INTO THE EPIDEMIC – is WHO sending a “team” to “start investigating” the virus.

To be sure, WHO’s Director General, Dr. Tedros, has been to China several times since the disease broke out, glad-handing (again, literally) President Xi and all the other CCP mandarins.

So … I’m not going to get into the way China lobbied and pressured the UN to get Dr. Tedros appointed as WHO Director General, succeeding their hand-picked (again, literally) Director General, Margaret Chan, despite credible accusations that Tedros had covered up cholera outbreaks in his home country of Ethiopia. If you want to get into that, you can read this New York Times article: Candidate to Lead the W.H.O. Accused of Covering Up Epidemics.

And … I’m not going to get into the way Dr. Tedros appointed freakin’ Robert Mugabe as a Good-Will Ambassador for the World Health Organization, a toady move that was greeted by healthcare professionals (and anyone with a soul) as “a sick joke”. If you want to get into that, you can read this New York Times article: After Making Mugabe a ‘Good-Will Ambassador,’ W.H.O. Chief Is ‘Rethinking’ It.

No, no … I’m just going to highlight what Dr. Tedros said at the WHO Executive Board meeting in Geneva on February 4, a week after meeting with Xi in Beijing and a few days after senior Chinese diplomats started talking about the “racism” inherent in other countries stopping flights to China and denying visas to people with Chinese passports issued in Hubei province.

Tedros said there was no need for measures that “unnecessarily interfere with international travel and trade,” and he specifically said that stopping flights and restricting Chinese travel abroad was “counter-productive” to fighting the global spread of the virus.

This is the Director General of the World Health Organization. On February 4th.

“We call on all countries to implement decisions that are evidence-based and consistent,” said Tedros. Roger that.

There’s just one problem.

The “evidence” here – taken without adjustment or question from the CCP – was a baldfaced lie.

And everyone at WHO knew it.

How do I know that everyone at WHO knew that the official Chinese numbers were a crock on Feb. 4?

Because WHO-sponsored doctors in Hong Kong published independent studies on Jan. 31 showing that the official Chinese numbers were a crock.

https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30260-9/fulltext

Money quotes:

In our baseline scenario, we estimated that the basic reproductive number for 2019-nCoV was 2.68 (95% CrI 2.47–2.86) and that 75,815 individuals (95% CrI 37,304–130,330) have been infected in Wuhan as of Jan 25, 2020.

If the transmissibility of 2019-nCoV were similar everywhere domestically and over time, we inferred that epidemics are already growing exponentially in multiple major cities of China with a lag time behind the Wuhan outbreak of about 1–2 weeks.

I’ve attached a PDF of the full report here: Lancet nCov2019 Model.

This is what it looks like when the narrative tail of personal and professional corruption (must support my Chinese benefactors!) wags the public policy dog (sure, I’ll recommend that flights and visas should continue, based on evidence I know is false!).

Will this disease spread farther and faster … will more people DIE … because WHO Director General Tedros recommended as best practice on February 4th that flights and visa issuance in and out of China continue without significant disruption?

Yes. I think so.

And yet … and yet … we are told that the REAL DANGER for public health is questioning the official Chinese line and these Stepin Fetchit policy recommendations of Dr. Tedros.

Here’s what Tedros wrote in a South China Morning Post op-ed piece THREE DAYS AGO:

In addition, a wider strategy is needed to debunk pseudoscience and strengthen trust in everything from vaccination to public institutions. Misinformation thrives where trust in the authorities is weak.

In a fast-evolving disease outbreak, there is a fine line between the deliberate spread of misinformation and the well-intentioned but potentially still damaging redistribution of false claims.

And here’s a Reuter’s article, also from three days ago:

The rise of “fake news” – including misinformation and inaccurate advice on social media – could make disease outbreaks such as the COVID-19 coronavirus epidemic currently spreading in China worse, according to research published on Friday.

In an analysis of how the spread of misinformation affects the spread of disease, scientists at Britain’s East Anglia University (UEA) said any successful efforts to stop people sharing fake news could help save lives.

And what is this “fake news”?

Fake news is now defined as anything that disputes WHO data, which means that fake news is now defined as anything that disputes the official China party line.

Why did China spend so much money to buy off the World Health Organization? This:

The World Health Organization is working with Google to ensure that people get facts from WHO first when they search for information about the new virus that recently emerged in China.

Since the outbreak began, a number of misleading claims and hoaxes about the virus have circulated online. They include false conspiracy theories that the virus was created in a lab and that vaccines have already been manufactured, exaggerations about the number of sick and dead, and claims about bogus cures.

Associated Press, Feb. 3, 2020

It’s not just Google. It’s also Ten Cent. It’s also Facebook. It’s also Twitter.

And no, you’re not misreading the clear narrative intent of these articles.

Where possible, China wants to criminalize any speech … any social media … that does not follow the official party line. Where it’s not possible to criminalize that speech, China wants to ban it through the cooperative censorship of global tech and media platforms. Where it’s not possible to ban that speech, China wants to shame it into the shadows by getting us to reject it as “fake news”.

And if you don’t see that the United States is about two minutes behind China in doing the same damn thing, then you’re just not paying attention.

I am certain that there are plenty of good people at WHO, and I am certain that they do good and important work, particularly in funneling money and resources to actual researchers and actual clinical programs.

But what is happening at the most senior levels of the World Health Organization is not just a disgrace. It is not just a humiliation for the people who are doing good and important work.

It is a betrayal of the entire world.


What’s to be done?

Getting Tedros the man out of the World Health Organization will feel good, and he deserves all the ignominy that’s coming his way, but it will accomplish nothing.

No, to accomplish anything here, we need to get rid of The Industrially Necessary Doctor Tedros.

See, the actual human being named Tedros Adhanom Ghebreyesusis is not The Industrially Necessary Doctor Tedros. The human Tedros is just another on-the-make politician, one of a zillion Renfields who sell their soul on the daily. Sure, he was tapped by his Chinese patrons to play the role of The Industrially Necessary Doctor Tedros, but if it hadn’t been him, there were plenty of other guys and gals to take his place.

We must look through Tedros the man to see the Nudging Oligarchy and the Nudging State that created The Industrially Necessary Doctor Tedros.

We must look through so many of the ideas we take to be immutable truths of safety or goodness – whether those truths concern the food we eat or the stocks we buy or the health we seek to preserve – and recognize that they are not truths at all!

They are conveniences, and not conveniences for us, but for the sellers of the food we eat or the stocks we buy or the health we seek to preserve.

THAT’S what it means to be Industrially Necessary – a constructed social practice in service to those who would subvert our autonomy of mind and will, presented to us as Truth-with-a-capital-T by Missionaries who shake their finger at us and tell us HOW to think about the world.

Once you start looking for The Industrially Necessary Doctor Tedros, you will see him everywhere.

And that’s when your world starts to change.


PS. If you haven’t yet read our original note on how we can tell the Chinese data on COVID-19 is false, here you go:

Body Count

China is fighting nCov2019 exactly like the US fought North Vietnam … with policy driven more by narrative control than by what’s best to win the war. That was a disastrous strategic mistake for the US then, and it’s a disastrous strategic mistake for China today. … Continue reading


PPS. And if you’d like to read our core notes on the Nudging State and the Nudging Oligarchy, together with the Industrially Necessary meme

The Industrially Necessary Egg

In modern farming and in modern investing, we have become prisoners of the monoculture. It’s efficient. It’s necessary for a mass society of ever-increasing Desire. But here’s the thing. In the investment monoculture, you’re not the farmer. … Continue reading


Clever Hans

You don’t break a wild horse by crushing its spirit. You nudge it into willingly surrendering its autonomy. Because once you’re trained to welcome the saddle, you’re going to take the bit. We are Clever Hans, dutifully hanging on every word or signal from the Nudging State and the Nudging Oligarchy as we stomp out our behavior.  … Continue reading


Epsilon Theory PDF Download (paid subscription required): The Industrially Necessary Doctor Tedros


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Options

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Source: Chris Arnade, via Medium

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In full disclosure, we didn’t identify today’s article in our NLP-driven screen of political and financial markets news. Medium posts don’t make our database. But it felt like part of our Zeitgeist to me. I think it will to you, too.

We have mentioned Dignity and its author Chris Arnade in our livestream feature on a few occasions. Why? First, because it’s a lovely book and worthy of your time. Second, Chris is a former markets professional, which makes a lot of what he has to say relevant for a big part of our audience. He understands our language. But we also think his framework for thinking about class in America – and his willingness to uncondescendingly apply it to better understand the frustrations of a huge, demographically diverse swath of Americans – is useful. And powerful.

He shared a piece yesterday that he had written last year called “D in the McDonald’s.” It is an interview with a former computer worker with a passion for math who also happened to be living in a truck in the parking lot of a McDonald’s. I don’t want to reprint it in full, because I think you should read it there. But I want to share a piece that did jump out at me. As you’ll find, Arnade doesn’t offer many simple answers.

It’s a good thing, too, because there aren’t any.

As I drive away I think I must be missing something, some simple explanation for why D is homeless, some reason why a man who worked with computers for 30 years is living in a truck. I spend lots of time with homeless people and I usually can say within a few seconds a glib reason for them being on the streets. It is usually mental illness, or drugs, or a physical handicap, or aggression, or a lifetime of jails and prison. Or all of that. With D there is no obvious simple explanation.

D in the McDonald’s (Chris Arnade on Medium, June 2019)

I’m not even an armchair sociologist, but if you’ve lived in different parts of what Arnade calls back-row America, even as a lucky-as-hell front-row (if McDonald’s-loving) son of an engineer, you can’t help but see the shared trait among the poor: a belief that they have few or no options. Sure, the reasons are different, but those reasons coalesce into the same feeling in a small oil-bust town in southeast Texas that they do on inside-Broadway Washington Heights and outside-University City West Philadelphia.

A lot of policy and a lot of charity is directed to fixing the sources of that belief that are external and tangible. In other words, we focus a lot of our energy on fixing the ways in which some people in America really don’t have many options. We invest in education and job-training, we regulate prejudicial hiring, we create social safety nets to prevent some forms of bad luck from eliminating optionality in life for our fellow Americans. A hundred other angles to address the many ways in which life choices might be limited. We disagree as a country about the scale and scope of these policies and who ought to be executing them. Still, I think that if you asked most full-hearted Americans if they wanted a political and social system that permitted unbounded mobility, you’d get resounding agreement.

The other side to the belief in the lack of options – and the one that is very hard to come up with answers for – exists in the stories we tell. Our narratives about the poor. We have a lot of them. But here, Chris puts his finger on one of the most powerful: in America, everybody knows that everybody knows that poverty is inextricably related to immorality. Conservative politicians circle the wagons around and campaign on welfare abuse and unhealthy / fraudulent use of food stamps as if they were a widespread budgetary disaster. Hundreds of charismatic and pentecostal churches (and yes, both principally white and black churches among them) embrace a prosperity gospel attaching God’s favor or anger as the sole cause of financial circumstance. Liberal leaders gloat about educational attainment in the Deep South as a predictor of Bad Political Views. The people who “cling to their guns and religion” will remember that characterization for a generation.

This idea is deeply, broadly shared cultural common knowledge.

But here’s the thing: forget about whether you think any of the above cases have some basis in fact. Yes, sometimes people are poor in part because they did bad things. Dumb things. And sometimes they get rich for the same reasons. I’ll leave it to someone else to parse through root causes, because I’m not here to lionize or condescend to anyone. Even if I were, I don’t know how to weigh goods and bads.

What I do know is that the narrative of immorality-based poverty has power far beyond whatever truth lies underneath it. It changes how WE behave. It changes our perceptions of the dignity of other Americans and of their agency. It colors our perceptions of their motivations and it permits us cover for ingratitude and unkindness. And yes, I think it also affects the willingness of many who would benefit from getting back on their life’s path – or just being shown the trailhead, for God’s sake – to ask for or accept that assistance. How much help would you or I accept from someone we suspected offered it as a good deed to an undeserving wretch like us?

I don’t know if one of us being in a position to tell D in McDonald’s something practical about graduate school, or to offer love and help in a moment where a belief in a lack of options was crystallizing in his mind, or to connect him with someone we knew who needed someone with his skills might have opened up a new path for him to change his life for the better, or at least to make him happier. I do know that there are a thousand thousand others where we can and do have that power. Full hearts.

Clear eyes, too. We published a short piece this week about many of the memes that influence our behavior. We argued that there would be a time to sing new songs – once we’ve stopped singing the songs our powerful institutions required of us.

I think this might be a good one to start with.

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That Escalated Quickly

1+

I published this note today on the website, and it’s making a bi of a splash. We’ll publicize it more actively tomorrow, but wanted to give you a headstart, including a copy of the PDF.

From a narrative perspective, China is fighting this war against nCov2019 exactly like the US fought its war against North Vietnam.

It’s what the Best and the Brightest always do … they convince themselves that the people can’t handle the truth, particularly if the truth ain’t such good news. They convince themselves that they can buy enough time to win the real-world war by designing and employing a carefully constructed “communication strategy” to win the narrative-world war.

That strategy proved to be a social and political disaster for the United States, as the cartoon tail (gotta get more NV casualties for Cronkite to report) ended up wagging the policy dog (send out more counterproductive search-and-destroy missions).

I think exactly the same thing is happening in China, and I think the social and political repercussions will be exactly as disastrous.

I believe that the Chinese government is massively under-reporting infection data in the pandemic regions of Hubei and Zhejiang provinces. Worse, I also believe that Chinese epidemic-fighting policy – just like American war-fighting policy in the Vietnam War – is now being driven by the narrative requirement to find and count the “right number” of coronavirus casualties. And I think I’ve got pretty strong evidence this is the case.

It’s a good note. I think you’ll like it (and I’m all ears to how anyone thinks this plays out in markets).

Also …

I’ll have more from our narrative Monitors in next week’s email, but I think we’ve got a really important finding in regards to the Inflation narrative. Last month I highlighted an inflection point in the structural Attention measure for Inflation (how much financial media drumbeating exists for Inflation relative to other big macro narratives).

A close up of a logo

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So here’s the Attention data for Inflation this month.

Wow! Now to be clear, the narrative *substance* of all this narrative attention is NOT “oh, my god, inflation is starting to get out of hand.” On the contrary, the biggest cluster in the inflation narrative (and the source of a lot of the attention increase) is the equivalent of a prayer to the Fed in the wake of the coronavirus outbreak in China. It’s a wail about global growth and a hope that the Fed will ease in response (and with “inflation being so low”, why not?). So I don’t want to get too worked up about the spike here. In the absence of the coronavirus growth scare, I think the narrative attention score would be up this month – and “for the right reasons” – but not at these highly elevated levels. Which is a good thing. If narrative attention were this high because of an “inflation out of control” cluster, then it would be too late to position yourself effectively for a trade. As it stands, I think you’ve got time.

Also of note (and also supportive of the gradual development of this trade), it’s very notable that for the first time in a loooong time, the gold / precious metals cluster is now near the center of the overall narrative map (it’s usually way off to itself on the periphery of the map) and is directly connected to the other central clusters. This is quite bullish for gold.

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Body Count

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Epsilon Theory PDF Download (paid subscription required): Body Count


Lancet nCov2019 propagation model PDF Download (free): Lancet nCov2019 Model


Over time, continual bad news will discourage any civilian population, and Americans had the lowest tolerance on the planet for bad news.

Karl Marlantes, “Matterhorn” (2009)

Have you read Matterhorn, by Karl Marlantes? You should. It’s not just the best novel I’ve ever read about the Vietnam War, but it’s also one of my irreplaceable sources of inspiration for understanding The Maw – that unlimited gluttony of the violent State to chomp on our bones and suck out our minds … and the oddly not-so-rare instances of individual human bravery to persevere regardless.

I would bet my life that there are thousands of instances of individual human bravery persevering against The Maw happening right now … in Wuhan … in Wenzhou … in dozens of other quarantined cities throughout China.

And in Xinjiang, too.

What was my first experience with The Maw? It was as a seven-year-old boy watching the nightly news on our little black-and-white set, where every night … EVERY NIGHT … we were told exactly how many American and South Vietnamese and North Vietnamese soldiers had been killed that day.

The American numbers were accurate, I guess, and the South Vietnamese numbers were probably in the right ballpark. But the North Vietnamese numbers of wounded and killed? Pure fiction.

The daily body count of killed and wounded North Vietnamese soldiers was, in Epsilon Theory-speak, a cartoon – an abstraction of an abstraction in service to the creation of Common Knowledge.

Hey, everyone knows that everyone knows that we’re winning the war in Vietnam. Didn’t you see the body count numbers on CBS last night?

Once you start looking for cartoons, you will see them everywhere.

Inflation numbers? Cartoon.

Employment data? Cartoon.

Asset allocation? Electoral coverage? Financial journalism? Cartoon, cartoon, cartoon.

And yes, we write a lot about cartoons. You can read more here, here, here, here, here and here. For starters.

But this is the kicker.

Because it was so important to maintain the fiction that we were Winning the War ™, and that fiction required metrics like a body count of North Vietnamese that was always a multiple of the South Vietnamese casualties and always a factor of the American casualties, American war-fighting policy was soon driven by the narrative requirement to find and count the “right number” of North Vietnamese casualties!

These were the infamous search-and-destroy missions of the Vietnam War.

This is The Maw in action.

Do a little research on search-and-destroy. Read about My Lai and Son Thang. Read Matterhorn.

And then take a fresh look at the coronavirus stats coming out of China.

Here’s the core post in a reddit thread that’s Matterhorn-esque in its truth (and a heck of a lot shorter to read).

The point of this quadratic regression on Chinese infection and death numbers as reported by the World Health Organization from the first official announcement through February 4 was the publication of this projection.

Sure enough, the WHO announcements since this prediction was published have been eerily close.

  • 2/5 — 24,363 cases — 491 fatalities
  • 2/6 — 28,060 cases — 564 fatalities
  • 2/7 — 31,211 cases — 637 fatalities
  • 2/8 — 34,598 cases — 723 fatalities
  • 2/9 — 37,251 cases — 812 fatalities
  • 2/10 — 40,171 cases — 908 fatalities

Crazy, right? The deaths being reported out of China are particularly accurate to the model, while the reported cases are leveling off (which is what you’d expect from a politically adjusted epidemic model over time … at some point you have to show a rate-of-change improvement from your epidemic control measures).

But wait, there’s more.

The really damning part of Antimonic’s modeling of the reported data with a quadratic formula is that this should be impossible. This is not how epidemics work.

All epidemics take the form of an exponential function, not a quadratic function.

All epidemics – before they are brought under control – take the form of a green line, an exponential function of some sort. It is impossible for them to take the form of a blue line, a quadratic or even cubic function of some sort. This is what the R-0 metric of basic reproduction rate means, and if – as the WHO has been telling us from the outset – the nCov2019 R-0 is >2, then the propagation rate must be described by a pretty steep exponential curve. As the kids would say, it’s just math.

Now I don’t want to get into the weeds as to whether it’s possible to model this specific data set with an exponential function (it probably is), and we’ll never have access to the detail of data we’d need to be certain about all this. And to be clear, at some point the original exponential spread of a disease becomes “sub-exponential” as containment and treatment measures kick in.

But I’ll say this … it’s pretty suspicious that a quadratic expression fits the reported data so very, very closely. In fact, I simply can’t imagine any real-world exponentially-propagating virus combined with real-world containment and treatment regimes that would fit a simple quadratic expression so beautifully.

I believe that the Chinese government is massively under-reporting infection data in the pandemic regions of Hubei and Zhejiang provinces.

Just like the American government massively over-reported North Vietnamese casualty data in the Vietnam War.

It’s not only that I believe the numbers coming out of China are largely made up.

More importantly, I also believe that Chinese epidemic-fighting policy – just like American war-fighting policy in the Vietnam War – is now being driven by the narrative requirement to find and count the “right number” of coronavirus casualties.

nCov2019 is China’s Vietnam War.

From a narrative perspective, China is fighting this war against nCov2019 exactly like the US fought its war against North Vietnam.

It’s what the Best and the Brightest always do … they convince themselves that the people can’t handle the truth, particularly if the truth ain’t such good news. They convince themselves that they can buy enough time to win the real-world war by designing and employing a carefully constructed “communication strategy” to win the narrative-world war.

That strategy proved to be a social and political disaster for the United States, as the cartoon tail (gotta get more NV casualties for Cronkite to report) ended up wagging the policy dog (send out more counterproductive search-and-destroy missions).

I think exactly the same thing is happening in China.

And I think the social and political repercussions will be exactly as disastrous.



PS. A couple of thoughtful readers on both the original reddit thread and here on my Twitter feed have asked whether it makes a difference to look at the daily reported cases and deaths rather than the cumulative reported cases and deaths. It’s a good question, as cumulative data can give the illusion of being “smoother” than the underlying phenomenon truly is, and the way you get around this is typically to evaluate the individual data points that are added together to get the cumulative data points.

First, it really is a good question, and it’s why I assign very little meaning to the high r-squared results for the quadratic regression on the reddit thread.

Second, though, you’ve got to be really careful with standard econometric techniques for evaluating the daily event count data (typically a Poisson regression), because the *assumption* that underlies those techniques is that the observations are, in fact, independent of each other. In other words, the standard assumption is that the number of new deaths or new cases today is independent of the number of new deaths or new cases yesterday, and I would submit to you that this is obviously not a viable assumption. There are ways to relax this assumption (for example, assume a negative binomial distribution for the underlying stochastic nature of this phenomenon rather than a Poisson distribution), but I am pretty certain that just by writing those words I have lost 99.99% of my readers.

So instead let me give you a numeric example of why I believe that – just like the American military leadership in the Vietnam War – the Chinese party leadership today is assigning a “target” death rate for the nCov2019 epidemic, and how that target plays out in both the daily and the cumulative reported data.

Let’s imagine, for example, that you’re President Xi, and you’d like to show that you are Winning the War ™ against nCov2019. You can’t just say that the epidemic is over and the disease is cured, because you’ve got more than 100 MILLION people in a military quarantine, and it’s kinda obvious that the disease is anything but cured. But you want to show progress in Winning the War ™.

So maybe you come up with a rough formula that goes something like this …

Yesterday we told everyone that 500 people have died since the outbreak. That’s a made-up number, of course, but that’s what we told everyone. Today let’s tell everyone that an additional 15% of that number died yesterday, so 75 new deaths for 575 total dead. And tomorrow let’s tell everyone that 14% of that total number died, and the day after 13%, and then 12% and then 11%. Clear progress! Got it, my loyal cadres?

In fact, China reported a total of 491 cumulative deaths from nCov2019 through Feb. 5th. If you applied my incredibly rough and cartoonish model, then, of 15% new deaths on Feb. 6th, and 14% new deaths on Feb. 7th, and so forth and so on, you’d end up with the following daily data points on new and cumulative deaths:

  • Feb. 6 — 74 new deaths — 565 cumulative deaths
  • Feb. 7 — 79 new deaths — 643 cumulative deaths
  • Feb. 8 — 83 new deaths — 720 cumulative deaths
  • Feb. 9 — 87 new deaths — 810 cumulative deaths
  • Feb. 10 — 89 new deaths — 901 cumulative deaths

And now here’s what China and the WHO actually reported:

  • Feb. 6 — 73 new deaths — 564 cumulative deaths
  • Feb. 7 — 73 new deaths — 637 cumulative deaths
  • Feb. 8 — 86 new deaths — 723 cumulative deaths
  • Feb. 9 — 89 new deaths — 812 cumulative deaths
  • Feb. 10 — 96 new deaths — 908 cumulative deaths

I mean … c’mon, man.

I just gave you a ridiculously naive and idiotic model of “Progress in the War against Coronavirus!”, and it’s incredibly predictive for the reported data ON A DAILY BASIS for a nation of 1.4 BILLION people in the throes of an unimaginable public health crisis.

They’ll need to tweak this ridiculously naive and idiotic model, because the 1% improvement per day is clearly too optimistic even for the willing stooges at WHO to keep swallowing, but tweak it they shall. And the willing stooges at WHO will keep reporting the official numbers.

You remember what happened to the American narrative of Winning the War in Vietnam ™, right?

This happened. The Tet Offensive happened.

In real-world, the Tet Offensive was a disaster for the Viet Cong and the NVA regulars. In narrative-world, though, it changed everything. North Vietnam wasn’t on the “verge of surrender”. We weren’t “winning the hearts and minds” of the Vietnamese people. What everyone knew that everyone knew about the Vietnam War changed on a dime.

The Tet Offensive changed our Common Knowledge about the Vietnam War.

We are one photograph like this from Common Knowledge about nCov2019 changing in exactly the same way.

It’s coming.



PPS. If you’d like to see how professionals who are not toadies of the CCP might model the spread of nCov2019, I highly recommend this Jan. 31st article in The Lancet:

https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30260-9/fulltext

Money quotes:

In our baseline scenario, we estimated that the basic reproductive number for 2019-nCoV was 2.68 (95% CrI 2.47–2.86) and that 75,815 individuals (95% CrI 37,304–130,330) have been infected in Wuhan as of Jan 25, 2020.

If the transmissibility of 2019-nCoV were similar everywhere domestically and over time, we inferred that epidemics are already growing exponentially in multiple major cities of China with a lag time behind the Wuhan outbreak of about 1–2 weeks.

I’ve attached a PDF of the full report below (Lancet nCov2019 Model), and there is no subscription required to download.


PDF Download (paid subscription required): Body Count


Lancet nCov2019 propagation model PDF Download (free): Lancet nCov2019 Model


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We Hanged Our Harps Upon the Willows

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By the rivers of Babylon, there we sat down, yea, we wept, when we remembered Zion.

We hanged our harps upon the willows in the midst thereof.

For there they that carried us away captive required of us a song; and they that wasted us required of us mirth, saying, Sing us one of the songs of Zion.

Psalms 137:1-3

Each year around this time we make the journey back home to Texas.

It’s an opportunity to see family. It’s an opportunity to surrender our bodies to enchiladas. It’s an opportunity to take our youngest son to check in with the neurosurgeon who took his skull apart and the plastic surgeon who made sure it came back together correctly.

OK, I’m being a bit dramatic.

The procedure he underwent has remarkable success rates, and in expert hands has pretty low risk. Empirically. But let’s make a deal: you hand over your sleeping two-month old to a group of doctors who have told you they intend to put him under general anesthesia for three hours to cut out five strips of his skull and see what kind of stoic Enlightenment scientist you turn out to be.

But even as I say that, I know I shouldn’t. Many of you have experienced this kind of powerlessness before – and worse. After all, our inability to control every circumstance we face is, shall we say, a fundamental feature of the world.

It’s also a good reason not to turn over any more of that autonomy than we must on those rare occasions when we actually have a choice in the matter.


Last week I made a comment on social media saying that I found it really hard to dislike Andrew Yang. A commenter told me they couldn’t understand how that might be possible. After all, his policies were absurd and expensive.

Opinion gatekeeping like this is an occupational hazard. If you haven’t been informed that an opinion you expressed isn’t allowed because someone else perceived some measure of inconsistency with another opinion you expressed, then you simply haven’t said enough. Give it time. When it happens, you too shall marvel at the gaps in your views others are willing to fill in for you.

Someone else told me they were surprised. Wasn’t Yang’s use of “Freedom Dividend” the sort of Orwellian newspeak I usually rail against?

It was an earnest question. And fair. As it happens, I don’t have a problem with the branding because I don’t think Yang’s campaign is summoning “Yay, Freedom!” memes to tell me how to think about the policy. No one is positioning his UBI proposal in a way that would characterize my opposition to it as a lack of belief in freedom itself. I think the guy truly believes his policy is like a successful business’s dividend – sharing more broadly the prosperity that free enterprise brought about.

Corny, yes. Misguided? I think so. Malicious? Meh.

When we attune ourselves to the special dangers of a world we experience and understand through stories, it is easy to become cynical about every analogy, every example of symbolism, every bit of branding that abstracts the reality of something into some other frame chosen by the speaker. There is no cure for this paralysis. Sorry. The difference between the harmful, malicious use of meme to tell us how to think and what to fear, and the empathetic use of shared imagery to establish common understanding is often one of magnitude, not of kind. Of intent. No flashing lights. No klaxons.

I wrote an essay a couple years ago about this unusual challenge.

It is a lesson in two parts: Life is too short to surrender autonomy of mind. Life is also too short to see a tyrant in every poet.

We obnoxiously intone the mantras of clear eyes and full hearts because they generalize a process to evaluate something that is unavoidably subjective. Only you know and only you can judge if someone’s words or the collective common knowledge being promoted by a missionary is affecting your autonomy of mind. When we DO actively assert the belief that someone is acting as a missionary for a narrative in an objectively harmful way, it is almost always because that person occupies a seat from which we are right to demand an uncolored description of facts: The media. Government officials. Scientists. Chief financial officers.

Anyone in one of those seats who tells you how to think would carry you away as captive and require of you a song. They would steal your autonomy of mind.

It’s really that simple.

Except in most other cases, it isn’t that simple. Not remotely. Most of the stories we will be told and memes we will be subjected to in a day won’t come from scientists and journalists. They will come from friends, loved ones, colleagues, prospective business partners, community leaders and national political leaders. Or from ourselves. Some missionaries, some not. That means that citizens of a world awash with meme and narrative face two risks to our autonomy of mind: that we would become paralyzed, perceiving manipulation in every empathetic use of symbol, or that we would ignore or fail to perceive true acts of manipulation.


Both are real, but I think the second is the greater risk. Why?

Well, in small part, it’s because we already have a good answer to that inevitable cynicism when we feel like we see narrative everywhere: full hearts. Grace and mercy, and a willingness to consider intent go a long away. But the bigger reason lies elsewhere:

Because the danger of powerful memes, cartoons and narratives is not that they demand our acquiescence. It is that they demand our participation.

When we are asked to hold up our Yay, Democracy! signs, we are not only told how to think about the importance of elections and our role in collective oversight of government institutions. We are compelled to participate in voting for ridiculous candidates who do not deserve the office on the basis of manufactured existential fear. You don’t want to be to blame for Trump being elected again / the socialists destroying our capitalist foundations, do you?

When we are asked to hold up our Yay, Military! signs, we aren’t just being told how to think about the right kind of moral, financial and spiritual support we should provide to our veterans and active warriors. We are being compelled to participate, told that if we do not stand up, salute the flag and support every expenditure, every conflict, and every explanation provided to us for the same, that we are failing them. You don’t hate the military, do you?

When we are asked to hold up our Yay, Peace! signs, we aren’t simply being told how to think about the right posture on foreign policy. We are being compelled to participate, told that we must support and vote for political candidates who cyncially claim that he or she will be the one to “end our endless” wars, only to once again shift the goalposts like so many officeholders before. You don’t hate peace, do you?

When we are asked to hold up our Yay, Work Ethic! signs, we aren’t simply being told how to think about the classic American values that unleashed capitalism. We are being compelled to participate, told that if we don’t willingly invest ourselves in pointless work divorced from its underlying purpose we have somehow repudiated some entrepreneurial spirit. You don’t hate hard work, do you?

When we are asked to hold up our Yay, Alignment! signs, we aren’t just being told how to think about the right way for principals and agents to align. We are being asked to participate, told that resistance to a particular compensation model represents an opposition to alignment per se. You don’t hate being aligned with your clients, do you?

When we are asked to hold our our Yay, College! signs, we aren’t just being told how to think about the importance of higher education to a functioning, growing industrial society. We are being asked to participate, to turn a blind regulatory eye to the ever more bloated cost and administrative strucures of American universities, to support their ongoing growth through debt forgiveness, to join in the rousing chorus of “Well of course smart kids should to go to college.” You don’t hate education, do you?

When we are asked to hold up our Yay, Capitalism! signs, we aren’t just being told how to think about the indispensible role a system which rewards risk-takers has played in creating a prosperous world. We are being asked to participate, to be always-on, always-long and always-indexed in US large cap equities, regardless of valuation and regardless of potential sources of artificiality in the costs of capital for many companies. We are told to treat management teams like entrepreneurs, voting for conflicted boards, extravagant salaries for an army of EVPs and rich buyback-immunized share grants in exchange for sector benchmark matching returns. You don’t hate capitalism, do you?


Ben has already written about the way out. It’s included in one of the links above to a note called a Song of Ice and Fire. He suggests the only way for those with clear eyes to do battle against the songs used to steal our autonomy of mind is to remember that we may sing our own songs, too. There are words we can write and symbols we can revive. We can use them to tell true stories – sing new songs – about education and equality and freedom and faith and capitalism and country and entrepreneurialism and risk-taking and sovereignty.

We can create new common knowledge that, within our community at least – at first – is in fact a reflection of what we all believe and not what we all want others to believe.

We are the human animal.

We are non-linear.

We ARE a song of ice and fire.

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

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

A Song of Ice and Fire (Epsilon Theory, May 2019)

If you are interested in maintaining autonomy of mind in a world awash in narrative, This is The Way. But before we can sing a new song, we must stop singing theirs.

So deny them the mirth they require. Deny them the song they demand. Withhold your participation in their cynical game.

It’s time for the clear eyed to hang their harps upon the willows.

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US Recession Monitor – 1.31.2020

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  • Like other topics, Recession narratives rose somewhat in attention and cohesion, but less dramatically than other categories.
  • We believe that this is because coronavirus outbreak fears manifested most in fear about asset prices, leading to rapid missionary behavior with respect to central bank / interest rate activity.
  • In contrast, while the impact of the virus on global economic growth – and potential recession fears – was a topic, it was far less connected.
  • For that reason, we think that there is still a very weak global narrative around recession. In the US that narrative is even weaker.
  • If there is such a narrative, however (as seen in our sentiment and fiat news trackers), missionaries are telling us that there is little risk or reason to be concerned.
  • We have no edge / opinion on whether that is factually accurate. We do believe that markets and media are complacently accepting of it.

Narrative Map

Source: Quid, Epsilon Theory

Narrative Sentiment Map

Source: Quid, Epsilon Theory

Narrative Attention Map

Souree: Quid, Epsilon Theory

Narrative Attention


Narrative Cohesion


Fiat News Index


Narrative Sentiment

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Credit and Debt Monitor – 1.31.2020

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  • The decline in the strength of the Q4 narrative of a risk of “collapse” in credit markets continued in January.
  • Uniquely among our macronarratives, cohesion actually dropped for debt and credit market narratives.
  • We think that the heightened attention on the coronavirus outbreak and generally positive news about the China Trade War were largely absent from the leveraged loan and private credit-focused discussions that dominated in late Q3 and early Q4.
  • We don’t think that these markets are as mass media-driven as equity markets and asset allocation / macro – so while we would generally argue that this has created a complacent narrative, we don’t counsel establishing any active positions on that basis.

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

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US Fiscal Policy Monitor – 1.31.2020

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  • Like other topics, Recession narratives rose somewhat in attention and cohesion, but less dramatically than other categories.
  • We believe that this is because coronavirus outbreak fears manifested most in fear about asset prices, leading to rapid missionary behavior with respect to central bank / interest rate activity.
  • In contrast, while the impact of the virus on global economic growth – and potential recession fears – was a topic, it was far less connected.
  • For that reason, we think that there is still a very weak global narrative around recession. In the US that narrative is even weaker.
  • If there is such a narrative, however (as seen in our sentiment and fiat news trackers), missionaries are telling us that there is little risk or reason to be concerned.
  • We have no edge / opinion on whether that is factually accurate. We do believe that markets and media are complacently accepting of it.

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

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Trade and Tariffs Monitor – 1.31.2020

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  • Attention on Trade and Tariffs topics rose somewhat, but the inclusion of coronavirus language proved a distraction to the stories being told about them rather than a unifier.
  • More importantly, we think that the Phase 1 agreement between US/China led to a far more positive, Pollyannaish narrative structure on Trade.
  • We think that the fatigue over Trade news and the vacuum of the generally weak narrative structure in Q4 created a readiness to move on to other topics, including events like Iran and coronavirus.
  • We still have no edge (and believe it is impossible to have an edge) predicting long-term trade deal outcomes, but we are concerned that the Trade narrative is highly complacent, more likely to respond surprisingly to bad news than good.
  • We think any asset owners / managers with active positions on exposed assets should manage their risks accordingly.

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

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Central Bank Omnipotence Monitor – 1.31.2020

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  • Attention on and cohesion of Central Bank macro narratives rose sharply in January.
  • We believe that this is largely the result of a (hopefully!) short-term crystallization of language on many topics around language describing coronavirus-related risks.
  • In short, the narrative being promoted by missionaries is that central banks can and must step in quickly to stabilize any risks created by a potential outbreak.
  • We think that the emergence of this narrative is largely responsible for the return of an explicit bad-news-is-good-news regime in early February.
  • We wouldn’t understate this one – the fiat news utilization is at highs since we have tracked it, and the missionary behavior on this issue is strong.
  • Separately we observe that climate change and inequality topics continue to move toward a central part of the Central Bank narrative. Take note.

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

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